Royal Caribbean Reprots Q2 Earnings for 2003

Royal Caribbean Cruises (RCC) has reported net income of $55.7 million, or $0.28 per share, on revenues of $905.8 million for the second quarter ended June 30, 2003, compared to net income of $66.7 million, or $0.34 per share, on revenues of $821.8 million for the second quarter last year.

RCC attributed the increase in revenue to a 15.5 percent increase in capacity, partially offset by lower cruise ticket prices and lower occupancy levels, which in turn were partially offset by increased onboard spending.

RCC Chairman and CEO Richard Fain said that the results were much better than anticipated only a few months ago and that “bookings have picked up for longer and stronger than expected.”

The challenge has been to overcome the increase in capacity while also making up for the big hole left by the Iraqi war, which resulted in a 30 percent fall-off in bookings during the traditionally strong Wave Period.

The net yield decline in Q2 was 4.8 percent, according to Fain, compared to RCC’s previous guidance of six-to-nine percent. Fain predicted a yield decline of two-to-four percent for Q3 and flat yields year-over-year for Q4.

Fain also attributed the results to company decisions he said had proven fortuitous, including positioning five ships in Europe, which “now seems ideal,” broadening the homeports, and tapping drive markets. He said local communities have been very supportive and “see the benefits of hosting cruise lines.” Another factor Fain listed was cost control.

Picking Up

According to Jack Williams, president of Royal Caribbean International (RCI) and Celebrity Cruises, gross bookings have been up 25 percent in the past three months compared to last year, and July and August bookings were not driven by deep discounts, he pointed out.

Williams said that the two brands have 42 percent of their capacity in the seven-day Caribbean market, a 13 percent increase year-over-year, where he expects the company strongest year-over-year performance. 

RCC has deployed 13 percent of its total capacity in the short Caribbean market, a nine percent decrease over last year. Williams said that the booked load factor was ahead of last year and that he sees modest yield improvement.

Eight percent of the company’s capacity is deployed in longer Canbbean cruises, a one percent decrease year-over-year. Williams said pricing was flat and that he saw “some challenges in the fall.”

Booked capacity in Alaska was below last year, when the brands booked too fast, and pricing was down slightly, Williams said. RCC has seven percent of its capacity in Alaska, compared to six percent a year ago.

The Bermuda market meanwhile has been disappointing, which Williams attributed to too much capacity out of New York having an “impact on rates.” Bookings and pricing were below last year’s levels. Four percent of the company’s total capacity is deployed in the Bermuda market.

RCC also has four percent of its capacity in Canal cruises, up 60 percent year-over-year.

The biggest increase is in Europe, where RCC has six ships and eight percent of its total capacity, up 91 percent compared to 2002.

Willams said that load factors were only slightly behind last year, and although pricing was down, Europe was “significantly better than any other redeployment opportunity.”

“The close-in booking pace seems sustainable,” Williams said, adding that he saw no reason why the recovery should not be moving ahead in the absence of any major events. Working to market and differentiate Celebrity Cruises, Williams said: “We have a lot of momentum going.” But he also conceded that Celebrity is in two markets that are not doing well. Bermuda has always been strong for Celebrity, but is one of the company’s weakest markets at the moment, Williams said. And Celebrity is sailing longer cruises, which are presently also a down-market that has been hurt more than other markets.

Fain said there was nothing new to report on the Ultra-Voyager class of new ships. The August 31 and December 31, 2003 contract dates relate solely to the Q2 delivery date for the first ship, explained Beth Roberts, acting CFO. She said that if the ship is contracted in December, the delivery date may be pushed back.

RCC also has two more options for Radiance­ class ships, which are set to expire in September, but may be renegotiated, according to Fain.

RCC made no mention or reference to Island Cruises, its joint venture with First Choice.

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