Third quarter yields surpassed the peak years of 1999 and 2000, according to Richard Fain, chairman and CEO of Royal Caribbean Cruises (RCC), who also said that both pricing and load factors for Q4 are ahead of the same time last year, and that bookings and pricing for 2005 are encouraging.

Analysts estimate year-end results at $2.31 per share, including a loss of $0.04 in Q4, compared to earnings per share of $1.42 for 2003. RCC reported earnings per share of $2.06 and $2.31 for 1999 and 2000, respectively (but peaked at $2.37 in 1996).

Q3

RCC reported net income of $282.5 million, or $1.33 per share, on revenues of $1.4 billion for the third quarter ended Sept. 30, 2004, compared to net income of $191.9 million, or $0.97 per share, on revenues of $1.1 billion for the third quarter of 2003.

RCC attributed the increase in revenues to a 10.8 percent increase in capacity combined with increased cruise ticket prices and onboard revenues.

Fain commented that despite record earnings, Q3 was the most costly in the company’s history, with 13 ships and four homeports, as well as 144,000 passengers, affected by the hurricanes that struck Florida and several Caribbean islands.

Earnings were negatively impacted by $0.10 per share by the hurricanes and also by the cancellation of one cruise aboard the Summit due to pod failure.

Occupancy was 109.0 percent compared to 107.7 percent for the same period last year.

Meanwhile, RCC is on pace to realize the largest increase in net yield since the company went public in 1993, according to Luis Leon, executive vice president and CFO.

Forward

Looking forward, Jack Williams, president of RCC’s two brands, Royal Caribbean International and Celebrity Cruises, said that demand continues to outpace last year, and there are 11 percent fewer available staterooms to sell for the rest of the year compared to last year. 

05 Deployment

Williams outlined fleet deployment for Royal Caribbean and Celebrity as follows in 05:

Thirty-nine percent of the capacity will be in the seven-day Caribbean market, down 5 percent from this year, with pricing and bookings ahead, according to Williams.

Twelve percent is in the short Caribbean market, up 3 percent over this year, with bookings running ahead, but with pricing a little lower.

Ten percent is in Europe, up 21 percent, with bookings and pricing running ahead of 04, which Williams described as a “sensational year.”

Nine percent is in the long Caribbean market, up 12 percent, with bookings and pricing running well ahead of this year.

Eight percent is in Alaska, up 5 percent, with bookings up strongly and pricing up slightly following a strong 04 season.

Eight percent is sailing Mexican Riviera cruises, down 11 percent from this year, with strong bookings, although with pricing down slightly.

Five percent is in the Panama Canal, up 12 percent, with bookings running well ahead and pricing up slightly.

Four percent is in Bermuda, up 9 percent, with bookings and pricing ahead of this year.

Considerations

With the prospect of increasing net earnings further in 2005, Leon commented that RCC will use cash to repay debt. The debt-to-capitalization rate is presently 51.6 percent, reduced from 56.4 percent at the end of Q3 03.

Williams also noted that Celebrity has made much progress and is “the best premium brand in the category today.” He also said that Celebrity is a candidate for another newbuilding effort, although the company is not ready to make any announcements, but is evaluating the prospect. He did not comment on the future of the Horizon or the Zenith, however, the two oldest and smallest ships in the Celebrity fleet.

The biggest wild card for 05 may be fuel prices, which may go as high as 5.5 percent to 6.0 percent of revenues, according to Leon.

As for the increases in onboard spending, Williams said it resulted from a combination of passengers spending more and software allowing improved margins in the beverage area, more advanced slot machines in the casinos, and bigger spas.

Meanwhile, without any new ships entering service in 2005, RCC expects to drive revenue and earnings by what Williams called “rate building.” In 2005, RCC will only have a 1.3 percent capacity increase, compared to 10.3 percent in 2004, 12.2 percent in 2003 and 15.0 percent in 2002.