Royal Caribbean 2004 Earnings Results

Royal Caribbean Cruise (RCC) has reported a strong 2004 and expects yields to be up 5 percent to 7 percent in 2005. But the company also expressed some cost concerns for 2005, noting the unpredictability of fuel prices, increased crew payroll, SG&A, port expenses and higher than expected food costs.

Looking forward, RCC Chairman and CEO Richard Fain said that “the industry justifies that we need to grow in single digits. Zero growth is not a viable strategy for us.” He also commented that Celebrity Cruises’ “newer ships are doing brilliantly” and that the brand “clearly needs to grow over time.”

For 2004, RCC has reported net income of $474.7 million, or $2.26 per share, on revenues of $4.6 billion, compared to net income of $280.7 million, or $1.42 per share, on revenues of $3.8 billion. For 2005, management expects earning per share of$2.70 to $2.90.

For Q4 2004, RCC reported a net loss of $25.8 million, or $0.13 per share, on revenues of $964.6 million, compared to a net loss of $20.0 million, or $0.10 per share, on revenues of $878 million for Q4 2003.

Marine gas oil which is used in 30 percent of RCC’s ships (gas turbines) was up 20 percent in Q4 over Q3 in 2004 and up 66 percent from Q4 2003. For the full year, fuel expenses were 5.5 percent of revenues compared to 5 .2 percent of revenues for 2003 and may go as high as 6 percent in 2005, according to Luis Leon, executive vice president and CFO.

RCC attributed the 2004 revenue increase to a 10.3 percent jump in capacity combined with higher cruise ticket prices, occupancy and onboard revenues. “Despite hurricanes, sky-rocketing fuel costs and other challenges, 2004 was a very good year for the company,” commented Fain. As for Q4, Fain said: “We are disappointed that fuel and other costs hurt our fourth quarter results so much. In addition, onboard revenue, while up, did not reach the exceptional performance we had enjoyed during the first three quarters.” According to Fain, casino revenues fell short of expectations and the company plans to install new slot machines allowing passengers to use (key/onboard credit) cards.


Fain is very pleased with the Wave Season, which he said is off to an “excellent start.” He also said that he expects net yield for 2005 to be in excess of the company’s peak year which was 2000. Management expects earnings per share of $0.50 to $0.55 for QI 2005, compared to $0.47 last year and $0.27 the year before.

As for onboard spending, Leon said RCC is looking at further increases in 2005 .

Fain said that RCC will focus more heavily on the expense side in 2005. Leon explained that efforts include more sophisticated inventory systems, focus on manning costs. and the transfer of ships from Norwegian to Liberian registry – which he said will help offset some of the inflationary pressures.

Leon described the increase in SG&A expenses as part of several strategic initiatives to develop a broader European passenger base and to strengthen the company’s own position in Europe with U.S. passengers.

Jack Williams, president of the two cruise brands, Roy Al Caribbean International and Celebrity, said that bookings and rates for both brands are ahead of last year. He said he expects a continued stable and strong pricing environment.

In 2005, RCC will have 38 percent of its capacity in the seven-day Caribbean market, compared to 42 percent last year; 16 percent in the short Caribbean market, compared to 14 percent last year; and 8 percent in longer Caribbean cruises, compared to 9 percent last year.

The other major sailing regions for RCC include Europe, which will have 11 percent of the fleet capacity, compared to 8 percent last year; the Mexican Riviera with 8 percent, compared to 9 percent last year; Alaska, 7 percent, compared to 4 percent last year; the Panama Canal, 5 percent of capacity, compared to 4.5 percent last year; and Bermuda, 4 percent, compared to 5 percent last year.

With no new ships entering service in 2005 and with the Horizon leaving, RCC will have a capacity increase of 3.4 percent in Ql, 0.5 percent in Q2, 1.6 percent in Q3, and 1.0 percent in Q4, driven mainly by Royal Caribbean.


In addition to confirming that RCC plans to continue to grow both brands, other strategic moves signal the company’s interest in Europe and in Asia.

Fain cited $20 million earmarked for sales and marketing in Europe, and Williams conceded that the build-up in Europe confirms that RCC has plans to transfer more tonnage to the European market.

That follows the company’s recent announcement that it will deploy a Celebrity ship in the Asia/South Pacific region in 2006. In an unrelated interview, a RCC executive told Cruise Industry News that in order to deploy a ship in Asia, the company must also be convinced it can tap regional and local source markets.

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