Royal Caribbean 2005 Q2 Results

Roy Al Caribbean Cruises (RCC) was able to report a 26 percent increase in earnings for Q2 – with no increases in capacity and despite two cancelled cruises and higher fuel prices – as some expenses were deferred to Q3. Without the cost deferral, RCC’s earnings would still have been up a respectable 10 percent.

RCC Chairman and CEO Richard Fain painted a positive outlook in the company’s Q2 conference call, saying that its two brands, Royal Caribbean International And Celebrity Cruises, continue to generate strong demand and, going forward,

have a higher percentage of their capacity booked and at higher price levels than last year.

But despite the positive outlook, RCC revised its guidance for 2005 to $2.70 to $2.80 per share, compared to its previous guidance of $2.65 to $2.88, and before that, $2.70 to $2.90. The new guidance also includes a one-time gain of $0.17 per share from the redemption of shares held by RCC in First Choice Holidays.


RCC reported net income of $154.5 million, or $0.71 per share, on revenues of $1.2 billion for the second quarter ended June 20, 2005, compared to net income of $122.2 million, or $0.58 per share, on revenues of $1.1 billion for the same quarter last year.

The increase was attributed to higher ticket prices and onboard revenues. The ticket revenue was $888million for Q2 this year, compared to $844.5 million last year, while onboard spending was $315.2 million   this year, compared to $298.5 million last year.

But while RCC beat analysts’ consensus of $0.59, approximately $0.10 per share, or $20 million of expenses for IT and sales and marketing, were deferred toQ3.

Meanwhile, fuel costs were up 37 percent, or $23 million, year-over-year and equal to 7 percent of revenues. Commented Fain: “We are working to improve our energy usage and how we buy fuel. With our strong yield growth, we have been able to offset the (rising) fuel costs so far.”

The occupancy rate for Q2 was 106.9 percent this year, with 5,664,615 passenger cruise days, compared to 106.2 percent and 5,639,115 passenger cruise days last year. According to RCC, the booking curve has stabilized to 38 percent within 90 days, compared to 37 percent last year.

CFO and Executive Vice President Luis Leon also pointed out that RCC had reduced its net debt to capital ratio to 46.5 percent by June 30, and expects that rate to drop to 45 percent by the year’s end, according to Fain.

Q3 and Q4

While RCC forecast a strong Q3, earnings will also be boosted by the redemption of the company’s shares in First Choice. Meanwhile, RCC’s joint venture
with First Choice, Island Cruises, will continue. A second ship, Celebrity’s Horizon, will be transferred to Island later this fall.

“We are continuing to book for Q3 and Q4,” said Adam Goldstein, president of Royal Caribbean, adding that the brand also has substantial bookings for next year. Added Fain: ”We have a major portion of our bookings in for this year.”


Goldstein noted “substantial bookings for next year,” but he would not reveal the percentage of capacity booked for 2006. However, Fain commented that while bookings for next year were low they are higher than they were this time last year.

Also, according to Fain, RCC sources a “little less than 20 percent of its passengers outside the U.S., compared to 15 percent a year ago.” He said Europe is the prime driver of this increase but that man  passengers are also sourced in South America. Fain said he was very optimistic about 2006 which “points to being another year of positive yield environment,” he added.

One additional issue lurking for 2006, however, is the pending proposal requiring passports for all Americans cruising in the Caribbean. Fain noted that half of RCC’s passengers use passports when they cruise in the region, while the other half use birth certificates and voter registration cards, among other forms of identification.

Fuel Savings

Leon said that efforts to limit fuel costs include using less expensive fuel for the gas turbines and operating more efficiently. “We are identifying best practices and incorporating them across the fleet,” he said.

Added Dan Hamahan, president of Celebrity: “We look at every itinerary very carefully; we look at the lighting aboard each ship; the marine department monitors each ship on every cruise; and we look at where we buy fuel. The most significant driver is monitoring how our captains use fuel,” he added. “They (the captains) like to beat their previous week’s usage.”


Commenting on the specific brands, Fain pointed out the recent letter of intent for a new class of ships for Celebrity. He said they will have extremely large cabins and a high ratio of balcony cabins.


Based on the ticket revenue reported by RCC, the company was able to collect $156.75 per passenger day in Q2 05, compared to $149.75 for the same period last year. And, according to estimates by Cruise Industry News (CIN), the average cruise ticket cost $1,098 per person in 2005, compared to $1,049 per person in 2004.

RCC reported onboard spending of $315 .3 million for Q2 05, which translates into $55.66 per passenger day or approximately $389.60 per passenger, per cruise, according to CIN, compared to $52.92 per passenger day during the same period last year, or $370.50 per passenger, per cruise.

RCC reported that food expenses dropped from $65.8 million in Q2 04 to $65.2 million in Q2 05. Based on reported passenger days and estimated crew days, RCC’s food spending per day was $8.39 in Q2 this year, compared to $8.48 per day last year, according to CIN.

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