Royal Caribbean 2005 Q3 Earnings

Roy Al Caribbean Cruises has reported net income of $374.7 million, or $1.64 per share, on revenues of $1.5 billion for the third quarter ended Sept. 30, 2005, compared to net income of $282.5 million, or $1.26 per share, on revenues of $1.4 billion for the same quarter last year.

The third quarter of 2005 also includes a net gain of $44.2 million, or $0.19 per share, from the redemption of Royal Caribbean’s investment in First Choice Holidays.

In addition, Royal Caribbean has changed its method of accounting for drydocking costs. The company said it has historically accounted for such costs in the period preceding the drydock. Now, the costs will instead be amortized over a period following the drydock. The change has resulted in a one-time gain of $52.5 million, or $0.22 per share, to recognize the cumulative effect of the change on prior years, according to Royal Caribbean. The one-time gain has been recognized for accounting purposes in Q1 of 2005 and will thus be reflected in the nine-month and full year results.


Royal Caribbean is maintaining its guidance of earnings of $2.75 per share for the year, or $2.97, including the effect of the change in accounting principles (above), according to Chairman and CEO Richard Fain.

Bookings and pricing for Q4 are ahead of last year, according to Fain, who expects Q4 to generate a 5 percent yield improvement over Q4 of last year.

At press time, the impact of Hurricane Wilma was still unknown, Fain said, while Royal Caribbean International President Adam Goldstein added that the brand has so far not experienced any negative impact on bookings from the hurricanes nor the increased gas and home heating oil prices. Goldstein also said that he has not seen any impact on cruising in the areas affected by the hurricanes nor has he seen any impact on bookings in the hurricane zone during the season.

“Overall, the market is strong throughout the U.S.,” Goldstein said.

And despite the hurricane destruction in Cozumel and Cancun, Goldstein said that tour operators have given positive reports that their vehicles are operable and the excursion sites are relatively unaffected. He said, however, that he was concerned about the damage to the piers in Cozumel and that the situation would become clear in the next 15 to 30 days.

For the full year, Fain expects a 6.5 percent yield improvement, which, he noted, will be on top of last year’s 6 percent yield improvement.

While Fain said it is too early to provide specific guidance for 2006, he said that the outlook for next year is quite positive. “We see a solid demand environment,” he said. “The booking trend remains strong,” he added. “We see load factors in line with this time last year, but with higher pricing.”

Fain said the company does not want load factors to be too far ahead. If load factors go up too fast, the company will raise prices, he noted.

“With the same basic orderbook for 2006, we are able to raise prices,” Fain added.

Capacity will be up 2.6 percent in 2006.


Q3 earnings were driven by higher ticket prices and strong onboard revenues which offset the higher fuel costs, according to Fain.

He said that the company’s focus for its two brands, Royal Caribbean and Celebrity Cruises, is on fuel consumption, which has been reduced by 4 percent in 2005, due to more efficient operations and use of less-expensive fuel.

Fuel consumption for the year is expected to be less than 1.1 million metric tons, according to Louis Leon, CFO.

In 2005, fuel costs are equal to 7 percent of revenues, according to Fain, who underlined that even at its present high level, fuel costs are “still not so great as to affect the basic soundness of the business model.” Fain’s focus going forward will be to increase revenues and control costs, he said.

Royal Caribbean has also made a significant improvement to its balance sheet, reducing its net debt to capitalization ratio by $1.1 billion from 51.1 percent to 41.6 percent, according to Fain.

Nine Months

Net income for the nine-month period ended Sept. 30, was $719.6 million, or $3.22 per share, on revenues of $3.9 billion, compared to net income of $400.5 million, or $2.31 per share, on revenues of $3.6 billion for the same period in 2004.

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