Royal Caribbean 2005 Results

Royal Caribbean Cruises (RCC) is looking forward to continued yield improvement of 2 percent to 4 percent in 2006, according to Chairman and CEO Richard Fain. At this point, advance bookings show evidence of a strong year, said Fain, although bookings are running behind last year, while pricing is up significantly. He attributed that to yield management, which is focusing on driving pricing up this year, but focused on driving bookings last year.

RCC reported record earnings of $716 million, or $3.26 per share, on revenues of $4.9 biUion for the year ended Dec. 31, 2005, compared to net income of $474.7 million, or $2.26 per share, on revenues of $4.6 billion for 2004.

Also included in the 2005 results were one-time gains amounting to $0.41 per share from the redemption of RCC s interest in First Choice and for accounting changes for drydockings. Excluding the one-time gains, RCC would have net earnings of $2.85 per share, compared to the consensus forecast of $2.78, which, according to CFG Louis Leon, included the First Choice gain, but not drydock costs.


RCC reported a net loss of $3.6 million, or $0.02 per share, on revenues of $1 billion for Q4 2005, compared to a net loss of $25.8 million, or $0.13 per share, on revenues of $964.6 million for Q4 2005.

Fain attributed the improved Q4 results to ticket prices being up combined with increased onboard revenue and lower than expected fuel costs.

Yields were up 8 percent conpared to the conqjany’s previous guidance of 5 percent. Fain saidthere was an unusual late surge in bookings, and he described the onboard revenue performance as “extraordinary.”

And costs were down not only in fuel but across the board, according to Fain.

Cost of Fuel

“We continue to work on lots of initiatives,” Fain said, “in purchasing, itinerary modification, alternative fuels and fuel blends, and hardware changes.

“We will be adding new auxiliary diesel engines to our ships that have gas turbines only, which will reduce fuel costs,” he said.

The diesel engines, which will be used primarily for the hotel load, will be installed during upcoming drydockings which will require about four weeks, according to Fain. The first installation may take place later this year. Fain did not offer a cost estimate for the engines or the installations.

Royal Caribbean

Adam Goldstein, president of Royal Caribbean International, said the brand will continue its push into Europe, where it will have five ships in 2006, and will be sourcing more passengers from there as well. He pointed out the Splendour of the Seas, which will be sailmg from Venice, marketed primarily to European passengers, and the Legend of the Seas, sailing from Southampton, marketed primarily in the U.K.

“The winter outlook is solid,” Goldstein added.


“We are well positioned for 2006,” said Dan Hanrahan, president of Celebrity Cruises. “We are focusing on managing our day-to-day costs better; creating a clear brand communication platform; and continuing to deliver what the guests expect.

“We are confident our cost management,marketing campaign and product delivery will driveeven better results in the future,” Hanrahan added.

In related developments, RCC has settled its lawsuit against Alstom Marine in conjimction with the pod problems on the Millennium-class ships for $38 million. The lawsuit against Rolls-Royce is still pending. “Most of the problems have been with the bearings,” Fain explained. “And, Rolls-Royce built the bearings,” he added.

Fain attributed RCC’s 2005 results to increased ticket prices, better onboard revenue and higher occupancy. Goldstein commented that onboard spending was up across all categories: beverage, gaming, shore excursions and the concession areas.

“Both brands have programs in place to continue to generate favorable progress in onboard spending,” Goldstein explained, noting also that the company has mutual initiatives underway with its concession holders.


RCC had a 1.4 percent capacity increase in 2005, and forecasts 3.6 percent in 2006, 6.7 percent in 2007 and 7.2 percent in 2008. Q1 of 2006 will see a decline in capacity year-over-year because of the Horizon having left the fleet, being chartered to Island Cruises.

Thus, Leon said that RCC will not benefit from inqjroved economies of scale this year to offset the normal cost increases. RCC’s earnings forecast for 2006 is from $2.95 to $3.15 per share.

While the Wave Season has been described as less robust this year. Fain commented the last few years have been unusually buoyant, and that 2006 seemed like a more normal year. “We’ll be focusing on the length and consistency of the wave,” he said.

For 2006, RCC’s deployment is mostly similar to last year, with 37 percent of its capacity in the sevenday Caribbean market; 14 percent in three- to five-day craises; 5 percent in “other” Caribbean cruises; 7 percent is in Alaska; 14 percent in Einope, compared to 11 percent last year; and 19 percent is in “other” markets.

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