Royal Caribbean Cruises (RCC) reported net income of $191.9 million, or $0.97 per share, on revenues of $1.1 billion for the third quarter ended Sept. 30, 2003, compared to net income of $193.5 million, or $0.99 per share on revenues of $1.0 billion for the third quarter of 2002.

RCC attributed the increase in revenues primarily to an increase in capacity and in shipboard revenues, partially offset by lower cruise ticket prices and occupancy levels.

RCC reported 5,327,500 passenger cruise days and a 107.7 percent occupancy for the third quarter of 2003, compared to 4,898,576 passenger cruise days and 108.4 percent occupancy for the same quarter last year.


While bookings improved rapidly after the war with Iraq, according to RCC, bookings for Q4 have been somewhat softer than expected. The company expects net yields for Q4 to decrease one to three percent from the last year. For the full year 2003, RCC expects a one to two percent decline in net yields. Earnings for the year are expected to be in the $1.42 to $1.46 per share range, according to RCC, which translates into an expected loss of $0.08 to $0.06 for Q4, compared to earnings per share of $0.20 for Q4 02, a loss of$0.20 in 01, and earnings of$0.16 and $0.19 in 00 and 99, respectively.

RCC posted full year earnings per share of $1.82 for 02, $1.32 for 01, $2.31 for 00, and $2.06 for 99.


Looking forward, RCC said the booking period for 2004 is just getting underway and that close-in bookings (those within 90 days of sailing) remain just under 50 percent, which continues to make forecasting yield performance more difficult than in prior years.

Nevertheless, management said it was encouraged by preliminary indicators, and expects Q1 04 to have positive net yield growth. 

Analysts' reactions were mixed, describing RCC's comments on 04 from "positive" to "uninspiring."

RCC Chairman and CEO Richard Fain, put an upbeat spin on his presentation, stating that both revenues and yields were in line with previous projections, and that despite all the events starting with 9/11, Royal Caribbean International (RCI) and Celebrity Cruises have filled all its new capacity with only a small drop in yield. This performance confirms the fundamental strength and resiliency of the (cruise) industry, according to Fain.

Fain went on to say that 04 will be the last year with massive capacity increases for RCC and for the industry.

"We needed to achieve critical mass and we have now done so," he continued. "From a market share point of view, we see no need to increase (our share) going forward."

According to Luis Leon, executive vice president and CFO, costs per passenger cruise day were down in Q3 due to lower commissions (from lower ticket prices), offset by higher fuel costs. Fuel costs represent 5.0 percent of revenues in 03, compared to 4.5 percent in 02, or approximately $145 million this year, compared to $119 million last year.

Leon said that RCC has a number of cost cutting efforts underway, but would not comment specifically. Instead he said that he thought "much of what can be done, can be implemented starting 04."

With regard to onboard revenue, Leon said that all activities onboard were doing very well, but offered no specific information.

Commented Jack Williams, president of RCI and Celebrity: "We saw a nice recovery at the end of the (Iraqi) war, which lasted through the summer. Since August, bookings have been at a more normal level, but still outpacing our capacity.

"In August, we saw a real shift to Q1 04 booking slightly ahead of last year," Williams said.

Williams also said that while prices were heavily discounted during the war, they have since stabilized, and are now more realistic.

While projecting a loss for Q4 03, Williams said that the booked load factor was ahead of last year and that average prices were showing a solid premium over last year.

Fain added that Q4 was softer than expected, however, but said he did not know why.

Q1 04

Williams said that RCC's capacity will be up 14 percent in Q1 04 and that the booking rate is similar to last year's, and that be expects to see some yield improvement.

Williams repeated that there is limited visibility for Q1 and no visibility at all beyond Q1.

He said RCC would focus on strategic pricing which he explained as getting into the market place with realistic pricing early to avoid last minute discounting. ''We hope the price issue will evaporate in 04," Williams added.

Outlining next year's deployment fleet-wide, RCC will have 41 percent of its total capacity in the Caribbean seven-day market, with an eight percent capacity increase over 02, and with booked load factors running ahead of last year, expecting a slight yield improvement.

RCC will have 12 percent of its capacity in the short Caribbean market, a slight increase over last year, with bookings slightly ahead, and yields expected to be flat to slightly up.

Eight percent of the capacity will be in longer Caribbean cruises, no change from 02, with bookings running slightly behind, and yield expected to be flat or slightly up.

(RCC will have 65 percent of the combined capacity of RCI and Celebrity in the Caribbean in 04.)

Commented Williams: "The Caribbean is our core product. It is our greatest asset. We have had our strongest history there for many years. The Voyager class has established itself as the ship of choice.

"We are dominant (in the Caribbean) and will continue to be. We are very well positioned," Williams added.

Fain also noted that when and if Cuba opens up it will ''be terrific for the cruise industry" (boosting Caribbean growth further).

RCC is putting nine percent of its capacity in the Mexican Riviera market, described as a significant change over last year, with bookings ahead, but again no indication of yield expectations.

Europe will have eight percent of the capacity, up 12 percent from last year, with bookings and yield higher than 02.

Seven percent of the capacity will be in Alaska, a five percent increase over 02, with the booking rate comparable to last year, and no indication of yield expectations yet.

Bermuda will have four percent of the capacity, up two percent from last year, with bookings running slightly behind and yield slightly ahead.

Finally, the Panama Canal will have four percent of the capacity, up 20 percent year-over-year, with bookings ahead, but no indication of yield expectations yet.

RCC gave no indications of the balance of ship deployment (seven percent).

Capacity Growth

RCC said it is growing its capacity by 12 percent in 2003 and by 11 percent in 04 - 14 percent in Q1 12 percent in Q2, 12 percent in Q3 and four percent in Q4.

The Ultra Voyager is expected to boost RCC's capacity by approximately five percent in 2006. RCC has an option on a sister ship for 2007.