Royal Caribbean Cruises (RCC) has reported net income of $193.5 million, or $1.01 per share, on revenues of $1.0 billion for the third quarter ended Sept. 30, 2002, compared to net income of $159.2 million, or $0.82 per share, on revenues of $940.7 million for the third quarter of 2001.

Q3 2002 included a charge of $20 million in connection with a potential litigation settlement, while Q3 2001 was negatively impacted by $36.7 million due to lost revenues and costs associated with 9/11.

The increase in revenues was attributed primarily to a 15.9 percent increase in capacity for the quarter, partially offset by fewer passengers booking their airline tickets with the company.

Occupancy was up from 105.7 percent last year to 108.4 percent this year.

RCC attributed the increase in net income to a combination of careful monitoring of demand by its revenue management department and a strong focus on controlling costs.  

RCC Chairman and CEO Richard Fain pointed out how the company has posted record profits for Q3 against the backdrop of the lingering effects of 9/11, a weak economy, and record cruise capacity entering the market. "This (3Q earnings) proves the resiliency of the industry," he said.

Bonnie Biumi, acting CFO, said that she expects full year earnings for RCC to be in the range of $1.55 to $1.60 per share. Added RCC President and COO Jack Williams: "We continue to be pleased by both the volume of passengers and the rates we have sustained through 2002. Our net yield is down only 1.7 percent against a capacity increase of 16 percent."

Williams stated that RCC had achieved a higher load factor in Q3 of 2002 than in 2001, "with much better on board spending than expected."

For 2002, RCC had 42 percent of its capacity in the Caribbean, including a 20 percent increase year­ over-year; eight percent in Alaska, which was up eight percent over 2001, with a load factor of 104 percent in 2002 compared to 102 percent in 2001; and five percent in Europe, where the company cut its capacity from five to three ships and managed to increase its load factor to 103 percent from 98 percent in 2001. "Europe performed well. We could have had four ships there instead of three," Williams commented.

2003

Biumi said that 2003 looked encouraging based on what she could see for Q1. Williams added that as soon as RCC gets into the Wave Period, he expected to provide a more specific forecast.

Williams pointed out several factors that he said bode well for the performance of RCC's two brands, Royal Caribbean International (RCI) and Celebrity Cruises, in 2003: First of all, RCC will avoid the post-9/11 deep discounting that affected 2002; second, the company's two brands are returning to higher-yielding overseas markets (Europe); third, the deployment patterns are expected to be stable for the entire year; and fourth, the market has responded enthusiastically to new marketing campaigns.

Williams said he expected yields to improve in the first half of 2003 versus pre-9/11 yields.

Market Shares

Biumi outlined RCC's capacity shares of the major markets for 2003 as follows: RCI will have 32 percent of the short-cruise markets; 31.6 percent of the seven­ day Caribbean market, and 14.7 percent of the longer Caribbean market, while Celebrity will have 8.4 percent of the seven-day market, and 32 percent of the market for longer Caribbean cruises.

In Europe, RCC will have a 24.1 percent market share among North American operators and Celebrity will have 19.8 percent. In Bermuda, Celebrity will have 36.5 percent and RCI will have 20.1 percent of the market. In Alaska, Celebrity will have 15.7 percent and RCI will have 13.1 percent. In addition, RCI will have 18.8 percent and Celebrity 15.3 percent of the Panama Canal cruise capacity.

RCC's overall capacity deployment is 66 percent in the Caribbean for 2003, seven percent in Alaska, seven percent in Europe, and the balance elsewhere. So in spite of its strong return to Europe, 93 percent of RCC's capacity is elsewhere in 2003.

Two new ship deliveries have been accelerated: The Serenade of the Seas will be delivered in Q3 2003 instead of Q4 2003, and the Mariner of the Seas will be delivered in Q4 2003 instead of Q1 2004.

Industry Growth

Williams forecasted the following industry-wide capacity increases (by market) for 2003: Short cruises up six percent; seven-day Caribbean up 13 percent; Alaska up seven percent; Bermuda up 11 percent; Europe up 93 percent ( driven primarily by RCI and Celebrity, according to Williams); Panama Canal up 25 percent; Mexican Riviera down 14 percent; New England/Canada down 16 percent; and so-called repositioning cruises down five percent. He forecasted an industry-wide capacity increase of 12 percent for 2003. PQC (Continued) For 2003, POC will market 56 percent of its total capacity in North America, compared to 63.5 percent in 2002. The U.K. and German portions will increase to 25 and 15 percent, respectively, from 22 and 10 percent for 2002. Australia's share will decline slightly to four percent in 2003 from 4.5 percent in 2002. In terms of market deployment in North America, Princess will have 24.5 percent of its capacity in the Caribbean in 2003, compared to 31.0 percent in 2002. Twenty percent will be deployed on its so-called "Exotics and others programs" next year, compared to 15 percent this year. Alaska will be the third largest market for Princess with 19.5 percent of its fleet capacity in 2003, compared to 23 percent in 2002. Europe is number four with 17 percent of the capacity, compared to only seven percent this year. The Panama Canal remains steady at 12 percent next year, compared to 11 percent this year. Mexico becomes the big loser with only seven percent of Princess' capacity next year, compared to 13 percent this year, as the Diamond Princess will not be entering service in 2003.