Royal Caribbean Cruises (RCL) has reported net income of $330.8 million, or $1.83 per share, on revenues of $2.6 billion for the year ended Dec. 31, 1998, compared to net income of $175.1 million, or $1.15 per share, on revenues of $1.9 billion for 1997.

The increases in revenues and net income were attributed to an increase in capacity and an increase in yield. RCL acquired Celebrity Cruises in July of 1997 and also introduced a new ship for Royal Caribbean International (RCI) in 1998.

The yield improvement was a result of improved cruise ticket pricing and higher occupancy levels, which were 105.2 percent in 1998 compared to 104.2 percent in 1997, according to RCL.

But RCL also saw its net income reduced by $0.05 per share due to the plea agreement with the U.S. Department of Justice following pollution charges, and another $0.05 per share related to the December grounding of the Monarch of the Seas.

Fourth Quarter

RCL reported net income of $23.4 million, or $0.12 per share, on revenues of $575.1 million for the fourth quarter ended Dec. 31, 1998, compared to net income of $22.4 million, or $0.12 per share, on revenues of $528.4 million for the same quarter the previous year.

RCL said that the flat earnings quarter-over­ quarter reflected a $0.05 per share reduction related to the cancellation of two cruises of the Monarch of the Seas.

RCL also reported a passenger load factor of 101.6 percent for the fourth quarter of 1998, compared to 100.8 percent for 1997.

First Quarter 1999

The first quarter is expected to be impacted by the cancellation of several more cruises of the Monarch of the Seas which is scheduled to return to service March 14. In addition, pricing is expected to be relatively flat year-over-year. Hence, earnings are also likely to be flat. 

The second and third quarters are also expected to be relatively flat in the absence of any price increases or a modest increase. Without new capacity to drive earnings, RCL can only improve the bottom line by improving prices or cutting costs. In addition, the 1,400-passenger Song of America - which has been sold to Sun Cruises, but was chartered back to RCI - leaves the cruise line in March, causing a capacity reduction.

However, when the 3,100-passenger Voyager of the Seas enters service in November, earnings can be expected to improve. But the full impact will come in the first quarter of 2000 when the new ship sails its first full quarter.

Through RCI and Celebrity, RCL will be introducing two to three new ships in 2000, 2001, and 2002 - only slightly offset by the expected sale of the Viking Serenade.

According to Cruise Industry News estimates, RCL will increase its passenger capacity by five percent in 1999 compared to 1998, by 14 percent in 2000 over 1999, by 8.5 percent in 2001, and by 10.5 percent in 2002.

Hence, over the three-year time period 2000 - 2002, RCL will benefit from added capacity, further improved economies of scale, more onboard sales opportunities, and a more profitable cabin-mix. The result should translate into dramatically increased earnings and net income.

In addition, RCL is reportedly considering ordering two more 3, 100-passenger Eagle-class ships, bringing the series to five giants. In that case, RCL Chairman Richard Fain may be right when he has been quoted as saying, "We would own the Caribbean."

Barring any unforeseen developments, today's common stock, trading at $34 1/16 at a P/E of 19 at press time, could turn out to be a bargain.