Royal Caribbean Cruises (RCC) has reported net income of $445.4 million, or $2.31 per share, on revenues of $2.9 billion for the year ended Dec. 31, 2000, compared to income of $383.9 million, or $2.06 per share, on revenues of $2.5 billion for 1999.

The company's two brands, Royal Caribbean International and Celebrity Cruises, reported 13 million passengers cruise days and a load factor of 104.4 percent for 2000, compared to 11.2 million passenger cruise days and a load factor of 104.7 percent for 1999.

4th Quarter

RCC reported net income of $30 million, or $0.16 per share, on revenues of $642.1 million for the fourth quarter ended Dec. 31, 2000, compared to net income of $38.3 million, or $0.19 per share, on revenues of $584.0 million for the fourth quarter of 1999.

According to RCC, fourth-quarter revenues were up primarily due to an increase in capacity, which in turn was offset by lower yields.

RCC said that the lower yields were caused by the introduction of several new itineraries and the impact of the Millennium cruises which positively affected the fourth quarter of 1999 and the first quarter of 2000.

Forward Looking

RCC executives said last month that bookings for 2001 were running at the same level as last year's at the same time, as a percentage of capacity, considering capacity is up 22 percent this year over last year.

Pricing, however, is lower than at this time last year, although higher than RCC ended up with at the end of the year, according to Richard Glasier, executive vice president and CFO.

RCC chose to start 2001 with lower prices than last year and then raise prices as demand picks up, Glasier said. Last year, the company started out with higher prices, but had to lower prices towards the end of the year.

"We are on pace so far to maintain pricing from 2000," Glasier said in a conference call to analysts.

Glasier admitted that the pricing environment was still challenging, but said: "We have thousands of different pricing positions. When we see increased calls or booking demand, we will raise the price. We are changing prices daily."

Added Richard Fain, chairman: "Our pricing is working. Where we see demand, we increase prices. For the same cruise, we even have the ability to raise prices on the top cabins and lower prices on other cabins," he said.

Glaiser noted that the newest ships have the strongest bookings and that the older ships were more challenging to fill. "Alaska and Europe are booking well and we have increased capacity in these markets," he noted.

"There are still 12 to 15 older ships in the market that will eventually leave North America," Glasier said, explaining that their departure will remove capacity and some of the pressure on pricing.

RCC has options on new ships for deliveries in 2005 and 2006. These options expire at the end of June and will be evaluated then, according to Glasier.

Comments on Results

In the fourth quarter, RCC also received $10 million in compensation from Chantiers de l'Atlantique for the problems of the Millennium, and $16 million in dividends from its investment in First Choice.

Meanwhile, Glasier explained that the results were pulled down by the new itineraries. He explained that RCI and Celebrity are offering more new itineraries than has historically been the case, and that this is important for long-term growth. Meanwhile, the new programs are priced lower to attract travel agent and consumer interest, he said, noting that it is also harder to predict booking patterns and demands for new itineraries.

"Historically, new itineraries have turned out to be some of our highest-yielding markets, such as Hawaii and Bermuda," Glasier said. But he expects to drop Aruba citing the difficulty of getting airlift.

Fain also said that RCI made a strategic choice to position a ship in South America and to go after more South American bookings.

Debt Burden

Over the last few weeks, RCC has also raised about $1.3 billion in debt financing. If RCC had also had this debt in 2000, it would have added interest costs and reduced net income to around or below the 1999 level. That would still have left RCC with a 15 percent net profit margin, but Wall Street is in the habit of expecting increased earnings every quarter and every year. Thus, the pressure is now on RCC's management for the next couple of years or until the company can pay for its ships without taking on debt.