Royal Caribbean Cruises (RCC) has reported net income of $159.2 million, or $0.82 per share, on revenues of $940.7 million for the third quarter ended Sept. 30, 2001, compared to net income of $201.5 million, or $1.04 per share, on revenues of $835.2 million for the same quarter a year ago.

According to RCC, third quarter earnings were negatively impacted by $21.3 million, or $0.11 per share, due to lost revenues and extra costs associated with passengers not being able to reach their departure ports during the weeks following Sept. 11. Also included is an additional $15.4 million, or $0.08 per share, in costs attributed to itinerary changes, the closing of offices and deferral of programs.

RCC attributed the increase in revenues to what it said was a 20.1 percent increase in capacity, offset by a decrease in pricing and occupancy.

"We were doing very well in the period leading up to Sept. 11," said Richard Fain, chairman and CEO. "Bookings were better than anticipated and results were running ahead of expectations. These results demonstrate that the industry was able to continue its profitable growth even during a weak economic period," he added.


Reacting to the changing market conditions, RCC has redeployed ships, mostly out of Europe, into markets that predominantly focus on drive business.

RCC has also reduced shoreside staff and "reduced, deferred or eliminated" a number of projects in an effort to cut costs. Added Richard Glasier, CFO, "We have also changed purchasing specs and are working closely with our vendors." According to RCI President Jack Williams, the company has made cuts everywhere except in its sales force. Operating costs are expected to be down five percent in 2001 and another five percent in 2002.

RCC is discussing delaying deliveries of new ships with yards. If an agreement is reached, the Navigator of the Seas will be delayed to the first quarter of 2003, the Serenade of the Seas to the fourth quarter of 2003, the Mariner of the Seas to the first quarter of 2004, and the Jewel of the Seas to the second quarter of 2004. This will defer the company's capital expenditures. (RCC executives did not comment on options which have previously been extended nor did they comment on the possibility of laying up or phasing out older ships.)


Trends RCC said the Sept. 11 attacks resulted in a dramatic drop off in bookings. Immediately following the attacks, new bookings dropped by more than 50 percent over the previous year's level. But bookings have since recovered albeit by strong price stimulation and increased travel agents' commissions.

Fain said that on Oct. 29, Royal Caribbean International (RCI) observed the fourth best booking day in its history, and Celebrity Cruises experienced its strongest booking day ever.

"The market has responded to price incentives," Fain said. "That shows we are not dealing with insurmountable problems."

However, the booking pattern is changing and passengers are booking much closer to sailing, according to Williams.

Williams said that RCI was running at 90 percent load factors since Sept. 11 and expected to finish the fourth quarter with load factors in the 92 to 93 percent range with yields down 10 to 15 percent compared to last year's fourth quarter.

As for 2002, RCC executives said it was too early to understand what will happen, although they expect continued discounting into the first quarter. "There is lots of inventory to be sold for the first quarter," said Williams.

He said that his focus was on three questions: Will people cruise? (Last week was very encouraging, he said.) Where will people come from? (RCI has deployed ships to Baltimore, New Orleans and Galveston.) And, how much will they pay? (The near­ term features very low pricing.)

Williams also said that promising group bookings for 2002 showed that there could be some upside in pricing. RCI has already moved the price point from a low of $399 for seven-day Caribbean cruises to $499 this week.

"The key to success in this business is to understand where the price point is," added Fain.

But perhaps most important to RCC is the deferral of capital costs which alleviates the company's debt service somewhat.