Royal Caribbean Reports Full Year 2003 Earnings

Royal Caribbean Cruises (RCC) gave a very positive outlook on 2004 in yesterday's conference call with financial analysts. According to RCC Chairman and CEO Richard Fain, both bookings and pricing are up for 2004.

"Bookings are good in almost every market we service," he said, pointing out that RCC expects a five to seven percent yield improvement in 2004.

Fain said be based bis optimism not only on the Wave Period performance, but also on what looks like consistent performance throughout the year.

What is most encouraging, according to Fain, is that RCC bas been able to make some price increases while maintaining booking levels.


RCC reported net income of $280.7 million, or $1.42 per share, on revenues of $3.8 billion for the year ended Dec. 31, 2003, compared to net income of $351.3 million, or $1.79 per share, on revenues of $3.4 billion for 2002.

The increase in revenues was primarily due to an increase in capacity and shipboard revenues, partially offset by lower cruise ticket prices and occupancy levels, according to RCC.

Costs were negatively affected by increased fuel prices.

Q4 03

RCC reported a net loss of $20.0 million, or $0.10 per share, on revenues of $878.0 million for the fourth quarter ended Dec. 31, 2003, compared to net income of $38.3 million, or $0.20 per share, on revenues of $780.9 million for the fourth quarter of 2002. 

Included in Q4 03 were net proceeds of $33.0 million, or $0.17 per share, related to the termination of the proposed merger with P&O Princess Cruises. 

During Q4 03, RCC said it also incurred additional charges associated with information technology software, marketing, and repairs and refurbishments of certain vessels.

In a prepared statement, RCC said that bookings and pricing levels have continued to strengthen since its last quarterly update in October.

Fain said that RCC has improved its ability to anticipate the booking curve and price realistically, explaining: "We are setting more realistic prices early so we don't have to do last minute discounting.

"We have a higher proportion (of the capacity) booked this year than at this time last year."

Added Jack Williams, president of RCC's two brands, Royal Caribbean International (RCI) and Celebrity Cruises: "We have seen a very solid start of the Wave Period. Demand has outpaced last year and we have had several record days. The call volume is up 17 percent and bookings are up 22 percent over last year."

Williams said the pricing has moved further up in the past three weeks, adding: "We are getting some premiums over our competitors."

Fain noted that this appears to reflect better sense of optimism among consumers.

According to RCC, the booking curve has shifted out. In Q4, 38 percent of the bookings were outside of 90 days, compared to 50 percent last summer (but 70 percent in 2000).

RCC has also seen an increase in onboard revenue, which Fain attributed mostly to better onboard operations and revised agreements with concessionaires.


Looking back, Fain noted that RCC had seen a yield decline of 1.1 percent in 2003, on top of a decline of 0. 7 percent in 2002.

He attributed the performance of RCC to the resilience of the industry, the company's two strong brands, their strong support among agents, and what he called the excellent performance of onboard revenue sources.

But Fain is not satisfied on the cost side. While the RCI brand has moved ahead with its cost saving programs, similar efforts are only now getting underway at Celebrity, where the focus instead has been on raising prices, according to Fain.

Said Executive Vice President and CFO Luis Leon: "We are early in the implementation process of cost savings at Celebrity." He also noted that efforts are focused on gaining long term efficiencies while maintaining the brand and the brand image. Such efforts also include sharing best practices.

"We have made some dramatic strides at Celebrity," said Fain, "that will help Celebrity attain the premium pricing we expect." 

Leon also noted that the XPEDITION concept is designed to help solidify Celebrity's position in the marketplace.

2004 Deployment

RCI and Celebrity will have 41 percent of their combined capacity in the seven-day Caribbean market in 2004, compared to 42 percent in 2003, but still up seven percent year-over-year with added capacity, according to Williams.

Seven percent of the capacity will be in the longer Caribbean market, compared to eight percent last year, and 16 percent will be in the short-cruise market, compared to I 5 percent last year.

Eight percent goes to Europe, up 18 percent from last year, when eight percent of the combined capacity was also in Europe.

Alaska and Bermuda represent seven and four percent each, respectively, basically flat year-over-year. 

RCI and Celebrity will also have four percent of their capacity on Panama Canal cruises, up 19 percent from last year.

RCC did not identify the balance, thirteen percent, which will be deployed on the Mexican Riviera, to New England and Canada, and on trans-Atlantic sailings.

According to Williams, the strongest markets at the moment are Alaska and Europe - with strong demand and broad price increases.

"If this trend continues, we will have a very good season in Europe," noted Williams.

Moving RCI ships from New York's Manhattan cruise terminal to Bayonne, New Jersey, has the advantages of being close to the Newark Airport and with shorter pilotage for the ships, according to Fain, who skirted the congestion issues in Manhattan. He made the point, however, that the new facility is still in the New York harbor.

Fain also pointed out that half the American population now lives within driving distance of a cruise port.

As for more ship orders after the Ultra Voyager enters service in 2006, Fain said that the option on a sister ship, for 2007 delivery, which is denominated in euros, would be "very expensive" at today's exchange rate.

RCC will boost its passenger capacity by I 1 percent in 2004 - 14 percent in QI, 13 percent in Q2, 12 percent in Q3, and four percent in Q4 - and two percent in 2005, plus an estimated 7.5 percent in 2006 and seven percent in 2007 with the second Ultra Voyager ship.



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