Royal Caribbean boosts Q2 earnings

Royal Caribbean Cruises Ltd. announced net income for the second quarter of 2006 of US$122.4 million, or US$0.57 per share, compared to net income of US$155.2 million, or US$0.72 per share, for the second quarter of 2005. Revenues for the second quarter of 2006 increased to US$1.3 billion from revenues of US$1.2 billion in the second quarter of 2005.

Net Yields increased 6.0% over the second quarter of 2005, compared to previous guidance of an increase of approximately 5%, driven by strong cruise pricing and higher onboard revenues. Net Cruise Costs, on a per APCD basis, increased 14.4% compared to the second quarter of 2005, driven by the following principal factors:


 
  - Fuel accounted for 5.4 percentage points of the increase in Net Cruise
    Costs. Our “at-the-pump” fuel price averaged US$460 per metric ton,
    compared to previous guidance of US$432 per metric ton, and US$337 per
    metric ton in the second quarter of 2005.
  - Non-fuel costs accounted for the remaining increase of 9.0 percentage
    points, due primarily to the following:

      - Expenses for the Century revitalization and other ship
      refurbishment projects.
      - General inflationary pressures, some of which were absorbed.
      - Inaugural expenses for Freedom of the Seas.
      - Timing of marketing expenses.
      - Other items such as the expensing of stock options, legal fees
      associated with the company’s recent verdict against Essef Corp.,
      and additional operating costs in Cozumel due to hurricane damage.
 
“Despite continuing pressure from higher fuel prices, our second quarter results were better than we expected,” said Richard D. Fain, chairman and chief executive officer. “We are especially pleased with the performance of our two brands, which continue to drive strong yield growth.”

Outlook - Full Year 2006

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The company has seen some softening in the competitive environment and a compression in booking windows, which increases the level of uncertainty in our forecasts. Despite this, the company still expects that Net Yields for the full year 2006 will increase in the range of 3% to 4% compared to 2005, which is consistent with our previous guidance.

The company estimates that Net Cruise Costs per APCD for 2006 will increase in the range of 6% to 7% as compared to the prior year. Higher fuel costs account for approximately 3.9 percentage points of this increase. Our current “at-the-pump” fuel price is US$448 per metric ton, which is 25% higher than the average price for 2005 of US$358 per metric ton. If fuel prices for the rest of the year remain at today’s level, the company estimates that its 2006 fuel costs (net of hedging and fuel savings initiatives) will increase approximately US$115 million.

Depreciation and amortization is expected to be in the range of US$425 to US$435 million and net interest expense is expected to be in the range of US$255 to US$265 million.

Based upon the expectations and assumptions contained in this outlook section, management expects full year 2006 earnings per share to be in the range of US$2.90 to US$3.00.

Outlook - Third Quarter 2006

The company expects Net Yields for the third quarter of 2006 will increase 1% to 2% compared to the third quarter of 2005.

The company estimates that Net Cruise Costs per APCD for the third quarter of 2006 will increase approximately 4% compared to the same quarter in 2005. This is due to the increase in Net Cruise Costs discussed above, offset somewhat by the timing of marketing expenses. Higher fuel costs account for approximately 3.0 percentage points of the increase. Our current “at-the-pump” fuel price is US$448 per metric ton, which is 16% higher than the average price for the third quarter of 2005 of US$385 per metric ton. If fuel prices for the rest of the quarter remain at today’s level, the company estimates that its third quarter 2006 fuel costs (net of hedging and fuel savings initiatives) will increase approximately US$25 million.

Based upon the expectations and assumptions contained in this outlook section, we expect third quarter 2006 earnings per share to be in the range of US$1.52 to US$1.57.

In April, the company took delivery of the world’s largest cruise ship, Freedom of the Seas. The first in a series of three vessels, the 160,000 GRT, 3,600 double-occupancy Freedom of the Seas is currently sailing 7-night Western Caribbean itineraries from Miami.

We continue to successfully implement energy conservation initiatives and enhancements in types and sourcing of fuels. In addition to many smaller projects such as using LED lights, reflective window film treatment and restructuring itineraries, the company recently concluded a contract for the installation of diesel generators on our gas turbine ships. This project should generate significant savings in fuel costs. The first installation is scheduled for April 2007. In addition, the company has embarked on a program, on its gas turbine ships, to use limited quantities of biodiesel, which is a fuel made from vegetable oil feed stocks such as soy bean or palm oil. Biodiesel has significant environmental benefits, including lower NOx (Nitrogen Oxides) emissions, as well as being a renewable energy source.
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