Royal Caribbean profits down

Royal Caribbean Cruises Ltd. today announced net income for the third quarter of 2006 of US$345.4 million, or US$1.63 per share, compared to net income of US$374.7 million, or US$1.64 per share, for the third quarter of 2005. The third quarter of 2005 includes a net gain of US$44.2 million, or US$0.19 per share, related to the redemption of the company’s investment in First Choice Holidays PLC. Revenues for the third quarter of 2006 increased to US$1.6 billion from revenues of US$1.5 billion in the third quarter of 2005.

Net Yields increased 2.7% over the third quarter of 2005, consistent with previous guidance of an increase of approximately 3%, driven by strong cruise pricing. Net Cruise Costs, on a per APCD basis, increased 4.5% compared to the third quarter of 2005. Fuel accounted for 3.4 percentage points of the increase in Net Cruise Costs. Our “at-the-pump” fuel price averaged US$442 per metric ton this quarter and US$385 per metric ton in the third quarter of 2005. Non-fuel costs accounted for the remaining increase of 1.1 percentage points. This figure also includes expenses associated with the cancellation of one Infinity sailing to replace one of the ship’s propulsion pods.

“We are extremely pleased with the performance of our two brands,” said Richard D. Fain, chairman and chief executive officer. “It is particularly gratifying to continue to show such good results despite significantly higher fuel costs.”

Outlook - Fourth Quarter 2006

Although the company traditionally has losses in the fourth quarter, we expect a very good fourth quarter 2006 based on strong yield growth and lower costs. The company expects Net Yields for the fourth quarter of 2006 will show year over year increases consistent with those seen in the third quarter. This continued yield improvement demonstrates the strength of our two brands.

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As the company has previously advised, the timing of expenses in 2006 has been more heavily weighted toward the first nine months of the year than in 2005. Accordingly, the company expects that Net Cruise Costs per APCD for the fourth quarter of 2006 will decrease approximately 4% compared to the same quarter in 2005, driven mainly by the timing of drydocking and marketing expenses. Lower fuel costs account for approximately 0.6 percentage points of this decrease. Our current “at-the-pump” fuel price is US$388 per metric ton. If fuel prices for the rest of the year remain at today’s level, the company estimates that its fourth quarter 2006 fuel costs (net of hedging and fuel savings initiatives) will decrease approximately US$5 million.

As separately announced, the company has received all necessary governmental approvals to our Pullmantur deal and expects to close in mid-November. This acquisition is expected to negatively impact fourth quarter earnings by US$0.02 to US$0.03 per share. The company is also more confident about the benefits that will accrue to our businesses and now feels comfortable projecting that it will be accretive in 2007. The company is particularly excited about the benefits of swapping ships between Celebrity and Pullmantur, which gives Pullmantur more capacity while allowing Celebrity to expand its very successful Celebrity Expeditions product.

Based upon the expectations and assumptions contained in this outlook section (including Pullmantur), we expect fourth quarter 2006 earnings per share to be US$0.20 to US$0.25.

Outlook - Full Year 2006

Back in February 2006, the company provided initial Net Yield guidance for the full year 2006 of an increase of 2% to 4% compared to 2005. We subsequently increased that to 3% to 4% in April. From that guidance, the third quarter results were slightly better than anticipated and the fourth quarter guidance slightly worse. Accordingly, we now expect to come in close to the mid-point of this range.

The company estimates that Net Cruise Costs per APCD for 2006 will increase approximately 6% 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$388 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 be approximately US$110 million higher than the prior year.

Depreciation and amortization is expected to be in the range of US$420 to US$425 million and net interest expense is expected to be in the range of US$265 to US$270 million.

Based upon the expectations and assumptions contained in this outlook section (including Pullmantur), management expects full year 2006 earnings per share to be US$2.90 to US$2.95.

Outlook - 2007

Looking into 2007, overall booking levels and ticket prices are in line with levels achieved at the same time last year. The beginning of the year is down slightly, with bookings beyond the first quarter more robust. While it is still too early to quantify projections for 2007, management is optimistic that the current demand environment will result in positive yield performance for the full year.

Fuel prices have recently come down, but remain volatile. If 2007 at-the-pump fuel prices remain at current levels, the company estimates that its 2007 fuel costs (net of hedging and fuel savings initiatives) will decrease approximately US$35 million, despite a 5% growth in capacity. Additionally, we are currently 40% hedged for 2007, and a 10% change in the market price of fuel results in a US$26 million change in our fuel costs after taking into account these existing hedges.

The company has scheduled a conference call at 10 a.m. Eastern Standard Time today to discuss its earnings. This call can be listened to, either live or on a delayed basis, on the company’s investor relations web site at www.rclinvestor.com .
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