Royal Caribbean reports record profit

Royal Caribbean Cruises Ltd. today announced record net income for the fourth quarter 2006 of US$46.6 million, or US$0.22 per share, compared to a net loss of US$3.6 million, or US$0.02 per share, for the fourth quarter 2005. Revenues for the fourth quarter 2006 increased to US$1.2 billion from revenues of US$1.0 billion in the fourth quarter 2005.

Net income for the full year 2006 was US$633.9 million, or US$2.94 per share, compared to income before the cumulative effect of a change in accounting principle of US$663.5 million, or US$3.03 per share, for the full year 2005. Revenues for the full year 2006 increased to US$5.2 billion from revenues of US$4.9 billion for the full year 2005. Net Yields grew 3.4% to a record US$178.

Compared to the same period last year, fourth quarter 2006 Net Yields increased 3.3%, consistent with previous guidance, driven by strong cruise pricing. Net Cruise Costs, on a per APCD basis, decreased 3.3%, driven by the timing of drydocking and marketing expenses. Fuel costs, on a per APCD basis, were flat, with an average “at-the-pump” price of US$395 for the quarter.

“It is very gratifying to achieve such strong performance, especially in our traditionally softest quarter,” said Richard D. Fain, Chairman and Chief Executive Officer. “This certainly tops off another excellent year. We are particularly pleased with the solid yield performance of our brands, and healthy earnings despite significantly higher fuel costs.” Higher fuel prices increased operating costs by US$112 million in 2006, which reduced earnings per share by US$0.51.

Fain continued, “Royal Caribbean International and Celebrity Cruises grew yields 3.4% for the full year 2006. This is at the high end of our original expectations, and is a testament to the strength and momentum of our brands, particularly given a Caribbean pricing environment that is less robust than we had hoped.”

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2007 Outlook

The Pullmantur acquisition was completed in November 2006. For reporting purposes, the company will be including Pullmantur’s results on a two month lag, and, as such, its operations will be included in the company’s consolidated financial statements beginning with the first quarter 2007. Therefore, the items discussed in this outlook section include Pullmantur.

Collectively, the company will have a 12.2% increase in capacity in 2007, driven by Pullmantur, the April delivery of Liberty of the Seas, and a full year of Freedom of the Seas.

“The early indications from the ‘wave period’ are less encouraging than we had hoped,” Fain said. We have seen the usual uptick in volume, while pricing appears to have leveled off from the healthy appreciation we have seen over the last few years. The beginning of the year is down slightly, but the revenue picture for the balance of the year is stronger.”

For the full year 2007, the company currently forecasts that Net Yields will increase in a range around 3% compared to 2006. Pullmantur accounts for two percentage points of this change. Net Cruise Costs per APCD are expected to increase in a range around 3% compared to the prior year. Pullmantur, because of its non-cruise division, will have a negative impact of approximately four percentage points on Net Cruise Costs. The company’s cost guidance for fuel is based on a current “at-the-pump” price of US$361 per metric ton. Additionally, the company is currently 45% hedged for 2007, and a 10% change in the market price of fuel results in a US$24 million change in fuel costs after taking into account existing hedges. Based on these estimates, and assuming that fuel prices remain at today’s level, the company expects full year 2007 earnings per share to be US$3.05 to US$3.20.

Pullmantur has even a greater degree of seasonality than the other brands, with the summer months being significantly stronger than the winter season. This, coupled with the two month reporting lag, will have a negative impact on the first two quarters, but will provide a benefit in the third and fourth quarters.

For the first quarter 2007, the company currently forecasts Net Yields will decrease in a range around 3% compared to the first quarter 2006. Net Cruise Costs per APCD are expected to increase 4% to 5% compared to the first quarter 2006, of which about half is driven by Pullmantur. Based on these estimates, and assuming that fuel prices remain at today’s level, the company expects first quarter 2007 earnings per share to be US$0.03 to US$0.08.

“Coming off a great year, we are encouraged by the prospects of solid earnings accretion in 2007, despite a leveling off in pricing in the early part of the year,” Fain said. “The introduction of Liberty of the Seas in April, the integration of Pullmantur and the associated vessel realignments we have announced will continue the strong brand momentum we have been enjoying.”
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