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Royal Caribbean reports 2011 results and provides initial 2012 outlook

Royal Caribbean; Full year 2011 net income of $607.4 million

“First and foremost, our thoughts are with the guests, crew members and families who have been affected by the tragedy in Italy,” said Richard D. Fain, chairman and chief executive officer. “Like so many who have spent their working lives in this industry, a tragedy like this just breaks our hearts.” Fain continued, “All of us in the industry, who are so devoted to providing safe and exceptional vacations to millions of people around the world, are devastated and humbled when something like this happens. Ironically, this tragedy is so noteworthy partially because it is so rare. Cruising has an extraordinary record of safe operation but this tragic incident is a reminder that there is no such thing as perfect safety, only perfect dedication to safety. And I can assure you that we strive toward this perfect dedication to safety each and every day. Stunned by the tragedy, we and the rest of the industry are determined to learn whatever lessons we can and rededicate ourselves to continue providing the best and safest vacations for our guests.” 

Against this background, the company reported on its results for 2011 and provided its preliminary outlook for 2012.

Fourth quarter and full year 2011 results
The year ended on a strong note with good bookings and cost control more than compensating for the increased cost of fuel and foreign exchange impacts.

Results For the Full Year 2011:
– Net income was $607.4 million, or $2.77 per share, versus $515.7 million, or $2.37 per share, in 2010;
– Net Yields increased 2.4% on a Constant-Currency basis (+4.1% As-Reported). Net Cruise Costs (“NCC”) excluding fuel increased 1.3% on a Constant-Currency basis (+2.3% As-Reported).

Results For the Fourth Quarter 2011:
– Net income was $36.6 million, or $0.17 per share, versus $31.9 million, or $0.15 per share, in 2010;
– Net Yields increased 3.5% on a Constant-Currency basis (+3.2% As-Reported). Net Cruise Costs per APCD (“NCC”) excluding fuel increased 3.7% on a Constant-Currency basis (+3.6% As-Reported).

“The year ended on a strong note which more than offset the rise in oil prices and the strengthening U.S. dollar,” said Brian Rice, chief financial officer. Rice continued, “For the year as a whole, adjusted for fuel price increases and geopolitical events, our earnings would have meaningfully exceeded the midpoint of our January 2011 guidance.”

Fourth Quarter 2011 Results
Royal Caribbean Cruises Ltd. announced fourth quarter 2011 net income of $36.6 million, or $0.17 per share, versus $31.9 million, or $0.15 per share, in 2010. Revenues improved to $1.8 billion in the fourth quarter of 2011 compared to $1.6 billion in the fourth quarter of 2010 as a result of capacity increases and yield improvements.  Net Yields increased 3.5% on a Constant-Currency basis (+3.2% As-Reported). NCC excluding fuel increased 3.7% on a Constant-Currency basis (+3.6% As-Reported). Bunker pricing for the fourth quarter was $609 per metric ton and consumption was 342,000 metric tons. Absent changes in currency exchange rates and fuel pricing, all operational metrics for the fourth quarter were in-line with or better then the company’s previous guidance.

Full Year 2011 Results
Also included in yesterday’s announcement was full year 2011 net income of $607.4 million, or $2.77 per share, versus $515.7 million, or $2.37 per share, in 2010. Revenues improved to $7.5 billion for the full year of 2011 compared to $6.8 billion for the full year of 2010 as a result of capacity increases and yield improvements. Net Yields increased 2.4% on a Constant-Currency basis (+4.1% As-Reported). NCC excluding fuel increased 1.3% on a Constant-Currency basis (+2.3% As-Reported). Bunker pricing for the full year was $582 per metric ton and consumption was 1,314,000 metric tons. Versus the full year guidance the company provided in January 2011, we estimate that geopolitical events and fuel pricing negatively impacted earnings by approximately $0.65 and $0.20 per share, respectively. 

Looking ahead to the year 2012
The company provided the following update on the demand environment for 2012. Because the tragedy in Italy is having such a significant near term effect on bookings and because that impact on the company’s earnings is so uncertain, the company first described the situation prior to the event and then discussed the possible consequences.

Outlook Pre-Costa Concordia
Booking patterns at the end of 2011 were strong and WAVE season was off to an excellent start. During the two weeks prior to the tragedy, bookings averaged 5% more than the same period last year and at higher prices. Booked load factors and pricing were ahead of the same time last year in all four quarters. 

Based on the bookings in hand at that time and the pattern of forward bookings through the period, the company anticipated Constant-Currency yield improvement in the mid single digits for the year. This figure was influenced by two unique factors: 

– Firstly, the company made some changes related to its International distribution system in 2011 which carry on into 2012 and will increase yields by about 130 basis points. The changes also increase expenses, but the bottom line impact is not material.
– Secondly, the company has increased its commitment in certain deployment initiatives which increase revenues but also increase related expenses. For example, China represents a strategic market initiative the company is augmenting significantly.

Altogether, these factors are expected to cause both Net Yields and NCCs for the full year 2012 to increase approximately 200 basis points and 300 basis points, respectively. Absent these factors, the company estimates that its “normalized” Net Yield growth would have been in the range of 2% to 4% on a Constant-Currency basis.

Impact of Costa Concordia
It is very difficult to assess the impact of the incident on our revenues. It has been the subject of extensive media coverage and world-wide attention. In addition, we curtailed our marketing activities as did most cruise lines and travel agencies. We believe that most observers and potential guests understand that cruising is safe and that this incident was a very rare anomaly in an otherwise reliably safe vacation. But in the near term it has a significant impact on our bookings. 

We are pleased to note that there has been no material change in cancellation activity which has remained within normal levels. However, new booking activity has been hurt. Overall booking volumes from North America have fallen by low to mid-teen percentages versus same time last year for the last few weeks. In Europe, where media coverage has been more extensive, the decline has been higher, though results vary significantly by country. In aggregate the company’s other markets, including Asia/Pacific and Latin America are down slightly. For the year as a whole, notwithstanding the recent slowdown, booked load factors and pricing are still higher than they were at the same time last year. This reflects the very robust starting position the company was in before the incident.

The impact on bookings has been greatest in the first three quarters and wanes as the year progresses. On the other hand, the first quarter also has more of its capacity booked making it less affected by changes in booking patterns. Spring and summer sailings are showing the largest declines in new bookings, while longer term bookings remain healthy. In addition, the company noted that the impact is much greater for first time cruisers compared to experienced cruisers. This reflects the greater knowledge experienced cruisers have about cruise vacations and ships.

Including the contribution from distribution changes and deployment initiatives noted above, the company currently anticipates yield improvement for the full year 2012 to be in a range between 1% and 5% on a Constant-Currency basis and between flat and 4% on an As-Reported basis versus the prior year.

Already, bookings have started to recover, particularly in North America and the company does not expect that this event will have a significant long term impact on its business.

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