Royal Caribbean Reports Improved Second Quarter Earnings and 2010 Outlook

Key Highlights

• Second quarter 2010 net income increased to $60.5 million, or $0.28 per share;


• Business conditions have remained on target in each of the company's main markets while improved cost control has enabled the company to raise its earnings guidance for the year;


• Operating costs were lower than expected due mainly to strong cost control, energy conservation measures, expense timing and currency fluctuations;


• Second quarter Net Yields increased 4.9%, (5.4% on a Constant Currency basis);


• Second quarter Net Cruise Costs per APCD, "NCC", declined 2.8%, (2.0% on a Constant Currency basis);


• Net Yields are expected to increase approximately 4% in the third quarter and 3% - 4% for the year as a whole, (7% and 4% - 5% respectively on a Constant Currency basis);


• NCC are expected to be down 1% for the third quarter and down approximately 1% - 2% for the full year;


• EPS expectation for the full year 2010 has been increased by $0.10 to $2.25 to $2.35.  Third quarter 2010 EPS is expected to be in the range of $1.52 to $1.57.

"What a difference a year makes.  It is gratifying to post another solid quarter with improvement in yields and strong cost control," said Richard D. Fain, chairman and chief executive officer.  Fain continued, "Despite ongoing uncertainty with the economy, our profitability continues to improve and our booking environment continues to be remarkably stable.  We remain focused on strengthening our financial position and I am encouraged about the tremendous global response to our brands."

Second Quarter 2010 Results

Royal Caribbean Cruises Ltd. today announced net income for the second quarter 2010 of $60.5 million, or $0.28 per share, compared to a net loss of $35.1 million, or ($0.16) per share, in second quarter of 2009.  

Revenues improved to $1.6 billion in the second quarter of 2010 compared to $1.3 billion in the second quarter of 2009, as a result of capacity increases and yield improvements.  Net Yields for the second quarter of 2010 increased 4.9% despite the impact of the stronger US Dollar.  

In the second quarter of 2010, NCC decreased 2.8%, and NCC excluding fuel decreased 4.4%.  Excluding currency impacts, the comparable figures would have been decreases of 2.0% and 3.4%, respectively.      

Improved fuel consumption efforts resulted in significantly better fuel consumption of 318,000 metric tons during the second quarter.  At-the-pump pricing (including the benefit of the company's hedging) was virtually unchanged.  Altogether, the quarter's fuel expenditures were approximately $6 million better than previous calculations.

Forward Guidance

The company reported that with the exception of currency exchange rates, the current revenue environment has remained stable.  Additionally, booked load factors and average per diems continue to run ahead of same time last year for the back half of the year.  Third quarter 2010 Net Yields are expected to improve approximately 7% on a Constant Currency basis, or 4% on an as-reported basis.  Full Year 2010 Net Yields are expected to improve approximately 4% - 5% on a Constant Currency basis and 3% - 4% on an as-reported basis.

NCC are forecasted to be down 1% for the third quarter and down 1% - 2% for the full year of 2010.  On a Constant Currency basis, NCC are forecasted to be flat to up slightly for the third quarter and down 1% for the full year of 2010.

"Demand for our cruises remains on track with our earlier projections," said Brian J. Rice, executive vice president and chief financial officer. Rice continued, "The strengthening of the US Dollar will clearly result in a reduction of our reported yields, but also provides a corresponding reduction in expenses.  Most importantly, our continued focus on cost controls and efficiency is driving improved earnings."

Currency Exposure

Given the recent volatility in currency exchange rates, the company is expanding its disclosures regarding currency and has defined a non-GAAP measure of "Constant Currency."

Based on current estimates for 2010, the company anticipates that 30% of its net revenues, and 20% of its NCC excluding fuel will be denominated in currencies other than US Dollar, with the British Pound and the Euro being the most significant components.  

Fuel Expense

The company does not forecast fuel prices and its cost calculations are based on current at-the-pump prices net of hedging impacts. Based on today's fuel prices the company has included $170 million and $652 million of fuel expense in its third quarter 2010 and full year 2010 guidance, respectively.

The company has made additional progress over the past quarter in optimizing the fuel consumption on many of its newer itineraries, as well as fine tuning the operations on its newest hardware.  The ongoing focus on fuel consumption has allowed the company to further reduce its full year 2010 consumption estimate to 1,327,000 metric tons of fuel versus the estimates the company provided in April.

The company's fuel consumption is currently 47% hedged for the third quarter of 2010.  In keeping with its previously disclosed hedging strategy, forecasted consumption is now 48% hedged for the remainder of 2010, 55% hedged in 2011, 50% hedged in 2012 and 20% hedged in 2013.

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