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Due to better revenues and expenses

Royal Caribbean reports better than expected first quarter results

Royal Caribbean Cruises Ltd. announced a net loss for the first quarter 2009 of $36.2 million, or $0.17 per share, compared to net income of $75.6 million, or $0.35 per share, in 2008. The results were significantly better than prior guidance of a loss between $0.30 and $0.35.

Revenues were $1.3 billion, versus $1.4 billion in the first quarter of 2008. Net Yields decreased 13.5% from the prior year. The overall revenue environment was slightly better than previous guidance due to stable close-in booking patterns. Onboard Net Yield declined consistent with the company’s prior expectations.

Fuel costs benefited from reductions in at-the-pump pricing and continued consumption reduction initiatives and were $10 million better than previous estimates. NCC declined 7.0% versus the first quarter of 2008 and excluding fuel declined 6.8%.

For the year, the company projects revenue yields to be toward the lower end of its previous guidance (12%) – (13%). The slightly reduced revenue expectations are largely offset by the improved cost outlook and are expected to result in 2009 earnings per share of around $1.35.

As of March 31, the company had $1.1 billion in liquidity and expects to generate over $1 billion in operating cash flow in 2009. The company recently received commitments for financing of Royal Caribbean International’s Oasis of the Seas and signed credit agreements for Celebrity Equinox and Celebrity’s fourth Solstice-class vessel scheduled to enter service in 2011.

"Obviously, we are never happy to report a loss, but I am pleased that the full year earnings outlook has not changed materially," said Richard D. Fain, chairman and chief executive officer. "Given the horrible economy, I am encouraged by a more stable revenue environment and I am proud that our people have been able to reduce expenses and deliver better than expected results."

Revenue environment
While consumer spending continues to be impacted by the economy, the company noted that its overall revenue environment has remained relatively consistent since the end of last year. Discounting continues to be aggressive, yet remains within the range of previous guidance and booking volumes have been sufficient for the company to achieve its forecasted occupancy levels. "In January, we noted that our booking patterns had begun to stabilize but that there was still a high level of uncertainty in the market," said Brian J. Rice, executive vice president and chief financial officer. "Since then, we have seen consumer behavior stabilize even further. We are obviously not completely back to equilibrium yet, but the predictability of our bookings gets better every day and the risk of a dramatic deviation continues to fall."

Second quarter Net Yields are projected to decline approximately 17% on an as-reported basis and approximately 12% on a constant dollar basis. Third quarter yields are projected to perform slightly better than the second quarter on both an as-reported and constant dollar basis, mainly due to the company’s Pullmantur brand, which will have much easier comparables from the prior year due to the earlier deterioration in the Spanish economy.

The second and third quarter Net Yields are projected to show the largest yield declines on an as-reported basis, as each quarter is impacted by approximately five percentage points based on current exchange rates. On a constant dollar basis, the second and third quarters are also being impacted by relatively weaker demand for the company’s seasonal premium itineraries such as Alaska.

Many of these same factors indicate that the fourth quarter will not suffer as large a revenue decline. In addition to having more favorable currency comparables and a product mix that is weighted more heavily toward relatively stronger Caribbean products, the company’s fourth quarter will be compared to last year’s fourth quarter which already included an impact from the economic downturn. Lastly, bookings for the Oasis of the Seas are extremely robust and are expected to have a significant accretive impact on yields.

For the full year, the company expects Net Yields to decline 12%-13% on an as-reported basis and 9%-10% on a constant dollar basis. "A later booking pattern continues to make forecasting difficult, but our visibility gets better every day," said Rice. "We have lowered our revenue forecast marginally to take into account selected areas of weakness including a more cautious view of onboard revenue, but overall, our bookings continue to come in within the range of our earlier expectations. In today’s world, that is significant."

Net cruise costs are forecasted to decrease 10%-12% for the year and 11%-12% for the second quarter. Excluding fuel, net cruise costs are expected to decline 6%-8% for the year and approximately 9% for the second quarter.

In addition to a very successful cost savings program, the company has benefited from falling fuel prices and the stronger dollar. Based on current dollar exchange rates net cruise costs are realizing a benefit of approximately five percentage points in the second quarter and between two and three percentage points for the year. There continues to be some natural inverse correlation between revenues and expenses and the company’s cost cutting initiatives are focused on taking advantage of this correlation.

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Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.

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