Royal Caribbean Cruises Ltd. (RCL)
announced that net income for the first quarter of 2003 was $53.2 million, or $0.27 per share, which was essentially the same as the first quarter of 2002. Revenues for the first quarter of 2003 were $880.2 million, up 10% from $800.0 million in 2002. The increase in revenues was primarily due to an 11.5% increase in capacity, partially offset by a 1.3% decline in gross yields (revenue per available passenger cruise day). The decrease in gross yields was primarily due to a decrease in the percentage of passengers booking airline tickets
as part of their vacation package with the company ("air/sea mix") and lower occupancy levels, partially offset by an increase in cruise ticket prices and shipboard revenues. Net yields for the first quarter of 2003 increased 3.9% from the first quarter of 2002. The air/sea mix decreased to 15.1% in 2003 from 19.8% in 2002.
Operating and SG&A expenses, on a per available passenger cruise day basis, were relatively flat on a quarter over quarter basis (up 0.3%). Although the company previously anticipated costs would be higher in the first quarter, increased fuel costs were offset by a lower than expected air/sea mix and a shift in marketing and operating costs to later in the year. With the onset of the war with Iraq, the company suspended its television advertisements. Now that the war is over, the company is restarting those advertisements, first in the primary markets and then throughout the United States.
The company believes that changes in running expenses (i.e., those expenses directly associated with ship operations - defined as operating expenses less costs deducted to arrive at net yields) and SG&A to be the most relevant measure of its ability to control costs in a manner that positively impacts the bottom line. For the quarter, running and SG&A expenses were up 8.9%, on a per available passenger cruise day basis. This increase is primarily attributable to the increase in fuel costs and the Brilliance of the Seas lease payments. The company estimates running and SG&A expenses for the second quarter will be up on a quarter over quarter basis but expects that these costs will decrease slightly in the second half of the year. For the full year 2003, the company estimates that running and SG&A expenses will increase in the range of 2% to 3%, on a per available passenger cruise day basis.
The war with Iraq and economic uncertainty continue to have a negative impact on bookings, especially in the second quarter of 2003. While we had strong bookings through late 2002, we started to see a slowdown in December, which became more pronounced as the war with Iraq approached
. This trend continued throughout the war. As a result, we currently anticipate that net yields for the second quarter will be down in the range of 6% to 9%. While we have started to see some improvement in bookings, not enough time has passed since the end of the war to determine if booking levels will return to pre-war levels. Because of the disruption related to the war in Iraq and the fact that bookings continue to come closer to the sailing date, we have limited visibility past the second quarter of 2003, which makes it difficult to provide net yield guidance for the remainder of the year.