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CARBON TAX ON BUNKER FUEL
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Marine Log

July 21, 2008

Royal Caribbean to slash shore-side jobs

Hit by rising fuel costs, Royal Caribbean Cruises Ltd. (NYSE: RCL) today announced a cost savings plan that it hopes will cut annual spending by $125 million. As part of the plan, 400 shore-side jobs will go.

The plan was announced as the company reported net income for the second quarter 2008 of US$84.7 million, or US$0.40 per share, compared to a net income of US$128.7 million, or US$0.60 per share, for the second quarter 2007. Net Income for the first six months was US$160.4 million or US$0.75 per share, compared to net income of US$137.6 million, or US$0.64 per share, for the same period last year.

Net cruise costs per Available Passenger Cruise Day (APC) increased 6.7% (excluding fuel, net cruise costs per APCD increased 2.0%.

Fuel prices increased 55%, though fuel costs per APCD increased at a lower rate of 31%, due mainly to fuel initiatives and hedging.

"Too much of our profitability is being eroded by the increase in fuel prices. This is unacceptable and we are evaluating everything we do to find ways to do it more efficiently and effectively," said Richard D. Fain, Chairman and CEO. "While our brands continue to attract premium prices even in this difficult environment, it is imperative that we find ways to reduce our costs."

As part of the restructuring, the company announced it is eliminating approximately 400 shore-side positions. In addition, it has discontinued some non-core operations, including The Scholar Ship, an educational partnership aimed at college students studying aboard cruise ships. The company expects to incur charges related to the restructuring of approximately US$15 million, or US$0.07 per share, in the third quarter 2008.

"This is a difficult period for virtually all businesses, but we are determined to improve our operating results through tight cost controls, while preserving our outstanding guest experience and continuing to strongly support our travel agent partners. We will also continue to make measured strategic investments, especially in growing the international operations of our business," Fain continued.

In 2009, based on the targeted reductions, selling, general and administrative expenses per APCD are expected to be around the levels that the company incurred in 2004, and net cruise costs excluding fuel, per APCD to be similar to 2007 levels.

"Over the last few years, we have made significant investments to seed our growth in many strategic markets," said Brian J. Rice, Executive Vice President and Chief Financial Officer. "These costs are now being absorbed by capacity and revenue growth in the emerging markets around the world. In addition, our scale and exceptional brand positioning in North America are enabling us to drive further efficiencies."

Royal Caribbean says that despite the worsening economic environment, it continues to enjoy healthy demand for its products and its revenue expectations have not changed materially.

Net yields improved by 1.0% in the second quarter 2008. This was lower than the 2% forecast, mainly due to lower yield performance by Pullmantur Cruises, as a result of weaker demand in Spain and a grounding incident involving the Sky Wonder.

The company's other brands saw net yield improvement of approximately 2%, consistent with previous guidance. Close-in demand, booked within 90 days of sailing, continued to show strength and provided year-over-year pricing premiums. Forward bookings for 2009 are strong, with higher load factors and higher prices in the first quarter and for the full year compared to the same time a year ago.

The company expects net yields to increase in a range around 2% for the third quarter 2008; to increase 4% to 5% for the fourth quarter 2008; and to increase 3% to 4% for the full year 2008.

"Although pressure on the consumer persists and there is much uncertainty in the market, demand for our cruises and onboard spending continues to be resilient," said Rice. "Our yields should improve in all four quarters this year."

Outlook

The company expects third quarter 2008 earnings per share, including the restructuring charges, to be US$1.65 to US$1.70, and to be US$2.55 to US$2.65 for the full year 2008. This forecast is virtually unchanged from that provided at the beginning of the year and at the end of the first quarter, except for the direct increase in fuel costs.

"We continue to watch with concern both the high oil price and the weakening economy," said Mr. Fain. "While we can't solve high oil prices, we are gratified that, except for the oil price, our business continues to do as well or better than expected despite the economy. One might have assumed that we would have been impacted by both, but the fact that our business continues to overcome these economic pressures says volumes about its resilience. We believe this is due to several factors, including the strength of our brands, the success of our newest ships, the value of cruising to the consumer and our growing penetration of new global markets."

The company does not forecast fuel prices and its cost guidance is based on current at-the-pump prices net of any hedge impacts. Based on current fuel prices, the company has included US$772 million in fuel expenses in its full year 2008 guidance. This figure is US$86 million, or US$0.40 per share, higher than at the time of its previous earnings guidance. Assuming the company's fuel costs correlate with movement in the price of WTI, a US$10 change in WTI per barrel, would equate to an US$11 million change in the company's fuel expense for the third quarter and a US$20 million change for the full year.

The company also estimated that at current oil prices, its fuel expense for 2009 would be approximately US$890 million net of existing hedges and that a US$10 change in the WTI price would change the expense by US$59 million or US$0.28 per share.

Based on current ship orders, projected capital expenditures for 2008, 2009, 2010, 2011, and 2012, are estimated to be US$1.9 billion, US$2.0 billion, US$2.2 billion, US$1.0 billion, and US$1.0 billion, respectively. Projected capacity increases for the same five years are estimated at 5.0%, 6.8%, 12.1%, 7.2%, and 3.0%, respectively.

"Obviously, justifying new ship orders is becoming more and more difficult with a soft economy, weak dollar, and continuing escalation of steel and oil prices," Mr. Fain commented. "We are fortunate to already have an enviable portfolio of new ships on order which enables us to continue growing our business outside of North America. We are very confident the vessels we will take delivery of in the next few years will provide price premiums, operating efficiencies and rewarding returns, even at today's high fuel prices."

As of June 30, 2008, liquidity was US$1.3 billion, including US$0.4 billion in cash and cash equivalents, and US$0.9 billion in available credit on the company's unsecured revolving credit facility.


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