Royal Caribbean confirms it is negotiating for third Oasis

OCTOBER 26, 2012 — Royal Caribbean Cruises Ltd. (NYSE, OSE: RCL) confirmed yesterday that it is, indeed, negotiating for the possible construction of a third Oasis-class cruise ship. The disclosure came as the cruise line reported better than expected third quarter results and increased its earnings outlook for full year 2012.

There has been speculation that Royal Caribbean could build a third Oasis since an October 3 report in Finnish newspaper Turun Sanomat that STX Finland’s Turku Shipyard could get a Euros 1 billion order for the ship, if Finnish government support is provided in the shape of export credit shipbuilding construction financing (see earlier story).

Royal Caribbean now says it is engaged in negotiations for the possible construction of an Oasis-type newbuild that would be delivered in middle to late 2016. While the company has not entered into any agreement at this time, it hopes to do so before year’s end. The new ship is expected to cost less on a per berth basis than either of the first two Oasis-class vessels.

“The Oasis of the Seas and Allure of the Seas have proven themselves to be exceptionally attractive ships by generating the highest guest satisfaction ratings in the fleet coupled with very compelling financial returns,” said Chairman and CEO Richard D. Fain. “Ordering another such ship for delivery in 2016, at a lower cost, with better energy efficiency, is very consistent with our balanced goals of prudent growth, return improvement and debt reduction.”

Strong third quarter

Royal Caribbean reported third quarter 2012 net income of $367.8 million, or $1.68 per share, versus income of $399.0 million, or $1.82 per share, in the third quarter of 2011.

Both close-in booking activity and cost controls were stronger than the company anticipated in its previous guidance.

“The strong third quarter certainly validates our confidence in our business model,” said Mr. Fain. “Strong close-in demand and our focus on costs drove substantially better results than expected. I am especially gratified that we are still seeing price increases in a year marked by so many external pressures.”

Outlook

Fourth Quarter 2012

Royal Caribbean says that, as it anticipated in February, the Costa Concordia tragedy had its biggest yield impact in the second and third quarters of the year. The effect of the incident on bookings has continued to wane and fourth quarter 2012 Net Yields are expected to increase approximately 1 percent on both Constant-Currency and As-Reported bases. Excluding previously referenced deployment initiatives and changes to the company’s international distribution system, Net Yields for the quarter are expected to be approximately flat.

For the fourth quarter of 2012, NCC excluding fuel are expected to be up approximately 1 percent on a Constant-Currency basis and flat to up 1 percent on an As-Reported basis. Excluding the deployment initiatives and changes to the company’s international distribution system, NCC excluding fuel are expected to be approximately flat on both a Constant-Currency and As-Reported basis.

Full Year 2012
The company increased its guidance for full year earnings per share by $0.15 to a range of $1.85 to $1.95. This increase has been mainly driven by stronger than anticipated revenue (+$0.06 per share) and expense reduction (+$0.06 per share). The remaining $0.03 per share improvement is principally due to currency benefits net of oil price increases.

For the full year of 2012, Net Yields are expected to increase approximately 3 percent on a Constant-Currency basis and to be up 1 percent to 2 percent on an As-Reported basis. Approximately 200-250 basis points of the expected improvement in Net Yields relates to deployment initiatives and changes to the company’s international distribution system.

For the full year, NCC excluding fuel are expected to increase approximately 4 percent on a Constant-Currency basis (up 2 percent to 3 percent As-Reported). Excluding deployment initiatives and changes to the company’s distribution system, Constant-Currency NCC excluding fuel are expected to be flat to up 1 percent.

2013 Outlook
The company noted that while it is very early in the 2013 bookings cycle and visibility at this time is limited, the company is encouraged by the trends so far. For the year 2013, booked load factors and average per diems are both slightly higher currently than at this same time last year. This is particularly encouraging in light of the fact that these prior year comparisons relate to bookings before the Costa Concordia incident which occurred in January 2012.

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