Royal Caribbean Cruise Lines 2005 Annual Report Download - page 25

•Higher fuel costs account for approximately 7.0 to 8.0 percent-
age points of the increase. As announced on February 2, 2006,
“at-the-pump” fuel price was $425 per metric ton, which is 50%
higher than the average price for the first quarter of 2005 of
$284 per metric ton. If fuel prices for the rest of the quarter
remain at that level, we estimate that our first quarter 2006 fuel
costs (net of hedging and fuel savings initiatives) will increase
approximately $45 million. Fuel prices have not changed signif-
icantly since our announcement on February 2, 2006.
•Timing of refurbishment expenses due to a larger portion of
annual drydocks scheduled in the first quarter.
•Timing of marketing, selling and administrative expenses main-
ly due to rescheduling of marketing expenses.
Based upon the expectations and assumptions contained in this
outlook section (including the legal settlement with Alstom of $0.16
per share), we expect first quarter 2006 earnings per share to be in
the range of $0.45 to $0.50.
Year Ended December 31, 2005 Compared to Year
Ended December 31, 2004
Net Revenues increased 8.8% in 2005 compared to 2004 due to a
7.4% increase in Net Yields and, to a lesser extent, a 1.4% increase
in capacity. The increase in Net Yields was primarily due to higher
cruise ticket prices and amounts spent per passenger onboard.
Higher cruise ticket prices were primarily attributable to a strong
demand environment and a decrease in capacity growth within the
industry. The increase in capacity was primarily attributed to the
addition of
Jewel of the Seas in 2004, partially offset by
Enchantment of the Seas , which was out of service for 53 days due
to its lengthening. In addition, capacity in 2004 was negatively
impacted by the cancellation of certain sailings primarily due to hur-
ricanes and unscheduled drydocks. Occupancy in 2005 was 106.6%
compared to 105.7% in 2004. Gross Yields increased 6.2% in 2005
compared to 2004 primarily due to the same reasons discussed
above for Net Yields.
Onboard and other revenues included concession revenues of
$223.0 million and $196.3 million in 2005 and 2004, respectively.
The increase in concession revenues was primarily due to higher
amounts spent per passenger onboard and the increase in capacity
mentioned above.
Net Cruise Costs increased 7.8% in 2005 compared to 2004 due to
a 6.3% increase in Net Cruise Costs per APCD and the 1.4% increase
in capacity mentioned above. Approximately 4.9 percentage points
of the increase in Net Cruise Costs per APCD was attributed to
increases in fuel costs. Total fuel costs (net of the financial impact of
fuel swap agreements) increased 46.0% in 2005 as compared to an
increase of 27.5% in 2004. As a percentage of total revenues, fuel
costs were 7.5% and 5.5% in 2005 and 2004, respectively. The
remaining 1.4 percentage points of the increase in Net Cruise Costs
per APCD was primarily attributed to increases in payroll costs asso-
ciated with benefits. In addition, Net Cruise Costs in 2004 included
approximately $11.3 million in costs related to the impact of hurri-
canes. Gross Cruise Costs increased 6.5% in 2005 compared to
2004, which was a lower percentage increase than Net Cruise Costs
primarily due to a lower proportion of passengers who purchased air
transportation from us in 2005.
Depreciation and amortization expenses increased 2.0% in 2005
compared to 2004. The increase was primarily due to incremental
depreciation associated with the addition of
Jewel of the Seas in
2004 as well as depreciation associated with other capital expendi-
tures, including the lengthening of
Enchantment of the Seas in 2005.
In July 2005, First Choice redeemed in full its 6.75% convertible pre-
ferred shares. We received $348.1 million in cash, resulting in a net
gain of $44.2 million, primarily due to foreign exchange.
Gross interest expense decreased to $287.4 million in 2005 from
$317.2 million in 2004. The decrease was primarily attributable to
lower average debt level, partially offset by higher interest rates.
Interest capitalized increased to $17.7 million in 2005 from $7.2 mil-
lion in 2004 due to a higher average level of investment in ships
under construction.
In the third quarter of 2005, we changed our method of accounting
for drydocking costs from the accrual in advance to the deferral
method (see Note 2.
Summary of Significant Accounting Policies to
our consolidated financial statements). The change resulted in a
one-time gain of $52.5 million, or $0.22 per share on a diluted basis,
to recognize the cumulative effect of the change on prior years,
which we reflected as part of our results in 2005. Other than this
one-time gain, the change did not have a material impact on our
consolidated statement of operations.
Year Ended December 31, 2004 Compared to Year
Ended December 31, 2003
Net Revenues increased 20.4% in 2004 compared to 2003. The
increase was due to a 10.3% increase in capacity and a 9.2%
increase in Net Yields. The increase in capacity was primarily associ-
ated with the full year effect of the additions of
Serenade of the Seas
and Mariner of the Seas in 2003 and delivery of Jewel of the Seas in
2004. The increase in capacity was partially offset by the cancella-
tion of 54 days of sailings in 2004 due to hurricanes and unsched-
Royal Caribbean Cruises Ltd. 23
Management’s Discussion and
Analysis of Financial Condition and
Results of Operations (continued)