Royal Caribbean Cruise Lines 2009 Annual Report Download - page 4

Dear Fellow Shareholders
When I wrote to you at this time last year, we were facing
unprecedented global economic headwinds and 2009 looked
to be a challenging year. And it was. Unemployment rose to
unprecedented levels, consumer spending slowed, credit
markets fell apart and the entire global economy retrenched
at an astonishing pace.
Thankfully, we weathered that storm better than many
other businesses that rely on discretionary spending. It has
been incredibly painful, but ironically has actually served to
validate the resilience of our company and our industry. The
difficult but necessary cost cutting initiated in mid-2008 really
proved its worth as the magnitude of this cycle began to
unfold. In addition, our heavy investment in global expansion
helped keep our vessels at full capacity by expanding our
guest sourcing pool. And our financing relationships and
commitments served us well, allowing us to raise affordable
debt in an otherwise desert-like financial landscape.
We should not forget that we offer a fantastic product with
broad appeal and high satisfaction ratings and it is that
formula that gives us the strength to see through such
difficult times. Simply put, our guests love us and the value
of our product has resonated with a cautious and strained
consumer during this cycle.
Financial Health
Our 2009 profitability was significantly reduced from
previous periods, but we continued to generate a great
deal of cash – over $1 billion of EBITDA was created
during 2009 and we maintained a liquidity level of about
$1 billion, consistent with past practices. Particularly
strong performance from our newest ships, continued
cost diligence and a proactive approach to managing fuel
risk combined with a strong wave season and a modest
improvement in the consumer landscape are expected
to generate significant improvements in 2010 earnings
relative to 2009. EBITDA generation is expected to grow
substantially as well.
Looking to 2010, I am pleased that we are moving toward an
improving operating environment and improving profitability.
While this is good news, I want to be careful to not give the
impression that we are returning quickly to “the good old
days.” Much of the improvement in 2010 is coming from our
newest ships while the remaining fleet continues to perform
well below their 2008 peaks. Spain, in particular, remains a
challenge and our Pullmantur brand is navigating an economy
that comparatively speaking is in much worse shape than our
other operating theaters. Long-term, Pullmantur remains a
strong strategic fit for our brand portfolio, but we expect that
2010 will bring only marginal improvement in this segment of
our business.
More broadly, we still have a long way to go in achieving
an acceptable return profile for our investors. Accordingly,
we have an all-hands focus at the company on improving
our Return on Invested Capital by taking advantage of the
success of our latest ships, exploiting our international
growth and controlling our costs. And, we expect to do so
while simultaneously strengthening our balance sheet and
improving our creditworthiness. This is a lofty goal, and we
have been hard at work laying a foundation that will help us
accomplish it in reasonable order. In conjunction with a slowly
improving economy, there are some specific focuses that
will help propel us toward our improved profitability goals.
Interestingly, they are many of the same proactive decisions
that buoyed the company’s results in 2009 – diversified
global sourcing, smart hardware investments and strong
cost controls.
Globalization, Brand Expansion and Satisfaction
During 2009, 46% of ticket revenues came from outside the
United States compared to about 10% earlier in the decade.
This is important for two reasons. First, it provides us with
the flexibility to source the vessels according to demand.
For example, when consumers were hesitant to purchase
transatlantic airfare during the summer of 2009, we sourced
a higher percentage of guests locally than we would have
2 Royal Caribbean Cruises Ltd.