Royal Caribbean Cruise Lines 2010 Annual Report Download - page 50

PART II
ROYAL CARIBBEAN CRUISES LTD. 47
changes and the favorable impact of our newer ships.
The increase in occupancy is also due to the absence
of the adverse effect caused by the H1N1 virus during
the third quarter of 2009 which resulted in selective
itinerary modifications and diminished demand for
our cruises and tours to Mexico. These increases were
partially offset by a decrease in air revenue due to a
reduction in guests booking air service through us and
an overall decrease in air ticket prices, a decrease in
shore excursions revenue on a per passenger basis
related to seasonal redeployments and to a decrease
in charter revenue due to the termination of the char-
ter to Island Cruises in April 2009. These increases in
revenues were also partially offset by the adverse
effect of changes in foreign currency exchange rates
related to our revenue transactions denominated in
currencies other than the United States dollar.
Onboard and other revenues included concession
revenues of $237.0 million in 2010 compared to $215.6
million for the same period in 2009. The increase in
concession revenues was primarily due to the increase
in capacity mentioned above.
Cruise Operating Expenses
Total cruise operating expenses for 2010 increased
$387.0 million or 9.5% to $4.5 billion from $4.1 billion
for 2009. Approximately $452.1 million of this increase
is attributable to the 11.1% increase in capacity men-
tioned above. The increase is also due to an increase
in commissions directly related to the increase in
ticket prices. These increases were partially offset
by a $30.2 million decrease primarily attributable to
lower air expenses, shore excursions expenses and
fuel expenses on a per passenger basis, and to a lesser
extent, our continued emphasis on cost-containment.
The decreases in air expenses and shore excursion
expenses are directly related to the decreases in reve-
nue as mentioned above. The decrease in fuel expenses
was primarily a result of improved fuel efficiencies
related to our newer ships and the favorable effect of
fuel swap agreements despite increasing fuel prices.
The increase in cruise operating expenses was also
partially offset an estimated $34.9 million decrease
related to the favorable effect of changes in foreign
currency exchange rates related to our cruise operat-
ing expenses denominated in currencies other than
the United States dollar.
Marketing, Selling and Administrative Expenses
Marketing, selling and administrative expenses for
2010 increased $86.1 million or 11.3% to $848.1 million
from $762.0 million for 2009. The increase is primarily
due to an increase in shoreside payroll and benefits
due to higher headcount primarily related to our con-
tinued international expansion and general increases
in compensation.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for 2010
increased $75.5 million or 13.3% to $643.7 million
from $568.2 million for 2009. The increase is primarily
due to the addition of Oasis of the Seas, the addition
of Celebrity Eclipse and a full year of service of
Celebrity Equinox. These increases were partially
offset by the sale of Celebrity Galaxy to TUI Cruises,
the classification of the Atlantic Star as held for sale
which, accordingly, is no longer being depreciated
and the sale of Oceanic.
Other Income (Expense)
Interest expense, net of interest capitalized, increased
to $339.4 million in 2010 from $300.0 million in 2009.
Gross interest expense increased to $365.4 million in
2010 from $341.1 million in 2009. The increase was
primarily due to a higher average debt level, partially
offset by lower interest rates. Interest capitalized
decreased to $26.0 million in 2010 from $41.1 million
in 2009 primarily due to a lower average level of
investment in ships under construction and, to a
lesser extent, lower interest rates.
Other income was $75.0 million in 2010 compared to
other expense of $33.1 million in 2009 for a net change
of $108.1 million when comparing these periods. The
increase was primarily due to an $89.0 million gain,
net of costs and payments to insurers, recorded from
the settlement with Rolls Royce.
Net Yields
Net Yields increased 4.2% in 2010 compared to 2009
primarily due to the increase in ticket prices and the
increase in occupancy, as discussed above. Net Yields
on a Constant Currency basis remained consistent
with Net Yields.
Net Cruise Costs
Net Cruise Costs increased 9.1% in 2010 compared to
2009 due to the 11.1% increase in capacity, partially
offset by a 1.8% decrease in Net Cruise Cost per APCD.
The decrease in Net Cruise Costs per APCD was pri-
marily driven by the decrease in fuel expenses, our
continued emphasis on cost-containment and by the
absence in 2010 of a $7.1 million loss recognized dur-
ing the third quarter of 2009 to reduce the carrying
value of the Atlantic Star to its fair value less cost
to sell when the ship was classified as held for sale.
Net Cruise Costs per APCD on a Constant Currency
remained consistent with Net Cruise Costs per APCD.