Royal Caribbean Cruise Lines 2008 Annual Report Download - page 6

4 Royal Caribbean Cruises Ltd.
Richard D. Fain
Chairman and Chief Executive Officer
DEAR FELLOW SHAREHOLDERS
If there is one thing that 2008 reminded us, it is how quickly the business
environment can change and how important it is to be proactive and
diligent in the management of a business enterprise such as ours.
Through the third quarter of last year, I had been hopeful that this
letter would be prepared against a backdrop of improved earnings that
overcame the challenges of a weak economy and astronomical fuel
prices. What really changed in the equation was the sudden impact that
the global economic recession had on our core cruise guests in the last
quarter of the year and the resulting impact on our business.
Fortunately, the tremendous value proposition we provide our guests is
still apparent. Fortunately, our ships continue to deliver amazing vacations
and our brands continue to perform ever more strongly in the competi-
tive marketplace. And, fortunately, the pricing actions we’ve taken have
resonated with our guests and have stimulated demand – albeit at
unacceptably low prices.
Even with a very disappointing end to the year, we were still able to
achieve a significant reduction in our cost structure and a modest
improvement in yields despite an accelerating recession. We are still not
satisfied with the returns the company is producing, and the current
economic environment will exacerbate this challenge in the short term.
The economy will eventually recover, but we cannot assume our busi-
ness will simply go back to “the way it was.” We must be aggressive in
positioning our company not only to respond to those short-term chal-
lenges, but also to position ourselves for a new environment in ways that
generate compelling returns.
In this letter I’ll try to cover some of the steps we are taking to position
ourselves for a new and more profitable future.
THE ECONOMY, COST CONTROLS, AND RESILIENCY
In July, even before the economic crisis and despite the record profitability
we achieved in the third quarter, we announced a basket of initiatives
designed to save $125 million annually. While significant, these
reductions were made without jeopardizing product delivery to our
guests, our travel agent relationships, or our marketing activities.
These initiatives included some very difficult decisions, such as:
s Reduction in force of more than 400 shoreside positions,
s Other reductions in personnel costs,
s The elimination of non-core activities, and
s Continuous reviews of our cost structures and activities.
Another difficult decision that directly impacted all our shareholders
was the decision to discontinue our dividend. While this is a short-term
disappointment, it was the proper decision in the current environment
and will preserve roughly $130 million in liquidity annually.
Further efforts to reduce our costs spawned our Financial Improvement
Teams, or FIT initiative. This effort captured savings by ensuring that
our suppliers passed on to us the cost reductions associated with a
deflationary environment, these efforts resulting in:
s Paying less for the goods that we purchase,
s Improving our payment terms, and
s Realizing savings from lower commodity prices.
Our FIT efforts, coupled with our other savings initiatives, are projected
to lower our net cruise costs, excluding fuel, by five to seven percent per
available guest cruise day in 2009. All while maintaining our excellent
product and service.
High and volatile fuel prices also presented us with challenges last year.
We took very specific steps to address these challenges, including
a sharp focus on reducing the amount of fuel we use. This not only
assisted us in terms of cost reductions, but it contributes to our ongoing
efforts to further reduce our environmental impact. As a result of these
fuel-saving initiatives, in combination with the improved efficiency of
our new hardware, we believe we will continue to use the lowest
amount of fuel per guest day in the cruise industry.