Royal Caribbean Cruises Limited

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Royal Caribbean Cruises Limited

founded: 1968

Contact Information:

headquarters: 1050 caribbean way
miami, fl 33132 phone: (305)539-6000 fax: (305)539-6168 toll free: (800)345-7225 url: http://www.rccl.com/1.03.html

OVERVIEW

Royal Caribbean is one of the world's largest cruise lines, ranking second after Carnival. With 16 ships that can accommodate nearly 30,000 passengers, Royal Caribbean offers voyages to more than 150 destinations, including the ports of the Caribbean, Alaska, and Canada. The company's plans for the near future call for continued expansion with the addition of 7 new ships by the year 2002. This would increase the passenger capacity of the Royal Caribbean fleet to about 47,000, more than 55-percent larger than it is at present. As recently as 1996 Royal Caribbean was operating only 11 ships with a total capacity of about 19,000 passengers.

Founded in 1969 by Arne Wilhelmsen and Edwin Stephan, Royal Caribbean was built around the Song of Norway, the line's first cruise vessel and the first passenger ship that had been constructed specifically for warm weather cruising and not just point-to-point travel. The design of the Song of Norway was unique in a number of respects, not the least of which was its Viking Crown cocktail lounge cantilevered from its smokestack. Today all Royal Caribbean cruise ships feature a Viking Crown Lounge. The Song of Norway was also notable for its open pool and lounging area, which since has become an industry standard.

A pioneer in more than just its ship design, Royal Caribbean was the first cruise line to offer an air/sea program that combined round-trip air fare with a cruise in an all-inclusive vacation package. By launching cruises from ports in south Florida and the Caribbean and flying passengers in from cities in the North, Royal Caribbean allowed its passengers to spend more time cruising in warm weather than would have been the case had the cruise originated in New York or Boston.

COMPANY FINANCES

Royal Caribbean reported net earnings of $175.1 million on revenue of $1.94 billion in 1997, compared with net income of $151.0 million on revenue of $1.36 billion the previous year (an increase of more than 42 percent). In 1995 the company posted a net income of $149.0 million on revenue of $1.18 billion, compared with net income of $137.0 million on revenue of $1.17 billion in 1994.

The company's performance in the first quarter of 1998 was extremely strong, reflecting the capacity increases resulting from Royal Caribbean's merger with Celebrity Cruises in the third quarter of 1997 as well as capacity additions to the existing fleet. First quarter net income doubled to $77.5 million from $38.5 million a year earlier.

ANALYSTS' OPINIONS

Scott Barry, cruise line analyst at Raymond James, interviewed by USA Today in June 1997 after Royal Caribbean announced plans to acquire Celebrity Cruise Lines, said he foresaw further consolidation in the cruise industry. Barry said the stronger lines, such as Carnival, Princess, and Royal Caribbean, will continue to grow by building ships and consolidating, while some of their weaker rivals may very well be squeezed out of the business altogether. "By the end of the decade, Carnival, Royal Caribbean, Princess, and possibly Disney, are going to control 80 percent of the market," Barry was quoted as saying.

HISTORY

Arne Wilhelmsen and Edwin Stephan founded Royal Caribbean in 1969 and launched the company's first cruise vessel, Song of Norway, the following year. The ship's unique features, including an open pool and lounging area and a glass-enclosed cocktail lounge cantilevered from the vessel's smokestack, have been widely copied by rivals in the industry. In the late 1970s Song of Norway became the first cruise ship to be lengthened by the addition of a midsection. The vessel was cut in two so that the midsection could be added.

In 1971 Royal Caribbean says it pioneered the air/sea program combining round-trip air with a cruise for an all-inclusive vacation package. Thirteen years later "Ship Shape" became the first program to incorporate fitness incentives into onboard activities. The next year the company says "Golf Ahoy!" became the industry's first complete ports-of-call golf package.

Sovereign of the Seas, at 73,192 tons, was introduced in 1988. The megaship featured a huge atrium, glass elevators, fountains, and sweeping staircases. Two years later the cruise line sponsored the first Royal Caribbean Classic Senior PGA golf tournament.

In 1992 the cruise line's 2,354-passenger Majesty of the Seas made Royal Caribbean the largest cruise brand in the world by passenger capacity and the first passenger shipping company in history to operate three passenger ships in excess of 70,000 tons. The other vessels falling into this weight class were the Sovereign of the Seas and the Monarch of the Seas.

Royal Caribbean went public in 1993 and its stock was listed on the New York Stock Exchange as "RCL." Three years later the cruise line introduced a ship directly into the European cruise market. That year Splendour of the Seas began sailing 6-, 8-, 10-, and 12-night cruises throughout the Mediterranean, northern Europe, Scandinavia, Norwegian fjords, and British Isles. Meanwhile, Royal Caribbean's expansion program saw five mega-ships under simultaneous construction at two shipyards.

Royal Caribbean's acquisition of Celebrity Cruise Lines in the latter half of 1997 increased the size and capacity of the company's fleet dramatically. Rather than folding the Celebrity ships into Royal Caribbean's existing fleet and sailing all of them as a single cruise brand, a decision was made to operate Celebrity as a separate unit of Royal Caribbean, keeping the two cruise operations separate.

STRATEGY

By 1997 Royal Caribbean, Carnival, and Princess Cruises' lineups of megaships were setting the standard in the cruise line industry. Two industry analysts said the vessels enjoyed a 104-percent occupancy rate in 1995, compared with the average of 82 percent for all other cruise ships. Megaships of about 2,000 lower berths, said another analyst in a 1996 Travel Weekly article, generate an estimated $65 to $75 million in cash flow each year, compared to about $20 million for a 1,000-passenger ship.

FAST FACTS: About Royal Caribbean Cruises Limited

Ownership: Royal Caribbean Cruises Limited is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: RCL

Officers: Richard D. Fain, Chmn. & CEO, 49; Jack L. Williams, Pres., 48; Edwin W. Stephan, VChmn., 65; Richard J. Glasier, Exec. VP & CFO, 51

Employees: 18,000 (1997)

Principal Subsidiary Companies: Royal Caribbean Cruises Limited is the parent company of Royal Caribbean International.

Chief Competitors: One of the world's leading cruise ship lines, Royal Caribbean's major competitors include: Carnival; Club Med; Norwegian Cruise Line; Peninsular and Oriental (P&O); Princess Cruises; and Royal Olympic Cruise Lines.

In the second half of 1997 Royal Caribbean made its boldest expansion move ever with its acquisition of Celebrity Cruise Lines. The purchase of Celebrity added five ships with a passenger capacity of about 7,500 to the Royal Caribbean fleet. In the wake of the acquisition, Royal Caribbean offered cruises under two brand names, Royal Caribbean International and Celebrity Cruises. Carnival, the largest cruise ship operator, had earlier made an unsuccessful bid for Celebrity.

To fill all those berths on their colossal ships in the late 1990s, the cruise lines engaged in intensive competition. In addition to competitive pricing, each line sought to differentiate itself while offering comparable amenities, such as larger staterooms and a greater variety of activities.

INFLUENCES

Among the factors driving Royal Caribbean's decision to acquire Celebrity Cruise Lines in 1997 was the growing demand for high-end cruises, a market in which Celebrity was particularly active. Another factor behind the move was the increased clout it gives Royal Caribbean in negotiating contracts for supplies and services.

CURRENT TRENDS

During 1997 Royal Caribbean International added two new ships to its fleet: the 2,000-passenger Rhapsody of the Seas, sailing in both the Caribbean and the Alaskan cruise trades, and the 1,950-passenger Enchantment of the Seas, which is being used for both Caribbean and European cruises. Another ship, Vision of the Seas, was scheduled to debut in 1998, while 1 or 2 others, under the umbrella title of Project Eagle, were to be added to the fleet in 1999 or 2000. Royal Caribbean contracted with Finnish shipbuilder Kvaener Masa to build up to two of the world's largest passenger ships: 130,000 tons each with a capacity for 3,100 passengers.

"The story is not about size—it's about options," said Richard Fain, the cruise line's chairman and CEO, in a 1997 article in the quarterly newsletter Cruise Observer. The "ships will be a new generation of vessels giving people the vacation options they demand—options for families, for those seeking active sports and entertainment, and for those who just want to be pampered with luxury."

Royal Caribbean International's burgeoning fleet of megaships paralleled the growth of the two other dominant lines: Carnival and Princess. "The Big Three" lines carried 60 percent of cruise passengers in 1997. At least one leisure industry analyst predicted that the trio would own 80 percent of the market by 1999.

PRODUCTS

The company's cruise ships are the Enchantment of the Seas, Grandeur of the Seas, Legend of the Seas, Majesty of the Seas, Monarch of the Seas, Nordic Empress, Rhapsody of the Seas, Song of America, Sovereign of the Seas, Splendour of the Seas, Sun Viking, and Viking Serenade. The Vision of the Seas was scheduled to join the fleet of Royal Caribbean International in 1998.

In 1997 Royal Caribbean International introduced seven-night cruise-and-resort vacations that included a 3-or 4-night cruise from San Juan, Puerto Rico, with a choice of 3 or 4 nights at a top resort in Puerto Rico or the Dominican Republic.

The cruise line also offers a "Ship Shape Program," which includes aerobics, line dancing, jogging, ballroom dancing, golf tournaments, a gym, and a "light fare," low-calorie menu. For children between the ages of 3 and 17, the cruise line provides games, scavenger hunts, and arts and crafts. Travelers seeking some gaming activities may choose from bingo and a casino with roulette, craps, blackjack games, and slot machines.

CHRONOLOGY: Key Dates for Royal Caribbean Cruises Limited

1969:: Royal Caribbean is founded
1970:: Royal's Song of Norway is the company's first ship and the first to be built specifically for warm-weather cruising rather than point-to-point transport
1971:: Pioneers the all-inclusive vacation package including air fare and a cruise
1984:: Ship Shape is the first program to incorporate fitness programs into onboard activities
1988:: Royal introduces Sovereign of the Seas, the biggest cruise ship in the world
1992:: Royal becomes the largest cruise company by passenger capacity
1997:: Acquires Celebrity Cruise Lines

The cruise line's Splendour of the Seas features a 2,000-piece art collection displayed throughout the vessel. Splendour also incorporates more glass than any other cruise ship. There are more than two acres of windows, as well as suspended glass window walls, glass canopies, and skylights.

CORPORATE CITIZENSHIP

On December 19, 1996, Royal Caribbean Cruises Limited and two shipboard engineers were indicted in a case stemming from an oil spill off the coast of Puerto Rico in 1994. The U.S. Justice Department charged that the cruise line's crew members ignored company policies and procedures regarding record keeping and the discharge of bilge water (water, often including elements of fuel or oil, which accumulates in the bottom of a ship's engine room) into the ocean. The cruise line placed its two indicted crew members on leave.

In an effort to ensure that the company's employees were sensitized to the problems of environmental protection, Royal Caribbean launched a program called "Save the Waves," which includes these elements: a "zero-discharge" policy for solid waste and an environmental officer on each ship to enforce environmental policies.

In 1996 the Royal Caribbean Ocean Fund was established to support research into the environmental protection of the world's oceans. Royal Caribbean points out in its literature that it uses more than a million pounds of recycled products annually, saving about 9,000 trees, 3.7 million gallons of water, and 2.1 million kilowatts of electricity.

To maintain the health of the bodies of water in which its vessels cruise, Royal Caribbean prohibits the dumping of anything from its ships. The cruise line has sharply reduced its use of disposable plastics and has asked its suppliers to help by reducing the amount of packaging that goes on board. Royal Caribbean has an aggressive recycling program, with each of the company's ships recycling about 20,000 cans each week.