Onwards and Upwards

Royal Caribbean Cruises Limited (RCCL) has achieved many milestones over the course of its 35-year history, but there have been few years as remarkable as 2006. Profitability soared to $663m, an increase of 39.8% over 2004/05, and revenues reached $4.9bn.

Last year was marked by cost-containment measures implemented across the enterprise, which continue to show encouraging results. Fuel costs remain RCCL’s most significant challenge, and the line continues to work aggressively to mitigate their impact with purchasing efficiencies, itinerary modifications and conservation efforts, such as the use of alternative types of fuel and the modification of existing hardware.

One initiative beginning in early 2007 involves installing auxiliary diesel generators on several of RCCL’s gas-turbine ships to produce electricity more efficiently and inexpensively. That effort could save up to $5m per year, per ship. Additionally, RCCL is replacing halogen light bulbs on its ships with more efficient LEDs, and is upgrading much of its on-board navigation and vessel-performance software to do an even better job of determining the most efficient routes from one port to another.

MEETING EXPECTATIONS

Market demand for cruising as a holiday option continues to strengthen and RCCL is building for the future. With that increased demand comes the need for the steady, sustained growth of the RCCL fleet. No longer seen as just a means of travelling, ships continue to assume a greater role in the overall holiday experience. Today’s cruise holidaymakers are looking for more variety and higher service levels while on board.

Choice is the buzzword, whether referring to activities, creature comforts such as flat-screen TVs, stateroom configurations, dining options or trip duration. With six ships either under construction or on order, both RCCL brands – Royal Caribbean International (RCI) and Celebrity Cruises – are well positioned to meet the rising expectations of current and future guests in a competitive cruise market.

The first vessel in RCI’s new Freedom class, Freedom of the Seas, made its debut in 2006, and two additional ships in the series have been ordered for delivery in 2007 and 2008. Freedom of the Seas builds on RCCL’s five popular Voyager-class ships, which introduced rock-climbing, ice-skating and its Royal Promenade of entertainment and shopping into the cruising vernacular.

Through a series of carefully timed announcements and preview events held throughout the year, Freedom of the Seas generated considerable attention with its industry-first FlowRider® surfing simulator, which allows guests to surf on board; fullsize boxing ring; cantilevered whirlpools; H2O Zone interactive water park; and new family-friendly stateroom configurations, which can accommodate up to 14 guests.

RCCL has also moved forward with plans to build Project Genesis, a 5,400-guest, 220,000-tonne ship. At 1,180ft long, 154ft wide and 240ft high, Project Genesis will give RCCL more than enough room to create memorable attractions and amenities designed to heighten guests’ cruise experience. Energy efficiency was prioritised in the new design, with significant modifications made in the form of the hull and in the air-conditioning and water production and treatment systems. Project Genesis will be delivered in autumn 2009.

Additionally, RCCL announced a new bedding programme that will be rolled out across the fleet through May 2007. The programme, which makes its debut on Freedom of the Seas, includes a makeover of all 48,000 berths, including new frames, mattresses, sheets, pillows, skirts and duvets.

NEW ADDITIONS

It was also a year of major announcements for Celebrity Cruises. Horizon left the fleet for Island Cruises, a joint venture between RCCL and First Choice Holidays plc, one of the UK’s largest tour operators. But, as one ship leaves the fleet, another one – or two – joins it. Illustrating RCCL’s commitment to the growth of its premium cruise brand, the first post-panamax ships for the Celebrity Cruises fleet were ordered.

At 118,000 tonnes, 26,000 tonnes larger than the brand’s Millennium-class ships, Celebrity Solstice and Celebrity Equinox will each accommodate 2,850 guests. Both vessels will allow RCCL to offer larger standard staterooms, a higher percentage of verandas, and increased amenities and services. Celebrity Solstice will make its dbut in 2008, while Celebrity Equinox will ake its maiden voyage a year later.

RCCL’s commitment to ensuring the optimal cruise experience and increasing efficiencies across its fleets also continues with the refurbishment of existing ships. The lengthened and

revitalised Enchantment of the Seas added 151 additional staterooms, which now generate excellent revenues without commensurate costs.

Its lengthening also gave the ship a dramatic new look and exciting attractions, including four bungee trampolines and an expanded main pool area. RCCL also announced that Celebrity Cruises’ Century would undergo a $55m revitalisation this spring. When it emerges from a five-week drydock in early June, it will sport 314 new verandas, 14 additional suites, ten new staterooms and more Concierge Class staterooms, and a new speciality restaurant.

MARKETING INITIATIVES

Earning prestigious awards helps build excitement about brands, but RCCL also remains engaged in developing innovative advertising campaigns that promote the quality holiday experiences RCCL offers. Building on the momentum of the successful Get Out There campaign, which has redefined cruising as an active holiday choice, RCCL began production on a new advertising campaign highlighting holiday experiences told from the guest perspective. Four Create Your Own Adventure television advertisements, filmed like home movies, are bringing viewers closer to the cruise experience by capturing real moments guests have during an RCCL holiday.

Europe continues to offer significant opportunities to grow business. Strong demand prompted RCCL to open dedicated offices in Italy and Spain, and the company announced that Voyager of the Seas will make its European debut this spring. This redeployment marks the first time a Voyager-class ship has sailed the Mediterranean and brings the total to nine RCI and Celebrity ships in the region.

Increased demand also led to the redeployment of Legend of the Seas to Southampton, England, for exclusive sale there. Legend of the Seas returned to Southampton in April 2006, resuming its sailings during the summer months to the Canary Islands and the Mediterranean. In 2007, Navigator of the Seas will replace Legend of the Seas to become the largest cruise ship in the UK cruise market.

Celebrity Cruises responded to a healthy overseas market by adding Century to the European cruise mix. When the vessel re-enters service in June after its revitalisation, Europeans will be the first to see its new look.

ENVIRONMENT AND SECURITY EFFORTS

RCCL continued to make major strides in installing advanced wastewater purification (AWP) systems on all its ships, an investment that will total $100m. While it is difficult to develop and implement such a new technology, Six RCI and Celebrity Cruises ships have AWP systems, and the installation across the rest of the fleet will be completed by the end of 2008.

RCCL is proud that its efforts in the environmental arena have been recognised by others. The Port of Stockholm awarded RCI’s Jewel of the Seas and Celebrity Cruises’ Constellation its Environmental Life Buoy Certificate for their use of low-sulphur fuel and technology to reduce atmospheric emissions.

Safety and security were two areas that were brought sharply into focus during 2006. RCCL and the shipping industry faced increased scrutiny regarding the policies and procedures in place to protect the millions of guests and crew members who sail each year. While certain high-profile situations have received extensive media coverage, much of which has been based on inaccurate or misleading information, incidences of crime on board RCCL ships remain extremely rare. However, even one occurrence is too many, so RCCL will continue to assess and refine its policies and practices.