In the conference call, Top Management of Royal Caribbean International presented its results for

fourth quarter of 2015 for analysis of the analysts who also attended the conference call. Top
management has briefly thrown some light on targets for 2016, some key decisions expected and
answered the questions from panel of analysts.

Top Management have also answered key questions about:

 Bookings and Pricing specially in last quarter for China and Canada
 Question about the charter agencies and charter agents and their profitability and related
effects
 Question about product/service differentiation
 Inquiry about the lower yield and customers’ profitability in China
 Lowering of price in China given the introduction of new ships
 Question about the lower customer despite similar book position
 Decision to add more ships to serve market in China and comparison of volume with last
quarter
 Effects of Zika Virus
 Can similar result regarding cost control can be achieved in 2016?
 Foreign currency risks
 Decision about buy back of shares
 Reaction of Buyback

Briefly management Goals for 2015 were to:

 Increase in revenue by 3.5%

 Controlling the costs to not more than 1% increase
 Double the Earning Per share (EPS) of year 2013

And CEO and Chairman Mr. Richard Fain was delighted to inform that all the targets are met and
results have exceeded expectations.

Given the macroeconomic, geopolitical and other factors of long-term and short-term bearing on
RLC’s operations, RLC team has shown impressive adaptability in meeting its targets. Following
points are drawn after comparison of RLC’s results with expectation:

Quarter Highlights:

 Passenger revenue were $1.37 billion during this quarter this an increase of approximately
5.1% over fourth quarter of last year. Moreover, onboard and other revenues showed a
growth of 3.4% on the similar comparison.
 Net yield has increased (in real terms) by 4.9% year over year compared to expected growth
of 4.5 to 5%. The healthy growth is resultant of solid Caribbean demand and new winter
sailing in China.
  Net cruise costs (excluding fuel) are decreased (in real terms) by 4.7% which is much better
than managerial expectations. However this is mainly backed by timing of certain
expenses.
 Total cruise operating expenses are approximately reduced by 5.7% in comparison with
fourth quarter of preceding year. Such a healthy decline is an outcome of significant
reduction in onboard expenses, other operating expenses and fuel costs.
 There was partial offsetting of decreased costs by increased commissions, transportation
and other expenses.

2015 Results:

 RLC began 2015 with the expectation that cost will rise by 1% or less but it managed to
reduce cost by 0.6%
 RCL anticipated doubling of its 2013 EPS and it exceeded that goal by $0.03 and ended at
EPS of $4.83
 Revenues for the year are of $8.30 billion it is 2.8% increase year over year

Expected risk and expected return are the two core variables that account for most of investments
decisions. The conference call has contained following points that have direct bearing on
investors’ decision making:

Return:

 With more than 5 million passengers per annum, strong bond with travel agents and
diversity and richness of its brands RLC enjoys remarkable brand recognition
 Given the strong booking trends and increased investments in capacity building assets the
company is promising strong and sustainable returns to existing and potential investors
 Profitability initiatives coupled with long-term costs reductions as discussed above are
capable of achieving healthy returns in coming years.
 Deployment of innovative technology to enhance guests’ cruise experience is expected to
payoff heavily

Risk:

 Successive disruptions at international level may hurt expected sales and returns thereof.
“In 2014, the company’s cruises were disrupted due to a collision that spilled residual fuel
oil in the Gulf of Galveston, shutting the Houston Ship Channel. Additionally, steel fishing
net floating in the Tokyo Bay shipping channel damaged a propeller affecting two of the
company’s cruise sailings. Also, one of the company’s cruises had to return early to New
Jersey as passengers were falling ill onboard. In April 2015, more than 200 people on two
different cruises had fallen ill with gastrointestinal sickness, and both the ships had to be
 disinfected in San Diego. Such incidents hamper the reputation of the company, thereby
compelling people to spend less on cruises.”(Source: Zacks Equity Research)
 RCL is performing at operating leverage. It is increasing with increase in fixed cost
proportions in asset base of the company. This might be risky if contribution to revenue
ratio begins to decline. Company should remain aware of internal and external
environments to back capital budgeting decisions by reliable forecasts.
 RLC operates as Multinational Corporation so it is exposed to macro and currency
headwinds.

After carefully weighing factors relevant to variables of expected risk and expected return it is
highly probable that RLC should add value to stockholders’ wealth. Royal Caribbean’s strong
booking trends along with its profitability initiatives should drive higher yield, so investors are
advised to rank it higher while making investment decisions.

RLC is projected to provide encouraging results in years to come. The solid anticipation is powered
by technological innovations, solid booking trends, significant cost reductions, revenue growth
measures, relevant strategic partnerships and other initiatives for profitability. Moreover, lesser oil
prices will assist RCL in add more color to its bottom-line. The company has resolved to gain from
fast-growing Chinese cruise markets by incurring capital expenditures which is very admirable.
RLC has strategic partnerships with local travel agencies which provides it opportunities to gain
in those markets.

However, RLC should remain conscious of profit margins as there are increasing promotional and
other marketing expenses. Cost may also rise due to utilization of innovative technology. Decrease
in contribution margins coupled with increased fixed costs may put RCL in serious profitability
and/or liquidity issues. Moreover, dollar is strengthening and this may negatively impair
company’s short-term profits.
Figure-1:

Source: NASDAQ

Figure-2:

Source: NASDAQ