Royal Caribbean Cruises Ltd.

1050 Caribbean Way
Miami, Florida 33132
U.S.A.
Telephone: (305) 539-6000
Fax: (305) 374-7354
Web site: http://www.royalcaribbean.com

Public Company
Founded: 1969
Employees: 38,870
Sales: $4.56 billion (2004)
Stock Exchanges: New York
Ticker Symbol: RCL
NAIC: 483112 Deep Sea Passenger Transportation

Royal Caribbean Cruises Ltd. is the world's second largest cruise company (behind top-ranking Carnival Corporation), with 29 cruise ships and a total of 60,590 passenger berths as of August 2005. Founded in 1969, the company has been instrumental in changing the cruise industry from a trans-ocean carrier service into a vacation option in and of itself. Royal Caribbean offers a variety of different itineraries and its ships call at more than 160 destinations in the Caribbean, Bahamas, Mexico, Alaska, Europe, Bermuda, Panama Canal, Hawaii, New England, and Canada. The company, a Liberian corporation, operates under two separate brands, Royal Caribbean International and Celebrity Cruises. Although the company operates globally in terms of its itineraries and destinations, nearly 85 percent of its passengers are from North America. After pleading guilty to charges of illegal dumping and obstruction of justice in the late 1990s, Royal Caribbean has pledged to clean up its act. In 2004, the company began installing Advanced Wastewater Purification systems on its fleet.

Early History

Royal Caribbean Cruises Ltd. can trace its history to the beginning of today's passenger cruise industry. When three major Norwegian shipping companies founded the Royal Caribbean Cruise Line in 1969, a cruise was an around-the-world or trans-ocean voyage on a large passenger liner, and was something only the wealthy could afford. According to Cruise Lines International Association, an industry trade group, an estimated half a million passengers took cruises of three nights or more in 1970, the year Royal Caribbean began offering cruises.

The company built and operated three ships during the 1970s, offering cruises throughout the Caribbean. In fact, Royal Caribbean was the first line to design ships specifically for warm water year-round cruising. Prior to this, a cruise line company would use its passenger liners for cruises in the Caribbean in the months they were not transporting people across the Atlantic or Pacific.

Royal Caribbean's first vessel, the 700-passenger Song of Norway, began service in November 1970, and introduced glass-walled dining rooms, expansive sun decks located in the middle of the ship, and the company's signature Viking Crown Lounge projecting out from the ship's funnel, high above the sea. Edwin Stephan, one of the company's founders and Royal Caribbean's president at the time, got the idea for the lounge from the revolving restaurant atop the Space Needle at the 1962 World's Fair in Seattle. He anticipated that not only would passengers have a terrific view from this cocktail and observation lounge, but its design would set the vessel apart from other ships and make Royal Caribbean vessels instantly recognizable.

In 1971, the Nordic Prince entered service in the Caribbean and the company began offering passengers air/sea vacations, with the airfare to Miami included in the price of the cruise. The following year, with the introduction of the Sun Viking, Royal Caribbean became the biggest cruise line in the Caribbean with weekly departures from Miami on seven- and 14-day vacations.

For the remainder of the decade, Royal Caribbean focused on establishing its name brand. To do this, it concentrated on ensuring a consistent high quality for all its cruises and on generating and meeting demand. In 1973 it opened a marketing office in London and, in 1978, took the unprecedented step of cutting the Song of Norway in two and adding an 85-foot midsection, increasing the passenger capacity to 1,000. This was the first cruise ship to be lengthened in this way. In 1980, the same thing was done to the Nordic Prince. As Royal Caribbean entered the 1980s, the three ships in its fleet ranged in size from 18,445 to 23,149 tons, with berths for 714 to 1,012 passengers.

The 1980s: Resort-Style Cruising on Megaships

The Song of America debuted in 1982. Weighing 37,584 tons and with 1,402 berths, it was the largest cruise ship built in 20 years. The new ship enabled Royal Caribbean to expand its itineraries, and in 1985 it moved outside the Caribbean for the first time, offering summer cruises to Bermuda from New York City.

The cruise industry grew as the target population—middle-and upper-income people—grew older and richer, quadrupling in the 15 years Royal Caribbean had been on the seas. In 1985, more than two million passengers took cruises marketed in North America, according to a Forbes article, with nearly two-thirds of them heading for the Caribbean. Projections were that the demand would only increase.

Cruise companies began a building spree in anticipation of the demand, taking advantage of low interest rates and shipyards eager for the business. Royal Caribbean initiated its first major capital expansion program, expanding Viking Serenade by 536 berths and building four new ships in four years. The new ships developed the "megaship" concept and introduced resort-style cruising. The first of the new vessels, the 874-foot Sovereign of the Seas, entered service in 1988. It weighed more than 73,000 tons, had berths for 2,276 passengers, and featured two indoor/outdoor cafes, two glass elevators, a five-story atrium, and nearly three football fields of open deck on which passengers could stroll.

In April 1988, Richard Fain was named chairman and CEO of the company. Two months later, Royal Caribbean and Admiral Cruises, a passenger cruise service that had operated for almost 100 years, combined their operations, although each kept their separate brand identity. Later that year the company underwent a fundamental ownership change. First, one of the original founding companies, Anders Wilhelmsen & Co., became the sole owner by buying out the other two partner companies. Then Wilhelmsen entered into a joint agreement with the Pritzker family (owners of Hyatt Hotels Corp. and other holdings) and the Ofer family, owners of a large shipping company. The result, once the process was completed in 1992, was that A. Wilhelmsen A/S, a Norwegian corporation, and Cruise Associates, a Bahamian general partnership, became the principal owners of Royal Caribbean. Members of the Wilhelmsen family of Norway controlled A. Wilhelmsen A/S and members of the Pritzker family of Chicago and of the Ofer family controlled Cruise Associates.

1990–94: Passengers Growing Younger

In 1990, while the ownership restructuring was going on, Royal Caribbean opened its new headquarters at the port of Miami and consolidated all functions in one location. The Nordic Empress entered service, the first ship built specifically for short cruises such as the company's three- and four-night cruises in the Bahamas. With the addition of Viking Serenade, the company also added seasonal cruises to Alaska as well as to Europe.

Travel agents played a critical part in the company's operations, with some 30,000 independent agencies making essentially all the bookings for the cruises. To simplify that process, Royal Caribbean introduced CruiseMatch 2000, the world's first automated cruise booking system for travel agents. The new computer system allowed travel agents direct access to the company's computer reservation system, making it easy to book cruises. The year ended unhappily, however, when a shipyard fire damaged Monarch of the Seas, delaying its launch.

Monarch did enter service in 1991. Royal Caribbean's largest vessel at the time, weighing nearly 74,000 tons, with berths for more than 2,300 passengers, the new ship was based in San Juan. Viking Serenade was rebuilt for short cruises, adding berth capacity, a new dining room and cafe, and a Viking Crown Lounge. This enabled the company to enter the year-round Mexico market with three- and four-night cruises from Los Angeles. The company also established an international sales and marketing department to increase the number and percentage of its passengers from outside North America. That department oversaw operations of the company's sales offices in London, Oslo, and Frankfurt.

Royal Caribbean's strategy in the very competitive cruise/vacation market was to target the upper portion of the "mass" market, promising a quality product for slightly more money than other volume competitors such as Carnival Cruise Lines. But to fill its ships during a recession (and a war in the Persian Gulf, which affected cruises in the Mediterranean), the company had to offer discount prices. That factor, combined with the costs of servicing the debt from its shipbuilding activities, led to a sharp drop in profits in 1991.

With the entry of the final megaship in its expansion program, the Majesty of the Seas, in 1992, Royal Caribbean became the first cruise line to offer year-round megaship cruises in the major Caribbean markets. The building program begun in 1987 had more than tripled the company's number of berths, to 14,228, and brought the fleet's number to nine ships. That year also saw the end of Admiral Cruises, when Royal Caribbean sold its two-ship fleet and discontinued service.

During 1992 the company introduced Enterprise 2000, the company's new computer information system, which was used for reservations, passenger ticketing, sales tools used by the company's sales force, and tools for travel agents.

Royal Caribbean also initiated its "Save the Waves" program to preserve the environment by not dumping things overboard. In addition, each ship recycled about 20,000 aluminum cans each week, and the company purchased more than one million pounds of recycled products each year.

With its fleet in order, the company took action to reduce its debt, beginning with its first public debt offering of $126 million subordinated notes in 1992. The following year Royal Caribbean went public, offering 11.5 million shares of common stock on the New York Stock Exchange. During 1994, the company was able to lower its borrowing rates by refinancing its banking arrangements with a $750 million revolving credit facility. It then issued $125 million in senior notes. By the end of the year, the company had reduced its debt-to-capital ratio to 47 percent from a high of 75 percent in 1992. The company also built a second office facility in Miami to accommodate the Passenger Services Department.

Royal Caribbean celebrated 1994 with a 5 percent increase in revenues and a 28 percent rise in net income, without adding to its fleet capacity. Part of that success may have come from the company's advertisements on cable television. Over the years, the cruise industry's audience had expanded to include younger adults, not just those nearing or in retirement. Royal Caribbean targeted people 25 to 54 who made $40,000 or more. Rather than focusing on opportunities to socialize or nonstop activities, it positioned itself as "a vacation during which people can relax completely in their own way: with a trip to the spa, a jog around the deck, or a day on the white sands of an island beach," as described in a 1995 article in MediaWeek. In addition, recognizing the reality of that younger market, the company offered activities to entertain children.

"Two Great Brands . . . One Great Vacation Company": 1995 and Beyond

The battle for consumers' leisure dollars continued to intensify, with cruise lines, resorts, and timeshare developers concentrating on offering all-inclusive vacations. Between 1995 and 1998, Royal Caribbean undertook its second major capital expansion program, building six Vision-class ships at a cost of approximately $1.5 billion. Each new ship used more than two acres of glass in the design and featured a seven-deck atrium with glass elevators, skylights and glass walls, a pool and entertainment complex covered by a moveable glass roof, a two-deck main dining room, a state-of-the-art show theater, a glass-encased indoor/outdoor cafe, and a shopping mall.

The largest of these new ships carried 2,000 passengers and weighed 75,000 tons. The smallest had 1,804 berths and weighed 70,000 tons, twice the number of people and three times the weight of the original Song of Norway. The expansion anticipated increasing the company's berth capacity by approximately 74 percent, from 14,228 to more than 24,700 berths.

The first of the new vessels, the Legend of the Seas, entered service in 1995, bringing the Viking Lounge silhouette to Hawaii and expanding Royal Caribbean's cruises in Alaska. The ship's amenities included an 18-hole miniature golf course with all the features, water hazards, and proportions of an average golf course; not surprising, perhaps, with Royal Caribbean the official cruise line of the Professional Golfers' Association.

Designed to be faster than most cruise ships, the new vessels permitted more flexibility in itinerary planning. The company entered the Far East market and was the first to offer year-round cruises there and in Southeast Asia. Two more new ships began cruises in 1996, the 1,800-berth Splendor of the Seas and the 1,950-berth Grandeur of the Seas. Also in 1995, the company sold the Nordic Prince, one of its original three ships, for approximately $55 million, realizing a gain of some $19.2 million.

Royal Caribbean's offerings in the Caribbean also included stops at two private company-operated destinations: CocoCay, an island in the Bahamas owned by the company, and Labadee, a peninsula on the north coast of Haiti leased by the company. Passengers could shop at artisan markets, eat picnics along the beach, and windsurf, snorkel, and sail. In 1995 the company added to these the industry's first on-shore club, the Crown & Anchor, at St. Thomas in the U.S. Virgin Islands.

In December 1995, a series of class-action suits were filed alleging that the company misrepresented to its passengers the amount of its port charge expenses. These were followed in 1996 with class-action suits alleging that seven cruise lines, including Royal Caribbean, should have paid commissions to travel agents on port charges included in the price of cruise fares. In February 1997, Royal Caribbean and other companies agreed that all components of the cruise ticket price, other than governmental taxes and fees, would be included in the advertised price.

During 1996, some 973,000 passengers went on Royal Caribbean cruises, over 100,000 more than sailed in 1995. That year saw the sale of another of the company's original ships, the Song of Norway, for $40 million (a gain of $10.3 million), and the establishment of the $1 million Royal Caribbean Ocean Fund.

In July, Royal Caribbean bought Celebrity Cruise Line Inc. for $515 million. Celebrity became a wholly owned subsidiary and continued to operate under its own brand name. Celebrity served the premium cruise vacation market, owned five ships with approximately 8,200 berths, and offered 40 different itineraries ranging from 6 to 18 nights, and stopping in more than 50 ports in Alaska, Bermuda, the Caribbean, and through the Panama Canal. The addition of Celebrity Cruises greatly enhanced the company's presence in the premium destination market of one- and two-week cruises, and its acquisition increased Royal Caribbean's total market share in 1996 to approximately 27 percent of the 4.7 million North Americans who went on cruises that year.

Royal Caribbean continued its capital expansion program by contracting for two Eagle-class ships to be delivered in the fall of 1999 and 2000. These were to be the largest passenger cruise ships built at the time, each weighing 130,000 tons and accommodating 3,100 passengers, and were being designed to attract families and those seeking active sports and entertainment activities. Among the planned amenities: rock climbing facilities, conference centers, and a wedding chapel.

During January 1997 a new television advertising campaign debuted, introducing a new brand identity—Royal Caribbean International—and presenting Royal Caribbean as a global vacation brand with a focus on worldwide cruise vacations. That same month, the company and two of Hyatt Hotels' Puerto Rican properties began jointly marketing what was a first in the Caribbean, a week-long vacation package that included both a cruise and a stay at a hotel. To attract new passengers, Royal Caribbean also marketed its vessels as conference sites for groups ranging from romance writers to dental anesthesiologists, and combined cruising and golf with Golf Ahoy!, a shore excursion program for people who would rather play golf than shop, sunbathe, or sightsee. To help passengers finance their cruise, the company announced "CruiseLoans," allowing people to charge all the expenses, including upgrades, excursions, and onboard spending. The program was administered by Citicorp's Citibank NA.

In the fall of 1997, the company sold $9 million of stock to repay some of its debt and announced that it would sell the Sun Viking, its smallest ship and the last of its original three vessels, to Star Cruises for $30 million. At the same time, Celebrity Cruises took delivery of the 1,850-berth Mercury, the last of a five-ship expansion program begun in 1990, bringing its total fleet capacity to some 8,200 berths.

With its two brands, Royal Caribbean Cruises, Ltd. had strong name recognition in both the popular, warm-weather vacation market and the seasonal cruise market. Its new ships received press attention because of their size and facilities. Between 1996 and 2000, the company expected to increase its berth capacity by 102 percent, to 38,000. Other cruise lines were doing the same, as industry capacity was expected to grow12.4 percent in 1998 and 11.7 percent in 1999, according to the Cruise Line Industry Association. With the number of passengers growing only at an average 7.6 percent a year since 1981, Royal Caribbean Cruises would need to use all of its creativity and traditional service quality to attract new passengers to cruising in order to fill their ships.

Overcoming Rough Seas in the Late 1990s and Beyond

During the late 1990s, Royal Caribbean was forced to fend off negative publicity when it became embroiled in several lawsuits related to dumping oil and hazardous chemicals in coastal waters around the United States. In 1998, the company pled guilty to obstruction of justice for attempting to cover up its illegal dumping practices. Royal Caribbean faced five years probation and agreed to pay a $9 million fine. Trouble continued the following year, however, when the company was indicted on additional charges of dumping toxic solvents in New York Harbor, and oil and toxic chemicals from its photo and dry cleaning shops in waters near Miami, the Virgin Islands, Los Angeles, and the Inside Passage in Alaska. Royal Caribbean pled guilty to 21 counts of polluting and faced an $18 million fine. The state of Alaska also sued the company and in 2000 the firm paid out $3.3 million to the state to settle the charges.

During this time period, the cruise industry as a whole felt pressure from environmental groups to clean up their act. According to these groups, sewage from cruise ships contributed to a host of problems including contamination of the world's oceans. Oceana, an organization created to protect the ocean, launched a campaign against Royal Caribbean in the early years of the new millennium. Before ships set out to sea, the group would fly a banner behind an airplane that read, "Got Sewage? Royal Caribbean Dumps Daily." In May 2004, Royal Caribbean agreed to install new advanced wastewater treatment plants on its ships.

Despite the troubles brought on by the litigation, Royal Caribbean continued expansion efforts in the late 1990s and beyond. In 1999, the company launched Voyager of the Seas, a 142,000-ton, 3,114-passenger ship. Explorer of the Seas entered service the following year and was the first ship to include an atmospheric and marine laboratory on board. Radiance of the Seas, a 90,090-ton, 2,100-guest ship set sail the following year and was the first Royal Caribbean vessel to use gas turbines. Brilliance of the Seas, Serenade of the Seas, and Jewel of the Seas —all Radiance-class ships—were launched in 2002, 2003, and 2004, respectively.

During 2004, Royal Caribbean began offering cruises to the Galapagos Islands via its Celebrity Xpeditions line. It also announced the launch of its new Freedom of the Seas ship in 2006. With a 3,600-guest capacity, the Freedom would be the largest cruise ship in the world. Even as rising fuel costs threatened company revenue in 2004 and 2005, Royal Caribbean experienced marked success. Net income grew to $474.7 million in 2004 while earning per share increased by 59 percent over the previous year. Revenues also increased by more than 20 percent in 2004 and occupancy was at an all-time high. With its dumping problems behind it, Royal Caribbean appeared to have set sail into a prosperous future.

Principal Subsidiaries

Adventure of the Seas Inc.; Blue Sapphire Marine Inc.; Cape Liberty Cruise Port LLC: Celebrity Cruise Lines Inc.; Cruise Mar Investment Inc.; Enchantment of the Seas Inc.; Esker Marine Shipping Inc.; Explorer of the Seas Inc.; Fantasia Cruising Inc.; Galapagos Cruises Inc.; Grandeur of the Seas Inc.; Infinity Inc.; Islas Galapagos Turismo y Vapores CA; Jewel of the Seas Inc.; Majesty of the Seas Inc.; Mariner of the Seas Inc.; Millennium Inc.; Monarch of the Seas Inc.; Navigator of the Seas Inc.; Nordic Empress Shipping Inc.; Radiance of the Seas Inc.; RCL UK Ltd.; Rhapsody of the Seas Inc.; Royal Caribbean Cruise Lines A.S.; Royal Celebrity Tours Inc.; Seabrook Maritime Inc.; Serenade of the Seas Inc.; Sovereign of the Seas Shipping Inc.; Summit Inc.; Universal Cruise Holdings Ltd.; Vision of the Seas Inc.; Voyager of the Seas Inc.; Zenith Shipping Corporation.

Principal Competitors

Carnival Corporation; NCL Corporation; Star Cruises Ltd.

Further Reading

Behar, Richard, "Floating Resorts," Forbes, January 26, 1987, p. 62.

DeGeorge, Gail, "Royal Caribbean May Be Taking on Water," Business Week, May 25, 1992, p. 34.

Hannafin, Matt, "Celebrity Eschews Megaships for Little Adventures," Boston Herald, February 19, 2004.

Keates, Nancy, "Danielle and Joey Urban Can't Believe Mickey Mouse Let Them Down," Wall Street Journal, October 24, 1997.

McDowell, Edwin, "In Alaska, Cruise Line Chief Offers Apology for Dumping," The New York Times, August 26, 1999.

"RCCL Reaffirms Its Commitment to the Ocean Environment," Travel Weekly, November 4, 1996, p. C19.

"RCCL to Debut 'Legend of the Links,' " Travel Weekly, November 7, 1994, p. C22.

Rice, Faye, "What to Do on Your Summer Vacation," Fortune, June 12, 1995, p. 20.

"Sea Change," Travel Weekly, January 9, 1997, p. 20.

"Trolling for Cruisers Among Upscale Viewers," MediaWeek, May 27, 1995, p. S22.

Wald, Matthew L., "Cruise Line Pleads Guilty to Dumping of Chemicals," The New York Times, July 22, 1999.

——, "A Cruise Line Starts to Clean Up After Itself," New York Times, November 28, 2004.

—Ellen D. Wernick
—update: Christina M. Stansell