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February 2, 2006

Royal Caribbean reports record earnings

Royal Caribbean Cruise Lines Ltd. (NYSE:RCL) has reported its second consecutive year of record earnings with net income of $716.0 million, or $3.26 per share.

Though Royal Caribbean reported a net loss for the fourth quarter of 2005 of $3.6 million, this was a substantial improvement on the net loss of $25.8 million for the fourth quarter of 2004. Revenues for the fourth quarter of 2005 increased 6.7 percent to $1,029.6 million from revenues of $964.6 million in the fourth quarter of 2004. Gross Yields and Net Yields for the fourth quarter of 2005 increased 6.1 percent and 8.2%, respectively, from the fourth quarter of 2004.

Royal Caribbean says fourth quarter results were substantially better than expected. Toward the end of the quarter, there was a surge in demand for late bookings which drove higher ticket prices. Onboard revenues were also "exceptionally strong."

On an "available passenger cruise day" (APCD) basis, gross cruise costs and net cruise costs were up 5.3 percent and 7.6 percent, compared to the fourth quarter of 2004. Fuel accounted for 7.0 percentage points of the increase in net cruise costs.

"Fuel prices fell shortly after our last earnings release in October 2005 and energy conservation efforts were successful," says Royal Caribbean. "Our 'at- the-pump' fuel price averaged $424 per metric ton, compared to previous guidance of $450 per metric ton, and $293 per metric ton in the fourth quarter of 2004."

Non-fuel costs were up only 0.6 percentage points.

For the year, the company reported record net income of $716.0 million, or $3.26 per share, on revenues of $4.9 billion, compared to net income of $474.7 million, or $2.26 per share, on revenues of $4.6 billion for 2004. Net income before cumulative effect of a change in accounting principle was $663.5 million, or $3.03 per share. A change in accounting principle resulted in a one-time gain of $52.5 million, or $0.22 per share, to recognize the cumulative effect on prior years of a change in the company's method of accounting for drydocking costs.

"This has been a very good quarter for the company and tops off another excellent year," said Richard D. Fain, chairman and chief executive officer. "It is unusual that everything comes together so well as it did this quarter, but it certainly feels good when it does."

Outlook - Full Year 2006

While only four weeks of the industry's "wave period" is completed, bookings and pricing levels continue to be solid. As a result, the company currently forecasts net yields for the full year 2006 will increase in the range of 2 percent to 4 percent compared to 2005.

The company estimates that net cruise costs per APCD for 2006 will increase in the range of 3 percent to 5 percent as compared to the prior year. Higher fuel costs account for 3.0 to 4.0 percentage points of this increase. Additionally, says Royal Caribbean, 2006 is another year of minimal capacity increases. Capacity will grow more substantially in 2007 and beyond, providing the company with improved economies of scale to offset normal cost increases.

Mermaid suit

In late January 2006, the company partially settled its lawsuit against Rolls Royce and Alstom Power Conversion, co- producers of the Mermaid pod-propulsion system on its Millennium-class ships, for the Mermaid pod problems. Under the terms of the partial settlement, Alstom paid the company $38 million and the company released Alstom from the suit which remains pending against Rolls Royce. The partial settlement will be recorded in the first quarter of 2006.

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