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Very strong 2011 guidance. Hope the visibility is there. 

 

 

"We continue to characterize demand for our brands as steady and solid and the strength of our third quarter results is certainly a validation of that.  Profitability momentum moving into 2011 is also quite strong with our newest vessels performing exceptionally well and our management team controlling costs very effectively. The economy is still tough, but even facing such headwinds our outlook is remarkably encouraging."

- Richard D. Fain, chairman and chief executive officer

HIGHLIGHTS FROM THE RELEASE

  • 4Q2010 Guidance:
    • Net Yields: 5% constant currency or 4-5% as reported
    • NCC:  +2% as reported or +3% on a constant currency basis
    • $0.05 negative impact from operational disruptions on Pullmantur's Pacific Dream and the Celebrity Century
  • 2011 Guidance:
    • "Expects full year 2011 Net Yields to increase by a similar proportion to 2010"
    • "Expects that the most meaningful yield recovery in 2011 will occur correspondingly during those same two summer quarters"
    • 1Q2011 Net Yields: +2-4%
    • FY2011 EPS: $3.26

CONF CALL NOTES

  • Bulk of their improvement is coming from their new ships and improvement in marketing of their existing ships
  • Early patterns for next year are very encouraging
  • Should have meaningful positive cash flow
  • Despite Europe being strong, Spain and Pullmantur have not been great. Have assumed that the malaise in the Spanish economy continues for the foreseeable future
  • 3Q result commentary:
    • Alaska and the Caribbean showed the most improvement and Europe was strong as well
    • Yields in the 3Q were still 12% below peak
  • Booking environment:
    • Load factors are ahead for 4Q and all 4 quarters for 2011
    • Customer deposits are running 26% ahead of last year
    • Developmental itineraries are showing the most improvement
  • 2011 Guidance:
    • 1Q bookings are up to a solid start
    • Are starting to see some cost pressures especially on food costs
    • Expect to meet 2011 maturities with cash from operations
  • Royal Caribbean International brand:
    • Initial revenue cruise for Allure of the Seas will be Dec 1
    • Oasis or Freedom class will account for over 33% of RCL's capacity
  • For the first time in history they will sail with more European than American guests on their European brands

Q&A

  • Guest mix development overtime?
    • Mix is trending more towards guests coming more from outside of the United States
    • The majority is still from the US but it's getting close to 50/50
    • Europe is the clear majority of their non-US mix
  • The onboard and other decline was driven by the tour division. Onboard revenues was flattish. Customers on their developmental itineraries also tend to spend less onboard
  • They are not assuming a large uptick in onboard spending
  • They are going more for profit rather than volume at Pullmantur's tour division
  • Saw good rate demand both from European demand (75% of the demand for European ships) and from US demand - despite rising airfare
  • Forward booking patterns give them reasonable confidence that Europe can absorb the large increase in capacity
  • Don't expect to do any more Oasis class ships but they will have future growth - rate of growth has slowed and will be slower than it has been historically. Right now, they are focused on generating growth from improved yields and margins. Don't expect to add any new ships until 2014.
  • Capacity mix will be similar to 2010 next year with Europe growing faster
  • How much of the net yield increase is due to same store pricing vs. mix factors and new ships?
    • Have a little more than 1/3 of their business on the books for next year
    • Investors are very focused on 2011
    • They continue to benefit from new vessels
    • Roughly 50% of the increase in yields that they expect for next year comes from new ships
  • Very high % of their business is on the books already for 4Q
  • Being 1/3 booked for 2011 is better than the last few years but lower than peak years. Booking curve is 4.5 months.
  • There are new regulations regarding emissions coming online; they will bake those costs into their forecast. No surprises though.
  • Is bringing back the dividend a priority/possibility for 2011?
    • It will be up to the board but even at the peak the dividend wasn't that material to their deleveraging plans
  • Examples of cost programs
    • Changed supply management team
    • Marine departments- put a virtual inventory management program in place
  • 26% increase in customer deposits is a combination of additional capacity, higher load factors and increased pricing
  • Don't see nearly as much volatility as a result of the stock market on their results.  Seems like a much more linear recovery than last time around.
  • Hedges are at prices below current spot fuel prices
  • Too early to give cost guidance for 2011