Lower FY 2011 guidance was expected but the Q2 miss in yields showed Mediterranean weakness played a much bigger role on RCL than initially thought.



“Since our last guidance, the turmoil in the Eastern Mediterranean has caused pricing to deteriorate even further for this region. Fortunately, our other markets are performing exceptionally well and we have been able to take our cost reductions to the next level.  As a result, profitability is still growing nicely year-over-year, but these disruptions have undermined our expectations for even better performance this year. Our long-term outlook remains highly positive and, with a strengthening balance sheet and solid liquidity, we are pleased to reinstate our dividend.  It is our intention to continue paying quarterly dividends at this level or higher as our performance improves and we work toward our goal of returning to Investment Grade.”


-Richard D. Fain,  RCL chairman and CEO





2Q results

  • $0.47 EPS in-line with consensus, higher than $0.40-0.45 guidance
  • Net Yields (current currency) rose 3.8%, short of the Street's 4.8% and guidance of 5%
    • On a constant currency basis, yields rose 0.8% (Street: +1-2%)
  • Net Cruise Costs per APCD ex fuel:  +2.3%, lower than Street's +4-5%
    • On a constant currency basis, yields fell 0.1% (Street: +2%)
  • Fuel: ~$599 per metric ton

3Q guidance

  • Net yields: +5% (current)--(consensus: +7.1%); +1-2% (constant)
  • NCC: +6% (current); +4-5% (constant)
  • NCC ex fuel: +4-5% (current); +2% (constant)
  • EPS: $1.85-$1.90
  • Capacity: +6.3%
  • D&A: $175-180MM
  • Net Interest Expense: $88-93MM
  • Fuel consumption: 335k
  • % fuel hedged: 53%
  • 10% fuel price change sensitivity ex fuel options: $10MM

FY2011 guidance

  • "While most of the company’s product groups are performing at or above prior expectations, ongoing pressures from events in the Eastern Mediterranean have reduced Constant-Currency Net Yield expectations for the year by 150 bps since April."
    • Net yields: +5% (current)--(consensus: +5.5%); +2-3% (constant)
  • "Net Yields for the Mediterranean are now expected to be down approximately 4% for the year; ex Med, yields up 11% (9% on Constant basis).
  • "The company noted that with the exception of the Eastern Mediterranean, it continues to observe strong demand for its products, especially the Caribbean, Alaska and Northern Europe.  The strength of this demand (both rate and volume) reinforces that Eastern Mediterranean pricing softness this summer appears to be geopolitically related and that the economic demand for its products is strong."
  • "The company has been able to further reduce its cost outlook for the year and has reduced its Constant-Currency NCC excluding fuel by 100 bps."
    • NCC: +4% (current); +3% (constant)
    • NCC ex fuel: +3% (current); +1-2% (constant)
  • EPS:  $2.85-2.95.
  • Capacity:  +7.6%
  • D&A:  $705-710MM
  • Net Interest Expense:  $355-365MM
  • Fuel consumption:  1,319,000
  • % fuel hedged:  55%
  • 10% fuel price change sensitivity ex fuel options: $20MM

FX guidance

  • EUR: $1.45
  • GBP: $1.64


  • Accounting change in interest expense revision revises Q2 EPS to 43 cents and FY 2011 EPS guidance to $2.85-2.95.
  • Quarterly dividend of 10 cents reinstated and payable August 30
  • RC facility amended in July with capacity of $875MM, which matures in 2016. Combined with $525MM revolver, company has $1.4BN in RC facilities.
  • Drew 12-yr, $632MM unsecured financing for delivery of Celebrity Silhouette
  • Fuel expense guidance: 55% hedged in 2012 at $72 bbl, 47% hedged in 2013 at $78 bbl, 30% hedged in 2014 at $87 bbl and 20% hedged in 2015 at $88 bbl. WTI fuel options at strike prices ranging from $90 bbl to $100 bbl cover an additional 8% and 11% of estimated consumption in 2012 and 2013, respectively. 
  • "Celebrity Silhouette will initially split her time between Caribbean and European itineraries."
  • Capex guidance: $1.1BN (2011); $1.2BN (2012); $500MM (2013); $1.1MM (2014)
  • Capacity guidance: 7.6% (2011); 1.9% (2012); 2.5% (2013); 0.7% (2014)



  • Will have a very good year despite Mediterranean concerns
  • Booking volume and APD are up for the next 6 quarters
  • 2011--increased Med. itineraries the most since it was the most promising at the beginning of the year
  • Inflation pressures have not abated but good cost control in other areas keep overall costs down
  • Revisions to their interest expense – was in relation to their export credit loans.  There was a change in the timing of the payment of certain loans which required a change in the way they account for the interest on the loans.  There is no cash impact to the revision. 2009 was the first year of their mistake.

  • 2Q
    • Yields up 9% in Caribbean
    • Solid double digit growth in Alaska/Baltic regions
    • West Med: mid-single digits
    • East Med: down
      • April/May came in as expected but June close-in bookings were very weak
    • Solid pricing in NA and Europe, except Spain
  • Interest expense: 10MM higher than guidance due to new interest accounting but adjustments below the line
  • All brands showing positive trends for rest of year
  • Much deployment moved from Egpyt to Tunisia
  • 3Q/4Q: overall load factors and APDs higher YoY
  • 3Q:
    • Eastern Med. itineraries: 18% in 3Q
    • Western Med. itineraries: slightly higher yields in 3Q
    • For all other regions, strong demand (double-digit yield improvements)
  • Japan redeployment will linger until October but business is recovering
  • 2012: Slightly less than 25% booked but running ahead of a year ago; Europe also up in load factors and APD
  • Average cost of debt:  4.4%
  • 2012 average debt cost:  4.4%
  • 10 cent/Q for dividend is conservative
  • 10Q will be filed on Monday
  • Royal Caribbean brand:
    • Half deployed 50% of European ships this summer
    • Most capacity in Italy and Spain
    • 2012 deployment: shift European presence from South to North
    • Only marginal growth in Europe passengers in 2012
    • Alaska/US/Baltic environment positive in summer
    • Radiance of the Seas revitalized in June; Splendor of the Seas will be revitalized later this year
  • Celebrity brand:
    • Alaska, Bermuda, Northern Europe doing well in 2Q
    • Sailings in Eastern Med/ Holy Land difficult
    • Caribbean performing ahead of 4Q2010, 1Q 2011
    • 90% of fleet will be Solstice-class in 2012


  • Bookings slowed down in mid-May, particularly for Eastern Med. Higher YoY bookings at discounted rates in July for Eastern Med.
  • 45% of inventory will be in Med in 2011
  • FY 2011: 150 bps yield decrease due mostly to close-in bookings
  • 2012 summer pricing in Eastern Med: slightly better but too early to tell
  • 2012 itinerary breakdown: flat in Europe YoY (in terms of market share by region)
  • No capacity increase in Europe in 2012; current forward bookings better than at this time last year
  • $200-250MM maintenance capex run rate in 2012
  • No impact on investment-grade rating
  • 2011:  On-board guidance flat from previous forecast
  • North America strength: Solsticizing in Celebrity have driven strong growth
  • Western Med: yields will be higher this year
  • 2012 NCC: will continue to manage costs well
  • 2012 fuel expense: underlying bunker composition has not changed
  • Has not done any additional fuel hedges in 2011
  • Onboard spend: broadly flattish

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