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4Q guide down expected but near term visibility still cloudy.  positive 2012 commentary


  • 2 main observations: 1) 3Q and 4Q on target with expectations; 2) solid forward bookings
  • Costs remain contained
  • Strong 3Q close-in bookings in Europe and Caribbean
  • Caribbean/Alaska were better than expected and offset areas hurt by political/economic turmoil
    • This year, Alaska hit record yields
  • 2012: comfortable with level of bookings (higher load factor and price vs year-ago)
    • But not ready to give specific guidance yet
  • 2012: Not expecting yield improvement from economic tailwinds but will benefit from low capacity
  • Reduced Eastern Med itineraries for 2012
  • Will not need to access capital markets for next few years 
  • 3Q yields:
    • Ticket: +6.8% YoY, driven by all itineraries except Eastern Med and Asia; Alaska was +15%
    • Onboard: up marginally--increase spending among NA guests offset mix shift towards lower spending among European guests
  • Some modest cost shifting into 4Q
    • Some marketing expense moved from 3Q to 4Q
  • Realizing small gain in 4Q for selling 2012 fuel options 
  • 4Q yields: Caribbean (double-digit growth); lower yields in Eastern Med/Asia
  • 2012
    • "Things look pretty good but hard to ignore economic concerns in Europe" 
    • 2012 Booked APD trending higher YoY on a constant-currency basis; steady improvement from end of July to present day mainly due to sale activities
  • 2011 guide down: -12 cents due to FX; -8 cents from fuel options; +5 cents coming from better operating performance
  • Grandeur of the Seas/ Rhapsody of the Seas revitalization in 2012
  • Onboard rev outlook:
    • Anticipate modest improvement 
    • Onboard rev hurt by decreased gaming spend and change in composition in guest mix
      • Carrying more European guests (they spend less than US guests and are spending less YoY)
  • Fleet deployment outlook:
    • Since Q2 earnings, RCL Int will replace Vision of the Seas (Holy Land Itineraries); Celebrity Solstice will ship 50% of fleet to Western Med from Eastern Med
    • Overall, reduce planned Eastern Med deployment by 17% in 2012
  • Caribbean: 60% capacity in fall and winter and into 2012
    • Performing well; will grow YoY in 4Q
    • Celebrity Infinity, Summit, and Millennium (April 2012) upcoming Solsticizing
  • Customers still prioritizing vacation/travel; cruise travel still on top


  • Q4 close-in bookings: October was fairly solid, but are taking conservative view on winter months; Caribbean holding up fairly strong
  • 2012: 29% inventory in Europe; Eastern Med/Holy Land: 9% in 2012
  • By normal trends, by year-end of 2011, 2012 itineraries should be 50% sold-out
  • Too early to say about 2012 Alaska bookings
  • This year, Alaska did benefit from Europe dislocations 
  • 3Q yields are still 4% below yields achieved in 3Q 2008 yield
  • Wider than normal 4Q guidance range (10 cents):
    • Because of economic uncertainty
  • In a de-levering mode right now
  • Overall customer mood: no difference between Q4 2011 and 2012
  • FY 2011 Med yields: Western Med up slightly; Eastern Med down; 
  • 2011 Eastern Med impact: $90-100MM hit, 150bps hit in yields
  • Legend of the Seas had double digit yield declines recently vs. double digit increases earlier in the year
  • Eastern Med pricing still discounting?
    • Somewhat better pricing 
  • Corporate sourcing: 3/4 of US and 1/4 from Europe 


2012 Outlook: Though economic uncertainty is elevated and it is still early in the booking cycle, 2012 demand thus far has been solid.  Booked load factors and pricing are both running ahead of this time last year, which supports the company's expectation of continued yield accretion during 2012.  

3Q results

  • $1.90 EPS in-line with us, 4 cents higher than Street (excludes a $0.08 charge related to mark-to-market revaluations of fuel option portfolio)
  • Net Yields (current currency) rose 5.3%, beating Street and guidance of 5%
    • On a constant currency basis, yields rose 2.6% (Street: +1.7%)
  • Net Cruise Costs per APCD ex fuel:  +2.5% (+0.7% on constant currency basis)
  • Fuel: $608 per mt
    • Consumption at 333,000 mt

4Q guidance

  • EPS: $0.09-0.19 (Street: $0.22)
  • Net yields: +3-4% (current and constant $) (consensus: +4.9%)
  • NCC: +6% (current and constant $)
  • NCC ex fuel: +4% (current); +3-4% (constant)
  • EPS: $1.85-$1.90
  • Capacity: +7.3%
  • D&A: $180-185MM
  • Net Interest Expense: $82-87MM
  • Fuel expense: $204MM
  • Fuel consumption: 344k mt
  • % fuel hedged: 57%
  • 10% fuel price change sensitivity ex fuel options: $9MM

 FY 2011 guidance:

  • Net yield (current): +4% from +5-7% previously due to adverse currency movements; constancy currency +2-3% unchanged from prior guidance
  • EPS: $2.70-$2.80 ($0.15 reduction from prior guidance primarily due to stronger US Dollar and fuel option revaluation loss)
  • NCC ex fuel: +2-3% (current); +1-2% (constant)
  • Fuel expense: $761MM
  • Fuel consumption: 1317MM metric tons
  • Capacity: +7.5%
  • D&A: $702-707MM
  • Net Interest Expense: $357-362MM

 Guidance commentary:

  • Close-in demand was strong in the third quarter, but the company does not anticipate this strength will continue for the seasonally weaker fourth quarter.
  • Forecasted consumption is now 57% hedged via swaps for the remainder of 2011 and 55%, 47%, 30% and 20% for 2012, 2013, 2014 and 2015, respectively.  For the same five-year period, the average cost per metric ton of the remaining hedge portfolio is approximately $490, $520, $520, $575 and $580, respectively
  • The company recently sold its options for 2012, which were at a strike price of $100 and will recognize an associated small gain in the fourth quarter. The remaining WTI fuel option portfolio consists of options expiring in 2013 at a strike price of $90 bbl that covers an estimated 11% of 2013 consumption.

FX guidance

  • EUR: $1.39
  • GBP: $1.60


  • $1.3BN: cash and undranw RC
  • Remaining debt maturities for 2011, 2012, and 2013: $250MM, $600MM, and $1.6BN respectively 
  • Capex for 2011, 2012, 2013, 2014: $1.1BN, $1.2BN, $500MM, and $1.1BN respectively
  • Capacity for 2011, 2012, 2013, 2014: +7.5%, +2.1%, +2.4%, and +0.8%, respectively