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Kind of what we thought. Stock giving up what it gained yesterday.

"First quarter results were satisfactory given the difficult and uncertain operating environment and we continue to see gradual improvement in the demand for our great vacations. We did not expect the impact of the tragedy to be long term and we are seeing evidence the effects are waning."

- Richard D. Fain, chairman and chief executive officer


  • So far they are actually tracking nicely against the guidance that they set out in February.  Bookings are slowly improving.  Outlook hasn't changed much from their February guidance with the exception of fuel.
  • Even so, they have seen enough positive evidence to increase the lower end of their yield range by 1%
  • Southern Europe is seeing the biggest impact in terms of booking origination.  Q3 and Q4 are pretty weak in that region right now.  1Q wasn't really impacted since so much of the bookings were booked pre-incident
  • Strength of their developmental itineraries
    • Brazil was strong
    • Australia is nicely absorbing a large capacity increase
    • Asia is improving from the Tsumani impact
  • Guess that 50% of their guests will come from outside the US in 2012
  • Rate of global expansion will slow going forward as births/population growth also slows
  • 1/3 of their footprint is allocated to Europe.  Arab Spring and the Concordia incident has had an outsized impact on their results.  However, longer term, their exposure will help them.
  • Their recent credit upgrades puts them 1 notch below being investment grade. Being investment grade won't necessarily reduce their cost of borrow since they already benefit from cheap financing sources.
  • Some of their highest yields came from their developmental markets
  • Onboard spending surprised to the upside this quarter  
  • Demand is still somewhat volatile and there is plenty of uncertainty, especially for summer European itineraries
  • Cumulative bookings are now down mid-single digits.  US YoY bookings are exceeding prior year levels.  4Q and 2013 are ahead but 2Q and 3Q are still below.
  • At this time last year, the Arab spring was in progress but they didn't feel the impact until May.  They expect some yield improvement in the Eastern Med but overall European pricing will be down YoY.  All other products/ itineraries will be up YoY.
  • Europe accounts from 32%, 54%, 27% of their capacity in the 2Q, 3Q, and 4Q, respectively.  Therefore 3Q will feel the largest impact of European weakness.
  • Shifted some marketing expenses out of the first quarter because of the Concordia incident. 
  • Pullmantur better tour sales accounted for some of the outperformance this quarter
  • They are just now returning to last years' booking levels. 
  • Expect Caribbean yields to be higher in 2012 than they were in 2008 for their Royal Caribbean brand
  • Although they reduced their European capacity by double digits from 2011, their pricing will still be down 
  • Voyager of the Seas has moved to Asia and sparked some interest in that market.  Asia is a last minute booking market though so they have less visibility in that market.
  • Celebrity Reflection is going to be delivered in October 2012.  They are also working on a program to upgrade onboard activities and dining options. 
    • Alaska product is performing well
    • Performance for summer Europe program is mixed but are starting to see the benefit from ongoing promotional factors
    • Load factors are up and pricing is encouraging
    • Solstice is coming to New Zealand and Australia this year


  • They don't have any scheduled ship sales planned
  • How much lead time do their European itineraries have?
    • Peak holiday season is July/August
    • April - June is the key booking period for Europe
  • Overall, with the exception of Europe, their itineraries are pricing at or above year ago levels. 
  • Most of their promotional activities have been focused on Europe but the rest of their activities haven't been really promotional
  • It's pretty clear today, that their historical promotional activities work to lift bookings as they have in the past. They are in a much more normal type of revenue management environment.
  • Quarterly yields:
    • They are confident that they will have YoY yield improvement in 2Q and 4Q, however, there is a lot of uncertainty on whether yields will be positive or negative in 3Q. 
  • Strength of onboard spend is mainly outside of Europe. Onboard spend has been pretty good across most categories: shore, beverage.  Casino has been a laggard though.
  • Too early to really guide to what Europe could recover back to in 2013.  While 4Q and 2013 bookings have been 'healthy' so far - they are just too small to draw conclusions from.
  • They have been trying to source more passengers for European cruises from North America.  Much of it depends on which ports their customers fly from.  They have been bundling airfare with some promotions to attempt to stimulate demand. 
  • See Asia and China as strategic market, but in the near-term, it is a money losing proposition.  But they do believe that the investment will pay off in a decent time frame. They are not that far away from breaking even in Asia today
  • Higher fuel costs from environmental compliance standards are not going to have an impact on 2012. 
  • Longer term cost reduction initiatives?
    • While they are looking at ways to reduce costs they are also looking at ways to enhance their revenues - for example, the product enhancement features and international strategies. Cost cuts are focused in areas that don't impact the guests.
  • They are really looking for margin growth in the future vs. just volume growth. 
  • Have seen an uptick from Pullmantur's tour activity which is basically break-even (50bps from higher tour sales)
  • Seeing a lot more hesitancy from the first time cruiser vs the repeat cruiser in the quake of the Concordia incident
  • They are continuing to operate their pricing systems in a methodical and disciplined way
  • They are still looking at $1.5BN of EBITDA, so their cash flows aren't really impacted by this's years' events.  Look at a 3.75x leverage rate as a bench mark for getting investment grade rated. Most sellsiders have them getting there in 2013/14.
  • If you take a rolling 12 months projection, they are about 50% booked in a linear progression. 
  • The $100MM increase in Capex was due to the Sunshine order


    • "Despite the extraordinary disruptions to our booking patterns this year, thus far the recovery is consistent with our forecasts.  The Caribbean and Alaska remain healthy and as expected, a wide range of outcomes still persist regarding Europe this summer. While the marketplace is still volatile and uncertain, we are narrowing our yield and EPS ranges to reflect our best estimates at this time."
    • "Booking activity has continued to gradually improve over the last several months"
    • "Overall, booking trends and pricing have been consistent with prior guidance"
    • "Pricing reductions within the range of the company's previous guidance have been implemented to address booking shortfalls on certain products through the end of the third quarter. Nevertheless, Constant-Currency booked APD's remain ahead of the same time last year in all quarters. Overall, pricing remains in line with or higher than the same time last year for all major itinerary groups with the exception of Europe."
    • "Bookings for the fourth quarter of 2012 and for 2013 sailings remain strong, with both load factors and pricing running ahead of same time last year. In addition, the company has seen an increase in summer demand for its Pullmantur brand's tour product."
    • "Forecasted consumption is now 56% hedged via swaps for the remainder of 2012 and 51%, 33% and 20% hedged for 2013, 2014 and 2015, respectively. For the same four-year period, the average cost per metric ton of the hedge portfolio is approximately $525, $545, $593 and $580, respectively...The company also has fuel options to further protect against escalating fuel prices. The company currently has options expiring in 2013 at a strike price of $90 bbl that cover an estimated 9% of 2013 consumption."


    • "Approximately 350bps of the Net Yield improvement and approximately 500bps of the NCC excluding fuel increase during the quarter related to previously announced deployment initiatives and changes to the company's distribution system.... these factors are expected to increase Net Yields by approximately 200bps and NCC excluding fuel by approximately 300bps for the full year 2012."
    • "Since the company's earnings announcement on February 2, 2012, the price of oil has risen which, at current levels and net of hedging, would increase bunker expenses $0.15 per share for the year."
    • "Debt maturities for 2012, 2013, and 2014 are $600 million, $1.6 billion, and $1.9 billion, respectively."
    • "Projected capital expenditures for 2012, 2013, 2014 and 2015 are $1.3 billion, $600 million, $1.1 billion and $1.0 billion, respectively."
    • "Capacity increases for 2012, 2013, 2014 and 2015 are 1.5%, 1.1%, 1.4% and 6.9%, respectively."