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Wave has a decent start but are expectations for RCL’s 2013 guidance too high? 

With CCL offering disappointing 2013 net yield guidance of +1-2% yield for 2013, RCL has a chance to reassure cruise investors of a strong 2013 outlook.  However, we think the commentary will be mixed, which may not be good enough given the 8% run up in the stock since they last reported.  Thus, the Q1 earnings next week may actually be a negative catalyst.  As we mentioned in 2013 EARLY WAVE SEASON PRICING (01/31), RCL's Alaska and Europe pricing (mass brand) are underperforming. 

We understand there is an expectation that pricing should pick up in February and March, thanks to easy Concordia comps.  Travel agent surveys have been quite optimistic regarding the start of Wave Season.  The Street is looking for close to 3% yield growth in 2013.  It is an achievable target but European pricing will likely need to stabilize.  Unfortunately, we see European pricing trends continue to deteriorate relative to October.  

An interesting trend we’re noticing is the relative pricing outperformance of the premium brands (Celebrity/Azamara) versus the mass brand (RC) in Europe and the Caribbean.  The 2013 payroll tax hike is probably playing a role in the mass weakness especially in the Caribbean.  The RC brand accounts for 64% of RCL’s total capacity in 2013.

We believe RCL would need to guide 3%+ in net yields to beat Street expectations and continue the momentum.  We think yields closer to 2% is more reasonable.  The continued Oasisizing and Solsticizing in the 1st half of 2013 will pressure costs and higher airfares to Europe may continue to crimp demand and lead to shorter booking windows.  The stock is not overly cheap at 13x which is in-line with its historical average.

RCL:  HIGH EXPECTATIONS - RCL555