CCL 2Q09 Earnings call:


Prepared Remarks:

- Just took delivery for Seabourn Odyssey today.


- Reduced fuel consumption helped them by 5 cents.  Also, better than expected pricing on close in bookings benefited them by 3 cents.

  • Mexico hurt them by 3 cents
  • Total revenue yields came in at the lower end of the range, driven primarily by the flu impact


- The capacity increase was driven by European brands growing 8%, and Costa Asia doubled in size.


- 2Q09 revenue commentary:

  • Net ticket yields were down 10%, NA down 14% (Alaska, Mexico), Caribbean & other exotic held up better. European yields fell 6%.
  • Saw benefit from bookings that occurred pre-crisis, hence the back half will not have this benefit and will be more impacted
  • Onboard spend down across the board


- Cost commentary:

  • More vessels in drydock this year
  • As a result of more focus on fuel efficiencies, they have been able to reduce consumption more than the 2-3% run rate of the last few years
  • Currency hurt them as the dollar weakened
  • Continued to find opportunities to save another $33MM and brought total savings to $150MM
  • Fuel will save them $660MM over 2008, with 2009 fuel / metric ton at $353. Fuel and currency are driving their costs down. FX, however, will also reduce their revenues by $175MM or $0.22/ share in 2009
  • 10% change in fuel will impact them by $0.14/share. 10% change in all currency impacts them by $160MM or $0.16/ Share


- Since the March conference call they completed the Italian export credits, European investment bank loan, and two other term loans for $350 million each.  They are on target to get all of their financing needs for 2010 by September.


- Booking environment:

  • Booking volumes are running 26% ahead of last year
  • Seem to have found a price point of attracting customers
  • North American cruise brands are seeing a moderate increase in pricing ability on premium product, however, the lower end stuff has been more impacted by the Mexican flu issue


- 3Q09:

  • Alaska at 39% of capacity
  • Pricing for NA is lower across all itineraries with worst impact on Alaska
  • European prices are lower but not as bad as NA
  • Caribbean prices are also lower
  • Occupancies are lower for NA and slightly higher for Europe
  • UK yields only slightly lower, other mostly mid single digit declines, overall European yields lower in the single digit yield range


- 4Q09:

  • 5.7% NA 9+% capacity increases
  • NA brands Caribbean prices are lower, but booking momentum has been strong
  • European pricing is holding up better than Alaska but lower (on NA brands)
  • Occupancies for NA are still lower, but only modestly
  • European brands pricing better than the US brands during 4Q, and while occupancies still not much lower than last year, expect pricing to be down


- 1Q2010:

  • Fleetwide capacity up 9.2% (13.3% in European brands, 5% in NA)
  • Do expect yield declines in 1Q2010, as a good portion of 1Q09 was booked during better times
  • However, volumes/ bookings are in line
  • If the strong booking momentum continues, it's possible that pricing may be close to 1Q09



- Terms of the EIB loans?

  • $550MM Euros, 250MM drawn in 2009, 150MM in 2011 and balance in 2010
  • Rate is very favorable
  • Unique because the EIB looks to stimulate growth in the economy and these ships will be sailing in the Mediterranean
  • May or may not be repeatable


- Capacity for 2012 & beyond?

  • Expect capacity growth to slow but not stop (he doesn't know, basically)
  • Pricing on ships has come back down to levels of where they used to order ships -so may consider it when they have needs for particular brands (on a constant currency basis)


- 3Q09 net yields looks at the low end of their guidance, and 4Q09 forecasts big rebound (we assume he means less bad) 

  • Without the impact of the flu they would have come in at the mid-point of the net yield guidance in the 2Q09
  • For the 3Q09 - they suffered more because of the premium mix - therefore they feel the impact of yield erosion the most. The 4Q09 will be better because of mix as well, but don't see it dramatically better more just a mix issue


- The magic questions... with capacity increase will yields continue to be negative in 2010?

  • Too early to say- clearly they don't want to opine on this year and to be fair they just don't know


- The only time they saw an impact on Mexico was during the 3 week travel advisory period, as soon as they announced the new itineraries the demand rebounded at strong levels, but at lower pricing levels (expect pricing to rebound to previously depressed levels)


- Feel encouraged because everything was trending up before the travel advisory.


- Whether the % of European passengers on Europeans brands are any different than 2008

  • No but the North American Brands are carrying more non-Americans


- Fuel supplements back in place? No plans since the economy is crisis

  • In other words - they would love to but they can't because what goes into a supplement will come out in pricing - thank for the obvious question


- Onboard spending for European brands has held up reasonably well


- Mexican Flu impact

  • Nickel of extra costs for the change in itineraries - part of it fell to the 3rd Q
  • The other 5 cents was due to digging themselves out of the hole when bookings came to a standstill (7 cents in the 3Q - why not just throw the kitchen sink at it ... right?)

- 2010 is the first time when they planned itineraries in a high fuel environment.  So the savings will be high on consumption (we assume 4%)


- Costa Asia? (immaterial to the company)

  • See the summer season absorb the 2x capacity... (coming from 1 ship to 2)
  • Winter season was slow
  • Typically go to Japan & South Korea (4-6 day trips)
  • Don't see the same "RevPAR" trends as lodging because it much less penetrated


- Dividend

  • Clearly would like to see a turn in earnings and cash flow before re-instating the dividend
  • Won't risk loss of the investment grade rating


- IBERO brand

  • Haven't acquired the entire brand yet... in the approval process. Its only 2 ships. Have taken full control of the company though and have restructured it. Wont develop more ships until the Spanish market recovers


- If they can get same level of occupancy as 2009 in 2010 the pricing will be up - but that's obvious... he's just saying if they can fill all the incremental demand (9+%) than they can start raising pricing.... Again this is the million dollar question

  • Think that should cycle the price declines by the end of 2Q2010


- Since end of March they have seen yield declines start to improve. 

  • A lot of the volume they are seeing is close in volume, still behind booking levels for 2010... not enough to price though. Won't know until 3/4Q.


- Alaskan capacity will be down in 2010.

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