RCL Q1 2014 REPORT CARD

In-line with trends seen from our pricing survey

OVERALL

  • MIXED:  As expected, the Caribbean continues to be the major risk that faces RCL and its competitors over the near-term.  Expectations were high heading into the print and while RCL underwhelmed on the yield side, particularly in 2Q as we warned, it was offset by better cost controls and a strengthening recovery in Europe.  

Bookings:

  • BETTER:  Post-Wave bookings in March/April have exceeded seasonal expectations
  • PREVIOUSLY:  Entered 2014 in a very strong book position with 5% more revenue on the book YoY

Caribbean:

  • WORSE:  Despite efforts by management to touch this topic from different angles, the truth is Caribbean has underperformed their expectations since the beginning of the year and continue to be pressured by the promotions from NCLH and CCL. 
  • PREVIOUSLY:  
    • Booked load factors and rates for the Caribbean are lower than the same time last year, and expect yields for 2014 to be down for the Caribbean by low single digits.
    • The Caribbean is weaker due to two factors: firstly, it's the areas hardest hit by the media storm of 2013; and secondly, a large capacity increase here, for both the company and the industry of 13%.
    • Longer-dated itineraries holding better than shorter-dated ones

Europe:

  • SAME:  RCL continues to display pricing power in this market.  The recovery of the Southern Europe pricing is reassuring.  RCL expects double digit yield growth for 2014.
  • PREVIOUSLY:  Booked load factors and APDs are significantly higher YoY.  Expecting another year of significant yield improvement in Europe and expect yields to surpass pre-recessionary levels.

Asia-Pacific:

  • SAME:  Expects double digit yield growth in 2014
  • PREVIOUSLY:  Booked load factors and APDs remain ahead YoY despite a 12% increase in capacity. Expect yields to be up nicely for our Asia-Pacific itinerary.

Alaska:

  • SAME:  Expects low-mid single digit yield growth in 2014
  • PREVIOUSLY:  Feel fairly confident on how Alaska shapes up 

Pullmantur:

  • SLIGHTLY BETTER:  There was no mention of further deterioration in this brand.  The strength of the Spanish market should also provided a boost to Pullmantur.
  • PREVIOUSLY:  Expect the greatest relative benefit
    • Most visible changes involve the shift to having a Latin American headquarters and the recent sale of Pullmantur's non-cruise businesses
    • Immediate growth in Latin America should be significant. Expect this transformation to take some time, and for 2014, the year will be a transitional year.  Expect the biggest benefits of Pullmantur's changes to occur in 2015 and beyond.

Onboard revenue:

  • SAME:  Gaming and beverages led the 3.4% growth in Q1 onboard yields
  • PREVIOUSLY:  
    • Benefits from ship revitalization program, packaging initiatives, as well as shore excursion enhancements, drove onboard revenue
    • Seeing strength across every single revenue stream and from every single market. So the entire story is positive. There's just a general uplift across all brands.

Promotional environment:

  • WORSE:  Ever after normal Wave promotions, the Caribbean continues to discount.
  • PREVIOUSLY:   Regular, nothing unusual

Ship incidents:

  • WORSE:  6 ship incidents in Q1 (oil spill in Gulf, damaged propeller in Tokyo affected 2 sailing, norovirus, etc.) impacted Q1 earnings by 5 cents and yields by 0.5%
  • PREVIOUSLY:  Don't expect that the impact of this event (norovirus) will be significant or meaningful to the company or its result.