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RCL recently gave revised 2009 guidance of $0.86; factoring in swine flu, a 45% increase in fuel prices, losses on ineffectual FX hedges, and cost of new debt issuance. The bad cat is out of the bag already for this heavily shorted stock.

The news has been so bad this year; it sets up for an easier comp next year, although we believe the key metric of Net Yields will still fall in 2010.  The near term channel check from travel agents and feedback from both RCL & CCL (see the “U-tube” section below) are consistently positive on the margin.  Despite the supply growth in Europe the ships are getting filled and the new ships are getting premium pricing.  Despite awful credit markets, ships are getting financed at attractive rates and companies are issuing notes.

When we step back and think about the big picture in our space, leisure travel is doing better on the margin.  The lodging companies have told us that leisure demand, which led the way into this recession, is now one of the few bright spots.  Leisure demand has been elastic, while corporate travel just isn’t showing any signs of life.  Positive CCL commentary a month ago surrounding booking volumes and firming pricing confirmed this elasticity.

When RCL reported 1Q09 earnings on April 23rd, 75% of 2009 bookings were in the bag. We bet that when they gave revised guidance on June 29th well over 80% of bookings were in the bag.  The other theme that has emerged so far in 2009 is beating on the cost side.  We expect this trend to continue for at least this quarter.   

That leaves us with 2010.  We have expressed our concerns for capacity coming online in 2010. Given the impact of swine flu, weaker USD, and benefit negative hedges continuing to roll off, RCL could very well show huge EPS growth in 2010.  That doesn’t mean that our fundamental outlook for 2010 has changed; it just may look better. 



Q1 Trends

“...some months ago the market had begun to stabilize and we are happy that the level of stability has continued to increase.”

“...volume is remaining surprisingly robust given the current economic climate.”

Ticket in tour revenue came in slightly better than we had forecasted and onboard spending was consistent with our forecast.”

“Our onboard revenue challenges continue to be driven primarily by gaming and other auctions. Our areas of strength are phone, Internet, shore excursions....” 

Booking environment

“The booking window is certainly more contracted that we had seen in 2007 and 2008 and much of the demand is being driven present by aggressive pricing.”

“... We have seen a little bit of uptick lately in the three to six months window... When you go beyond that six months market it's where we're seeing people really holding back in the high degree of uncertainty.”


“...second quarter departures are behaving much the same way that the sailings that occurred in the first quarter did... Since [January] then the volume of new business has improved significantly and year-over-year pricing changes have been very stable.”


“...we are still fairly early in the booking cycle ...But again, the same pattern that we witnessed in the first and second quarter seems to be developing in the third quarter and the momentum of new business for third quarter sailings has begun to accelerate.”

“... our best estimates have third quarter yield change on both in as reported basis and on a constant dollar basis to be slightly better than the second quarter”

Full year 2009

“European yields will be weak in 2009 on a year-over-year basis. Fortunately, however, our strategic expansion in Europe is delivering benefits to our brand as the number of Americans cruising in Europe has decreased. We estimate at about three-fourths of our guests in Europe this season will originate from European source markets.”

I would guess [RCL is] just under three quarters all-in booked for the year.”


  • Better than expected pricing on close in bookings
  • Slightly larger yield declines as the back half (‘09) of the year feels the full brunt of the recession and is impacted by the seasonal deployments in Alaska and Europe
    • A weaker dollar may mask some of this impact
    • Seem to have found a stabilization point between pricing and booking, and with the strong booking pace, some itineraries were showing price improvement
    • Since March they have seen both volumes and yields starting to improve – have been tweaking pricing up

3Q09 outlook (June 1 – August 30):

  • North American brands:
    • Saw a modest improvement in premium NA product, but “contemporary” product was impacted by swine flu
    • Resumed sailings to Mexico in June, with pricing rebounding (off of lows) and volume was strong
    • Guidance for next 3 quarters: 
      • Pricing is lower across all itineraries with steepest decline in Alaska, and Mexican Riviera also impacted. European itineraries pricing down, but better less so than originally expected. Caribbean lower and also impacted by swine flu
      • Occupancy lower y-o-y for Caribbean, Mexican Riviera and Alaskan itineraries and slightly higher for European itineraries
      • Expect NA yields to be lower in the double digit range by the time the 3Q closes
      • European Brands:
        •  Pricing held steady, little swine flu impact expect pricing down in the single digit range for the continental Europe brands, and with UK brands only down “slightly” (overall down single digit range)
        • Overall net yields down 14-16%

4Q09 outlook (Sept 1- Nov 30):

  • Fleet-wide occupancies and pricing are lower than 4Q08 levels but look sequentially better than 3Q09
  • North American brands:
    • Pricing commentary (y-o-y comparisons): Caribbean down similar to 3Q09, Alaska very weak, Europe is weak but better than Alaska.  Long and exotic cruise also down considerably
    • Occupancies lower but only modestly
    • European brands:
      • Pricing  continues to be better than NA brands, although still lower (y-o-y) but better than 3Q09

2010 outlook:

  • Expect yield declines in the 1Q2010; comps are difficult since a good % of 1Q09 booking were booked pre-crash. Expect occupancies to be flat
    • North American brands occupancy and pricing is lower across all itineraries (sounds like the booking levels are a lot lower but pricing is ok on what’s booked?)
    • European brand pricing is running about flat, but occupancies are lower