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We wrongly assumed that given the updated guidance on June 29th captured most of the negative news.  Commentary on 1Q 2010 was strong, but we’re not sure it matters given the credibility issues related to lowering guidance 3 times in a row.


RCL 2Q09 Earnings call:

Introduction of the two Solstice class ships was the most successful introductions in memory

All of the new capacity is being deployed outside North America

NA supply will be down in 2009

Think that Europe is 10-15 years behind NA in its development as a cruise market

Asia and South American virtually untapped as well

So they are very “bullish” on new capacity… we wish we could say the same

Economy in Spain:          

  • Initially hoped that Spain’s recovery would be sooner since it fell first… but not so, unemployment now at 18%

Beginning to see signs of encouragement

  • Booking levels are stable
  • Financing environment is ok
  • Situation began to stabilize 6 months ago and thought that it would lead to an upturn, but unfortunately it has not

2Q09 commentary:

Dollar weakened 15% vs sterling which produced a below the line loss

Adjusting for H1, they would have come inline

Fuel expense was 6MM better than expected, because of the IFO and MGO lag to WTI, and consumption was below guidance

Booking environment update:

  • Pricing for all three quarters remains behind last year, but magnitude is stable
  • On the volume side, they see bookings lag, up until four weeks prior to sailing… so no closing in on the short booking window
  • Yield decline of mid-single digits in 4Q09
  • 2010 commentary
    • 1Q09: Slightly more than 1/3 sold, lagging where they were y-o-y. Pricing is materially higher than where they ended 1Q09. Optimistic they will see yield improvement in 1Q2010
  • More pessimistic view on Spain, given the unemployment rates
  • 2009 full year guidance
    • H1N1 impacts 3Q yields by over 2% and 1% for the full year

Fuel hedge prices are in the equivalent to WTI in the high 60’s for 2010 and 2011, so should have another fuel benefit in 2010.

H1N1 impact 5 cents worse, fuel is 8 cents per share higher, interest expense is 7 cents (upsize of debt deal), balance of weakness is Pullmantur

Don’t see the need to access capital markets for 2010 & 2011 even in their pessimistic scenarios

Remain reserved in their expectations for economic rebound

Shipboard revenues have declined meaningfully, with gaming most negatively affected

Europe & Alaska price declines are putting the most pressure on yield declines, but are pleased with the increased local sourcing in European markets. 

  • Alaska, no new supply, but massive price declines.  Change in the profitability of this market has been dramatic
  • Selling fall cruises to Mexico remains a challenge for the 3Q and 4Q

Taking possession of Oasis in a few weeks, continue to be very pleased with the bookings for this ship

Cost control initiatives continue throughout the organization

Solstice class ships

  • Pricing ahead of 4Q08 & 1Q09 but behind last year’s levels
  • Will account for 40% of Celebrity’s capacity


In general 2/3 of passengers in Europe will be non-US

How is the carve out of Azamara going to change the reporting/ cost structure?

  • Won’t … just trying to achieve better brand recognition

Why did constant dollar yields decline by 2% … we know 1% was due to H1N1

  • Took down Spain – 25-30bps on yields (7 cents on earnings)
  • Balance is a rounding error??? Ok – looks like expectations are simply lower across many markets

Fuel hedge strategy – probably won’t see large increases in hedge positions for 2010

What have booking volumes done over the last few weeks?

  • See “remarkable” consistency
  • Dip was bc they ran out of inventory
  • 4Q09 guidance assumes a  lot of cost savings-so EPS growth is driven by cost savings

Greatest upside from Q1 2010 really due to easier comps and new ships

Swine Flu issue – what are they doing to mitigate the impact… you can’t… but they spoke about containment and gradual fade of panic

Net Cruise Costs – G&A continues to run very efficiently but remain very committed to marketing and sales efforts as those are strategically important

Yield management systems- what are they doing?  Seems like they have no visibility since they keep lowering their guidance.  Shorter booking windows really hamper forecasting- I don’t think that’s any surprise

  • Think that their yield systems are the best in the industry, especially when you take into consideration H1N1 and FX movement
  • Their leverage is also huge so small changes in yields have huge impacts on bottom line

Yields in 2010 – will they still be negative

  • Sticking with the expectation of yield improvement in the 1Q 2010 (FX helps them too) plus better product mix… YES POSITIVE YIELDS NOT LESS NEGATIVE
  • Higher occupancy on newer vessels, benefitting from newer vessels

Sounds like CCL is going to start building more ships beyond 2012… does that mean that they will as well?

  • Clear that this isn’t a market share game… claims there is brand loyalty… etc… we’re skeptical about the whole brand loyalty thing
  • Will look a the decision of building purely based on getting best ROI – and that comes from margin expansion not supply growth – Hallelujah

Decline on the short Caribbean- what happened?

  • Those have the least visibility and the shortest booking cycle? Close in bookings were weaker than expected and hence pricing was disappointing

New ship financing on Allure – still 15 months away, will start looking at that.  Have had some preliminary conversations, but feel very good. Don’t expect to have an update until year end

Fuel technology – too early

IFO/MGO gaps to WTI - we don’t get this question because you can simply track IFO and MGO directly so why even rely on WTI

If the flu season is much worse this year, that is going to negatively impact guidance