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Terrific Q3. Surprisingly, lower Q4 guidance but generally better forward commentary. 



The following is our transcript from the CCL conference call that just ended. 


3Q09 Commentary:

  • The beat was driven by better yields, which benefitted them by 12 cents, while onboard spending and other contributed 2 cents
  • Cost cutting measures benefitted them by 3 cents
  • Capacity increased 5.5%, European grew 7.5% vs NA grew 3.6%
  • Overall net revenues yields decreased 12% in local currency
    • Ticket yields
      • NA brands were down by 20%
      • European brands only decreased 6%
  • Onboard yields were down but less than they were in 2Q, Europe was better than NA
  • Cruise Costs per ABLD
    • Net cruise costs, excluding the settlement, were down 2.4% (excl. fuel)
    • Fuel was 39% lower than last year
  • They are well positioned through the end of 2010 but may seek to opportunistically raise more capital


  • Closer in bookings are better than expected.  They have been running 19% ahead for 1Q2010. The gap in occupancy has significantly closed and the booking window has been widening 
  • Pricing is stable, but is better on select itineraries 
  • If current booking trends continue pricing should improve.  However, because most of the bookings for 1Q2010 are on the books, yields will be down in local currency but neutral to slightly better (because of the FX benefit) when adjusted for currency 
  • Moving older ships to the European fleet to third party tour operators – one out on a long term charter covering the remaining life of Costa Europa and the other is an outright sale (old P&O - Artimis)
  • 4Q2009 Color: 
    • Capacity increase: 5.7% in NA, 9.6% Europe 
    • Pricing is lower, but occupancy is the same y-o-y and there is very little inventory left to be sold
    • NA brands will have 45% capacity in Caribbean and 10% on the Mexican Riviera
    • Lower pricing for most itineraries – higher price products suffering the most declines 
    • NA down mid-teens in 4Q 
    • Alaska: Industry filed a suit against the head tax 
      • 2010 is still experiencing lower demand
    • Europe pricing is moderately lower, CCL expects a modest decline in local currencies
      • Should be flat-to-positive when adjusted for the FX benefit
  • 1Q2010
    • Fleetwide capacity up 9.9%, 15% for Europe, 5.5% for NA 
    • NA brands: 62% in Carribbean, 11% in Mexican Riviera 
      • Pricing is moderately lower, with Mexican Riviera down the most 
      • Have been able to increase pricing on some itineraries 
      • With such a large portion already sold for 1Q2010, they will see less of an impact from better short term positive bookings 
    • European itineraries are holding up well, only moderately down 
      • They expect pricing will only be down slightly by the time the quarter closes (in local currency) and current dollar yields will be neutral-to-slightly higher
    • South American yields are down more significantly (large increase in Brazilian supply)
  • 2Q2010:
    • Capacity increase set to be 9%, 4% for NA, 15.2% for European brands
    • Overall occupancy moderately down for NA & Europe 
    • NA is 54% Caribbean 
      • Pricing is lower than 2009, but better than 1Q09 last year 
    • European brands: 57% in Europe, 10% transatlantic 
      • Pricing (LC) lower than last year


  • Recovery timing?  
    • The company thinks the recovery will be slower than prior recoveries.  They believe it will be a slow emerging environment for yields.  2010 yields should be stable-to-slightly improving as year progresses
    • In the last recovery it took them two years to get back to where they were in prior to the downturn
  • No fuel supplements to be implemented yet 
  • Quantify extension of the booking window: 
    • It varies by brand, but overall 15-30 days improvement
  • Appetite to build new ships in out years 
    • Pricing in euros is back to the reality rates of 2003 when they ordered last time, but the dollar is weak 
    • It is unlikely that they sign any contracts by end of the year, which means that 2012 deliveries are unlikely 
    • US brands less compelling 
    • Would like to build some Princess 
  • Seeing more expansion in the booking window on higher end brands – because they were hit a lot harder 
    • Trade up recovery? 
    • Very difficult to compare to prior downturn because their portfolio was so different back then 
  • Dividend? 
    • The overall business tone is improving
    • Wanted to get their rating to A-
    • Liquidity has improved
    • So the bottom line is that they will make a recommendation to the board based on those three factors when considering reinstituting the dividend
  • Is there more room to cut costs?
    • They have taken out a lot of costs on the shore side area
    • Consolidated large part of their Alaskan operation
    • Probably in the 5th & 6th inning of cost cutting, remaining cuts may involve restructuring certain business
    • Operating companies are working closer together than they ever have before
    • Fuel conversation is an ongoing effort - only half-way there in terms of cost savings there
  • How do bookings look for Drea?
    • Bookings are terrific, they are getting a very significant yield premium
    • Oasis is doing great and so is the Odyssey
  • 4Q09/1Q2010 – what is a normal curve for remaining bookings?
    • Pricing is now essentially stable overall and, as they are able to catch up on occupancy, they have been able to tweak up pricing on certain itineraries (they are saying from current pricing less so than from pricing a year ago)
    • 5 cent benefit in the quarter,
      • Last year they had a penny related to insurance settlement
      • Accounting for FIN 48, this year they had a reversal
  • On Board spend update?
    • 3Q09 saw declines in most categories, but declines weren’t as great as those in 2Q09
  • Lower commissions, transportation & other due to less airport bookings and lower air booking prices (just a pass through anyway)
  • Alaska & Crystal only going in there for one year... Alaska will still have lower capacity next year
  • Generally speaking yards are hard pressed to build below cost and have already come down to reasonable prices. However, the Euro is so strong that it may not matter for 2012 deliveries.  CCL only has two ships coming online in 2012. Likely to have material cash flow in 2012 and beyond
  • Yield outperformance in 3Q09 implies that last minute booking prices were up about 20% (in order to beat by the amount they beat by) since 85-95% is already booked.  Onboard yields also helped. In July and August people just decided to take their vacations –  this implies pent up demand
  • The company expects that beyond 1Q2010, each quarter's yields are to get sequentially better
    • They won’t say that they will actually be positive in 2Q2010
    • Harder to predict now that it is in the past
    • Will increase pricing if this type of volumes continue
  • Current pricing in NA and Europe are well ahead of where second quarter closed last year (I'm confused here)
  • Art auctions and casinos are down a lot more than other onboard revenues
  • 10% change in fuel = 116MM or 15 cents a share; 10% movement in USD = 140MM or 17 cents a share