Management commentary on board Quantum
Chairman Fain, CEO
- Fuel: 20% better on ships pre-2006 vs post 2006 on $ per APCD
- 85% guests using smart online registration process; boarding process on ship was less than 10 minutes.
- O3B technology:
- Connectivity is 450x faster (fastest in the industry)
- 8 orbiting satellites beaming on Quantum
- Will be on Allure shortly and will be implemented across the fleet, particularly Caribbean-focused ships
- Will be a very expensive investment
- Currently charging less on new WiFi product than older version of internet on other ships
- RCL has exclusive contract with O3B in the cruise industry for a long period of time
- Energy usage: 10-12% more efficient than their competition
- Additional ~2.5% energy improvement expected in 2014
- Advanced Emission Purification (AEP): takes out sulfur; Mein Schiff III is the 1st cruise ship built with an AEP system already installed
- Oasis 3 : 20% more efficient than Oasis
- Newer ships: 25% higher revenue, 20% lower costs, 3.5x higher EBITDA
- ROI opportunities: Best thing to add are staterooms; staterooms cost less to build on newer ships.
- Customers who book onboard activities in advance spend more onboard $ on the ship. The pre-cruise planner has worked well.
- Revenue breakdown: Have gone from 20% non-US to 50% non-US
Jason Liberty, CFO
- Solid liquidity
- Net debt/EBITDA improved by ~50% over last 5 yrs
- ROIC up 110 bps YoY
- Moderate capacity growth:
- 2 Quantum Class
- 2 Oasis Class
- No order for 2017
- Sold 5 ships in past 6 years
- Continued double yield growth for Europe and China for end of 2014
- Quantum demand exceeding expectation
- 2015
- Yield growth: higher than 2014 yield growth
- Fuel consumption down 2.5% for 2015
Q & A
- Dollar strength vs lower fuel prices have neutralizing effects. Will look into revising fuel hedging program but will also keep an eye on how much stronger the dollar gets.
- Share buyback vs buying back debt:
- Being investment-grade credit is very important to RCL
- Weighted cost of debt: 3.5%
- Not much tax shield
- Travel agents vs direct bookings:
- Quantum has gotten better publicity than any other ship
- Travel agents critical to attracting 1st time cruisers
- More and more cruisers are buying directly thanks to internet resources
- RCL direct bookings cost: less than the 12-15% of revenues
- Quantum to China
- More significant costs
- Marketing expenditures on grand welcome for Quantum
- Chic will be transformed into traditional Chinese restaurant
- Rice will be cooked in large woks -- more expensive products
- Expanding casino
- More table games; few slots
- 2 private gaming rooms
- Johnny Rockets will be converted to Kung Fu Panda noodle shop
- Why Quantum didn't consider Southwest China on their itineraries and not just Korea/Japan?
- For tax reasons and also less port charges.
- The trips are short (4-5 days), so not enough time to visit other places
- Commissions paid to Chinese agents: similar to US
- Ships are almost exclusively Mainland Chinese guests
- A little more family/multi-generational
- 1/3 crew will be Chinese
- Booking online in China is very low
- Supply in Caribbean: have seen stress in Q1 2015
- Supply stress also in Australia/New Zealand
- Not focused on macroeconomic trends in Europe
- Ships that burn MGO fuel have lower ROIC e.g. Millennium, Meridian
- Double-Double targets have incorporated much of the additional capex needed to upgrade existing fleet.