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Takeaway: Net yields guidance uninspiring and European commentary a little tenuous

The chart below describes one reason why there was mismodeling for fuel and how the Street missed FX impact.

RCL Q4 2014 CONF CALL NOTES - rcl1

For your reference, we have reattached our past pricing survey. http://docs.hedgeye.com/HE_Cruise_Pricing_JAN2015_Wave.pdf 


  • On track for Double-Double Program
  • Pleased with Quantum and Anthem - experienced healthy bookings and are large drivers of 2015 results
  • Oasis-class RC vessels and Solstice-class continue to improve on performance
    • That's not new. What about the pre-2006 ships?
  • Guest satisfaction at record levels in 2014
  • SkySea JV will happen in mid-2015
  • All unit cost increases in 2015 is attributable to ramping in China
  • Celebrity:  EDGE ships in 2018/2020
  • Will divest older tonnage as opportunities arise
  • Ended 2014 with best forward booking status in company history 
    • Maybe because of an earlier Wave this year
  • Close-in bookings in F4Q were more sluggish than expected.  Caribbean is the culprit.
  • 2015 Wave:  still early but overall encouraged
  • Once lap 1Q 2015, yield on all products are expected to be up mid-single digits.
  • Capital allocation tools: stock buyback and increasing dividend
  • RCL: 'at the pump' prices have lagged brent prices but have now finally caught up. Also uses inventory on FIFO basis.
  • Typically 4-6wk lag for at the pump prices for RCL
  • 4Q:  2.7% net yields (slower Caribbean, non-holiday price reductions)
    • Onboard rev:  +4.9% (strong sailings on New Year sailings and strong beverage packages)
    • NCC:  better back office costs and crew movement costs
    • Would have come in better than guidance if not for currency, net of fuel 
  • 1Q 2015
    • Caribbean capacity:  up 8% YoY (70% of capacity); promotions stimulating close-in demands.  Quantum performing well but short and 7 night Caribbean itineraries have been challenging.
  • 2Q 2015
    • RCL Caribbean capacity: -2%; industry capacity: -4% YoY
  • 2Q-4Q
    • APDs up YoY due to Australia and Asia
  • 2015
    • Caribbean capacity: up slightly (44% of capacity)
    • Bookings doing very well
  • Caribbean yields: down mid-single digits in Q1, up low single digits in Q2
  • 2015 Europe 
    • Capacity:  +5% YoY;  bookings over last few months are doing well; recent demand have been strong in US and UK bookings; expect mid-single digit yields (but this is influenced by Allure being in Europe this summer season)
      • But what about pricing?
  • 2015 Asia:  15% of total capacity
    • Expect yields up low-mid single 
  • 2015 NCC ex fuel:  +1% or better 
  • Change in presentation:  Pullmantur financials historically been reported on a 2-month lag.  Could change to real-time in 2H 2015 but the effect is immaterial.
  • 1Q 2015:  Higher marketing spending during Wave

Q & A

  • What happens to Double Double if FX continues to pressure earnings?
    • Not a new factor. 
  • Everything positive in the last couple of months.
  • Tone is positive. Wave is strong and typical.
  • Oil Forward curve in contango
  • 2015 onboard forecast:  driven by Quantum/Anthem.  O3b technology has helped customer spending on internet packaging. 
  • Expect Alaska pricing is doing well and bookings too
  • Australia:  a lot of capacity going there so there is some stress on yields
  • Value-added vs discounts:  more bundled packages like Celebrity 1-2-3 Go
    • Proving very popular with consumers and travel agents since it increases their commissions
    • Could have a little reduction on onboard revenue
  • Last few weeks in January:  pleased with Wave.  Seeing good volume.  Saw some declines after France attacks but only for a few days.  
  • Europe:  much more balanced view; if they had not seen 2014, they would be euphoric.
    • Right, so really hard comps - Mgmt tone shaky here.
  • European itineraries: 2/3 of European guest come from local economics
    • Shift more sourcing to North America passengers
    • Incremental demand from European customers:  a little bit of dip from Paris tragedy but demand is in-line.
  • CCL/RCL in China - need to educate Chinese consumer.  Overall industry is growing
  • Q4 2014:  more promotional than expected
  • How much did holiday shift added to Q4 yields?  Immaterial (bp point or two)
  • 4Q Other income line:  excluding the $33.5m in tax reform benefits, the rest is TUI's results