• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Beat on costs but forward commentary not so rosy.  Oasis bookings seemed disappointing.

 

 

RCL 3Q09 CONF CALL

General commentary/Outlook

  • Folks are continuing to vacation and the value proposition of a cruise continues to resonate with customers
  • Unfortunately, they are also seeing more seasonality than before, and giving back the strength they saw in the 3Q09 in 4Q
  • Real key to their future is the leverage they will have from the cost cuts when things recover
  • NO EVIDENCE OF A REBOUND YET
  • Proactive in approach of managing fuel risk
  • Well positioned to ride out what's left of this cycle and take off when things begin to recover

3Q09 results

  • H1N1 cost them about 2% points of yield in the quarter, with the Caribbean the strongest and Alaska the weakest
  • Non-US guests made up 43% of customers
  • International market performed particularly well
  • Took a charge of 3 cents per share on the Pullmantur sale and the acceleration of dry docking expenses
  • Correction to the statutory tax rate related to the purchase of Pullmantur
  • Beat this quarter came from better close in bookings

Outlook

  • Early signs of expansion in booking curve but still contracted in comparison to historical norms
  • Looking out to the summer of 2010 they are encouraged by peak season demand
  • Mexican Riviera demand is still disappointing
  • Pricing since the beginning of October is running ahead of last year.  However, the improvement is mostly driven by easier comparisons
  • 4Q09 is being hurt by Florida's weak economy and more discounted holiday pricing. 
  • Looking out to 1Q2010, bookings have outpaced the same time last year but cumulatively they are still behind last year. However, they expect to surpass that given the accelerated booking pace
  • 2010 rates compare favorably to 2008 but that is influenced by the fact that the newer boats have much more bookings for 2010 than the older boats, hence the comparison is not apples to apples
  • Believe that they will have better yields in 1Q2010 then 1Q09 due to mix shift towards newer boats and less dramatic discounting
  • FX will have a 1% benefit for net cruise yields in 4Q2009

Sourcing detail

  • Expect to source more than 40% of business outside the US in 2010
  • Australian product expected to be up y-o-y, other emerging market products unclear
  • Oasis of the Seas is more significantly booked for 2010 than any other ship and has a large price premium - Not discounting
  • Had healthy close in demand for cruises in Europe and booking volume through the fall have held up well
  • In Caribbean they are seeing a high number of bookings come from outside the US on longer sailings, in general Caribbean performed relatively well
  • Reaction of the UK market to the Eclipse has been exciting

Q&A

  • Expect that both 1Q2010 and FY2010 will have positive yields
    • Yield accretion due exceptional performance of new ships and less dramatic discounting that they undertook during the Lehman collapse
    • Oasis will have double digit premiums versus the Freedom class
  • Color on legacy core fleet/cannibalization
    • Feel like they don't really have cannibalization its more that developmental markets that take some time to develop (because presumably they move old supply abroad)
  • Given the variability in short term bookings how are they so confident that yields will be positive?
    • Because the build in bookings have been consistently above 2008
    • They realize that the reason is because the further out bookings are weighted towards the "premuim" newer ships but as they get closer in, sales will be more weighted towards "legacy" products
  • Atlantic Sky (Sky Wonder?)  which was scheduled to go to Mexico got "laid up"
  • Given that yield guidance came down - surprised that EPS guidance isn't worse for next quarter
    • Costs are slightly better than before, and new bunker guidance is probably less then most people had modeled
  • Lower load factor in Dec than last year? Are you they holding back inventory to protect pricing?
    • Always had the intention of reducing capacity given how new the ship is and making sure they can smoothly handle the volume
    • However, they are also protecting pricing by being less aggressive in filling the ship
    • They think it's possible that load factor can be down this next quarter as a result
    • Don't want to sell out the Oasis - that would be "yield mismanagement" - want to maximize yields
    • Oasis should have above average fleet occupancy next year since many of the rooms are meant to room up to  4 per berth - family gearing
    • Management seemed surprised that the Oasis bookings weren't stronger.  Did they price too high in this environment?
  • Not seeing a lot of H1N1 incidences on their ships now 
  • Increase in fuel utilization wont be a big number next year
  • Taking down 4Q09 yields from -4.5% to -7 to -8%, how much of that is due to what they have seen to date vs fear of what they would see in Nov/Dec?
    • Pressure in the state of Florida was a surprise for them and there is a skew towards Florida in 4Q09
    • Surprised by additional discounting that they had to do on Christmas cruises. Apparently Christmas falling on Friday is a negative too - I guess people don't like to leave on Christmas
  • ROI on new ships?
    • Don't comment on individual ROI for ships but think that they will have "enormous" returns
  • What % repeat cruiser
    • A little more than one third of their customers are new cruisers, but the discounts have also incentivized repeat cruisers to come more often. So net net no real change in mix
  • Booking volumes being up 40% from 4Q08 when the world came to a halt shouldn't be surprising ... so its an odd comp.  Compared to 20087/8 they have slightly better booking pace but part of that is that they also have more supply
  • Curves in terms of bookings patterns should have less peaks and valleys than a year ago
  • What is the rational for going into "newer" markets if they are weak and taking longer to ramp
    • Lots of those newer markets are strategic
    • Also they need a place to move "legacy ships" otherwise there's that whole cannibalization issue
  • Also why is the Holiday period weak? Should it be peak?
    • Christmas pricing is higher just not to the historical standard, also the timing of Christmas doesn't help
  • Have seen an indication towards a 15-30 day expansion in the booking window (like CCL) but too early to say now
  • Had a pretty good quarter for onboard revenue. Saw healthy consumption of internet and phone and excursions, but gambling and art consumption still weak
    • Not really seeing an improving trend - pretty steady