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Here are our notes from the investor presentation aboard the new Oasis of the Seas

Internal focus is on cost culture, international expansion, and superior hardware to drive ROI and better pricing

40% of guests outside of USA

50% non USA by 2012

Average age: RCL 42, CEL: 51, AZ: 60

New ships are dramatically better economically

Solstice: 40% larger, 86% have balconies vs 57% of Millenium’s, inside cabins only 10% vs 20% on Millenium, energy is 60% better.

Oasis vs Voyager: 74% larger, 72% have balconies vs 49% of Millenium, inside cabins only 17% vs 40% on mill, energy 30% better.

40% of their capacity is Solstice class, Freedom, Voyager and Oasis - approaching 50%.

Projecting 1.1mm international guests by 2010.

2009:

  • Tough but market for consumer demand has been very stable.
  • Seeing people trading down and seeking value
  • Generating a tremendous amount of cash flow > $1bn this year
  • Environment has forced them to refocus on costs, lowered per unit cost by 10%

4Q09:  Pricing since January has been relatively stable and as they got closer to sailing (post June), volumes picked up materially and since Oct their prices turned positive on bookings in the Q for the Q y-o-y

2010: Preliminary indications are positive and anticipating yield improvement driven by newer hardware.  They have seen a little bit of expansion in the booking window - small though – and are anticipating more stability in pricing.  Goal of flat net cruise costs.  Diversified sourcing (from Europe) should help them (going into Asia and South America).

1Q2010 sailings: since late august the y-o-y booking volumes picked up materially and became positive.

Pricing so far through ‘09 for ‘10 looks better than the indications for pricing did in 2008 for the year forward.  However, some of that is influenced by the fact that Oasis is booked early.  The non-Oasis ships are looking down on a 1 year forward basis comp to 2008.

Costs: reduced work force, wage freeze, pension reductions, lowered costs from venders.

Fuel: they are 50% hedged for 2010, 2011 and 10% hedged for 2012.

Capex for 2011:  $2.1bn.

Focusing on improving ROI and returning to an Investment Grade credit rating.

Oasis of the Seas: December 1st is the first for pay cruise (training crew) and showing off the boat to the media and travel community.  So far they are having no problems.

Q&A:

Penetration in North America and Europe?

  • 17% of Americans have taken a cruise
  • One of the maturation indicators is if they are getting new guests - 40% of guests are still first time cruisers, hence they don't think that it’s saturated
  • Still think there is a ways to go
  • Europe is only 2% penetrated. UK and Scandinavia - much higher
  • Asia - penetration is tiny - less than 1%, rating from Asian and South American cruisers are very positive, suggesting room to grow
  • Question of whether to enter new international markets with a local or US approach

Doesn't think that this ship will cannibalize their other ships - rather think that it will grow the market.

Under what circumstances could they see themselves contracting another ship today? Deleveraging? 

  • Their goal is to equally pursue deleveraging and improve ROI (will do painful things like cancel dividend and issuing bonds earlier this year)
  • Think that in today’s world, companies need a less risky balance sheet
  • They are not looking to add any more ships to their order book at this time

How much cheaper would building a new oasis be today? Incremental ROI?

  • Scale and more efficiency costs/smaller percentage of less desirable rooms
  • More premium rooms (balcony) and they sell at a big premium than Voyager
  • Huge amount of onboard revenue opportunities
  • Also more energy efficient (Solstice is more of an efficiency play)

Azamara (super premuim brand). Top end was the hardest hit.  Are beginning to see very encouraging signs of life there but too early to be sure.

What is the corporate ROIC rate?

  • Don't have a published target
  • Right now their cost of capital is higher than their ROIC - view their current ROIC as wholly inadequate - their target is double digit.

What is RCL doing to improve the direct to consumer sales?

  • A lot depends on the individual brand. Their direct business has grown considerably
  • Aside from international investments, handling direct bookings is the other area of investment
  • 2010 direct business will still not be material enough to really move the needle - "evolutionary"
  • Still need travel agents to sell the experience -they've all been on the ships so that's pretty powerful

Hedges are on the balance sheet and recognized once the hedges mature

Cost of what they incurring on this ship will be expensed in the 4Q

They never fill ship during the first few cruises. They do this on purpose (toilet and air conditioning issues) need to be able to move people in the event on an issue.  This ship's pricing is also higher than expected (heard 40% higher than legacy inventory)

Premium that Oasis is getting over Freedom class is better than any other ship is getting over its immediate predecessor.

Would they be ordering more ships if they were investment grade?

  • Balance sheet is not the only reason why they haven't added new ships

Refurbishing old ships?

  • Under the right circumstances that can be an attractive investment. Cut one of their ships in half and added more amenities was a great investment but when they went to do the next one cost 60% so they passed on it
  • They can also sell old ships
  • They can also move ships to other brands where that ship is more consistent with another brand

What % of business is meetings and incentive?

  • 15% and a little more than half is a real "conference"