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Operator
Mr. Richard Fain, Chairman and Chief Executive Officer will lead today's call.
Our lines have been placed on mute to prevent any background noise.
After the speaker's remarks there will be a question and answer period.
If you would like to ask a question during this time, simply press '*' and the number '1' on your telephone keypad.
If you would like to withdraw your question press the pound key.
Thank you.
Mr. Fain, you may begin your conference.
Richard Fain - Chairman and CEO
Thank you very much and thank you all for joining us this morning.
With me here this morning is Jack Williams, the President and Chief Operating Officer of Royal Caribbean Celebrity Cruises, Bonnie Biumi, our Acting Chief Financial Officer and Erin Williams, our Director of Investor Relations.
I am going to give a short introduction and background of where we are and Bonnie will comment on some of the figures and Jack will comment on the commercial aspects of what is going on this year.
And it has in fact been a truly remarkable year.
It's hard to imagine where we were a year ago, and who would have thought at that time that we would be reporting record profits in the third quarter of 2002.
For many years we, as well as others in our industry, have talked about just how strong the fundamental base of our industry is and how good is the resilience of that industry.
We have always believed that the fact supported this view, but we have never before faced such a test of this.
September 11th has proven disastrous for virtually every sector of the travel industry and if you compound that with a struggling economy, and the largest capacity increase in our industry's history, you have a truly strong test of that thesis.
Against this background, for us to be able to report increased profits and yields almost equal to last year is, as I say, truly remarkable.
I think this test has proven for us, as well as for the whole industry, our medal under the very most testing of circumstances.
I would like to also make a comment on the PNL Princes merger, I am sure that's something that everyone would like to hear about.
However, as I think you all know we are governed by both US and UK rules, which are very strict, and really limit our ability to comment too much.
In addition I have to say that given the competitive nature of the situation, it really would be inappropriate for me to comment on actions that we may or may not take.
However, I can't resist pointing out that the value of our current offer is really much better than it was when we make it back in November.
As we have said before, in a downmarket we suffer more than our competitors, but in an improving market, we benefit disproportionately.
That's clearly what is happening today.
Back in November of last year, we thought our 2002 yield define would be a whole lot more than the current guidance we have given of down 1% to 2%.
So I think on balance it is clear that our offer is worth more today and we are pleased with that.
With that, I would like to turn the microphone over to Bonnie Biumi, who will comment on some of the figures.
Bonnie Biumi - Acting Chief Finance Officer
Thank you Richard.
Good morning everyone.
I am going to review the third quarter financial results, our latest guidance and the change in delivery dates for (...).
Jack Williams will then give you an update on booking trends.
Before I start I need to refer you to the first slide of our presentation, this can be found on our website at www.rclinvestor.com.
Some of the comments we have made or will be making on this call are forward-looking and are subject to change based on the items listed on this guide and disclosures contained in our SEC filings.
Our second quarter results are summarised on slide 2, revenues for the quarter were up about 10% from 2001 at $1bln 32mln.
This revenue growth was due to our capacity increase of just under 16% offset by the decline in gross revenue yield of 5.4%.
Net yields were down just 1.7%.
The difference in growth and net yield is caused by a large drop in the percentage of passengers booking their air transportation with us.
About 11% of our guests booked air with us in the second quarter of 2002, this compares to 21% in the same quarter of last year.
Operating expenses were $602mln this quarter, up from $529mln last year.
They are down 2% on an available per berth day basis.
As we have stated before, we look at the combination of running expenses or those costs associated with running the ship and SG & A as a better measurement of our ability to control costs.
These costs excluding fuel, the Brilliance lease payment and the litigation reserves were down 4.7% on an available per berth day basis.
SG & A expenses for the quarter were lower than we expected, in large part due to a shift in some expenses from the third to fourth quarter.
For the full year we still expect our previous guidance of $430mln to $440mln to be accurate.
This represents a year-over-year improvement of over 15% on a per available berth day basis.
In terms of the fourth quarter, we are expecting net revenue yield improvement for the first time this year and estimate that yields will be in the range of 7% to 9% an increase of 79% over the fourth quarter of 2001.
On a full year basis, that would mean a net yield decline in the range of 1% to 2%.
Our last guidance for the full year net interest was that we would be approximately $207mln.
Based upon the continued favourable interest rate environment our fixed to floating mix and the favourable impact of interest expenses of doing an operating lease for the Brilliance of the Seas, we now expect that net interest for 2002 will come in at about $255mln.
Other income includes $5mln in dividends from First Choice and $9.8mln in late delivery compensation from the shipyard in connection with Brilliance of the Seas.
We have always given guidance that our other income for the year would be in the $20mln range and this is still the case.
Based upon the assumptions I have just outlined, we expect to report EPS for the year in the range of $1.55 to $1.60 per share.
Looking forward, the booking period for 2003 is just under way, so it's difficult to predict what the full year will bring.
However we are encouraged by what we are seeing so far, particularly for the first quarter.
You will remember that the 2002 first quarter was the one most impacted by the period of heavy discounting at the end of 2001.
Because subsequent quarters were not as effected, we would expect that the first quarter yield improvement to be the strongest.
We did say before that if 2003 yields were to return to 2001 levels, we would expect to meet or exceed the consensus estimate, which at the time of this statement was $1.88.
We are in the midst of our planning process for 2003, but we are not yet in a position to provide specific cost guidance, but will do so on our next call.
I do think it's important to point out that increases in yield will result in corresponding increase in commissions and we expect to increase our marketing spend in line with capacity.
As part of our planning process we are also considering certain concession arrangements, which if we change, could affect the year-over-year comparability and we have always said that we would not take any steps to reduce costs that would affect the quality of our product.
So while we have turned in an exceptional performance in 2002 on a cost guide and will continue to look for ways to be more efficient, we do not expect to see the levels of improvement we saw on the cost side in 2002 in 2003.
Turning to our balance sheet, in September we paid off $150mln of our senior notes that we insured and we ended the quarter with over $600mln in cash.
When you add our billion-dollar bottom credit facility, our liquidity at September 30th was$1.6bln.
You can see our liquidity history on slide 3.
We have also approximately $600mln in OACD facilities that are available for two of our four remaining new builds.
One facility is available in 2003 and one facility is available in 2004.
With the pay-off of our senior note, our total debt at September 30th dropped to $5.5bln and our net debt to capital ratio was 54.6%.
We (...) changes to the delivery dates for two ships and the new delivery dates are listed in slide 4.
These changes also affected capital expenditures by year and we have outlined our current estimates on slide 5.
In addition, we have included capacity growth numbers by quarter for 2003 on slide 6.
And with this I would like to turn over the call to Jack Williams.
Jack Williams - President and CFO
Thank you Bonnie and good morning ladies and gentlemen.
I would like to just briefly cover a few topics.
I want to talk a little bit more about the general tone of bookings and try to give you a little more insight on some of the comments that have already been made, give you some highlights of our major products and how they are performing through 2002.
I want to give you a little bit of an insight update on our new Celebrity marketing campaign and you must (...) discuss the trade portion of that campaign and I would like to talk to you a little bit about the consumer portion which was launched on October 4th and then just a couple of brief comments about the Navigator of the Seas and when she will be nearing service.
In terms of the tone of bookings we continue to be very, very pleased with the booking activity from both a rate and volume perspective.
As I have said throughout the year, we continue to exceed our internal forecasts and it has primarily been driven by rate increases, which is very satisfying because that has a tendency to be more sustainable, and this is something that we have sustained now throughout 2002.
This of course has allowed us to perform at the lower end of our yield guidance for the third quarter.
As Bonnie mentioned, our net yields were down only 1.7% and I would like you to take note that that performance was on a capacity increase for the quarter of almost 16%, it was actually 15.9%.
We continue to see this very strong demand closer into sailing without having to do any significant discounting and you might recall early on in the year, we saw this close end booking curve and we changed all of our pricing to dynamic booking curves, we have maintained that throughout the year and that is partially responsible in my opinion for some of the improved yield performance that we have been providing you with throughout this call.
Pricing has stabilised, to pre 9/11 levels, but they do remain dismoderately below our 2000 levels.
Another nice thing about the strong demand is that it has allowed us to improve our load factors and occupancy rates year-over-year for all of our three reported quarters.
For the most recent third quarter, occupancy was 108.4 versus 105.7 in 2001 and of course that's allowing for a much better on-board spending performance than we had otherwise anticipated.
And in the fourth quarter, we are tracking right now to be somewhere between 4 to 5 load factor points over 2001.
Of course that was highly depressed due to the 9/11 events.
So given these very positive trends, our yield outlook has really improved from our earlier guidance.
As Bonnie mentioned fourth quarter now projected to be up 7% to 9%.
The guidance we provided last call was between 4% and 6% and our full year 2002 now looking to be down in the neighbourhood of 1% to 2% substantially better than our previous guidance of 2% to 3% and I must tell you substantially better that I thought it was going to be early on in the year.
And of course this decline will be in light with the capacity increase of about 15.1% for the year.
So we are growing the company pretty significantly and just a moderate decline in yields in a very tough background.
Our visibility for 2003 still remains quite limited, but at this point we are pleased with what we do see.
Initial bookings results across all of our products are well in line with our expectations and there are some early indications of some pretty satisfactory demand emerging for our core seasonal products, primarily Europe, Bermuda and (gap) Alaska.
As I mentioned earlier we believe at this stage that 2003 yields will likely exceed our 2001 performance and we are pretty confident really for about four major reasons.
First of all, in 2003 we will avoid the post 9/11 deep discounting period.
We will be returning much of our capacity to the higher yielding seasonal products, in particular Europe where we will have five ships in 2003 and the capacity will be up about 90%.
We will also have a very stable deployment pattern for the entire booking cycle this year and I also believe we are going to see some very positive reaction from the market place to our new Celebrity marketing campaign, which I will talk about in a few moments and the World Caribbean International (...) campaign has performed very well over the last two to three years and we are about to launch a new set of commercials with that campaign and I suspect it we will also continue to have a very positive impact.
Let me just turn briefly and touch upon some of the product highlights in terms of our core bread and butter products, the 7 night Caribbean, this is for 2002.
It represented 42% of our total capacity, that was a 20% increase in year-over-year capacity, our book load factors you can imagine for the fourth quarter is well ahead of last year by about 5 points.
The Voyager Class of series is doing remarkably well and it continues to be ship of choice for the Caribbean and by the year end 2002, we will see a modest single digit yield decline, however with 20% capacity increase in this very important product.
On the shore products, are 554 and our 3 and 4 night itineraries, they now represent 17% of our total capacity, 7% change in increase year-over-year, again our fourth quarter is booked quite above last year's fourth quarter as you would expect by about 12 load factor points and we will see probably again a modest single digit decline in this product line at the year end 2002.
The long Caribbean has been a very pleasant surprise, we have increased our capacity there by 152% change year-over-year, that's mainly as a result of putting the Galaxy in Baltimore which has done very, very well, had a very good response out of that market and the Millennium out of Fort Lauderdale in the summer, our load factors are 9 points ahead of where we were last year and we will end up in this product line with a double digit yield improvement for 2002.
We have ended the season on Alaska, Europe and Bermudas we have final numbers there, all very encouraging.
Alaska was 8% of our total capacity, we increased our capacity by 8% year-over-year as we redeployed one ship from Europe to the Alaska season due to 9/11.
Our load factor was very good, 104.7 versus 102 last year and again a net figure yield decline of in the modest to low single digits.
Europe was only 5% of our total capacity as you are all well aware, we reduced our capacity there by 42% year-over-year, going from five to three ships.
We had a nice improvement in the load factor to 103 versus 98 last year and we saw mid teen improvement in yield, so Europe performed quite well in hindsight.
I probably would have preferred to have four ships there instead of three, but are pretty pleased with that market and how she performed through 2002.
And Bermuda was a very pleasant surprise, we had increased competition from our competitors, who put some pressure on pricing.
Despite that we had a 2% change in year-over-year capacity, our load factor improved by 6 load factor points from 101 to 107 and we did see a modest yield improvement in Bermuda.
So that will just give you just some quick insights to what was going on on the major markets and now let me turn and talk a little bit about the Celebrity campaign that I eluded to you.
Again, last call I talked about the Ex-Equal Trade Campaign which was the pre-launch of the True Departure Campaign through the trade, we have had some very, very good feedback from the trade on that campaign and now on October 4th, we did launch our consumer campaign.
The objective of that campaign of course is to build a brand, to raise the brand and advertise awareness to raise brand consideration and most importantly to really educate and motivate the travel agents to sell Celebrity.
One of the big objectives is to build a very large pool of qualified prospects, primarily generating leads and run very experienced cruisers and cruises who are currently in the planning mode and we will be using this campaign, what we call a test bid for 2003, when we will be doing a lot of rapid prototyping campaigns throughout the year.
The strategy of the campaign is integrated brand building, re-generation programme across multiple channels in the marketplace.
As an incentive we have a major sweepstake for (...), it's called the Ultimate Departure Sweepstakes where you can win ten cruises in ten years.
A very aggressive data-capture and contact strategy is in place behind this campaign.
I don't know if any of you have seen some of the creating that is in the marketplace yet, but we are trying to create a very honourable look and feel for Celebrity, one that will definitely break through the clutter and the premium cruise segment.
We have really modernised and re-vitalised the brand, very contemporary photography, different styles and layouts that are very, I would say modern and fresh and the whole message has changed, we are speaking in the tone that I think will clearly resonate with our target audience with the [savvy] traveller or the experienced traveller and will be very straightforward in the messages.
Some of the key media elements were on DR TV, it started on October 4th, we have a 60 second new spot out there on over 40 national cable networks as of October 21st and some of the major ones, CNN, Discovery, A & E, ESP and the Travel Channels, just to name a few.
In terms of banner advertising on the Internet, the on-line advertising, we are on 24 websites featuring the sweepstake, some of the major ones, Yahoo Travel, AOL, Cruise Critic, New York Times.
In early November and throughout December we will have two page spreads in some major consumer magazines, (...) Travel and Leisure, National Geographic, Travel Holiday Endless Vacation, again just to name a few.
Our first emailed sweepstake was sent out for those who have already registered on October 17th with a follow-up due on November 14th, major, major co-op newspaper advertising is in place right now, nationally with all of our major travel agency partners and in the first week in November, I will be in New York and we will do a major media event and launching this campaign.
Some of the early results have been very, very encouraging, we are clearing beating our campaign forecast and we are adjusting all of our channels on a daily and weekly basis to make sure that we optimise the spend on this campaign.
And again the early feedback from the trade and from a number of consumers around the country has been quite positive to this new Celebrity look and feel.
At the same time, we are launching a new service on the Millennium of the Seas, which we launched two weeks ago to get a significant improvement on our on-board ratings, which I must admit were very good to begin with and that is meeting with some really good response from our guests on board the Millennium.
We have significantly improved our on-board guest overall satisfaction ratings on these last two cruises.
And finally we are pleased to welcome the Navigator of the Seas to the Royal Caribbean fleet.
As all of you know this is the fourth of our Voyage Class Ferries, the (...) of the Seas will be last one that will be delivered next year and we take delivery of this ship in mid November, she is absolutely beautiful, she'll be trading out of Miami here as her home port alternating East West Caribbean with her sister ship Explorer.
A lot of new themes on board the Navigator of the Seas.
We have got a second specialty restaurant, Chops, which has been very popular and successful on our ratings class ships and that is located right across from Portofino.
We have also slopped out the sports bar for a new wine bar and a number of other new themes on board the ship that should be very attractive to our customers.
She will be heading over to the United States like I said in mid November and we have got a number of trade events planned for her to show her off until she goes into revenue service in early December, so there will be a lot of buzz around the Royal Caribbean brand as well as the Celebrity brand in their new marketing campaign.
And with that, I think I will turn it back over to Richard Fain for question and answers.
Richard Fain - Chairman and CEO
Okay Operator, I think if you will start processing the questions.
Operator
Ladies and gentlemen, we are now ready to begin the q and a portion of the call.
If you would like to ask a question, please press '*', then the number '1' on your telephone keypad.
If you are using a speakerphone, please pick up your handset before asking your question.
We will pause for just a moment to compile the q and a roster.
Your first question comes from the line of Felecia Cantor with Lehman Brothers.
Felecia Cantor - Analyst
Good morning and excellent results.
I have a couple of questions for you.
The first one is just going to your guidance for net yields for next year in saying that 2003 yields are going to be better than 2001 and I am wondering if you compare first half 2003 over the first half of 2001, I mean yes the first half of 2003 over first half 2001, is that where most of the improvement is coming from, is it a function of post 9/11 or is it a function of you know just generally better pricing in the environment?
And then getting to pricing, what I am wondering is how are you regarding your competitor's pricing so far for next year, are you seeing any signs of anybody being irrational.
And then the final question, a little bit hard but I am just wondering if you could tell us specifically what type of SG & A costs you are shifting?
Jack Williams - President and CFO
The net yield question Felecia, yes I think we will see most of the improvement in the first half of 2003 versus 2001 and that will be partially 9/11 impact and I think it's also partially a growing industry that's hitting good strong demand to newer hardware and a lot of good things going on in the general marketplace.
In terms of the competitor pricing, we watch that daily and primarily just on a weekly basis, I would say that it is competitive, I would not characterise anything as being irrational at all at this stage, but there are pressures in certain areas that we have to react to and certainly they are watching our pricing on a daily and weekly basis as well.
But I certainly wouldn't characterise anything out there as being irrational at this time.
Bonnie Biumi - Acting Chief Finance Officer
And as for your last question Felecia, it's primarily marketing that has been shifted from the third to the fourth quarter.
Operator
Your next question comes from the line of Julie Crutek with Salomon Smith Barney.
Julie Crutek - Analyst
Thank you, good morning.
I am curious if you could provide us with what share of 2003 you have already booked and how that met really to last year.
And secondly, if you could give us a sense of how you see industry capacity growth growing by on a regional basis next year that would be very helpful.
And based on your comments on competitive pricing, I am curious if RCO is still seeing positive pricing on cruises booked so far in 2003, thank you very much.
Jack Williams - President and CFO
Julie in terms of the 2003 outlook as we tried to make clear in our comments, both Bonnie and I, it's very early in the booking period for 2003, we are going to know a whole lot more as we get through the white period and will be able to provide a lot more in-depth kind of information in terms of the 2003 booking period and the strength of that booking period.
The first quarter is right where we expect it to be right now, in terms of the new booking period of 2003, in fact I am very pleased with what I see in the first quarter right now and I think we will have some very, very good results.
That being the closest quarter, I really don't want to get too far out of beyond that at this stage, we just need to get into the white period to see what happens.
In terms of the industry capacity, by-products, I am not sure , I can run down for you really quickly the 3, 4 and 5 night product will be above 6% on the industry, the 7 night Caribbean up 13%, Alaska 7%, Bermuda 11%, Canada/New England will be down 16%, Europe a big jump primarily driven by Royal Caribbean Celebrity 93%, Long Caribbean up 6.9%, Mexican Riviera will be down 14%, most of that coming out of Princes taking capacity out of there and the Canal will be up about 25% and repos will down 5.3% and so the entire industry capacity change is about 12% next year, I think about 11.8%.
Richard Fain - Chairman and CEO
And Julie, just if I can add on the question of how we compare against last year.
As Jack pointed out we are getting most of our bookings now in the first quarter and bookings at this time last year were weird, if I can use that expression, both because of what was happening from September 11th and then we have seen the move in general to people booking later.
So our yield management people did adjust their curves and we tried to convey that in the press release and we think we are doing well compared to that revised curve.
It's a little hard to compare them without taking into account just how unusual was the booking this time a year ago.
Operator
Your next question comes from the line of Hayland Decker with Buckingham Research.
Hayland Decker - Analyst
Thank you very much Operator.
Just a couple of questions, Bonnie what are principle payments schedule for next year?
Bonnie Biumi - Acting Chief Finance Officer
I would like to say somewhere between $100mln and $200mln, I don't have the exact details in front of me, but I am sure Erin can give you that after the call.
Hayland Decker - Analyst
Okay great.
And then my other question is with respect to the SG & A costs for 2003, did you give that number out?
Bonnie Biumi - Acting Chief Finance Officer
No as I said we are in the process of completing our planning for 2003, so I just tried to give you that marketing would be in line with capacity increase and that we are in the process of making all the other decisions.
Hayland Decker - Analyst
Okay, great, I guess I missed that.
My final question is with respect to the fourth quarter guidance. 1999 and 2000 fourth quarters were pretty strong quarters and 2001 was 2001, so for the fourth quarter of this year, why wouldn't it look more like the fourth quarter of 1999 or 2000?
Bonnie Biumi - Acting Chief Finance Officer
Well as we said before, we did lose close to 19¢ a share for the fourth quarter of last year and we are going to see a significant improvement this year but we do have a shift in marketing expenses and we already had weighted our expense spending through the fourth quarter prior to that shift.
So it's just a situation of how your spend came in versus how your revenues come in and the fourth quarter is seasonally the weakest quarter of the year vis-à-vis revenues.
Richard Fain - Chairman and CEO
It's also seasonally weaker for Celebrity and Celebrity has the biggest increase so you also have a change in your proportion there.
Hayland Decker - Analyst
Celebrity has the biggest increase in capacity or in spend?
Richard Fain - Chairman and CEO
In capacity over the last couple of years.
Because when you are comparing to a couple of years ago, you have to take that change in the mix between the two brands into account.
Hayland Decker - Analyst
Thank you very much.
Operator
Your next question comes from the line of Robyn Farley with UBS Warburg.
Robyn Farley - Analyst
Thanks, you talked about how Europe did so well and you almost wish that you had left more capacity there.
When you are thinking about Summer 2003 deployment, does that suggest that there were US involvement in Iraq and (...) disruption that you would have to sit it out with the capacity that you have there rather than trying to bring that back?
Richard Fain - Chairman and CEO
Well I think it's clear that we acted a little bit cautiously last year and as Jack said, he wishes that he had had four instead of three.
My guess is that if nothing happens in Iraq we will wish we had six instead of five and if there is something that has a big impact on us, we will wish we had four rather than five.
So we tried to find the balance there.
Robyn Farley - Analyst
Okay fair enough, thank you.
Operator
Your next question comes from the line of David Blewith with Burnhams.
David Blewith - Analyst
My congratulations for an excellent quarter.
A couple of questions, in the press release you mentioned a $30mln expense item for POC if that deal does not go forward.
Are those your total all in costs?
Bonnie Biumi - Acting Chief Finance Officer
David, those are the total costs without any success fees, so yes that's all the lawyers and the advisors.
Richard Fain - Chairman and CEO
We are doing our best to help the economy, at least through the professional market.
David Blewith - Analyst
: Well the other side is that we do have a consolation prize of $621/2mln coming back in if things don't work out properly, so I presume them we net the two out in the fourth quarter if the shareholder meeting takes place and is not successful?
Bonnie Biumi - Acting Chief Finance Officer
Yes if the appropriate trigger occurs that's how it would work.
David Blewith - Analyst
Well also has there been a date set for that shareholder's meeting, the Extraordinary General Meeting that was adjourned?
Bonnie Biumi - Acting Chief Finance Officer
We expect it to be either week of November 11th.
David Blewith - Analyst
Okay and the last question, could you give us a bit more of a flavour for what is happening with the joint venture in England with First Choice?
Jack Williams - President and CFO
Sure David, that venture is well on it's way now and as everybody knows we got off to a little bit of a rough start early on in that venture and had to make a lot of changes within the first probably six weeks of that.
The product is performing quite well now, in fact as First Choice measures get that attraction with all their product lines that they offer, the (...) product is right up top, right below their Sovereign product, which is a Premium product, but it's outperforming all the rest of the First Choice products, good guest feedback, we will be relocating the ship down into South America for the Winter season so we are building our sales and marketing down there and the early indications from the booking, it's look pretty good for it right now.
David Blewith - Analyst
And just one last question if I may.
When the accounts (...) evaluation on the books, is there any hint of impairment there or are we carrying that at a proper value?
Bonnie Biumi - Acting Chief Finance Officer
We are carrying that at a proper value, there is no hint of impairment there.
David Blewith - Analyst
Great, thank you so much.
Operator
Your next question comes from the line of Bob Simonson with William Blair.
Bob Simonson - Analyst
Good morning.
A couple of quick questions, the $20mln settlement that you have accrued for, what line item is that in?
Bonnie Biumi - Acting Chief Finance Officer
It's in operating expenses.
Bob Simonson - Analyst
Okay, and Bonnie did you say that you still were looking for other income this year to be $20mln?
Bonnie Biumi - Acting Chief Finance Officer
Yes we are giving guidance from the beginning of the year that it would be $20mln and we are still expecting for the year it will be $20mln.
Bob Simonson - Analyst
: It's just about $20mln for the first nine months and normally you would have a $5mln dividend from First Choice.
What goes in there that offsets that $5mln?
Bonnie Biumi - Acting Chief Finance Officer
I was just rounding, it's $20mln to $25mln, it's just foreign exchange has been there, the dividends set in there, you know there's just miscellaneous stuff.
Bob Simonson - Analyst
Should we use zero in the fourth quarter?
Bonnie Biumi - Acting Chief Finance Officer
No, I think it's fair to use $5mln.
Bob Simonson - Analyst
Okay.
And Jack, can you comment on this year's third quarter inventory?
What percent of that can you tell was booked during the fourth quarter, this post September 11th at very depressed pricing and was that a greater percent than you normally would have filled in this third quarter, to try to get some feel for what impact 9/11 had on the third quarter?
Jack Williams - President and CFO
Bob, if I understand the question right, what percent of the [trap] of our passengers who sailed with us in the third quarter of this year booked with us in the fourth quarter, the post 9/11 high discount period.
It was like 15% to 20% is the range on that Bob, we looked at that a couple of weeks ago, I don't have the numbers right at the top of my mind.
Bob Simonson - Analyst
Was that higher or lower than it normally would have been?
Jack Williams - President and CFO
It's actually about the same.
It was actually about the same, if you want me to give a little more definitive would you give me a call after the call and I'll get out the research that we did, I don't have them in front of me.
Bob Simonson - Analyst
Thank you very much.
Operator
Your next question comes from the line of Scott Berry with Crédit Suisse.
Scott Berry - Analyst
Good morning.
A couple of questions for Jack and then a quick follow-up for Bonnie.
Jack you mentioned the curve remain very short with demand coming close in without any material discounting.
Are you taking any tactical steps to try to lengthen the curve or are you just holding back inventory to take advantage of that close in demand?
And secondly, you know the ARC numbers continue to accelerate a reduction in agency locations now that we are in a (gap) could you comment on how you guys are responding to that challenge?
Jack Williams - President and CFO
Okay Scott.
First of all the curve is staying very close in and we are not happy to do any significant discounting to fill that close in.
We are not doing anything tactically per se to try to change that.
We are constantly monitoring it, clearly we will work from the trade as best we can, but they are big partners and the relationships we have there to get as many early bookings on the books that we possibly can.
But for the most part we are just managing that curve as is presenting itself to our revenue management people.
In terms of the ARC location decrease, you know we really have that 20:80 rule, 80% of our business has been on 20% of the travel agents and there is a lot of consolidation going on in the agency community, given the situation with the airlines.
More and more travel agencies are turning to leisure selling to try to earn their income.
We are trying to facilitate some of that and just continue on with our relationships with the agency community.
You might had read that we just hired a new Senior Vice President of Sales, Lisa Bower, who has now joined Royal Caribbean Celebrity to run our sales organisation and Michael Applebaum who has done a terrific job for us for many, many years can now devote his full attention to the agency community.
He is our Vice President of our key accounts, so we are working quite hard right now and reduction doesn't really give me any major concern right now because cruise sales continue to at least meet capacity and then some.
Scott Berry - Analyst
Thanks Jack.
And then Bonnie you mentioned there were some contemplated changes in concession agreements.
Is that related to on-board retail or could you just give us some more detail on that?
Bonnie Biumi - Acting Chief Finance Officer
It's not related to on-board retail, it's related to our food services.
Scott Berry - Analyst
Okay great, thanks guys.
Operator
Your next question comes from the line of Bob Whitace with (...).
Bob Whitace
Yes hi, congratulations on the quarter.
I just wanted to ask a question regarding cash flow which people seem always a little bit concerned about.
When do you guys think assuming that you don't merge with Princes, when do you think you will be cash flow positive, number one.
And number two, you eluded too that the numbers looked pretty good for next year, would you give any guidance for next year, or is it way too early for that?
Bonnie Biumi - Acting Chief Finance Officer
Hi Bob.
It's way too early on guidance for next year, plus we have some rules that we are trying to comply with in the UK because the merger process is under way.
And you know we do generate a significant amount of cash and we are coming off our new build programme, we do take delivery next year of two ships and then we have one more in 2003 and that's really where our cash is used to spend, we don't have a lot of debt repayments next year, so it's mainly paying for the new ship.
And I think there are a number of models out there that you can look at.
Operator
Your next question comes from the line of Peter Macmillan with (...) Beck.
Peter Macmillan
Good morning.
Some have been asked and answered, so I will just concentrate on the ones I have left.
First of all on the litigation settlement, is this a fairly precise figure, is there any chance you can get some of that back and where are the settlement talks, has it been completed.
I wanted to know from Bonnie what the CAPEX was before the advancement of ships for 2003/2004 and I just wanted to ask a question or opinion, it seems to me from the way you have talked about things that despite in the last three months, decline in consumer confidence, talk of war with Iraq which we had, stock market being the pits that in fact booking trends and pricing has improved, any sort of thoughts of what is behind this cycle?
Jack Williams - President and CFO
Peter, I'll answer your first and third questions, maybe Bonnie can comment on the CAPEX etc.
With respect from the litigation, that is a quite precise figure, there is always some minor modifications, but it won't move it infinitesimal any change that would come from that.
It does have to be approved by the court, so it's not absolutely final, but we would expect that that approval would be forthcoming in due course.
With respect to what's causing this, as you say if you look at a lot of the indicators and spend a long time reading the newspaper, you probably would come away very discouraged.
And I think what you are really seeing is that the industry is still such a fast growing industry and as more and more people take cruises, they tell others to do so.
So I think what you are really seeing is that but for these things, we would have an industry that would be really having truly staggering increases and so when you see almost flat or marginally up positions, that really reflects the fact that it should have been huge increases that were tempered by all these other things and I think that's what we have been saying for a long time and I think that's what we would expect to continue in the future.
Peter Macmillan
There was no kind of residual let's party now and forget the future kind of thing coming out of September 11th?
Jack Williams - President and CFO
No I don't think we are seeing any of that whatsoever.
But you know, I would point out that just at Royal Caribbean for example, we will have carried a million first time cruises this year and since a person who has cruised is five times as likely to take a second cruise as he or she was to take the first cruise, you can see that there is an automatic snowball effect and what we haven't seen is that we have reached the end of that growth phase.
So we still think that as an industry we are in the growth phase and not beginning to plateau very much and I think that's what you are seeing reflected.
Maybe at that point I would ask Bonnie to answer your second question on CAPEX.
Bonnie Biumi - Acting Chief Finance Officer
On the capital front, in our last quarterly 6K that we filed, our CAPEX for 2003 was going to be $0.6bln and our CAPEX for 2004 was $1.0bln and so all we have done is shift the amount of CAPEX related to the shift delivery ship and so now 2003 is $1.2bln and 2004 is $0.4bln.
Peter Macmillan
Thank you and let me add my congratulations.
Operator
Your next question comes from the line of Tim Condor with AG Edwards.
Tim Condor - Analyst
Thank you, Tim Condor, AG Edwards, congratulations also.
Several questions, Bonnie or Jack, in the SG & A guidance are you eluding that you anticipate 2003 costs per PPCD to be down year-over-year.
And then also Jack if you could maybe for 2003 just give us an update as your capacity allocation, Europe, North American and kind of break those down between the Med and Northern Europe, Alaska, Mexico, Caribbean and so forth.
And then from the short haul markets that you have very well developed over the last couple of years, how is the mix of first time cruisers versus repeat cruisers out of that market?
And then lastly, switching to the merger, would you consider maybe an alternative bid should the vote go negatively the week of November 11th.
And then any colour you can give on Princes' changing the threshold for approval from 75% down to the 51%?
Richard Fain - Chairman and CEO
Tim you asked quite a series of questions.
I'm not sure we've heard them fast enough.
I'll ask Bonnie to try and address your first questions on next year's costs, Jack to talk on the passengers and then I'll comment on the merger.
Bonnie Biumi - Acting Chief Finance Officer
On the cost front, I wasn't trying to imply anything, what I was trying to say is that we are in the process of doing our plans, we have had extraordinary cost savings this year and by no means will we show that same performance next year, especially in line with decisions that we make with respect to returning market to grow in line with capacity.
We are committed to continue to get cost savings and they just will not be in any way close to that magnitude.
Tim Condor - Analyst
Too early, Bonnie to say whether....
Bonnie Biumi - Acting Chief Finance Officer
It is too early, I mean we have a lot going on as you know and we are in the process of finishing our plan.
Tim Condor - Analyst
Okay that's fair, thank you.
Jack Williams - President and CFO
And Tim in terms of your question on the capacity, did you ask what our capacity share would be next year or what our growth in each of those months will be?
Tim Condor - Analyst
Just Jack if you could divide up the geographic markets, how your capacity will be divided up and I mean if you also wan to comment on the year-over-year growth from your perspective?
Jack Williams - President and CFO
Okay.
In the 3, 4, 5 nights, our capacity share in the industry would be 32.9%, 7 night Caribbean, that's on Royal Caribbean, Celebrity doesn't have that product, 7 night Caribbean 31.6%, on Royal, 8.4% on Celebrity, I'm just going to hit the big ones here.
Europe will be 24.4% Royal Caribbean, Celebrity will be 19.8%, primarily most of that is in Western Med and the Northern Europe I haven't got the precise ones, we are doing a little bit of Eastern Med, but most of it's in Northern and the Western Med.
The Long Caribbean, World Caribbean is 14.2%, 32.7% for Celebrity and I commented earlier on how well those products did in 2002, they are really maturing and stabilising out there and those will be permanent products for Celebrity and I think they will continue to do good in 2003.
For the Canal, Royal Caribbean will be 18.8%, Celebrity 15.3% and in Bermuda, Royal Caribbean will be 20.1%, Celebrity 36.5%, share a capacity and of course seasonal importance (...) in the last market, Caribbean 13.1%, Celebrity 15.7%, so combined we will have a good presence in Alaska [that we have always had] In terms of just my feelings about the year-over-year growth, we are moving out of our major growth additions over the last two years and I think we are going to do quite well next year, given the capacity increase on both the brands.
We have less of our management time preoccupied with ship deliveries and ship construction and are now more focused on sales and marketing, penetrating the marketplace and building better relationships with these communities.
So I am very comfortable with where both brands sit right now, but from an itinerary perspective and also from a strategic perspective.
Tim Condor - Analyst
Okay.
Richard Fain - Chairman and CEO
And then on your last question.
I think you will understand that in terms of telegraphing our plans or intentions, that really would be inappropriate for us to do under the rules, under the National Regulations, both in the US and the UK and frankly it would inadvisable given the competitive nature of where we are, so I'm afraid I really can't add any comments on that.
Jack Williams - President and CFO
And Tim to your question on the three (...) products, what percent is first time and what percent is repeaters, there is a larger percent of first timers on that product with the remaining amount being made up with repeat brand repeaters and those that have migrated from other brands and my recollection it's in the neighbourhood of the mid 50s, in terms of first timers on the 3 and 4 day product.
Tim Condor - Analyst
And Richard, any update or news on the 75% to 51% approval?
Richard Fain - Chairman and CEO
No again, I think we need to be fairly careful that when we say something, we are providing all the information and so while as Princes noted that was something that we have been discussing, we really need to be careful that when we make statements, we are making them complete and providing all the information and so if there is a change in that structure, we will be announcing that completely.
Jack Williams - President and CFO
And if so, that would have to happen fairly quickly in terms of getting out the circular and giving the shareholders time before the AGMs.
Tim Condor - Analyst
Great and congratulations again.
Operator
Your next question comes from the line of Dean Tanucas with JP Morgan.
Dean Tanucas - Analyst
Hi just a couple of questions.
First, the pod propulsion problem you had a couple of days ago, is there any concern that that could happen to some of the other ships.
And then secondly on the capacity increases going forward, what do you think is a reasonable capacity increase for your company and for the industry as a whole and what are you sort of shooting for looking out three or four years?
Richard Fain - Chairman and CEO
Well Dean, first of all with respect of the pod issue, or actually it wasn't really a pod, it was a propulsion issue.
I think there is confusion because while it is in a pod, this is the same kind of technical problem that one experiences in motors on any kind of ship, podded or conventional drive, so it wasn't related specifically to the pods, but more to the motor.
It's not the kind of thing we would expect to see as a fundamental design problem or manufacturing problem, so we don't anticipate this evidencing anything that's an ongoing issue.
With respect to capacity increases and I know this is something you have always raised questions about, I don't think there is one magical number that says if we go above or below, rates go up or down.
I think what we have seen is that the industry has proven its ability to absorb large capacity increases.
And frankly I think we are very pleasantly surprised to be looking at almost flat pricing per yields, year-over-year in a market where we have had the largest capacity increases in the industry's history.
Both the company and the industry are looking at in our case its 15% capacity growth and we have absorbed that.
So I don't know that there is a magical number to answer your question.
The indicators are that the rate of capacity increases are likely to be coming down in the future from the fairly high levels that we have experienced over the last couple of years, but I think the industry has shown it's ability to absorb surprisingly high degrees of capacity increases.
Dean Tanucas - Analyst
Okay thanks.
Operator
Your next question comes from the line of Samantha Hedgedas with Morgan Stanley.
Samantha Hedgedas - Analyst
Could you please comment on the set up of the negotiation with the bank regarding your credit facility?
Bonnie Biumi - Acting Chief Finance Officer
Actually that's a good question.
I've been just a bit busy working on a few other items lately, so I haven't paid as much attention to that as I probably would have otherwise.
But we do have probably nine months to go, I think it expires in June 2003, so it is something that we will take care of over the next short while or time.
Samantha Hedgedas - Analyst
Okay, thank you.
Richard Fain - Chairman and CEO
Operator, I think maybe we should take one more question?
Operator
Your final question comes from Thor Aladesco with Spanish Securities.
Thor Aladesco - Analyst
Good morning just a couple of quick questions.
Can you please tell us more (tape jumps back and forth)what change you expect in earnings (...) and SG & A in Q4 this year compared with Q4 last year?
Bonnie Biumi - Acting Chief Finance Officer
On the SG & A front, what I did was I gave you a full year number that we were still expecting that our guidance would be good, which was $430mln to $440mln, so now that you have nine months I think it's relatively easy to calculate what that should be.
And on the running expense, I don't have those details in front of me, I'm sure if you talk to Erin afterwards, she can give you some guidance.
Thor Aladesco - Analyst
And (...) Q2 presentation you said that for Q2 you then had new bookings (...) than in Q2 2001, if you look at the period from July 1st to September 11th now in Q3, have you see (...) new bookings that you were taking at (...) has been higher than the level you saw in the same period in 2001?
Jack Williams - President and CFO
You were breaking up a little bit, so it was a little hard to hear the question, but I think if Bonnie understands it maybe she could provide an answer.
Bonnie Biumi - Acting Chief Finance Officer
I think what you are asking and maybe you can clarify so that I make sure I understand that, you are asking that the bookings that we took in the third quarter of 2002, are they up in price compared to the third quarter of 2001?
Thor Aladesco - Analyst
That's correct and then the period up to September 11th?
Bonnie Biumi - Acting Chief Finance Officer
Well I don't have the exact details in front of me, but if you remember we were feeling quite good about pricing just before September 11th last year and so in 2001 pricing was quite strong prior to September 11th and then September 11th obviously disrupted our pricing.
I would say that probably in general our pricing is up but it would be difficult because I don't have the details in front of me and we would be that specific of information.
Thor Aladesco - Analyst
Okay fair enough.
Before September 11th 2001 was it fair to say that (...) to your core (...) Q4 last year would have been basically flat compared to Q4 2000?
Richard Fain - Chairman and CEO
My recollection is that we actually gave guidance at about that time and that we were expecting the fourth quarter to be up in 2001.
Obviously we were slightly off and I know we were looking at a very robust 2002 which is why although we are getting surprisingly close the flat yield this year, it's disappointing because we should have had but for all the negative things that have gone, we would have expected 2002 to have been a gangbuster year.
Thor Aladesco - Analyst
Thank you very much indeed.
Richard Fain - Chairman and CEO
Well thank you all very much for joining.
We appreciate the time you have taken and the chance to tell you a little bit about what's going on and if you have more questions, Erin Williams, I think most of you know her.
Give her a call and she will try and help.
Thank you.
Operator
Thank you for participating in today's Royal Caribbean conference call.
You may now disconnect.