皇家加勒比遊輪 (RCL) 2003 Q1 法說會逐字稿

Good morning.

My name is Finnie (ph.), and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Royal Caribbean Cruises First Quarter Earnings Conference Call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period.

If you would like to ask a question during this time, simply press "*" then the number "1" on your telephone keypad.

If you would like to withdraw your question, press the "#" key.

I will now turn the call over to Mr. Richard D. Fain, Chief Executive Officer.

Thank you.

Go ahead sir.

Thank you operator and good morning everyone.

Thank you all for participating in today's conference call.

With me today is Jack L. Williams, President and Chief Operator of Royal Caribbean and Celebrity Cruises;

Bonnie S. Biumi, Acting Chief Financial Officer; and Dan Mathewes, Manager of Investor Relations.

We will follow our usual format.

I will provide a brief overview; then, Bonnie will provide more detail concerning the figures;

Jack will review the operating performance, and at that point we will open the call up to your questions.

As reported in our press release, we did end the quarter with earnings per share of 27 cents, which is about the same as last year.

There were really no huge surprises during the quarter; the main factor that was driving our results was the fact net yields ended up 3.9% higher than last year or at the high end of the 2-4% range that we had previously predicted.

On the expense side, we expect our key measure of expenses, i.e., running and SG&A costs, to be slightly better than originally projected.

And as expected, these costs will be front-end loaded.

One change you probably have noticed already in our release is the emphasis on gross yields and gross expenses.

The new regulation "G" requires that we provide such figures with equal or greater prominence through our net figures.

This is a new regulation, which only became effective for financial statements after March 28, and I assume it will take everyone some time for all the implications to become clear.

Thus, for example, we have reported that our gross yields actually fell by 1.3%, while our net yields grew by 3.9%.

Of course, the difference is mainly due to a declining air/sea mix, which reduces our revenues and our expenses by roughly equal amounts.

Internally, therefore, we concentrate mainly on net revenue and the equivalent operating expenses rather than total revenues and total expenses.

Looking at the quarter, we of course have mixed emotions about our revenue performance.

The fact that we did as well as we did is evidence that our marketing strategies are working.

Both Royal Caribbean International and Celebrity Cruises have marketing campaigns that are clearly ahead of responses forward with our target markets.

In addition, our revenue management gurus were obviously very effective in anticipating the tone of the market and in pricing our offerings for [sea].

On the other hand, 2003 had been positioned as a terrific year, even with the concerns about the economy.

Bookings before the end of last year showed just how well we were positioned.

I would like now to comment on the impact on the impact of the war on Iraq and contrast that with the impact of 09/11.

Clearly, September 11 was a historically more significant event and much more dramatic in its immediate effect.

However, 09/11 occurred at the beginning of or traditionally quiet Fall booking period, and it gave us almost four months of recovery before our "wave period" started in January.

On the other hand, Iraqi war, while it may only have lasted three to four weeks of real fighting, but it had a lead-in which was very disconcerting to the traveling public.

As a result, we have gone through a long period of [wordiness], which has obviously disturbed everyone and especially our customers.

And this period -- and this is an important point for us -- coincided with one of our key booking period -- so called "wave period."

Now booking since the putative end of the war picked up, but we've not had enough time to really feel comfortable in defining a trend.

We have put on our webcast, "Short 2," which shows the trend of our pricing over this period or second quarter booking.

As you can see, it demonstrates a dramatic decline during the beginning of the war, followed by a dramatic pickup more recently.

Well, I really would -- I think this is quite useful information, but I do need to emphasize that charts like this tend to make trends see more dramatic than we often feel is more [rigid].

For example, the downturn appears to be more dramatic and the upturn more clear and obvious that we feel we can rely on.

A good example of that is that you will note the peak in January.

Well, that peak coincided with our earnings call last January.

You can see sometimes that can be a little bit misleading.

Overall, we believe that our results provide further evidence of just how resilient our company and our industry really are.

We have been hit with a series of major challenges over the last couple of years.

And we have repeatedly come through them remarkably well proving our resilience over and over again.

Now, well I find the fact of our resilience comforting and the fact that we have proven it encouraging, I must also admit that we are getting decidedly tired of having to prove that resilience over and over again.

With that I'd to turn this over to Bonnie S. Biumi.

Bonnie.

Thanks Richard.

Good morning everyone.

I am going to review our first quarter results and provide some additional for 2003.

Jack will then give you an update on our booking trends.

Before I start, I need to refer you to the first slide of our presentation.

As a reminder, our slides can be found at our website www.rclinvestor.com.

Some of the comments we made or will be making are forward looking and are subject to changes based upon the item listed on the slide and disclosures on our SEC filings.

You will note that our press release and our disclosures are somewhat different as a result of the new SEC Regulation G. we hope you will bear with us as we refine the best way to meet these requirements.

This is new ground for everyone so there are likely to be changes as these regulations are further clarified.

Our first quarter results are summarized on slide 3.

Revenues for the quarter were $880m, up 10% from 2002.

Our gross yields for the quarter were down 1.3%, net yields for the quarter were up 3.9%.

We have provided the reconciliation for this calculation in a separately labeled section of our press release.

As Richard stated, the primary difference between growth and net yield is the affect change air/sea mix has on these calculations.

As we have said before, when we sell air to our cruise passenger, and that is recorded as a revenue and expense and typically is sold close to breakeven.

So well the change in our air/sea mix has little effect on net yield, it does have an effect on gross yield.

Our air/sea mix decreased to 15% from 20% in the same quarter last year.

Capacity for the quarter was up 11.5% and occupancy was 101.7% compared to 103.9% in the prior year.

Operating expenses for the quarter were $553m, up from $503m in 2002.

This is a decrease of 1.4% on our per passenger cruise day basis.

This decrease is primarily attributable to lower than expected level in air/sea mix, offset by higher fuel prices and the impact of the Brilliance of the Sea's lease payment.

Fuel continues to be more expensive than last year and represented approximately 5.8% of revenues in the first quarter of '03.

This compares to the 3.9% for the same quarter of last year and 5.5% for the fourth quarter of '02.

Based upon the current forward curve, we currently estimate that fuel expenses will be in the range of 4.5-5% of revenues for the full year.

SG&A expenses for the quarter were 124m compared to a 102m in the same quarter of last year or up 22%.

On a per available passenger cruise day basis, SG&A was up 8.9%.

While this seems like a large increase, it is important to remember that after the terrorists attacks of 9/11, the company significantly decreased its spending, had layoff and eliminated or deferred a lot of projects.

Clearly, on marketing and SG&A spending is more in line with the fourth quarter of '02.

On a combined basis, operating and SG&A expenses per available passenger cruise day was up 0.03% or basically flat.

Although the company previously anticipated that these cost would be higher in the first quarter, increased fuel cost were offset by lower than expected air/sea mix and the company shifted some marketing and other operating costs to later in the year.

With the onset of the Iraq war, the company suspended its television ads.

Now that the war is over, the company is restarting those ads.

Although last quarter we said we would no longer be able to provide running and SG&A information, with our additional disclosures on net yield, we can now provide this information.

We believe that changes in running expenses -- those expenses directly associated with ship operations, defined as operating expenses less cost deducted to arrive at net yield combined with SG&A -- are the more relevant measure of our ability to control cost.

For the first quarter running and SG&A expenses were at 8.9% on an available-per-passenger-day basis.

This increase was primarily attributable to the increased fuel costs and the Brilliance of the Seas lease payment.

The company estimates that running and SG&A expenses for the second quarter will be up on a quarter-over-quarter basis, but then less than the amount in the first quarter.

For the second half of the year, the company expects that these costs will decrease slightly.

For the full year 2003, the company estimates that running and SG&A expenses will increase in the range of 2-3% on a per-available-passenger-day basis.

Please see additional information about this forward-looking information in the separately labeled section of our press release.

The war with Iraq and the economic uncertainty continued to have a negative impact on bookings, especially in the second quarter of 2003.

While we had strong bookings through late 2002, we started to see a slowdown in December, which became more pronounced as the war with Iraq approached.

This trend continued throughout the war.

As a result, we currently anticipate that net yields for the second quarter will be down in the range of 6-9%.

While we have started to see some improvement in bookings, not enough time has passed since the end of the war to determine if the booking levels will return to pre-war level.

Because of the disruption related to the war in Iraq and the fact that bookings continue to come closer to the sailing date, we have limited visibility past the second quarter, which makes it difficult to provide net yield guidance for the remainder of the year.

On slide 4, you can see the company's estimates for capital expenditures.

We estimate that for 2003, capital expenditures will be 1.1b, they will be 0.5b for 2004, and 0.1b for 2005.

Even if we order a new ship today, we would not be able to get that ship delivered until late '05, and before too long, we will be talking of a delivery date in early 2006.

As a result, we do not expect to have any significant capital expenditures for at least an 18-month period.

We previously provided guidance for depreciation and interest, and we have no changes for that guidance.

For those of you who don't remember, depreciation and amortization should run between $360-370m.

And the net interest was estimated to be between $290-310m.

Turning to our balance sheet, our net debts cap ratio was 56% at March, at the end of the quarter.

As you can see on slide 5, our liquidity as of March 31st was 1.3b; this includes the two OECB facilities available for our use; one is available in '03, and one is available in '04.

Slide 6 and 7 show our ship delivery schedule and our capacity information.

At this point, I'll ask Jack to give us an update on bookings.

Jack.

Thank you Bonnie and good morning ladies and gentlemen.

I just wanted to briefly discuss the general tone of bookings and then provide some additional insights by major product lines.

As I mentioned on our last call when we were all very focused on the "wave period," bookings during that period were slower than we had hoped for, and we felt that all the negative publicity surrounding the Norwalk virus, weakening economy, and the uncertainty over the war in Iraq, was clearly having an impact on the bookings during the "wave period."

Since that update, our bookings have continued to soften as the war drums just beat louder and louder, and then we saw additional fall-off in bookings, once the conflict in Iraq began.

As an example, over the last 16 weeks we have seen a dropped demand for Q2 savings compared to our own internal expectations as well as to prior-year performance.

During this period Q2, our pricing dropped from an 8% premium over the prior year to a 5% discount, and of course we lost quite a bit of volume on the load factor side.

And we saw a similar impact on our Q3 bookings as well.

Now, despite what has been a very challenging revenue environment, the fact that we were able to finish Q1 with a 3.9% increase in net yields and the capacity increase of 11.5% is not only remarkable but, I think, speaks volumes about the strength of our two brands as well as the industry in general.

I think at this time I would summarize our '03 outlook as follows -- with the war in Iraq essentially over, we are closely monitoring potential up ticks in the business cycle and the business recovery.

The last full week of booking data that we have was the week in April 18, which was impacted this year by the Easter and the Passover holidays, but if you take that week and compare it to the Easter week of 2002, our gross individual bookings were up about 9% for the week, which we felt was quite encouraging, and this week is also showing some signs of recovery in terms of the bookings and as Mr. Fain showed you earlier in the presentation, we could see that in Q2 as related to our pricing bill.

We are also beginning to see some rebound in U.S. source guests booking summer sailings in Europe; this particular product line was hit quite hard when the conflict broke out in Iraq and that we are now in the post-Easter booking period, which is going to be really critical over the next couple of weeks in determining how the summer and the rest of this year will shape up.

Right now, for the full year of 2003, our pricing is just slightly behind where we were last year -- in the low single digit.

And our book load factor is a few points below where we were same time last year.

But as we have mentioned on a number of occasions on these calls, we continue to see strong close-in booking activity and indeed, we do see a post-war recovery here in the bookings, but we believe we can make that deficit up as we move on throughout the year.

With that, let me just turn now and talk a little bit about the product lines, of course our core 7-night premium products are very important for our overall performance.

That represents 42% of our total capacity at a 13% increase in year-over-year capacity.

Right now for all our boats, our book-load factor is ahead of same time last year by a couple of points.

We are still a couple of points behind in Q2 though, and our pricing is down versus the same time last year in the low single percent digit.

And Mike just mentioned that despite again a very challenging environment, the Voyager class still continues to be the ship of choice in the Caribbean and we continue to command some slight premiums on that particular hardware.

The Short Caribbean and Bahamas, which includes our 554 Night itineraries and our 3- and 4-night itineraries is now 13% of our total capacity; it is down slightly year-over-year by about 9%; our book load factor is slightly below where we were last year at this time; and pricing is also down in the low single percent digit for the Short Caribbean.

Our Long Caribbean is now 8% of our total capacity; it is relatively flat on a year-over-year basis.

Our load factor is slightly behind last year but pricing is slightly above.

So that particular line -- product line is performing pretty good right now.

Alaska is 7% of our total capacity; that's a 5% increase in year-over-year capacity.

Our book-load factor is well below where we were at same time last year but there is no question that we sold too fast last year, so, we are not overly concerned that, overall.

With all the product lines, it did get hit with the conflict in Iraq.

Pricing is up versus the same time last year -- around triple.

Alaska is exceeding or expectations right now while the [inaudible] is somewhat behind where we would like to see it.

Our Bermuda, which is only 4% of our total capacity relatively flat year-over-year in terms of capacity growth, significantly behind where we were last year in terms of load factor.

We saw that as we moved into the Bermuda season last year and we were able to pick up that load factor as we went into the heart of the season and the pricing is also below where we were at same time last year.

The Canal is at 4% of our total capacity.

The book-load factor is slightly behind where we were last year, and pricing is double digits ahead of where we were at same time last year.

And of course Europe, which is a big story for us and how it will perform during the summer, represents 8% of our total capacity.

You will recall we redeployed back into Europe this year.

We have an 88% increase in year-over-year capacity in Europe.

Our book-load factor is below same time last year, and our booked APD is now below where we were same time last year, when the outbreak of the war in Iraq, U.S.-sourced passenger mix basically just dried up.

We are beginning to see that return now, we have planned to have about 70% U.S.-sourced guest mix on our European sailings versus a 30% international; that will probably switch a little bit as we move into the European season, where we rely upon -- a little bit heavily upon European sourcing to fill the ships.

And thus we are watching Europe very, very closely.

So that gives you a little bit of some highlights of each product line, and with that we will go ahead and open it up for Q&A.

Operator.

Certainly.

At this time, I would like to remind everyone, in order to ask a question, please press "*", then the number "1" on your telephone keypad.

We will pause for just a moment to compile the Q&A roster.

Your first question comes from Felicia Kantor of Lehman Brothers.

Hi good morning.

I have a couple of questions for you.

First Bonnie, you mentioned that even if you ordered a new ship today, you wouldn't get until late 2005.

So, I was wondering if you could just comment how that relates to the options that you have.

Second, just a bigger picture question and this might be a little bit difficult to answer, but I am wondering how much of the difficult environment you can contribute to war and then how much you can contribute to your capacity of supplying.

I'm asking because trying to get the seal for the potential rebound that we might see as people feel safe to travel again and you have indicated that you have been seen that in a very small part right now.

But I am wondering if you anticipate still having to use pricing as a message to entice cruisers in the future or do you effect have more pricing power that you have since 9/11 or you know if the competitive environment mainly created by supply mainly going to remain an overhang?

Okay Felicia good morning.

Hi.

With respect to the options, the options are available through September and I know that the current case of delivery that we last disclosed was late '05 and late '06.

If we don't make a decision with respect to those options until later in the year, then the delivery dates would move.

So, while the delivery dates have been stated, it will depend upon if and when those options are exercised as to when those deliveries would take place.

Really, we are at the point right now in the year, that if a ship order was to be made, we are getting to the point where you wouldn't be able to get one in '05.

So, the option set up that the delivery would be for example, one in 1 year and one in the next or could we potentially see two in 2006?

I guess, you can potentially see two in 2006, but the company would make it -- I mean in 2005.

I have my years wrong, I am sorry 2006.

I am sorry the first time.

But the company would obviously make the decision whether one or two ships or one ship per year, based upon its assessment of its capacity growth.

And you have the flexibility to do that?

Yes we are actually will have to coordinate with the yard and defy those factors.

Okay.

And Felicia this relates to your question about how much of the softening in the bookings is related to the war versus the capacity increase, I think I would answer that by saying that you know -- year end '02, prior to December, we're going to see very, very strong bookings.

Keep in mind that all the industry capacity was loaded at that time.

And booking into the increased capacity we saw some very-very strong bookings.

It's very difficult I think with all the noise out there right now to term precisely how much is due to the war.

We did see as I mentioned in my comments a fall off in bookings, when the conflict began.

But I think the more relevant question going forward is how much of the impact right now is due to the war and how much is due to the weakening economy?

And as we come out of our recovery, I think we'll have a better understanding to that.

Btu as I look back again to the pre-December booking strength in the brands and at that time in the industry, when all the additional capacity was loaded for sale.

I think at least at that time we can be encouraged [inaudible] if there was a significant demand and it was in fact at a time when all the capacity was up before sale.

Your next question comes from Robin Farley of UBS Warburg.

Thanks, I have three questions actually.

One is I wonder if you could give a little bit of color on - moving to the credit facility you talked about the potential [few] negotiate to expand it, any color on that?

Secondly, with the big marketing [inaudible] done for the celebrity brand, can you talk about whether you are seeing pricing premium there versus Royal Caribbean or is that something that maybe it's going to be further down the line?

And then third, I just want to understand that the slide with the -- that sort of graph the year-over-year pricing change, if you could just clarify, is this the total price on the books as of that day versus the rest of the week versus the same week last year.

Or is this just bookings that came in that week versus the bookings that came in - I'm just trying to clarify what that charting exactly?

Okay I'll take the first one with regards to the revolver.

Revolver has a provision in it that allows it to go from 500m to up to a $1b.

It doesn't require the vote of the lenders or any changes in terms, what it requires is that the lender would like to get in and that I -- would like to have them as a participant.

So, we're hoping as we come out of war and as we see the year progress, the lenders that wanted to wait for the war to be over, that we'll see some upsides in the Revolver.

And Robin, we'll turn to your question about the success of the celebrity to departure marketing campaign.

I can say in terms of celebrity's performance its been about the same as Royal Caribbean in the critical revenue kind of measurements.

But we are particularly pleased with the campaign in the sense that we are able to move our unaided awareness about 8% in the end of October last year to now, above 20%, -- 21, 22%.

So we've had a real significant improvement in brand awareness increasing our consideration out there, and I think that holds well for future pricing as we move ahead with this campaign.

And I think your question on the chart was this change in -- by weekly -- weekly year-over-year change and it is by week, in terms of the pricing change.

It is the...

Of the second quarter.

Because the data point is just the incremental bookings that came in last week, that's not the total booked today.

That's right.

The change in pricing caused by the last week and only the week.

The change in pricing on everything booked year-to-date at that point?

No only those bookings for the second quarter.

Okay.

But the whole second quarter to date at that point not just the incremental week's bookings.

That s correct.

Okay.

Thank you.

Your next question comes from Brian Egger of Gerard Klauer Mattison.

Yes, good morning.

I just had two questions.

First is I am just wondering if you have had any ship deployments changes since the war has ended and also just to confirm to see if you have had any cancellation activity at all attributed to the SARS, if the Star cruises news came out a week or two ago?

Brian in terms of the ship deployment changes since the war ended, no we have not -- we are staying with the deployment we have also right now and trying to do so throughout the rest of the year.

And with respect to cancellations due to SARS, no we haven't seen any of that.

The only thing we have done is I think you know we have a fairly aggressive program to isolate ourselves and that we do deny boarding to people who -- in case they be coming from the suspect area and that has been just a handful of people.

Okay.

If I could just ask a quick related follow-up question.

I know you are obviously, air/sea mix is continuing to fall.

Do you have any sense at all in terms of the way this is trending about, where we are in terms of decline?

That some point is that normalized or do we start to have some comparisons that change the trends with respect to the air/sea mix?

All I can really say about that Brain is that the air/sea mix has continued to decline at this point.

That doesn't necessarily mean that the mix of passengers flying to our ships has changed that dramatically.

They may be getting there on their own, they may be using frequent fly miles or a number of other things that are going on.

It is getting down to a point where it is hard for me to believe it is going to get any lower than it is, somewhere at the end of the first quarter.

But I must tell you I was a little bit surprised getting to see a decline in the first quarter once again.

So, it is really I think pretty hard right now to predict where that might go.

Okay, thank you.

Your next question comes from Helene Becker of Buckingham Research.

Thank you very much operator.

Hi! everybody.

For any of that cash position how much is restricted or is any?

I don't think there is much restricted at all.

We are taking about million you know, like 5m maybe.

Okay.

Thank you.

And then my second question is I saw in Cruise Week I guess yesterday, they talked about Toronto being an identifying point for the SARS virus, Jack do you think this is going to affect Alaska bookings for the summer?

I think Helene, I think it is too early to tell whether that will be the case or not.

And Toronto is not one of the main advisory areas right now that on [TDC] alert list, although there is a health alert on Toronto.

We are doing some screening on Toronto right now.

This is an evolving kind of epidemic right now and we are monitoring it very closely.

We see no sign right now or any evidence whatsoever that it is impacting Alaska booking and I guess it is going to be difficult to tell going forward.

Just going to have to wait and see what happens as we learn more and more about the SARS case and how we are going to deal with it.

Right okay.

Thank you.

The only other thing is a follow up to your comment on Bermuda I missed what you've said.

You said it was 4% of capacity and it was booked significantly lower than last year.

Then did you say something about price?

Yes, in Bermuda is also the pricing in the single digit below last year.

The load factor is significantly below where we were same time last year, but we did pick-up quite a bit of load factor to build moving into review of the last year we got a lot of activity going around it.

So hopefully we will pick some of that after the next several weeks.

Right, isn't the season for they are just starting now?

Yeah, they will be starting in a couple of weeks.

Okay.

Thank you for your help.

Okay.

Your next question comes from David Matherly (ph.) of [inaudible] Associates.

Hi, can you talk about the timing of CAPEX versus for '03 and also reconciling cash accounts for us versus year end '02?

Thanks.

The timing on CAPEX, it will be weighted more to the back half of the year.

We do have a ship delivery in the third quarter and ship delivery in the fourth quarter.

The cash is down roughly $90m, it is jus timing of payment and timing of our cash deposits.

Great.

Thank you.

Your next question comes from David Anders (ph.) of [inaudible].

Hi, thank you.

Jack, may be if you can comment on how easy is it to turn on if you're going to ship that mix in Europe to save Europeans a bit more?

How we get -- is that turn on and off?

And is it based on pricing or what's the strategy?

Let say we have a pretty significant sales and marketing team on the continent in Europe and particularly in the U.K.

So we can turn that on pretty quickly as we too turn it on and it is clearly based upon other demand coming in either from North America or somewhere out channeling in.

We turn it on based upon that demand and the pricing that we get from other areas.

So its -- we've really treated every single way but again we do have a good sales force over there and the ability to source out there pretty quickly if we needed.

Great.

Thank you.

Your next question comes from Tim Conder of A.G. Edwards.

Yes, a couple of questions here.

First of all, could you may be, give us some update on the booking curve?

What did you see in the first quarter now you're seeing for the second quarter as far as number of days out for sailing?

And then in relation to that may be update us on the slide that you had in the fourth quarter conference call as a percentage of your total bookings that come within 90 days and your expectations for this year?

And then on the balance sheet, Bonnie, would you have the numbers on your short-term, long-term debt and then also your deferred revenues?

And then finally is it related to the T.V. expenses.

How much of that was deferred from first quarter and the second quarter?

I'll go first since mine was the easiest.

The customer deposits are a little bit over $600m that is 5.3b.

You have to call Dan afterwards;

I don't have the breakout with me.

Okay.

Tim, in terms of the booking curve for the first and second quarter, as I mentioned in my comments, we do continue to see significant bill inside 90 days, in fact, even moved a little bit closer down side 60 days.

I am trying to recollect exactly what the chart we showed you in the last call was, but I think we are moving towards 40% of our bookings were in that timeframe and I would say that we were probably end up the year in that range of around 45%.

So seeing this real strong inside 90-day bill, as it relates to the T.V. expenses I don't have an exact number of how much we deferred in to the second quarter.

We did go black there for about a week -- two weeks and we were just screening the ad now as we speed but I don't have a specific number and if you have some interest perhaps, Dan can help you after the call.

Okay.

And then one last follow up.

In the definition that you are working through with the gross versus net, what's included in that?

Are there direct cost, Bonnie, that you mentioned in addition to travel agents and the other items?

Sure, its things like shipboard, revenue cost of sale, cancellation penalty, credit card information, things like that.

Okay.

Thank you.

You are welcome.

Your next question comes from David Leibowitz from Burnham Securities.

First let me congratulate you on a very fine quarter.

Thanks, David.

Few un-related questions.

First, the voyage class vessels, are they giving you a higher return on investments than your other vessels?

Yes.

That been said.

I can give you a simple answer, yes.

Good.

And that been said and given the fact that Jack, told us they are the vessel of choice in the Caribbean.

Why do you not have options on more voyage class vessels?

Well, we actually did have options on more voyages of class vessel and we exercised, mostly when you exercise an option you don't automatically get another one.

No but you can take one out I mean stopping at five there is no magical basis five versus six or four or seven.

Right and clearly that's an alternative that we would be considering David, I think as you know in the past I emphasize strongly that we never like to say anything about new building until we decided to make it and I give the I use the analogy as said in the computer industry and I think that's not productive to anybody.

So, -- we've tried to be fairly firm in only announcing new orders that are firm.

Okay.

Second of all, I ended up the percentage of capacity that Jack, gave us and I came up with 86%, where is the other 14% capacity?

We have lost the 14%.

Somewhere there appears to be if I used 42 for Caribbean and [7-13] for short Caribbean, 8 long Caribbean, there would be [7] [inaudible]?

As clearly the U.S. is another and also Mexico is about 6% and there is some other repositioning step that I don't talk about it, because it's such a small percentage thing.

I am sorry I wouldn't talk about it.

No that's okay I had thought I had missed something.

No you didn't I just tried to hit the major products and I did not talk about Mexico or the other ways of repositioning.

Okay.

And the last question, given the increasing capacity that we are seeing this year, how much of the top line growth is because of that capacity?

Is that a 100% of the growth that we are seeing--?

By top line growth you mean the revenue growth?

Revenue growth correct.

Well yeah, we have -- we actually have less than 100 more than 100% as we actually have gross revenue decline, this is low due to the lower area [sea] back so the way it works in terms of gross revenue given that basically yield on at the gross line was pretty flat slightly down.

A 100% of that is due to the new capacity.

And what percentage of your capacity is drive to market?

You know, that's a hard one for me to give to you.

We clearly with the Gulf ports and some of the other ports that we moved into they seemed to be associated more with drive markets but we don't now have a number of exactly how many people are drive into ships is it a decline although we do know our our own air sea mix and as that has a decline we get a sense that people are driving more to the ships but we don't know I haven't verifiable data if that is the case.

We just know they are flying less of us on air sea packages.

So, I don't have a precise number in terms of how you would categorize it is the drive market.

Clearly San Juan has got a higher sea-mix here we will have a higher sea mix and the closure in ports, Miami and FT Lauderdale even the west coast ports some have.

I would think we have a higher drive mix than most other ones.

And lastly can you share with us how much unsold space you have in the second quarter at this time?

I don't have that number so you will have to do a follow-up after the call.

okay.

Thank you very much

Okay.

Thank you.

Your next question comes from Cleo Murphy of Ryan Beck.

Good morning, five questions for you previously you have given -- you gave guidance for the sum of operating and SG&A for the full-year including all items to be up to 6-8%.

Could you please provide an update will that take into account so you are current expectations regarding the air sea mix and on more recent field trend?

Number two, how would you gauge the success on the regarding the celebrity campaign and just a long-term what would be the upside in the average per diem for the combined company from celebrity got any and pricing closer to with as premium brand positioning?

Number three, if you could provide information as to how much of capacity, I know it would probably would turn into a follow-up but I am trying how much of capacity is booked for Q2 and Q3 now and how much is pricing?

How that pricing compares overall for combined two brands?

Number fourth, just to clarify if the percentages of fuel cost per revenue include the hedging impact and how much it's hedged now for the year?

And number five, you said that in the press release that flat cost this quarter was achieved also as a result of a shift in marketing and operating cost related in the year, could you please specify how much in marketing and operating was shift and when do you expect them to occur in the rest of the year?

Thank you very much.

Cleo that's an awful lot.

I actually counted probably 10 questions in there.

I'm going to ask that you call them for some of the detail questions versus during all this on the call.

Let me see if I can hit some of the ones I at least remember as you rattled those off as quickly as you did.

We are not giving any guidance on operating in SG&A on a gross basis.

We did put in our press release that it is very difficult because of the uncertainty in air sea mix and in estimating those cost that it is difficult to estimate how much those costs are on a gross basis and so what we did provide you was running which we thought as a more appropriate measure of our ability to measure cost.

On the fuel pricing -- fuel question, the percentage-- as the percentage of revenue does include our anticipated effect on swap.

As I said on the last call, 30% in the first half of the year is hedged and 20% in the back half of the year is hedged, roughly that is 27% combined basis.

We do use some [cap] and colors.

So, that's not a perfect plan, but that is where we sit today.

As far as all these questions related to where we are booked as far as the capacity load factor, I think Jack did mention we are couple of load factor points behind where we are last year and I think that's all we are prepared to say on the matter as bookings will continue to come close end.

I think you did ask some questions about the upside potential and how some of these things could play out.

And I don't think we know how to quantify that in terms of exactly when and how much of this - this would be an impact, but I think to some extent it really relates back to the question Felicia started with at the beginning of this call about how much has been for the war and how much for other thing and the capacity and I think the fact that we have -- we were doing so well even with all this new capacity coming on before the war hit, really demonstrate the kind of upside potential we have.

I think on the one hand given all the circumstances, we should be very pleased with the 3.9% yield increase.

But in point of fact 3.9% yield in fact is much less than we would have expected to have - had it not been in the war and that's in the face of a very large capacity.

But I think we have shown that there really is very dramatic upside potential and that while the capacity increased is the depressing factor and the economy is a depressing factor, the underlying strength is really remarkable.

That's what I think, sometimes lose sight of that though it is worth while mentioned.

Then I think we have chance for one more question operator.

Your next question comes from Scott Barry of CSFB

Okay.

Let me try to ask this question in another way.

Jack, is there any metrics either consumer or trade that you can share with us that indicate you are getting any attraction with the changes you made this to the Celebrity brand and related to that, the trade seems to have such an easier sell with the RCI brand, would you look at doing anything to act such as separating the sales forces for these brands again.

Thanks.

Thank you Scott.

In terms of attraction of the new campaign as I mentioned earlier, we have significantly moved the unaided brand awareness from about 8% over 20% now.

So, we were greatly encouraged with that.

Secondly, towards the major [apprise] that we had up, they were [Swiss State] so we wanted to get a large flow of potential prospects that we could direct market to result to that, we are way above our expectations.

We gone - with the two campaigns almost a million new prospects and would now have a dialog with our celebrity brand.

The buzz in the trade has been very, very positive above the brand.

Clearly the [salon gold], but the chat on the cruise critic and on the message boards, on the internet are very, very positive about where the brand is going especially if it is related to brand transformation.

We have seen a very significant improvement on our overall guest satisfaction ratings on those ships where we have put the brand transformation on and that is winding down now but the entire fleet will be done by the end of May.

In terms of the overall vacation experience, we have seen a significant improvement.

We know that guests are also having a better experience with the brand.

I think all that is a going to add up to improve pricing on the brand as we go forward.

As they said earlier, it's doing about the same right now as RCI in terms of pricing.

To the extent that RCI is a little bit of an easier sell in the trade, I think that is true, it the more established brand, it is a larger brand, it has been around longer.

We did make a tactful effort first quarter last year, we separated the sales forces at the key account level for about 40% of celebrity -- revenues were generated and we had some very positive indications that that was a good move and are now considering whether now we want to go deeper in terms of split sales force even deeper into the trade and we will make a decision on that in the next two or three weeks.

I mean, you know, there is a lot of positive signs, a lot of momentum on the brand right now and a lot of anecdotal evidence and then just some other good brand awareness metrics that are telling us that we are getting some good traction with the brand and I think that is very positive.

Great.

Thanks.

Ah...

I am sorry.

Well, ladies and gentleman, thank you very much for participating in this call and if you do have more questions, give them contact numbers so we can be responsive to questions should they have.

And I thank you for participating and look forward to our next session.

This concludes today's Royal Caribbean conference call.

You may now disconnect.