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Operator
I would like to welcome everyone to the third quarter earnings release 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. (OPERATOR INSTRUCTIONS) Mr. Leon, you may begin your conference.
Luis Leon - VP & CFO
Good morning, everyone.
I am Luis Leon, Chief Financial Officer, and I would like to welcome you to our third quarter conference call.
With me here today are Richard Fain, our Chairman and Chief Executive Officer;
Adam Goldstein, the President of Royal Caribbean International; and Greg Johnson, our new associate Vice President of Investor Relations.
Dan Hanrahan, who is President of Celebrity Cruises is traveling today and will not be able to join us as a result of the rescheduling.
First, as you may be aware, we changed the date of this call due to hurricane Wilma.
We were originally scheduled to talk to you yesterday but moved the call today so that we could ensure that all the logistics for this call could be made possible.
As is normal course in these conference calls I need to refer you to the first slide of our presentation, which can be found at our website, RCLinvestor.com.
Some of the comments that we're going to be making are forward-looking statements and are subject to changes based on the items listed on this slide and disclosures in our SEC filing.
Now Richard will be providing a brief discussion of our business and revenue, and after that I'm going to go through some of the details with the quarter's financial results.
After that, we will open the call for your questions.
Richard Fain - Chairman & CEO
Thank you, Luis, and good morning, everyone.
As always, it is a pleasure to have an opportunity to talk with you about the results of our quarter.
And that is especially true when we are reporting yet another record period.
For clarity I do want to make sure that you understand that I am talking about all the numbers that we discussed will be before the onetime accounting adjustment.
That adjustment was treated for accounting purposes as though it were a first quarter event.
And so that onetime gain is not included in any of the third quarter figures that we're mentioning.
We're especially pleased this quarter that our earnings growth is so much driven by operating performance.
As you know, one of the main drivers of earning growth in our industry has traditionally been the growth in capacity.
We're currently in a low growth phase, and we are pleased that despite that we are able to produce the kinds of results we're announcing today and also in the face of such extraordinary fuel price increases.
Furthermore, we have a lot to be happy about, but it is possible -- it's impossible, rather, to sit here in Miami and not talk first about the hurricanes.
Our country has had yet another horrific year where hundreds of thousands of people have seen their property damaged, their lives disrupted and in many cases lost due to these terrible storms.
Last year, you may recall, the hurricanes were particularly disruptive to our itineraries and therefore we saw a larger financial impact.
But this year we've seen even greater devastation and suffering in the Gulf Coast, in Mexico and now in South Florida.
The disruption to our itineraries, fortunately has not been quite as bad as last year, but it has still been pretty miserable.
Our numbers for the third quarter take these costs into account.
For the fourth quarter the impact of hurricane Wilma is still uncertain.
The storm has passed, but our community is just beginning the recovery process, and our operations are still being affected.
We've tried to include a guestimate of the likely cost in our fourth quarter guidance.
But until all our ports reopen and we can fully assess the damage, the amounts are still uncertain.
Unfortunately, our staff, both shipboard and shoreside are getting quite good at dealing with the storms.
And they have done an excellent job of mitigating the inconvenience to our guests and the costs to our Company.
Taking on another unhappy subject, I would like to comment on fuel.
You're probably as tired of hearing about this as we are of having to talk about it.
The quarter was blemished by yet another huge increase in fuel prices.
We are working hard to mitigate these costs, and we concentrated especially on reduced energy usage and improving how we buy our fuel.
But it is impossible to completely overcome the fuel price hikes.
Instead, as you know, we've given up trying to predict these fuel prices, and we are just providing you with figures based on current conditions.
This business is a clear benchmark and allows you to adjust your figures on ongoing basis based on different pricing levels.
At today's fuel prices, the impact is huge.
So far our strong yield growth is more than sufficient to offset these costs.
But it does make our jobs that much more difficult.
On the other hand, I really think it's important to remember that these costs, even at a 7 plus percent of revenues are not so great that they change the fundamental soundness of our business model.
In fact, our results this year and the indications we are able to provide about next year really demonstrate just how strong that business model really is.
The entire company has been focused on improving our revenue and in controlling our costs.
And the result shows that this effort is working.
Despite higher fuel prices which impacted our third and fourth quarter results by over $58 million, not to mention record hurricane season, we are able to maintain our guidance at about $2.75.
I really appreciate the hard work throughout the organization that has made this possible.
We've also seen some real improvement in the strength of our balance sheet.
Since the end of last year our net debt balance has dropped by over $1.1 billion, and our net debt to capitalization ratio has been reduced from 51.5% to 41.6%.
As you saw in our release, the outlook for bookings for the rest of the year is quite positive, and that is also true on our total bottom line despite the continued rise in fuel prices.
We still see a solid demand environment for both Royal Caribbean and Celebrity Cruises.
In the third quarter our yields improved by almost 7%, almost a full percentage point higher than previous guidance.
And the booking trends do remain strong, and they are on track with our expectations.
Additionally, pricing for the fourth quarter of 2005 is ahead of the same time last year.
This has allowed us to fine-tune our yield estimates, and we now expect yield improvements in the fourth quarter for about 5%.
This is roughly in line with what we said before, but it is more clear now as we approach the time.
For the full year we've also narrowed the range and said that we think that we will achieve a 6.5% yield improvement.
This is on top of the 9 plus percent improvement last year.
Clearly our brand positioning efforts are working.
Now I would like to make a few comments looking forward to 2006.
As you know, this is the time of year we go through our budget planning, and that is still underway.
So it is still too early to give out specific yield guidance for 2006.
But we are prepared to say that we're optimistic yields will be higher than they were this year, and that would make it the third straight or fourth straight year, rather, of improvements.
Our optimism is driven by the fact that advance bookings continue to show evidence of the healthy demand environment for both Royal Caribbean and for Celebrity Cruises.
Load factors currently booked for 2006 fall in line with the levels achieved at the same time last year.
But pricing continues to be higher than before.
In addition, our onboard revenue initiatives are working well, and continue to produce improvements in yields.
Again, like 2005, we have modest capacity growth of about 2.6%.
Meanwhile, Celebrity continues to make its mark in the premium category.
Just a few weeks ago Celebrity was honored once again in Conde Nast Traveler's annual readers choice award.
For the third year in a row Celebrity has been voted as the world's top rated premium cruise line in the magazine's top 25 cruise line, large ships pool.
Combined with the other luxury ships, Celebrity ranked third overall, sharing the spotlight with luxury lines Crystal Cruises and Radisson Seven Seas.
This continued recognition from the experienced readers of Conde Nast Traveler really emphasizes how the initiatives at Celebrity and the spectacular services and amenities are working.
Now I would like to turn it back to Luis.
There are a lot of good things going on, and Luis will talk about them in more detail.
Luis Leon - VP & CFO
Thank you, Richard.
Our third quarter results are summarized on slide 5, and as you can see this is now the third consecutive quarter this year where we announced record earnings.
Third quarter net income jumps 33% to 374.7 million or $1.64 per share compared to net income of 282.5 million or $1.26 per share in the third quarter of 2004.
As previously discussed, the third quarter results of 2005, including onetime net gain of $44.2 million related to the redemption of our investment in First Choice Holidays.
If you exclude this gain from our results, net income would still have increased approximately 17% which is very encouraging, given a $34 million increase in fuel costs.
One thing I would like to mention is our terminology for discussing costs.
We will be talking about costs in two different ways.
One is Net Cruise Costs, and the other is Net Cruise Cost excluding fuel.
We will be referring to Net Cruise Costs excluding fuel as nonfuel related costs.
Now moving on, our third quarter of 2005 earnings also significantly outpaced our previous guidance, which was $1.45 to $1.50.
Looking at the specifics of the quarter, the primary drivers of this increase were higher-than-expected net yields and lower-than-expected nonfuel related costs and interest expense.
These were partially offset by the increase in fuel costs.
Net yields increased 6.9% outpacing our previous guidance by almost a full percentage point.
An important fact to notice that the increase in net yields was primarily driven by strong ticket prices and also together with strong onboard revenue.
Our Net Cruise Cost for APCD increased 6.4% which is also better than our original guidance of an increase of approximately 9%.
As I'm sure everybody expected, fuel was the significantly higher than our original estimate and accounted for 5.5 percentage points of the increase in Net Cruise Cost.
Now this compares to original guidance or more previous guidance of approximately 5 percentage points.
During the quarter at-the-pump prices increased 47%.
After benefits realized from fuel hedges, this translates into an increase of approximately $34 million year-over-year or an adverse impact to EPS of $0.14 per share.
During the quarter we successfully controlled certain nonfuel related costs.
We anticipate that the majority of these savings are true and will not be shifted into the fourth quarter.
Additionally, we continue to do well with our $50 million in cost control initiatives that we announced early on in February.
For the third quarter of 2005 we came in slightly ahead of our track and saved approximately $12 million in the quarter.
Year-to-date we just saved approximately 44 million.
In addition to Net Cruise Costs increasing less than originally expected, interest expense benefited from both lower debt levels and lower anticipated interest rates.
Operating income on available passenger cruise day basis also showed healthy improvements in the second quarter of 2005.
Despite the significant spike in fuel, we were able to increase operating income for APCD by 10% to $72 in the third quarter of 2005 from $65 in the third quarter of 2004.
Now I would like to talk about the change in accounting principle relating to drydocking costs, which you saw in the press release.
In the third quarter of 2005 we changed our method of accounting for drydocking costs from the accrual and advanced method to the deferral method.
Under the accrual and advanced method drydocking costs were estimated and amortized evenly over the periods to the next scheduled drydock.
Under the deferral method, drydocking costs that are incurred are deferred and charged to expense over the period to the next scheduled drydock.
Let me walk you through the affect that this has on our financial statement.
First, there is a line in the financial statements for the nine months ended December 30th entitled "cumulative effect of a change in accounting principle."
This line shows the cumulative impact of the change for years prior to 2005, which is a positive $52.5 million or $0.22 per share.
Please keep in mind that this is not reflected in the third quarter results, but rather is reflected in the nine month results.
Now the impact for the current year is reflected in a category called "other operating expense" and is immaterial to our financial results.
Before I go through our cost and earnings outlook for the year, I would like to touch base on some general information.
We remain committed to a strong balance sheet and have seen some real improvement.
Since the end of 2004 we have decreased our net debt balance by $1.1 billion and improved our net debt to total capitalization ratio from 51.5% to 41.6%.
At the same time, for those people on the fixed income side, our debt to EBITDA ratio for the trailing 12 months has declined almost 2 points from 4.9 times to 3 times.
Projected capital expenditures, which have not changed since our previous guidance for 2005, 6, 7 and 8 are estimated at $0.5 million, (ph) $1.1 billion, 1.1 billion and 1.6 billion, respectively.
Our slides 6 and 7 show our 2005 to 2008 estimated capacity information and our 2005 and 2006 redeployment, respectively.
Looking ahead to the fourth quarter, and as Richard mentioned, bookings appear to be in line with previous expectations.
Both pricing and load factors are ahead of the same time last year.
Accordingly, we are forecasting that net yields for the fourth quarter will increase by approximately 5% over the fourth quarter of last year.
For the full year net yields will increase by approximately 6.5% over 2004.
Net Cruise Cost for APCD for all of 2005 are expected to increase in the range of 7 to 8% when compared to 2004.
This represents an increase of approximately one percentage point from our previous guidance as you can well imagine the main driver of this increase is fuel, which is expected to account for 5 to 5.5 percentage points of this increase.
The remaining increase in Net Cruise Cost is primarily attributable to expense items previously communicated and a slightly better than previous guidance.
Consistent with our previous methodology, our fuel expectations are based on the current prices that we're seeing in the market and not the forward curve.
Fuel prices today are approximately 54% higher than what we saw in the fourth quarter of last year.
Obviously an exorbitant increase.
This means that fuel costs for the fourth quarter will be $24 million or $0.10 per share, worse than our previous guidance.
For the full year, fuel costs will be approximately $125 million higher than they were in 2004, which will represent an increase of 47% on an APCD basis.
Now if this assumption were to hold true for the rest of this year, fuel would represent approximately 7.5% of revenue.
As we have previously communicated, we continue to strive for ways of mitigating rising fuel costs through various conservation initiatives and the use of less expensive grades of fuel.
On the fuel efficiency side we have implemented a number of programs allowing us to decrease our capacity adjusted year-over-year of fuel consumption through September by approximately 4%.
We will continue to identify best practices and incorporating them with cost of fleet and as we close out this year and move into 2006.
Ultimately we believe that our fuel consumption for 2005 will be slightly less than 1.1 million metric tons.
We are currently 15% hedged for 2005 and 8% hedged right now for 2006.
Depreciation and amortization expense for 2005 is expected to be approximately 405 million.
We anticipate interest expense to be lower than our previous guidance and ultimately fall between 275 million and 280 million.
Again, its important to note that the decrease in interest expense does not necessarily correlate directly into a positive impact to earnings per share.
This is due to the fact that the portion of interest expense associated with our convertible debt instrument is already taken into consideration and diluted EPS calculations.
Therefore, any decrease in interest expense associated with our convertible notes will not impact our earnings per share.
Based upon these estimates, the fuel consumption and the revenue outlook that Richard discussed and excluding the effect of the change in accounting principle, we expect 2005 EPS to be approximately $2.75, which is within the range of our previous guidance.
This implies that the increase in fuel in the second half has been more than offset by increases in revenue and lower nonfuel expenses.
Now, once again, we have thrown out a lot of numbers, and I think that we need to put all of these into perspective.
Let me walk you through the significant items that have occurred since we began giving you guidance in 2005.
We started the year with full year EPS guidance of $2.70 to $2.90 per share.
We were impacted by two emergency drydocks affecting the Infiniti and the Summit and that adversely affected our EPS by $0.06.
We could potentially incur an addition $100 million relative to our guidance for $0.43 per share in higher fuel costs.
The net effect of the First Choice transaction included a benefit, a net gain and lost dividends impact which was a positive $0.17.
Now the net effect of all of these items is an adverse impact to EPS of $0.32.
And the end result of that despite the $0.32 per share in net adverse effect, excluding again the change in accounting principle, our strong performance on the revenue side and control of nonfuel related expenses, has allowed us to overcome this impact and enable us to narrow our guidance to approximately $2.75, which is still well within the range we originally thought we would be at the beginning of the year.
Please keep in mind that we also just experienced a very severe hurricane, which Richard discussed, and is affecting several of our cruises.
Although we have included a preliminary estimate of the impact in the $2.75, please keep in mind that things are still very, very fluid and that these are only very, very early estimates and are subject to change.
Fuel prices for 2006 remain a concern.
And 2006 at-the-pump fuel prices remain at current levels the Company estimates that its 2006 fuel costs will increase approximately $140 million and negatively impact earnings per share by $0.60.
Advance bookings for 2006 continue to show evidence of a continuous healthy demand environment for both Royal Caribbean and Celebrity Cruises.
Load factors for 2006 are in line with levels achieved at the same time last year, while pricing continues to be higher than the previous year.
In addition, the Company's onboard revenue initiatives are working very well.
While it is still early to quantify projections for 2006, management is optimistic that the current demand environment will result in possible yield improvements.
Now at this time what I would like to do is turn the call over to the audience.
Operator
(OPERATOR INSTRUCTIONS) Robin Farley, UBS.
Robin Farley - Analyst
I wanted to clarify a couple of comments.
You talked about load factors in the press release being in line with last year.
And on the call I think you may have said in line and ahead.
But at least the last time you gave guidance in July you talked about load factors being ahead.
Can you talk a little bit about load factors being even now while they have been ahead before, just give us a little color on that?
And I do have a question, two questions on expense, as well.
Adam Goldstein - President
We have right now as a solid order book looking forward, where as been mentioned in either in writing or on this dialogue that our load factors on a year-over-year basis are approximately even, and we have been unfortunate that we've been able to generate a healthy price environment with expectations of higher APCD's, and we've been able to achieve that while keeping the load factors even.
So there is really no mystery to it.
We have a flat order book on a year-over-year basis with healthy looking prices going forward.
Robin Farley - Analyst
So we shouldn't read anything into the load factors not being ahead as they were last -- when you gave guidance?
Adam Goldstein - President
No.
Unidentified Company Representative
Let me comment on that.
What we are saying is that the load factors are in line with our expectations from our previous guidance, but they are ahead of what they were last year.
Robin Farley - Analyst
The release says in line with levels achieved at the same time last year.
Unidentified Company Representative
I think there is some confusion between the quarter that is gone and talking about next year.
Remember, Robin, under our yield management system we don't want load factors to get too far ahead.
So if we see that bookings are coming in particularly well the way we respond to that is we raise our prices so that we don't book too early.
And so we would expect -- sometimes we have periods where we are a little more conservative, a little more aggressive in terms of raising our prices, and sometimes we want to focus on trying to get a bigger order book in place.
Right now we felt that we had 2005, the revenue management people think they did 2005 pretty well.
And that is the right kind of order book to keep in hand.
And so for 2006 they are on the same basic track.
And with that same order book we are able to raise our prices.
So you always have a bit of a choice.
Would you rather take a little more bookings but at a lower price and our revenue management people are feeling quite good about pricing levels and they are feeling quite good about the level of bookings that they took in advance for 2005.
So they're repeating the level and raising their prices.
Robin Farley - Analyst
That helps my question from the earlier comment.
Thanks.
And then on the expense side, two things, one is it does look like some nonfuel related expenses may have shifted from Q3 to Q4; backing out your guidance on fuel just looking at ship running expenses and SG&A that maybe some of that shifted from Q3 to Q4.
I wonder if you can give us some color on that.
And then your comments about fuel in '06, the first question is about the (indiscernible) about fuel in '06, can you clarify how much of this incremental fuel impact versus the last time you gave guidance?
Is it these -- I am trying to reconcile the increases you are talking about for Q4 with the increases you are talking about for '06, and the '06 increase is coming in a lot larger than the spot prices suggest at least when we we're doing the numbers.
So I just would like to help, if you can clarify how much of the $0.60 you are talking about is incremental versus the last time you gave guidance?
Thanks.
Unidentified Company Representative
Let me try to answer that question.
You have a mouthful there of questions.
In terms of what we are trying to say with regard to expenses for the fourth quarter is that we are trying -- we kept guidance pretty much the same as where we were at about or approximately $2.75.
And that is despite the fact that we've had an increase in or we are expecting an increase of roughly $0.10 for the fourth quarter related to fuel.
So that means if you're keeping guidance somewhat the same for the second half of the year that obviously we are offsetting the fuel.
Now are there some things that are shifting from one quarter to the next?
I'm sure that there are some things, but I think that the overall message that we want to send though, Robin, is the fact that we have been able to mitigate our costs and achieve savings and ensure that those savings are transferred into the fourth quarter.
So that is why we're trying to keep the guidance.
So that is why I went through that reconciliation for you telling you all these things have occurred, the increase in fuel, and yet we are still managing to keep the EPS guidance where it is.
Now, with regard to your question on fuel, let me see if I understand your question.
You are talking about the increase in -- and I mentioned to you that we are going to -- if we look at fuel today, fuel today is considerably higher.
It is like 54% higher than it was in the fourth quarter of last year.
So all we're saying is that if those fuel costs hold at today's level and they hold throughout the year, then you are going to see that delta between fuel costs and 2006 versus 2005.
Unidentified Company Representative
Robin, if I could just clarify, I don't think we gave guidance before about 2006.
And so I am a little confused what you are comparing.
Robin Farley - Analyst
Your guidance is usually based on the spot prices for Bunker, and so you did give guidance in late July on your June quarter call about what those prices would mean going forward for the forward quarter, and that would suggest that if your guidance for the full year might have included that.
Richard Fain - Chairman & CEO
You're right, we did give guidance, and we did before and we are today saying what our fuel cost impact would be based on the spot price.
And we did that for the second half of 2005 based on the then spot price.
That spot price has gone up, and so we've told you that, for example in the fourth quarter of this year alone that increase is $24 million.
If I took nothing but that and I said if the fourth quarter is gone up by $24 million, that alone would indicate close to $100 million increase in 2006.
And there were increases before.
So I don't think we ever gave a specific number for 2006.
But what we're doing now is simply applying today's spot price to the same price we're using in giving guidance for the fourth quarter number.
And applying that to next year.
If the spot price goes down as we certainly hope it will, then that number will be less; of course if it goes up, God forbid, it would be higher.
But that hasn't changed.
And so our guidance really hasn't changed.
Robin Farley - Analyst
And I understand your methodology, but using your methodology the spot prices in late July versus the spot prices now, how much is that $0.60 incremental to if using the spot guidance from late July carried through '06, versus today's spot price carried through '06?
Richard Fain - Chairman & CEO
I don't know if we have that number right at hand.
I think I have given you a pretty decent extrapolation.
Robin Farley - Analyst
And we certainly did the math ourselves here.
It is just we're coming out with a different number then what the release here would suggest, and that is what I was trying to say.
Richard Fain - Chairman & CEO
Then I would suggest you call and Greg can give you some more detail.
But just as a very rough estimate, and this is really quite rough, just looking at what we're saying about the increase in the last quarter in the stock price, if that is $24 million in the fourth quarter this year and you simply said well, let's assume just for back of the envelope that it was 24 million additional each additional quarter next year, that would be 100 million of the 140.
And obviously there is other increases in the earlier quarters.
So that is a rough number, but I think if you call Greg he can give you more detail on the calculation.
Robin Farley - Analyst
Okay, thanks.
Operator
David Anders, Merrill Lynch.
David Anders - Analyst
We will call Greg, too, I think but Richard, just to be clear, the comps do get easier in the back half of next year, so your fuel prices shouldn't go up 20, 24 million a quarter in Q3 and Q4 of '06.
So your going to kind of get hit Q1, Q2.
I understand that.
But am I missing something?
I'll follow up with Greg but I am just wondering in a nutshell if there is a quick resolution to this.
Richard Fain - Chairman & CEO
I'm just trying to think of -- clearly it differs by quarter.
So I think if you can call Greg we can clarify that.
David Anders - Analyst
Okay.
Richard Fain - Chairman & CEO
And it is clearly more in the first quarter, so you're right, so I don't have the calendarization, but --.
Unidentified Company Representative
It would be the first and second quarter and then the third quarter and then obviously if you use the number for the fourth quarter should be pretty neutral in the fourth quarter.
So you can see a ramp up with the heaviest being the first, second and then third in that order.
Richard Fain - Chairman & CEO
We think you're right.
David Anders - Analyst
Okay.
Thank you.
Richard Fain - Chairman & CEO
I just don't have the quarterly numbers in front of me.
David Anders - Analyst
Okay.
Bye.
Operator
Elizabeth Osur, Citigroup.
Elizabeth Osur - Analyst
I just had a couple quick questions.
One is maybe you could give us some details or anything you've got regarding hurricane impacts and just what we can expect in terms of what's going on in the Caribbean and what kinds of changes you might be making in itineraries given the damage at Cozumel and just how that impacts the business.
And two, is there any way you can give us some detail on bookings trends regionally, and are you feeling specific impacts from Florida, New Orleans, hurricane damaged areas; is there any kinds of difference in trends as you look at where your consumers are coming from?
Thanks.
Adam Goldstein - President
In terms of the hurricane impacts, I will divide it into a couple of things.
Most immediately we have had eight Royal Caribbean international sailings that have had some type of impact from Wilma, mostly short sailings.
And they will -- after today they will be finished in terms of additional sailings impacted.
And so we have spent a lot of time, as I think Richard alluded to in his opening remarks as a team to work through all of that.
And so we are in pretty good shape now.
The main impact on a medium-term basis would be the condition of Cozumel, in particular, which is an important port for us and for all of the industry.
And as you know, Wilma kind of sat over top of Yucatan peninsula and Cozumel for a while.
The immediate town of Cozumel sustained quite a bit of damage, but we have received a lot of surprisingly positive reports in the last 48 hours from the various tour operators that we use.
In terms of the condition of their equipment and facilities looking forward, I am talking about things like boats and all-terrain vehicles and vans, and trucks and things that we use to take our customers on the tours of the region, because it is a very regional base of tours.
And most of those reports, as I say, have been surprisingly positive.
It is too early to know exactly when we will be able to go back on a regular basis and one of the biggest questions that we and all cruise lines face is (indiscernible) Cozumel is the ability of the three piers to have ships come alongside.
Unfortunately, it just happened so recently that we're not in a position to give any sort of detailed report on that.
But there is no question that the piers have been affected, and so the repairs of piers will be a challenge in the short-term, as well as issues related to how many ships can anchor and continue to operate in Cozumel.
So I think that that will become clear over the next 15 to 30 days.
And we will be very proactive in making the best of the situation.
And that is really where the action will be.
From the standpoint of other important ports of call in the region, or home ports in South Florida, by the end of this weekend coming up things should be in pretty good shape.
In fact, Key West from the radio reports of this morning Key West sounds like it fared surprisingly well after getting a lot of publicity for Wilma.
You asked also about the regional booking impacts overall, as we've mentioned several times our bookings, the bookings that we're taking are strong and solid.
And we have been able to, for example, move Grandeur Of The Seas which was meant to be operating a season-long program out of New Orleans, starting December 3rd over to Tampa, for a program of four and five-night cruises on only two months notice.
And we've been able to take healthy volumes of bookings for that product, which is drawing from Florida and from the Southeast United States.
So I think our overall sense is that the market continues to be strong throughout the United States, and we don't see any pronounced dislocations or material changes in sourcing from (indiscernible) geography.
Elizabeth Osur - Analyst
That's great.
Thank you.
Operator
Michael Gembler with (indiscernible))
Michael Gembler - Analyst
Thanks for taking my call.
I might have missed it but I was wondering if you could tell me what the fuel expense to revenue number was for -- or the expected numbers for full year '05.
Luis Leon - VP & CFO
We're seeing that if we see the increases that we're talking about that we're looking at about 7.5% of fuel costs to revenue.
Michael Gembler - Analyst
That's for all of '05?
Luis Leon - VP & CFO
Yes.
Michael Gembler - Analyst
The second question relates to your plans for financing next year.
It looks like you may have to refinance some of the debt that is coming due.
I'm wondering if you're considering public offerings or if you're going to try to private fund that through term loans.
Luis Leon - VP & CFO
Well we have not made a decision yet.
We are looking at the various alternatives.
Obviously we do have some debt that is coming due next year and will have to find ways to either roll that over or do something else.
But we have not made a decision at this point in terms of exactly what we are going to do.
But we would like to make that decision closer on to when we get to the point.
Michael Gembler - Analyst
And one final quick question.
Both Moody's and S&P have you on positive outlook at the moment.
And I was wondering if you guys considered getting a rating from Fitch.
Unidentified Company Representative
Well, we don't shop around for ratings, but I think it's good to have relationships with all rating agencies.
We have had certain discussions with Fitch on other areas and, but our intent is to have good relationships with all of them.
Richard Fain - Chairman & CEO
And I think its worth repeating, and we have said this in the past, it is obviously our intention on an ongoing basis to maintain investment-grade ratings.
Obviously we would have liked the two rating agencies you mentioned to have already made that move.
But I think it is worth noting that for quite some time both our banks and institutional investors have given us terms of financing which are essentially commensurate with investment-grade.
So even though we haven't formally been upgraded by Moody's and Standard & Poor's, the investing community appears to be giving us that kind of rating.
Operator
Felicia Hendrix, Lehman Brothers.
Felicia Hendrix - Analyst
I want to go back to the subject of fuel because I think it is so worth discussing.
You just said that fuel was going to be 7.5% of revenues for the full year of '05, correct?
Luis Leon - VP & CFO
Yes.
That's correct, but that is assuming that we have the increase that type of fuel, that pump prices stay at where they are at today.
Felicia Hendrix - Analyst
So that would imply, just based on my current revenue estimates, which let's assume that they are in line with your guidance, that would assume that fuel as a percentage of revenues is roughly going to be about 10.5% in the fourth quarter, and then based on your guidance for '06, that implies fuel is going to be roughly 9% of revenues for the full year.
My questions are these.
First, I'm not sure if I'm understanding this because what we're showing and maybe you can explain the disparity, but what we're seeing is that at least in the quarter fuel prices have been coming down a bit.
The second thing is, and I think this gets to both the spirit of both David and Robins' questions, and that is in the release you're indicating that based on what you're seeing in fuel today if that continues throughout the year through next year, you're going to see an incremental -- it will be an impact of $0.60 to earnings.
How the Street is interpreting that this morning is that that is an incremental number, which it is probably not because we are all estimating and you have been estimating some kind of impact from earnings.
So it would be helpful is on this call if you could clarify for us what the incremental impact is, so that we can work that through our numbers.
Because there is a lot of confusion out there right now, and I think that this is a good forum to alleviate that.
Richard Fain - Chairman & CEO
Okay, Felicia its Richard speaking.
I am glad you clarified.
I think that is helpful for us to try and clarify that.
We are not saying that this is 60 million that hasn't been there before.
Or $0.60, rather.
I think your point is quite well taken.
We've been talking about fuel endlessly now for every single quarter, and so one would certainly say that a significant portion of that $0.60 presumably has the Street has been aware of that.
Felicia Hendrix - Analyst
Can you or maybe Greg is sharpening his pencil right now, can you tell us what that significant portion would be if?
Richard Fain - Chairman & CEO
We're trying to do some quick numbers on the back of an envelope, rough numbers in terms of the quarters coming back, also to I think it was Robin's questions earlier is -- it is obviously not spread out evenly.
We've seen a relatively constant increase in the price of fuel throughout the year.
And so it obviously affects the earlier quarters more, has relatively little effect in the fourth quarter, probably sort of 40, 30, 20, nothing kind of impact.
That doesn't add up quite to 100, but I'm running back with envelope numbers.
During the impact.
So in terms of percentages of which quarters it appears in that 140, that is where it would be.
As you say, a significant portion of the impact is not new.
It doesn't appear -- we have not seen a reduction in the price of fuel of any material impact.
If you look at a graph, and maybe next time we will graph this as one of our charts of what we are actually paying at the pump, it is a remarkably consistent growth pattern.
Felicia Hendrix - Analyst
So they are not passing through -- when we all look at these spot prices, right, they're not passing that through at the pump level?
Richard Fain - Chairman & CEO
You know, I think there is a lag for us because we are buying at pump but we are buying at different pumps all over the place, so there is actually quite differences in California, quite a big difference in the Caribbean, quite a bit different in Europe.
And the prices that you are looking at in terms of rent or WTI or any of the big benchmarks for crude, have plateaued and actually come back down a little bit.
We have not seen that at the pump.
And that is also a reflection of the lack of refining capacity in the United States.
So we would hope there would be some easing, but we haven't actually seen that yet.
Felicia Hendrix - Analyst
Just to make sure that I'm interpreting this correctly, though, the 140 million increase in fuel, your budgets add that into my model year-over-year, is that indeed -- are you all thinking about that in terms of being 9% -- of fuel being 9% of revenues next year?
Luis Leon - VP & CFO
We hadn't really given any guidance on revenue, so I mean -- the one thing I -- you did mention something earlier in terms of the percentage for the quarter and the percentage for the fourth quarter will be relatively high, will be over 10%.
And but I think that to tell you what it is going to be for revenues next year that means that I am going to be giving you guidance for revenues next year and we're not ready to do that at this point.
Felicia Hendrix - Analyst
Let me ask it to you this way, though, you're thinking about it if it's going to come in at 7.5% -- and I'm not trying to be cute backing into revenues -- I don't care about that right now.
If you are assuming 7.5% of revenues this year your fuel guidance at this point is indeed assuming a percentage of revenues that is higher next year?
Richard Fain - Chairman & CEO
Yes.
Felicia Hendrix - Analyst
Okay.
Richard Fain - Chairman & CEO
Yes.
But Felicia, also remember that the fourth quarter is revenue wise our weakest quarter.
Felicia Hendrix - Analyst
Yes.
Richard Fain - Chairman & CEO
So the fact that we are over 10% in the fourth quarter isn't necessarily an indication of where we are from before.
Coming back to your model, I hope we haven't implied -- I don't think we've implied that you should look at whatever your model has been and assume this is another $0.60 hit to that.
It is painful enough as it is, but presumably everybody's model has already included some of the increase.
Felicia Hendrix - Analyst
Right, and what would be very helpful again is if you could say -- we have ten minutes left on this call -- if someone could come up with a number and tell us of that $0.60, what is the EPS increment because everyone is looking at this I think a lot worse than what you're actually intending to communicate.
Richard Fain - Chairman & CEO
Yes, and I think one way to look at that and maybe we can calculate that, is how much that $0.60 has gotten worse from where it was at the end of the third quarter.
Felicia Hendrix - Analyst
Exactly.
Richard Fain - Chairman & CEO
And I think we can probably calculate that relatively easily.
And we will try and do that before we end the call.
Felicia Hendrix - Analyst
Okay.
Richard Fain - Chairman & CEO
I think that was a good suggestion.
Felicia Hendrix - Analyst
That's fine, and then just one quick question if I may, and that is with all of these hurricanes and this might be too early, but is it -- now we are in the second year of a pretty rough hurricane season in a row.
Are you seeing any kind of indication that bookings for next year hurricane period are lower or weaker or are you seeing any kind of indication that these hurricanes might affect how your bookings come in for the second half of the year next year?
Adam Goldstein - President
This is Adam come and the answer is no, we're not seeing that kind of weakness.
We're seeing a healthy outlook.
We're also seeing a very healthy outlook for products that are in areas that are not in the hurricane zone, like Alaska and Europe.
So whether there is relationship there is hard to say.
But we are not seeing again any sort of dislocation with regard to timing of the year or geography in our order book.
Felicia Hendrix - Analyst
Okay.
Thank you.
Operator
(indiscernible)
Unidentified Speaker
I apologize in advance for continuing the fuel discussion, but I have one minor increment to throw in there and that is if you look at the change in the hedge benefit year-over-year that should explain some of the increase as well.
Because you're less hedged and you're probably at higher prices, would that be correct?
Luis Leon - VP & CFO
That is correct.
I think we can call Greg afterwards and quantify the difference, but it is in the tens of millions of dollars.
A big difference year-on-year.
Operator
Bob Simonson, William Blair.
Bob Simonson - Analyst
Luis, assuming that you do no more share buybacks or any other changes in the share count, do you have an estimate for what primary and diluted shares will be in the fourth quarter of this year and for next year?
Luis Leon - VP & CFO
I'll tell you what I have for this year.
Probably for the year as a whole we will be looking at about 235 million.
But for the fourth quarter we're looking at probably about 210 million.
I would imagine that depends on what other things occur, exercise of options, and things like that, but probably the 235 million, 235 million which would be a good estimate.
Bob Simonson - Analyst
And that is average shares for the year?
Luis Leon - VP & CFO
That is correct.
Bob Simonson - Analyst
And so for next year on a very preliminary basis without counting, assuming any major changes in share count, we would go with a 210 number for next year or something in that vicinity?
Luis Leon - VP & CFO
I would think it would be greater than that.
You have to remember that the share count is lower because you have a loss for the quarter.
You don't count certain shares in terms of the dilutive effect from 2 to 0.
Bob Simonson - Analyst
And do you have a primary share count, then?
Luis Leon - VP & CFO
Well, I will tell you what I don't have all of that detail, you might want to contact Greg after the call.
I just want to tell you that for the year at least this year we are looking at about 235 million.
For the quarter its going to be about 210.
Going forward it would be the 235 plus.
Bob Simonson - Analyst
Do you have an estimate for year end debt?
That you can share?
Luis Leon - VP & CFO
No, we do not.
We did not provide a -- had not provided estimates on our debt level.
I don't think to be honest with you, it is going to change materially from where we are at now.
We're certainly going to be able to pay down debt a little bit more.
I think a lot of the debt paydowns have already occurred.
Bob Simonson - Analyst
Last question on cash flows for next year you have said CapEx would be about 1,000,000 (indiscernible) 1.
Assuming that there is without (technical difficulty) a price in the compensation, some growth in net income next year.
The depreciation will be up, so your cash flow will be up next year, it ought to be something in excess of your CapEx.
How much debt will you be refinancing or will you have to refinance?
Because it would look like that is about a push from a free cash flow basis.
Luis Leon - VP & CFO
It could be a push.
I think that we (indiscernible) the refinancing debt we have certain debt that matures next year or has to be paid off, so we have to do something with that debt.
Bob Simonson - Analyst
Do you have an estimate of the dollar amount?
Luis Leon - VP & CFO
I don't right off hand.
I think that you give us a call after -- give us a call after we ought to be able to give you some estimate.
I don't have the schedule right in front of me in terms of all of the debt that is maturing, but obviously we will be generating quite a bit of excess cash next year.
But then you have to keep in mind that we're going to have the 1.1 billion in CapEx, and you have interest type expense et cetera, so we probably will be doing (inaudible).
Bob Simonson - Analyst
Okay, thank you.
Richard Fain - Chairman & CEO
Bob, I think I will come back to some of the previous questions on fuel and we've run some back of the envelope numbers trying to look at it from the point of view of what will have changed in terms of your own models.
And as we mentioned earlier, $140 million is a rough estimate of -- it is an estimate of the impact at today's prices.
There was a big increase in the price of fuel in the last three months.
And what we don't know is, obviously you are all aware of that big increase.
It has been a major source of discussion in the news media, et cetera.
And so we assume that much of that has already been taken into account.
But if you assume that that is -- that none of that was taken into account, in other words if we go all the way back to where the price levels were at our last conference call, then of the $140 million roughly, and I do emphasize this is back of the envelope, roughly 60% of that has been caused by the increase in the last three months.
So -- and by roughly I mean we know its not 40%, we know it's not 80%, but we're trying to give you a ballpark figure that's -- 60% of that $140 million, that increase has occurred in the last three months since our last conference call.
And what we don't know is how much of an increase you already assumed in your models just looking at the general market.
The other thing, I guess I have to emphasize here, is I don't want to lose sight of the fact that fuel is an incredibly frustrating and difficult problem for us.
And I don't want to minimize two things.
One is what slightly gets buried in these numbers is the major efforts that our people have made, usually very successfully, to control the usage of fuel and the way we buy fuel.
And they've worked very hard at it.
It kind of gets lost in this number for the cost of fuel increase.
But I think it would be a mistake for me not to congratulate them on the work they've done -- it has been tens of millions of dollars -- and to point out that that is a factor.
And we'll continue to work on that.
The second thing is I think I have to emphasize that here we are now looking at our figures and giving much narrower guidance for our expectations for the year.
And we've overcome the big increase in fuel prices in the third and fourth quarter through mostly other cost savings and to some extent of the yield improvements.
And again, those yield improvements don't come easily.
And they are a reflection of really very good work.
We've focused a lot on cost in this call, but there has been a lot of work done by our revenue management people -- I hope they're not listening because I don't want to congratulate them too much -- and by our operating people to control the cost and to get our revenue up.
And that revenue, again, we've kind of gotten off of it, was both in terms of ticket revenue, which reflects the very good marketing and brand performance, but also on onboard revenue, which reflects the good work of our people and the good work we've done with our concessionaires over the period.
So it is interesting that even in this period with this huge price increase, something I hope I'm not going to have to talk about for the future, they have managed to keep the earnings forecasts basically unchanged.
And with that, operator, I think we should say we will take one more call.
Operator
Dean Gianoukus, JPMorgan.
Dean Gianoukus - Analyst
I'm all set.
Thanks.
Operator
Helane Becker, BenchMark.
Helane Becker - Analyst
Thanks very much for taking my question.
I really appreciate it.
And they are just really easy relative to what you've gone through.
Airports in South Florida have been closed for the past couple of days.
Are you concerned about being able to get your passengers in and out?
And did you ever say what percent of your revenue in the third quarter of passengers came via air versus were driving?
And then the last question is nobody in the Northeast has really gotten a heating deal bill yet for the winter.
Are you concerned about the wave season being possibly affected by fuel bills for people that could be as much as 100% above what they were a year ago?
Adam Goldstein - President
On the air (indiscernible) percentage the answer is 12%.
Back to your first question, the airports are in the process of opening up over these days.
This is the good part of our week, if you will, Tuesday, Wednesday, Thursday, for these things coming back to life because we actually had no scheduled cruises.
We've ended up having two cruises that are turning around here today because they were each delayed two days because of Wilma.
And we are completely handling any logistical requirements for having those customers be able to go home.
Many of them were local to the area to begin with, so we don't foresee any logistical or infrastructure impacts associated with what Wilma has done to South Florida in terms of our own operations.
We expect to be completely ready to go on Friday when the ships start coming back to us for the next weekend.
The outlook for the future and the impact of fuel price on all aspects of the economy and on consumer capital demand is something that we will have to see unfold.
We have said a number of times on the call and in what we've written that all the signs that we see and all of the information coming into our revenue management systems, point to a healthy demand environment sustaining through the various challenges that we face.
And that is the best that we can say right now is we continue to be pleased with the solid environment that is presenting itself to us.
Helane Becker - Analyst
Thank you so much.
Unidentified Speaker
Thank you very much everybody for participating on the call.
Anybody who has any questions following the call can call Greg Johnson.
And between Greg, myself and others we will be kind of sharing the duty of the calls.
But once again, thank you very much, and we look forward to talking to you on our next call.
Operator
This concludes today's conference call.
You may now disconnect.