皇家加勒比遊輪 (RCL) 2006 Q4 法說會逐字稿

Good morning.

My name is Jocilyn and I will be your conference operator today.

At this time I would like to welcome everyone to the Royal Caribbean fourth quarter earnings call. [OPERATOR INSTRUCTIONS]

Mr. Brian Rice, you may begin your conference.

Thank you, operator, and good morning, everyone.

I am Brian Rice, CFO of Royal Caribbean, and I would like to welcome you to our fourth quarter conference call.

With me here today are Richard Fain, our Chairman and Chief Executive Officer, Adam Goldstein, President of Royal Caribbean International, Dan Hanrahan, President of Celebrity Cruises, and Greg Johnson, Associate Vice President, investor relations.

First, our forward-looking statement.

During this call we may be making comments which are forward-looking statements and are subject to change based on the items listed on our website, www.rclinvestor.com and disclosures in our SEC filing.

Additionally, certain financial measures constitute non-GAAP financial measures as defined by Regulation G and a reconciliation of these items can be found on our website.

Richard will now provide you with a brief business overview, then Dan and Adam will talk about their brands and I will go through some of the details of our financial results and forward guidance.

Finally, we will open the call up to your questions.

Richard?

Thank you, Brian, and good morning, everyone.

We've got a lot of good things to talk about today.

In particular, we had a very strong fourth quarter, which delivered record earnings in what is traditionally our weakest period.

We are also forecasting positive yield performance and healthy earnings growth in '07, in spite of continuous challenges in the Caribbean.

Finally, we are very excited about Pullmantur and feel this will be a very fruitful strategic investment for us.

To spend a few moments on the fourth quarter it really did prove to be as strong as we had hoped.

Last year there were a lot of questions about how we could hope to do so well during a quarter when usually we lose money.

Nevertheless, we've always said that we manage our business on an annual basis.

We know this can result in significant shift of expenses and revenues between quarters, but we leave it to our management to let them make such shifts if they believe it will provide the best return.

The addition of Pullmantur will, unfortunately, increase these shifts between quarters because they have very different seasonality, and Brian's going to comment on that a little bit later on.

We're also very pleased with our earnings performance this year, particularly as a year as a whole, given some of the challenges we faced.

It's interesting and I think it's useful to compare how we actually performed in 2006 compared to our earlier forecast.

If you recall the initial guidance that we gave for the full-year 2006 back in February of 2006 -- which now seems like a long time ago -- was in the range of $2.95 to $3.15.

Using the midpoint of this range, i.e., $3.05, in comparing to our actual EPS of $2.94 shows a decline of $0.11.

And essentially all of that decline is attributable to price of fuel.

Thus, despite all the challenges of 2006, of which everyone on the call is aware, our operating performance, excluding the price of fuel, actually came in at the midpoint of our original guidance.

I would say that this is a good testament to the strength of our brands, and I will congratulate our management team for that performance.

So let's move on to 2007.

You saw in the press release our comment that the wave season so far has been less encouraging than we had hoped.

We've seen the expected surge in booking volume and we've also seen it in prices for our higher-end products, especially Europe, are strong.

However, the pricing in the Caribbean hasn't been as robust, particularly through the first half of the year.

The activity for all of our products looks somewhat better in the second half.

In the aggregate of the full year, load factors are up slightly and pricing is down slightly compared to a year ago.

Adam, Dan, and Brian will provide more color on this in a moment.

I would like to emphasize that we don't view this as a structural issue, but rather a cyclical one.

Our more budget-oriented products remain under pricing pressure that began in the mid -- in the mid-2006, while the rest of our portfolio continues to show very healthy growth.

We view this as a pause or a temporary leveling off rather than a blockage in what is otherwise a generally upward momentum.

Just as it would have been wrong to draw too many inferences about the fourth quarter 2006 from the somewhat disappointing results of the third quarter of '06, I think it would be a mistake to extrapolate our first quarter projections on to the rest of the year.

Finally, Pullmantur.

The integration is proceeding quickly and we continue to be very excited about this new brand.

We have announced some ship swaps with Celebrity, which Dan will talk more about, and we look forward to growing Pullmantur to its full potential.

Now with that I'd like to ask Dan and Adam to comment on their respective businesses, and then Brian will provide more detail on the results.

Adam?

Thank you, Richard.

Good morning everyone. 2006 was a strong and memorable year for Royal Caribbean International.

The highlight, of course, was the introduction of Freedom of the Seas, but in general 2006 reinforced Royal Caribbean International's status as a leader in the cruise industry.

Turning to 2007 we have a number of developments in progress.

Majesty of the Seas is on track to complete a successful revitalization with the scheduled return to her three and four-night Bahamas itineraries a week from today.

When she returns to Miami we will have completed our revitalization program on all four of our oldest ships over the past four years.

Meanwhile, Liberty of the Seas is two-and-a-half months from delivery in Finland and everything is on track for her as well.

She will be introduced in Southampton, England, New York, and Miami before entering service on May 19th.

Also in May, Navigator of the Seas will initiate voyager class cruises out of Southampton, England, with a focus on the UK source market.

We're pleased with the outlook for that program.

We're also pleased to have recently won UK Travel Weekly's annual award for the best four-star cruise line for the first time.

This is a reflection of our global appeal and our commitment to travel agents to be easy to do business with, or ETDBW, on a global business.

Turning to wave season, not surprisingly there is a lot of discussion and analysis at present.

Further to Richard's comments, overall the wave season bookings are less robust than we would have hoped in first half 2007 and more encouraging in second half 2007.

Within the Caribbean product portfolio the level of discounting has been fairly aggressive in the three to seven-night segments until the seasonal ships depart for Europe and Alaska this spring.

Some of the factors pressuring the demand environment are: The unusually warm weather in this winter until quite recently; macro economic pressures particularly for more mass market products; somewhat increased industry capacity, especially in the gulf home port; and a tightening of air seat availability and pricing.

While these factors bear on current market performance, it's important to emphasize the current dynamics of the wave season in the cruise industry, and especially how it has become less important to our performance over time.

In each of the past two years, the percentage of our calls and individual bookings for the fiscal year that were made during the first ten weeks of the year has been between 21% and 22%.

If bookings came in at an even pace throughout the year you would expect the percentage to be 19%.

So yes, wave is still important, but it's not as critical to our performance as it was in the earlier history of the cruise industry.

I'll turn it over now to Dan.

Thank you, Adam.

As you've heard from Richard we are very pleased with our fourth quarter results.

Yield improvement was very strong for Celebrity.

The extended European season had a particularly positive impact on our results.

We're excited about the progress we made with Celebrity brand in 2006.

Our focus for 2007 remains unchanged.

We will continue to concentrate on managing our costs while building on our successful marketing campaign and providing an excellent experience for our guests.

The recent Condones Readers Poll again placed all four millennium-class vessels in the top four spots.

We are particularly gratified, as the readers of Condones continue to view Celebrity as the top premium cruise brand.

This reflects well on our focus on providing an outstanding experience to our guests.

There are a number of very positive things on the horizon for Celebrity in 2007.

For the first time we will be heading to Australia/New Zealand, we have nearly 40 new ports of call, and we are again extending the European season further into the fall.

In addition, we have previously announced a Celebrity expeditions brand extension.

Celebrity Quest will be joining Celebrity Journey and then Celebrity Expedition.

Both Celebrity Journey and Celebrity Quest will undergo revitalizations to add suites and the best Celebrity features, in April and October respectively, before joining the Celebrity fleet.

In our ongoing efforts to manage our fuel costs, two of our gas-turbine ships, Millennium and Constellation, will go into dry dock this spring to have diesel engines installed.

The addition of the diesel engines enables to us reduce our fuel consumption, as we are able to optimize the usage of the gas turbine and diesel engines together.

During that dry dock period we will also be changing out the thrust bearings and the pods.

Rolls Royce has developed a new design and they tell us they believe these new bearings will be much more reliable.

I continue to be very pleased with the progress we are making with Celebrity.

I'd now like to turn the call back to Brian Rice.

Thank you, Dan.

As Richard mentioned we have good results to talk about today.

Our fourth quarter was a record for both earnings per share and yield.

You may recall back in October we provided EPS guidance for the fourth quarter of $0.20 to $0.25.

Subsequently, we had two incidents on Millennium and Freedom of the Seas, which we said would cumulatively impact our earnings by about $0.05.

As we stated in our press release, we delivered $0.22 a share for the quarter, and this was driven by a nice combination of strong revenues and lower expenses.

Our yield growth for the quarter was 3.3%, which was consistent with our previous guidance.

We benefited from sound cruise pricing and we were particularly pleased with close end demand.

Even with an 8.6% increase in capacity, we achieved the highest fourth quarter yields in our Company's history.

On the cost side, net cruise cost per available passenger cruise day decreased 3.3%, as we benefited from timing shifts in dry dock and marketing expenses.

We said previously that we spent more heavily on these items in the beginning of the year and in the fourth quarter we saw the benefit of that timing shift.

Fuel costs on an APCD basis were flat versus last year, but our increased capacity resulted in $9 million more of fuel expense.

When we gave guidance for the fourth quarter, we assumed an at-the-pump price of $388 per metric ton, and our actual price came in at $395.

So to recap the quarter, I'd like to walk you through a bridge between 2005 and 2006 on a per-share basis.

In total, we increased our earnings per share by $0.24.

The key driver of this improvement -- the key drivers of this improvement were: First, the capacity increase, and our 3.3% yield growth generated $0.28; the incidents on Millennium and Freedom cost us $0.05; lower running and SG&A costs benefited us by $0.06; and higher interest expense, due to increased debt levels, cost us $0.05.

Looking at the full year, 2006 was our third consecutive year of positive yield growth and second consecutive year of record yield performance.

Over the last three years, we have been able to improve our yields by over 21%.

This kind of strong and consistent performance is a true testament to the strength of our brands.

Now I'd like to move on to 2007.

As you saw in our press release, we are forecasting our earnings per share to be in the range of $3.05 to $3.20.

This forecast includes our newly-acquired Spanish brand, Pullmantur.

While we are not providing brand-specific details, we do want to give you some insight as to how our results will now look as a combined group.

Therefore, I would like to give you some information that should help you understand the drivers of our projection.

On an historical basis, in other words not including Pullmantur, we expect net revenue yields to increase in a range around 1%.

Now, as you know, Pullmantur is positioned as a value brand in the Spanish market, and as such has lower yields than our other brands.

We anticipate that Pullmantur's cruise brand will impact our net revenue yields by about one percentage point overall.

In addition, Pullmantur has a cruise operation.

Because we will be realizing revenue without a corresponding APCD basis, this tour business will have a positive effect on yield.

Including all Pullmantur divisions, we expect net revenue yields to increase in a range around 3%.

We are forecasting net cruise costs on a historical basis to be down in the range of 1%.

As a budget operator, we anticipate Pullmantur's cruise brand to lower our overall net cruise costs by about one percentage point.

But Pullmantur's tour division will be adding to our costs, again without the benefit of additional APCD.

So all in, we expect net cruise costs to increase in a range around 3%.

As you know, a key driver of our net cruise cost has been fuel.

It is nice to be able to talk about fuel in a positive light for a change.

Included in the numbers I just gave you is an assumption for fuel prices using our current at-the-pump prices and adjusting for our current hedge position.

The current at-the-pump price is $361 per metric ton, and we are currently hedged 45% for 2007, including Pullmantur.

The net effect of this is fuel will provide about a three percentage point benefit to net cruise costs at today's prices.

I also want to give you some insight into the sensitivity of changes in fuel prices on our cost.

For the full year, a 10% swing in the price of fuel, up or down, would have about a $24 million impact.

This figure takes into account our current hedges and only considers the portion of our fuel consumption that would float with price changes.

Now before we move on to the first quarter, I would like to explain the impact of Pullmantur's seasonality on our results going forward.

Pullmantur has even a greater degree of seasonality than our other brands.

Historically, Pullmantur has performed exceptionally well during the summer months and not is well during the winter months.

For reporting purposes we will be including the Pullmantur results on a two-month lag while we work to integrate our system.

The net effect of this is Pullmantur will have a rather material negative impact on our first two quarters but will provide a very nice windfall in the third and fourth.

Now let me take you through the first quarter.

I will run through the numbers in the same format as we did for the year.

Our historical net revenue yields, excluding Pullmantur, are expected to decrease in the range of two to three percent.

Pullmantur's cruise operations will impact us by about two percentage points.

But after taking the Pullmantur tour division into account, we expect net yields to decrease in a range around 3%.

On the cost side, we expect our historical net cruise cost to increase in a range of 2% to 3%.

Pullmantur's cruise operations will have a positive impact of about one percentage point.

All in, including the tour division, we expect net cruise costs to increase 4% to 5%.

For the first quarter, our fuel expense is 60% hedged.

Based on today's at-the-pump price, we will see a benefit of just under three percentage points in net cruise cost per APCD.

And a 10% swing in fuel prices would mean a $4 million up or down impact on our first quarter results.

Based on these estimates, we expect first quarter 2007 earnings per share to be in the range of $0.03 to $0.08.

And now I would like to give you a few other statistics that we know you are interested in, and all of these figures include Pullmantur.

Projected CapEx for '07, '08, '09, and 2010 is estimated to be $1.3 billion, $1.8 billion, $2 billion, and $1 billion respectively.

Our projected capacity increases for the same four years are estimated to be 12.2%, 9%, 6.9%, and 7.8% respectively.

And please keep in mind that the 2010 CapEx and capacity numbers do not include our option for the second Genesis class vessel.

Our liquidity at December 31 was roughly $650 million, comprised of $100 million in cash plus the available credit on our revolver.

We recently increased our liquidity to around $1 billion with some of the proceeds from our recent euro bond offering.

Fuel consumption for 2007 is expected to be 1.2 million metric tons and was 1.1 million metric tons in 2006.

Depreciation and amortization is expected to be $480 million to $500 million in 2007, and interest expense is expected to be $335 million to $355 million for the year.

At this point, I would like to open the call to your questions.

Operator?

[OPERATOR INSTRUCTIONS] Your first question comes from Dean Gianoukos.

Hi, just a couple of quick questions.

When you expect the yield environment to improve in the back half of the year, is that a result of where you're sailing or are you actually seeing improvement in the Caribbean?

And when you talked about volumes picking up, was that preceded by a price cut, the volume pick up?

And then secondly, if you look at '06 -- and I don't know if you have this -- but if you look at '06, the Royal Caribbean brand on a same-ship basis, how did you guys do?

Were you up in the three to four range there, too, or was it less?

Thanks.

Hi, Dean, it's Adam.

Your first question on the second-half improvement -- and then maybe we could come back and you can restate your second question -- the yield situation in the second half of the year is predicated partly on the fact that we've continued to extend the European season further into the fourth quarter.

There's more of our capacity mix, therefore, that is European deployed, as well as European sourced.

And that is contributing to our yield performance in the second half, as well as the fact that the volume of Caribbean bookings for the fourth quarter at this point is fairly solid.

Was the volume pickup preceded by a price cut?

Clearly there's been an inter-relationship with our discounting that we've been engaged in on certain of our sailings for certain products and the volume pickup, but overall I would say there's a certain strength in the fourth quarter booking volumes that is notable at this point.

Okay, thanks.

And then just the second question was, if you look back at '06 -- and I don't know if you can do th -- well, you can do it, I don't know if you'll give it to us -- just on a Royal Caribbean same-ship basis, how was the pricing?

Was it up?

Was it up in line with the Company average, or how did you do?

Well, I think you can tell from both my comments and Dan's comments that overall Celebrity had a stronger year in general on yields.

In the second half -- it's a little bit hard to compare ship for ship, because what happens is that when a ship like Freedom of the Seas comes into the market and gets a certain route, then other ships are displaced and go off and contribute to our global expansion, so it's a little bit hard to do exact like for like.

Freedom of the Seas was able to command premiums throughout the year, as we've said on previous calls, and some of the other products experienced a little bit more pressure than that.

Okay.

Thanks.

Your next question comes from Robin Farley.

Great, thank you.

I've got two questions that some of the numbers you gave on the call maybe we would be able to back into but certainly not from the release, so if you could just help clarify.

Can you give us your guidance, specifically for the Pullmantur dilution in Q1?

In other words, what your expectations were for Royal ex-Pullmantur Q1 EPS?

Robin, we -- it's Brian.

We did not give any specific guidance on the EPS for Pullmantur other than to say that it would be material.

We do understand that this is kind of confusing in the first year, trying to pull Pullmantur together.

We are not going to do give brand-specific information and we're not going to do segment reporting, but we've tried to give you enough, as you said, that you can back into the numbers.

If you'd like I can run through again on the yields.

On a historical basis, Royal Caribbean Celebrity we're looking at yields to be down in a range of 2% to 3%.

We said that Pullmantur's cruise brand would have about a negative impact of about 2%.

In all told, our yields will be down in a range around 3%.

And on a net cruise cost basis, historically our cruise costs, as we saw in '06, are a little more front loaded than they are in the back side, and we're looking at our -- on a historical basis our net cruise cost to be up in a range of 2% to 3%.

Pullmantur will actually bring that down on the cruise side by about 1%, but because of the tour company overall, we're looking at an increase of about 4% to 5%.

Right.

No, I understand.

I just thought it would be helpful since the expectations out on First Call are without the Pullmantur dilution and just sort of help compare your guidance to the expectations that are out there.

But --

And I think also if I could just build on that, we did say that we're going to be reporting Pullmantur on a two-month lag.

Right.

Which will include the November, December, January results of Pullmantur.

And the Spanish market is much more seasonal than we're accustomed to with our North American brand.

Okay.

And then my other question is, in terms of your fuel hedges, it looks like it was maybe a $0.04 negative to earnings in the fourth quarter.

And looking out to '07, if you're hedged at a little bit higher here than the price at the pump, can you give us an approximate, like at what price at the pump does your hedge level become a positive to earnings?

Well, I think the first thing I'd like to mention is that the reason we hedge fuel is to -- is to manage our risk, not to try to eliminate it, and if you look back over the last five years, we've had substantial benefit from our hedging.

We are 45% hedged, including Pullmantur for the first quarter.

We're 60% for Q1 and then pretty much anywhere from 35% to 45% for the remaining quarters.

We -- our hedge position for '07 is underwater at this point, but the fuel guidance that we gave of you of a benefit of around 3% for net cruise cost does include that hedge position.

Okay.

So is there a price at the pump that you could sort of give us to use as a -- again, we can pull back into something that --

Our current at-the-pump price is $361 per metric ton.

That's not where your hedge is though?

No.

And that's -- you won't --

Robin, we don't break out at what prices we're hedging.

We're hedging perpetually.

Okay.

All right, great.

Thank you.

Your next question comes from Michael Savner.

Hi, thank you very much.

A couple questions.

I know you don't give a whole lot on the brand specific, but maybe just directionally with Pullmantur if we can think about yield growth because you have said that obviously the yields are lower to more of a discount-focused brand.

But over the next few quarters, and more importantly over the next couple of year,s how can we think about the growth trajectory at Pullmantur versus Celebrity and RCI?

And then second question -- and maybe this is a subtle nuance to what was in the press release -- but just so we're all kind of on the same page, pricing you said leveling off a little in wave season.

Does that mean that you're seeing kind of flat prices, or are you actually seeing another kind of step down in prices on a year-over-year basis?

Because based, obviously, on that kind of yield expectations in the first half of the year, first quarter specifically, you'd think maybe that we're actually seeing another step down, so I just want to get a little bit more color on that.

It'd be very helpful.

Thanks.

Hey, Michael, I'll take the first part about Pullmantur and then ask Adam to comment on your pricing question.

I think it's int -- it's relevant to put Pullmantur into perspective.

Pullmantur today accounts for about 7% of our capacity, and the entire fleet is about the size of one of our larger vessels.

The Spanish market is still young, but we're very, very bullish on its growth and the primary reason for the acquisition.

I think as it relates to future guidance, we've owned Pullmantur now for just over two months.

And while we did a thorough due diligence and feel very bullish on where the market it is headed, it is a little bit too early to provide specific direction.

I will tell you that we are seeing that the European market tends to be a bit stronger right now than North America.

The Spanish market is in a growth spurt in terms of demand, which has enabled us to leverage pricing.

So I think we feel very positive about where Pullmantur is headed, and are quite excited about its prospects going forward.

If I can comment to your question on our order book, at a broad level -- and this is including both of our brands, the North American brands -- we are, for the full year, slightly up in load factor and slightly down in APD, or rate.

For the first quarter on a year-over-year basis, comparing from right now, we're slightly down on load factor and also slightly down on APD, or rate.

So that's the broad picture of where we are on our order book.

Okay, thanks very much.

The next question comes from Bob Simonson.

Good morning.

Do you have available or can you make available the percentage distribution of your capacity that will be in the Caribbean, Europe, and Alaska, then all other category by quarter for this year, and perhaps what that was in the quarter -- respective quarters last year?

Bob, I have the figures for the full year I can give you.

The Caribbean will represent -- and these do include Pullmantur.

The Caribbean will represent 51%, Europe will be about 21%, Alaska 7%, Bermuda 3%, Mexico and Baja 6%, And all other would be 12%.

On a year-over-year change we have seen a bit of a shift out of the Caribbean and into Europe as we've -- as I believe Adam mentioned, navigator is going into Southampton, and for both our brands we have begun to extend the seasons in Europe.

Do you have those respective '06 numbers, or how you ended up?

For '06, the Caribbean was 56%, Europe was 14%, Alaska was the same at 7%, Bermuda was 4%, Mexico and Baja was 8%, and other was 12% as well.

Okay, thank you.

And do you have -- can you make some comment on -- pretty obviously the yield pressures to the degree you've seen them are in the Caribbean.

Can you talk a little bit about how the Europe yields are com -- the pace of the change in the European yields are versus Alaska?

Hey, Bob, this is Dan.

We're quite pleased with what we're seeing in Europe.

Alaska is holding its own compared to last year.

We are seeing good things there.

But we're happy with what we're seeing in Europe at this point.

It's still a little early, but so far the early results are positive.

I think the answer to this one is we don't say that, but what percent of the third quarter is booked already? [LAUGHTER]

Asked and answered I think.

Thank you very much.

You bet.

Next question comes from David Leibowitz.

Good morning.

Briefly, the Rolls Royce new part system that are going into the two Celebrity vessels, are they charging you for this or is this part of the answer to the lawsuit?

Well, I think you sort of answered the question right at the end there in regard to the lawsuit, so there's really not a lot I can say about it.

What I can tell you is that Rolls Royce is working very closely with us to find a solution to the pod problems, and they believe that the new bearing that they've designed, which is the thrust bearing, which is represented the vast majority of the issues that we have had with the pods, is going to go a long ways towards solving our problem there.

But you haven't said whether or not you're paying for that?

We're in negotiations with them on that, and I believe that the negotiations will end up favorable.

We haven't finalized every single nuance on the payment, but they will be stepping up to the plate.

It's just a question of how much at this point.

Two other unrelated questions.

First, given how much more international business you're doing, what is the weakness of the dollar mean to your results?

David, the FX is not really material to us at this point.

We have seen that our European point of sale has been very nice the last couple of years, and we're getting more and more business out of our EMEA operation.

The integration, obviously, with Pullmantur Tour will only benefit that.

We do believe that some of the strength that we're seeing in the European marketplace also is being driven by the weaker dollar, in that it really is a value opportunity for an American consumer to be able to pay for their entire European holiday in American dollars.

So we think -- the FX is not really material to us at this point in time, though.

Okay.

And the last question, if I were to take all of your one-time charges last year for ships out of service, hurricane, et cetera, et cetera, how much did that come to, so that I can add it back to this year before making a projection as to what the Company might be able to earn?

We've -- of course we've announced all those.

You would also have to include in a few cents at the end of the year relating to Pullmantur.

But if you simply add up the items that we have announced specifically of the type you're talking about that would make $0.14.

Thank you very much.

Your next question comes from Elizabeth Osur.

Thanks.

A couple of quick questions.

First, could someone comment on wave season and just how it's progressed, whether you've seen any changes in the last couple of weeks, as weather in the northeast has gotten colder or whether bookings for the last month or so have been consistent?

Hi, Elizabeth.

It's Adam.

I would say over the last weeks, up to and including the week before last, we have seen a sustained pattern, obviously higher volume because it is the wave season, but nothing that you could look at the weather outside your window and say that because it's this, the volume is that, or because it it's something else, the volume is something else.

Okay.

We've also said in the past, as it relates to weather, that we're -- we're not convinced that weather has a short-term impact on bookings.

We think it tends to be more longer term and affect the subsequent year.

I commented on weather earlier in my early comments because I think what we saw for a number of weeks early in the wave season and building into the wave season was unusually warm weather, and our sense is that that probably had some effect on the early generation of the wave pattern, but we haven't seen anything notably different lately.

Okay, thanks.

When we think about Pullmantur, I know prices are lower.

Can you comment on how their occupancy compares to yours and whether or not it's a significant difference?

Yes, their occupancy has been lower.

Their yield management systems are not as sophisticated as the ones we tend to use on this side of the pond, and they're also much more seasonal than we are.

So they have a very much stronger summer seasons, and extremely weak -- the winter seasons, which is one of the significant reasons behind the shift in the quarterly results as well.

Okay.

Thanks.

Just one final question.

As we look at net yield growth for the year can you give us a sense of what the differential might be between on board and other and to get yields, just given that we're bringing in their tour business and give us a sense of what that impact might be?

I know we have your yield guidance for the overall Company, could we break that out, into pieces or just a sense of magnitude?

Elizabeth, as you know, we've had healthy accretion in both our ticket yields over the last few years as well as our on-board spending.

As we look into '07, we're looking at both to be growing pretty much in parallel with one another, and not a material impact one way or another.

Okay, so there isn't a material impact from the inclusion of Pullmantur then?

No.

Okay, thanks.

Your next question comes from David Anders.

I'm all set.

Thank you.

Your next question comes from Tim Conder.

Thank you.

A couple questions, gentlemen.

First of all, you said Europe appeared to be your strongest geographic market, and then the Caribbean the weakest.

I think, Dan, you were commenting to a previous question.

Adam, is there any difference from what Dan had mentioned, especially as it it relates to Alaska, and has there been any change in the last few weeks among geographies?

I don't know if your previous comment related to the Caribbean, but among your geographic bookings in the last few weeks, particularly related to Alaska.

Right.

I'm sorry, Tim, my comments were not specific to the Caribbean.

I was giving a general description of what we've experienced in the wave across our product portfolio.

Okay, both -- so both brands, no real difference by brand?

Correct.

Okay.

And then as it relates to Pullmantur, Brian, when would you anticipate that lag falling off or will there always be a couple month lag, or is that just until you get the systems integrated?

Tim, at this point we're still working object that.

We've spent a lot of time in Spain understanding their systems and understanding how the integration with us will work.

For the guidance that we've provided we've assumed the two-month lag sticks with us for the balance of the year.

Okay.

And just to help us, I guess, understand some of the timing differences on a year-over-year basis, could you maybe talk about your dry dock marketing expenses, maybe as a percentage as they outlay by quarter this year versus this year?

By dry dock expenses are you talking about the expenses of marketing when we bring a ship back, because we don't normally have marketing -- both the dry dock and the marketing expenses?

Well, I guess two different -- two different items there.

With the dry dock you had some timings of dry dock shifted into the first half last year.

Then on the marketing, which is a totally separate issue, due to the introduction of the Freedom of the Seas that skewed some marketing inaugural costs to the front half of the year.

So I guess if you -- how would '07 look of that quarter spread versus the way those two different items fell in '06?

Tim, we haven't provided that level of detail in the past.

I think would I would recommend is maybe if you could give Greg a call after this call and maybe he could help walk you through what you could determine from our '06 spending and maybe how that might help you looking forward into '07.

Okay, okay.

Great.

Thank you.

Your next question comes from Steve Kent.

hi, good morning.

A couple questions.

First off, just a broad question.

At would point does the board, Richard, begin to look at buyback versus CapEx and acquisitions?

You've been at this lull in valuation for awhile now and Adam's comments about supply may be a factor and sort of what we're seeing on net yield, I guess it suggests that maybe this is a time to think share buyback versus adding more supply.

Maybe specifically when can you put off this decision for Genesis, the second Genesis?

That's number one.

Number two, just give us a comment on close-in pricing.

Did it come in better than expecting?

I'm assuming it had to in Q4, given the net yield results.

And then number three, it seems, at least on our calculation, that commissions seem to be coming down.

Is that a function of direct/internet, and maybe you could give us those numbers on how much more internet activity you're seeing or direct selling you're seeing?

Steve, I'll take the first question.

I guess Brian and Dan will take the second and third respectively.

On the question of share buyba -- well, let me start with the Genesis.

The option expires in March of this year, and we would have to exercise it or not by then.

With respect to share buybacks, we look at that, we look at the lull in the share price.

I'm happy to say it's a little better than it was before, but nobody is satisfied with share price, and I don't know any management that is.

But we also look at where we're going for the future.

We do want to make sure that we are maintaining financial strength in the Company, and so that we do have the opportunity to take advantage of transactions, for example, Pullmantur, and which required a fair amount of money to do it.

And I think if we had done a share buyback before that, that would have been a much more difficult thing to have accomplished.

Overall, we would like to be an investment grade Company, and I don't -- and share buyback at this point would not -- would not help in that respect.

We also are looking at growth.

This continues to be a growth industry.

I mentioned in my comments that we really saw what we were seeing as more a lull in the generally upward trend, and I think we want to be in -- continue to be in the position of growing as the industry grows.

So, while we continually do look at things like share buybacks and other ways to strengthen our -- or to improve our cost of capital -- and, for example, last year, we did quite a bit of that -- we also have to balance that against the need for financial strength for our current position and growing position.

And then maybe I'll ask Brian to address your question on close-in demand.

Steve, we were pleasantly surprised, I think as I mentioned in my comments, in how Q4 finished up.

We did have about 35% of our business in Q4 came within 90 days, which was up from about 32% for the same period the prior year.

As we were entering into that period, having to get a little bit more load factor, I think we were somewhat cautious about our expectations on pricing and we're pleasantly pleased at the pricing that we were able to get, which resulted in a healthy yield improvement and record fourth quarter yields.

I guess Dan will take your third question.

Steve, I believe your third question was on commissions, and you asked if our direct business had grown.

It has.

The percentage of our direct business in 2006 was about 15%, and so that was up over 2005.

Okay, thanks.

The next question comes from Peter McMullin.

thank you.

Asked and answered.

Operator, we have time for two more questions, if we could.

Okay.

Your next question comes from Joe Hovorka.

Thanks.

Got a couple of questions.

One is is Pullmantur included in the balance sheet at the end of the year?

Yes, it is.

Is there -- can you talk about how their deposits look relative to your core business and how much influence the Pullmantur had on the deposit number on the balance sheet?

Would deposits been up if you didn't have Pullmantur in there?

We don't have that level of detail in front of us, and I don't think we want to break that level of detail out.

I will tell you that Pullmantur has much closer in-booking activity than our core brands of Royal Caribbean and Celebrity.

The Latin market tends to book much closer in.

And I would also emphasize that Pullmantur's revenue picture tends to be much softer during the winter season and substantially stronger during the summer, which would -- which would have an impact on that.

Okay.

And your on-board spending in the fourth quarter was up just a bit.

Is there -- I know that you got a very big tough comp in the fourth quarter '05.

Can you talk a bit about that?

Was there anything that made that number be flattish at the fourth quarter?

Well, again, you more or less answered your own question.

The comparables to the fourth quarter of 2005 were challenging, more challenging than normal, so our overall view of on-board spend in 2006 was that it was a favorable year.

I think Brian addressed that. 2006 comparable fourth quarter was about on par, as you say.

Okay, and -- Go ahead.

Oh, go ahead.

And can you give capacity growth by quarter for '07?

Yes.

For '07, the first quarter will be up 9.3%, the second quarter, 14.3%, for the third quarter, 14.7%, and for Q4, 10.4%.

And those numbers do include Pullmantur.

Great, thank you.

Operator, we have one more question, please?

Okay.

The next question comes from [Kevin Cousio].

Thank you.

I just have a question about the cost of the Genesis-class ships.

I've lost track of that.

And also, how many years the CapEx is spread over there?

And then somewhat related to your comment on investment grade -- desire to get to an investment-grade rating, have you stated balance sheet targets for leverage or credit measures?

I think I'll give you the answer in a just a second on the Genesis.

In terms of the desire to be investment grade, as we've said fairly consistently, we do try and balance both the need for investment grade and also the need for growth in the market situation and we haven't set specific targets.

What we try and do is find a balance between both of those, and we have continued -- our balance sheet has gotten better and we like that, but we haven't set specific targets for exactly where that would be.

And on Genesis?

Kevin, the total price for Genesis will be in the $1.3 billion range.

We don't break out the payment schedule for that, but the vast majority of that is due at delivery.

Okay.

Thank you.

With that, we'd like to thank you all for your participation and interest today, and we look forward to speaking with you in three months on our first quarter results.

Thank you.

This concludes today's conference call.

You may now disconnect.