皇家加勒比遊輪 (RCL) 2009 Q2 法說會逐字稿

Good morning my name is Carol and I will be your conference operator today.

At this time, I would like to welcome everyone, to the second quarter earnings for Royal Caribbean Cruises Limited 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 session.

(Operator Instructions)

I will now turn the call over to Mr.

Brian Rice, Chief Financial Officer.

Sir, you may begin.

Thank you, Carol.

I would like to thank each of you for joining us today for our second quarter earnings call.

With me here today aboard the new Celebrity Equinox in South Hampton are Richard Fain, our Chairman and Chief Executive Officer; Dan Hanrahan, President and CEO of Celebrity Cruises; Ian Bailey, our Vice President of Investor Relations and joining us from Miami is Adam Goldstein, President and CEO of Royal Caribbean International.

During this call we will be referring to a number of slides which we have posted on our investor website, www.rclinvestor.com.

Before we get started, I would like to refer to you our notice about forward-looking statements, which you will see on the first slide.

During this call we will be making comments which are forward-looking.

Forward-looking statements do not guarantee future performance and do involve risks and uncertainties.

Examples are described in our SEC filings and other disclosures.

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

Richard has some opening comments to begin our call.

I will follow with a brief recap of the second quarter, update our forward guidance and comment on the recent demand environment.

Adam and Dan will then talk more about their brands and then we will open the call for your questions.

Richard?

Thanks, Brian and thanks to all of you for joining us at this earlier than usual hour.

Most of us are actually sitting here in one of the suites on board our (inaudible) the Celebrity Equinox.

And if I do say so myself, the surroundings are absolutely wonderful.

Being ensconced in all this luxury can almost wash away the continued misery of this economic cycle.

As I think about it a bit more, having this call on this vessel is actually quite apropos.

Much as a cruise on this ship helps our guests forget their daily annoyances this vessel almost helps us forget the sting of this economy, the particular effect that it's had on Spain and that darn flu.

This ship also reinforces my conviction about the painstaking efforts we took in her design process.

The innovations here, not only provide our guests with more amenities than ever, but they also maximize on board revenue streams and create tremendous scale and technological efficiencies.

The introduction of these two Solstice class ships have been about the best-received ships that I can remember and that gives me a great deal of comfort for the future.

I even get more excited when the math indicates that almost half of our fleet will be comprised of Solstice, Freedom and Oasis class hardware within a few short years.

Solstice class hardware only represents about 5% of 2009 capacity and even that small amount helped to move the needle this year.

Imagine what will happen when these ships constitute almost half of our fleet.

Another other important component of the equation is that all of our new capacity is being dedicated outside the North American marketplace and into our international developmental areas.

This is an important for two reasons.

First, our North American supply will actually be down slightly in 2010, but the supply -- but even that supply will be of the newer hardware that the more experienced North American cruiser appears willing to pay a nice premium for.

Constrained supply with significant hardware upgrades sounds like a good dynamic to me.

Second, the acceptance of our brands outside of North America is going very well.

We recently pegged Europe as being 10 to 15 years behind North America in its market development and more importantly it's on a very a similar trajectory, mean we have a very deep pool from which to cultivate new cruisers, for a long time to come.

And as promising as the development in Europe is, Asia and South America are virtually untapped and our initial entires have been very promising as well.

So, we're actually very bullish on the acceptance of this new capacity in these developing areas.

Now, in keeping with the long-term view, there are two other topics I'd like to briefly mention.

The first is Azamara's appointment of Larry Pimentel as President and CEO and the ongoing challenges in the Spanish economy, which are affecting our Pullmantur view.

Larry Pimentel is one of the most respected leaders in the upscale market having led Cunard, Seabourn and SeaDream.

Azamara has reached a very good and stable place and it now makes sense for it to operate independently and separately.

The economy in Spain also suffered earlier and harder than elsewhere and we had hoped this would mean that it would recover more quickly.

Not so.

The economy just kept falling and currently Spain has unemployment rates approaching 18%.

With that I'm going to turn the call back over to Brian so he can provide you with more details on the second quarter and our full-year expectations.

But before I do, I think I would sum up by saying that when I was preparing for this call, I realized I made a lot of ongoing references to misery and in the economy and frustrating side annoyances, but what I can leave you with is that we're beginning to see early signs of encouragement that will inevitably give way as this nasty cycle becomes a memory.

Bookings and pricings are stable.

At stable levels that are far better than many of the more bearish predictions.

We continue to finance and expand our business effectively and we are building a great earnings platform through better cost-control, superior hardware and very strong branding.

Having said that, I remain extremely frustrated that we have not yet seen a more significant up-turn in the market.

We noted that the situation began to stabilize over six months ago and normally that's a precursor to it beginning to turn up.

We didn't count on that happening, but we did hope that the up-turn would have started at least by now.

Unfortunately, it has not.

We hope that it will soon, and we have seen tentative signs of encouragement, but until we see evidence of a sustained up-turn, we will have to take comfort from the fact that the situation has stabilized and that when it does turn up, we will benefit strongly.

Brian?

Thank you, Richard.

I would like to briefly go through the second quarter results, which we have summarized on the second slide.

In the second quarter, we had a net loss of $0.16 per share.

Subsequent to our previous guidance we had provided updates on the impact of the H1N1 virus and adjustments to non-operating income.

The H1N1 virus cost us approximately $0.05 per share in the second quarter and we incurred approximately $0.11 per share in expenses due to below the line adjustments for foreign exchange and hedging and effectiveness.

The largest impact to the non-operating income came from a revaluation of our foreign-denominated customer deposits, mainly bookings deposited in British pounds and to a lesser extent Euro and Canadian dollars.

During the quarter the dollar weakened by approximately 15% versus sterling, which increased our liability and consequently produced a loss below the line.

Our revenue yields for the quarter were down 17.9%.

The impact of the H1N1 virus was approximately one percentage point during the quarter.

In adjusting for that we came in consistent with our previous guidance.

On slide three, we have illustrated by product line, how our ticket revenues performed versus our previous expectations.

European itineraries benefited quite a bit from the weaker dollar and came in better than our forecast, but Mexico was significantly impacted by the H1N1 virus.

As you can see, aside from these two differences, almost all of our other product lines were consistent with our previous forecast.

7-night Caribbean in Alaska came in slightly better than forecast and Shorter Caribbean came in slightly lower.

Recently we have tended to be more bullish on the entry-level products and more cautious on the premiere ones.

In hindsight, I think these variances were as much a result of our biases as they were actual changes in market conditions.

Back on slide two, you can see net cruise cost per APCD came in 11.5% lower than the same time last year or right at the midpoint of our previous guidance.

Our management teams continue to do an excellent job controlling costs.

Most importantly though, they are doing so without compromising our strategic initiatives and our brands continue to deliver excellent guest ratings.

Our fuel expense was $136 million for the quarter, which was $6 million better than anticipated at the time of our last call.

Although WTI fuel prices rose an average of about 25% throughout the quarter, we did not see as much pressure on the IFO and MGO pricing and our hedges and fixed price contracts performed very favorably.

Our consumption was also slightly less than our guidance.

Our net cruise cost for APCD, excluding fuel were 8.4% lower than the same time last year, which was slightly less than our guidance of down around 9% due to the impact of foreign exchange.

Now, I would like to provide you with an update on the booking environment.

On slides four, five and six, we have provided the year-over-year changes in booking volumes and pricing levels for the second, third and fourth quarter respectively.

These are the same slides we have shown you on our last two calls and the message remains remarkably consistent.

As a reminder the green line (inaudible) the change in volume of new business versus the same time for the prior year by the week in which the booking was made.

The blue line shows the corresponding year-over-year pricing changes for the new business.

Pricing for all three quarters remains behind last year, but the magnitude of the discounting from last year's levels has remained basically the same since the beginning of the year.

On the volume side, we continue to see lower booking levels than last year until we get to approximately four months prior to sail date, at which time we see a significant acceleration in booking activity, up until the time of departure.

The booking window is certainly more contracted than it was last year, but it has been remarkably consistent now for about eight months.

It has been reassuring to see the spike in close end bookings during the third quarter, without the need for further discounting.

We are just now entering the peak booking window for the fourth quarter, but the same pattern seems to be emerging.

You will likely extrapolate from our guidance that we are expecting a yield decline in the mid-single digits for the fourth quarter.

As a reminder, we (inaudible) to perform relatively better than rest of the year due to easier comps, a weaker dollar and some impact from our newer ships.

And finally on revenue, we normally wait until after the third quarter to comment on next year, but given the uncertainty and sensitivity of the economic environment, we want to try to give you some feel for what we are seeing.

It is (inaudible) especially given the contracted booking window, but we are somewhat encouraged by the early signs.

For the first quarter of 2010 we're slightly more than 0.3 sold at this point in time.

And while that lags the load factors we had achieved at the same time last year, the booking patterns are similar to this year's second, third and fourth quarters.

Pricing is modestly behind where we were at this same time last year, but is significantly higher than where we ended the first quarter of 2009.

Accordingly, given the impact of the Oasis of the Seas and new Solstice class vessels, coupled with a more predictable booking pattern and easier comparables, we are optimistic we will achieve yield improvement in the first quarter.

On slide seven, we have provided our updated guidance for the third quarter and full-year.

In updating our guidance, we have again assumed that not much changes in terms of consumer behaviors in the overall economy.

We have taken a slightly more pessimistic view on Spain, as the economic conditions have continued to deteriorate throughout the year.

We are still very bullish on this market and our Pullmantur brand, but the unemployment approaching 18%, we are more reserved in the short-term.

For the year we expect yields to be down approximately 14% on an as-reported basis and down between 11% and 12% on a constant-dollar basis.

We expect yields to be down 18% in the third quarter, and on an as-reported basis and 15% to 16% on a constant-dollar basis.

We estimate that H1N1 virus accounts for slightly more than 2.5 percentage points of yield in the third quarter and slightly more than 1 percentage point of yield for the full-year.

The impact is greatest in the third quarter, mainly because Pullmantur is reported on a two-month lag.

On the the cost side we expect net cruise costs to be down approximately 11% for the third quarter and down approximately 10% for the full-year.

On a constant-dollar basis we expect net cruise costs to be down between 9% and 10% for the third quarter and between 8% and 9% for the full-year.

We have included $591 million of fuel expense for the year and $145 million for the third quarter in our guidance based on current pricing.

We are 49% hedged for the third quarter and 50% for the full-year.

We have continued to be more aggressive hedging fuel further out.

We are now hedged approximately 50% for our 2010 forecasting consumption and about 45% for 2011.

Pricing for the hedges we have in 2011 and 2010 are at the equivalent of WTI in the low to mid-60s.

This compares favorably to an averaged hedged rate this year in the high 70s and provides for a positive impact to earnings next year.

Earnings per share are forecasted to be between $0.95 and $1 for the third-quarter and between $0.70 and $0.80 for the year.

Bridging the full year earnings per-share from our last guidance, we now estimate that the H1N1 virus will cost us about $0.27 per share.

Approximately $0.13 per share of this is due to canceled cruises and tours to Mexico.

About $0.05 per share is a result of cancellations or compensation provided for Mexican Riviera cruises that were redirected during the advisory to avoid Mexico.

The remaining $0.09 per share is related to lower demand for the four ships directly affected by the H1N1 virus.

We've previously discussed the $0.11 per share in non-operating expense.

Fuel is approximately $0.08 per share higher and interest expense on the bond, which you will recall we upsized to $300 million, is roughly $0.07.

The balance or net of around $0.07 is due mainly to weakness in the Spanish market.

Now, I'd like to update you on our financing activities and liquidity.

We ended the second quarter with approximately $900 million in liquidity.

During the second quarter we paid off approximately $325 million in scheduled maturities.

After the close of the second quarter, we completed the $300 million senior unsecured notes offering.

The bond matures in July, 2015 and the effective yield was 12.5%.

The proceeds have been used to pay down our existing revolving credit facility and further sure up our liquidity.

Clearly the capital markets have become much more accessible in recent months, however, given our financial projections the current cost of debt and the very low equity price we see today we believe we have struck the right balance between maintaining an adequate liquidity position and dilution.

Our financing arrangements for our new vessels are very strong and our debt maturities can be funded through current liquidity and operating cash flows.

Under our base-case projections, which include moderate yield improvements in 2010 and 2011, driven by our newer vessels and easier comps, we do not see a need to access the Capital Markets further.

Under our current pessimistic scenario, which would include deteriorating market conditions, we feel as though we have sufficient contingencies to mitigate the revenue pressure.

In summary, before the end of this quarter, we will be more than a year into the current economic cycle.

Clearly this makes our comps easier going forward.

The consensus has shown -- I'm sorry, the consumer has shown resilience and stability now for about eight months and the reception to our newest vessels has been terrific.

We remain reserved in our expectations for a near-term economic rebound, but continue to position the company to prosper when this economic cycle inevitably reverses.

Now, I would like to turn the call over to Adam for his comments about the Royal Caribbean International brand.

Thank you, Brian and good morning everyone.

As you have heard, market conditions continue to be very challenging in the second quarter as they have been since the Fall of last year.

We have kept occupancies near our historic levels, although as we have described previously, our pricing has been aggressive in virtually all markets.

Ship board revenue yields have declined meaningfully on a year-over-year basis, although not to the same extent as ticket yield decline, but similar to ticket revenue our forecast hasn't changed much from our last update.

Gaming has certainly been the most negatively affected element of our on board revenue stream.

While our Caribbean products are experiencing yield declines in very close-end bookings, the yield declines in Europe and Alaska have put the most pressure on 2009.

In Europe we face both recessionary conditions and have absorbed notable increase in capacity.

Although these factors are driving yield decline, we are pleased with the rapid expansion of our local market sourcing and all of our priority European markets.

These markets are still giving us healthy bookings, even for August high-season sailing.

Our growing presence in Europe and around the world, bodes well for the future.

In Alaska, there is not a material increase in capacity yet the yield decline is more pronounced there than anywhere else.

Although we have succeeded in filling our ships in Alaska this summer, the degradation in pricing has caused one of the most remarkable geographic sector yield declines in your memory.

Because of the volume of guests has stayed constant, Alaskans may perceive that not much as changed compared to 2008.

In fact, the change in the profitability of this market has been dramatic and the correctness of our decision to reduce capacity in 2010 has been underscored.

Brian showed on one of his slides the unfavorable change in Mexico performance since our previous guidance.

As time goes on it is harder to distill the effect of H1N1 on your bookings for our Mexico products from the general recessionary conditions.

As we look forward to the upcoming Fall/Winter season, sailing westcoast cruises to Mexico remains a particular challenge.

Another, consideration for the upcoming Winter season will be the performance of our products that depend very little on customers from the US.

This includes our cruises in Panama, Brazil, the Middle East, Asia and Australia.

While visibility is limited and again, many of these markets are very late-booking, the establishment of our company offices in many of these regions is allowing us much more meaningful access to the market in a terms of building our brands and driving tactical activity where necessary.

Changing subjects, 13 weeks from today we will take delivery of Oasis of the Seas.

The ship is over 90% complete and our people are emersed in preparations to offer the most innovative product in the history of cruising.

It is still more than four months to the first revenue sailing and we will have a much better feel for the booking outlook on the next call.

Having said, that we continue to be very pleased with what we are seeing to date, particularly how far into 2010 we are seeing healthy bookings for the ship.

Finally, both Richard and Brian have noted our focus on controlling costs.

This is the part of the equation over which we have the most control and our people shore side and ship board are doing their utmost to gain efficiencies in every aspects of our business from sales and marketing to operations.

Dan?

Thank you, Adam and good morning everyone.

As you've heard we're here in Southampton on the newly launched Celebrity Equinox.

Like Celebrity Solstice, she's and absolutely gorgeous ship.

We will show Equinox to approximately 10,000 travel agents and press during these pre-inaugural events from the UK, Europe, the Middle East, Latin America and Asia.

We're thrilled with the reaction these ships have received and we continue to see the Solstice class as a game-changer for the Celebrity brand.

Introducing in the UK is a key part of Celebrity strategy to grow our international sourcing.

The UK market in particular is important as Celebrity Equinox will be targeted toward the UK market when she launches next year.

Our booking data reaffirms that our Solstice class ships are generating both premium ticket revenue and premiere on board spending even in these challenging times.

Speaking more broadly, the Celebrity brand is experiencing close-in demand for Summer Cruises in both Europe and Alaska.

And volumes will be a bit higher than we thought on our previous call.

However, pricing for Alaska has been particularly hard-hit.

Booking volume for Europe cruises through the Summer have also held up well, both in the Baltic and in the Med and as I mentioned earlier our Solstice class ships are continuing to command healthy premiums in Europe.

We have less visibility for our cruises that operate in Q4 of 2009 and the Q1 of 2010, driven in part by consumers booking their cruises closer to time of departure.

Our pricing is below levels we had at the same time last year, but are running ahead of where we finished in Q4 and in Q1.

We're seeing a surprisingly high count of bookings coming from outside of the US and our longer Caribbean cruises, operating from South Florida this Fall and Winter and on our ships that will stay in Europe into the Fall.

It's a bit early to make any predictions about the 2010 Europe and Alaska seasons.

I would like to mention, again, the Celebrity brand will achieve a milestone next Summer when we launch our first ship dedicated to the UK market with eclipse operating Summer cruises from South Hampton.

Early indications for this product are quite encouraging and as I sit here on Equinox this afternoon, I'm reminded that Solstice class ships will account for almost 40% of Celebrity's 2010 capacity.

Even in these challenging times that gives me reason for optimism.

Brian?

Thank you, Dan.

We will now open the call to your questions.

As a reminder we ask that you limit your questions to no more than two.

If you have more than that, we would be happy to follow-up with you after the call.

Carol?

Thank you.

(Operator Instructions) Our first question will come from the line of Tim Conder with Wells Fargo.

Thank you.

Gentlemen, if you could comment a little bit, given what you are talking about with the new Solstice and the Oasis class ships.

What percentage of your passengers for European itineraries are going to be sourced from Europe this year and what do you think about for next year?

Hello, Tim, its Adam.

The percentage -- I think its possible last call I slightly overstated the percentage but according to our latest data for this year, its 56% are Europeans and probably about 0.6 of all of our customers who will be on Europe this summer will not be from the US.

Okay, and thats on the Royal Caribbean brand?

That is actually in general for Royal Caribbean and Celebrity and Azamara combined I believe.

Okay, okay.

And then any guesstimate looking into 2010 at this point, how you expect that to change?

Well the general trend for our brands and consistent with what Dan just said, is that we've been increasing the percentage of our customers who are coming from outside of the US.

So, other things being equal, I expect the percentages that I just gave you to grow slightly.

Okay.

Okay.

And then with the formal carve-out now of Azamara from under the Celebrity umbrella, how is that going to change the cost structure on a go-forward basis?

I think we are not expecting anything dramatic in the context of the company.

We are making the changes and mostly at the top level, and Azamara has had a very successful operation from the -- the vessel operation itself and what we're expecting to do is simply to achieve better awareness and better focus from a management team led by Larry.

Okay, so again, nothing changing, Richard, from the marketing perspective?

No, there won't be anything materially relevant in here for the cost structure.

Okay, great.

Thank you, gentlemen.

Our next question comes from the line of Robin Farley with UBS.

Thanks, yes, two questions.

One is on your yield guidance, looking on a constant currency without the impact of the dollar weakening, it looks like it went from being down 9% to 10% to being down 11% to 12% and I know a percentage of that from prior guidance, is the swine flu impact.

But it looks like -- it looks like today there's another percentage point reduction in your yield guidance.

And is that all being driven by Spain or I wonder if your could -- just because a lot of the commentary about bookings was quite positive and so I just want to square that with this -- with other reduction in yields guidance.

And then, my second question is on fuel hedging.

Are you going to increase the amount that you are hedging for 2010 and 2011, or are you just sort of finishing your hedges further in advance, but you're not going to hedge above previous levels.

Thanks.

Okay, Robin, it's Brian.

On the yield guidance, as we tried to show in the second quarter performance the one product that seemed to really do exceptionally well was Europe and that did benefit quite a bit from the FX.

As would (inaudible) guidance, third and fourth quarter.

We really haven't changed much on the core products.

We have taken Spain down a little bit, the net impact of that as I recall, I said was about $0.07, which would probably equate to 25 to 30 basis points in terms of the overall impact on the company.

FX is a little tougher for us and we're -- you know we've tried to create a lot of transparency for you.

We have only one brand that is in a different functional currency and thats Pullmantur and that's a very easy calculation for us.

But as you know as -- its the dollars weakening and the value of European businesses increases, we may take a decision to actually lower our European business and take a greater share of that business.

So, we're trying to give you a lot of information, but I'd warn you about reading too much into the FX.

Oh, no, my question was in the constant currency.

Your reduction in guidance in constant currency, is it still -- without any impact from the currency, would be -- is 2 percentage points of reduction since your last guidance and only one point of that was from swine flu.

So, I was looking for the -- the other -- what's driving the other reduction in yields that's not currency or swine flu?

Okay, and I think -- you're reading in a level of precision into our guidance that probably isn't that exactly precise.

We said that for the year, its a little over 1% is due to swine flu and about $0.07 a share or about 30 basis points is due to weakness in Spain.

The rest, you're talking really rounding errors within the guidance.

On the hedging, we have hedged 50%, as I mentioned for 2010 and 45% for 2011.

We do have a theoretical cap in order to get hedge accounting and we try to be a little conservative to ensure that we get that.

And we're pretty much are our levels I think if pricing stays down and we can get more comfortable increasing those slightly, we would probably look to, but I don't think you're going to see any significant increase in our hedge positions for 2010 or 2011.

Okay.

Great, thanks.

Our next question comes from the line of Assia Georgieva.

Good morning to those in Miami and good afternoon to those in -- who are in the UK.

This is Assia.

I have a question, Brian, for you.

It seems that the online charts go all the way through July 12 and I wonder what booking volumes have done over the past couple of weeks.

There seems to be a significant decline on the twelfth.

Have you seen that trend reverse?

Assia, frankly, I have to admit I don't have the slide right in front of me at the moment, but I can tell you we've seen a remarkable consistency since the beginning of the year by each quarter.

We just pulled up the third quarter slide and you see a little bit of a dip, but again thats a year-over-year and part of that is getting to the point where we're running out ever inventory for the third quarter.

So naturally, eventually, it has to come back, the equilibrium.

I wouldn't read too much into that.

My concern is that, it seems that Q4 EPS and yield guidance seems quite strong at this point, and even though yields are expected to be down only mid-single digits and last year you were about break even, it seems that right now you are guiding a EPS of $0.08 to $0.13 in Q4, is that cost-savings?

Is it on fuel?

So, if you back into the fourth quarter guidance, you are going to see a lot of cost-savings that are baked into that.

We did say that if you could extrapolate that we're talking mid-single digit yield declines and I think it's predominantly being driven by the cost-savings that we've, I think proven in the first six months of this year.

And my second question is on 2010, European deployment seems to be down a little more than 5%.

Adventure is joining the rest of the European fleet there and the Eclipse obviously will be sailing, but four other ships are leaving.

Is there any specific reason for Alaska I can certainly understand the 20% decline in (inaudible) but Europe seems to have done relatively well over the past few years, so I was a little surprised to see that.

On the Royal Caribbean side, Assia, the number of -- our capacity is actually continuing to increase.

We're bringing Adventure of the Seas there next year essentially to replace Legend of the Seas, which will be full time in Asia.

So, there's no particular change there, we continue our ramp up, maybe Dan would like to speak to Celebrity.

Yes, Assia, its Dan.

We will have, as you mentioned, we will have Eclipse sourcing out of the UK, sailing out of South Hampton and I can tell you that the last few days here on Equinox has been well worth it.

The response has been absolutely terrific from all the UK travel agents and all the UK press.

We have the Solstice doing 7-nights Caribbean next summer.

So, that may be what you're picking up on and that was simply just based on demand that we saw and response from consumers in trades that brought it back here, but nothing about Europe and the way Europe is performing.

We continue to be quite happy with Europe.

Well -- and Dan, you also have Century and Summit that were sailing in Europe in 2009.

They're not going to be there in 2010 and it doesn't seem to -- that there's a replacement for those two ships.

Well, Century and Summit decisions were made quite a while ago.

Those were when we published our -- thats why I didn't reference those.

Those were when we published our itineraries back in the early part of the Summer or late Spring.

Yes, we have Summit going out of Bermuda and Century doing the five-five-four year round, but again, we've been pleased with Europe and we're not making any significant strategic changes.

Thank you both.

Thank you so much.

Our next question comes from Alicia Hendrix with Barclays.

Hello, good morning, guys, good afternoon.

On your Q1 '10 outlook, it doesn't sound like you've changed your views since the June 29 update, but I just wanted to double check that.

Felicia, we continue to see a lot of stability as we've tried to -- I think, beat a dead horse here over the last months -- eight months and Q1 is very consistent with what we've been seeing.

We're very pleased, in particular, to the response from the new ships.

And I think the greatest upside in Q1 is really being provided by the easier comparables and the fact that we're more used to this booking curve and how the consumer is going to behave.

There is a current level of pricing compared to where we ended up a year-ago in the first quarter where the APDs are substantially higher.

Okay, great.

And the, just on the swine flu issue, you know, it could be something that ends up being pretty unpredictable and skews your statistics that you guys historically rely on.

I'm wondering what are you doing to potentially -- to mitigate the current and potentially future impact, so that we don't see a continued volatility in your guidance.

I think, Felicia, we've taken number of steps, we have a very robust program on board to both control it and to make sure that we're acting appropriately when something does happen.

This was a pretty big hit in terms of the numbers, but it was in the short-term and I think what we showed was the ability to react to it, and to manage it.

Any time we get something that surged is going to have a fairly immediate impact, but I think what we've shown is -- and this is a good example.

It came, people panicked at first and then gradually people accepted it and it's become (inaudible) that we accept, much like the seasonal flu and I think most people are expecting to see some resurgence of it and we'll prepare for that.

We monitor people coming onto the ships and we're working very closely with the Center for Disease Control and with the governments of the various islands.

In -- particularly in the Caribbean and also our destinations in Europe and elsewhere.

In most cases, we in the industry trade group have arrangements, so that we all know exactly what to do if there is an incident on ship and how to isolate that and make sure that it doesn't spread to others on the ship or to affect other ships.

Okay, good.

Just on MSNA, it was higher in the quarter than I thought it would be.

You have launches at the end of the year, so should we expect to see that run-rate higher or in line with -- indicated -- implied -- with what you reported in the second quarter?

I'm sorry, Felicia, could you repeat the beginning of that, we broke up there.

Yes, sure, on MSNA, you were higher in the quarter than I had anticipated.

You do have major launches at the end of the year, so I'm just wondering if the second half will run-rate higher than what has -- whats implied by the second quarter.

No, I know we had some timing differences in the quarter, but they were not meaningful.

We haven't given any specific guidance on the components within the net cruise costs, except for fuel.

I can tell you that our G&A continues to be running very efficiently and we've seen substantial savings year-over-year, but as we've talked about before, we've been very committed to our marketing and sales efforts and we think that those are strategic investments that are very important to continue.

Okay, thanks, guys.

Okay, thank you.

Our next question comes from the line of Steve Kent with Goldman Sachs.

Hello, good morning.

A couple of questions.

One, can you just talk about what you're doing more broadly on your yield-management systems?

And the reason I ask it -- and I know, Brian, that we've now asked this a couple of times, but the fact is you've had to lower your yield guidance a couple of times and even though you are saying that things are starting to look better, it doesn't look like the system really allows you to forecast particularly well.

In particular, I think it was somebody who mentioned that Alaska was a lot worse than even you all forecasted, maybe even just a few months ago.

So, I guess I just want to understand how you are adjusting the yield management to get through these difficult times.

Also, even though it sounds like it's going to be a little bit better in 2010, would it still be negative yield in 2010, or at least the first quarter?

To me it sounds that way and I think Carnival thinks that.

And then finally, when you said about 2010 being 0.3 sold out in the first quarter -- or 0.3 sold in the first quarter, is that primarily on the two new ships for the Royal brand?

So, those are my questions.

Let me try to go in reverse order.

I think we were fairly clear saying that we anticipate yield improvement in the first quarter of 2010, and I think, as we look at easier comps the impact of the newer vessels and given the current weakness in the dollar, we think that we have the right platform for yield improvement in 2010.

We've been very clear about that and I think, again, I'll reiterate, we expect yield improvement in the first quarter.

Brian does that mean less negative or does that actually mean positive?

We are talking about when we report yields it would not have brackets around it.

It would have a plus sign in front of it.

Got it, okay.

And the 0.3 occupancy, we would have a higher occupancy on the newer vessels than we do, if you will, in the same store sales, but our guidance is including the culmination of those two things.

We certainly are benefiting from the newer vessels about again it's easier comps on same store sales so that helps us going forward in 2010.

In terms of yield management systems.

I want to be very clear, I don't think we've said that the market has gotten any better.

We've said that the market has remained (inaudible) since the beginning of the year.

Our yield-management systems, I think, are the best in the industry.

I think our staff does an absolutely tremendous job and the level of precision that I think we've been able to do and our guidance has been quite remarkable when you take out the effects of H1N1, which I don't think any revenue management system in the world will ever be able to pick up that sort of an impact.

And you take into consideration the volatility of the dollar, I think those have been the two biggest impacts we've seen.

Spain has been a little bit worse than we've (inaudible) not materially.

You've called out Alaska specifically -- I'd point you to the slide where we showed the second quarter results that Alaska has been very bad for us this year, but at the same time it actually -- we've raised our guidance on Alaska.

So, again I think the revenue-management systems and our people, are doing a great job and we'll continue to try to refine them, but we're very pleased with what they do.

I would just like to add one thing on that, I think it's important that you and everyone else understand, when we talk about our yield-management systems, we're not -- what we've, hopefully have never suggested that they are perfect.

These are predictions and there is -- especially in these times.

But to be within these very low margins of error, compared to any other industry you name, I just don't know of another company that's able to predict its revenue as accurately as we have been.

But it's It's definitely not perfect.

There's a great deal of art and there's a great deal of science and I think overall its very good, but I do not think we ought to leave any impression that we are suggesting that one can perfectly predict these things.

We happen to be in an industry where relatively -- a teeny change makes a huge difference to the bottom line and that makes us more sensitive to it.

But there are very few industries that have the level of accuracy that we have managed over the years.

Richard, since I have you on the line, could you just talk a little bit about -- in sounds like Carnival might start to build some more ships and increase their supply and that would put you in a weaker market share position in the out years, especially as you get to 2012, 2013.

Is there some thought by you and the board that you too may have to start building some more ships as you get further out?

You know, I think we've been pretty clear that this isn't a market-share game.

There are industries where market share is important and if you increase your capacity and if you don't maintain market share, you can -- they can actually take customers from you.

In In your industry, that's simply not an option, since we all sail full, there is no opportunity to take customers from one brand to another and we all market on the basis of a brand.

And it's almost interesting, while each of us have grown in different times at different rates, our two biggest brands, relative to one another, for example, the Carnival brand and the Royal brand have traded positions off and on and will continue to trade positions off and on as to which is the largest brand.

And I think actually, Adam, correct me if I'm wrong, Royal is currently slightly larger than the Carnival brand.

It will be when Oasis comes in, yes.

Yes -- so -- and that will switch back and forth.

But both are roughly the same size.

When you talk about market position in our industry, it's really, "do you have enough capacity to be relevant to the market?" And I think in each of our segments the answer to that is a definitive yes.

So, I think we will look at the decision of building on the basis purely of what's in our best interest and in the best interest of our shareholders as a -- to give us the greatest rate of return, and in today's market, we think that the greatest rate of return comes from margin expansion and not capacity growth.

And that decision we would take independent of what Carnival does or doesn't do.

Okay, thank you.

Our next question comes from the line of Steven Wieczynski with Stifel Nicolaus.

Yes, good morning guys.

I guess this question is for Adam, but I was a little surprised in terms of the decline you saw in the short Caribbean in the second quarter.

Can you just give us an idea of what happened there and what you're currently seeing?

Well as you know, the short-cruises have the least visibility of all, so in terms of our ability to predict thought was just discussed, we would have relatively the least there.

And so, in a late-booking environment, we're making our best predictions about when revenue will come in and the short Caribbean sailings, although we get strong volume at the end, didn't come in quite at the price levels that we had in mind when we were making the previous predictions.

Is that in (Peru) so far in the third quarter?

The overall situation as we've been describing it, we start to see more volume or we start to see the volume ramp up about four months prior to sailing on average and there's I would include the short-Caribbean performance in the overall statement of (inaudible) stability with load factors coming in late at lower prices than we would like.

Okay, great.

And then last question for Brian.

Is there any update in terms of new-ship financing, I guess specifically Allure?

Steve, we -- we're still about 15 months away from delivery of the Allure.

We will probably begin looking into that.

We just wrapped up the bond offering.

We'll, obviously, we have had some preliminary conversations and feel very comfortable that we'll be able to get that down in expeditious fashion.

I would look more toward the end of the year, before we'll have any formal announcement on that.

But we feel very good that the model that we showed with the Oasis financing is a very success of model.

Okay, great, thanks guys.

Our next question from the line of Janet Brashear with Sanford Bernstein.

Thank you, a couple of question on field trends.

Looking forward, how do you anticipate your mix of fuel changing, especially relative to tighter European standards on sulphur content?

And then also, as you look at forward booking curves, are you seeing the gap close between WTI pricing and IFO/MGO pricing and if so, how does that affect your thoughts about the future, especially relative to the mix of fuel you will use?

Janet, in terms of the types of fuel, I think, there's obviously a lot of legislative action occurring out there that will require us to have lower sulphur contents.

It's something that we've begun looking seriously at what our alternatives and options are.

At this point in time, for the next few years, we don't see it having a tremendous impact on us, but it is something we stay abreast of any new technologies.

In terms of the spread between IFO and MGO.

If you wouldn't mind following up with that (inaudible) after the call on that one.

We don't have that material in front of us, but I can tell you that during the second quarter, both IFO and MGO pricing was much more constrained than we saw with WTI.

Our next question will come from the line of micky Mickey Schleien with Landenburg.

Good morning, its Mickey with Landenburg.

I want to go back to the H1N1, and I do appreciate your guidance for the impact of the virus.

And given some of the headlines we're seeing, including the probability that 40% of the US.

population could be infected, could you tell me what sort of brood-based assumption you've made regarding this Fall's new season, which would be much more significant than what we've seen so far.

Hello, Mickey, it's Adam.

If the flu would be much more significant than what we've seen so far, than that is not included in the guidance that we're giving.

We are aware of the various scenarios that are being put out there and nobody knows.

As Richard was going over before, we're fortunate in that the experience of the last four months has been very helpful, not only to ourselves and the industry and the ships in terms of the protocols that we have developed and how to make sure that the spread of illness is limited to the maximum possible extent on our ships, but it's also been extremely beneficial to our relationship with islands and countries around the world in terms of our interaction with them, their expectations, and what they are looking for from us.

So, we're clearly in a much better position to deal with whatever comes up than we were before H1N1 unfolded several months back, but we are expecting things to be as-is, both economically and otherwise and our guidance is depending on that.

Thanks, Adam.

Carol, I think we have time for one more question.

Thank you, sir.

Our final question will come from the line of Tim Conder with Wells Fargo.

Thank you for the follow-up here.

Brian, you gave us some color on the book-load factors and what was going on regarding first quarter.

What was your comparable book-load factor.

Again, I know you said it was down year-over-year, but what was the absolute number?

Tim, we didn't give that.

I can tell you that the load factors in Q1 are down strikingly similar to what they were down at the same point in time for Q4 and Q3.

We're seeing very similar patterns and pricing reaction, elasticity.

It really is truly remarkable how consistent the last eight months have been behaving in terms of when we hit that cycle.

Okay, and again, that obviously helps in your yield-management system planning going forward.

Then the other one is, you alluded to your likely scenario for -- that yields should probably be up in both 2010 and 2011 given your mix and so forth.

But then you also alluded to a worst-case scenario and then mitigation measures.

Could you expand on that comment a little bit?

Well, I think, we obviously model quite a bit -- we're trying to model our base-case, after what we know -- basically what we're seeing from the consumer behaviors and the current economy, we -- our base-case assumes a lot of consistency in that regard.

And what I wanted to allude to is the fact that we do prepare for what we actually internally call "a worser case" scenario.

Where we look at further yield pressure and actual yield declines and do we have adequate liquidity and contingencies that we can do?

I don't want to get real specific with what those contingencies are, except to point out the fact that I think we've demonstrated a real strong ability to manage our cost structure.

I alluded to the fact that we've not compromised any of our strategic initiatives, we have in touch marketing and sales, we have a very strong balance sheet with a lot of opportunities within that and I think we've demonstrated our ability to maintain good liquidity and we'd have further actions available to us, if we needed them.

Okay, thank you again.

I think that wraps it up and so we'd like to thank you for joining us today and even though we are on the the board the Celebrity Equinox, Ian will be available throughout the day for any follow-ups you may have.

And we wish you all a great day.

Thank you.

This concludes today's teleconference and thank you for participating and you may now disconnect.