皇家加勒比遊輪 (RCL) 2009 Q3 法說會逐字稿

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  • Operator

  • Good morning.

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

  • At this time I would like to welcome everyone to the Royal Caribbean Cruises Limited third quarter earnings 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).

  • Thank you.

  • Mr.

  • Brian Rice, you may begin your conference.

  • - CFO

  • Thank you, Felicia.

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

  • With me here today are Richard Fain, our Chairman and Chief Executive Officer, Adam Goldstein, President and CEO of Royal Caribbean International, Dan Hanrahan, President and CEO of Celebrity Cruises and Ian Bailey, our Vice President of Investor Relations.

  • 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 you to 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 that our SEC filings and other disclosures.

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

  • Richard will begin the call with his comments.

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

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

  • Richard?

  • - CEO

  • Thanks, Brian and good morning, everyone.

  • I am going to leave most of the facts and figures for Brian to discuss in greater detail, but from our release this morning, you can see we had a better third quarter than we were expecting.

  • Folks are continuing to vacation and a value of a cruise vacation continues to resonate very well.

  • And to achieve occupancy levels north of 105% this summer, despite the environment that we're navigating, I think really speaks volumes about the product we're offering and how it's perceived by the consumer.

  • Unfortunately, we're also seeing more pronounced seasonality than is the norm and we're giving the upside that we enjoyed in the third quarter back in the fourth.

  • I would prefer simpler patterns, but this kind of seasonal swing is common, and they are consistent with our earlier view of the world.

  • Now I freely admit I am not happy with the returns we're generating.

  • Frankly, I don't know any CEO who is today, but I think the term, returns, in that sense is key.

  • We have undertaken a number of systemic and cultural actions over the past 18 months that have helped us generate positive returns, even during this cycle.

  • But the real key to our future is the leverage that these decisions will have going forward as we inevitably experience a rebound.

  • Now I want to make clear that we haven't yet seen that rebound.

  • The recent news have been full of reports that the economy is rebounding or is about to be rebounding, but we have not seen any evidence of that in our bookings to date.

  • Neither I, nor any prudent business person is predicting when that rebound will occur, but we all know this that these cycles do eventually work themselves through.

  • Now in reviewing the basket of profitability actions that we have undertaken, expense initiatives are front and center.

  • Our Management team has done a terrific job in instilling cultural changes in how we think about cost management at the Company.

  • And as you can see from the 2010 cost goal in our press release, we're working hard to solidify this progress on an ongoing basis.

  • We have also been proactive in our approach to managing fuel risks as you can see in our continuous strategy.

  • And we're managing our balance sheet more cautiously as well.

  • I would like to stop for a second and point out that I have made it this far in my comments and not even mentioned Oasis of the Seas.

  • Actually that is intentional.

  • Our new hardware, not only Oasis, but also the Solstice class of ships, are integral components in the direction we're taking the Company.

  • They are both incredibly successful and even in this market will produce respectable returns.

  • For 2010, Oasis and Solstice ships will account for about 18% of our fleet and by 2013, Oasis, Solstice and Freedom class ships will comprise about half of our total berth.

  • But these newer vessels are just one component of a powerful combination going forward.

  • The three items that make up that combination are cost discipline, international expansion and unbeatable hardware.

  • I really feel that with the eventual uplift from the consumer, we will be able to make short order of deleveraging, improving our credit ratings and meaningful moving the dial on corporate returns.

  • There is still a lot of work to be done.

  • There is always more work to be done and improvements to be made, but I feel that we are well-positioned to ride out what remains of this cycle and to take off when the rebound becomes more tangible.

  • That said, I am going take just a moment to chest-beat about the Oasis because she is truly beyond compare.

  • She truly does defy description and you really need to experience her to have a comprehension of what an incredible offering this ship is for our guests and our investors as well.

  • As you with aware, we took delivery of her this past Wednesday.

  • She is now on her way from Turku to Fort Lauderdale where she will home port.

  • Revenue service begins December 1 and we will spend from now until then showing her off to the travel trade.

  • Bookings remain strong and she continues to command the lead pricing in the category.

  • With that, happy to turn it back to Brian.

  • - CFO

  • Thank you, Richard.

  • We would like to briefly go through the third quarter results, which we summarized on the second slide.

  • In the third quarter, our earnings per share were $1.07, better than our previous guidance of between $0.95 and $1.

  • Net yields were better than forecast, but were down 16.5% as compared to our guidance of down approximately 18%.

  • Ticket revenue benefited from stronger than expected close end bookings, specially in Alaska and Europe.

  • Onboard revenue was also slightly stronger than we had forecasted.

  • As we mentioned on our last call, the H1N1 virus cost us about two percentage points of yield in the quarter.

  • Overall, relative to last year, Alaska was the weakest performer in the quarter and Caribbean was the strongest.

  • Our load factors were down about 2.5 percentage points from last year, but we still managed to sail at over 105% of capacity.

  • Our international markets performed especially well and non-US guests accounted for 43% of our customers in the third quarter.

  • Net cruise costs per APCD came in 10% lower than the same time last year.

  • During the quarter, we reached an agreement to sell Pullmantur's Atlantic Star.

  • While we anticipate the sale will close in the fourth quarter, we did take a charge of approximately $0.03% per share related to a small writedown to the cost of the sale and acceleration of dry-dock expenses.

  • Absent this charge, our costs were consistent with our guidance.

  • Our fuel expense was $146 million, which was in line with our prior guidance.

  • Our net cruise cost per APCD, excluding fuel were 3.8% lower than the same time last year with the costs associated with the Atlantic Star's sale being the only noteworthy change from guidance.

  • Below the line in other income and expenses, we had a correction to the statutory rate for an accrued tax liability related to our purchase of Pullmantur that resulted in a $12.3 million gain.

  • In summary, we beat the midpoint of our previous earnings per share guidance by about $0.10; most of which came from the strength of close end demand.

  • Now I would like to provide you with an update on bookings.

  • As Richard said in our press release, the booking environment remains fairly consistent and relatively stable.

  • With that said, we are still seeing more volatility in your forecast than we would like.

  • We have seen some early signs of a possibly expanding booking curve, but it is still can quite contracted by normal standards.

  • We also have several new products in emerging markets and since these products tend to be shorter in duration and closer to the guest's home, they also tend to have a closer end booking pattern.

  • Clearly, we finished the third quarter with stronger bookings than we had anticipated and looking out to the summer of 2010, we are encouraged by the early peak season demand.

  • On the other hand, we continue to see slow demand for Mexican Riviera cruises and demand out of Spain and the state of Florida is weaker due to their more difficult economies.

  • For the fourth quarter of this year and the first two quarters of 2010, our cumulative book load factors are still running behind the same time last year, but we are seeing a rapid recovery.

  • And with new bookings running more than seven -- 40% ahead of last year, since mid September, we expect to see higher book load factors in all quarters before year end.

  • On slide three, we have updated the booking and pricing graph we have shown on the last few calls for our fourth quarter departures.

  • As a reminder, the green line illustrates the change in the volume of new business versus the same time last year by bookings.

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

  • The trend for volumes has been very favorable since the summer, and pricing since the beginning of October is now running higher than at the same time last year.

  • A year-ago, we were probably at the low point of demand and our prices were falling significantly.

  • As a consequence, the improvement you see here is mostly a function of easier comparables.

  • As I mentioned previously, the peak season was better than we expected, but it now appears that the traditional weaker fourth quarter will be worse than we had previously thought.

  • Our holiday sailings having required more discounting than we anticipated and our low-season Caribbean cruises are being hurt by Florida's weaker economy.

  • During the low season, we traditionally source close to 20% of our Caribbean guests from Florida.

  • This year with 11% unemployment in the state and a very bad real estate market, we have seen our demand from Florida for the fall season drop by double-digits.

  • Booking out into the first quarter, on slide four, you can see guest demand to date has followed a very similar demand pattern to the last few quarters.

  • And since the late-summer, bookings have outpaced the same time last year.

  • Cumulatively, we are still slightly behind year-ago, but with the accelerated pace of new bookings we expect to be more booked than at same time last year relatively soon.

  • We believe it is still early to provide you with specific guidance for the first quarter.

  • But if you will turn to slide five, we wanted to give you some insight into the pricing environment for the first quarter and show why we are still anticipating yield accretion.

  • What we have tried to illustrate with this chart is how the pricing environment for first quarter sailings in 2010 and 2009 compares to a more normal year, in this case, 2008.

  • The horizontal line across the middle represents an index of 2008 pricing.

  • The orange line compares our average rate for 2009 sailings per each booking week.

  • As you can see for first quarter sailings in 2009, new bookings taken through the month of October had solid pricing as compared to 2008.

  • But as you know, after the collapse of Lehman Brothers and the AIG bailout, demand dropped off dramatically and we were forced to begin significant discounting.

  • The net result was a 13.5% yield decline in the first quarter of 2009.

  • Now the blue line compares the average rates we're getting for first quarter sailings in 2010, again in comparison to 2008.

  • And while our rates consistently compare favorably to 2008, I would caution that the weighting of the Oasis of the Seas and the Solstice class vessels which have had a greater portion of their inventory sold at this point, heavily influences this.

  • On slide six, we have provided the same graph, again comparing to 2008, but stripped out the effect of Oasis and Solstice classes.

  • We're often asked how same store sales are performing, but I would like to remind you that when new ships are delivered we tend to place them in strong established itineraries.

  • The incumbent vessels are often redeployed into new developmental markets so the comparison is not the same as in many other industries.

  • We will not be providing guidance by ship class, but thought it would be useful to show you how the non-Oasis and Solstice classes were performing.

  • Bear in mind that 2008 was a very tough comparable in this environment, but we find in reassuring that the volatility we are experiencing is significantly less than it was at this same time last year and we believe we have a much better read on the consumer.

  • In aggregate, our forecast range is still quite wide, but we do believe will have better yields in the first quarter of 2010 than we did in 2009, driven by the performance of our newest vessels and avoidance of the type of dramatic discounting we experienced last year.

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

  • For the year, we expect yields to be down approximately 14% on an as-reported basis and down 12% to 13% after adjusting for changes in currency.

  • We expect yields to be down between 7% and 8% in the fourth quarter, much better than the last few quarters, but not quite what we had hoped for.

  • On the cost side, we expect net cruise costs to be down approximately 10% for the fourth quarter and down approximately 10% for the full year.

  • After adjusting for currency, we expect net cruise costs to be down 11% to 12% for the fourth quarter and 8% to 9% for the full year.

  • We have included $596 million of fuel expense for the year and $158 million for the fourth quarter in our guidance, based on current pricing.

  • We are 40% hedged for the fourth quarter and we are now hedged approximately 50% for both 2010 and 2011 and 10% for 2012.

  • We are forecasting a slight loss in the fourth quarter and earnings per share for the year of approximately $0.70.

  • Finally, I would like to point out that we ended the third quarter with approximately $1.1 billion in liquidity.

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

  • - CEO, Royal Caribbean International

  • Thank you, Brian and good morning, everyone.

  • Further to Brian's comments, overall for 2009 we expect to source 40% of our Company's total business from outside the United States and then more than 40% in 2010.

  • Although the winter season is upon us, we still have limited visibility for the performance of our products that depend more on sourcing of non-US customers.

  • It does appear that Rhapsody of the Seas in Australia and New Zealand will enjoy improved year-over-year performance.

  • For our products in Asia, Dubai, Brazil and Panama, it is too early to tell.

  • Further to Richard's comments, Oasis of the Seas is on her fourth day now of her transit from the shipyard in Turku, Finland to her new home in Port Everglades, Florida.

  • Those of us who participated in the delivery ceremonies in Turku last week watched a remarkable transition on an hour-by-hour basis as an amazing cruise ship emerged from the very final stages of the construction process.

  • Although we should not have been surprised after working so intensively on the project for nearly six years, Oasis of the Seas is beyond all of our expectations.

  • We are extremely keen to show her off and we will do so with inaugural cruises from November 19th to December 1st.

  • Before that, from November 11th to 19th, among other things, we will be planting approximately 12,000 plants and trees in Central Park.

  • The revenue outlook for Oasis of the Seas is very promising.

  • For 2010, she is significantly more booked than any other ship in our fleet, at rates that reflect a higher premium to our Freedom class than either Freedom of Seas or Voyager of the Seas has attained in relation to their immediate predecessors.

  • We expect the already large and rapidly growing publicity surrounding her delivery to further bolster her performance.

  • There has has been some speculation regarding Oasis of the Seas' short-term booking position.

  • It has always been our intention to carefully ratchet up the load factor as we acclimate on delivering the wow on such an unprecedented ship.

  • We are confident about the Oasis of the Seas' value proposition at the premium she has commanded.

  • We are not utilizing the discounting techniques that are apparent across much of the cruise space.

  • We are now forecasting lower load factors in December than we originally anticipated, but it may be that we can mitigate even these very short-term reductions during the inaugural period.

  • Dan?

  • - CEO, Celebrity Cruises

  • Thank you, Adam.

  • It's been an exciting summer with the successful debut of Equinox in July and most recently Celebrity's recognition by Conde' Nast Travelers Magazine annual Readers Choice Awards which ranked Celebrity number one in the new mega ship cruise lines category.

  • This is truly a testament to the way the consumer is reacting to Celebrity Solstice and Celebrity Equinox.

  • We continue to be pleased with the reaction these ships have received and are confident that they will continue to be transformative for the Celebrity brand.

  • As I mentioned on the last call, the Solstice class will represent almost 40% of Celebrity's capacity next year.

  • In addition to a successful launch of Equinox, we made a number of product delivery updates that we believe will have a very positive effect on the repeat rate of our guests.

  • We launched an upgraded Captain's Club loyalty program that has met with rave reviews from our guests.

  • We also launched a new onboard activities program we called Celebrity Life that increases the breadth and depth of activities we offer to our guests.

  • Although early, we were very pleased with our guest reaction to the program.

  • We believe both will enhance guest satisfaction and increase our guest repeat rates without increasing our net cruise costs.

  • We had healthy close end demand for our cruises in both Europe and Alaska this past summer and both volumes and rates came in a bit higher than what we had thought on our previous call.

  • Booking volumes for Europe cruises through the fall have also held up well as the Mediterranean season is now coming to a close.

  • Our Solstice class ships are continuing to command healthy premiums.

  • In the Caribbean, we haven't been immune to some of the Christmas and late fall issues you heard about earlier on the call.

  • However, we continue to be pleased by the results of our efforts to build our brand beyond the US market and we're seeing a high number of bookings coming from outside the US on our longer Caribbean cruises, operating from South Florida this fall and winter.

  • Celebrity's onboard revenue results in the third quarter exceeded our expectations.

  • (inaudible) excursions in particular were strong across the fleet.

  • Solstice and Equinox continue to perform well and exceeded our expectations for most onboard revenue areas.

  • While it's a bit soon to make any predictions about the 2010 Europe and Alaska season, early indications are encouraging, especially for Equinox and for Eclipse, our first ship dedicated to the UK market which will operate summer cruises from South Hampton.

  • The reaction of the UK market to the Eclipse as been exciting as early bookings have been quite strong.

  • I would now like to turn the call back to Brian.

  • Brian?

  • - CFO

  • Thank you, Dan.

  • We would now like to 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, we would be happy to discuss them with you after the call.

  • Operator

  • (Operator Instructions).

  • Your first question comes from the line of Tim Conder of Wells Fargo.

  • - Analyst

  • Thank you.

  • Brian, just from a clarity standpoint, again on the first quarter and 2010 net yields, do you expect them to be positive in absence terms?

  • Or just up year-over-year?

  • Just clarify that.

  • Secondly, based on one of the slides that you showed there and just another clarification point, can you give us some more color on the -- let's call it legacy core fleet?

  • And how the cannibalization is tracking there versus your expectations and then obviously separating that from the Oasis and Solstice class ships.

  • - CFO

  • Sure, Tim.

  • For the first quarter and full year, we're expecting both will have higher yields than the corresponding period in '09.

  • - Analyst

  • And positive in absolute terms, you are saying?

  • - CFO

  • Yes.

  • - Analyst

  • Okay.

  • - CFO

  • And that would include ticket onboard core revenue as well.

  • - Analyst

  • Okay.

  • - CFO

  • As we looked at the slide first quarter, we tried to give a little bit of clarity into what you called our legacy vessels.

  • One of the points I was trying to make is cannibalization is less what I would use to define -- if there is an impact on the legacy ships.

  • I think it's more going into developmental markets that we believe is very important for our future.

  • Often times, those markets will take a year or two to really speak for us.

  • But similar to the investments that we were making in some of the major European markets a few years ago, those markets are really paying off for us.

  • We're expanding into some of the markets that Adam mentioned that we believe it's a little too early to get a read on.

  • I want to emphasize that the charts that we showed was really benchmarking our current pricing environment relative to '08.

  • If you recall in '09, we had a 13.5% yield deterioration in first quarter of '09 so that is a tough benchmark.

  • But the legacy vessels, as you have called them, seem to be holding their own at this point.

  • I think the two things that I would call out or why we're anticipating yield accretion is the performance of the newer vessels which we do have the benefit of those vessels and they will be included in our results and they are performing exceptionally well, as well as the fact that we don't expect that rapid acceleration in discounting that we incurred last year when we were -- when all businesses were shocked by the effects of the economy.

  • - CEO

  • Tim, this is Richard.

  • I think I would like to add something, maybe a semantic comment.

  • I understand that you want to distinguish between the very newest ships and the rest of the fleet, but I would prefer we find a better term than legacy vessels.

  • The other ships are the bulk of our fleet.

  • Actually we think in general, the older ships are terrific ships in comparison to the rest of the industry anyhow.

  • I think that -- we think most of them are quite strong competitors and will continue to be.

  • I think perhaps what causes a little bit of confusion is that it the Solstice class, for example, have been so well-received and the Oasis class which you haven't seen yet, is still very well-received and getting a lot of publicity so they are truly extraordinary.

  • But I think we ought to, Brian, look for a better term there.

  • - Analyst

  • We apologize for that.

  • - CEO

  • No, no.

  • It's nice to have that problem that we have to find a way to distinguish between some wonderful ships and some really wonderful ships.

  • - Analyst

  • And along that line, Adam, can you give any more quantification of what you are seeing the premium -- or Richard or whoever wants to answer, the premiums on the Oasis class versus Freedom versus the [Oasis] class?

  • - CEO, Royal Caribbean International

  • We're not going to be specific about that, but it's certainly well into double- digit premiums of the Oasis of Seas in comparison to the Freedom class.

  • The Freedom class, you will remember at the time we were delighted with the premiums that she was demanding in relation to Voyager of the Seas.

  • They are very healthy class (inaudible).

  • - Analyst

  • Thank you gentlemen.

  • Operator

  • Your next question come comes from the line of Felicia Hendrix of Barclays.

  • - Analyst

  • Brian, you guys have spent -- and Adam and Dan, have spent a good part of the call talking about the outlook and what you are seeing.

  • Brian, your charts are really helpful, giving us the detailed overview on where the first quarter could come out and supporting your belief of why you are still reiterating your forecast that they would be up.

  • What I am just wondering and I'm just trying to get my arms around it, is that you talked about in the quarter, volatility in short-term bookings window -- that you are not happy about, but it is what is it right now.

  • I'm sure that with your sophisticated net yields forecasting systems that you had, you baked that volatility in your first quarter outlook.

  • I am just wondering with that as a variable, how are you so confident that yields could be up in the first quarter?

  • - CFO

  • Felicia, thanks.

  • One of the comments I made is our range is still quite wide for first quarter and the reason we're not calling out specific guidance right now is concern over the close end volatility.

  • I think what gives us the assurance, if you look at the one chart I showed with the Oasis and Solstice class, our build throughout the life cycle of first quarter sailings being [open for sale] has consistently been above '08 levels.

  • And with that, you can imply the type of average rates that we would have on the books for the first quarter.

  • Now we recognize the fact that a lot of that is being weighted by Oasis and Solstice class.

  • As we get closer to sailings, some of the lower yielding products begin to take a disproportionate amount of the business and we do expect that line to come down.

  • But even baking that in, we feel pretty good at this point that we will have yield improvements the first quarter.

  • To your point, there is still a lot of volatility and that is why we're not providing a specific range yet for the first quarter.

  • - Analyst

  • But as far as your budgeting is concerned, there is a wide range?

  • - CFO

  • We actually -- we are right in the midst of our budgeting process.

  • We certainly have a midpoint that we're assuming and we also have a lot of upside and downside to that number.

  • We're not prepared to share those plans just yet until we see more of what occurs.

  • The environment for the last six or seven weeks has been tremendous relative to last year.

  • But because of the more contract booking cycles, we did have some ground to make up.

  • We're in the process of learning everyday.

  • While pricing certainly is much, much more stable than it was this time last year, it is still subject to a bit of volatility as we get closer to sailings.

  • - Analyst

  • It doesn't really sound like if I asked you if you are looking at low single-digit increase to high, you are not going to comment on that?

  • - CFO

  • No, we're not ready to give that specificity yet.

  • - Analyst

  • The final question, I'm wondering, your capacity for 2010 has changed a bit in terms of percentage change.

  • Can you just talk to that?

  • - CFO

  • The biggest thing is the Atlantic Star which also goes by the name previously Sky Wonder.

  • That's the ship that had been scheduled to go into Mexico earlier this year.

  • She was effectively laid up the second half of this year.

  • As we looked at that vessel, we thought and we had a buyer out there and we thought it was prudent to the seller.

  • And we have been improving the fleet with Pullmantur and with a lot of some of our original fleet for Royal Caribbean and Celebrity.

  • This was an opportunity to get rid of a ship that wasn't the best use for us.

  • When that ship goes out, that will lower our capacity a bit for next year.

  • - Analyst

  • The capacity changes we're seeing are more driven by that, versus changing the -- maybe having more, longer cruises versus shorter cruises?

  • - CFO

  • That wouldn't effect capacity, because our capacity is what we call based on available passenger cruise days.

  • Whether the ship is in a seven-night or three/four night calculation is still --

  • - Analyst

  • Okay.

  • Great.

  • Thanks a lot.

  • Operator

  • Your next question comes from the line of Robin Farley of UBS.

  • - Analyst

  • Thanks.

  • Just wanted to clarify a couple of things.

  • In Q4, the lower EPS guidance -- and I know you have lowered yield guidance.

  • I would have thought that the EPS would be down more, but it looks like your expense guidance ex-fuel is quite a bit better than previous guidance.

  • I wonder if you could give some color on what is new on that front that is going to be helping the EPS number.

  • And then also just a clarification on your commentary on Q1.

  • I know you said, a wide range.

  • I imagine you are talking as reported yield changes and I'm wondering if you could say if currency held constant whether you are still certain it would be in the positive range?

  • Or if it's currency that is getting over the hump?

  • And then if I could ask one other clarification.

  • Adam's comments about occupancy of the Oasis.

  • In the summer, you mentioned it's going to be a little bit of a lower load factor in December than you anticipated.

  • I was just trying to clarify, were you trying to communicate that you are holding back more inventory for operational reasons as you ramp up?

  • Or that you are holding back inventory to protect pricing?

  • I just want to make sure I understand what that comment was.

  • Thanks.

  • - CFO

  • Robin, on the first couple of questions on Q4, I'm looking at our reconciliation here and our net cruise costs, ex-bunker are slightly favorable to our prior guidance, but not significantly.

  • The only other thing you might want to consider looking at is our bunker guidance.

  • Our new bunker guidance may be a little less than what other people have modeled out there.

  • - Analyst

  • I was looking at number ex-bunker and I know it was -- only one to two percentage points better.

  • But considering that currency would have made that number a little worse, that maybe your expense guidance constant currency, you are improving even a little bit more than it looks like.

  • I just wondered if there were particular areas or what is driving that.

  • - CFO

  • I think on the cost side, it's really what Richard talked about.

  • It's just a systemic cultural focus on this.

  • There is nothing specific I would call out in Q4.

  • I think the brands have continued to do a terrific job of focusing on costs.

  • We're all disappointed with having to lower our revenue guidance slightly in Q4.

  • I think the brands just rally as best they can without compromising the guest experience, but there is nothing specific I would call out there.

  • On the first quarter, I would say that both on an constant dollar and a cash reported basis and for the full-year, our operating plans right now point towards favorable yield performance as compared to '09.

  • But again, we're going to stay away on this call from specific guidance about that.

  • I will let Adam answer the Oasis question.

  • - CEO, Royal Caribbean International

  • Thank you, Robin.

  • I would like to answer in two parts, if I could.

  • With respect to operational reasons, we have always had the intention of reducing the amount of load factor that we would take on the early sailings, going back a long time because of the newness of this class of ship and all the different features and choices that our operational people need to master.

  • That has always been the case.

  • Part two is with respect to the amount of capacity that is for sale, we are definitely protecting our pricing position, if you will, because we know the value proposition that exists here.

  • We are simply not prepared to engage in some of the discounting tactics as I mentioned earlier in my comments that we see in the cruise space these days.

  • It is possible that we will have a slightly lower load factor in the end than we might otherwise have had, if we would be more aggressive to sell each allowed space that we had intended to sell.

  • But it is also possible, as I noted in my comments earlier, that the inaugural period will be so successful, because the ship is so phenomenal that even that potential small deficit will go away.

  • - CEO

  • Robin, if I could just add something to that because -- which gives me an opportunity to talk a little bit about how the yield management works.

  • A lot of people look to the bookings or go to their travel agent and they find there is space available and say, well, if you have a product that is doing so wonderfully, it should be sold out.

  • Someone here described selling out this early as being yield management malpractice.

  • It's simply the way we operate.

  • We would not want to be sold out.

  • In fact, I think there has been some news that says the upper category cabins are unavailable far into the future and that does mean that we have sold those cabins too cheaply.

  • We should have held them longer.

  • There will always be -- and this is something that we have seen in the press and your question gives me a chance to talk about it on the call to everyone.

  • We will always have space available.

  • That is the way the yield management system works.

  • - Analyst

  • I understand a lot of buzz that is going to be created over the next month.

  • When you look out to 2010 and post-inaugural buzz, is the load factor on Oasis something that you have to protect that value proposition?

  • Is that something that you would be willing to continue to have below the fleet average?

  • In other words, is this just because of the inaugural buzz driving that closer end booking?

  • Or is this something that you are willing to do longer term to protect pricing?

  • - CEO, Royal Caribbean International

  • Because Oasis of the Seas is in a main Caribbean route and will be very powerful with the family segment and have lots of third and fourth birth opportunities built into her, I would expect her occupancy next year and in the future to be at least at the fleet average.

  • - Analyst

  • Okay.

  • Great.

  • Thanks,.

  • Operator

  • Your next question from the line of (inaudible) of Sanford Bernstein.

  • - Analyst

  • Thank you.

  • First question, can you tell us if the H1N1 is in your forward guidance and whether it's or isn't what your expectation is going forward for that?

  • - CEO, Royal Caribbean International

  • H1N1 and anything related to it would be in our guidance on the basis that we obviously have a lot of experience with it as of this year.

  • We're not seeing very much H1N1 incidents on our ships at moment which is something that we're quite pleased about.

  • We have been able to take advantage of the relatively low incidents of it over recent months to really work very carefully around the world with a wide variety of destinations inside and outside the Caribbean to make sure that the protocols are understood between the cruise industry and the ports of call that people know who to speak with if they have any concerns.

  • As a matter of fact, our Chief Medical Officer right now is on rounds in several key places in the world these two weeks exactly doing that.

  • We're optimistic with regard to the medical capabilities of our ships and our sanitation procedures and our ability to minimize the impact of H1N1 on board our ships.

  • We believe that the public is understanding since April and May when the illness turned out to be not as severe as was originally feared.

  • While it is a public health issue, it's not a particular issue for the cruise industry.

  • - Analyst

  • And in other trends, as you look towards next year and the European union and their tighter fuel standards that they are starting to impose, what fuel changes will that require you to make relative to your mix of fuels?

  • Do you feel you are already operating within those standards now or that you will have to change your mix more in favor of the higher grade fuels?

  • - CEO, Celebrity Cruises

  • Is it won't about -- this is Dan.

  • It won't be much next year, but we look very carefully at it.

  • As we're working on our plan, you heard Brian say earlier that we're still in the planning process, but we do know it won't be a significant number for us next year.

  • As we have always said on these calls, we look at what we can do to mitigate our fuel consumption constantly.

  • And we're constantly looking for ways to lower our consumption, but it won't be a big number next year.

  • - Analyst

  • Thank you.

  • Operator

  • Your next question comes from the line of (inaudible).

  • - Analyst

  • Two questions.

  • One on the Q4 yields and the second on returns on the new vessels.

  • On the first question, you are taking down your underlying yields for the year by points, adjusting for currency.

  • And on my numbers, you are talk taking Q4 from about a 4.5% yield roughly to 7%, 8%.

  • How much of that is due to what we have seen already in Q4?

  • And how much of that is just based on your concerns about closing bookings for November and then early December?

  • And what I'm really getting at is how much of this can we add on to Q1?

  • How much of that uncertainty is there a risk about filtering through to Q1?

  • Second question is on returns.

  • Obviously, the Oasis looks to be a fantastic ship.

  • But in terms of return on capital, how much is this ship -- can you give any flavor on how much it's generating on today's pricing?

  • How close to covering cost of capital that you are seeing so far?

  • - CFO

  • I will take the first part.

  • We had indicative guidance for Q4 of just single digits so your numbers are pretty good for where you had estimated from our prior forecast.

  • We're now saying between 7% and 8%.

  • As I pointed out, what is causing the fourth quarter pressures, we knew Mexico would be weak.

  • We knew Spain would be weak.

  • What came more of a surprise than we expected was the pressure in the state of Florida.

  • We do take a disproportionate number of guests from the state of Florida in the fourth quarter.

  • We're not as relying upon them in the first quarter, so I wouldn't look for that to be as potentially troublesome as we saw in the fourth quarter.

  • The other thing that we called out in Q4 in the update of our guidance was really around the Christmas cruises.

  • Christmas fell in an odd place for us this year, on a Friday.

  • And it tends to make it a weaker cruise, but we were somewhat surprised by the additional discounting that we had to do.

  • Again, that is not something that we would see repeating in the first quarter.

  • We do take into consideration everything that we're seeing in the new bookings.

  • Again, that is why we do still have a fairly wide range for Q1 and don't want to have specific guidance.

  • But again, we reiterate we think it would be positive.

  • - CEO

  • I will comment on the question of returns for the newer ships.

  • We don't give out the returns, just as we don't give out other types of segment reporting.

  • As I mentioned earlier in the call, I think it's important that we not overemphasize the new ships because as dramatic as they are, the bulk of our fleet and the bulk of our profitability depends on the rest of the fleet.

  • But I can say that they have done -- they are more expensive than quote, normal ships, but they are not [commensurately] more expense with how much better they are in terms of their earnings capability.

  • The result is that even in this market, we can see that they will be a terrific investment for us.

  • If the market improves the way we hope it will, they will be enormous contributors to our returns.

  • They will generate enormous returns.

  • And I do emphasize, it's not just Oasis.

  • Oasis is getting all the publicity today and obviously I'm pleased at that.

  • But the Solstice class has also just performed wonderfully and I'm pleased with that, too.

  • But we're not prepared to give out more specifics on performance of individual ships.

  • - Analyst

  • If I read this right, you're saying that despite the high CapEx, it's accretive to return on capital?

  • Both the Oasis and the Solstice class ships?

  • Is that correct?

  • Am I interpreting that?

  • - CEO

  • Absolutely correct.

  • Thank you.

  • That is precisely what I was trying to say.

  • It is accretive and the returns are and will be outstanding.

  • - Analyst

  • Okay.

  • Thank you very much.

  • Operator

  • Your next question comes line of Scott Barry of Credit Suisse.

  • - Analyst

  • Hey, Brian, you mentioned you expect book load factor to be ahead by year end.

  • Can you give us some sense, given what happened a year-ago and given the contraction and the curve, how much more inventory you have to sell for the 4Q/1Q versus a year-ago?

  • And then secondly, can you give us some sense for what the percentage repeat cruiser is in '09 or just some commentary on the short cruise market?

  • Thanks.

  • - CFO

  • Sure, Scott.

  • As we look into Q4 and Q1, we're down probably low to mid single-digits in terms of our load factor vis-a-vis where we were at this time last year.

  • If you go further out into 2010, we're basically at par.

  • It's still very early, but the booking window seems to be recovering a little bit, although I would caution it's still very preliminary.

  • The fact that our bookings for the last seven or eight weeks are up over 40%, we're seeing a very rapid recovery.

  • The booking trends that we're seeing in Q4 and Q1 are strikingly familiar to what we saw back in Q3 and Q2.

  • I think our reservations out of Q4 is more the pricing leverage that we will have as we get into the last-minute bookings.

  • I will let Adam take your second question.

  • - CEO, Royal Caribbean International

  • Scott, it continues to be the case that a little bit more than one-third of our customers are on a cruise for the first time in their lives.

  • There has been some interest in whether lower pricing in the industry has motivated first-time purchase and it's probably true to a degree.

  • On the other hand, the lower points have motivated repeat cruisers who already know the value of cruising to respond and book.

  • I think the net of those two things is not a tremendous change in the ratio.

  • - Analyst

  • Great.

  • Just to follow-up, Brian, if I could, how much benefit do you get from having a more consistent booking pattern versus a year-ago ago when quote, end quote, the [rudder] wasn't responding?

  • - CFO

  • It's a terrific point, Scott.

  • And we're anxiously awaiting the December/January timeframe where we'll really be more on equal footing.

  • It took us about that amount of time to really calibrate to the new customer behaviors, both in terms of the booking window and the elasticity.

  • And I think it's one of the reasons we're a little hesitant to give more specific guidance about Q1 and the full year of next year until we really get to that point where we have really crossed over.

  • We do anticipate at this appoint we'll have slightly higher load factors in all quarters and we'll be able to see really how the pricing compares to -- after it is a good time to calibrate.

  • But I think it will be that window and from a revenue management standpoint, it will be very valuable because we'll know have a lot more year-over-year comparisons that we can lean on and not just trying to read from prior quarters with some instances, different seasonality and product mix.

  • - Analyst

  • Great.

  • Thanks.

  • Operator

  • Your next question from the line [Afia Georgiza] of Infinity Research.

  • - Analyst

  • Can you hear me?

  • - CFO

  • Yes.

  • - Analyst

  • Brian, I wanted to follow up to your comment that this time a year-ago, we were basically in shock.

  • I think it's this specific timeframe, mid-September through late November, early December.

  • The booking volumes being up 40% shouldn't be -- that surprising.

  • Can you compare volumes to a more normal year, such as the same timeframe in 2007 and especially if you have that on the capacity-adjusted basis?

  • - CFO

  • Afia, I don't have the numbers you are asking for in front of me, but I think your point is exceptionally well taken and probably right on.

  • I would venture to say that the bookings that we are experiencing today would be proportionately equal to slightly higher on a capacity-adjusted basis to what with were seeing back in '07 and '08.

  • I would lean towards higher, because we have more of a load factor deficit than we did back had in '07 and '08, given the contracted booking window.

  • To Scott's point earlier also, I think we're really getting to a point that we have control of the rudder and things are much more consistent with what we would expect to be seeing at this point in time.

  • And your point that the comparable is really what is driving the 40%.

  • - Analyst

  • And a related question, specifically because of the great volatility a year-ago, it seems from the numbers I was looking at, pricing was down and booking volumes were significantly down until late November and some voyages even in December.

  • Yet as wave season started and specifically for Q1 of '09, there seemed to be some catch up, some strength that I think also helped you beat guidance.

  • That is probably the factor that you are referring to -- the volatility that you still expect.

  • Is that correct?

  • - CFO

  • Yes.

  • I think, again, this year we have a much better handle on the consumer.

  • I think our prices are now set much more in proportion to what is the consumer is willing to pay.

  • Where this time a year-ago, if you will, we were still fishing for bottom.

  • I think when we provided guidance, we had probably overshot the mark a little bit in terms of our pessimism and did benefit a little bit as we got our pricing calibrated.

  • I think this year is just a fundamentally different experience.

  • The curves, if you will, both in terms of the booking patterns will have fewer peaks and valleys and I think our pricing will remain more consistent, certainly than it did a year ago.

  • - Analyst

  • I certainly hope so.

  • The comparisons, just looking at the year ago numbers, are so wild that even this year's consistent pricing makes it difficult to predict.

  • I understand the difficulty and thank you for providing me with as much clarification as you can.

  • - CFO

  • Thank you.

  • Operator

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

  • - Analyst

  • Good morning.

  • I just had two questions about some of the discounting or pricing issues that you mentioned.

  • The first one is that you mentioned earlier that some of the newer markets are weaker and taking time to ramp up.

  • I just want to understand that because I thought the original reason to go into some of these newer markets was that there was less competition and the opportunity was pretty significant.

  • I'm surprised that the pricing is lower.

  • And then the second question is why is that holiday week -- just to go back to it again, why is that holiday week so weak and your discounting more?

  • It should be a peak period for pricing and for occupancy.

  • - CEO, Royal Caribbean International

  • Steve, it's Adam.

  • On your first question, first of all, these markets that we're going into, we have consistently identified as strategic opportunities for our long-term prosperity.

  • We're as optimistic about the long-term development of those markets as we have been in the past.

  • In fact, we have been able to get really capable management in on the ground in a number of these places.

  • Some of them, like in China and Australia, just in last year.

  • We have the opportunity now to work with travel agents in those regions in a much more meaningful way than we have done in the past.

  • With respect to the shorter term environment, I think what we were trying to express is that there is less certainty around them.

  • First of all, they are newer markets and they have each been affected by world conditions in their own way.

  • Many of them are shorter term booking environments because the ships are there in their home port type markets.

  • As the quarters unfold this winter, we'll get a better idea of what is happening there.

  • It's a little hard to project right at the beginning of November.

  • It wasn't our intention to stress that they are weaker, simply that there is more uncertainty surrounding what their eventual future performance will be.

  • - CFO

  • Steven, in relation to Christmas, we are certainly getting premium pricing for Christmas.

  • It's just not nearly the premiums that we have hysterically received.

  • We're not really sure what the dynamic there is.

  • I will mention that the earlier in the year that the Christmas cruises depart -- for example, many of them are departing on the 19th, 18th, those tend to do weaker than if you have a Christmas cruise that is departing on say -- for example, the 23rd.

  • It's a phenomenal that we see every cycle.

  • Frankly, I think we had overestimated where we thought Christmas might be in this environment and we are getting the premiums, but just not to our historical standards.

  • - Analyst

  • Thank you.

  • Operator

  • Felicia, I think we have time for one question.

  • Your final question from the line of Greg Badishkanian of Citigroup.

  • - Analyst

  • Just two quick ones.

  • The first, you mentioned that you saw signs of an expanding booking curve, but it's still contracted.

  • I know Carnival's is about 15 to 30 days expansion.

  • Is that the same for you guys?

  • - CFO

  • I think, Greg, on a macro level, that we have seen indications towards 15 to 30-day expansions, but I would caution that we're not ready to say that the consumer buying patterns have fundamentally shifted.

  • We are seeing a little bit of a business mix change.

  • If you took a normalized itinerary, I think our booking window is probably fairly consistent with what they are saying.

  • - Analyst

  • Great.

  • Thanks.

  • Also in terms of consumer patterns, just looking across the board at general themes, whether it's premium versus contemporary.

  • Premium rooms or even onboard spending, is there some general themes that you have seen over the last few months?

  • Have you is seen some improvements?

  • Is that -- or would you say the consumer is more apt -- willing to spend more on cruises?

  • - CEO, Celebrity Cruises

  • Greg, it's Dan.

  • I can't tell you that.

  • We had a pretty good third quarter for onboard revenue.

  • Some of the things that we were seeing that were encouraging is we saw guests booking shore excursions more than they have in the past.

  • We are seeing that they are communicating and internet and phone is working well.

  • But the obvious things, they are not doing.

  • They are not spending as much money gambling.

  • They are not spending as much money on art.

  • But we did have a reasonably good third quarter for onboard revenue.

  • How that will hold up in the fourth quarter is still too early to tell, but we were somewhat pleased with what we saw in the third quarter.

  • - Analyst

  • Did you see a change last month or so versus what you saw a few months ago?

  • Are you seeing an improving trend or has it been pretty steady?

  • - CEO, Celebrity Cruises

  • It has been fairly steady.

  • It's better than it was at beginning of the year, but I want to be very reluctant to say that we saw a dramatic shift in the way the consumer is spending money onboard.

  • - Analyst

  • Great.

  • Thank you.

  • - CEO, Celebrity Cruises

  • You bet.

  • Operator

  • I will now turn the call back over to management.

  • - CFO

  • Great.

  • We just would just like to thank everyone for joining us today.

  • I will certainly be available throughout the day for any follow-up calls you may have.

  • We apologize we couldn't get to everybody, but Ian will be available throughout the day.

  • Have a great day.

  • Thank you.

  • Operator

  • This concludes today's conference.

  • You may now disconnect at this time.