皇家加勒比遊輪 (RCL) 2009 Q4 法說會逐字稿

Good morning.

My name is Nikeshia, and I will be your conference Operator.

At this time, I would like to welcome everyone to the Royal Caribbean fourth-quarter earnings conference call.

(Operator Instructions).

Thank you.

Mr.

Rice you may begin.

Thank you, Operator.

And good morning everyone.

We would like to thank each of you for joining us this morning for our fourth-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 Web site, www with www.RCLinvestor.com.

Before we get started I would like to refer you to our notice about forward-looking statements.

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

Forward-looking statements do not guarantee future performance and do involve risk and uncertainty.

Examples are described in our in our SEC filings and other disclosures.

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

Richard has some comments to begin the call; I will follow with a brief recap of the fourth 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 be happy to open the call to your questions.

Richard?

Thanks, Brian.

Good day to everyone.

While it is a great pleasure that we are in a position to say "sayonara " to 2009, there were four particularly significant accomplishments during the past year that I think deserve special mention.

First of all, our Company, and our industry, proved yet again how resilient we are in the face of an economic collapse of almost unprecedented proportions.

It was a painful year, but we still managed to suffer less revenue decline than most comparable industries, despite the double whammy of the economy and the swine flu.

Secondly, our management team sustainably reduced our nonfuel expenses by over 7% (inaudible).

Thirdly we launched two of the most impressive and profitable ships in the cruise industry's history, Celebrity Equinox and Royal Caribbean's Oasis of the Seas.

Then lastly, we proved our Company's financial strength by completing financings on a level and at a cost that were dismissed as impossible only 12 months ago.

Who would have imagined in January of 2009, that Royal Caribbean would end 2009 with almost $900 million of liquidity, and no need to access the capital markets in 2010.

I would like to congratulate and thank the management team, and all of our employees for their hard work and their focus on accomplishing these objectives.

Now, looking forward to 2010, the year is looking much stronger than many thought possible only a short time ago.

As you can see from this morning's release, we are expecting good yield growth despite a continued poor economy.

Wave season is off to a strong start with good volume and even higher pricing.

While we are also not seeing a dramatic run-up in pricing, our numbers demonstrate a slow but steady improvement in our revenue environment, consistent with the slow but steady improvement in the economy.

This improving environment, combined with continued focus on costs, will be meaningfully accretive to earnings this year, and you can see the power this combination is likely to have in future years that are not weighed down by bookings made in 2009.

Operating costs continue to be a priority for our Management team.

Like a diet, it is often harder to keep the weight off than it was to lose the weight in the first place.

But we are determined to continue exercising the cost discipline that has served us so well over the last few years.

The impact of our new ships has also been a significant boost.

Adam will comment more about Oasis shortly, but from 40,000 feet, I am pleased to report that the vessel introduction was a gratifying success.

Our guests love her, she's commanding tremendous premiums on ticket revenue, on-board spending is handily above other ships, and the economies of scale are working.

But while Oasis of the Seas got the most publicity, Celebrity Solstice class ships are kicking butt, too.

Ticket revenue on these vessels are commanding a premium.

On-board spend is higher and costs are lower.

These Solstice vessels represent to celebrity guests what Oasis and Freedom represent to Royal Caribbean International guests.

Clearly the business model we have been espousing for these ships is producing the hoped-for results.

These new ships are incrementally more expensive to build, but they're quantumly more profitable to operate.

That combination generates better returns on our investment.

At the same time, it is important to remember that the bulk of our profitability still comes from the rest of the fleet, and it is encouraging to note that our yield guidance would still be positive for 2010, even if we excluded the Oasis and Solstice class ships.

Now, many of you have asked us to comment on what this means for future growth and for possible new orders.

As we said before, we look forward to a period of slower growth expansion, that enables us to build our profitability more with margin expansion than with purely with volume expansion.

We remain of the belief that a more subdued long-term growth rate is appropriate for both our yield accretion and improvement in our returns.

We also continue to pursue our long-term objective of returning to investment-grade rating.

But at the same time, we have seen the power of a well-executed new building program, and as market conditions warrant, we will certainly consider next steps.

Note, however, that due to construction lead times, even if we were to act now, it is unlikely that any new building would deliver in time to impact results before 2013, at the earliest.

Now, before I turn the microphone back to Brian, I would like to make a couple of short comments about the situation in Haiti.

A disaster like this affects all of us.

Looking at the unimaginable death toll, and the pervasive suffering, should make all of us realize just how fortunate we are.

It is especially impactful to us at Royal Caribbean because of the large numbers of Haitian Americans who are part of our community.

You will also know that we have a private destination on Haiti's north coast, which makes us privileged to have been one of Haiti's largest foreign investors for over 30 years.

We employ hundreds of Haitian workers, many of whom suffered grievous personal loss, and all of whom were impacted directly.

Obviously, we have tried to help them.

Firstly, to help find out about their loved ones and then with direct financial aid, as well as grief counseling.

All of this together makes us at Royal Caribbean feel the devastation more personally than most do.

But I do feel most people feel it intensely, and as well.

Regarding the relief effort, there really never was a doubt that we would help.

Haiti needed our help and we couldn't refuse.

Part of that involved deciding whether it was better for our ships to return to Haiti, or to sail by the island and take our guests elsewhere.

We couldn't help agonizing over the idea of people taking their holiday so near the devastation.

But you also couldn't refuse the country's plea that we help it, in its time of greatest need.

In the end, we decided that the moral imperative demanded we bring the people of Haiti much-needed relief supplies, and equally needed tourists and economic activity.

We have since then transported close to one million pounds of food, water, and medical supplies as well as providing other logistical support.

We have also brought desperately needed tourism dollars to Haiti that are essential to their rebuilding efforts.

Certainly, the Haitian people are glad we have done so, as was summarized by one Haitian worker who said, "Without those ships, we don't eat."

I'm also pleased to note our guests have been extraordinarily supportive and complimentary.

They have given our captains standing ovations, and more of them are going ashore than usual.

They're also spending record amounts on shore, but maybe that's because they know we are contributing 100% of the proceeds to the relief effort.

I am proud of the response from our people, here and in Haiti.

Hopefully we are now entering the next phase of the response involving the rebuilding effort in Haiti.

This will unfortunately require a massive, sustained effort from all involved, and we intend to continue to be an active participant and contributor.

With that I will let Brian take you a bit deeper into the numbers.

Brian?

I'd like to briefly go through the fourth-quarter results, which we've summarized on the second slide.

In the fourth quarter, we had a profit of $3.4 million, or $0.02 per share, which was better than our previous guidance of a loss of approximately $0.05 per share.

Net yields were at the better end of our guidance, down 7.2%.

Ticket revenue benefited from stronger-than-expected close-in booking, and even on-board revenue was slighter stronger than we had forecast.

Net cruise costs for APCD were 10.5% lower than same time last year, which was also better than our guidance.

Excluding fuel, net cruise cost was down 8.8%, lower than same time last year, and better than our guidance of down 7% to 8%.

On slide three, we can see for the full year, earnings per share were $0.75 versus guidance of approximately $0.70.

Net revenue yields declined 14.2% for the year, and on an as-reported basis, declined 12.3% on a constant dollar basis.

Net cruise costs for APCD declined 9.8% for the year and excluding fuel, were 7% lower.

Our Management teams did an excellent team controlling costs while maintaining very high customer satisfaction ratings.

I would also like to point out these cost savings were net of our continued investment in the organic growth of international market.

These investments have enabled us to double the number of international guests on our brand over the last five years.

But we have been able to fund this expansion through continuously improving efficiency in our established market.

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

It is still early in the selling cycle, but the wave season is off to a promising start.

Each of the last three weeks have generated record booking volumes for us, and pricing is running ahead of this same time last year.

Clearly, we are not back to pre-recession demand levels, but we are pleased to see yield recovery underway.

As of today, our bookload factor, and average net per diem are ahead of the same time last year for all four quarters and the full year.

On slide four, we have spotted the variance in our book close factor for all sailings in 2010, as compared to 2009.

As you can see, since we lapped the beginning of the recession back in September, we are experiencing clear signs of recovery in our order books.

In fact since September, our booking volumes have been running more than 30% higher than during the same period a year ago.

This acceleration in booking volumes has also begun to have a positive effect on pricing.

On slide five, we have graph the year-over-year variance in our cumulative booked average per diem, for all 2010 sailings.

Similar to the load factor slide, you can see a nice recovery is underway, but pricing is trending upward as compared to a year ago.

And while our current price levels are still being influenced by the weak economy, we are clearly in a better position to control discounting and even take some measured price increases.

Adam and Dan will provide more color by brand and itinerary, but in aggregate we're feeling more positive about 2010 than just a few months ago.

On slide six, you can see we currently expect yields to improve around 2% in the first quarter, and between 3% and 6% for the full year.

If we adjust for today's exchange rate, yields in the first quarter are projected to be around flat, and for the year, be up between 3% and 5%.

On the cost side, our Management team continues to be very focused on driving efficiency, without compromising the guest experience or our strategic investments.

For the first quarter, we expect net cruise costs, including fuel, to increase approximately 1%, and for the full year, we expect net cruise cost, excluding fuel to be flat to up slightly.

Adjusting for today's exchange rate, we would expect to be about flat to down slightly, for the both the first quarter, and the full year.

We've included $687 million of fuel expenses for the year, and $163 million for the first quarter in our guidance, based on today's prices.

We are 58% hedged for the first quarter, and 50% hedged for the full year.

We are also hedged 50% for 2011, and 15% for 2012.

For our earnings per share guidance, we have included a $0.39 gain from a legal settlement that will be realized in the first quarter.

We currently expect earnings per share to be between $0.25 and $0.30 for first quarter and between $2 and $2.20 for the year.

Moving on to the balance sheet, as of December 31, we had approximately $900 million in liquidity.

We recently announced that we have received financing commitments for 80% of the purchase price of the Allure of the Seas, and we now have financing in place for all of our newbuilds.

In 2010, we will have approximately $770 million of scheduled maturities and anticipate easily funding this through operating cash flow.

At this time, we do not foresee a need to access the capital markets in 2010, although we may be opportunist under the right circumstances.

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, everybody.

Believe it or not, I do not intend to talk about Oasis of the Seas on every earnings call.

In fact, this call which is the first since the ship went into revenue operation on December 1, will be the last time that I will especially focus on her.

As Richard briefly indicated we are very pleased with our actual experience with Oasis of the Seas.

The publicity and the inaugural program that preceded her revenue service exceeded our very high aspirations.

The quality of the product offering has been an immediate success.

From a guest rating standpoint, Oasis is already level with the highest rated ships in our fleet, even though we continue to learn more about how to operate her every week.

In contravention of the concerns expressed by some about our ability to manage the logistics of such a large ship, we do not face issues of crowds or lines on board, the ports have no issues handling the ship, and our peer check-in ratings at the fabulous new Terminal 18 in Port Everglades, have been higher for Oasis than for any other ship in the fleet for every one of her sailings thus far.

Last but not least, she is driving very considerable ticket price premiums over all Caribbean-based ships, by that I mean ours and everybody else's, with healthy load factors, and her on-board revenue to this point has exceeded our expectations.

In summary, we are exceptionally pleased, and I would like to thank everyone inside and outside the Company who contributed to the success of Oasis's launch, most particularly, the outstanding men and women who make up her crew.

Before I turn to the wave booking period, I will note that we are just over nine months away from taking delivery of Oasis's sister ship, Allure of the Seas, and her construction process is proceeding smoothly at this point.

Moving to the waves.

In general, the first few weeks have exceeded our expectations, as Brian noted.

Our internationally oriented, or developmental product, which comprised six of our 21 ships this winter, are all reflecting a positive momentum, which is encouraging both for a year-over-year revenue yield performance, as well as for the long-term outlook for the Royal Caribbean International brand.

In market after market, we continued to win the top awards for best cruise line, which is a reflection of the brand's global appeal.

The outlook for Europe, where we will have eight ships, including four Freedom or Voyager class ships, is particularly encouraging, with strong performance both from our European and North American points of sale.

Our two ships in Alaska are also booking well in comparison to last year's disappointing decline in performance.

We have seen promising volume in our Caribbean product portfolio, which has contributed to the fact, as stated by Brian, that we are ahead of last year on both rate and volume in each of the four quarters.

We still have a lot of Caribbean cruises to sell in 2010, so our visibility to this segment is still relatively limited.

While we have not experienced pronounced weakness in any of our product groupings, the areas of least strength are the cruises based on the West Coast and the Northeast of the US.

But again overall, we are pleased with the start of the wave season.

Despite our focus on cost control, we continue to generate strong guest satisfaction ratings.

We are looking forward to advancing our brand in 2010.

At the same time, we are committed to helping with the recovery and reconstruction in Haiti.

Dan?

Thanks, Adam.

Good morning everyone.

It's been an exciting time for Celebrity.

As you know, we kicked off the year and celebrated our 20th anniversary by relaunching our new brand platform, Designed For You.

Our brand-defining Solstice class ships continue to perform well, and we are looking forward to Solstice-izing all of our Millennium class ships over the next few years.

We are also looking forward to taking delivery of Eclipse, our third Solstice class ship, in April.

In the fourth quarter, we once again had healthy close-in demand for our cruises in both Europe and the Caribbean.

In general, volume was a bit better than what we thought at the time of our previous earnings call.

Our on-board revenue also performed better than we had planned, driven by shore-ex gaming and on-board communication.

And expenses were slightly under where we thought they would be, driven by our focus on costs.

In the Caribbean, we have continued to see close-in bookings for the first quarter.

Some of this close-in business is being driven with discounting, but overall Caribbean pricing remains consistent with our expectations a few months ago.

This summer's European season is looking very strong for Celebrity.

Both Equinox, operating a 10- and 11-night Med cruises from Rome, and Eclipse, our first ship dedicated to the UK market, operating summer cruises from South Hampton, are performing well at very healthy prices.

I am pleased to say bookings are also performing quite well on our non-Solstice class ships operating in Europe.

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 percentage of bookings coming from outside of the US on many of our Europe cruises.

We will continue to operate three ships in Alaska, and all three are doing much better than what we'd seen last year at this time.

However, Alaska is still not as strong as in 2008 and past years.

We do have a couple of new deployments for Celebrity that are worth mentioning.

For the first time in several years, in a response to feedback from consumers in the trade, we're once again operating seven-night Caribbean cruises year-round from South Florida.

The award-winning Solstice will operate those year-round Caribbean cruises.

Our cruises to the Caribbean tend to book closer in than cruises in Alaska and Europe, though our visibility for our year-round Caribbean sailings will improve in the coming weeks.

We are also back in the Bermuda market after a three-year absence, with Summit operating seven-night cruises from Cape Liberty.

Bermuda cruises tend to be sourced regionally, and we expect this product to be a big win for Celebrity in the northeast.

As you've heard from Brian, we're all very pleased with these first few weeks of wave, and looking forward to the year ahead.

Brian?

Thank you, Dan.

We would now like to open the call for your questions.

Just a reminder, we ask 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.

Operator?

(Operator Instructions).

Your first question is from Robin Farley.

Great, thanks.

I wonder of you can expand a little bit more on potential plans for newbuilds, in terms of -- it sounds like 2013 will not necessarily be a pause in deliveries.

And also what brand or ship class are you thinking about more than others, as you think about floor plans?

Thanks.

Thank you, Robin.

I am not sure that I can add much more to what we said.

We have historically tended not to make speculative comments about what we might or might not do, I think that just adds to confusion in the market.

I think we have been fairly consistent in saying that we are looking forward to a period of slower growth, and I think that's still the case.

Other than that, I think we would be simply looking at the market as it evolves.

We look at what opportunities there are in terms of from the shipyards, but also in terms of if we saw something that particularly fit a need that we had.

But, I think it is way early to speculate on which particular brand or market that might be in.

It is just too early for us to comment on that.

If I could just ask at this rate, I think at the Oasis event you said that the next order would not necessarily be another Oasis class, that you might be more likely to -- and so by that I would think that would mean that the Solstice or Freedom class.

Is that still -- would you at least say that's still the case or not --- that is even that is on the table right now?

Well, I think we always like to keep our options open, and always, but I have said before and I think it still remains the case that we think that Oasis was a special case, a special opportunity.

And I think I would probably give it less likelihood that we would have more Oasis than the two that we have.

Great.

Thank you very much.

Our next question is from the line of Janet Brashear.

Thank you.

Last year, or in 2009, you made some progress on SG&A.

Can you comment on what you expect for SG&A in 2010 versus the 2009 result?

I think -- this is Brian, our SG&A will be consistent with our overall cost guidance.

I mentioned in my opening comments that we've been investing a lot in some of the new international arenas and opening offices.

We have been -- we're growing our brands organically in these markets.

So we are investing in the marketing and sales side.

I think it is fair to say that we continue to find efficiency in our core operations, and we expect that to continue.

But overall, I think the general theme is that our costs, on a reported basis, will be flat to slightly up, and when you factor in today's exchange rates will actually be flat to slightly down next year.

Thanks.

If I can just ask one more, the expansion in Europe is increasing dramatically next year, and unlike North America, where you getting some particular support from new ships and things like that, you have new capacity that's not all new in Europe.

What do you suppose the impact on pricing would be?

Do you expect pressure on pricing to crop up in 2010 based on the capacity influx?

Hi, this is Adam.

Well I gave a fairly, I would say, upbeat report in my commentary in the script about where Europe is looking for this year.

I mentioned we have eight ships, but we also had eight ships in 2009.

Really the only difference for us is that we upsized and brought in -- and will be bringing in an additional Voyager class ship in place of one of our smaller ships that will stay out in Asia all year long.

From Royal Caribbean International's standpoint, there's not actually a very significant increase in capacity.

And what we are seeing in terms of booking, both from North America and Europe point of sale, and in terms of rates, is encouraging at this point.

Thank you.

Janet, this is Dan.

One of the interesting things that we have done on the Celebrity side in Europe is we have Eclipse, which we will be sourcing predominantly out of the UK.

So while it does look like capacity is up, what we have got is an opportunity there to really, for Celebrity anyway, to expand into a new market.

We are tapping into new supply, which is -- we have been very, very gratified by, and the pricing we are seeing there, and the interest from the UK it has really been terrific.

Thank you.

Your next question is from the line of Gregory Badishkanian.

This is Jeff Hans, I'm speaking on behalf of Greg.

I noticed in 4Q you had a really big divergence between your ticket revs and your on-board revenue.

So what really drove that?

Is that a sustainable run rate for 2010?

Actually both our ticket revenue and on-board revenue performed a little bit better than our guidance.

I think we clearly benefited from the introduction of Oasis, we have seen good performance from the Solstice class.

I think going forward -- we have always said that ticket revenues tend to be a little more volatile than the on-board revenue.

I think going forward, we've provided guidance of up 3% to 6%.

That's probably driven a little bit more by assumptions on ticket revenue recoveries, and perhaps on-board.

But we are seeing positive trends with on-board as well.

Okay.

And then just a quick follow up, you guys obviously did a real impressive job cutting costs in 2009, and I think you're projecting flattish-type costs for this year.

Where do you see most of that coming from?

It really is just a tremendous amount of focus by our Management team to find those costs so that we can become more efficient, again reiterating without compromising the guest experience, so really the growth in international.

There has been a laser focus on it.

Also, making sure that these are sustainable cost savings.

We are committed to continuing to spend in marketing and sales.

Most of it is in shoreside efficiency that we've been able to get.

I'd also say that as we've matured in some of the international markets and at very nice growth rates, we begin to get economies of scale in those markets as well.

All right.

Just one last one, I apologize.

I know you want two, but any update on what you are seeing with booking windows?

I think last quarter you had mentioned you were seeing signs of it extending a bit.

Just broad-based throughout your entire portfolio.

I think my comment on booking windows overall is it's probably at a slight amount of expansion, and it really varies significantly by market.

I think some of the premium itineraries, such as Europe and Alaska, we are seeing the booking window move out from where it was a year ago, but Adam alluded to the West Coast, specifically Mexican Riviera, I think we are seeing a more contracted booking curve there.

When you net it all out, I'd say the booking curve is slightly expanded from where it was, but not -- certainly not back to where it was before the recession.

Thanks.

Your next question is from the line of Scott Barry.

Hey, Brian.

To what extent do you anticipate any improvement in your load factor in that net revenue yield guidance you gave?

And then secondly, could you address the variance in your capital spend?

It looks like it's about $400 million higher than the guidance you gave.

Sure.

As the capital spend, really if you look at the cash flow statement, below the Investment Property, Plant and Equipment is the derivative line.

That derivative line is net of gains and losses.

There were losses on interest rates, but rather large gains on the FX portion.

So when you net the two out, you're pretty much back to our guidance.

And I'm sorry, Scott, what was -- the load factor.

In 2009, our load factors were about 2 percentage points down from 2008.

I think we had a little bit of a slip on load factor because of the impact of the recession.

I think there's also a little impact from some of our new developmental markets.

I think we would expect our load factor to begin to recover, probably fall somewhere in between 2010 and -- I'm sorry 2008 and 2009.

Great.

Thanks.

Your next question is from the line of Felicia Hendrix.

Hi, guys.

So I need you to help me understand something.

You guys have been really positive on the call.

You talked about positive momentum, you mentioned that the wave is better than expected, discounting is less than expected, all really positive data points, yet I am just struggling with your first-quarter yield guidance.

So on your last call you said first-quarter yields are going to be positive in both constant and current dollars, and now it looks like they're indeed positive including FX, but when you back out FX, they're flat.

So that seems like a change, and I was hoping to understand that.

Then also what was driving, what looks like now is going to be higher net cruise cost for the year, versus ex-excluding fuel.

Felicia, on the second part, on the cost side, we said on the last call that we had a goal of being flat in 2010.

In our comments here, we said that on an as reported basis we will be flat to slightly up, but when you look at it after FX, we are saying we're going to be flat to slightly down.

So I think we're very consistent with where we had said we would be previously.

For the first quarter, I think we are talking about marginal changes, and were giving directional comments on our last call.

I think we feel fairly consistent about the first-quarter performance today than where we were a few months ago.

I think we have shown, since hitting bottom in Q3, where yields were down in the teens, we've had a nice recovery in Q4 where we were down just over 7%.

We are now talking about going up 2%.

Obviously, our comparables are easier in Q2 and Q3, so we would expect more opportunity there.

I would also comment that in terms of 2009, we probably saw more pressure on what we would define higher-end product, and I think we are seeing relatively stronger (technical difficulty).

Hello?

Ladies and gentleman, please hold.

Operator?

Your line is open, go ahead.

We all lost you when you were starting talking about 2009 seeing more pressure on the higher-end.

I apologize for that.

All of our calls on this end just went completely dead for a minute.

We are not sure what happened.

It was the vibe I was sending.

Well, I think again, in 2009, we felt more pressure on what we would call the higher-end products.

I think last year there was a lot of talk about Alaska being under a tremendous amount of pressure.

If we look out to 2010, we're seeing more of the higher-end products having a disproportionate recovery to the products that didn't suffer as much in 2009, which bodes well more for Q2 and Q3 when Europe and Alaska begin to kick in.

But I think what we are seeing here is a steady recovery.

Richard alluded to, if we come out of 2010, we are looking forward to a revenue environment where we don't have a lot of business on the books that was booked in 2009.

We have a disproportionate amount of that first quarter having 2009 sales in it.

But I would just reiterate our view of Q1 is not materially changed.

Okay.

It seems like it does, but I understand your explanation.

I hear you.

Final question, just regarding your -- the fuel guidance that you gave, I was wondering -- does that already include the efficiencies you are enjoying from the Oasis, or do you think we could see upside to that?

This is our operating plan guidance that we've given, and our -- I think we mentioned in the Press Release, since 2005, we've gained about 11% efficiency overall.

The brands continue to focus on ways to become more efficient, but the numbers we have guided do include the new vessel as well.

One thing I would call out, we have changed a lot of itineraries in 2010, we are going into new markets, and a lot of times that can have an influence on our consumption as well.

That's very helpful.

Thank you.

Your next question is from the line of Steve Kent.

Good morning.

Just a couple of questions.

First, as the sister ships to Oasis and Solstice come on line, do you expect them to maintain the same level of premiums, is that in your guidance?

And I guess the reason I'm asking is, my recollection is, on the Freedom class ships, as the second wave came on, you saw some pricing fade.

And then just generally, any view about the new Disney ships coming on?

And then finally wave, as a percentage of the total year, can you just give us an update as what percentage you think the wave period will account for this year versus previous years?

Hey Stave, it is Dan.

I will start.

Because we are looking at the third Solstice class ship coming on this summer, and we've been extremely pleased with what we've seen on yields all the way along.

Solstice was terrific when it came on, Equinox maintained its -- actually, we're very pleased by what we're seeing with Eclipse, even a little improvement from what we had originally anticipated we would get out of Eclipse.

So we haven't seen any fall off at all, and have been quite pleased with the results that we've had.

Hi Steve, it's Adam.

I just wanted to comment quickly on Allure of the Seas, simply because she's only in in December, so she doesn't have more than a 1% or 2% impact on our year, and really is, I would say, immaterial for the purposes of your question.

And then I'll comment, or I rather I won't comment on the Disney ship.

I think just, in general, first of all we don't comment on other ships, but I think historically we have seen that Disney, because the Disney brand is, it's so, so powerful it actually helps add a halo to the market.

It does tend to validate the relevance of cruising as a vacation choice.

And much as we felt when Disney first came into the cruise industry, we actually felt the net impact of that would be positive, and I am hopeful that this will be too.

Steve on the wave question, I would say wave continues to be important to us.

I think several years ago, we said it wasn't a sea change one way or the other, as it had been probably in the 1990s.

I think we even referred to it as "high tide".

I think as we diversify our products (inaudible).

We have talked about we are only a year or two away when more than 50% of our guests will come from outside of the United States.

We are dealing with a little more contracted booking per day than we would be accustomed to in normal times.

It is still very important, but I wouldn't say it is the end-all, be all to how we (inaudible).

But we are encouraged by it.

We are happy to see that we are taking record booking volumes over the last few weeks.

So it is very reassuring to come back from the holidays and see that business coming in.

Okay.

Thank you.

Your next question is from the line of Tim Conder.

Thank you.

Regarding your overall net yield guidance, in 2009, both yourselves and the industry had some issues with H1N1.

Obviously that doesn't seem to be that much of an issue now.

But, also, in -- I think you quantified H1N1 and the Pullmantur problems that you had as far as the hit to 2009.

In your overall yield guidance, how is Pullmantur factored in?

Is it still a drag, or are you expecting some recovery in that net yield guidance?

Tim, I think Pullmantur is clearly in our guidance.

I think the Spanish economy continues to be likely the weakest that we are operating in these days, but I think we are feeling that Pullmantur has an opportunity for yield accretion in 2010.

We -- you referenced H1N1.

My recollection is that impacted us right around 1%, maybe just over 1 percentage point for the year.

I think, while we wouldn't specifically assign it to H1N1, I will just build on Adam's comment, that the Mexican Riviera itineraries seem to be one of the weaker markets right now.

Whether that is unique to California's economy, or what we're seeing is residual effects of that, we are not sure, but I think our yield guidance is up 3% to 6% somewhat speaks for itself, and includes all of that.

Okay, Brian, again, just to clarify, the 1% yield hit was due to H1N1 alone, and excludes any effects from Pullmantur?

That's including Pullmantur being affected by H1N1.

Both Royal Caribbean International and Pullmantur were impacted by H1N1.

It was about $0.27 for the whole year, correct, for '09?

That's correct.

Okay.

So again, Pullmantur will be yield accretive in 2010?

Well we don't provide segment reporting, but I've tried to indicate that we're feeling better about Pullmantur.

The economy is clearly not better, but the Management team's doing a very good job operating in a very tough environment.

Okay.

Fair enough.

Thank you, Brian, on that.

Then just a little more color, Dan, or Adam, whoever, can you give us a magnitude of the premiums.

There's a lot of estimates out there, including ours, is the premiums that Oasis is getting versus the rest of the fleet, or Solstice versus the rest of the Celebrity fleet.

And then, in your commentary regarding on-board spending, of those premiums that you are getting on the ticket side, directionally if you are getting a 30% premium on tickets versus the fleet, how are on-boards as a percent versus the fleet?

Sort of the same directional type of question.

Tim, it is Dan.

That was a brilliantly asked question.

Well, thank you.

Unfortunately, we don't give out the detail on that.

But it is better.

We are pleased.

We are seeing it better on Solstice class in ticket, and Solstice class in on-board.

I can't give the quantifiable details, but I can tell you we are very pleased and we are seeing similar things, obviously we don't know what on-board will be yet for Eclipse, because we haven't even taken delivery, but we're seeing similar things on the ticket side.

Okay.

I mean directionally is it a little -- would you say if your premiums are up 50%, would your on-board be 25%, would it be half of the rate of the ticket, plus or minus over that half the rate of the ticket premiums?

It is less than that.

We are seeing more of an increase on ticket than we are on on-board.

We are seeing a nice increase in on-board, but we're getting more in ticket.

Okay.

Okay.

Thank you, gentlemen.

Okay.

Thank you.

Your next question is from the line of Sharon Zackfia.

Morning.

I think there has been a lot of chatter about the Oasis and maybe its cannibalization of other ships in the Caribbean.

Could you address that for Royal Caribbean specifically?

Hi Sharon, this is Adam.

Hi.

Well, I mentioned again earlier, that in general, we were pleased with what we are seeing in our Caribbean product portfolio.

It's early in the wave, and understanding that we have a tremendous amount of Caribbean cruises to sell this year.

And what Oasis has done for us, and Allure will also do for us, is allow the continued global expansion of our fleet.

So, (inaudible), let's say a year from now, the next coming winter, won't even be in the Caribbean.

So we have this domino effect, which sort of tempers the overall Caribbean capacity growth and increases our global growth, by bringing the big ships into Fort Lauderdale and the other ships going out.

So Freedom class ships are still very formidable ships in the industry, which is why we are so pleased that Oasis is getting the premium that she's getting over them and other ships, even though they continue to be very strong competitors in the marketplace.

And so, I would think overall, the tremendous publicity that we got in connection with Oasis launch has strengthened the brand in general.

I guess separately for both Royal Caribbean and Celebrity, you saw some nice sequential pick-up in on-board spending, at least a year-over-year improvement.

Can you talk about where you are seeing that improvement on both brands?

I will just comment.

I think it is across the board.

We are seeing better beverage sales, we're seeing shops are doing better, the casinos are doing better.

You name it, the spa is doing very well on both ships.

It is really across the board.

For two reasons, one the -- three reasons, actually.

One the facilities are better, and larger and more opportunity.

Secondly we also have, we think, better systems in place.

And that is coming back to the earlier question, one of the things that helps us, the benefit goes to other ships, because the new systems we put in place on both Oasis and Solstice to be better able to deliver the service, on both ships, we retrofit to other ships.

So that is helping us.

And lastly there is -- people paid more for their cruise, and they're enjoying their cruise a lot, so I think people tend to feel a little bit freer with their money.

So it's really across the board.

It is not that there is one area that's just overwhelmingly dramatic.

Thank you.

Your next question is from the line of Assia Georgieva.

Adam, I think John Weis was probably not on the call.

I wanted to congratulate you on the Solstice and efforts you have made towards helping the Haiti population.

I wonder if everyone on the call can actually pledge to themselves to contribute at least $1000, I think it would be a worthwhile effort.

So, again keep up the good work, and I am sure the island nations appreciates the fact you're back there and helping them out.

Going into the results, for Q1 expectations there's about a $20 million expectation of a benefit, which I think is about $0.09 a share.

Would you comment on that?

And maybe Brian you can take this up.

Sure.

The -- originally, this deal, and hats off to Dan Hanrahan and his team, and our attorneys on this deal, was really negotiated on the courthouse steps right before it was scheduled to go to trial, and we wanted to get a press release out quickly.

There were pretty much two components to this, the first is the $0.30 that we had originally announced, and there are some deferred cash aspects of the negotiation that are to be realized over future years.

And we have come to realize here toward the end of our close, that the revenue recognition for that has to be taken in the first quarter, where we had originally thought that would be a deferred recognition.

And that is where the extra $0.09 came from.

So in addition to the $65 million or $68 million you are going to be received additional money?

Correct.

It will be an additional $20 million that could come in up to five years' time.

But because of the accounting policies, the certainty of the payments, we have to recognize it in the first quarter.

But in terms of the balance sheet and your liquidity, the $68 million, you have now?

The -- when the deal is absolutely finalized we will get the $68 million in the first quarter.

The other $20 million is deferred over time, though it will help liquidity in the first quarter.

You could pay a dividend at about half the rate you used to have, and that settlement would help you pay the dividend for at least 2010.

Well, we've not made any announcements about any change in our dividend policy.

Okay.

And the second question, and Brian, probably again for you, net cruise cost being up 1.5% in Q1, is that Pullmantur related, is that the core business, what's driving that?

Well, we have said that net cruise costs will be up around 1% in Q1, and again that is on an as-reported basis.

If you adjust for currency, we've said we will be flat to probably down slightly.

It really is timing of expenses, it's not anything specific to Pullmantur.

We are in allotted developmental markets more during the winter season as we try to develop new markets to help smooth out our earnings, so you might have a little bit of disproportionate spending in Q1 but nothing material.

Any dry docks that might be of greater proportion this year versis 2009's Q1?

This is Dan.

Nothing in the first quarter in terms of dry docks.

Celebrity Constellation goes into dry dock in the quarter, and we will be doing a revitalization at that time.

But not in Q1.

Okay.

All right.

Thank you so much.

You're welcome.

This is Adam.

I just wanted to add to that that Royal Caribbean does have dry docks in the first quarter, but nothing out of the ordinary.

And I also wanted to thank you for your comment related to Haiti, which I think --

Yes, I think it is very helpful what you and John Weis have been doing in terms of relaying the message, so thank you, Adam.

Right.

That's way the publicity works, but I think it is important to note this has been an outpouring of support from across the Company, and involving many others.

And this is a country that required enormous reconstruction before the earthquake, and now has entered into another dimension.

Your thoughts are very much appreciated.

And you referenced, I hope that you are just -- are able to continue to bring in supplies on the ship.

Your next question comes from the line of Kevin Milota.

Morning, everyone.

I was hoping -- Richard had noted that yields would still be positive for the remaining portion of the fleet, excluding Oasis and Solstice.

I was hoping you can provide color on what sort of contribution the newer hardware is putting on?

Additionally, with the fuel hedge guidance you gave here, I was hoping you could give us the levels of crude where the hedge component is pricing on it right now?

Thank you.

Kevin, I don't have a whole lot of details on the hedging in front of me.

If you could follow up with Ian after the call I think he would be happy to try and help you through that.

In terms of -- directionally on yields, we have said that the majority of our yield accretion in 2010 is being driven by the Oasis and Solstice class vessels.

We made the comment in the press release, and Richard also mentioned, that the base fleet is contributing to yield accretion in 2010 as well, which I think is a little bit of a change in how people were perceiving how the market was shaping up in 2010.

I think there was a lot of feeling that we were becoming a one-trick pony if you will, and it was really the newer vessels that were driving that.

What we are trying to say now is the 39 ships that make up our fleet, in aggregate, are contributing.

Okay.

Just one last question on the dividend.

I know you haven't updated your methodology, but was wondering is it a prerequisite to get to investment grade before you start paying that out, or is it more of a general feeling that cash flows, return on invested capital, and EPS continues to move in the right direction, is that -- does that get you more comfortable to begin to reinstate that dividend level?

It clearly is up to our Board of Directors.

But at this time, we have discontinued the dividend.

We know it is something that shareholders value, but we don't have any current plans to do so.

We don't have any restriction in terms of when we're allowed to continue it, other than it is at the discretion of our Board of Directors.

Okay.

Thanks a lot.

I appreciate it.

Okay.

Operator, we have time for one more question.

Okay.

Your final question is from the line of David Lebowitz.

Good morning.

Briefly, could you tell us the number of years it will take to earn your full investment on both Solstice class ships and Oasis class ships, versus the rest of the fleets?

David, we really have never provided that level of detail.

We don't do --

It doesn't mean you can't change now.

We don't think we will do so today.

Okay.

Second question, if the -- any new build outside of what's already on the books will not be available until 2013.

And by everybody's admission, you will be slowing down the number of new builds.

How do you at one and the same time, enter new markets, keep your same share of market in existing markets where you clearly are getting very fine pricing, and lastly at the same time replace any number of the 15 vessels, which will be 15 to 30 years old at that time?

Hi David, it's Adam.

Those are all certainly good questions that we spend a lot of time thinking through in our strategic planning process.

And we're fortunate that we have a good number of ships, including the recent new builds and the ones still coming, that we have been able to make a meaningful statement in the markets that we determined were a priority for our Company.

We have now six brands that we're involved with that serve those purposes for us in various parts of f the world.

So we do have to make strong and difficult trade-off decisions, but when you look forward -- when we look forward, I should say, we feel like we can get the capacity in the markets, which are growing, or can be made to grow, and we can compete successfully all over the world with varying market shares.

So there will be a slowdown, that's fairly inevitable when we are talking about 2013 is the likely timeframe for any potential ordering that we could do in the future.

So we have to be very sharply focused on the decisions we make about market penetration.

But we are pretty comfortable we can get capacity where it needs to be for the near future.

But you are also going to be withdrawing capacity with ships that are 15 to 30 years old.

We have -- we're operating with ships, I'll speak for the Royal Caribbean International fleet, we've got Monarch and Majesty of the Seas, which are nearly 20 years old, which are still very solid parts of our guest offering, and are attracting significant numbers of first-time cruisers into the short cruise market.

And some of those people are graduating to be cruisers with us for longer lengths of time in other parts of world.

So with our refurbishment and maintenance programs and our dedication to product quality, we can continue to operate very successfully with ships in that age range.

If I could just add on that, as it relates in to something Dan said earlier when he was talking about Solstice-izing some of the Millennium ships as part of the launch of Celebrity's Designed For You platform.

We really -- one of the things that is unique about our fleet is we are -- of course, we are very proud of the new ships and they are doing extremely well, and we look forward to benefiting from those that are yet to deliver, because we have more ships coming.

But I think the other thing that we should emphasize is, historically, our ships have been particularly well-designed, and not of the moment, but these are lasting designs, but also we've been able to take some of the benefits from the new ships and some of the features and put them back.

So for example, when we started with the rock climbing wall, and that is obviously became an icon of the Royal brand, we retrofitted that on older ships.

As Dan mentioned, we are in the process of taking some of the exciting features on the Solstice ships and retrofitting those on the Millennium ships and that has been very powerful for us.

So I do think there's a fair amount of opportunity, and I think we shouldn't forget that.

Okay.

Thank you very much.

All right, well we would like to thank everyone for joining us today.

And as I mentioned before, Ian will be available throughout the day for any follow-ups you might have.

And we would everybody a wonderful day.

Thank you.

This concludes today's conference.

You may now disconnect.