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Operator
Good morning.
My name is Miranda, and I will be your conference Operator today.
At this time I would like to welcome everyone to the Royal Caribbean First Quarter earnings conference call.
(Operator Instructions) Thank you.
Mr.
Rice, you may begin your conference.
- EVP, CFO
Thank you, Miranda.
I'd like to thank each of you for joining us this morning for our first 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, Investor Relations.
During this call we will be referring to a few 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.
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 uncertainty.
Examples are described in our SEC filings and other disclosures.
Additionally we will be discussing certain financial measures which are non-GAAP and a reconciliation of these items can be found on our website.
Richard has some comments to begin our call.
I will follow with a brief recap of the First 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'll open the call for your question.
Richard?
- Chairman, CEO
Thank you, Brian, and thank all of you for joining us this morning.
As you can see from our earnings release, the First Quarter turned out better than we were expecting and the full year is looking better as well.
I'm going to let Brian take you through the details but as you know, we ended the quarter $0.10 to $0.15 better than expected and this improvement carries over into our full year forecast.
Note that the First Quarter includes the non-recurring gain from a legal settlement and that without the gain, our results were just above breakeven for the quarter.
This is the gain, this gain was in our forecast and even without it, we did substantially better than the First Quarter of 2009.
Now, cost control was and remains vitally important.
We've been talking about that quite a bit recently, but the most important part of the improvement in our earnings is being driven by improvements in revenues.
Net yields turned positive this quarter and were stronger than we expected just three months ago.
Now, don't misunderstand me.
I'm definitely not excited by a 2.6% yield improvement.
The economy is clearly still weighing on our performance and the improvement that we've had is off of a dismal base, but, we've now reached an inflection point on yields and that's an important milestone worth noting.
We're certainly not where we want to be but turning the corner is the first step to real and significant improvement and we have clearly turned that corner.
Now, switching to cost, expense controls were once again a meaningful contributor to the quarters results and they remain a central tenant of managing the Company going forward.
The strengthening of the US dollar helped reduce cost a bit in quarter one but the majority of the expense beat came from good old fashioned focus on the task at hand.
I'm also very pleased with what we've accomplished on the fuel front related both to itinerary and new ship optimization.
Despite the run up we've seen in the worldwide price of oil, the combination of our swap portfolio and our fuel consumption management actually allowing us to reduce our fuel expense calculation for the full year.
In addition to these fuel and FX impacts, we continue to have a rigorous focus on our other operating and running expenses.
It is not any simple win in this equation, just a constant and continuous focus across all operating and general and admin areas.
More broadly speaking, our top priorities at the Company continue to be focused on improving our return profile, moving towards an investment grade rating, and further expansion of our global footprint.
Strengthening the balance sheet and managing towards an investment grade rating are a key part of our longer term strategy.
Capital spending for current expansion program peaks this year and it is expected to drop in half by next year.
At the same time, debt repayments are ramping up a bit and it's our intention to meet these repayment obligations with operating cash and we will be deleveraging the balance sheet.
Based upon our current guidance, many of our credit metrics will show significant improvement this year and we expect to maintain an improving trajectory over the next few years.
Globalization of the companies guest sources is well under way and going well from both a volume standpoint and strategically.
Most of the net new capacity that we're bringing on stream these days is dedicated to the global markets.
Said a bit differently, most of the first time cruisers we're introducing our product to are international guests.
In fact, our North American guest sourcing has been flat for the past several years.
Now, I'm certain someone will ask us about new ship orders, but I don't have much exciting to report.
The equation hasn't changed.
On the one hand, we see a stronger US dollar, more accommodating shipyards, and exceptional performance from our recent ships.
On the other hand, we have a strong desire to strengthen the Company's balance sheet and credit statistics.
We will continue to balance this equation and work to ensure that it is as harmonious and profitable as possible.
We will continue to grow but probably at a slower pace than heretofore.
My earlier comments show that I believe over time, our Company will be experiencing improved consumer demand, have a stronger balance sheet, and be able to distribute any new capacity across a broader global sourcing platform.
All together, that sounds like a winning combination.
In addition, we are also seeing that less sexy but no less important investment in upgrading our existing fleet generate very attractive returns.
I think it's likely that you will see more of this going forward as well.
On the topic of new hardware though, I've just returned from the inauguration of Celebrity's newest vessel, the Celebrity Eclipse this delivery is the third of the five Solstice class vessels that the Company has ordered and I must assure you that she is every bit as spectacular and as compelling as her sisters.
Consistent with our strategy of international diversification, she was delivered directly to the British market and began sailing from South Hampton on her first revenue voyage the day before yesterday.
Our reception in this market has been just terrific and she is selling well.
Looking forward, we're very optimistic about the future.
We have suffered disproportionately as our revenues declined due to the recession; however, as we now witness the beginnings of the recovery, we expect to benefit disproportionately as well.
Brian?
- EVP, CFO
Thank you, Richard.
I'd like to briefly go through the First Quarter results which we've summarized on the second slide.
In the First Quarter we had a profit of $87.4 million or $0.40 per share which was better than our previous guidance of approximately $0.25 to $0.30 per share.
Net yields were better than our previous guidance and improved 2.6%.
Net ticket yields improved 4.6% and on Board yields were up as well.
Other revenue was down due to lower cancellation fees and a slight reduction in our Spanish tour capacity.
Our load factors also improved and for the quarter we sailed at 103.1%.
Excluding fuel, net cruise costs per APCD were almost 1% lower than the same time last year and better than our guidance of up approximately 1%.
The improvement was pretty much across-the-board with our brands doing an excellent job controlling running expenses and our management continuing to focus on efficiency in our general and administrative areas.
Fuel costs came in better than expected despite increases in at the pump fuel prices.
Since our last call.
Our brands did an excellent job managing consumption, especially on our newer vessels and itineraries.
Our hedges also helped mitigate these price increases.
All in, net cruise costs per APCD were 2.2% lower than the same time last year which was better than our previous guidance of approximately flat.
As a reminder, our First Quarter results did include a gain of approximately $86 million from a previously disclosed legal settlement.
Excluding this gain, we generated a slight profit for the quarter versus a loss of $0.17 per share last year.
I will also point out that each of our brands exceeded their operating plans for the First Quarter.
It was also gratifying to see a $300 million improvement from last year in the net cash generated from our operations.
Now I would like to provide you with an update on bookings.
On January 28, we provided our initial guidance for the year.
We were about a month into the wave season and felt confident we would see yields improve between 3% and 6% for the year.
Those projections have proven to be fairly accurate, although since our last call, the demand environment has continued to gradually improve.
Clearly, we are not back to pre-recession demand levels but pricing leverage is slowly returning.
Sales since the start of the year have been very healthy with booking volumes running about 20% ahead of the same time last year.
We have also seen a modest improvement in the booking window with European and Alaska itineraries being the biggest beneficiaries.
As of today, the second, third and Fourth Quarters are booked well ahead of the same time last year.
Pricing is clearly better than last year, but frankly the comparables are pretty low by historical standards, especially in the second and Third Quarter.
We expect all of our major product groups to show yield improvement this year, but we are especially pleased with the performance of our developmental itineraries.
These products are targeted largely to new customers outside of North America and have been and will continue to be a focus of our capacity growth.
Our newest vessels continue to command pricing premiums in the market but the success of our developmental itineraries is also enabling us to see improved yields with the balance of our fleet.
On slide three, you can see we currently expect yields to improve around 6% in the Second Quarter and between 4% and 5% for the full year.
While we have narrowed the range of our guidance for the full year, the mid point remains essentially unchanged.
From a business perspective, we are feeling better today than we were three months ago; however, since we provided guidance at the end of January, the dollar has strengthened about 4.3% versus the British pound and 6.7% versus the euro, and consequently devalued the European point-of-sale business.
In addition, as we noted in our release, the travel disruptions resulting from the volcanic ash also had a negative impact on yields.
Absent these changes, we would be improving our full year guidance by about 100 basis points based on the improvements we have seen since the middle of the wave season.
While the strengthening of the US dollar has put pressure on yields, it has also helped us on the cost side.
Net cruise costs excluding fuel per APCD are expected to be down approximately 1% in the Second Quarter.
We have also improved our full year forecast and now expect these costs to be down approximately 1%.
Based on today's spot rates, fuel expense would be approximately $170 million in the Second Quarter and $678 million for the full year.
As we mentioned in our press release, we are hedged 50% for the Second Quarter and 48% for the balance of 2010.
We have also hedged 53% and 40% of our forecasted consumption for 2011 and 2012 respectively.
Our total net cruise costs per APCD are now expected to be up around 1% in the Second Quarter and flat to down slightly for the full year.
Earnings per share are forecasted to be between $0.16 and $0.21 in the Second Quarter and between $2.15 and $2.25 for the full year.
As of March 31, we had approximately $1.1 billion in liquidity.
Our capital expenditures are forecasted to decrease by over 50% next year to around $1 billion and we have committed financing in place for all of our new builds.
Our cash flows are also projected to meaningfully exceed our debt maturities, so for the foreseeable future, we do not anticipate a need to access the capital markets, although we will remain open to being opportunistic.
One last housekeeping item before I turn the call over to Adam for his comments about the Royal Caribbean International brand.
I am pleased to inform you that we will be initiating XVRL tagging for our SEC filings with this quarters 10-Q.
As a consequence we expect to file the Q tomorrow morning before the market opens.
We hope you find this helpful.
Adam?
- CEO, Royal Caribbean Intl.
Thank you, Brian, and good morning, everyone.
Brian mentioned the positive contribution of our developmental products through our First Quarter yield performance.
Developmental products comprise six Royal Caribbean International ships that operated primarily in Brazil, Australia, Singapore, Dubai, and Panama during the First Quarter.
These products are important to the strategic development of our brand because of their focus on local or regional market sourcing in rapidly growing cruise markets.
In the case of Singapore, we are talking about the winter complement to our China product that begins now and operates until the Fall.
While we are pleased at the progress we have made, Royal Caribbean is very much still in learning mode and very focused on achieving further improvements in revenue, costs, and guest satisfaction as we go forward.
We are excited about the potential of this product range.
Last week, Royal Caribbean announced that Mariner of the Seas will leave her base in Los Angeles next January and operate 2011 programs from home ports in Brazil, Italy and Texas.
We have a long history operating from California to the Mexico Riviera and certainly we hope to return in the future.
I have frequently commented on these calls about our committment to Europe and the potential we see for further growth of the major European Markets.
As a result of the redeployment of Mariner, in Summer 2011, half of our 22 ship fleet will be in Europe, including two of three Freedom Class ships and four of five Voyager Class ships.
It is possible that from May to October 2011, Royal Caribbean International will carry more guests on European cruises than any other cruise line.
While the clear majority of our guests on our Europe cruises will come from the European point-of-sale, we are pleased with the demand we are seeing from North America at this point in the selling cycle.
America at this point in the selling cycle.
Changing subjects we are just over six months away from taking delivery of Allure of the Seas and her construction process is proceeding very smoothly.
We have added a four night pre-maiden voyage sailing on December 1, and we are looking forward to having our 22nd ship in service.
Finally, I would like to thank all of the men and women at Royal Caribbean for the progress we have made in our cost control efforts while still delivering cruises at very high levels of guest satisfaction.
Dan?
- President, CEO, Celebrity Cruises
Thank you, Adam, and good morning, everyone.
It's hard to believe that it's been almost a year since the lawn of of Celebrity Equinox but as you heard Richard say we just returned from South Hampton where we successfully launched our newest Solstice class ship the Celebrity Eclipse.
We cancelled the two night preinaugural cruise out of South Hampton in order to assist UK travelers impacted by the volcano in Iceland, however our naming crews out of South Hampton and our pre-(inaudible) crews out of Hamburg came out very well.
The Eclipse is the third in a series of five Solstice class ships and its addition brings the Celebrity fleet to a total of 10.
As you know we are especially excited about Eclipse not only because she's a gorgeous new Solstice class ship with an amazing crew but also because she has two new venues that stand out .
the first is the Celebrity I-lounge which is the first ever Apple computer Internet cafe at sea.
We have also added [Cuisine] our newest specialty restaurant which delivers an amazingly fun and delicious dining experience and also features Apple's iPad for the food and wine menus.
However, I'm most excited about broadening the guest sourcing capabilities for Celebrity as Eclipse is our first ship dedicated to the UK market operating Summer cruises from South Hampton.
The response from the UK travel agent partners, the press and many of our loyal Captain Club members during the naming cruise was extremely positive.
Celebrity has made a very strong impression on the UK market.
During the First Quarter we saw healthy demand for all of our products.
A majority of which were Caribbean, both volume and rate came in about where we had thought at the time of the previous call.
Our Solstice class ships continue to command healthy premiums to the other ships in our fleet in both ticket and onboard revenue, and it's worth noting our other ship classes generally performed as planned for the First Quarter.
This year, Summers Europe season continues to book well for Celebrity and we expect to see healthy year-over-year volume and pricing increases for our European product.
We're seeing our Solstice class ships booking very well at healthy prices, and again, bookings are holding up very well in our non-solstice class ships operating in Europe.
Our efforts to build our brand beyond the US market continues to be successful and for the first time we are expecting to see a higher percentage of our total bookings for our European cruises coming from outside of the US this season.
The Alaska product, where we are once again operating three ships is also performing well and doing better than what we had seen last year.
We are back in Bermuda this Summer for the first time since 2007 and we have Solstice sailing out of Fort Lauderdale.
Both of these markets are attracting close in demand and we are seeing a high amount of regional sourcing.
I'm particularly pleased to be back in the Northeast which has always been an important market to source guests for Celebrity.
We have all three Solstice class ships operating in the Caribbean this Fall and Winter and for the first time we'll have two Solstice class ships operating seven night Caribbean cruises out of South Florida when Eclipse arrives from Europe to Miami in November.
Our cruises in the Caribbean tend to book closer in than those to Europe and Alaska so we have less visibility for their performance at this time.
I also want to mention that we recently opened deployment for the Summer 2011 and Winter 2012 season.
There are a few key strategic moves I want to highlight.
Celebrity Silhouette, our fourth Solstice class ship will debut in late July and will operate 12 night holy land cruises out of Rome in the Summer.
During the late Fall and Winter season, Silhouette will do 12 night Southern and Eastern Caribbean cruises out of Cape Liberty, thus the strategic importance of reestablishing Celebrity Northeast with our Bermuda deployment this Summer and next.
Due to our success in Europe the brand will operate all four Solstice class ships in Europe along with the Constellation for 2011.
Constellation has been drydock in Hamburg, Germany and she is being Solsticized as we speak.
Constellation will be transformed in a little over two weeks time as the best venues from the Solstice will be added to the ship.
I'm pleased to report that with the addition of Silhouette in 2011 almost 50% of our capacity will be Solstice class.
- EVP, CFO
Thank you, Dan.
We would now like to open the call for 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 address them after the call.
Miranda?
Operator
(Operator Instructions) Your first question comes from Janet Brashear from Sanford C.
Bernstein.
- Analyst
Thank you.
I wonder if I could ask you a couple questions about the capital allocation going forward.
First question would be how you think about the twin priorities of paying dividends at some point versus deleveraging in terms of timing and then the second question would be to tell us a little more about the capital expenditures for your existing fleet upgrade, how much you might want to spend and what your priorities would be, whether they are revenue or cost driven in terms of the upgrades?
- EVP, CFO
Okay, on the first side, we suspended our dividend previously.
I think by Richard's comments and what we've said previously, we clearly have a focus on delevering our balance sheet and improving our credit metrics and we do have a goal toward moving toward investment grade, so right now, we are in a growth phase.
We have been spending on ships.
Our capital expenditures do drop by more than 50% next year and we'll continue to evaluate the dividend but for now, we haven't seen the need to institute it as we try to delever our balance sheet.
We have traditionally guided the Street for roughly $200 million in non-new build CapEx and for now, we would continue to maintain that guidance as we look to work on our fleet.
- Analyst
Thanks, and the second question, oh, I think you got both, yes.
- Chairman, CEO
Yes, I think the one thing that I made the comments in mine about possibly doing more on dealing with the existing fleet, we've earlier announced that we are Solsticizing some of the older Celebrity ships to bring -- roll back some of the things from the Solstice into other ships and we have found those kinds of investments very effective and I think it is possible that we will be looking at more of those in the future and that could have at the margins some impact on our CapEx forecast as we look at those kinds of things.
And that also will then a little bit relating also to new building.
- Analyst
Thank you.
Operator
Your next question comes from Greg Badishkanian from Citigroup.
- Analyst
Great, thanks and nice job in the quarter guys.
- Chairman, CEO
Thank you.
- Analyst
Yes, great and just a little color on the European travel disruptions.
Maybe kind of looking at the costs and also is there any, I know you said a little bit less than $0.05, but any impact you think for bookings for Europe during the Summer or are things kind of back to normal?
- CEO, Royal Caribbean Intl.
It appears -- this is Adam, Greg, sorry.
It appears that the booking situation has normalized and people understand that that was a bizarre and apparently one off kind of event and I think from a European source perspective, it probably has made drive the crews opportunities even appear that much more valuable than they may have otherwise seemed, so we're still looking forward to positive European season.
- Analyst
Okay, good.
And just my second question just with respect to cost containment as bookings continue to improve, as kind of the economy heats up a little bit, what's your ability to contain costs and to cut out new costs, more cost savings over the coming quarters?
- Chairman, CEO
Well, Greg, I think we've been saying now for a couple of years that we're working very hard on cost containment and I think we've got a pretty good track record the last couple of years.
Last year our non-fuel net cruise costs were down about 7%.
We're now guiding that those costs will actually be down around 1% this year.
I want to temper expectations in terms of costs continuing to go down but I think we've clearly demonstrated that as we see top line growth, it is our intention to try and drop that to the bottom line.
I think our brands have done a great job of finding the right balance between trying to help us improve our returns on investment while at the same time delivering an outstanding guest experience, and I think we're in a pretty good place right now and it's our intention to stay there.
- Analyst
Great.
Thank you.
Operator
Your next question comes from Tim Conder with Wells Fargo.
- Analyst
Thank you.
The first one would be -- given the very solid First Quarter that you've had here and what was the commentary that you've had also looking out for the balance of the year, it would seem that the back half especially the year your guidance would be conservative as it relates to net yield so any additional color there, and then secondly, gentlemen, any additional color on Spain in particular?
I think back in January, you said you saw that stabilizing, Carnival mentioned similar type of comments in March, so just could you update on your perspective with Spain and then they also said there have been some problems in Brazil and I think Adam, you had talked a little bit about Brazil but some more color from those two geographic areas in particular.
- EVP, CFO
Okay, Tim.
I'll take the first one and let Richard address Spain in particular.
Our yields, as I tried to allude in my comments, we do view the business environment as better and I would remind you that when we gave our First Quarter guidance, we had reasonably good insight into wave, we were about a month into it and it had included the benefits of what we were seeing at that point in time in our guidance.
Frankly, we have seen the market improving gradually since that point in time and as I alluded to, I think we would be raising our guidance by about 100 basis points if it weren't for FX, as it relates to yield.
I would also just comment, I didn't include this in my comments but our EPS has been affected by about $0.12 for the year as it relates to FX.
It's helped us on the cost side but net of balance sheet changes as well as the revenue and the cost, cost us about $0.12 and then we have close to $0.05 in there for the impact of the travel disruptions because of the volcano.
Frankly, we think we've seen good improvement.
We baked it in and if you consider that we beat the First Quarter by 60 basis points, second, third and fourth quarter have to be going up by more than 100 basis points to account for what I've been describing here.
- Chairman, CEO
And then Tim, addressing your second question on Spain, the good news as you pointed out I had said last time that Spain has stabilized and it has, and in fact, we are a little bit ahead of budget with respect to Spain.
The bad news is that it stabilized at a terrible level and the Spanish economy frankly, doesn't show a lot of signs of improvement yet, so I think we think that is likely to be one of the last to recover and I think our forecast are predicated on the assumption that Spain will continue to be miserable for a while.
Sorry to be so blunt.
- Analyst
No no no, I appreciate that and then in the same context, Brazil given competitors commenting saying that was baby a little over capacity in the early part of the year here by the industry?
- Chairman, CEO
Yes, Tim.
We commented several of us on the positive progress of our developmental products.
Two of the six ships I referenced were in Brazil during the season and they both had successful seasons.
I think I mentioned previously on another call that this was the first season that we had a Company office driving the marketing and sales programs in Brazil to support those products and we were quite pleased with how it turned out.
For this next season starting in December it's far too early to tell.
- Analyst
Great.
Thank you gentlemen.
Operator
Your next question comes from Sharon Zackfia from William Blair.
- Analyst
Hi, good morning.
I had a couple of questions.
Firstly, I know you guys are more focused on ROI.
Can you help us understand how that translates and as a management compensation and whether there are any targets embedded in the bonus structure at this point related to ROI?
- Chairman, CEO
Yes, it is a major focus throughout the Company and one of the things that we did do this year was to make it a bigger part of the explicit bonus calculation for 2010, and so there's no question that tends to focus peoples attention which I think was already well focused there but I think that added to the communicating that and making that a part of everybody's consideration throughout the Company.
- Analyst
Okay, and then secondly, since this is the first full quarter that Oasis has been sailing, can you give us an idea of how on Board spending is trending on Oasis versus the rest of the Royal Caribbean fleet?
I'm assuming it is better.
And then secondarily just to follow-up on that Icelandic volcano disruption, where are we going to see that, I'm not going to try to pronounce it, where are we going to see that hit in the P&L?
Is that a yield hit?
Is it a specific expense hit we're going to see?
Just where is it going to show up?
- Chairman, CEO
I'll just comment on the volcano which I won't try and pronounce either.
That is -- the vast bulk of that is a revenue hit and I'll ask, it will essentially all be in the Second Quarter and I'll ask Adam to comment on the Oasis onboard revenue.
- CEO, Royal Caribbean Intl.
Yes, in short, her performance is the best in the fleet on onboard revenue and it is relatively the most positive compared to the expectations that we had for the year, so it has proven to be an even stronger onboard revenue generator than we had foreseen and we were pretty optimistic before.
- Analyst
Are there anything that you're seeing on Oasis that you can rollout to the rest of the fleet and in particular, areas where it does really well in on Board spending that can be translated?
- CEO, Royal Caribbean Intl.
Well, I wouldn't confine that examination to onboard spend.
Clearly, there are a lot of learning from Oasis with respect to both guest features and onboard spent potential which we are evaluating with respect to how we might contribute those features or opportunities elsewhere in the fleet, but we don't have anything to say at this juncture.
- Analyst
Okay, thank you.
Operator
Your next question comes from Robin Farley with UBS.
- Analyst
Great, thanks.
I wonder just to clarify, because you've talked about yield guidance on a same currency basis being up 3% to 5% before and you don't specifically quantify it here but I mean you are narrowing your guidance at the high end of the range, right?
In other words the mid point of your guidance you're saying is unchanged but that's only because of currency which everybody sort of understands the currency move but your actual demand guidance is improved by 100 basis points.
I just want to make sure I'm understanding it on the same currency basis that plus 4% to 5% is what you'd equate your guidance to now and then also, the $0.05 from the volcano disruption is maybe a little bit more than I would have expected.
Auto think you had a press release out quantifying that 6% of the passengers were disrupted and it was really kind of a week of disruption so 6% of one week of the quarter seems like it wouldn't have as big as an impact as that $0.05.
- EVP, CFO
Okay, Robin.
You're correct on the yield.
We've provided guidance for yields to be up 4% to 5% for the year.
If it weren't for the changes in the strengths of the dollar since the end of January that guidance would have been 5% to 6%.
- Chairman, CEO
And Robin, on the issue of the ash cloud, I think the impact was bigger than we first thought it was going to be.
We were -- early on, we were pleased that so many people made it to the ships who were in areas where you begin to wonder whether they could, but the knock on costs sort of came into play and it took long -- speaking as somebody who was trapped on one side of the pond versus the other, it was longer and it just had somewhat more impact than at first we were thinking it might, so it ended up, we think it will be less than $0.05 but it's sort of edging up towards that number.
- Analyst
And then just to get a little more color as well on your onboard trends, can you give a little more color around what you saw in the quarter, what was a real increase in spend versus anything in the numbers that was like minimum contract guarantees or anything like that?
- President, CEO, Celebrity Cruises
Hi, Robin, it's Dan.
This is -- the quarter wasn't driven by minimums.
The consumer was for Celebrity anyway seemed to be spending, so we weren't having to go to our partners and asking them to cover us for minimums, so we were pleased with what we saw.
- EVP, CFO
Robin, I'd just add that we've said for quite some time that onboard revenues and ticket yields seem to move in the same direction with onboard revenues tending to be a little less volatile.
Our onboard revenues in the first quarter were up a little less than 3% and as I mentioned in my comments, ticket yields were up around 4.6%.
- Analyst
Okay, I just want to clarify how much of that was demand versus anything in terms of minimum contracts so that's helpful, thanks.
- President, CEO, Celebrity Cruises
Sure.
Operator
Your next question comes from Felicia Hendrix from Barclays Capital.
- Analyst
Hi, good morning guys.
Two questions for you.
One is just when we start thinking about the Allure and the Oasis together, just wondering if you could help us, how should we think about both in terms of pricing and in terms of premiums and then also as far as cost, I would assume that the Allure is going to be starting out at a better cost base than the Oasis.
Just wondering if that's the correct way to think about that?
- Chairman, CEO
Hi, Felicia.
On the second question, their cost base is essentially the same.
They are essentially the same.
- Analyst
Well I guess what I meant, I should clarify is you're moving up the learning curve with Oasis so are you starting Allure at a higher point?
- Chairman, CEO
Okay, it is true that we certainly know a lot more about operating the class of ship going into the second ship than we did for the first because it was such a revolution after it concept, but I would say those types of opportunities are at the margins of performance, fundamentally, they are the same ship being operated in the same way.
And then on the first question with regards to pricing, clearly these two ships have been for some time commanding significant premiums to anything else that's in the Caribbean, certainly any of the year around ships in the Caribbean they compete against and we would expect for that to continue.
It's still quite a ways from Allure being in service so we'll have to see as we get closer to the season exactly what those premiums prove out to be, but clearly both ships are in very strong revenue generating mode.
- Analyst
Clearly, I guess you have two things going on though.
You have demand improving in the industry but then you also have the Allure adding more capacity so I'm wondering if we should think about the premiums that you quantified when Oasis first came out or if you seen those come in a little bit.
- Chairman, CEO
Well, there's a doubling of the capacity of that class of ships to be sure, as you point out.
There may be some effect of that but what we're seeing in the marketplace is very strong premiums for these two ships compared to anything else that is there.
- Analyst
Great, and then just this BP oil rig explosion in the Gulf, is that affecting any of your itineraries?
- Chairman, CEO
Not to my knowledge.
- Analyst
Okay, great.
Thanks guys.
Operator
The next question comes from [Nickey Shinlin] from Ladenberg.
- Analyst
Yes, I'd like to go back to the balance sheet for a moment.
Before 2008 your debt-to-capital ratio was in the 40s and now it's above 50% and at the beginning of the call you mentioned that you'd like to improve the balance sheet so what I was wondering is are your expectations more for for that to come from free cash flow or from other sources such as perhaps sales event of live ships or additional equity, and my other question is whether you would give us some at least a range of your targeted ROIC.
- EVP, CFO
Okay.
The -- Nickey, clearly the way we intend to improve our credit metrics and our credit rating is through free cash flow.
We mentioned that this year we're expecting 1.5 billion in EBITDA and I think Richard said before that if it weren't for last year, we would be viewing this year as a terrible year, as we begin to benefit from the new vessels that are coming in and we see some economic recovery and our CapEx dropping in half next year, we're going to have free cash flow that we intend to use to pay down debt, and as we look for our credit metrics to improve over time it will clearly be through free cash flow.
- Analyst
And Brian, would you be willing to give us some sort of range of a long term targeted return on invested capital?
- EVP, CFO
Well, clearly, our first goal is to achieve our weighted average cost of capital, and we're very focused on that as a high priority for ourselves and I think we would have similar targets to other companies.
We don't have a specific public target out there.
We -- as Richard alluded to, we have a short-term incentive to get that number up and we also have a focus on the nearer term getting to exceed our weighted average cost of capital.
- Analyst
Okay, thanks for your time.
Operator
Your next question comes from Steve Wieczynski from Stifel Nicolaus.
- Analyst
Hi, good morning.
Brian, just one question for you.
I guess you guys used to give a little bit more color in terms of your presentation which is online in terms of forward bookings and if you looked at them if they were indexed back to 2008, so I don't know if you can give me too much color but if you looked at where you guys are booked right now for the second, third and fourth quarters and how much of your capacity has been booked I think that would be somewhat helpful at this point.
- EVP, CFO
Sure, I think I used the term in my comments that we're significantly booked ahead of where we were a year ago.
I would say it is in the mid to high single digits in terms of load factor being that much over the prior year.
We actually debated a lot about how much of the slides we wanted to show and frankly, I think we've made the point of the recovery and we didn't want to spend a lot of time on that.
We wanted to get to your questions more quickly and we continue to see a gradual improvement throughout the year.
- Analyst
Okay, great.
Thanks guys.
Operator
Your next question comes from Assia Georgieva from Vanity Research.
- Analyst
Good morning guys.
One question for you.
Doing a rough calculation, it seems that Q3 yields are expected to be in the 6%, 7% range let's call it mid to high single digits.
Given that the year ago macro environment was so weak and the fact that we had May and June basically were a booking free due to the initial Swine Flu scare, shouldn't Q3 actually be closer to a 10% yield improvement?
- EVP, CFO
Assia, we haven't given you Q3.
I would say directionally you're probably not far off.
Clearly, we're looking at Q2 and Q3 being the easier comparables for the year.
We also I would say there's probably more pressure from the dollar strength in Q3 than other quarters given the amount of European sourcing that we have in that quarter.
But I think we've tried to be very transparent and clear here.
We're not back to pre-recession demand levels, although we feel better about the environment each day and I think as Richard alluded to we've turned the corner and we're seeing a steady gradual improvement.
- Analyst
Thank you, Brian.
Operator
Your next question comes from Steven Kent with Goldman Sachs.
- Analyst
Hi.
Just a couple questions.
Maybe we miscalculated this but it looked like the onboard revenues per occupied room were actually down year-over-year.
I was just wondering if you could comment on that especially in light of you saying that the Oasis ship is showing very good results, and then also, because you are getting such a big premium on Oasis and the new Celebrity ship, what does that say about the rest of the fleet, because it's 10% of your overall fleet, so a big premium does affect those results, and then final question, what percentage of your bookings are now coming in direct either through the internet or through your own customer representatives?
- EVP, CFO
Hi, Steve.
We'll give you a pass with three questions.
The first quarter onboard revenues as a tried to a lewd to in my comments when we are public P&L, we clearly break out ticket revenue and then we have onboard and other.
Onboard was actually up a little less than 3%.
What's driving the decline in the total there is we had pretty good cancellation charges last year in the First Quarter when we were in the postmarket meltdown, we had some large group cancellations that we had benefited from and our Spanish tour operation, we've actually scaled back a little bit.
We have been much more focused on the profitability in that area and we found some of the tours that we were offering were not generating profits so we terminated those tours.
Now, so that's what's causing that change.
In terms of the balance of the fleet, yes, the new ships are doing quite well and commanding very nice premiums.
We said on our last call that the balance of the fleet was actually slightly positive and we've continued to see improvement in the balance of the fleet specifically on some of the developmental itineraries.
As I alluded to in my comments, virtually every single one of our major product groups we're seeing yield improvement in 2010.
- Chairman, CEO
Steve on your question with regard to our direct business, it's in the mid to high teens across the Royal Caribbean, Celebrity and Asamara brands and its been growing slowly.
We would probably expect that to be the case going into the future as people prefer different channels to reach us and consumers get more knowledgeable about the cruise product both here and in the world, but it's very clear at the same time that we predominantly depend on travel agents to distribute our products and we will continue to depend on them for the foreseeable future.
- Analyst
Okay, thank you.
Operator
Your next question comes from Samir Bendriss with Pareto Security.
- Analyst
Yes, hi guys.
My question was partly addressed but I'd like to be a bit more specific.
How are you going to generate sufficient returns to cover costs of capital going forward or even more precisely, do you plan on changing your new building profile and build cheaper ships?
- Chairman, CEO
Samir, clearly we have the investment in the vast majority of our ships already and the ships that are under construction we're not going to change the cost of those.
- Analyst
Clearly.
- Chairman, CEO
We spend a little more on our ships and we think we deliver better ships.
I think clearly, we need to see improvements in revenue.
We've taken a lot of action on the cost side.
The brands are working very hard on their deployment strategies, we've invested a lot in these developmental itineraries and we're seeing good momentum on them.
We have a very high category mix with more balconies on the newer vessels and we're seeing that they are commanding premium.
We have a very specific plan within each of our brands to get the returns up there and projecting where we need to get to and when we find things at either markets or itineraries or ships that are not performing, we have a clear mandate to figure out how to turn those around.
- Analyst
Yes, I guess what I'm asking is that if you at some point announce a new build, I guess you will at some point during 2010, can we expect the new build in cost per birth to be in line with the recent new builds or do you plan on announcing obviously I know that you can't say too much about it but are thinking along those lines of building in the future cheaper ships than you have in the past?
- Chairman, CEO
Samir, we haven't announced any new builds and I think it's premature to address any of that right now.
We haven't talked about what brands we're building for and clearly, we get it that you have to affect things through the numerator and the denominator.
We are clearly focused on making sure that any investments we make are going to provide the types of returns that we need.
- Analyst
All right, thank you very much.
Operator
Your next question comes from Ian Rennardson from Banc of America.
- Analyst
Thank you.
To be more specific on the return on capital employed equation, knowing what you know now about your capacity and your costs, what net, sorry, what net revenue yield do you think you need all other things being equal to get you to a return on capital equal to your ROIC?
- EVP, CFO
Ian, I think the best way to answer that is if we had '08 revenues today with the cost structure that we have in place, our ROIC would probably be in the range of about 8% which is still clearly not where it needs to be but I think our focus again on making sure that we're competing in the right markets with the right vessels and the right itineraries is a major focus of how we're going to get that up to where it needs to be.
- Analyst
Okay, thank you.
Operator
Your next question comes from Janet Brashear with Sanford C.
Bernstein.
- Analyst
Hi.
I wonder if you could tell us a little more about your development product.
As I recall that's growing to about 10% of total product and maybe you could just tell us a little more, I think you said it's positive net revenue yield right now.
Is that a mix between markets, some markets positive, some negative and on balance positive or is that pretty well distributed across those developmental markets?
- Chairman, CEO
It's quite well distributed across the markets that I mentioned earlier, and of course it's not exactly the same in every case but in general the ships collectively and individually had very pleasing winter seasonal performance in terms of the North American winder season.
- Analyst
And so of you were to look at your developed markets where we have Europe and North America, what sort of pricing trends are you seeing given the capacity shifts?
Are you starting to see European pricing or North American pricing better than Europe based on capacity moves?
- Chairman, CEO
It's not really so much capacity moves as the effect of currency being more a Europe point of source.
So in local pricing terms, we're really just seeing positive development in both areas.
I mentioned earlier the North America, we're happy with what we're seeing from North American point-of-sale for European cruises.
The yield outlook there is very positive for our brands, and in Europe we're seeing positive yield development even in spite of the foreign currency pressures which shows that the constant currency, in constant dollars, the performance in Europe point-of-sale is also favorable.
- Analyst
Thank you.
- EVP, CFO
Well, Miranda, it looks like we've worked through the queue of questions so I'd like to thank everyone for joining us today and Ian will be available throughout the day if anyone has anymore questions and with that we wish you a great day.
Thank you.
Operator
This concludes today's conference call.
You may now disconnect.