皇家加勒比遊輪 (RCL) 2010 Q4 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the Royal Caribbean Cruises Ltd.

fourth-quarter earnings call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions).

Mr.

Rice, you may begin your conference.

Thank you, Benita, and good morning, everyone.

I 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, the President and CEO of Celebrity Cruises; and Ian Bailey, our Vice President of Investor Relations.

During this call, we will be referring to a few slides which we have posted on our 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 that are forward-looking.

These statements do not guarantee future performance and do involve risks and uncertainties.

Examples are described in our SEC filings and other disclosures.

Additionally, we will be discussing certain financial measures which are non-GAAP as defined.

And a reconciliation of these items can be found on our website.

Richard will begin with his comments about our strategic direction.

I will follow with a brief recap of our results, comment on the demand environment and provide our forward guidance.

Adam and Dan will then talk more about our brands.

Then we'll be happy to open the call for your questions.

Richard?

Thanks, Brian, and thank you all for joining us this morning.

Many of you know that I actually enjoy these quarterly calls to discuss what's happening at our Company and in our industry.

But to be perfectly frank, some calls are more enjoyable than others, and this particular discussion is probably one of my most enjoyable ever.

I'd like to quickly review where we are and how we got here, then I would like to focus on how we see the coming year shaping up.

Obviously 2010 turned out to be a much better year than we expected.

We initially gave guidance in the range of $2.10 per share based on a lackluster economy.

Unfortunately we were right about the economy, but our results did much better, ending the year at $2.51 per share.

Most important to me was that this improvement came about for all the right reasons.

Strong brands driving higher prices, good cost control driving lower expenses and better operating performance driving good progress in our credit metrics and in our returns on capital.

Looking to 2011, the Wave period is off to a good start.

Our revenue management systems are actually remarkably good at discerning trends in consumer demands, and we saw this trajectory taking shape last fall.

That's why we were able to project that 2011 would be such a record year.

Since then, our bookings have continued roughly along the path we expected, with maybe a slight upward bias and the strong start to Wave has confirmed our expectations.

In addition to economic influences, the importance of strong brands performing well is often relegated to a subordinate role in conference calls such as these.

But in fact, they are the real drivers of our long-term success.

I remain convinced that this is one of the most important lessons from our current experience.

While working hard to manage cost, I believe our management teams have done an outstanding job of providing a quality of product and a level of service that we can be extremely proud of.

I'm grateful to all of them and to the men and women who have worked so hard to make it successful.

And the result of all this is that our guest satisfaction levels are at historical highs and this will continue to be a key factor in driving higher revenues.

Now you all know that the amazing performance of our newest ships is a contributor to this success, but the performance is fleetwide and reflects our determination across the board.

I really commend all of the employees for effectively balancing the need to deliver an unparalleled product with the necessity to improve our corporate returns.

At the same time, it is interesting to note that even with the robust bookings we are seeing during this Wave period, our yields in 2011 still look to be about 6% lower than they were in 2007 or 2008.

We will have recouped two-thirds of the drop and we see that as just the beginning.

Imagine how well we will do when the economy stops being such a drag on our sales and actually starts contributing.

But we are not waiting for the economy to provide a boost.

We're focusing on many other ways to strengthen yield even during a down economy.

One of the most important levers to achieving that goal is a fast growing and diversified global sourcing pool of customers.

Within the next year or so, we expect that more than half of our guests will come from markets outside the United States.

These international guests love our product just as much as do our US guests, yet they're a faster growing demographic that has the potential to raise our pricing quickly.

Looking forward therefore we expect in addition to solar capacity growth, this larger pool of potential customers should positively influence our yield performance.

One other aspect of our business that I don't think gets enough public attention is the issue of energy conservation.

We tend to focus a lot of attention on non-fuel expenses, but one unsung hero in our business is the group that manages our fuel expenses.

They are a big part of our cost structure and they are also one of the most complex areas to manage.

Our hedging program is one element of our efforts, but really the most important element for long-term success is a strong focus on reducing the absolute amount of energy that we use.

Over the last five years, we have reduced the number of gallons of fuel we use for every day a guest is on board by 15%.

And that is going to grow another 5% in 2011.

15 or 20% is an enormous difference to our bottom line and to the environment.

To put that in perspective, if we have the same rate of fuel consumption in 2011 as we had in 2005, we would use 330,000 more tons of fuel than we are actually using and it would cost us more than $175 million for the year.

Now I know the question, when will you order another ship is out there and it's waiting to be asked.

It almost always is and I may as well address it up front.

I have previously confirmed that while we look forward to a period of slower growth, we do not intend to stagnate.

We have been considering our next new building project and we feel that the time may now be right for such a move.

It would also probably be the start of a new series of ships which would incorporate our latest learnings about efficiency and about guest amenities.

We've been working intensively on developing a design that reflects our innovative spirit but in an efficient package and we think that we're near to an acceptable outcome.

Now normally you all know we don't comment on new building projects until we have a firm order in hand, but we are far enough along on this project to militate this particular disclosure.

I can tell you that we won't act until all of the necessary components including a strong return profile are in place.

Now as we have previously emphasized, a very significant emphasis is also being placed on upgrading our existing vessel and owning the customer globally.

Our newest hardware continues to perform terrifically and by 2012, 55% of Celebrity's fleet will be comprised of [Solstice class] hardware and 63% of Royal Caribbean International's fleet will be comprised of Oasis, Freedom and Voyager class ships.

Now certain aspects of these newer vessels are performing so well that we have decided to roll them out to the existing fleet.

We have dubbed this process Oasisizing and Solticizing.

We figure we're entitled to creating a new word here.

Each component of the rollout is being evaluated on an ROIC basis and these investments are being made with a mindful eye towards improving our returns.

So in closing, I would say that while our newest vessels continue to get a lot of well-deserved attention, and while 2010 results were better than we ever would have imagined, we still have a lot of gas in our tank.

We remain very focused on cost and we are evolving our attention around initiatives that will drive better revenue margins such as hardware revitalizations, global demand expansion and customer relationship management tools, CRM.

These initiatives combined with our superior fleet profile provide a terrific platform for topline earnings growth moving into 2011 and beyond.

With that, I'd like to turn it back over to Brian for a more in-depth discussion.

Brian?

Thank you, Richard.

I would like to start by going through our fourth-quarter results which we had summarized on the second slide.

In the fourth quarter we had a $39 million increase in net income to $42.7 million or $0.20 per share versus $0.02 per share in 2009.

Net yields improved 4.2% on a constant currency basis and because the US dollar was stronger during the fourth quarter, our as-reported yields improved 3.2%.

During the quarter we also had several weather-related incidents which negatively impacted our yield performance.

Absent these disrupted voyages, yields came in as expected.

Net Cruise costs for APCD were flat versus the same time last year and better than our guidance of up approximately 2%.

On a constant currency basis, these costs were up 1% as compared to our guidance of up approximately 3%.

Our brands continued to do an excellent job striking the right balance between delivering an outstanding guest experience and controlling costs.

Fuel costs came in about $4 million better than expected driven by further reductions in consumption.

Turning to slide three, you can see for the full year we produced net income of $547.5 million or $2.51 per share.

And in our cash flow statement, you can see cash from operations nearly doubled to $1.7 billion.

Total revenues improved by nearly $900 million and net yields increased 4.4% on a constant currency basis.

Net cruise costs were down for the third year in a row, dropping another 1.3% on a constant currency basis.

Fuel expenses were well controlled despite volatile pricing thanks to our consumption savings initiatives and our fuel hedging program.

I do think it's noteworthy that since 2005 we have been able to reduce our energy consumption per APCD by 15%.

Moving on to the booking environment, we are still early in the Wave season but the strength of demand continues to be consistent with our earlier expectations.

Last week we had the best booking week in our Company's history as measured by both guest booking volumes and revenue.

Following the traditional pattern of Wave, this week which is the third full week of Wave, is shaping up even better.

For the year, booked load factors and average per diems are higher than the same time last year.

And as you can see from the balance sheet, customer deposits are running about 21% higher than the same time last year.

Adam and Dan will provide more color at the brand and product level, but overall, the demand environment remains solid and we are projecting another year of healthy yield recovery.

And while we are still not yet back to 2008 yield levels, our global footprint and the momentum of our brands and our outstanding fleet profile position us well for continued revenue improvements.

Now I would like to provide you with our forward guidance for 2011.

On slide four, you will see our guidance for the first quarter.

We expect yields to be up 2% to 3% on an as-reported basis and up 1 to 2% on a constant currency basis.

Net cruise costs excluding fuel are forecasted to increase 1 to 2% on a constant currency basis and approximately 2% on an as-reported basis.

At today's prices and recognizing we are 63% hedged, fuel is expected to be approximately $168 million in the first quarter.

Including fuel, net cruise costs are forecasted to be up approximately 1% on both an as-reported and constant currency basis.

Our EPS guidance for the first quarter is between $0.10 and $0.15 per share.

As you compare this guidance to 2010, I would like to remind you that last year in the first quarter, we realized a gain of $0.39 per share due to a legal settlement.

Excluding this settlement, our earnings last year were just about breakeven.

Turning to slide five, for the full year, we currently expect yields to be up between 4 and 6% on an as-reported basis and up 4 to 5% on a constant currency basis.

This yield increase is expected to come almost entirely from ticket price increases.

Overall we have projected on-board and other revenue to be relatively flat.

We are seeing very good on-board spending on our newest ships but this has recently been offset by lower spending on some of our developmental itineraries which can sometimes take a year or two to stabilize.

Other revenue which includes our tour operations can be much more volatile, but any fluctuations in revenue are usually offset by corresponding changes on the cost side.

Net cruise costs excluding fuel should be up between 1% and 2% on a constant currency basis and up approximately 2% on an as-reported basis.

Our focus on cost remains vigilant and our management team continues to do an excellent job finding ways of offsetting inflationary pressures.

We have included increases in our marketing and selling efforts, particularly in some of our international markets and our Web and CRM efforts.

We are confident these investments will support our ability to drive higher prices going forward.

At today's fuel prices and recognizing we are 58% hedged, fuel is expected to be approximately $705 million.

Accordingly, net cruise costs are expected to increase 1 to 2% on a constant currency basis and approximately 2% on an as-reported basis.

Our guidance for earnings per share is between $3.25 and $3.45 per share.

As of December 31, we had liquidity of $1.6 billion plus unsecured committed financing of $1.3 billion for our two remaining new-builds.

During the fourth quarter, we finalized an additional revolving credit facility in the amount of $525 million which matures in November 2014.

Traditionally, we have maintained one revolver with just over $1.2 billion in capacity.

Going forward, it is our intent to maintain two separate facilities with staggered maturities to further reduce the risk of volatile market conditions.

Also in the fourth quarter, Standard & Poor's upgraded our credit to BB.

This was a good first step in our effort to return to investment grade.

At this time, we expect to be able to meet all our 2011 maturities including a $500 million maturity in February without accessing the capital markets, although we remain open to being opportunistic.

Finally I would like to point out that we currently have fuel hedges covering 58% of our forecasted consumption in 2011 as well as 55 and 30% for 2012 and 2013, respectively.

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

Adam?

Good morning, everybody.

Royal Caribbean International completed a year of progress in 2010 with improved revenue and costs as well as the highly successful entry of Allure of the Seas into service in December.

We are excited to leverage our industry-leading 22-ship fleet to continue developing our global business.

And in fact, we will be enhancing this fleet throughout 2011 under the Royal Advantage umbrella.

As Richard mentioned, we are beginning to Oasicize a number of our ships beginning with Liberty of the Seas which is currently on dry dock in the Bahamas.

In addition to implementing the DreamWorks experience, we will debut Saturday Night Fever, the musical, at a 3-D movie capability and introduce other offerings in the areas of dining, children's programming and customer-facing technologies.

We will also be revitalizing Freedom of the Seas, Radiance of the Seas and Splendor of the Seas this year as well as adding the DreamWorks experience to Oasis of the Seas.

A year ago, we cited a notable first-quarter revenue yield improvement in ships we had operating in Brazil, Australia, Dubai, Panama, Colombia, and Singapore.

I am pleased to report that these same products which primarily depend on local market sourcing are on their way to another robust year-over-year first-quarter yield improvement.

These products are building our brand awareness and preference in faster growing emerging cruise markets while lessening our dependence on Winter Caribbean market conditions.

It is easy to speak about new ship features and itineraries because they are so tangible.

Less obvious but not necessarily less important are the enhancements we're adding to our customer database, website and Crown and Anchor Society loyalty program.

All of these capabilities benefit from the incorporation of the latest marketing technology and all of them are facilitating our global expansion.

As Richard and Brian have noted, the Wave period is off to a promising start.

We still have a lot of cruises to sell for 2011.

Particularly in Europe where we are adding three ships this summer and therefore we have somewhat limited visibility as to how the different market sectors will perform.

We continue to benefit from [close in bookings] where late volume is needed and our newer products continue to sell at premium pricing to the relevant cruise competition.

In closing, I would like to once again thank the men and women who serve on our ships for another year of delivering the wow to over 3 million Royal Caribbean guests from all over the world.

Dan?

Thanks, Adam.

Good morning, everybody.

We are very excited about the upcoming year for Celebrity.

As you've heard everybody before me mention, we've been pleased with the first couple of weeks of Wave and as always, have a lot of good things happening.

As you may know, we launched a series of new ads in December designed to highlight (inaudible) and make it synonymous with the best in vacations.

In fact, we have recently been recognized as one of the top cruise lines in the world in coveted Annual Readers Survey and several upscale publications such as Conde Nast Travel, Travel & Leisure, Celebrated Living and the Travel Weekly Globe Awards in the UK which just last week honored Celebrity as the best premium cruise line in the United Kingdom.

This is a particularly satisfying recognition as we have had only one season where we focused a ship on the UK market.

I believe it speaks volumes about the impact the Solstice class ships are having on the consumer in the United Kingdom.

At the recent Travel Weekly Awards here in the states, we won best premium cruise line, best premium cruise ship and best European cruise line.

These awards are also very gratifying as they are voted on by the travel industry including the travel agency community.

The ongoing awards and press reviews continuously recognize Celebrity for beautiful ships, widely varied high-quality culinary experiences and the amazing personalized service our crew delivers every day.

Since our last call, we announced our plans to further elevate our on-board offerings in our two newest Solstice class ships, Celebrity Silhouette and Celebrity Reflection, by offering several new dining venues in and around her iconic [lawn club] which are a continuation of our strategy to offer the best dining in the premium category.

We also added 17 additional state rooms to Silhouette and 89 to Reflection.

34 of the Reflection state rooms will be Aqua class suites, building on the very successful Aqua class veranda state rooms we have on Solstice, Equinox, and Eclipse.

The details on the Solsticizing of Infinity were also announced and while we are adding all the exciting Solstice venues we added to Constellation, we are also adding 60 additional state rooms and 107 state rooms on Infinity will be Aqua class state rooms.

The addition of the state rooms as well as the Solsticizing will have a very positive impact on the revenue for Infinity.

As we had previously mentioned, Mercury will transfer to TUI Cruises, our joint venture partner, next month.

With the exit of this ship and the addition of Silhouette as you heard Richard mention, 55% of our fleet will be Solstice class in 2012.

This along with the increasing recognition of Celebrity as the top premium cruise line positions us well for the future.

I can't help but close with one last award we won from Frommer's Cruise Guide.

All of our Solstice and Millennium class ships are in their top cruise ship rankings.

I was particularly pleased with the accompanying write-up where he described the Solstice class as the most flagrantly beautiful megaships ever built.

Brian?

Thank you, Dan.

We would now like to open a 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.

Benita?

(Operator Instructions) Steve Wieczynski, Stifel Nicolaus.

Good morning, guys.

I guess the first question, on your last call you basically indicated the first-quarter yield, you were expecting 2% to 4% up.

And now you have revised that down I guess, just the top end, by 100 basis points.

So what really caused that to come down?

Steve, the first-quarter ticket revenues are very consistent with our previous guidance.

The bookings continue to come in quite strongly as we alluded to.

I think the biggest difference, and we referenced this in the press release and I kind of alluded to it in my comments, is we do see a lot of volatility in the tour division.

There is no corresponding capacity with that and that does seem to be creating a little bit of noise both on the revenue side and the cost side.

But I would say that the first quarter is shaping up extremely consistent with where we thought it would be three months ago.

Okay, gotcha.

And since I only have two questions, I'll ask one more.

We appreciate that.

Well I have a couple but I'll just ask the second one to to Richard.

You talked about the new build.

How much more color can you give there in terms of will this be a multiple ship order?

I assume this is going to be for Royal Caribbean, and just maybe discuss where cost per berth is kind of coming in right now.

Well thanks, Steve, and good morning.

I guess I am not surprised.

We don't normally make even as much of a statement as I already made.

So I'm a little reluctant to get too specific about it.

Because we don't have a final deal, we are still working on that, and we don't like to talk too much of it in advance.

So for most of the things you have asked, I would like to hold off.

I think we are talking about it for Royal Caribbean International, I will confirm that.

And our tendency in the past has been to build series of ships, but to start with more or less one option one or something like that.

While nothing is final, that's probably the direction we would go in here.

Tim Conder, Wells Fargo.

Thank you, and the first question, gentlemen, would be related to your guidance on net cruise costs ex-fuel.

Brian, I think you indicated that it would be up 2%.

And in the past, you stated that your goal was to be equal or half the rate of inflation.

Could you just give any additional color there?

And I guess are there any costs maybe that have been deferred or projects that have been deferred over the last couple of years that maybe are coming in here?

And if so, how are those?

More one-year costs or one-time in nature?

Or just maybe some additional color on that guidance for that line item, and then I'll follow up with a second question.

Sure, Tim.

We did comment in the press release that there was a little bit of timing difference in the fourth quarter.

Our costs came in much better in Q4 than we had guided.

Some of those particularly on the marketing side spilled over into the first quarter.

I would remind you, we've had three consecutive years now of very good cost reductions, and I think it's important, we are still very committed to managing our costs very tightly.

As I think both Richard and I alluded to, the team has really done a great job of finding the right balance when it comes to delivering the guest experience and managing the costs.

Most of what you're seeing in terms of increase in our guidance is really a lot of efforts on the marketing and sales side.

We have a lot of momentum in some of the international markets and with our CRM efforts and our Web refreshes and building new websites, we really believe the long term, the best way to grow our EPS and improve our credit metrics and ROIC is through revenue growth.

These are just some ways of goosing that revenue, enhancing activity.

So those latter comments there, Brian, relate obviously more to the full year is what you're saying?

Yes, I think it would be both the full year and also I think we really are pointed toward 2012, 2013, and the last three years have been about how all the questions, all the focus has been about managing liquidity, getting credit metrics strong and really beginning to make the right cost structure in place which I think we have accomplished.

And now a lot of this is really focused on long-term earnings accretion and driving the revenue line, and we think these marketing investments are very wise choices at this time.

Okay, okay.

And then my second question would be, I think, Richard, you or Brian made some comments that in 2011 -- you talked about the efficiencies you've made over the last several years on fuel, but in 2011, you were anticipating an additional 5% fuel efficiency.

Is that -- just to clarify that statement, is that year over year and is that on a per ALBD or APCD basis?

Tim, I will confirm both of those.

It's year-over-year and it's on an APCD basis and it is incorporated into our guidance.

Robin Farley, UBS.

Great, thank you.

First, I was wondering, Brian, if you could quantify -- you talked about some of the upside in expense reduction in Q4 being maybe some marketing spend and some other things pushed into Q1.

Can you kind of quantify for us very ballpark just roughly what amount that was that you thought originally was going to be in Q4 and ended up getting pushed to Q1?

I'm looking back here, Robin.

On a net cruise cost basis, we had originally said we would be up about 2% and we ended up being about flat.

So it's two percentage points on the net cruise cost per APCD.

(multiple speakers) I don't have the specific reconciliation for you, but it really was on the marketing and sales side.

Okay, so that two percentage points, that's what shifts into Q1?

It spills over, and then you probably have some of Q1 shifting into Q2 and Q3 and Q4.

It's a domino effect.

But I think one way to look about this if you look at the full year, we're coaching about 2%.

Some of that is spilling over from 2010.

So we're probably more in the 1 to 2% range in terms of the absolute increase.

And again, that's all pretty much emphasized on the marketing and sales side.

I would like to point out, when it comes to our running expenses, the brands are really doing a terrific job.

We have had inflationary pressure out there particularly on the food side, but they have done a great job of really managing that.

Great, and then on the net yield side, and your guidance -- and this is all kind of same currency -- your guidance for Q4 have been up 5%.

And then I understand with the weather cancellations sort of just maybe would've been the 4.7%.

But I guess -- and 4.7 I realize rounds to 5.

But I guess I just want to ask, on the margin, your close-in bookings, can you give us a sense of the bookings you were expecting since you gave the guidance in late October versus where they came in?

Was that -- I guess I'm trying to get a sense of what happened with that.

So this is totally aside from the weather issues?

I think you are right, Robin.

If we were to reconcile to the previous guidance of approximately 5, we did come in at 4.7 after adjusting for whether.

When we say around 5, our range could be 4.8 to 5.2 or something in that range.

So we're really talking about splitting hairs here.

The bookings were right as we expected.

Again, and I don't have it in front of me, it just takes a little bit of a hiccup on the tour side or on-board revenue as well.

But we have been saying now for about 2.5 years I think that the booking environment has been remarkably consistent with our expectations, and I think we would stand by that over the last three months both for the fourth quarter and as we look into 2011.

Maybe giving the -- I don't know if it's possible in the future for you to give cruise yield guidance without the tour to maybe adjust for some of the volatility with your visibility and things in the tour business?

Well we will certainly look at that.

It is becoming more relevant for us.

It hasn't been that big of an issue in the past, and we will look to see if that's something that would be appropriate.

Felicia Hendrix, Barclays Capital.

I have a question on your full-year guidance which on a constant currency basis is basically unchanged.

When you had given that guidance before, you guys had talked about half of the increase in your full-year outlook was coming from the new hardware and then the other half was coming from what you were seeing in the industry.

Just a little bit surprised that that number is unchanged on a constant dollar basis just given what you're saying about the Wave, about bookings, about what some of your competitors have been saying about the industry.

I was wondering if you could address that.

Felicia, at the sake of sounding redundant and almost boring at this point, I think we've got a very good handle on the demand environment and it is been remarkably consistent.

We expected to have a record booking week last week in our forecast and it turned out to be so.

The demand for the new ships, the demand for the developmental products is all very consistent with our expectations.

I think there tends to be -- we read a lot of the reports and we read a lot of the business journals out there and there's a lot of week to week emotion in terms of the consumer starting to spend more or starting to hold back.

And we don't see the sort of big peaks and valleys that I think a lot of the analyst community expects to be seeing.

It's been very predictable, it's been very consistent, and I think as we said, during the worst of times, people are going to take their vacations and it never completely went away the way a lot of people thought it would.

And I think it's very consistent with what we thought.

Okay and then just moving to the Oasisizing and Solsticizinig, a little bit difficult to say, wondering if that endeavor is in your current CapEx guidance.

And also if you could just help us think through as the ships get dry docked to be Oasisized and Solsticized, what that does to your top line and if that's in your estimates.

Thank you.

I can talk on the CapEx side.

You know, we have about $250 million a year in our maintenance CapEx and the vast majority of our current plans would clearly be involved in that.

We don't have final plans on all of these, so I have to say it could ebb and flow.

But we have tried to take that into consideration in the guidance we provide.

I'll let Dan and Adam add any other comments about what it does to top line.

Just before Dan and Adam comment on the impact on the bottom line, our forecast on CapEx obviously are much more accurate in the short term.

Longer term they do not include new building projects, so we ought to make that clear if we haven't already, and I think we have.

And if we expand the program of upgrading older hardware, obviously that could have some impact.

But as Brian says, it's very much on the margin.

(multiple speakers) as you mention that, should we just think about though in a few orders shipped, let's just say hypothetically ordered, you announced an order for a new ship tomorrow, you're not going to get that until 2014, right?

So your 2013 CapEx guidance of about 350 is probably intact barring any kind of unknown drydocking situations and stuff like that, right?

Right except for the -- sort of the progress payments.

But yes, basically.

And, Felicia, this is Dan.

We have factored into our thinking the Solsticizing we are going to do.

We did Constellation last year, so that is factored in.

Infinity doesn't come until the end of the year, so it won't have much impact in 2011.

We will see the impact in 2012.

The word is a little difficult, so apologies for that, for Solsticizing, it is a little hard to say, even here.

So just to -- hopefully you understood my question was just is there any impact on the top line as these ships come out of service?

Oh, I get that question.

You know, we planned for that.

And these are drydocks.

We're doing this on scheduled drydock time, so we aren't creating new drydocks.

We're waiting until we're going into a scheduled drydock, and that's right in our plan.

And, Felicia, I will just add, we do try to schedule the drydocks during softer seasons as well.

Thank you, very helpful.

Sharon Zackfia, William Blair.

Just a couple of questions on the first quarter, not to beat a dead horse.

But you mentioned whether in the fourth quarter.

I was wondering if that was impacting the first quarter already.

Then on the tour volatility, is there a seasonality to that that we should be aware of or is that just a fact of life going forward?

Sharon, in terms of the weather, you know, I think as long as the snowstorms are hitting in the middle of the week, we're very happy.

It tends to help the closer-in bookings.

We have anything that's affected us, and we really haven't seen much in terms of cruise disruptions in Q1.

It really all hit in Q4.

And on the tour side?

The tour side, the seasonality, yes, that tends to be more pronounced during the summer season.

Royal Caribbean and Celebrity Tours in Alaska is a fairly big operation which is isolated through the summer.

And Pullman Tour is the other big part of that, and the Spanish market is much more seasonal which we tend to be the most volatile probably in our third quarter.

But it does have some tour operations into the Caribbean as well which can cause some hiccups, but it's more pronounced during the summer.

And this is probably a more minor question, but there is some rumors that you might be considering discontinuing or getting rid of the Azamara business.

So if you could give us an update on how you feel about that business at this point and the progress the brand is making.

Well, I will take that.

Hi, Sharon.

Well as you know, we don't normally like to comment on rumors, but I guess we have already done that in one other context, so we will make today the exception rather than the rule, or the exception that proves the rule.

And I've heard those rumors.

We are not interested in selling either the brand or the ships.

These rumors come up on all of our ships, and of course as you know, everything is for sale at some price.

But Azamara has actually had probably the biggest increase in our fleet in terms both of passenger satisfaction and pricing as we're going forward.

It's actually got percentagewise -- now it's very small, the total context, but percentagewise, it's actually got one of the highest increases in our fleet.

So no, we are not in the market to sell either the ships or the brand at this point.

Okay great, thank you.

Greg Badishkanian, Citigroup.

With Wave season off to a good start, and I think it was on top of a good start last year as well, just how important is Wave season?

And if bookings are higher than last year this time for the forward year, how is that going to impact close-in bookings and how does that incorporate into your guidance?

Hi, this is Adam.

We have commented in past calls usually this quarter I suppose and past years that as a percentage of the total bookings that we take during the course of a whole year, the impact of Wave is somewhat lessened from what it used to be years back.

But it still is -- it still reflects a disproportionately high percentage of the overall bookings for the year from the period that starts about the second week in January and goes through maybe late February or early March.

So it is relatively significant.

It obviously is key to the determination of the bookings strength for Q2 and Q3.

I commented on that earlier in my prepared remarks.

So we are very pleased and have been pleased at the consistent late bookings strength that we've seen for a number of quarters at this point.

To the extent that that is still the case and Wave remains strong, that will obviously allow our revenue management team to push pricing more as we come to the sailing dates.

But we're very early in the Wave and notwithstanding that last week was a record booking week and this week is competitive with last week, we still have many weeks of the Wave to go to see really what the demand generation will allow us to do in the way of prices.

Assia Georgieva, Infiniti Research.

Brian, a question for you again on Q4 yields.

If I do the calculation correctly, it seems that on a constant dollar basis, ticket was up about 3.8%.

On-board was much higher at 5.2 and helped get you to that 4.2%.

I'm ignoring the weather impact of 50 basis points for the moment.

Is this ticket increase of 3.8 somewhat disappointing again relative to your prior guidance of 5% and given your comments that on-board is more difficult to call with the tour business etc.?

Assia, I think the -- just to cut to the chase, ticket revenue was exactly where we expected it to be for the quarter with the exception of weather-related incidents which was about 50 basis points and currency fluctuation.

It was remarkably consistent with our expectations, with the exception of those two items.

Okay, thank you.

And my second question -- I will jump forward to Q2 -- we're obviously in a very active booking season for both Q2 and Q3, but still early maybe a little bit for Q3.

Could you comment what Q2 trends are given that we expect a much higher seasonality and greater profitability burden on both Q2 and Q3?

I think as we alluded to on our last call, we clearly look at the summer months as being the opportunity for the greatest yield improvements.

I think that would probably fall more on Q3 in terms of where I would expect at this point in time our peak to be.

I think we feel Q2 should show some healthy yield improvements.

We're not prepared to give guidance for Q2 today.

But I think clearly the summer will be above the average with probably Q3 being better -- the best of the three -- I'm sorry, the best of the two quarters during the summer.

And I think the numbers are shaping up as expected in all four quarters at this point.

And given Q1 core yield guidance of 1 to 2% or a constant dollar, I call that core, so do you think that in Q2 that number would be able to accelerate to something closer to 4 to 5%?

And again, I know that you (multiple speakers)

Again, I'm not going to give you any specific guidance for Q2 at this point.

One thing I will say about Q1 is we don't have the Alaska season, some of the seasons that when we look as we go back into the recession, it really was Q2 and Q3 that were penalized the most.

And I think that's part of why we see a continuing opportunity there.

But again, I would say at this point in time, we're looking at Q3 being probably the most upside.

In terms of percentage yield change?

Correct.

Thank you, Brian.

Harry Curtis, Nomura Securities.

Good morning, couple of quick questions.

First of all, based on our estimates, you guys should be generating free cash of $2.5 billion to $3 billion between 2011 and 2013.

And given your discussion about incremental ship orders, what impact do you think that's going to have on your ability to reduce debt over the next three years?

We are actually -- thank you, Harry.

We're actually very bullish on our ability to de-lever our balance sheet.

We do generate a tremendous amount of cash.

Last year while it was clearly an improvement over '09, I think by all standards for us was not a very good year and we still generated $1.7 billion in cash.

So I think we are quite optimistic about our ability to de-lever.

We have much slower CapEx in 2011 and 2012.

As was mentioned, it's most likely that we would not have an ability to take a new ship in 2013.

So it is our intent to use that to de-lever and we have gone on public record to say our objective is to become investment grade by doing that.

That's great.

And then the second question is, with the stock down 5% or more today, kind of following up on the last question, can you give us a sense of how well booked the second and third quarters are relative to this time last year?

Well we've said that for the year both APDs and load factors are ahead of where they were a year ago.

That tends to run fairly consistent throughout the year.

I think we feel very good about where we are.

You know, the booking window clearly contracted substantially after the recession.

It's worked its way back a bit and on a like for like basis, it is much better.

But one of the things that we have done is we talked a little bit on this call about our global expansion, and for example in Europe, a lot of our ships will do much more local sourcing than they might otherwise have done a few years ago.

So that moves the booking curve out a little bit as people are booking cruises closer to home.

But it's clearly right where we would expect it to be at this time.

Is there any way that you can quantify -- are they 5% ahead of last year, 10%, 15%?

I don't have the numbers and we would rather not get too specific here because frankly, the more granular we get, the more people read into that and I think miss the bigger picture of the guidance we have provided.

I would say that for the year, we're well over 50% [booked of our] revenue that we would expect to have, and it would probably follow a linear curve as you look out into the individual quarters.

Okay, that's a help, thank you.

Janet Brashear, Sanford C.

Bernstein.

I wanted my first question to be a follow-up on the talk about the enhancements to your core fleet.

The improvements that you're doing this year, could you maybe tell us how many total ships are being done in 2011 and what sorts of improvements will they drive?

For example, will it be a 20% increase in the revenue potential, a 20% decrease in the cost, for example?

Janet, this is Dan.

We're doing one ship this year and it will be at the end of the year, not until December.

So it may have a minimal impact on the current year.

It will have a bigger impact on next year, and we don't get into specific ships in terms of the impact or what the specific results of the specific ship are.

But I can tell you that when we did Constellation this past year, we were very happy with increased revenue that we got.

The increase in costs on that are very, very minor.

We have really focused on anything we do to do it within the current par level that we have on the ships with our crew.

So we haven't taken on additional crew to do the things that we have to do except for maybe a couple of waiters for new restaurants.

And so the cost changes have been very, very minor and it has really been all good for us, not an increase in our costs, but an increase in our revenues.

And I'll let Adam comment on Royal.

Great.

Hi, Janet.

As I mentioned, there four ships that we are doing notable work on.

Two of them aren't the relatively new ships of Liberty of the Seas and Freedom of the Seas where we are distinctly Oasisizing them with a number of different features, and I mentioned some of those.

And then as a part of our sort of long-term approach to revitalization of older classes of ships, we're going to be doing substantial work to Radiance of the Seas and to Splendor of the Seas this year.

[And I like how] Dan's comments in terms of the amount of focus that there is on finding ways to keep within the prevailing cost structure while also looking for on-board revenue generation opportunities through adding features.

And then the older ships occasionally present opportunities for either adding a small number of state rooms because we've just figured out that there are spaces on board where we can do that over the course of time, and sometimes we are able to add balconies where there weren't previously balconies.

And when we're able to do that, that obviously has a positive effect on revenue.

But in the great scheme of the fleet and the overall operation of the brand, those are fairly minor factors.

That's helpful, thank you.

Second question and final one, in terms of Mexico, what percent of itineraries in 2011 will be there?

And are you seeing pushback on those itineraries given the incidents that have occurred and whether or not you are seeing that pushback?

If it does become a greater issue, what would the contingency plan be for those itineraries?

Hi, it's Adam again.

There should be a distinction here between the West Coast and the East Coast of Mexico.

On the West Coast, we made a fairly significant decision about a year ago that we would move Mariner of the Seas out of Los Angeles.

And as it happens, she is on her way around South America right now for a short program in Brazil and then eventually on to Europe for this coming summer and then she'll be in Galveston for next winter.

After that, we won't have any regular capacity on the West Coast of Mexico for the foreseeable future.

We would love to be back there in the longer-term future, but we feel like we have better opportunities for where to place our 22 ships in the near term.

On the other hand, in the Caribbean Gulf of Mexico area where we are frequently going to Cozumel and Costa Maya and other ports, we are seeing good demand as we have been talking about throughout this call.

Our biggest and newest ships and other ships are going to those ports on a regular basis and we don't feel that there are any obstacles with regard to demand for cruises that go to those ports.

Great, Benita, I think we have time for one more question please.

David Leibowitz, Horizon Asset Management.

Good morning, a few questions -- well, I'm allowed two.

First question, you note on the balance sheet that your customer deposits are up roughly 20%.

How much of that is price increases and how much of that is incremental cabins?

Well clearly capacity would be a portion of it, David.

Our capacity next year is up about 7.5%, I believe.

And we are a little bit more booked, but I would say the majority above that would be pricing at this point in time.

And for Adam, what is the price premium that you believe your fleet can get versus the competition especially in the Caribbean?

I thought you would have saved that question for Dan, but since you asked it of me --

Well, I'll let Dan hop in also.

If he gets a bigger premium, I'll be happy to hear that as well, obviously.

After all.

It's just that you have more throw power at the moment.

Yes, but he is overseeing the leading premium line.

Anyway, I think you can tell just from the pricing that's in the market, and I know you and many of your colleagues actively track the pricing that's in the market whether it's in the Caribbean or elsewhere, and so you can see as well as we can see that Oasis class in particular and to a lesser extent Freedom class continue to command very substantial premiums to the capacity that's out there.

And while there are some more ships that will be entered into service in the industry in the next few years, they are I believe in every case now the second or third or fourth in an existing series of ships.

So I have said on previous calls and I'll say it again, we don't see any potential new entrants into the category in the near future that would rival the types of features and amenities, choices and variety that Oasis class ships offer to our guests, and frankly other ships in our fleet offer to our guests, speaking about the Royal Caribbean International brand.

So we would expect to continue to command premiums roughly like the ones you see in the market today.

Could you quantify that?

My question was what percentage price premium do you believe your fleet can continue to generate vis-a-vis the competition.

And I'll let Dan answer the same question.

We obviously do a lot of internal analysis to understand where we stack up against our competition but those aren't quantitative metrics that we would declare to the marketplace, particularly since you have about an equal capability to calculate them as we do.

So we'll continue to challenge you and your analysts to compete against us and our analysts.

As long as we don't have to compete against you on the ping-pong table.

Okay, I think that's an appropriate finish then (multiple speakers) we would just like to thank everybody for joining us today.

As always, I am -- will be available throughout the day to take any follow-up questions you might have.

Again, thank you for joining us and have a terrific day.

And thank you for your participation in today's call.

You may now disconnect.