皇家加勒比遊輪 (RCL) 2011 Q3 法說會逐字稿

Good morning.

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

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

third quarter earnings call.

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

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

(Operator Instructions).

At this time, I would like to turn the conference over to Mr.

Brian Rice.

You may begin.

Thank you, Rebecca, and good morning, everyone.

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

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

During this call, we will be referring to a 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 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, I will follow with a recap of our results and update our forward guidance.

Adam and Dan will then talk more about our brands and provide you with some insight into recent consumer research we have done and modifications we have made to our deployment as a result of the situation in the Eastern Mediterranean.

Following which, we will open the call for your questions.

Richard?

Thank you, Brian, and thanks to all of you for joining us this morning.

As always, I enjoy the opportunity to talk about the status of our business and it gives me an opportunity to discuss a little bit about where we are heading.

First of all, I don't have to tell you that it is important to recognize the volatility around the political and economic headlines is creating a great deal of uncertainty and angst for us and for everybody else.

As an increasingly global enterprise, we are whipsawed, again like everyone else, by the rapidly changing political and economic winds that are blowing across the United States and Europe.

Against this background, our business has actually demonstrated a remarkable stability.

Looking at our current performance, the two main observations that we, as a management team, have come to are a) our business in the third quarter is basically on target with our expectations, and so is the fourth quarter.

And b), our forward bookings are solid and they continue to come in at a good pace.

Having said that, we continue to be frustrated by the volatility that outside forces have on some of our items, particularly below the line.

For example, the rapid swings in oil prices and foreign exchange rates do impact our bottom line, and we are well aware that the bottom line is what everyone focuses on.

At the beginning of the year, those swings helped us.

The more recent swings have come back to hurt us.

And if you look at the year as a whole, they were positive, and we intend to continue to focus on the sustained performance, not on the quarterly swings.

Nevertheless, we do recognize how frustrating it is if one looks at it on a quarterly basis.

In this regard, we thought it might be helpful if we reviewed how our situation has changed during this calendar year.

Slide two in the presentation that you can see online shows how we have gotten from our original guidance, mid-point of $3.35 earnings per share for the year, to our current expectation of a mid-point of $2.75.

As you can see on the left, there have been two main hits.

The first and biggest, of course, relates to the geopolitical disruptions in the Eastern Mediterranean and also the problems in Japan.

And the second was the accounting error that we discovered in July.

As you can see, essentially what happened -- sorry.

On the right, what you can see is essentially what happened in the rest of our business.

For the year as a whole, our actual performance of the business outside of those two areas was quite a bit better than expected.

First and very importantly, costs were well controlled.

The right hand bar on cost also, I would note, is after the increase in fuel costs, so it's quite an impressive cost performance.

The bar marked "other" includes revenue, which also includes everything that happened in the Western Mediterranean items, foreign exchange, and other, and that came in about as expected.

What happened was itineraries and places like the Caribbean and Alaska perform better than expected, and these improvements even offset areas that were hurt by the bad economy and by other political turmoil.

We are still incredibly disappointed at the impact of what happened in the Eastern Mediterranean this season.

On the other hand, we are encouraged that overall, our business has performed as well as it has in a very difficult economic and political environment.

Now turning to 2012, this is the point at which we usually begin to feel comfortable about looking at the coming year.

We already have a good level of booking, and we are particularly pleased that those bookings are at a higher load factor and at a higher price than they were a year ago.

And a year ago they were very good indeed.

So this is a point at which we would normally say, "Let's look forward and begin to make predictions about 2012."

However, no management can witness the political stalemate on both sides of the Atlantic or the deterioration of consumer confidence and spending without being concerned about how those factors will develop over the coming months and year.

So far, we have seen surprisingly little slow down due to those pressures.

Some impact is already being felt, but not at the level one would expect based on the economic statistics or the media coverage.

But all this makes us more cautious than usual in making predictions about 2012.

We have said, as noted in the press release, that our revenue management team is looking forward to further yield improvements for 2012, but we're reluctant in light of all the other factors going on to be more particular than that.

I would emphasize that we are not expecting yield improvements due to economic tailwinds.

On the contrary, we think we have been, and we think we continue to feel the drag of a lumbering economy.

But 2012 will have one of the lowest rates of capacity growth in years, and at the same time, it will have some significant benefits from our expanded global deployment.

As Adam and Dan will talk about in a little while, we have been able to shift our itineraries to new and faster growing markets.

For example, we have reduced our presence in some of the weakest Eastern Mediterranean sailings substantially.

In addition to the profitability of our business, we are also focused on the financial strength.

We have strong liquidity, and we are reducing our debt, improving our leverage, and increasing all of our coverage ratios.

All of this is consistent with our determination to return to investment grade status in the near future.

As noted in the press release, we don't foresee a need to access the capital markets at all over the next couple years, although we will continue to act opportunistically if opportunities arise.

With that, it is my pleasure to turn the microphone back to Brian.

Thank you, Richard.

On the third slide, we had summarized our performance in the third quarter.

We generated net income of $399 million or $1.82 per share.

Net yields improved 5.3% on an as-reported basis and 2.6% on a constant-currency basis.

Net revenue excluding currency exceeded our previous guidance by about $0.08 a share as a result of strong close end bookings, particularly for Europe and the Caribbean.

Net ticket revenue yields were up 6.8% year-over-year driven by all itineraries other than Eastern Mediterranean and Asia.

Alaska and Caribbean itineraries were exceptionally strong, increasing by more than 15% each.

I think it is worth noting that our yields in Alaska this year were the highest in our history.

Net on-board and other revenues were up marginally in the quarter, with increases from our North American guests, mostly offset by a mixed shift toward lower spending guests from Europe.

Adam will talk more about the trends and on-board in a few minutes.

On the cost side, excluding fuel, our net cruise cost on a constant-currency basis were up only seven-tenths of a percent and were up 2.5% on an as reported basis, both significantly better than our previous forecast.

The improvement was mainly driven by our continued focus on costs with some modest shifting into the fourth quarter.

Fuel consumption was slightly better than forecast, and fuel costs were very consistent with our earlier calculations.

Although there were reductions in WTI prices during the quarter, our at-the-pump prices remained relatively stable at about $608 per metric ton.

Below the line, we had a mark to market loss of say $0.08 per share related to our fuel options.

As you may recall, we had options for 2012 at a strike price of $100 and for 2013 at a strike price of $90.

After the quarter closed, we sold the 2012 options, and we will be realizing a small gain in the fourth quarter.

The 2013 options have been prepaid and have a book value on September 30th of approximately $11 million.

From an operating point of view, we were pleased to exceed our prior guidance for yields, costs, and operating income.

The mark to market loss for the fuel options unfortunately prevented us from reaching the top end of our EPS guidance.

Switching to the demand environment, our load factors and APDs are ahead of the same time last year for both the fourth quarter and 2012.

In the fourth quarter, we expect to finish with double-digit yield improvements in the Caribbean, but lower yields than last year in the Eastern Mediterranean and Asia.

Fortunately, the Caribbean accounts for 47% of our capacity in the fourth quarter, while the Eastern Med and Asia represent 13% and 2%, respectively.

We saw very strong close end demand for the third quarter, but we are hesitant to forecast a continuation of this strength in the traditionally weaker fourth quarter, particularly given all of the uncertainty in the market today.

Looking out to 2012, I need to caution that it is still very early in the selling cycle, and there is clearly a great deal of uncertainty about where the economy is heading.

Traditionally, we base our forecasts on the real-time demand environment and based on what we are seeing today, things look pretty good.

But at the same time, it is hard to ignore the economic headlines and the pervasive pessimism throughout the business community.

To help us understand where demand might be going, we have done research to better understand what consumers are thinking in our various markets and where vacation spending may fall in their priorities.

Dan will update you on our findings in a moment, but we thought you might like to see how we have gotten to where we are today.

On slide four, we have illustrated the differences between our booked load factors for 2012 and 2011 for each week from April 1st through last week.

As you can see, the percentage of our inventory that has been sold for 2012 is higher than the same time last year, and this has consistently been the case since April.

On slide five, we have graphed the difference in the booked APDs between 2012 and 2011.

Here, we have shown two lines, one for APDs on an as-reported basis and the other is on a constant-currency basis.

Both figures are favorable as of today, which is encouraging, especially when you consider the fact that the 2011 basis includes Eastern Mediterranean pricing before the Arab Spring.

The greater volatility and recent decline of the green dotted line is due to the strengthening of the US dollar, which devalues our foreign currency business.

More important, however, has been the strength of our constant currency pricing.

The solid blue line shows what consumers are paying for our cruises in their local currency, and here we have seen steady improvement over the last couple months.

Although we feel it is too early to provide definitive guidance for 2012, we are cautiously optimistic for continued yield accretion based on these early trends.

Now, I would like up to date our forward guidance.

On slide six, you will see our guidance for the fourth quarter.

We expect yields to be up 3% to 4% on both an as-reported and constant-currency basis.

Net cruise costs, excluding fuel, are forecast to increase 3% to 4% on a constant-currency basis, and approximately 4% on an as-reported basis.

We have included $204 million of fuel expense in our forecast, and we are 57% hedge for the quarter.

Turning to slide seven for the full year, we expect yields to increase approximately 4% on an as-reported basis and between 2% and 3% on a constant-currency basis.

Net cruise costs, excluding fuel, are expected to be up between 2% and 3% on an as-reported basis and between 1% and 2% on a constant-currency basis.

Earnings per share for the year are now expected to be between $2.70 and $2.80, which is a decrease of $0.15 since July.

Approximately $0.12 is due to change in currency rates, and the balance relates to the change in value of our fuel options, partially offset by modest improvement in our operating performance.

I would now like to turn the call over to Adam for his comments.

Adam?

Thank you, Brian, and good morning, everyone.

We are pleased to have delivered solid results in the third quarter despite the nature and extent of the challenges we faced in the Eastern Mediterranean and in Asia.

While we will never know what we could have achieved in the absence of these challenges, the Royal Caribbean International brand continues to build a foundation for global success that encompasses market leadership in the United States and in a number of priority international source markets.

As you have heard Brian state, we were the beneficiaries of late booking strength in Q3, both in Europe and in the Caribbean.

Now, many of our ships are repositioning from Europe to the Caribbean, South America, or Australia to begin their new seasonal deployment.

Looking forward, 2012 will be the first year of no capacity growth for the Royal Caribbean International brand since 1994.

In each of the previous 17 years, we either introduced one or more new ships, or had the spillover capacity affect of a new ship from a previous year.

In the absence of new capacity, we are focused on the execution of our global sales and marketing program, revitalization of our existing ships, maximization of guest satisfaction, development of travel agent and guest spacing technologies, and retention of strong cost controls.

Speaking of revitalization, Splendour of the Seas arrived this week at the dry dock at the in Cadiz, Spain for a substantial makeover.

We will continue our Royal Advantage Revitalization Program with equally substantial makeovers of Grandeur of the Seas and Rhapsody of the Seas in early 2012.

So in the absence of new ship introductions, we will be adding feature we have pioneered on recent new builds to our older ships, thereby ensuring the continuation of Royal Caribbean's reputation for industry-leading hardware to go with our Gold Anchor Service.

While the focus of our operation is on delivering guest satisfaction rather than on winning awards, it is a testament to the men and women of Royal Caribbean that since the last earnings call, we have won recognition as Best Cruise Line in the UK, China, Denmark, Norway, and other countries, as well as from several top US distributors.

I am also pleased to be able to say that the new port of Falmouth, Jamaica in its first year of operation won the Seatrade Insider Award for World's Best Cruise Port.

Before I conclude, I would like to mention briefly two additional topics of interest, particularly in the current environment.

The first is onboard revenue.

Our guidance for the fourth quarter and full year 2011 of course contains our onboard and other revenue actuals for the year to date and the forecast for the remainder of the year.

Overall, we anticipate modest improvement in onboard and other revenues spend per guest per night.

The primary reasons this revenue stream is growing more slowly than ticket yields are decreased gaming spend and the changed composition of our guest mix.

Within the guest mix, onboard spend per guest per night will increase this year for US customers.

As we have noted on previous calls, we are carrying more European customers this year than last year.

These European guests spend less onboard than our US customers do, and their spending per guest per night is down year-over-year.

All of our brands are engaged in a variety of efforts to improve onboard revenue performance in 2012.

The second topic is fleet deployment.

Our largest brands are active around the world, and we consider the geographical diversification of our deployment to be an advantage of our business model.

We are able to make adjustments relatively quickly to address changing circumstances.

Since the July earnings call, we have announced a number of changes to reduce our capacity in the Eastern Mediterranean in 2012.

For example, Royal Caribbean International will replace Vision of the Seas Holy Lands itineraries with extended seasons in Northern Europe and Brazil.

Meanwhile, Celebrity Solstice will ship 50% of its Eastern Mediterranean cruises to the Western Mediterranean.

In aggregate, with the recent adjustments, the Company has reduced its previously planned Eastern Mediterranean deployment by 17%.

Dan?

Thanks, Adam.

Good morning, everybody.

We continue to feel very positive about the progress we are making with Celebrity.

The consumer and travel agency community have made this Celebrity's most award-winning year in its history.

We were recently voted The Best Large Ship Cruise Line by Conde Nast Traveler and Best Cruise Line Cuisine and Best Cruise Line Spa by Recommend's Annual Readers' Choice Awards.

In addition, we received several Travel Weekly Magellan awards, which are voted on by the trade.

These and ongoing press reviews year-over-year continuously recognize our commitment to our guest experience.

During the third quarter, we had healthy demand for our Alaska and Bermuda products, whereas demand in Europe was a bit more mixed.

As we spoke about on our last call and as you have heard today, demand in the Eastern Med and Holy Land was softer than in northern Europe and was not immune to the political and economic challenges that have been so prevalent in the news.

Even with these challenges, we still had healthy year-over-year yield improvements for the quarter.

The Europe product overall continues to be globally sourced and similar to last year.

We will sail with a higher percentage of guests coming from outside the US on this product.

Looking ahead, the Caribbean product where we will have 60% of our capacity this fall and winter is shaping up nicely.

We will have all four of our Solstice-class ships sailing in this market and will debuting the Celebrity Silhouette next week to our northeast trade partners before we begin a series of 12-night eastern and southern Caribbean itineraries from Cape Liberty from November to April.

The Caribbean is performing well, and we are on pace to finish ahead of where we finished in Q4 2010 and Q1 2011.

Our non-Caribbean products, which represent 40% of our capacity, are also performing well.

Our ambitious Solsticizing Program continues with Celebrity and Infinity in just a couple of weeks, and will be followed by the Celebrity Summit and Celebrity Millennium in January and April.

Additionally, on October 10th, further showcasing our expertise in wine and food, Celebrity announced plans to introduce an entirely new series of wine theme cruises in France, Spain, and Portugal during peak harvest season in 2012, enhancing our already broad and varied European vacation options.

At the sale time, Celebrity is enhancing its presence in the Mediterranean on two of its award-winning Solstice-class ships, the newest Celebrity Silhouette and flagship, Celebrity Solstice.

To offer experiences a line's guests surveys indicate will be even more appealing with more ports in both Italy and Croatia.

As Brian mentioned, we do a considerable amount of consumer research.

The research is used, amongst other things, to inform our deployment decisions.

Consumer feedback regarding the Eastern Med drove the deployment decision you heard Adam outline just earlier.

We thought it would be interesting to share some of the more macro trends from research completed last week in our three largest markets, the US, Canada, and the UK.

For this particular round of research, we looked at prospects and past guests for Celebrity and Royal Caribbean for each of the markets I mentioned.

We looked at how each of these audiences look at general economic conditions in their country today and into the future, we looked at how they feel about their home personal financial condition, we also looked at where they are spending their money to buy things, and took a deeper look at travel if they were willing to spend for a vacation.

The way consumers feel about the world economy and their country's economy is interesting.

All countries feel the world economy is headed in the wrong direction.

When it comes to their own country, the views vary.

Canadian prospects and past guests are the most optimistic and generally feel that their economy is headed in the right direction.

The US prospects and past guests feel the US economy is headed in the wrong direction.

And the same groups in the UK are polarized.

Interestingly, our research company says this is very similar to where the US consumer was in 2009.

Since the economic crisis began in 2008, approximately 50% of each of the audiences are reporting they have made cutbacks in their spending.

This is true across each market and there is very little variation from the 50% by audience.

However, there are a couple of big headlines here that were not instantly intuitive.

In regards to personal finances, we found satisfaction with current personal financial situation outweighs concerns about the future.

While consumers do express concern about the future across all three markets for both prospects and past guests, at least 70% of people feel satisfied with their personal financial situations.

The most compelling headline I can share is even in a tough economy, respondents across all audiences are still prioritizing vacations and travel over other categories, even if that means sacrificing some of the more frequent day-to-day purchases.

Vacation spending remains a priority.

Not surprising, the consumer says they want the following from their vacation.

They want the most bang for their buck, they want to go someplace new and have an adventure, and they want to be able set and stick to a specific budget.

Getting the most value from a vacation while still being able to do something new and exciting is the big takeaway.

As a result, past guests rank cruises right at the top of their vacation to-do lists.

Given the value criteria I just described, consumers are using to make their vacation decisions, it's not surprising that cruises rank right up near the top on the vacation to-do list for prospects, as well.

It is clear from our research that the consumer believes with the economic conditions we will continue to be choppy in the foreseeable future.

It's also clear that cruising, and in particular our brands, are seen by a majority of our consumers who prefer not to cut back on travel as leading options for their vacation choice.

Brian?

Thank you, Dan.

We will now 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 answer them after the call.

Rebecca, if you could open the call, please.

(Operator Instructions).

We will pause for a moment to compile the Q&A roster.

Your first question comes from the line of Steve Wieczynski with Stifel Nicolaus.

Brian, you talked about the close end bookings and the third quarter being pretty strong and your outlook for the fourth quarter is for them not to say as strong as what you saw in the third quarter.

Is that something that you have already started to see or is that more kind of a historical pattern are you expecting to kind of play out?

Steve, actually, October was fairly solid to date in terms of the closed end bookings.

I think just as we get more into the winter months, we tend to take a little bit more of a conservative view.

We have taken, as I'm sure you have calculated by now, a little bit of haircut into the fourth quarter.

We saw a little more weakness in the Eastern Med.

The Caribbean seems to be holding up fairly strong, but what we wanted to caution against is kind of the surge in the exceeding our yield performances we did in the third quarter.

We kind of want to have a governor on there in the fourth quarter just because it is traditionally softer.

Okay, got you.

And as you look to 2012, we have seen some of your competitors discount a little more aggressively to get more inventory filled.

Is that something that you guys have started to move into, or is that something you can potentially do?

Steve, it is Dan.

At this point, I know you saw the slides there that Brian put up, our load factors are higher and our prices are higher.

So the approach that we have taken, we are comfortable with at the point in time that we are in right now.

Okay, got you.

And then one quick one for Adam.

In terms of the deployments that you talked about, you didn't mention the Independence of the Seas moving out of the UK market.

Is that -- can you go through that?

Is that just more of a weather-related issue or is there something else going on there?

It is a function of assessing where are the 22 best places for Royal Caribbean ships to be, either in the winter or summer seasons.

I will say that if you look over time, we probably would be inclined strategically to continue to develop the Independence winter itinerary out of South Hampton.

I would say these days when there is more uncertainty in the marketplace, particularly around European cruising, we felt that we should make a change where we are likely to generate more revenue in the Caribbean for that ship than we would if we stayed in South Hampton in the winter of 2012/2013.

Thanks, guys.

Your next question comes from the line of Janet Brashear with Sanford C.

Bernstein.

I'm wondering if you could talk a little bit about the Mediterranean, but more toward Greece, and tell us maybe what percentage of itineraries touch Greece next year, how many times recently have you had to divert ships from Piraeus due to the riots and disruption there?

And is that translating into any reluctance relative to booking at this point?

And finally, if things do get worse, which we all hope they don't, and you have to change itineraries, what would your plans be for those itineraries?

Janet, it's Dan.

I can't give you the exact percentages on all that right now.

What I can tell you in general is that we have reduced our capacity in the Eastern Med by 17%.

So the way we look at the Eastern Med is that that's something that makes its way over to Greece or down to the Holy Land.

For next year, we have taken that down by 17%, and those were decisions that we made within the last few weeks and have been announced I think right up until today, those final announcements will be made.

So we have already taken some pretty strong action reducing our capacity in the Eastern Med, and at this point, I think that the decisions we have made are good ones.

We looked at not only what is happening over there, but we looked at the pace of bookings, and so they were well-informed decisions.

And on top of that, we used the research I mentioned earlier.

In terms of how many missed calls we have had in Athens, I can't give you that number right off the top of my head.

If you want, I know Ian can give it to you later this morning.

Dan, also if I could follow-up, I think you said earlier, if I heard you right, that 40% of your itineraries next year were outside of the US or North America.

Assuming that's correct or if it is not, maybe you can fix it for me, where are those by country as we think of sort of UK, Germany, Italy and then maybe some emerging markets?

Janet, what I was referring to there was the fall and winter of this year and into the beginning of 2012.

So 60% of Celebrity's capacity will be in the Caribbean in that time period.

And then outside of the Caribbean, it will be predominantly South America and Australia and New Zealand during that time.

Those are the two biggest markets outside.

Around the rest of the year, it's Europe in the summertime when we are outside of the United States, Europe and Bermuda.

Janet, I will just add that at the corporate level, about 29% of our inventory next year will be within Europe.

And the -- if you look at the Eastern Med and Holy Lands, that represents about 9% of our capacity for the full year.

Great, thanks.

Your next question comes from the line of Greg Badishkanian with Citigroup.

Yes, nice job on the quarter, guys.

My two questions are, first, when you look at Europe, how should we think about comparisons for next year?

Does it get easier once we hit April assuming no change in the macro?

Is that kind of the way to think about Europe?

Hi, Greg, it's Adam.

Well, it stands to reason that if they are not the kind of disruptions ahead of us that we have experienced within the last 12-month period, that that will factor into the comparables, obviously.

The fact that there is still a lot of uncertainty though about the economic situation in Europe, as well as in the United States, suggests we take a conservative view of what we are doing and try to market as effectively as we can into the situation that we have.

And actually to some degree to Janet's earlier question, clearly we are marketing in all of the principal European source markets and that is necessary because of the fact that two-thirds of the guests on our European cruise programs come from Europe.

So this is where our focus will be, and this is where the guests are coming from, and this is obviously we are communicating about the value of cruising relentlessly into these markets in accordance with what Dan mentioned about what consumer sentiment is today.

And my second question, just as we -- you know, looking at the 2012, how much of your capacity is booked if you can say that, and also just at this point is it a good indicator for next year?

Do you have it on the books to kind of make it as a good kind of sample size to see how you are going to do for next year?

Greg, I think on our last call we said that we were slightly less than a quarter percent sold out, and by year-end we generally are about half sold out.

So I think if you do the math you can kind of figure out about where we are.

I think we would say under normal circumstances, we'd probably have a pretty solid piece of business on the books to be able to give some indication as to what we thought were going to happen with yields and maybe a two or three-point spread.

I think we are reluctant to do that today just given the way the economic headlines are changing on a daily basis.

You know, when we left here last night, we had kind of locked down our forecast and we woke up this morning and all of a sudden the headlines were very positive.

I think next week we might see unemployment go up, and everybody is going to change their mind set.

So I think normally we would feel good about being able to give a number, but at this point in time, I think we need to wait another quarter before we come out with definitive guidance.

Sure, thank you.

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

Thanks.

Yes, two questions.

One is I was going to ask whether your incremental is up year-over-year, and not just a cumulative book position, but from the slides it looks like it is.

I just want to make sure that that's the case because I'm thinking about the guidance you did give for the full year at the same time last year, and if you are seeing better incremental on a day-to-day basis, seeing better bookings today than you were this time last year, that would seem positive just relative to the guidance you had originally given for last year.

And then also just kind of wondering what your expectations are.

You mentioned Alaska in particular was at the highest ever yields.

Would you expect a flat or slight decline next year in Alaska, or are you thinking maybe growth on top of that?

Just rough sense, maybe not numbers here, but what your expectation is directionally.

Robin, I will take the second one on Alaska.

Obviously, it's really early for Alaska right now.

By my sense is that we will have another good year in Alaska.

It is way too early to say just because the Alaska bookings -- given the way the Alaskan market books, we just don't have much on for Alaska right now, but we are still feeling good about what will happen there next year.

Robin I think, just to add to Dan's comments about Alaska, I think it's fair to say Alaska did benefit this year from the dislocation from Europe.

And I think before we start calling out specific itineraries for next summer, we will want to wait and see a little bit of how Europe is unfolding and how Alaska will complement that.

I will point out that while Alaska had record yields this year, our summer season, our third quarter is still about 4% below the yields we achieved in 2008.

And I think with the better fleet that we have in place and the more diversified sourcing, today we wouldn't even be pleased with a wait.

I think there is still a good upside.

As you referenced both our APDs and our volume is upright now for 2012, so if things continue as they are today, I think since we've said we're feeling pretty good, if we would looked at real-time data, there is just so much uncertainty out there.

I think we have been a little bit hesitant to try and make a call as to what might be happening as we go into the wave season.

But am I reading the slides correctly just looking at the lines or incrementally your bookings in the last two weeks are better than they were six weeks ago in terms of a year-over-year percent change?

We have actually -- yes, you are correct that our load factor differential from a year ago has actually improved over the last month and a half or so.

I think that's partly due to some of the sales activities that have been in the marketplace.

I think it was last week, there was a big (inaudible) sale.

I know our Royal Caribbean brand had a WOW sale I believe it was three weeks ago, which contributed.

So we are slightly better.

Great, thank you.

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

Brian, I just wanted you to clarify something if I may that you just actually said.

I want to make sure I understand this.

You said your third quarter yields are still 3% lower than the yields you achieved in 2008?

I believe it is 4%.

Okay, 4%, but then -- and I know there's a long way to go before we get to the third quarter, but in third quarter 2010 your yields were higher than in 2008, so does that mean that on the year-over-year basis so far your third quarter yields are lower?

In 2010, they were higher than in 2009's third quarter.

2008 was the peak right before the Lehman Brothers collapse.

Oh, you're looking quarter to quarter.

When you say 2008, you meant third quarter 2008 not full year.

Correct, yes.

Okay, okay.

Thank you for that clarification.

The other thing is your guidance range for the fourth quarter was a lot wider than it normally is.

I can get kind of halfway there if I take the sensitivity to net yields and maybe the mark to market, but what else is accounting for that range?

I think it is just a general uncertainty as to what is happening in the market right now.

If you take our number of shares outstanding, a $0.05 range really only gives us a $10 million or $11 million swing factor, and just given what we are seeing in the market right now, we didn't think that that was adequate, so we went with a $0.10 range.

Okay, but you gave us a 1.0% range in yield.

Correct.

And we have a 1-point range in net cruise costs.

Okay.

And then just getting -- I think Adam, this might be a question for you or Dan, you guys gave us some very nice color and explanation about what is happening onboard with the European demands.

I am just wondering are you doing anything from a marketing perspective to stimulate more onboard from Europeans?

And I'm wondering what are they not spending on that the Americans are spending on?

Well, Felicia, one of the elements is gaming and another element would be shore excursions.

When you are comparing Europeans to Americans for European products, Americans going a long way to see Europe are a little bit more aggressive than buying the shore excursion experiences available to them.

And I did mention in my script that all of our brands are engaged in the whole variety of initiatives to increase onboard spending, and some of it is related to I think the directionality of your question, which is as we have more people on board from other nationalities besides the US, it's incumbent upon us to become more knowledgeable and more sensitive to their needs and where they see value on onboard spent.

And I suspect we will continue to get better about that over time.

But are they like the Europeans who might be going to the Caribbean, are they spending on offshore excursions?

Yes.

And is there a difference in terms of ticket demand between the European customer and the North American customer?

Well, we're clearly doing revenue management in all of the different countries on all of the sailings, all the time.

So there is a lot of different initiatives and efforts as it relates to where our sourcing commitments have been made by the different offices, so it's hard to make an over all general comparison like that.

We are trying to maximize revenue in each market according to its preferences.

Just wondering if you might be seeing some more economic sensitivity from your European consumer than North American consumer.

Well, I think we basically in the color commentary that we've given so far and in the summary of it all, you can see that our major sources of guests are hanging in there with us as it relates to load factor and price.

Felicia, if I could just add, you may recall on the last call we spent some time and really tried to look at it at the itinerary level and the source market level.

And the only commonality that we saw in strengths or weakness of yields was really at the itinerary level.

And when you factor that out of it at a source market level we didn't see a lot of differences.

Okay.

That's great.

And, Brian, last question for you.

For the first time in about a year, if I went back and did this correctly, in the release, you mentioned that relative to your debt obligations, you would consider opportunistic opportunities.

So I was wondering if you could elaborate on that?

Felicia, I think we kind of go between putting it in the press release and our scripts, but I think we have always put that qualifier out there that if market conditions were attractive, we would consider accessing the markets.

As of right now, I think as Richard eluded to, we are in a very strong liquidity position.

We had slowing CapEx.

Our maturities are very manageable for the foreseeable future, and right now, we are actually very pleased to be in a de-levering mode.

Great, just want to make sure.

It was not to signal any imminent transaction.

That's what I was asking.

Okay, great.

Thank you.

Your next question comes from the line of Stephen Kent with Goldman Sachs.

I just was wondering a little about the difference between your outlook for the fourth quarter and the full year 2012.

It sounds like you feel a little better about 2012 than you are about this short-term booking.

But it strikes me and maybe it was in some of your research, wouldn't a concern be more hesitant to book a cruise for 2012, which is a longer term commitment, than make a short-term commitment to go on a cruise in Q4?

It seems counterintuitive to me why there is the hesitation for Q4 and more confidence for 2012?

Steve, I can certainly see how you would interpret that from our commentary.

I think a little bit of this is relative to prior expectations.

Our fourth quarter on an absolute basis, we are talking about our yields going up approximately 4%.

And on a constant-currency basis, we're talking -- I'm sorry, I am looking at the wrong numbers.

We are saying approximately 3% to 4% in Q4, and we are saying 3% to 4% on a constant-currency basis.

For the fourth quarter, frankly, that's not real bad.

I think it is just that we three months ago thought it might be an eyelash better than that.

The currencies have been a drag on the fourth quarter.

So I don't think we are necessarily trying to say we are real pessimistic about the fourth quarter.

We are just not looking for a surge in close end activity that we saw in the third quarter.

Okay, thanks very much.

So I would say the overall mood in terms of what we are seeing with the consumer, there is no difference between Q4 and 2012.

Thanks.

Your next question comes from the line of Sharon Zackfia with William Blair.

You know, I think I have kind of lost track on where Mediterranean yields are expected to end the full year, so maybe if you could update us on kind of full year Mediterranean yields and where those will end up?

And then as you showed the slides, which looked really encouraging I am just wondering is the Mediterranean tracking that same way for 2012?

Sharon, I don't have exact numbers in front of me to answer your question.

I can tell you that the Eastern Med, as we've talked about, ad nauseam is going to be down significantly this year.

The Western Mediterranean is up slightly I would say, which I think we feel pretty good about the fact we were able to achieve some increases in yields in the Western Med given the capacity increases that both our brands and the industry experienced.

I think in terms of next year, it is way too early to say our volume of business is up year-over-year in the Mediterranean, but the pricing is flat to slightly down on an aggregate basis, but you have to take into consideration that is comparing to a difficult comparable because the Arab Spring had not happened at this point.

Obviously, I would say our booking -- our APDs are well ahead of where we ended up the year, but there is still a lot to play out between now and the summer.

That's helpful.

Thank you.

Your next question comes from the line of Harry Curtis with Nomura.

A quick questions.

I guess I am following up on that last question.

How far down did the yields go for that subset that you had to re-book itineraries entirely in 2011?

Harry, I can tell you that for the Eastern Med in aggregate, I believe our number was something in the range of $90 million to $100 million, and I believe we said that in the third quarter, that Mediterranean deterioration had cost us about 150 basis points on yield, which would be around that same number.

But that would be the Eastern Med in its totality.

I don't have numbers for the individual itineraries that we changed.

That includes the negativism we felt in the Holy Lands and in Turkey, as well.

So for any given ship, what I'm trying to get a sense of is by virtue of the itinerary change, did that -- did the yield on that ship or group of ships go down 10%, 15% versus what you would have expected?

Harry, it is Dan.

You know, we are making the changes in itineraries for next year.

The only changes that we made in 2011, and I may be misunderstanding your question, but the only changes that we made in 2011 were we pulled stops in Egypt off the Holy Land cruises.

So the numbers that Brian gave you are an accurate depiction of what's happened for the entire Company in the Eastern Med and Holy Lands this past year.

For next year, the changes that Adam mentioned, where we are reducing our capacity by 17% in the Eastern Med and Holy Lands, it is way too early to say what kind of impact that will have.

Hi, this is Adam.

I just want to comment briefly on Asia since Royal Caribbean is the brand that has the ship in Asia within our Company.

I think as you know from previous calls, we were full of enthusiasm in early March for Legend of the Seas having quite substantial year-over-year yield increases in 2011.

Then her deployment was radically changed because she couldn't do her China program anymore and she needed to go to Singapore on essentially no notice.

So in the end, she had double-digit yield declines rather than the double-digit yield increases that we had been anticipating prior.

That's helpful.

The second question is related to cost.

Your cost per berth in the second and third quarter were under 1% per [ALBD] and so you mentioned that some costs are shifting into the fourth quarter.

What are those costs and does it imply that we should see a comparable lift in costs for 2012?

We continue, as I mention in my script -- this is Adam speaking -- to put a tremendous amount of focus, and this is across all the brands on cost control.

So there's a lot of time ahead of us to work on minimizing 2012 costs and yet realizing our ongoing strategic aspirations.

I will say in the case of our brand, some of the shifting was a marketing expense from third quarter to fourth quarter, as we intend to have a fairly intense period of marketing coming up soon for our brand and a variety of other general and administrative costs where we were either -- it turned out that programs and initiatives that we had planned to achieve late in the third quarter have ended up moving over into the fourth quarter.

Okay, all right, thank you very much.

Your next question comes from the line of Kevin Milota with JPMorgan.

Appreciate the updated detail on deployments for the Eastern Med.

Just trying to get a sense for where pricing has gone since the second quarter in that region, so if prices were down 40% to 50%, how much closer are you to getting back to par pre-events in the Middle East?

I don't think we can reclaim what we have suffered in the Eastern Mediterranean within one selling season.

If there are no further disruptions, the attractiveness of that area to cruising is significant, as you know, and we certainly would be hopeful to make progress against a comparable of 2011, but whether we could get all the way back to where we were in the past or where we would have been this year, I would say that will take more than one year.

But have prices gone up since that point?

Are you still in a pretty heavy discounting period for those itineraries?

I think Brian mentioned a couple of questions ago that we are looking at somewhat better load factors and somewhat -- flat to somewhat less pricing at the moment, but that's because we are comparing same time last year when none of this had happened yet.

Okay, thanks.

Your next question comes from the line of Tim Conder with Wells Fargo.

Thank you.

Just to follow-up on that, again, Brian or whoever wants to take this, it would seem then that if your bookings -- your load factors are up and your pricing is where it is, then as your comps get easier post the Arab Spring, it would seem that all else being equal that your yields should show decent improvement out of Eastern Med.

Am I missing something there?

I don't think you are missing something there, Tim.

The question is what will happen in reality?

What we are facing this year is a very different situation.

Last year, we were optimistic, and then geopolitical events came out of nowhere to disrupt the season.

This year, one can I think reasonably assume that there won't be more geopolitical disruptions of that magnitude, although one can never know.

But it is the economic or let's say the geoeconomic uncertainty that is hovering over us.

And it's too early to say what the implications of that will be.

We are pleased that we are able to have favorable load factor comparisons on a year-over-year basis at this point, and we hope that that will eventually payoff for us in terms of where we can go with price.

But it is just too early to tell.

And I think the operative expression we would use here is measured optimism.

Okay.

Because, Brian, I think in your earlier comments also you mentioned that, and it seemed to imply at least, that it is really not a sourcing -- you are not seeing any change in I guess sourcing functions, it's really driven by the itineraries.

But since you changed a lot of the itineraries, again, back to the same point, all else being equal, it would seem that you should start to see some nice progress and once you anniversary the Arab Springs starting.

Right.

And I do want to say, as Dan and Adam both pointed out, we have less exposure to the Eastern Caribbean next year, but we do have exposure.

We do have about 9% -- Eastern med, sorry.

We are about 9% there.

Okay, okay.

And then just a couple other clarification items here --

I'm sorry, if I could just add one thing on that.

You also -- while we normally will not have a repeat of the impact, we will -- we start with -- we won't have the benefit of some of the same kind of people who stayed on last time, and now there'll be a little more impact from the ongoing, as Adam mentioned, the economic impacts that we're experiencing and also things like what is happening in Greece, which wasn't there last year.

So there are a lot of factors going on I think is all I'm making a point.

Okay.

The other clarifications, gentlemen, and thank you again for all of the color there.

The two-thirds European itineraries, two-thirds of those itineraries being sourced for Europe, Adam, was that only for the Royal Caribbean International brand or is that corporate wide?

Corporate wide.

About three-quarters from outside the United States and two-thirds from Europe.

Okay.

And then, Brian, your commentary in the press release, the $0.08 related to the fuel option, that is part of the total lowering of the guidance for the year by $0.15 cents, yet you said that only $0.03 of the $0.15 was related to those options.

Is that part of what you had said that you monetized here early in the fourth quarter just to I guess kind of reconcile those?

Yeah, I'm not sure where you got $0.03.

We said that, I believe it was $0.12 is due to FX.

Okay, of the $0.15, right?

Of the $0.15, $0.12 is FX.

You have $0.08 from the option and then you have $0.05 coming back from better operating performance.

There's two bad guys and one good guy.

And are you picking up though -- are you counting in there the monetization in the fourth quarter of the options?

There is a monetization but it's small, it's not material.

Okay.

Great, thank you.

Rebecca, I think we can squeeze in one more call.

Your final question comes from the line of Assia Georgieva from Infinity.

Good morning and congratulations on very good Q3 results.

Two questions, one is probably going to be very quick.

We didn't really talk about Q1 yield expectations.

Should we think of something in the range of Q4 meaning 3% to 4% constant dollar or something a little less?

Assia, I have to give it to you, you never quit trying.

We are not going to give any specific guidance for Q1 at this time, but good try.

All right.

And then in Q4 it seemed that the prior implied guidance is at the end of July was a range of 4% to 6.9%, and now we are going down to 3% to 4%.

Again, Eastern Med doesn't play as big of a role during this time of the year, and you have seen some nice closed end bookings you mentioned in Q3.

You also mentioned that the last six weeks, bookings have been stronger because of sale events, etc.

Shouldn't we stick to at least 4% yields constant dollar?

I don't think we have decided to change our guidance over the last hour on the fourth quarter.

All the things you mentioned were baked into our guidance for Q4.

I can tell you that the FX hurt us quite a bit in the fourth quarter.

Hopefully, with some of the actions we've seen today, maybe some of that can reverse itself, but I will point out one currency that we don't normally talk about that we're more sensitive to this time of year is the Brazilian real.

But we did see a little bit of a haircut in the fourth quarter on a constant-currency basis, mainly due to the Eastern Caribbean.

There were some other small adjustments outside the Caribbean, but in totality, it was less than a full percentage point.

So maybe I miscalculated.

Thank you very much for your answers, Brian.

Okay.

Well, we would like to thank everybody for joining us this morning.

And, as usual, Ian will be available throughout the day for any follow-ups you may have, and we wish everybody a great day.

Thanks.

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