皇家加勒比遊輪 (RCL) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Royal Caribbean Cruises Ltd.

2015 third-quarter earnings quarter call.

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

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

(Operator Instructions)

Thank you.

I will now turn the call over to Jason Liberty, Chief Financial Officer.

Please go ahead, Sir.

Good morning, and thank you for joining us today for our third-quarter earnings call.

Joining me here in Miami are Richard Fain, our Chairman and Chief Executive Officer; Adam Goldstein, President and Chief Operating Officer; Michael Bayley, President and CEO of Royal Caribbean International; and Carol Cabezas, our new Vice President of Investor Relations.

During this call we will be referring to a few slides which have posted on our Investor website, www.rclinvestor.com.

Before we get started, I would like to refer you to our notice about forward-looking statements which is on our first slide.

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

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

Examples are described in our SEC filings and other disclosures.

Also we will be discussing certain non-GAAP financial measures which are adjusted as defined, and a reconciliation of these items can be found on our website.

Richard will begin by providing an overview of the business.

I will follow with a recap of our third-quarter results, provide an update on the current booking environment, and provide our early thoughts on 2016.

I will close with guidance for the full year and fourth the quarter.

We will then open the call for your questions.

Richard?

Thank you, Jason, and good morning, everybody.

What Jason didn't mention was that Laura Hodges is also in the room, and most of you know Laura is the outgoing Head of Investor Relations, and I think we should thank her for what she's done over this period and wish her well as she takes Royal Caribbean to new heights.

I think Carol should also know that we are expecting the share price to move as much during her tenure as it has during Laura's.

So no pressure, but we are looking for good things.

Turning back to the substance here, it's only appropriate that I begin with talking about the Double-Double.

As I assume you all know and I hope you all know, that's the name we gave to our program designed to achieve double-digit ROIC and the doubling of our 2014 earnings by 2017.

That program continues in earnest, and our performance this year allows us to move into 2016 confidently on track to the Double-Double.

In fact, it looks like we're hitting one interesting milestone this year which none of us paid any attention to before.

When we set out on this path, our focus was on 2017.

But I was very pleased when somebody pointed out to me that our new forecast for 2015 meets we will be exactly twice our 2013 profit at the end of this year.

It's exciting to see that we are about to double our profitability in just two years from $2.40 to $4.80.

I like a good omen, and this one suits me just fine.

It's remarkable to me that on each of our three key metrics we are now back to, at a minimum, our best guidance of the year.

On the yield front, we are back to the midpoint of our January guidance of approximately 3.5%.

On the cost front, we've gone from up 1% or better to down 0% to 1%, and on the earnings front, we're $0.05 above the midpoint of our January guidance of $4.75.

All this is further proof of our ability to manage our business on an annual basis despite the fluctuations between quarters, as well as our commitment to delivering bottom-line results for our shareholders.

This type of performance doesn't come easy, especially in our highly complex business, and this year is no different.

The languishing economies in Latin America, the MERS epidemic in Korea, typhoons and stock market volatility in China, have all presented us with our share of headwinds.

However, a strong North American consumer has provided us a solid base, momentum in the Caribbean is going strong, and our new buildings continue to perform exceptionally well on every measure.

We have a lot to be excited about.

Given that the economic struggles in Latin America are having a profound effect on the Pullmantur brand and that China is our fastest-growing market, I'd like to spend a bit of time expanding on both of these topics.

First, it's clear that our Latin American strategy for Pullmantur hit a brick wall when the economies of our key local markets all but collapsed.

Brazil, which is our most important Latin American source market, has seen substantial economic turmoil as well as substantial political turmoil.

Just last quarter, the Brazilian Real dropped by 22% against the dollar.

This type of precipitous decline dashed our hopes and plans for Pullmantur in Latin America and has triggered the non-cash impairment charge of almost $400 billion.

Taking such a large write-down is always painful, and no one likes to acknowledge something like this.

But it is also true that every cloud has a silver lining.

In this case, the write-down enables us to put this issue behind us and focus Pullmantur on a simpler and more attractive proposition, catering to its Spanish base.

I believe that we can now move forward with a more positive attitude that enables a more positive outlook.

Shifting to the other side of the globe, we have a lot to talk about with respect to China.

As you know, we've made a real effort over a number of years to establish our position and our reputation in the growing Chinese market.

That effort has been very successful for us, and we're particularly proud of the strong brand position we've achieved there.

It's been a major learning experience, and not an easy one.

But fortunately the market has been very receptive to our product and to our message.

This has enabled us to accomplish two things: expand the size of our Chinese deployment, and expand the seasonality of that deployment.

We now have Quantum of the Seas doing China sailings year-round, and while off-peak sailings will still trade above the normal fleet average, they will not trade as high as the peak summer China sailings.

That is really no different than in any other market around the world.

In addition, Legend of the Seas will have sailings, home porting out of secondary cities like Tianjin and Qingdao that have lower costs, but most likely not drive as high of APDs as Quantum does out of Shanghai or that Ovation will out of Tianjin.

These mix changes do not alter the fact that China and the growth of the Asia-Pacific region has and will continue to be yield-accretive to the brand overall.

Now as we look specifically into 2016, we're encouraged by what we see.

As previously noted, we have a higher percentage booked and at higher prices than ever before in our history.

And we take the delivery of two of the industry's most acclaimed ships in the second quarter.

Harmony of the Seas, which is the third Oasis Class ship, and Ovation of the Seas which is the third Quantum Class ships.

All of this provides a very nice tailwind to earnings, especially for the back half of next year.

I would emphasize that booking so much so early is not only an indication of the strength of the market, it also goes hand-in-hand with our price integrity policy.

As you know, that policy is designed to give our guests and our travel partners more comfort, and when they book a cruise with as we won't be dropping the price of that same cruise during the last few days before the ship sails.

We believe that only clear, unambiguous guidelines work.

If we can't measure it, we can't properly implement it.

In this case, it's both the clarity and the absoluteness of our program that makes it so powerful for our customers and for our internal revenue managers.

Depending on the itinerary, we have internally banned any new discounts in the US and Canada in the last 10, 20, 30, or 40 days before the cruise starts.

The program has been in place for seven months or so, and we have not granted a single exception to the policy.

I acknowledge that it's cost us a bit and is costing us a bit this year in revenue, and some cabins have gone empty, which could have been filled with dramatic last-minute deals, but we stood firm and we have made zero exceptions.

We believe our guests and our travel partners are beginning to respond as we had hoped they would, and we are sticking with the program.

We still expect it will cost us a bit more in 2016, but the long-run benefit in guest satisfaction, in travel agent support, and in bottom-line results will pay handsome dividends in the long run.

In fact, we feel sufficiently positive about the program that recently we extended it to the UK and Irish markets.

So we are now applying the same policies about no new last-minute discounts in Britain and Ireland that we have been applying in the US and Canada.

Now lastly before I turn the mic back to Jason, I will just touch on our share repurchase program that we included in our release.

We've previously responded to questions about such a program by saying that it would be a reasonable consideration as we get into the time when we're more comfortable about free cash flow generation.

It's a gratifying sign of progress that our Board has now approved such a program at this time.

With that, it is my pleasure to turn it back to Jason.

Jason?

Thank you, Richard.

I will begin by taking you through our results for the third quarter.

Unless I state otherwise, all metrics are on a constant currency basis.

We have summarized our third quarter results on slide 2. For the quarter, we generated adjusted net income of $2.84 per share which was $0.14 above our guidance.

Third-quarter net revenue yields were up 5.1% year-over-year, which was approximately 130 basis points better than the midpoint of our previous guidance.

The out-performance was driven by strong close-in pricing for the Caribbean and Europe, as well as strong onboard revenue on our Asia itineraries.

Yields were up year-over-year on all key products except for Latin America, where we sold weak demand at low price points.

Onboard revenues did not disappoint.

We achieved 10% growth year-over-year driven by improvements in beverage, retail sales, and demand for VOOM, the fastest internet at sea.

Costs were better than expected for the quarter with net cruise costs excluding fuel down 1.8% versus guidance of down 1.5% to 1%.

The $0.02 beat in cost is mainly due to timing.

Also in the third quarter we recorded a non-cash impairment charge of $399 million associated with Pullmantur goodwill, trademark, and trade names and a reduction in the fair value of select vessels in the Pullmantur tour fleet.

Given the further deterioration of the economies and currencies in Latin America, management has shifted strategy and will be right-sizing the Pullmantur brand to better align supply with demand and to refocus on their core market of Spain.

To that end, the Pullmantur Empress will transition back to the Royal Caribbean International fleet in early 2016, and after an extensive drydock will begin sailing as the Empress of the Seas in Spring of 2016.

As the Pullmantur management team works through their new strategy, we expect restructuring and related charges in the range of $5 million to $10 million that will be recorded in future quarters.

Also we plan to eliminate Pullmantur's two-month lag in the first quarter of 2016.

This change will result in a 14-month reporting period for Pullmantur next year and does not represent a material impact to full-year earnings.

For simplification and comparative purposes, we will be excluding all these adjustments from our key statistics.

Now I would like to update you on what we're seeing in the demand environment for the balance of 2015 and provide early insight into 2016.

The fourth quarter is shaping up significantly better than last year from both an APD and load factor perspective and we are currently 95% booked for the quarter.

Our Caribbean sailings account for 47% of our Q4 capacity and are trending much more favorably than at this point last year.

We expect the Caribbean to generate mid-to-high single digit yield improvements in Q4.

Asia-Pacific itineraries account for 20% of fourth quarter capacity, and for the first time we have a ship in China throughout the winter season.

Quantum of the Seas has been generating superior yields and is continuing to contribute to our overall yield growth in the region.

Industry capacity growth is slightly stressing our Australia and Southeast Asia products this winter.

While this has led us to take a more conservative view on yield expectations for these itineraries, absolute yields are still higher than like hardware and other markets.

Our guidance reflects the impact the economic crisis in Latin America is having on our locally sourced Brazil and Latin America sailings.

Before providing visibility into booking trends for next year, I want to provide you with an overview of our deployment.

We are slightly increasing capacity in the Caribbean due mostly to hardware changes and shifts in the season length.

By the end of the year, we will have three Oasis Class ships in the Caribbean, two in Fort Lauderdale and one in Port Canaveral.

Our newest ship, Harmony of the Seas joins her sister's Oasis and a Allure for the Winter 2016 and 2017 season.

The Caribbean will remain our biggest product with about 43% of total capacity.

Before heading to the Caribbean, Harmony of the Seas will debut in the Mediterranean and spend her Summer season sailing from Barcelona and Rome.

Overall, European itineraries will represent about 21% of our total capacity which is similar to this year.

Our most significant increase will once again occur in the Asia-Pacific region.

Capacity will be up more than 30% year-over-year due in part to the addition of Ovation of the Seas in Tianjin and the year-round presence of Quantum of the Seas in Shanghai.

Overall, China will represent 9% of total 2016 capacity versus 6% in 2015.

Structurally, the main changes in our deployment from a quarterly perspective are Quantum of the Seas has new China sailings throughout Q1, Splendour of the Seas leaves the fleet in April, Harmony and Ovation of the Seas joins us late in Q2, ultimately providing tailwinds to revenue in Q3 and Q4, Mein Schiff 5 joins TUI Cruises in June.

Drydocks are also shifting next year with more in Q2 and Q4 and fewer in Q1 and Q3.

Moving on to early booking trends for 2016, demand has been healthy thus far, and the booking window has continued to expand.

In fact, it has shifted out approximately 30 days over the last two years.

As a result, 2016 load factors are currently the highest in the company's history, and APDs are ahead versus same time last year for the full-year and in each individual quarter.

The strength we are seeing in the Caribbean this year continues into 2016, and Caribbean sailings of all lengths are trending nicely ahead.

We are seeing solid early booking trends from both North America and key sourcing markets in Europe for 2016 European sailings.

As expected, Harmony of the Seas is enjoying particularly strong demand.

Load factors are up year-over-year for our 2016 Asia-Pacific itineraries, with Quantum of the Seas in an all-world China winter season and a good book position at high yields.

Our order book for summer China sailings is shaping up nicely, and the product is expected to contribute to the Company's overall yield growth for 2016.

Although it's still too early in the booking window to comment specifically on booking trends for the full-year, we do have more visibility into the first quarter.

Overall, Q1 is booked ahead on load factor and APD versus same time last year.

The Caribbean and China, which makes of approximately two-thirds of capacity, are significantly more booked than last year at higher rates.

The strength of these two products is more than offsetting continued pressure in Latin America.

While our key products are trending well in the first quarter, it's still too early to provide specific guidance for the full-year.

However, our current record high load factors and strong pricing position, 2016 is expected to be our seventh consecutive year of yield growth, keeping us on track to our Double-Double targets.

If you turn to slide 3, you will see our guidance for the full year 2015.

Net revenue yields are expected to be up approximately 3.5%, which gets us back to the midpoint of our January guidance and represents a slight increase from our July guidance.

This increase is due to our stronger revenue performance in the third quarter.

The factors impacting our business have mostly remained consistent since our last earnings call.

Caribbean momentum continues.

We are on track to have our highest yield in Europe in our Company's history, and our onboard revenue and TUI Cruises remain on a positive trajectory.

These tailwinds are somewhat offsetting further weakness in Latin America, and softer pricing in Australia and Southeast Asia due to significant increase in industry capacity.

Net cruise costs excluding fuel are expected to be back in line with April guidance of flat-to-down 1%.

Our fuel costs for the year have decreased since our July call to $800 million driven mainly by rate, and we are 57% hedged for the remainder of 2015 at a price of $608 per metric ton.

Based on current fuel prices, interest rates, and currency exchange rates, our adjusted earnings per share guidance is expected to be approximately $4.80.

These earnings represent a $0.05 improvement from the midpoint of our January guidance despite a full year $0.25 headwind from currency and fuel.

Before I walk you through our fourth-quarter guidance, I would like to elaborate on capital returns.

We continue to remain focused on improving returns for our shareholders, which is one of our three core financial objectives.

Our commitment to this goal is exemplified by our announcement this morning of our Board's authorization of a $500 million share repurchase program.

This includes a $200 million accelerated share repurchase which is expected to be completed by the end of January 2016.

Further evidence of our commitment to improving shareholder returns is our recent increase in the quarterly dividend to $0.375, a 25% increase year-over-year.

These two actions reflect our commitment to improving shareholder returns and our confidence in the Double-Double.

Now I'd like to walk you through our fourth quarter guidance on slide 4.

Not withstanding the impact of Latin America and some modest pressure on pricing in Australia and Southeast Asia, Q4 of 2015 will be the best-performing fourth quarter in our Company's history.

Year-over-year tailwinds are coming from a combination of price improvements in the Caribbean, the addition of Quantum of the Seas in China, and Anthem of the Seas in the Northeast.

Net yields are expected to be up in the range of 4.5% to 5%.

Net cruise costs excluding fuel are expected to be down approximately 4%, and we have included a $193 million of fuel expense for the quarter.

Taking all of this into account, we expect adjusted earnings per share to be approximately $0.90 per share for the quarter.

With that, I will ask our operator, Lori, to open the call up for a question-and-answer session.

(Operator Instructions)

Steve Wieczynski, Stifel.

Hi, good morning, guys.

You talked a little bit about 2016 in terms of what you're seeing there, and I guess sometimes in the past, around the third-quarter earnings release, you guys have essentially given somewhat soft guidance for the next year.

And I know, in 2015, you guys called out that you felt comfortable with where consensus was for the next year.

This year, you guys did not do that.

I was wondering, why the decision not to do that?

Yes, Steve, I'll address that.

It's Richard.

I guess that's an instance of no good deed goes unpunished.

We did do that last year, and I think we actually did it the year before as well.

And the reason was, in both of those cases, we were sort of -- there were a lot of uncertainties about some of the structural elements that we were trying to make sure everybody understood where that is.

But most people don't provide that kind of guidance, and we don't really want to do so on a regular basis.

And, this year, I think, we think that the structural issues are clear.

We have a comparable situation going forward.

People understand the way the fleet works and the numbers work, and so we didn't, and it's clear from the guidance that's out there -- not the guidance, but the estimates that are out there, that people understand the way these things are going.

But, we get our best information about the year when we go through the wave period.

And we really feel that it's more appropriate on an ongoing basis to be doing what the rest of our industry does and provide our guidance when we've had that early insight.

So, I think I would suggest that the last year or two have been the anomalies, but this is and should be the norm.

Okay.

Got you.

And then, I guess as we look to 2016, your outlook there looks pretty good for most of the markets you're operating in.

But the question is going to go to Pullmantur and, even though it is a very, very small percentage of your capacity, I guess at this point you guys have had issues with this brand.

The Latin American market does seem to be unstable at this point.

And if you look at those five ships in the brand, the average age is almost 25 years old.

So I guess the question is, at this point, why not shut that down and, essentially, to relocate those ships, or, essentially, scrap them?

Hi, Steve.

First of all, I think that when we look at Latin America as a key market, as you brought up, there has been some real challenges there.

But when we look at the market of Spain and Pullmantur's position in Spain, we do think that there is opportunity with those assets, and with the positioning of that brand, to do well.

And that's why this is a combination of somewhat rightsizing.

So we are taking Empress of the Seas, as I noted in my remarks, and moving her into the Royal Caribbean fleet, and then really kind of trying to match up appropriately supply and demand in the Spanish market.

And I think that we see those plans as paying off nice for us in the future.

Okay.

Great.

Thanks, guys.

Felicia Hendrix, Barclays.

Thanks.

Good morning.

Jason, exciting news regarding the share repurchase program and the ASR.

That just came out about a year earlier than I was expecting, so I was just wondering if you could talk about the decision to do it now and any impact that might have with the rating agencies regarding obtaining your investment grade rating.

Sure.

It is a little bit early relative to when positive free cash flow generation comes in.

And, as we've all been modeling in our discussions, most people see that towards the back half of next year.

I think what we talked about was that, as we start to get more comfortable about the forward-looking picture and, as Richard mentioned in his comments, the forward-looking free cash flow generation that Management and the Board would be considering when that share buyback would be.

I think this is kind of more of a timely thing as it relates to the rating agencies, as this is probably a little bit earlier, but not a lot earlier than our dialogues with them in terms of the share buyback program.

So, I think the combination of our confidence in future cash flows while also trying to manage those three core financial objectives of improving shareholder returns, being an investment-grade credit, and growing our business -- by maintaining that balance has kind of been our perspective for it.

Great.

And then, you gave us some color on China.

As you know, we just did some analysis on the supply that's coming into the market over the next two years.

And, by our count, the market's going from about 10 ships today to 18 in 2017.

So, I was just wondering, in context of all the strength that you [stuffed into] your prepared remarks, can you just share your thoughts on the impact of that supply to the market in general, in particular, 2017, and then also how Royal Caribbean's expectations for pricing fall into that scenario?

Thanks.

Hi, Felicia, it's Michael.

I'll answer that question.

I think, as you point out, there's more supply coming into the market in 2016 and 2017.

We obviously feel quite comfortable with the market opportunity.

We believe that it's literally untapped and, as we see what's occurring both in the Shanghai and the Tianjin-Beijing region, we think that there's a lot of opportunity ahead of us.

For Royal Caribbean, I think we feel confident.

We have now been in the market for eight years.

We have been building our brand for that period of time, and we've been investing solidly in the market for that period.

So, the aggregate marketing investment has been quite significant.

We have good consumer confidence.

We're in a good position as a brand in the marketplace.

In fact, yesterday, we just received news that we were the recipient of the Best Cruise Line in China for the eighth year running.

We have been working on expanding the distribution channels and building our trade relationships.

And, over this period of time, I think we've also been able to introduce more sophisticated promotional ideas with our various trade partners.

So, our feelings are good about how we see China.

We think the opportunity is still very, very strong.

So, that's kind of our perspective on China.

Right.

And then, to just reiterate something that Jason said about pricing in China.

Did I hear that right, that, for 2016, so far what you see -- is it up year over year, Jason?

Yes.

Just in terms of the visibility that we have into China, and a lot of that is going into the spring.

We feel good about load factor and the APDs we are getting there, and obviously Quantum will be there for the first time in the first quarter.

And, as Michael mentioned, the reception to that product, and that asset, has been fantastic.

Yes.

Just to add, not only have we been extremely pleased with the performance of Quantum, but we have Ovation coming into the market in June into Tianjin.

So, with the two Quantum Class ships in China, in 2016, we're feeling pretty good about how that looks.

You know, Felicia, it's also worth emphasizing that the -- there's a structural change, because we're really now going into the market and doing it on a year-round basis.

And so, you have to add in the mix that we now have winter sailings.

Actually, a significant part of the increase in the capacity in China is not so much new ships, but it's actually just that we are broadening when during the year that we're there.

So, we're quite encouraged by it.

We are already there.

The Quantum has done very well.

The Quantum is clearly -- the Quantum Class is clearly distinguishing themselves as an outstanding vessel.

But there's also a lot of uncertainty about China in everybody's mind, and we feel good that we're going at it in the right way.

And I just don't want you to forget that structural change.

Thanks for that.

Thanks a lot.

Tim Conder, Wells Fargo Securities.

Thank you.

First of all, congrats to everyone on continued great execution.

A couple things, Richard, just to continue on to that.

And whether you or Michael or Jason want to take this, but, regarding China -- so it sounds like we may see a little bit more seasonality, obviously, and somewhat similar to what we see in North America, where we have a shoulder period in Q1 and Q4.

Can you sort of talk about the cadence there of pricing, and, obviously, it would appear that you would get your highest yields in the summer.

So that's question one related to China.

Question two would be, Jason, you mentioned I think that the pricing as it stands right now is up on a very early basis looking for China for next year.

But if you could maybe, if you can or if you want to, break it down into your existing markets and then, as you expand here into some of these periphery markets.

Somewhat your comp cities versus your new cities, if you can give any color from that perspective.

Hi, Tim.

It's Michael.

I think, as Richard's pointed out and as your question asks, there is a seasonality, and so the cadence is very similar to the kind of cadence that we see in other markets.

There's a peak summer when the demand is high, particularly around Golden Week when the demand is extraordinary.

And then, as we move into the more of the shoulder seasons then we typically have slightly softer pricing than we do in the peak, so that's very typical.

And I think that we expect the behavior to be similar, although I think, for us, it's the fact that we're broadening the seasons.

It's also a new experience for us as well.

So we're going to have to see how it really does play out.

We're fairly confident in terms of demand in the marketplace, so I think -- but the seasonality is, we believe, quite similar.

Okay.

And then, Tim, in terms of your commentary on the market and the secondary markets, I think, in Richard's comments he talked about that these secondary markets have a lower cost base to them and do get slightly lower yields than what you would get in these primary large metropolitan areas like Shanghai and Beijing area.

So I think, again, it's still very early on in that booking process, but that will play into the mix of yields for China.

But, again, we all think that, that contributes positively to the overall yield of the region as well as to the Corporation for the full year.

Tim, I'm sorry, if I could just add one more nuance.

We talk about the complexity of our business.

One of the things you are also very well aware -- I know you are well aware of but it gives me an opportunity to mention it for everybody, is the issue that it's not just China.

We really look at this pattern as, in some cases, it's year-round China, but in some cases it's summer in China and our winter, the northern winter, in Southeast Asia and in Australia-New Zealand, and we're also commenting on what's happening, particularly in the Australian market and New Zealand market, which have also had very large increases in capacity.

So you have to balance all of those as we are going through.

Understood.

That helps.

I guess just one more piece there on the China.

If you looked at your comparable cities in the comparable periods, how is pricing trending at this point from that perspective?

Hi, Tim.

On a comparable basis, again, in terms of the visibility that we see, and as I commented, we -- our load factors are in a good position year over year, as well as our rate, based off of the level of visibility that we have, which is really through the spring at this point.

Okay.

Gentlemen, thank you.

Thanks, Tim.

Joel Simkins, Credit Suisse.

Good morning, and thanks for the update on trends here.

I guess you mentioned the window now for discounts being out as far as 40 days.

Is there any thought to sort of extending that a little further?

Do you feel like you could push it at this point, given that the consumer seems to be getting used to it and, obviously, the competitive environment seems to be rational?

Yes, I think we take these things as they come and we're learning from it.

This is a new program, and we need to be a little bit cautious as we roll it out.

The rollout has been very encouraging.

You've seen that.

We have extended it.

But we actually look at these and don't make those decisions in advance, so I wouldn't speculate as to what might be the case in the future.

All I can say is that we have felt good about what we've done so far, and that's caused us to extend it, both in terms of time and also in the areas where we're putting this in place.

And I'm quite comfortable that, that is working and we will continue that.

I have no comfort as to what we will do in the future, and I think we would simply look at that on a -- as that comes to play.

Sure.

And one follow-up on onboard, obviously the trends continue to be very, very strong there.

I guess as you think about onboard and what's driving it, I guess how much is the overall health of the consumer, how much has been price, and how much has been sort of product and innovation, particularly as you've renovated some of the legacy capacity?

Hi, Joel, it's Michael.

I think it's really all three.

I think with -- certainly in the summer during Q3, both in Europe and Caribbean, actually in nearly all of our products, we've seen more spend coming from the consumers.

We been more, I think, aggressive with our dynamic pricing model as it relates to pricing onboard, which has allowed us to take opportunity of some of those moments where people seem to be more willing to spend.

I think product mix has been a really major contributor.

The investment over time in terms of building out and changing out different retail options and whatnot is certainly beginning to help us.

So I think really it's a combination of all three.

It was a -- certainly for the Q3 it was just a really good quarter, and of course China played a big part of that as well.

And we've been very pleased with -- one of the big contributors has been the Voom, the fastest internet at sea, and we have seen a significant increase in our revenues in that area.

Thank you.

Steven Kent, Goldman Sachs.

Hi, good morning.

On the pricing integrity program, it's not clear to me, is that just for the Royal brand or all of your brands, and when you said you're rolling it out into Europe and other markets, is that for all of the brands?

That's my first question.

And then, on the buyback, can you just talk about how the Board looks towards that versus dividends and the discussion there?

And then, one final thing, can you talk about the earnings potential of your JVs and how that factors into achieving your Double-Double goals?

Sure, Steve, its Richard, and I will start on the price integrity program and then I'll ask Jason to answer the other two questions.

The price integrity program is for all of our brands.

It is across the board.

It's only in the UK and Ireland that we've added it.

We haven't added it elsewhere in the world, but it is -- in the UK and Ireland, it is for all of our brands.

And then, Steven, in terms of on the share buyback versus the dividend, I think that, obviously historically we've looked at the dividend as kind of the core mechanism to returning capital to shareholders, and I think there is a recognition that there needed to be a mix of those two things.

And I think that's how we and the Board will be considering those mechanisms going forward.

Just to stay on this for a second, why not be more opportunistic, Jason, versus this accelerated share repurchase?

You can't help but see today you're -- I think you're at an all-time high, which is terrific, but why not just wait for the occasional downdraft that seems to happen in this industry?

Great question.

Well, I think it's important to point out two things, one of which is the ASR is really for 200 of the 500, and the other 300 we have not announced how we would go about doing that.

But that thought is definitely something we very much keep in line, and I think that -- the share repurchase, I think, should be an indicator of, again, our confidence, the Board's confidence and how we see things going forward.

As it relates to the joint ventures, certainly we have two key joint ventures.

One is with TUI -- TUI AG, our TUI Cruises venture, which is -- does and continues to do very, very well.

That is obviously a key contributor to our Double-Double Program and our outlook going forward as that brand continues to successfully operate as well as grow.

SkySea is really in its infancy.

It just launched this past May.

I think we -- how it contributes to our Double-Double will probably be something more on a modest basis as we look to grow that -- the positioning of that brand in the Chinese market with our partner Ctrip, as well as grow that brand over time.

Thanks.

Kevin Milota, JPMorgan.

Good morning, guys, appreciate the time here.

As we look at capacity growth in 2016 picking up a touch here for the fleet, could you give us a sense for how we should be thinking about net cruise costs on a go-forward basis, both with fuel and without?

Thank you.

Hi, Kevin.

We're obviously still in our planning process on both the revenue and cost standpoint, and we will give guidance on cost next year.

But I think that you should just generally expect that our focus and rigor on cost has really seated well into the culture of the Company, and you should expect us to behave similarly going forward.

James Hardiman, Wedbush Securities.

Thanks for taking my call.

Two questions for me.

First, maybe just a little bit of a clarification, was the repo factored into your original Double-Double plan?

I guess another way of asking that -- do you think that net income will double 2017 over 2014?

When we gave the Double-Double, and I would remind you that it is both net income and ROIC, we didn't caveat that with what actions we would take or the market takes.

We're not adjusting it for fuel, foreign exchange, share repurchases, or anything we might be doing.

We really just said it's the target.

The one -- the earnings per share would be impacted by share repurchases, but the ROIC, I would point out, is not impacted by share repurchases as well.

Just to clarify, I think you just said that the expectation was that net income would double, not just EPS, or --.

No.

We tried to be explicit.

We have two targets and they are exactly what we've said, which is adjusted earnings per share would double, that is it would get to $6.78 by -- for the year 2014, and ROIC would reach double digits, i.e.

that it would be 10.0001% or better by 2017.

And those are our two targets that we're using internally.

Essentially, we will take what actions we should operationally, and the world will give us what it will give us, whether that's foreign exchange gains or losses.

It's been bad, but whatever it is, fuel, whatever it is, et cetera.

Got it.

Very helpful.

And then, my second question was on the price integrity program.

You said in the prepared remarks that it's cost you a bit in 2015 and will cost a bit more in 2016.

Are you saying -- obviously, the program is going to help with pricing and hurt on the occupancy front.

Are you saying that the net effect of those two has been a negative and will continue to be a negative in 2016, or is it just that it's cost you a bit on the occupancy side?

And I guess a related question, occupancy you step down a bit in second quarter and was down again in the third quarter.

I'm assuming that's a function of the price integrity program.

Safe to say that's going to continue to be down until you lap that, maybe second quarter next year and then resume growth, or how should we think about that?

Yes.

So I think your description was accurate -- that we think that the price integrity program probably helps us on the rate but hurts us on the volume, and so the net effect of that in 2015 and 2016 would be negative on our total revenue.

So I think your articulation was exactly correct.

In terms of the actual occupancy that you are experiencing, especially by quarter, I think there are so many other factors that the price integrity program would not be a significant part of that, and so to the extent that it's down or up in any quarter, the -- that will be really driven by our yield managers and our yield-management system, not -- the price integrity program would be a de minimus part of that.

Makes sense.

And maybe just a follow-up there then, so as we think about the net being a negative into 2016, should we sort of think about that as a negative, most significantly in the first quarter and then once we lap that, maybe it becomes a positive beyond that, or how should we think about that?

Hi, James, its Jason.

I think the way that you need to the look at it is, is that, first off, we're talking about very, very small numbers here in terms of what we believe the impact is of this program on a negative basis.

And we expect to see that continue, because, you know, these programs are continuing to rollout to more products and to more markets.

And, as we've said previously, we expect that to kind of lap and move more into a positive direction in 2017.

When we talk about the effect, we really do talk about it on occupancy basis, because, as Richard mentioned in his remarks, it's what we can measure.

But we do think that this is really changing the conversation with the guests who have booked and behaved in the way that we wanted them to, and also helping us extend out the booking window to position us for stronger pricing.

Excellent.

Thanks, guys.

Thanks, James.

Robin Farley, UBS.

Great.

Thanks.

A couple questions.

First is, I wonder with the Pullmantur write-down if you could quantify, it looks that write-down will end up adding to EPS in future years because you're eliminating some things that would have run through the depreciation and amortization line.

Could you just help guide us a little bit of what that will add to EPS each year, having taken the write-down?

And then, a question on China.

That's the topic not totally exhausted yet.

We had a recent analysis out, and in our channel checks we had heard some of the distributors there, maybe not getting as large of a markup, but that is, in our view, is not a negative for Royal or for pricing since it's not really a commission model, with the charter model there.

So, is it fair to say that, that's going to be the same?

It's still primarily going to be a charter model for next year, so the width of the travel sellers' markup is not really something that's a negative for you guys?

And then, I may have one more question after that.

Thanks.

Hi, Robin.

It's Jason.

I'll take the Pullmantur question.

Really, the majority of the write-off or -- again, it was a non-cash write-off and it was relating to intangibles that were not amortirizing or depreciating in any way.

There is a portion of that, that did relate to some of the ships.

It will probably help us by a couple cents going forward, because it's not just about the write-down, it's also some adjustments in the residuals as we look at those assets going forward.

But it's a couple cents.

It's not material.

Hi, Robin, it's Michael.

I'll answer the question on the China and the distribution markup.

Yes, I think there was a period when we had the MERS outbreak in Korea, and then we had the triple typhoon impact, and then of course we had the explosion in Tianjin, so we had a period of about -- I'm going to guess it was about three months or so where it was a little wobbly because of all of these events.

And then, of course, we had -- many of the distributors had this charter or group resell relationship with us and I think many of our competitors.

So, during that period I think some of them incurred losses that didn't flow through to us.

But, of course, it impacts us because they're long-term partners, and so we've worked on strategies to help them throughout and to ensure that we're in a good place for 2016.

But it didn't really have a financial impact to us.

And, of course, the model is really quite different in China in relation to the distribution.

But one of the things that we've been actively working on is expanding the distribution and opening up that channel through various strategies, which of course is a -- it's a long-term play, but we feel like we're on a good track to broaden that channel.

Great.

That's very helpful, thanks.

Maybe just a last question.

Just looking at the full-year EPS, and the full-year EPS went up by $0.10, and the beat in Q3 was $0.14.

I think you mentioned kind of $0.02 was maybe borrowed from expenses shifting.

Is there another $0.02 of -- because I think FX and fuel net out, is there another $0.02 of your yield outlook in Q4 that maybe that would be Pullmantur Latin America that was just that hair lower than previous, just to clarify?

Thanks.

Hi, Robin.

Yes, just to clarify, it's really a combination of Latin America and a little bit lighter on the Australia-New Zealand product, just due to the level of capacity.

That's in there, that's driving the differential.

That's great.

Thank you very much.

Thanks, Robin.

Jamie Katz, Morningstar.

Good morning, thanks for taking my questions.

Moving from capacity back to Spain and launching Harmony in the market next year, I'm curious what you guys are seeing in that local market, and then generally how you're feeling about European demand for next summer.

Sure.

Hi, Jamie, its Jason.

As it relates to the capacity going into the Barcelona market, first off, for Harmony it's a really globally sourced product while -- and it doesn't really compete directly with Pullmantur and us putting some more capacity into Spain.

And, by the way, when we say you put more capacity and focus on Spain, it doesn't necessarily mean it's sailing out of the Western Mediterranean.

It could be sailing out of different places, sourcing guests from Spain.

And then when you look at the European customer, we've actually seen very good signs and trends that we're still early for the European products coming from Europe, as well as that continued strength we've seen over the past couple years from the North American consumer who has been highly attracted to European sailings.

And then, I'm curious, you guys noted that there was a new marketing hire a few months ago.

Have there been any thoughts on changes to the marketing strategy and how to attract consumers going forward, or has it been pretty static?

Hi, Jamie, it's Michael.

Yes, we're very pleased to welcome Jim to Royal Caribbean International a few months ago, and he's been very busy.

You may have seen -- we just launched our new campaign, Come Seek, for Royal Caribbean International.

That's gone literally into market this week, and hopefully you'll see us go a slightly different twist towards it.

And the way we're approaching the market with this idea of Come Seek, and the imagery and the TV commercials, radio, and digital that we're putting into the market, has tested exceptionally well, not only with existing cruisers, but probably more importantly with new to cruise.

So, part of our focus is on the new-to-cruise market, and I think you'll start to see that in the marketing that comes from Royal Caribbean International over the coming period.

And that really has been led and directed by our new CMO.

And then, lastly, can you guys add any color on Celebrity?

I know you usually don't break it out, but I'm curious if those consumers are performing disparately or incrementally better than the Royal Caribbean passengers and the willingness to spend is a little bit higher?

I'm quite happy to, actually.

I think one of the things that has us feeling pretty good is just how well our brands are being received in the marketplace, and Celebrity is a good example of that.

Michael here -- is here.

He can tout his -- and has, how his brand is doing.

But if Lisa were here she would say exactly the same.

It's really -- and Michael mentioned that he has a new ad campaign coming out, so has Lisa, and she -- hers has actually been out for a little longer and it's being received quite well.

So I think we are really seeing -- except for geographic issues like Latin America, we're really seeing our brands doing quite nicely in their respective markets.

And the Celebrity brand has been holding its own.

And I think -- now, it's also been affected by the geographies because it, for example, has had more volume, particularly in the Eastern Mediterranean, this year.

So you will see changes -- we see changes between brands.

We see a lot of changes between brands and between different geographies, which is just the normal fact of doing business, and I think we sometimes read too much into it, particularly because we've historically been so surprisingly accurate.

I think for us to come in looking like -- and the year is so close to being over, we're pretty confident about looking to be in the range of a 3.5% yield improvement.

That is essentially exactly where we predicted at the beginning of the year, and I wish I could say that we were that accurate.

It's simply the margin of error in these things is a little bigger than that, and we have been fortunate that the pluses have offset the minuses.

But, overall, I think that's not unusual for us, and I would expect that to continue.

Thank you.

Lori, we have time for more question.

Ian Rennardson of Jefferies.

Thank you.

Good afternoon from England.

My question regarding the share buyback.

I'm assuming that the $500 million isn't a one-off, and I wondered how you calculated -- what ratios you used to calculate that $500 million, and what sort of ratios you'd be thinking about as being applicable for the medium term.

Thank you.

Ian, could you clarify what you mean by ratios?

Well, net debts or EBITDA (multiple speakers).

I'm sorry.

Okay.

Great.

We are still very much focused on getting to 3.75 times of net debt to EBITDA, and we see ourselves progressing towards that towards the end of next year as we consider this buyback.

So we see this buyback a little bit of a -- as a timing opportunity in terms of buying back shares.

Okay.

Thank you.

I would just add, I think as Jason said earlier, we would reiterate -- our objective is to get to that investment grade.

And, obviously, almost anything that we do that involves capital, including ordering ships or buying back shares, makes it a little more difficult, but we think that the move towards investment grade is so inexorable that we can balance those things.

Okay.

Thank you.

And I think we'll just finish off on that.

I think in 2017 you only have $500 million of CapEx projected, which is significantly lower than any other year.

Does that have any thinking on your medium-to-longer-term thinking on share buybacks?

No.

You know, it's interesting, because one of the interesting features of our business is CapEx tends to come in big bunches, and whether a ship delivers in January or December makes a huge difference on the numbers you just quoted.

We don't tend to look at it that way.

I think -- we made a decision.

2017 was a year that had no ship deliveries, but then we start having deliveries again in 2018.

So I think that's simply a coincidence that 2017 worked out that way.

Okay.

Thank you.

Great.

Thank you for your assistance, Lori, with the call today, and we thank all of you for your participation and interest in the Company.

Carol -- and Laura will be with her -- will be available for any follow-ups you might have during the day.

And I wish you all a great day.

Thank you for participating in the Royal Caribbean Cruises Ltd.

2015 third-quarter earnings call.

You may now disconnect.