皇家加勒比遊輪 (RCL) 2015 Q4 法說會逐字稿

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

2015 fourth-quarter earnings call.

(Operator Instructions)

I would now like to turn the conference over to Mr. Jason Liberty, Chief Financial Officer.

Please go ahead, sir.

Thank you, Paula.

Good morning and thank you for joining us today for our fourth-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 world Caribbean International; and Carol Cabesass, our Vice President of Investor Relations.

During this call we will be referring to a few slides, which have been 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 guarantee future performance and do involve risks 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.

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

Richard will begin by providing a strategic overview of the business.

I will follow with a recap of our fourth-quarter and full-year results.

I will then provide an update on the current booking environment, and we will end with full-year and first-quarter guidance for 2016.

We will then open up the call for your questions.

Richard?

Thank you, Jason.

And good morning, everyone.

As you may have heard from Jason's voice, he has a cold this morning.

So I'll use this opportunity to wish him a speedy recovery and ask him to sit on the other side of the room.

In any event, I'm pleased to have this opportunity to share more about our results in 2015 and our outlook as we enter 2016.

I admit that it's very satisfying to look back on 2015 and I'd like to take just a moment to celebrate a successful year.

On the revenue side we achieved our target of 3.5% yield improvement despite macroeconomic and geopolitical challenges that threatened to take us off course.

I've said it before and it still holds true that, while many factors may cause disturbances in short periods, our team has shown a very strong capability to make adjustments when circumstances change.

On the cost side, our team worked very hard to control this.

And we ended the year down 0.6%.

We began the year expecting costs to be up 1% or less.

But our finance organization and our operations team worked collaboratively to find further efficiencies and husband our working dollars.

Looking at the full picture, we anticipated doubling our 2013 earnings per share and we exceeded that target by $0.03 a share at $4.83.

The brands are delivering and I congratulate all the employees in our Company who worked so hard to make this happen.

It's equally gratifying to note that, along with the financial success that we are enjoying, our surveys indicate that the highest levels of employee engagement in our Company's history.

Our annual survey had record participation levels and indicated higher satisfaction across all categories.

We firmly believe that happy employees lead to happy guests, and that, in turn, leads to better yields.

This past year we took a significant step forward on this front by establishing hospitality training schools like the one in Tianjin, China.

This school teaches the art and science of hospitality.

That's an exciting challenge when most of the students have never themselves stayed in a hotel.

The development of this school marks another important step in further deepening our roots with the local community in mainland China, as it is a strategic partnership with the state-owned Tianjin Maritime College.

In July we opened a second training school in Lombar, Indonesia and in May of 2016 we will open a further school in Pasa, Philippines.

Not only will these schools provide a stream of over 5,000 high-quality employees each year, they provide these individuals the opportunity to join an international brand, traveling all over the world and improving their community.

We also took a big step forward in our efforts to ensure the long-term health of the oceans by entering into a five-year global partnership with World Wildlife Fund.

Our business depends on the health of the oceans and we feel a responsibility to uphold the highest standards of environmental stewardship.

Our partnership with WWF takes our efforts even further by setting specific and measurable targets for carbon emissions, sustainable seafood and destinations to stewardship.

We are serious about looking at our environment and our communities, and I am very pleased to join with a partner equally passionate about these causes.

Turning to another topic which we feel passionate about, Double-Double remains the lens through which we view all our decision-making at World Caribbean.

Every employee can describe the program: double [2014] earnings per share and double-digit ROIC by 2017.

As we look at our trajectory, 2015 paved the way nicely and the results we were anticipating during 2016 will keep us solidly on our path towards Double-Double.

The two key components of Double-Double to achieving our goals are growing revenue yields and maintaining cost discipline.

From a yield standpoint, our new buildings are attracting and maintaining strong pricing premiums.

Quantum of the Seas in Shanghai is head and shoulders above the market and the innovative amenities that distinguish Quantum are the exact same ones that will make Ovation of the Seas in Tianjin unique in that new market for her.

Finally, after five years we are welcoming the third vessel in our Oasis class, Harmony of the Seas.

We have seen the power of the Oasis class and the longevity of its popularity.

Early indications are that Harmony will not disappoint, either.

In addition to our new builds' outstanding performance, our existing fleet provides returns consistent with our needs for Double-Double.

At the same time, we are continually learning ways to enhance onboard revenue and apply these learnings to the existing fleet to continue to grow revenue yields there as well.

From a cost standpoint our commitment to cost control remains steadfast.

It's an extraordinary coincidence that in both of the past two years that cruise costs, excluding fuel, ended up down 0.6%.

This cost control does not come easy, but we intend to continue to be disciplined in line with our Double-Double targets but also keeping firmly in mind the strategic needs of the Company for the ensuing period.

While I'm pleased to look back on the success of 2015, I'm eager to move on to 2016 and the great things to come.

Our metrics indicate that we are still on course for our Double-Double targets.

We remain in the solid booked position, roughly equal to last year's record levels and at higher rates.

We are currently in the middle of our Wave period, as I think you all know, and we are happy to report that it is proving to be a solid Wave.

As we have seen, geopolitical concerns can also threaten the demand environment from time to time.

These threats are generally limited to pockets of our portfolio, and we generally manage through them.

It is important to note that when demand in one area of the globe is weaker, many times there is an increase in demand for other destinations.

Our intent is to maximize the overall portfolio, and we see that as one of the benefits of being a global player.

Although the current strength of the overall market is a key driver, we attribute part of our favorable booked position to our price integrity policy.

As a reminder, our price integrity policy is our determination to avoid the common prior practice of implementing dramatic last-minute discounts which cheapen our brand and upset our loyal customers.

The policy says that we will not implement any new discounts during the last weeks before sailing, with the time period varying by the length of the cruise.

We first started this policy about a year ago and we have made a number of tweaks to it as we've perfected our formula.

In December we decided to make the policy even clearer and broader.

It continues to apply in the US, Canada, the UK and Ireland.

Altogether, by the way, those represent more than two thirds of our revenue.

But we did decide that having different rules for different itinerary lengths was possibly confusing and definitely unnecessary.

We have therefore expanded the policy to make the no new discount period consistently 30 days, regardless of itinerary.

The only exception continues to be three- or four-night sailings, which are traditionally late bookers.

All of this makes the policy easier to understand and to implement.

We are a strong believer that clarity and specificity in a program like this is important because otherwise the exceptions undermine the integrity of the program, even if they are in fact very rare.

We now think we've got it right and we do not expect more changes in the near future.

At this time we've had our policy in place for almost a year and we have a better view of the results.

During this time we have granted no exceptions to the policy since its adoption, and we have no intention of doing so now.

Nevertheless, we've seen a double-digit percentage improvement in the booking window over this period, and we believe that the policy helps solidify brand preference.

An unforeseen benefit we have found is the reduced number of bookings taken at a discount before we get to the focus period.

Living the spirit of the policy has helped our revenue managers make better pricing decisions, and it has been roundly applauded by the travel agents that are so central to our success.

When we introduced the policy, we were transparent with you all that an upfront cost would result from some cabins going empty rather than being filled at deep last-minute discounts.

We know that in 2016 we will still see some residual impacts relating to these empty cabins.

But by 2017, we feel comfortable that the impact will be positive.

One last point I would like to touch on before turning it back to Jason is our share repurchase program.

As you will recall, we announced a repurchase program during our call last October.

That full program totals $500 million.

Of the total, $200 million was part of an accelerated purchase program which we have completed.

We expect to continue to purchase opportunistically throughout the year 2016 until the full $500 million is completed.

With that, it's a pleasure to turn it back to Jason.

Thank you, Richard.

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

We have summarized our fourth-quarter results on slide 2.

For the quarter we generated adjusted net income of $0.94 per share, which was $0.04 above our guidance.

Net revenue yields were up 4.9%, which was at the high end of our expectations.

A combination of new hardware, a stronger Caribbean and a successful new winter season in China helped drive the robust year-over-year improvement.

Costs were 70 basis points better than guidance for the quarter with net cruise costs, excluding fuel, down 4.7%.

I will now discuss full-year results, which we have summarized on slide 3. This year we had record earnings and exceeded the $1 billion mark.

Adjusted net income was $1.07 billion, resulting in adjusted earnings per share of $4.83.

These record earnings also mark a second consecutive year of 40%-plus growth in earnings.

Revenue yields increased 3.5% for the full year.

Yield improvements in the Caribbean, Europe and China more than offset weakness in Latin America.

Onboard revenue yield did not disappoint with a year-over-year improvement of 4%.

The combination of new hardware, more onboard revenue venues on our upgraded ships and Voom, the fastest Internet at sea, drove the majority of this improvement.

We delivered a second consecutive year of cost improvement on a per-unit basis with net cruise costs, excluding fuel, down 0.6%.

These cost improvements occurred in non-guest facing areas, mainly through identifying further synergies amongst our brands and leveraging scale in our back office.

Now I'd like to update you on what we are seeing in the demand environment.

I will start by taking you through first-quarter trends.

63% of Q1 capacity is in the Caribbean.

23% is in the Asia-Pacific region.

And approximately 11% is in Brazil and Latin America.

The quarter as a whole is booked ahead of last year in boat load factor and rate.

Overall, we are seeing strong yield trends in Q1, driven by a significant year-over-year improvement in Caribbean pricing and the addition of the winter China season.

The strength of these two products is more than offsetting ongoing pricing pressures in Latin America and Australia.

The Wave period is off to a good start with bookings for Q2 through Q4 sailings trending similarly to last year's level.

As we enter Wave, we have significantly fewer staterooms left to sell on first-quarter sailings than last year.

So, as expected, bookings for the first quarter have been lower than last year.

For the full year we are booked at a similar load factor to last year's record high and at a higher APD.

Capacity is increasing 6.3% year over year as we welcome Harmony of the Seas and Ovation of the Seas into the fleet this spring.

The majority of our capacity growth is in the Asia-Pacific region with the balance mostly in the Caribbean.

Caribbean capacity will be up about 4% year over year as the product benefits from an upgrade in hardware.

In addition to Anthem of the Seas in the Northeast, you will have at least two Oasis-class ships in the Caribbean in each quarter.

We are also moderately increasing capacity in Europe, driven by a handful of sailings on Ovation of the Seas before she begins her journey to China.

Once she arrives in China, Ovation will contribute to our 33% capacity growth in the Asia-Pacific region.

On the other hand, we have significantly scaled back our capacity in Brazil and Latin America.

While these products will account for approximately 11% of our capacity in the first quarter, they will be reduced to less than 2% for the remainder of the year.

We are seeing particular strength from the North American consumer, and our Caribbean and Alaskan products are currently booked at record load factors.

The Caribbean accounts for 43% of our 2016 capacity and is booked ahead of same time last year in both load factor and rate.

Our Caribbean product consists of a wide variety of itineraries ranging from weekend getaways to 14-night Southern Caribbean sailings.

In general, we are seeing better trends than last year across Caribbean itineraries, with 7-night and shorter sailings showing the most strength.

Overall, we are expecting mid single-digit yield growth for the Caribbean.

Alaska is booked nicely ahead of last year in both rate and volume, despite a 6% year-over-year increase in capacity.

We anticipate mid single-digit yield growth in what is expected to be a record-breaking year for the product.

Europe itineraries account for about 21% of our 2016 capacity.

Although book load factors for the product is slightly lower than same time last year's record levels, recent trends have been quite strong and load factor remains nicely higher than at this point in all other previous years.

We did experience a softening in North American demand for a short period after the Paris attacks in November, and there was a minor drop in bookings from European-sourced markets.

Demand quickly returned to typical levels although pricing remains below same time last year for Eastern Mediterranean sailings.

Prices for like hardware for the rest of Europe are up slightly versus same time last year.

Overall, we are expecting a low single-digit yield decline for our European itineraries, primarily driven by hardware changes and pricing pressure and itinerary modifications that relate to the Eastern Mediterranean.

Asia-Pacific itineraries will account for 19% of our 2016 capacity, following significant growth in both Australia and China.

Yields for the Asia-Pacific product as a whole are expected to be up low single digits, driven mainly by our increasing capacity in the high-yielding China market.

For the first time, we will offer a year-round China product as Quantum of the Seas makes Shanghai her home for the full year.

Her sister ship, Ovation of the Seas, will drive the remainder of our China capacity growth after she arrives in Tianjin at the end of June.

Significant industry capacity growth combined with the expansion of the season into all peak periods and the second-tier embarkation ports has led us to forecast a low single-digit yield decline for China in 2016.

Nevertheless, China is expected to remain one of our highest yielding itineraries and is contributing to the Company's overall yield growth.

The pricing environment in Australia remains a bit of a challenge, given ongoing capacity growth in the region and the weakening of the Australian dollar.

While Australia continues to deliver a strong seasonal yield, we expect yields in Australia to be flat to slightly down for the year.

Before getting into our 2016 guidance, I wanted to reiterate some of our previous comments we made during our last earnings call that relate to Pullmantur.

As a result of our rightsizing efforts, we expect to incur restructuring and related costs in the range of $0.05 to $0.10 per share during 2016.

Additionally, as previously discussed, we intend on eliminating Pullmantur's two-month accounting lag during the first quarter of 2016.

This change will result in a 14-month reporting period for Pullmantur this year, with it estimated to impact our earnings per share by $0.10.

For simplification and comparative purposes we will be excluding all of these one-time adjustments from our key statistics.

Hence, our GAAP earnings in 2016 will be slightly lower for these adjustments.

Taking all this into account, if you turn to slide 4 you will see our guidance for 2016.

This will be the second full year on our path toward Double-Double, and our results remain on track.

Net yields are expected to be up for the seventh consecutive year with yields increasing 2% to 4%.

Strong trends from the North American products, additional capacity in the Asia-Pacific region and another year of strong onboard revenue are expected to drive this improvement.

On the onboard side, new hardware and upgrades to our existing ships, a greater mix of capacity in Asia and further expansion of Voom is expected to deliver another step change in shipboard revenue yield.

Net cruise costs, excluding fuel, are expected to be up 1% or less for the full year.

While the full year demonstrates our cost discipline, the cadence of expenses through the year is not linear.

For example, our drydocks in 2016 are concentrated in the first and fourth quarter.

In addition, you will recall that in the second quarter of last year we made investments in the China market to support Quantum of the Seas.

This year, these investments are being made slightly earlier to support our year-round China presence, Ovation of the Seas' arrival and to grow our Asia market footprint.

This is resulting in a shift in spend into the first quarter.

We anticipate fuel expense of $716 million for the year, and we are 66% hedged.

Over the past several months, fuel prices have significantly weakened while the US dollar has continued to strengthen versus our basket of currencies.

The combination of these two factors has resulted in a $0.14 per-share headwind to [2006] earnings.

Additionally, the recent rise in interest rates has impacted our 2016 earnings by $0.06 per share.

Based on current fuel prices, currency exchange rates and interest rates, we expect another record-breaking year with earnings per share between $5.90 and $6.10 per share.

The midpoint of this guidance represents the year-over-year increase of 24%, which comes on the heels of more than 40% growth delivered in each of the past two years.

Now I would like to walk you through our first-quarter guidance on slide 5. Net yields are expected to be up approximately 4% for the first quarter, driven by a strong Caribbean and the continuation of the winter season for Quantum in China.

Net cruise costs, excluding fuel, are expected to be up in the range of 4.5% to 5%, driven by a combination of factors.

We are setting the groundwork for two new ship entries later this year while also maximizing the momentum of new marketing campaigns for our two largest brands during Wave.

Additionally, we will be investing earlier this year in Asia as we look to continue to expand our leadership position in the market and diversify our channel mix.

As I mentioned earlier, much of this spend has been concentrated in the first quarter due to timing.

Taking all this into account, we expect adjusted earnings per share for the quarter to be approximately $0.30.

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

(Operator Instructions) Tim Conder, Wells Fargo Securities.

Thank you, everyone.

A couple questions here -- one, could you give us a little bit more color on the bookings and pricing, specifically the cadence over the last 120 days, say, from Canada and China?

And then anything on that related to the Ziko virus?

Have you seen that show up in any way in the recent bookings over the last couple weeks?

And then finally, could you just review the no discounting policy?

Richard, you mentioned that that was streamlined to nothing within 30 days.

Was it tiered before?

Was there like a 10-day, 30-day, 60-day?

If you could just review what it was and to now it's streamlined into the 30 days?

Thank you.

All right, Tim.

So, as it relates to bookings over the past 120 days, they basically have had a similar cadence to last year.

Now, obviously markets like China that are later in the bookings cycle can influence that.

So, if you look at what the cadence has been for North America and Europe, it has been slightly higher versus same time last year.

So, our book position would be slightly better if you were to account for the mix shift change in China.

As it relates to Canada, there's nothing, I would say, that's specific that we've seen that is different from those trends.

And again, as it relates to China, it's coming in as we would expect it to.

And pricing, Jason, on those bookings -- similar, holding in there pretty well, or any things noticed or higher?

Well, on the Canada side I would just take our commentary as it relates to the Caribbean.

We are in a very good booked position.

We are in a very good price position as it relates to the North American consumer.

In China, obviously we are guiding for our yields to be slightly down.

A lot of that, again, is driven by us further expanding into the other seasons and also expanding into secondary markets and ports.

With regards to the question on Zika, to date, we have really seen no impact whatsoever; it has been really immaterial.

Obviously, it's all over the media and we see it.

But today, we haven't had any material impact.

And on the question of the discounting policy, the previous policy had, depending on the length of the cruise, different -- we had different periods.

So in some cases we said there would be no discounting within the last 10 days, in some the last 20, in some the last 30, in some the last 40.

And people weren't sure which applied to which, and we thought it was easier both from the public's point of view but also a key driver of this is from our own revenue managers' point of view.

And so it's important that we have a clear policy that everybody understood and could follow, and we have decided to expand it to 30 days across the board except for the three- and four-nights.

Okay, okay.

Thank you.

Thank you, very helpful.

And one more clarification there on the cadence over the last 120 days -- just on the pricing, the cadence, is it given your booked position in that, have you seen that pricing in China, in particular, trends in the last 120 days -- has that improved, remained stable?

There have just been some mixed messages, I think, out there in the market a little bit.

Yes; I think China 2016 is a different kind of configuration from China 2015 because, as Jason had mentioned, we've got a deeper push into the secondary ports with one of our ships, with broader seasons.

And we've got more capacity in Q1 and Q4.

So it's a different kind of configuration, and our inventory is being released in a slightly different way in 2016 then 2015.

I think, as Jason had mentioned, we are feeling that our bookings are coming in as expected.

Let me just add one thing.

I know you know this, but for some of the others, when we talk about the broader season, Quantum of the Seas was unusual and for the first time we were doing year-round in China.

Previously we've only been there seasonally.

So what we decided was that it was a year-round opportunity.

And while we don't get as much in the winter in China as we get in the summer in China, like in the other market, we do well in the winter.

And so -- but when you average it in, it brings down the average.

But as it relates to overall, China actually is helping us in our improvement in 2016.

Gentlemen, thank you very much.

Appreciate it.

Felicia Hendrix, Barclays.

I did have a question on China, so we are on that topic.

Let's stick there.

So we have strong demands, we have a little bit of a different cadence this year because you are in the first and fourth quarter, which is seasonally priced.

You also have a different mix, which you just mentioned.

But overall demand is strong and you guys said that yields are up low single digits, driven by China.

So that's all good.

What I was hoping you could clarify is that we get a lot of questions just about the charter companies, charter agents and the status there.

I think the view is that some of the charter agents are losing money on the China cruises in general.

I was just wondering whether or not that's actually true and if there are issues, what is Royal Caribbean doing, if anything, to stick to that.

And then also I'm just wondering if you are seeing any differences in how different Chinese brands are performing there versus your brand.

In other words, how are you differentiated?

You did mention that you guys performed better than everyone else in the market.

Thanks.

Just to correct one point, yields are slightly down in China this year, 2016 versus 2015, based upon all of the different elements that we just talked about.

With regards to charter companies, it's quite a mix in relation to our total distribution.

But over time, obviously we have been changing the mix of our distribution, and we continue that journey.

So literally every single year we are doubling the number of agents who are selling Royal Caribbean in the China market.

And of course, we are broadening our regional footprint, especially now with the introduction of Ovation in Tianjin.

So it's true that some of the charter companies, really out of Shanghai, had some challenges in 2015 in relation to MERS in Korea and, of course, the typhoon season, which was particularly difficult.

And so some of the charters did experience some losses during some of the sailings.

But having said that, they did particularly well the rest of the year with Royal Caribbean and have done well with Royal Caribbean over the past nine years that we have been in the market.

So it was a bit of a hiccup.

And of course, we, as we are in the United states, we are long-term partners with our travel partners.

So we have worked hard at finding some workarounds with them in terms of our 2016 inventory and how we have worked with them in terms of our cooperative marketing and this type of thing.

So we feel that we have been very responsive to some of the feedback that we have had from some of these charterers.

And we think we are in a fairly good position for 2016.

With regards to the differentiation of the brands, that's, I think, a highly relevant question.

When you look at Royal Caribbean against the competition, we have been in the market now for nine years and we have been investing over a nine-year period in the market.

We have the newest hardware in the key ports.

Quantum of the Seas genuinely has been a huge hit out of Shanghai.

Ovation coming into Tianjin is doing very well.

We have eight consecutive years of being the top cruise line in China, awarded by The Travel Trade Gazette and The Travel Weekly.

We have been focused on launching consumer campaigns and we're -- in fact we are launching a new campaign literally in the coming weeks.

We have been working on expanding our distribution footprint.

And of course, we are the largest single cruise brand in China, with a really professional and competent sales organization and marketing team who really have been with us for quite some time.

So I think the spread between Royal Caribbean International and the competing brands in the market is quite significant.

And a lot of that is driven by the hardware.

Quantum and Ovation are world-class leading hardware and they are the only brand-new ships in the China market.

Thank you for that.

And you did not deserve the demotion that Jason gave you earlier in the call.

I'll be speaking to him shortly.

And of course I did correct myself immediately.

A little too late.

You did.

Jason, thank you for the cadence of the cost in the quarter; that was one of my questions.

But to add on to that, if you look at how your cost trended in 2015 versus your original guidance for the full year, they came in better than expected or lower than expected.

So I was wondering what drove that and do you think you can achieve a similar result in 2016?

Well, I think that there's -- the first thing I want to start off, as it relates to 2015, is this is really a corporate enterprisewide effort on trying to identify cost improvements.

And so as I said in the past, it's not one thing; it's thousands of little things that we do.

The leadership -- for example, Adam has given around supply chain and that team, the consolidation of our marine organization and finding more efficiencies in our back office is really what we just do day to day when we use the lens of Double-Double.

So that is ongoing and continuing.

There are a lot of headwinds and costs in 2016.

Obviously, as we expand our mix into Asia, the cost of operating there is higher.

There are some more upfront cost on the sales and marketing side as we are delivering two new ships this year.

And also having Voom, the fastest Internet bandwidth at sea, also has a high cost to it.

So, there are a lot of headwinds.

But our efforts to try to continue to identify opportunities is never-ending.

But I think we think the 1% or less guidance is really our best view, based off of all of our plans that we have to date to manage cost-effectively in 2016.

I'll just add something.

I do think that Jason's focus on this is very helpful.

But all of our leaders here -- Adam, Lisa, Michael, the others -- are really very focused on it.

I'd also just maybe take the opportunity to talk a little bit about the timing of it during the year.

You know, I've said this in previous calls.

We manage on an annual basis, and one thing that is a little unique about our business that I think distinguishes us from many others is that we have some significant big costs that we can shift around in terms of timing.

So we would look at a booking pattern to see whether we ought to drydock a ship in March or April or September or October or what have you.

And when we make those decisions we simply don't pay attention internally to whether that falls in this quarter or that quarter.

But those kinds of what we think of as immaterial tweaking to get the best outcome, particularly as it relates -- for example, if I take a dry docking we might find that for whatever reason we were just booking better at the end of September then early October, and we would just decide to shift the drydock by -- from one quarter into another.

From an operating point of view, they are immaterial.

And those kind of changes can actually help us in bringing our overall cost number down.

But I fully recognize that as it relates to individual quarters, they will distort the numbers.

And unfortunately, that's simply a fact of life.

And we think our best strategy is to continue to focus on the year.

If it's cheaper for us to do it in March than April we will do it in March rather than April.

And the Double-Double, and so we have -- and the Double-Double has really been very helpful.

You talked about our cost containment over the last number of years now.

The Double-Double is actually a very helpful concept that everybody can focus on and move towards that common goal.

So I think that's why we've had the results that we've had.

But I do acknowledge it does relate to bumps in any given quarter or period.

Thanks for that color.

Jason, for some glitchy reason I can't see the slide.

So if this is on the slide, just -- I just was wondering if you could walk us through the bucket of currencies.

What are the weightings for the second quarter and the full year?

We will have in our filing that breakdown.

But I know for the full year our two largest exposures will be in the pound and the yuan, then Australian dollar, Canadian dollar and then the euro.

That will be the cadence for the year.

And then obviously there are some changes in there, based off of the sourcing or the deployment during the course of the year.

So, for example, there's more exposure to the Southern Hemisphere, markets like Brazil and Australia in the wintertime.

And in the summertime you are more exposed to Europe, so you have more pounds, euro as well as yuan, because it's more of a peak period for the Chinese consumer.

Are you going to give the weightings or just the order?

I'm just going to give you the order.

Okay, great.

Thanks.

Steve Wieczynski, Stifel.

So going back to China real quick, I have a two-part question there.

First -- and Jason, you said this before, I guess.

When you say yields will be down in 2015, can you break that yield factor down for us, meaning how much is ticket price versus onboard?

What I'm trying to get at is, is that onboard spending -- is that onboard spend holding up?

And then second, Jason, you've always talked about profitability on a per-customer basis in China and how much stronger that is versus other markets.

Is that profitability on a customer basis still holding up despite the ticket prices coming back in?

So as it relates to our yields being slightly down in 2016, the weighting is more concentrated on the mix of the secondary markets and the seasonality.

And then there is some pressure, as Michael talked about, on just general ticket.

And then obviously, when you have ships like Ovation come in, that also helps balance out some of the pressures we have on some of our older assets that are in that market, really not Quantum-class assets.

But the mix between ticket and onboard is actually pretty similar.

You would end up a little bit higher on the onboard side because you have Quantum coming into the market.

Now, the point on profitability of the Chinese guest -- it is still very much there.

China is one of our highest yielding markets.

The product is one of our highest yielding products.

It is a little bit more expensive to operate but also we get higher yields for those products.

So it is very much contributing to our yields.

It is very much contributing to our profits and our margins in our business, which is why our outlook continues to be very favorable for the Chinese market.

Okay, got you.

And then second question, on your buyback I know you have $300 million left at this point.

The stock is obviously under some decent pressure here today.

And it's basically -- if you look at your $7 suggested EPS number for next year, you are trading at basically sub 10 times earnings at this point.

So my question is probably for Richard.

That $300 million is only call it 2% of your shares outstanding.

How receptive will the Board be when you go back to them and say, hey, we potentially need more than the $500 million that was originally out there?

Well, we made the decision certainly without seeing or expecting this kind of a reaction here.

And as I said, I think the Board and the management felt very good about the trajectory we are on.

And nothing has changed, in our view, as to what our actual -- the word that I keep hearing us use is cadence, but I would say the pattern of our earnings growth over the next couple of years.

So our view on the business is very constant.

I think I'm always a little cautious to speak on behalf of the Board on something like this, because this is the sort of thing that everybody looks at.

But we did see that this was -- that it was appropriate to do a share buyback.

We also will temper our enthusiasm as it relates to the shares because it is our intention to become an investment-grade company.

And I think we would take that as a consideration factor as well.

So I certainly don't think there has been any negative change in their general view.

But I don't think the Board would tend to be knee-jerk on particularly a short-term change in the share price.

Okay, great.

Thanks, guys.

Harry Curtis, Nomura.

Just on that last point, the short-term reactions to stock prices do provide the Board an opportunity to get more aggressive.

Can you give us a sense of if you do hit your earnings targets, your EBITDA targets, what your leverage ratio is going to be at the end of the year?

And does that give you -- how much room does that give you to perhaps use your balance sheet a bit more aggressively because this share price, at 10 times earnings -- those are typically really, really good opportunities to invest in your stock.

So, Harry, I'll just comment on where we see ourselves on a ratio perspective.

And then I'll let Richard comment on more in terms of how we -- interact on the Board side.

That's really kind of you, Jason.

My pleasure, my pleasure.

But I think we see ourselves, based off of the guidance we've been given, that we will be at or slightly below our targets by the end of 2016.

Now, whether that -- the timing of when the rating agencies decide to provide us that rating is not only subject to the metric but also subject to how we as a corporation are behaving and are we behaving like an investment-grade credit.

So as Richard said, as we look at do we do more or less, a lot of that comes into keeping the balance of our growth, the balance of returning capital to shareholders and also becoming an investment-grade credit.

And those will be key things that are always evaluated when we determine how much we will buy back or how much the program will be that we announce.

Where I am going with this is that there's leverage ratio.

There's also the interest coverage ratio, which is probably by the end of this year going to be somewhere between 8 1/2 and 9 times, given the low cost of your debt.

So I just want to point out that there are opportunities for companies to be really opportunistic.

And it would seem that if you can do $7 a share next year, that this is one of those opportunities.

Yes.

And as I think -- as you've made clear in this back-and-forth, there are a lot of things that go into that equation.

I'm going to be very cautious not to preempt the Board on something that a Board rightfully focuses on carefully.

But I think those are the things.

It's the opportunity when there is what appears to be the downturn in the share price.

On the other hand, there is the need to make sure we have the appropriate capital for our new building program.

And this is, of course, a capital-intensive business.

And we also do want to get to investment grade.

So the Board will have to balance those things.

But obviously what's happening in the market would be something we will be looking at very closely.

Okay, I'll get off the soapbox and ask an operating question, then.

Going back to China, Jason, if you look at your pricing like for like, your pricing in China is being dragged down just by the timing of the introduction of your ships.

Is it fair or is it relevant to try and look at pricing on a like period for like period, particularly, for example, with the Quantum?

First off, we really try to have a general conversation about the region versus the market itself.

And the reason for that is because China has to work with also the winter season, which means Australia and Southeast Asia need to work.

So it is and continues to contribute to the overall yield of the region.

Quantum continues to perform as we expected and perform well.

There has been a little bit of like-for-like pressure on the older tonnage that we have in that marketplace.

But the Quantum-class ships continued to demand a premium to the relative pricing that's in the marketplace.

I also think it's important to point out -- I know there has been a lot of concern about what's happening in the China marketplace with the consumer.

And I think that patterns that we are seeing with the Chinese consumer continue to show that they have a strong sentiment and a very strong desire for cruise.

And a lot of the pressure on pricing just has to do with a lot of capacity coming in, more seasonality in terms of the China offering and us going into other markets, which we've talked about before.

And then my last question just has to do with suppose the value of the renminbi continues to slide.

Would that, in your experience, lead to perhaps increased demand for cruises, considering that you price your cruises in renminbi?

Well, I think that certainly we can get into an economic conversation.

I think it could obviously create more demand for some of their exported products and that could potentially improve their wallet in which they could spend more on the cruise side.

Again, I think the sentiment in China is quite good, and I think that their demand, especially for our products, has continued to March at the cadence that we had expected.

That does it for me.

Thanks, guys.

Jamie Rollo, Morgan Stanley.

A couple of questions, please -- first, sticking with China, roughly, what was the average revenue, your premium you generated last year versus the rest of the group?

And then the other question -- looking at your customer deposits of $1.7 billion at the end of the year, they were actually slightly lower than a year ago, and yet your book position is similar.

You've got higher prices.

You've got more capacity.

I was wondering whether that's a currency impact or was that -- is that China or something else that is causing that?

Thank you.

On the China premium side, it's not something that we talk publicly about in terms of the specific number.

Obviously, we are happy with the margins and the yields that we get in that market as we add more capacity in so you can follow where the investment is going.

And then as it relates to -- on the deposit side it's a combination of a few things.

Some of that is currency-related.

Some of that also, as we expand our mix into China, the cadence of deposits are much closer or the payment is much closer to the time of the sailing because it's a late booking market than it is for other markets.

So, that skews it a little bit.

And also there's different promotional activity we do where you might put a little bit less of a deposit down.

And that is really what drives that differential in the customer deposit line on the balance sheet.

Just on the yield premium, on the older three ships you've got there, are those [considered] the premium for the rest of the group even after the pricing pressure, or is it all Quantum driving that?

No.

In terms of the premium it gets, especially relevant to its class and to the average, it is a very nice premium.

And also those ships have lower asset bases, so the margins we get on them are quite good.

And just on the TUI JV income, it looks like it was down year on year in Q4.

I know there are other items in that bucket, but what does that line do, please?

No; there are many other items in that bucket.

There are other equity pickups.

The TUI JV actually did exactly what we expected it to do, and it was up quite a bit year over year.

Also in that line item is our joint venture, which is really in its first year, which is SkySeas, which had some losses, mainly just due to its being its first year of operation.

Thank you very much.

Steven Kent, Goldman Sachs.

Just was wondering who you compare yourself to because to only have your net cruise cost ex-fuel up 0.5% relative to really any other industry or any other stock we have under coverage seems pretty good.

And it's actually slightly below CCL's cost guidance.

So on these cost headwinds seem -- you've spent a lot of time on them.

I just want to understand whether there's a reason for that and why there's so much focus on it.

And then separately, is your compensation linked to achieving those cost guidance forecasts?

And then one other thing -- for FX, the spread between your 2016 constant net yield and current net yield guidance, 200 basis points, was bigger than what we were expecting.

Can you just give us a little bit more color on that FX breakdown?

Steven, thank you for those comments.

Thank you particularly for the first comment.

Yes, we think the cost performance has been excellent for a number of years now.

And we are quite proud of the work.

And I think the fact that it comes at the same time that our level of guest satisfaction goes up is an important feature for us, because I think it's actually relatively easy to cut costs if you don't care about the product that you deliver to your guests.

But we have been raising guest satisfaction how we have been cutting costs.

And as you say, this level of cost discipline is actually quite good.

There are a couple things, one we will take credit for, which is that we -- I think the management team has done a really very good job of looking for new ways of doing things, new efficiencies, etc.

The other is -- and we did telegraph this when we were doing it, which is that we spent money which we thought would result in savings later on.

And so we had -- we talked about some of those things.

We talked about the IT spending.

We talked about some of the other stuff that we were doing.

And so I think that also helps us a little bit, by comparison.

But we are not resting on our laurels on that.

We think there is more to be done, continual efficiencies, because even the guidance we've given, which now is for 2016 up marginally, obviously the inflation in the areas that we are looking at is higher than that.

In answer to your second question, was the compensation -- yes, our compensation is -- all the management team's compensation has in a number of factors, one of which is specifically net cruise cost excluding fuel but, on the other hand, another one of which is net revenue yield.

Another one is safety and environment.

So we are trying to make sure that we are meeting our cost goals and our revenue goals but also not doing things that put us at risk.

This is a long-term business.

And we have worked hard to put Royal Caribbean in a position where it is solid on, if you will, the triple bottom line as well as just the earnings per share.

I'm going to let Jason handle the last of those questions.

So, obviously, the headwinds of currency have continued, especially in our hedge position on fuel, to outpace the benefits we have been receiving from fuel.

If you just look at it year over year, our basket of currencies is down 10% year over year.

And that's really what's driving that differential between the as-reported in the constant currency.

Some of the currencies like, for example, the yuan, which had very little volatility, has become more volatile more recently as it has been unhitched from the US dollar.

Just quickly, what share count is captured in your EPS guidance?

Does it include the $500 million repurchase program?

It includes the $500 million repurchase program, but the cadence of when that happens has it generally spread throughout the year.

Okay, thank you.

Operator, we have time for one more question.

Robin Farley, UBS.

Two questions, actually.

One is on China.

You have talked about being likely to maybe add more ships there.

You don't have anything announced for 2017 or after that.

And I'm just wondering what your most recent thoughts on that are versus where they were two or three months ago.

And then outside of China your commentary in the release talks about volume being or load being at the same level as last year but price higher.

And in October both volume and -- both load and price were up.

And obviously your volume can only be up, at the end of the day, as much as your supply is up.

So I'm wondering if the lower volume now versus October, just relative to your booked position in the prior year -- is that pretty much in line with your expectations that because you are raising price that you have been expecting volume to slow between October and now?

Thanks.

Just to answer your first question, on China and more ships, obviously we don't make any announcements on new ships until we make the announcements.

And we are aware of announcements that have been made already for 2017.

So when we are ready, we will announce.

But I think overall we continue to be very positive about the opportunity in China.

It's the beginning of something that we think is really, really positive.

So our intention is to continue to invest and grow that market.

And on the volume and price side, as you said, on the October call we said we were booked ahead on both rate and volume.

Outside of the little hiccups we saw as relates to the Paris attacks and some of the geopolitical events, which quickly bounced back, it has been very much in line with our expectations.

And as we have a greater mix of our capacity going into China, that does skew the year-over-year comparables because it is a much closer-in booking environment.

But I would describe it overall as that it's in line with our expectations.

Okay.

All right, great.

Thank you.

Thank you for your assistance, Paula, with the call today.

And we thank all of you for your participation and interest in the Company.

Carol will be available for any follow-ups you might have.

And I really do wish you all a great day.

Thank you.

This concludes today's conference.

You may now disconnect.