Royal Caribbean Cruises Ltd. ( RCL)

Q4 2010 Earnings Call Transcript

January 27, 2011 10:00 am ET

Executives

Brian Rice – EVP and CFO

Richard Fain – Chairman and CEO

Adam Goldstein – CEO and President of Royal Caribbean International

Daniel Hanrahan – President and CEO of Celebrity Cruises

Analysts

Steven Wieczynski – Stifel, Nicolaus & Co., Inc.

Timothy Conder – Wells Fargo Securities

Robin Farley – UBS

Felicia Hendrix – Barclays Capital

Sharon Zackfia – William Blair & Company

Greg Badishkanian – Citigroup

Assia Georgieva – Infiniti Research

Harry Curtis – Nomura Securities

Janet Brashear – Sanford C. Bernstein

David Leibowitz – Horizon Asset Management

Presentation

Operator

Good morning. My name is Beneda, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Cruises Ltd. Fourth Quarter Earnings Call. (Operator instructions) Thank you. Mr. Rice, you may begin your conference.

Brian Rice

Thank you, Beneda, and good morning everyone. I'd like to thank each of you for joining us this morning for our fourth quarter earnings call. With me here today are Richard Fain, our Chairman and Chief Executive Officer; Adam Goldstein, President and CEO of Royal Caribbean International; Dan Hanrahan, President and CEO of Celebrity Cruises; and Ian Bailey, our Vice President of Investor Relations.

During this call, we will be referring to a few slides, which we have posted on our website, www.rclinvestor.com. Before we get started, I would like to refer you to our notice about forward-looking statements. During this call, we will be making comments that are forward-looking. These statements do not guarantee future performance and do involve risks and uncertainties. Examples are described in our SEC filings and other disclosures. Additionally, we will be discussing certain financial measures, which are non-GAAP as defined, and a reconciliation of these items can be found on our website.

Richard will begin with his comments about our strategic direction. I will follow with a brief recap of our results, comment on the demand environment and provide our forward guidance. Adam and Dan will then talk more about our brands, and then we will be happy to open the call for your questions. Richard?

Richard Fain

Thanks, Brian, and thank you all for joining us this morning. Many of you know that I actually enjoy these quarterly calls to discuss what is happening at our company and in our industry. But to be perfectly frank some calls are more enjoyable than others, and this particular discussion is probably one of my most enjoyable ever. I would like to quickly review where we’re and how we got here, then I would like to focus on how we see the coming year shaping up.

Obviously 2010 turned out to be a much better year than we expected. We initially gave guidance in the range of $2.10 per share based on a lackluster economy. Unfortunately, we were right about the economy, but our results did much better ending the year at $2.51 a share. Most important to me was that this improvement came about for all the right reasons strong brands driving higher prices, good cost control driving lower expenses, and better operating performance driving good progress in our credit metrics and in our returns on capital.

Looking to 2011, the WAVE period is off to a good start. Our revenue management systems are actually remarkably good at discerning trends and consumer demands, and we saw this trajectory taking shape last fall. That is why we were able to project the 2011 would be such a record year. Since then our bookings have continued roughly along the path we expected with maybe a slight upward bias and the strong start to WAVE has confirmed our expectations.

In addition to economic influences, the importance of strong brands performing well is often relegated to a subordinate role in conference calls such as these. But in fact they are the real drivers of our long-term success. I remain convinced that this is one of the most important lessons from our current experience. While working hard to manage cost, I believe our management teams have done an outstanding job of providing a quality of product and a level of service that we can be extremely proud of. I’m grateful to all of them and to the men and women who work so hard to make it successful.

The result of all this is that our guest satisfaction levels are at historical highs, and this will continue to be a key factor in driving higher revenues. Now you all know that the amazing performance of our newer ships is a contributor to this success, but the performance is fleetwide and reflects our determination across the board. I really commend all of the employees for effectively balancing the need to deliver an unparalleled product with the necessity to improve our corporate returns.

At the same time it is interesting to note that even with the robust bookings we are seeing during this WAVE period, our yields in 2011 still look to be about 6% lower than they were in 2007 or 2008. We will have recouped two thirds of the drop, and we see that as just the beginning. Imagine how well we will do when the economy stops being such a drag on our sales and actually starts contributing.

But we are not waiting for the economy to provide a boost. We are focusing on many other ways to strengthen yield even during a down economy. One of the most important levers to achieving that goal is a fast-growing and diversified global sourcing pool of customers. Within the next year or so we expect that more than half of our guests will come from markets outside the United States. These international guests love our product just as much as our US guest, yet they are a faster growing demographic that has the potential to raise our pricing quickly. Looking forward therefore, we expect that in addition to slower capacity growth this larger pool of potential customers should positively influence our yield performance.

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