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
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. Read the rest of this transcript for free on seekingalpha.com