Royal Caribbean Cruises' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Royal Caribbean Cruises (RCL)

Q4 2011 Earnings Call

February 02, 2012 10:00 am ET

Executives

Brian J. Rice - Chief Financial Officer and Executive Vice President

Richard D. Fain - Chairman and Chief Executive Officer

Adam M. Goldstein - Chief Executive of Royal Caribbean International and President of Royal Caribbean International

Daniel J. Hanrahan - Chief Executive of Celebrity Cruises and President of Celebrity Cruises

Analysts

Felicia R. Hendrix - Barclays Capital, Research Division

Sharon Zackfia - William Blair & Company L.L.C., Research Division

Kevin Milota - JP Morgan Chase & Co, Research Division

Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division

Robin M. Farley - UBS Investment Bank, Research Division

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Gregory R. Badishkanian - Citigroup Inc, Research Division

Assia Georgieva

Jamie Rollo - Morgan Stanley, Research Division

Presentation

Operator

Good morning. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Cruises Limited Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Brian Rice to begin. Please go ahead, sir.

Brian J. Rice

Thank you, Nicole, and good morning, everyone. I'd like to thank 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 investor website, www.rclinvestor.com.

Before we get started, I would like refer you to our notice about forward-looking statements on the first slide. 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 start with his comments. I will follow with a recap of our results, give an update on our booking environment and provide our initial thoughts about 2012. Adam and Dan will then talk more about our brands and provide you with insight from some recent consumer research we've done, after which we'll open the call for your questions.

Richard?

Richard D. Fain

Thanks, Brian, and good morning, everyone. We actually have so many good things happening in our company and in our industry that I wish that those things could be the focus of this call. However, given the magnitude of the tragic incident in Italy and the fact that it's so recent, we feel obliged to comment on how this may affect us going forward.

All of us personally, as employees and as an industry, all of us are saddened by the tragedy. This was an unheard of event for our industry and all of us were heartsick to learn of it. But it's important to note that it's the very rarity of such an event that makes it so noteworthy. As a company and as an industry, we will take whatever lessons can be learned from this and we will continue to dedicate ourselves to providing the best and the safest vacations for our guests.

Fortunately, most people understand all this, and I am absolutely confident that this event will not have any significant long-term impact on our business, right? And while I'm convinced about the long term, we also need to be realistic about the short term. Not surprisingly, while our industry has been in the glare of the media spotlight for almost 3 weeks, we have seen an impact.

Booking volumes dropped significantly immediately following the event and it remained down in the mid to low teens. As you would expect, there are some notable trends emerging. Cancellations, as a result of the incident, have simply not been a factor. It's not surprising to us but it is reassuring. In Europe, the media coverage has been more extensive as the event was closer to home and bookings have declined more than in the United States. Similarly, the recovery, for the same reason, is happening faster in the U.S. than in Europe. And as it's, as to be expected, closer in-bookings have declined more than further out-bookings. Lastly, knowledgeable customers are much more comfortable than people who have never taken a cruise. Looking at the seasonality of the impact, we've noted that quarter 1 was already quite well booked prior to the event so that quarter has been somewhat isolated from the impact. But for our second and third quarters, the level of uncertainty is high, although there have been some encouraging data points recently.

As we have resumed our advertising and as the headlines have subsided, booking volumes have shown improvement. I caution that a few days does not make a trend, but it is encouraging. Ultimately, we believe that, while this is a tragedy and a fresh and a painful one at that, most customers recognized that the industry's safety records speak for itself and our long-term business model is very much intact. Against this background, we would prefer not to be making any public projections. In fact, we, I wish we didn't have to make any comments at all about bookings so soon after the event. We are in uncharted territory and our traditional models simply don't cover events like this. However, after much debate and much soul-searching, we eventually concluded that giving you our best perspective and explaining all the uncertainties was the best approach and the fairest one. We have worked hard to follow that approach and I hope that you will accept it with which, in the spirit with which it is given.

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