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Royal Caribbean Cruises (NYSE:RCL)

Q3 2011 Earnings Call

October 27, 2011 10:00 am ET

Executives

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

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

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

Richard D. Fain - Chairman and Chief Executive Officer

Analysts

Harry Curtis - Nomura Securities Co. Ltd., Research Division

Janet Brashear - Sanford C. Bernstein & Co., LLC., Research Division

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

Gregory R. Badishkanian - Citigroup Inc, Research Division

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

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

Felicia R. Hendrix - Barclays Capital, Research Division

Steven Kent - Goldman Sachs Group Inc., Research Division

Robin M. Farley - UBS Investment Bank, Research Division

Assia Georgieva - Infinity Research

Kevin Milota - JP Morgan Chase & Co, Research Division

Operator

Good morning. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Cruises Ltd. Third Quarter Earnings Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Brian Rice. You may begin.

Brian J. Rice

Thank you, Rebecca, and good morning, everyone. I'd like to thank each of you for joining us this morning for our third 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 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. I will follow with a recap of our results and update our forward guidance. Adam and Dan will then talk more about our brands and provide you with some insight into recent consumer research we have done and modifications we have made to our deployment as a result of the situation in the Eastern Mediterranean. Following which, we will open the call for your questions. Richard?

Richard D. Fain

Thank you, Brian, and thanks to all of you for joining us this morning. As always, I enjoy the opportunity to talk about the status of our business and it gives me an opportunity to discuss a little bit about where we're heading.

First of all, I don't have to tell you that it's important to recognize the volatility around the political and economic headlines is creating a great deal of uncertainty and angst for us and for everybody else. As an increasingly global enterprise, we are whipsawed, again, like everyone else, by the rapidly changing political and economic winds that are blowing across the United States and Europe. Against this background, our business has actually demonstrated a remarkable stability.

Looking at our current performance, the 2 main observations that we, as a management team, have come to are: a, our business in the third quarter is basically on target with our expectations and so is the fourth quarter; and b, our forward bookings are solid and they continue to come in at a good pace. Having said that, we continue to be frustrated by the volatility that outside forces have on some of our items, particularly below the line.

For example, the rapid swings in oil prices and foreign exchange rates do impact our bottom line and we are well aware that the bottom line is what everyone focuses on. At the beginning of the year, those swings helped us. The more recent swings have come back to hurt us and if you look at the year as a whole, they were positive and we intend to continue to focus on the sustained performance, not on the quarterly swings. Nevertheless, we do recognize how frustrating it is if one looks at it on a quarterly basis. In this regard, we thought it might be helpful if we reviewed how our situation has changed during this calendar year.

Slide 2 in the presentation that you can see online shows how we've gotten from our original guidance, midpoint of $3.35 earnings per share for the year to our current expectation of a midpoint of $2.75. As you can see on the left, there have been 2 main hits. The first and biggest, of course, relates to be the geopolitical disruptions in the Eastern Mediterranean and also the problems in Japan. And the second, was the accounting error that we discovered in July.

As you can see, essentially what happened -- and I'm sorry, on the right, which you can see is essentially what happened in the rest of our business. For the year as a whole, our actual performance of the business outside of those 2 areas was quite bit better than expected. First, and very importantly, costs were well controlled. The right-hand bar on cost, also I would note, is after the increase in fuel costs so it's quite an impressive cost performance. The bar mark Other includes revenue, which also includes everything that happened in the Western Mediterranean items, foreign exchange and other, and that came in about as expected. What happened was itineraries in places like the Caribbean and Alaska performed better than expected and these improvements even offset areas that were hurt by the bad economy and by other political turmoil.

We are still incredibly disappointed at the impact of what happened in the Eastern Mediterranean this season. On the other hand, we're encouraged that overall, our performance has -- our business has performed as well it has in a very difficult economic and political environment.

Now turning to 2012. This is the point in which we usually begin to feel comfortable about looking at the current -- the coming year. We already have a good level of booking and we are particularly pleased that those bookings are at a higher load factor and at a higher price than they were a year ago. And a year ago, they were very good indeed. So this is the point in which we would normally say, let's look forward and begin to make predictions about 2012. However, no management can witness the political stalemate on both sides of the Atlantic or the deterioration of consumer confidence in spending without being concerned about how those factors will develop over the coming months and year. So far, we've seen surprisingly little slowdown due to those pressures. Some impact is already being felt, but not at the level one would expect based on the economic statistics or the media coverage. But all these makes us more cautious than usual in making predictions about 2012.

We have said, as noted in the press release, that our management -- our revenue management team is looking forward to further yield improvements for 2012, but were reluctant in light of all the other factors going on to be more particular than that. I would emphasize that we are not expecting yield improvements due to economic tailwinds. On the contrary, we think we have been and we think we will continue to feel the drag of a lumbering economy. But 2012 will have one of the lowest rates and capacity growth in years and at the same time, it will have some significant benefits from our expanded global deployment. As Adam and Dan will talk about in a little while, we have been able to shift our itineraries to new and faster growing markets. For example, we've reduced our presence in some of the weakest Eastern Mediterranean sailings substantially. In addition to the profitability of our business, we are also focused on the financial strength. We have strong liquidity and we're reducing our debt, improving our leverage and increasing all of our coverage ratios. All of this is consistent with our determination to return to investment grade status in the near future.

As noted in the press release, we don't foresee a need to access the capital markets at all over the next couple of years although we will continue to act opportunistically if opportunities arise.

With that it's my pleasure to turn the microphone back to Brian.

Brian J. Rice

Thank you, Richard. On the third slide, we have summarized our performance in the third quarter. We generated net income of $399 million or $1.82 per share. Net yields improved 5.3% on an as-reported basis and 2.6% on a constant-currency basis. Net revenue, excluding currency, exceeded our previous guidance by about $0.08 per share as a result of strong close in bookings, particularly for Europe and the Caribbean. Net ticket revenue yields were up 6.8% year-over-year driven by all itineraries other than Eastern Mediterranean and Asia. Alaska and Caribbean itineraries were exceptionally strong, increasing by more than 15% each, and I think it is worth noting that our yields in Alaska this year were the highest in our history.

Net onboard and other revenues were up marginally the quarter with increases from our North American guests, mostly offset by a mix shift towards lower spending guests from Europe. Adam will talk more about the trends in onboard in a few minutes.

On the cost side, excluding fuel, our Net Cruise Costs on a constant-currency basis were up only 0.7% and were up 2.5% on an as-reported basis, both significantly better than our previous forecast. The improvement was mainly driven by our continued focus on costs with some modest shifting into the fourth quarter. Fuel consumption was slightly better than forecast and fuel costs were very consistent with our earlier calculations. Although there were reductions in WTI prices during the quarter, our at-the-pump prices remained relatively stable at about $608 per metric ton.

Below the line, we had a mark-to-market loss of $0.08 per share related to our fuel options. As you may recall, we had options for 2012 at a strike price of $100, and for 2013 at a strike price of $90. After the quarter closed, we sold the 2012 options and we will be realizing the small gain in the fourth quarter. The 2013 options have been prepaid and have a book value on September 30 of approximately $11 million.

From an operating point of view, we were pleased to exceed our prior guidance for yields, costs and operating income. The mark-to-market loss for the fuel options unfortunately prevented us from reaching the top end of our EPS guidance.

Switching to the demand environment, our load factors and APDs are ahead of the same time last year for both the fourth quarter and 2012. In the fourth quarter, we expect to finish with double-digit yield improvements in the Caribbean, but lower yields than last year in the Eastern Mediterranean and Asia. Fortunately, the Caribbean accounts for 47% of our capacity in the fourth quarter, while the Eastern Med and Asia represent only 13% and 2%, respectively. We saw a very strong close-in demand in the quarter, but we are hesitant to forecast the continuation of this strength in the traditionally weaker fourth quarter particularly given all the uncertainty in the market today. Looking out to 2012, I need to caution that it is still very early in the selling cycle and there is clearly a great deal of uncertainty about where the economy is heading. Traditionally, we base our forecast on the real-time demand environment. And based on what we're seeing today, things look pretty good. But at the same time, it is hard to ignore the economic headlines and the pervasive pessimism throughout the business community. To help us understand where demand might be going, we have done research to better understand what consumers are thinking in our various markets and where vacation spending may fall in their priorities.

Dan will update you on our findings in a moment but we thought you might like to see how we've gotten to where we are today. On Slide 4, we have illustrated the differences between our booked load factors for 2012 and 2011 for each week from April 1 through last week. As you can see, the percentage of our inventories that has been sold for 2012 is higher than the same time last year and this has consistently been the case since April.

On the Slide 5, we have graphed the difference in the booked APDs between 2012 and 2011. Here, we have shown 2 lines. One, for APDs on an as-reported basis and the other is on a constant-currency basis. Both figures are favorable as of today, which is encouraging especially when you consider the fact that the 2011 basis includes Eastern Mediterranean pricing before the Europe spring. The greater volatility and recent decline of the green dotted line is due to the strengthening of the U.S. dollar, which devalues our foreign currency business. More important, however, has been the strength of our constant-currency pricing. The solid blue line shows what consumers are paying for our cruises in their local currency and here, we have seen steady improvement over the last couple of months.

Although we feel it is too early to provide definitive guidance for 2012, we are cautiously optimistic for continued yield accretion based on these early trends. Now I'd like to update our forward guidance.

On Slide 6, you will see our guidance for the fourth quarter. We expect yields to be up 3% to 4% on both an as-reported and constant-currency basis. Net Cruise Costs excluding fuel are forecasted to increase 3% to 4% on a constant-currency basis and approximately 4% on an as-reported basis. We have included $204 million of fuel expense in our forecast and we are 57% hedged for the quarter.

Turning to Slide 7. For the full year, we expect yields to increase approximately 4% on an as-reported basis and between 2% and 3% on a constant-currency basis. Net Cruise Costs excluding fuel are expected to be up between 2% and 3% on an as-reported basis and between 1% and 2% on a constant-currency basis. Earnings per share for the year are now expected to be between $2.70 and $2.80, which is a decrease of $0.15 since July. Approximately $0.12 is due to change in currency rates and the balance relates to the change in value of our fuel options, partially offset by modest improvement in our operating performance.

I would now like turn the call over to Adam for his comments. Adam?

Adam M. Goldstein

Thank you, Brian and good morning, everyone. We are pleased to have delivered solid results from the third quarter despite the nature and extent of the challenges we faced in the Eastern Mediterranean and in Asia. While we will never know what we could have achieved in the absence of these challenges, the Royal Caribbean International brand continues to build a foundation for global success that encompasses market leadership in the United States and in a number of priority international source market.

As you have heard Brian speak, we were the beneficiaries of late booking strength in Q3, both in Europe and in the Caribbean. Now many of our ships are repositioning from Europe to the Caribbean, South America or Australia to begin their new seasonal deployment.

Looking forward, 2012 will be the first year of no capacity growth for the Royal Caribbean International brand since 1994. In each of the previous 17 years, we either introduced one or more new ships or had the spill-over capacity effect of a ship from previous year. In the absence of new capacity, we are focused on the execution of our global sales and marketing programs, revitalization of our existing ships, maximization of guest satisfaction, development of travel agent and guest spacing technology and retention of strong cost control.

Speaking of revitalization, the Splendour of the Seas arrived this week at the dry dock in Cadiz, Spain for a substantial makeover. We will continue our Royal Advantage revitalization program with equally substantial makeovers of Grandeur of the Seas and Rhapsody of the Seas in early 2012. So in the absence of new ship introductions, we will be adding features we have pioneered on recent new builds to our older ships, thereby ensuring the continuation of Royal Caribbean's reputation for industry-leading hardware to go with our Gold Anchor Service.

While the focus of our operation is on delivering guest satisfaction rather than our winning award, it is a testament to the men and women of Royal Caribbean that since the last earnings call, we have won recognition as best cruise line in the U.K., China, Denmark, Norway and other countries, as well as from several top U.S. distributors. I'm also pleased to be able to say that the new port of Falmouth, Jamaica in the first year of operation, won the Seatrade Insider award for World's Best Cruise Port.

Before I conclude, I would like to mention briefly 2 additional topics of interest, particularly on the current environment. The first is onboard revenue. Our guidance for the fourth quarter and full year 2011, of course, contains our onboard and other revenue actuals for the year-to-date and forecast for the remainder of the year. Overall, we anticipate modest improvement in onboard and other revenue spend per guest per night. The primary reasons this revenue stream is growing more slowly than ticket yields are decreased gaming spend and the changed composition of our guest mix. Within the guest mix, onboard spend per guest per night will increase this year for U.S. customers. As we have noted on previous calls, we are carrying more European customers this year than last year. These European guests spend less onboard than our U.S. customers do and their spending per guest per night is down year-over-year. All of our brands are engaged in a variety of efforts to improve onboard revenue performance in 2012.

The second topic is fleet deployment. Our largest brands are active around the world and we consider the geographical diversification of our deployment to be an advantage of our business model. We are able to make adjustments relatively quickly to address changing circumstances. Since the July earnings call, we have announced a number of changes to reduce our capacity in the Eastern Mediterranean in 2012. For example, Royal Caribbean International will replace Vision of the Seas' Holy Land's itineraries with extended seasons in Northern Europe and Brazil. Meanwhile, Celebrity Solstice will ship 50% of it's Eastern Mediterranean cruises to the Western Mediterranean. In aggregate, with the recent adjustments the company has reduced it's previously planned Eastern Mediterranean deployment by 17%. Dan?

Daniel J. Hanrahan

Thanks, Adam. Good morning everybody. We continue to feel very positive about the progress we're making with Celebrity. The consumer and travel agency community have made this Celebrity's most award-winning year in its industry. We were recently voted the best large ship cruise line by readers of Condé Nast Traveller and Best Cruise Line Cuisine and Best Cruise Line Spa by Recommend's Annual Readers' Choice Award. In addition, we received several Travel Weekly Magellan Awards, which are voted on by the trade. These and ongoing press reviews year-over-year continuously recognize our commitment to our guest experience.

During the third quarter, we had healthy demand for our Alaska and Bermuda products, whereas demand in Europe was a bit more mixed. As we spoke about on our last call and as you've heard here today, demand in the Eastern Med and Holy Land was softer than in the Northern Europe and was not immune to the political and economic changes -- challenges that have been so prevalent in the news. Even with these challenges, we still had healthy year-over-year yield improvements for the quarter. Europe product overall continues to be globally sourced. And similar to last year, we will sail with a higher percentage of guests coming from outside the U.S. on this product.

Looking ahead, the Caribbean product where we will have over 60% of our capacity this fall and winter, is shaping up nicely. We will have all 4 of our Solstice-class ships sailing in this market and will be debuting the Celebrity Silhouette next week to our Northeast trade partners before we begin a series of 12-night Eastern and Southern Caribbean itineraries from Cape Liberty from November to April. The Caribbean is performing well and we are on pace to finish ahead of where we finished in Q4 2010 and Q1 2011. Our non-Caribbean products, which represent 40% of our capacity, are also performing well.

Our ambitious Solsticizing program continues with Celebrity Infinity in just a couple of weeks and will be filed by the Celebrity Summit and Celebrity Millennium in January and April. Additionally, on October 10, where they're showcasing our expertise in wine and food, Celebrity announced plans to introduce an entirely new series of wine-themed cruises in France, Spain and Portugal during peak harvest season in 2012, enhancing our already broad and varied European vacation options. At the same time, Celebrity is enhancing its presence in the Mediterranean on 2 of its award-winning Solstice-class ships, the new Celebrity Silhouette and flagship Celebrity Solstice. To offer experience with the lines, guest surveys indicate will be even more appealing with more ports in both Italy and Croatia.

As Brian mentioned, we do a considerable amount of consumer research. The research is used amongst other things to inform our deployment decision. Customer feedback regarding the Eastern Med drove the deployment decision you heard Adam outline just earlier. We thought it would be interesting to share some of the more macro trends from research completed last week in our 3 largest markets, the U.S., Canada and the U.K.

For this particular round of research, we looked at prospects and past guests for Celebrity and Royal Caribbean for each of the markets I mentioned. We looked at how each of these audiences look at general economic conditions in their country today and into the future. We looked at how they feel about their home personal financial condition. We also looked at where they are spending their money to buy things and took a deeper look at travel, if they were willing to spend for a vacation. The way the consumers feel about the world economy and their countries' economy is interesting. All countries feel the world economy is headed in the wrong direction. When it comes to their own country, the views vary. Canadian prospects and past guests are the most optimistic and generally feel that their economy is headed in the right direction. The U.S. prospects and past guests feel the U.S. economy is headed in the wrong direction and the same groups in the U.K. are polarized. Interestingly, our research company thesis is very similar to where the U.S. consumer was in 2009. Since the economic crisis began in 2008, approximately 50% of each of the audiences are reporting they have made cutbacks in their spending. This is a true -- this is true across each market and there is very little variation from the 50% by audience. However, there are a couple of big headlines here that were not instantly intuitive. In regards to personal finances, we found satisfaction with current personal financial situation outweighs concerns about the future. While consumers do express concern about the future across all 3 markets for both prospects and past guest, at least 70% of people feel satisfied with their personal financial situation.

The most compelling headline I can share is even in a tough economy, respondents across all audiences are still prioritizing vacations and travel over other categories, even if that means sacrificing some of the more frequent day-to-day purchases. Vacation spending remains a priority. Not surprising, the consumers says they want the following for their vacation: they want to get the most bang for their buck, they want go someplace new and have an adventure and they want to be able to set and stick to a specific budget. Getting the most value from a vacation while still being able to do something new and exciting is the big takeaway. As a result, past guests rank cruises right at the top of their vacation to-do list. Given the value criteria I just described, consumers are using to make their vacation decisions, it's not surprising that cruises rank right up near the top on the vacation to-do list or prospects as well. It's clear from our research that the consumer believes that the economic conditions will continue to be choppy in the foreseeable future. It's also clear that cruising and in particular, our brands, are seen by the majority of our consumers who prefer not to cut back on travel as leading options for their vacation choice. Brian?

Brian J. Rice

Thank you, Dan. We'll now open the call for your questions. [Operator Instructions] Rebecca, if you can open the call please?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Steven Wieczynski with Stifel, Nicolaus.

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

Brian, you talked about the close-in bookings in the third quarter being pretty strong, and your outlook for the fourth quarter is for them not to stay as strong as what you saw in the third quarter. Is that something that you've already started to see or is that just more kind of a historical pattern that you are expecting to kind of play out?

Brian J. Rice

Steve, actually, October was fairly solid to date in terms of the close-in bookings. I think just as we get more into the winter months, we tend to take a little bit more conservative view. We have taken, as I'm sure you calculated by now, a little bit of a haircut into the fourth quarter. We saw a little bit more weakness in the Eastern Med. The Caribbean seems to be holding up fairly strong but what we wanted to caution against is kind of the surge. And the -- exceeding our yield performances we did in the third quarter, we kind of want to have governor on there in the fourth quarter just -- because it is traditionally softer.

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

Okay, got you. And then as you look to 2012, we've seen some of your competitors discount a little bit more aggressively to get more inventory filled. Is that something that you guys have started to move into or is that something you could potentially do?

Daniel J. Hanrahan

Hey, Steve, it's Dan. At this point, we saw the -- I know you saw the slides that Brian put up, our load factors are higher and our prices are higher. So the approach that we've taken, we're comfortable with at the point in time that we're in right now.

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

Okay, got you. And then one quick one for Adam. In terms of the deployment that you talked about, you didn't mention the Independence of the Seas moving out of the U.K. market. Is that -- can you go through that? Is that just more of a weather-related issue or is there something else going on there?

Adam M. Goldstein

It's a function of assessing where are the 22 best places for Royal Caribbean ships to be either on the winter or summer seasons. I will say that if you look over time, we probably would be inclined strategically to continue to develop the Independence with our itinerary out of Southampton. I would say, these days when there's more uncertainty in the marketplace, particularly around European cruising, we felt that we should make a change where we're likely to generate more revenue in the Caribbean for that shift than we would if we stayed in Southampton in the winter of 2012, '13.

Operator

Your next question comes from the line of Janet Brashear with Sanford C. Bernstein.

Janet Brashear - Sanford C. Bernstein & Co., LLC., Research Division

I'm wondering if you could talk a little bit about the Mediterranean, but more towards Greece and tell us maybe what percentage of itineraries touch Greece next year? How many times recently have you had to divert ships from Piraeus due to the riots and disruption there? And is that translating into any reluctance relative to booking at this point? And finally, if things do get worse, which we all hope they don't, and you have to change itineraries, what would your plan be for those itineraries?

Daniel J. Hanrahan

Janet, it's Dan. I can't give you the exact percentage on all that right now. What I can tell you in general is that we have reduced our capacity in the Eastern Med by 17%. So the way we look at the Eastern Med is that, that's something that makes it way over to Greece or down into the Holy Land. And so for next year, we've taken that down by 17%. And those were decisions that we made within the last few weeks and have been announced, I think, right up until today. Those final announcements will be made. So we've already taken some pretty strong action, reducing our capacity in the Eastern Med. And at this point, I think that those decisions that we've made are good ones. We looked at not only what's happening over there, but we looked at the pace of bookings and so they were well-informed decisions. And on top of that, we used the research that I mentioned earlier. In terms of how many missed calls we've had in Athens, I can't give you that number right off the top of my head but if you want, then I can give it to you later this morning.

Janet Brashear - Sanford C. Bernstein & Co., LLC., Research Division

Dan, also if I could just follow up, I think you said earlier, if I heard you right, that 40% of your itineraries next year were outside of the U.S. or North America. Assuming that's correct or if it's not, maybe you can fix it for me, where are those by country as we think of sort of U.K., Germany, Italy, and then maybe some emerging market?

Daniel J. Hanrahan

Sure, Janet, what I was referring to there was the fall and winter of this year and into the beginning of 2012. So 60% of Celebrity's capacity will be in the Caribbean on that time period. And then outside of the Caribbean, it will be predominantly South America and Australia and New Zealand during that time. So their the 2 biggest markets outside. Around the rest of the year, it's Europe in the summertime. And outside of the United States, Europe and Bermuda.

Richard D. Fain

Janet, I'll just add that at the corporate level, about 29% of our inventory next year will be within Europe. And the -- if you look at the Eastern Med and Holy Land, that represents that 9% of our capacity for the full year.

Operator

Your next question comes from line of Greg Badishkanian with Citigroup.

Gregory R. Badishkanian - Citigroup Inc, Research Division

My 2 questions are just, first, when we look at Europe, how should we think about comparisons for next year? Does it get easier once we hit April, assuming no change in the macro? Is that kind of the way to think about Europe?

Adam M. Goldstein

Greg, it's Adam. While it stands to reason that if there are not the kind of disruptions ahead of us that we have experienced within the last 12-month period, that, that will factor into the comparables, obviously. The fact that there's still a lot of uncertainty, though, about the economic situation in Europe, as well as in the United States, suggests that we take a conservative view of what we're doing and try to market as effectively as we can into the situation that we have. And actually to some degree to Janet's earlier question, clearly, we are marketing in all of the principal European source markets and that is necessary because of the fact that 2/3 of the guests on our European cruise programs come from Europe. So this is where our focus will be and this is where the guests are coming from and this was the -- obviously, we are communicating about the value of cruising relentlessly into these markets in accordance with what Dan mentioned about what consumer sentiment is today.

Gregory R. Badishkanian - Citigroup Inc, Research Division

And my second question, just as we -- looking at the 2012, how much of your capacity is booked, if you can say that? And also just at this point, is it a good indicator for next year? I mean, do you have enough on the books to kind of make it as a good kind of sample size to see how you're going to do for next year?

Brian J. Rice

Greg, I think on our last call, we said that we we're slightly less in the quarter percent sold out and by year end, we generally are about half sold out. So I think, if you do the math, you can kind of figure out about where we are. I think we would say under normal circumstances, we'd probably have a pretty solid piece of business on the books that will give some indication as to what we thought were going to happen with yields and maybe a 2- or 3-point spread. I think we're reluctant to do that today just given the way the economic headlines are changing on a daily basis. When we left here last night, we had kind of locked down our forecast and we woke up this morning and all of a sudden, the headlines were very positive and I think next week we might see unemployment go up and everybody's going to change their mindsets. So I think we -- normally, we'd feel pretty good about being able to give a number but at this point in time, I think we just -- we need to wait another quarter before we come out with definitive guidance.

Operator

Your next question comes from line of Robin Farley with UBS.

Robin M. Farley - UBS Investment Bank, Research Division

Two questions for this. I was going to ask whether your incremental is up year-over-year, not just the cumulative book position. From the slides, it looks like it is. I just want to make sure that, that's the case because I'm thinking about the guidance you did give for the full year at the same time last year, and that if you're actually seeing better incremental on a day-to-day basis, seeing better bookings today than you were at this time last year, that would seem quite positive just relative to the guidance that you had originally given for last year. And then also, I was just kind of wondering what your expectations are. You mentioned Alaska, in particular, was at the highest ever yields. Would you expect a flatter side decline next year in Alaska or are you thinking maybe growth on top of that? Just a rough sense, not any numbers here, but what are your expectations just directionally?

Daniel J. Hanrahan

Robin, I'll take the second one on Alaska. Obviously, it's really early for Alaska right now. But my sense is that we'll have another good year in Alaska. It's way too early to say just because the Alaska bookings -- given that way the Alaska market books, we just don't have that much on for Alaska right now but we are still feeling good about what's going to happen there next year and I...

Brian J. Rice

Robin, I think -- just to add to Dan's comments about Alaska, I think it's fair to say Alaska did benefit this year from the dislocation from Europe. And I think before we start calling out specific itineraries for next summer, we'll want to wait and see a little bit of how Europe is unfolding and how Alaska will complement that. I will point out that while Alaska had record yields this year, our summer season, our third quarter is still about 4% below the yields that we achieved in '08 and I think with the better fleet that we have in place and the more diversified sourcing today, we wouldn't even be pleased with '08. So I think there's still a good upside as you referenced both our our APDs and our volume is up right now for 2012. So if things continue as they are today, I think, as we've said, we're feeling pretty good if we looked at real-time data. There's just so much uncertainty out there. I think we've been a little bit hesitant to try to make a call as to what might be happening as we go into wave season.

Robin M. Farley - UBS Investment Bank, Research Division

But am I reading the slides correctly? Just looking at the lines that, incrementally, your bookings in the last 2 weeks are better than they were 6 weeks ago in terms of it year-over-year percent change.

Brian J. Rice

We've actually -- yes, you're correct that our load factor differential from a year ago has actually improved over the last month and a half or so. I think that's partly due to some of the sales activities that have been in the marketplace. I think it was last week there was big clear [ph] sale. I know our Royal Caribbean brand had a WOW Sale, I believe it was 3 weeks ago, which contributed. So we are slightly better.

Operator

Next question comes from the line of Felicia Hendrix with Barclays.

Felicia R. Hendrix - Barclays Capital, Research Division

Brian, I just wanted to clarify something on, if I may, that you just actually said. I want to make sure I understand this. You said that your third quarter yields are still 3% lower than the yields you've achieved in '08?

Brian J. Rice

I believe it's 4%.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay, 4%. But then -- and I know there's a long way to go before we get to the third quarter, but in third quarter '10 your yields were higher than '08. So does that mean that on a year-over-year basis so far your third quarter yields are lower?

Brian J. Rice

In '10, they were higher than '09's third quarter. '08 was the peak right before the Lehman Brothers.

Felicia R. Hendrix - Barclays Capital, Research Division

Oh, you're looking quarter-to-quarter. When you say '08, you meant third quarter '08, not for '11.

Brian J. Rice

Yes, yes.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay, okay. Thank you for that clarification. Now the other thing is the range. Your guidance range for the fourth quarter was a lot wider than it normally is. I can get kind of halfway there if I take the sensitivities in net yields and maybe the mark-to-market. But what else is accounting for that range?

Brian J. Rice

I think it's just the general uncertainty as to what's happening in the market right now. If you take our number of shares outstanding,a $0.05 range really gives us only a $10 million or $11 million swing factor. And just given what we're seeing in the market right now, we didn't think that, that was adequate. So we went with the $0.10 range.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. But you gave us a 1 point range in yield?

Brian J. Rice

Correct.

Felicia R. Hendrix - Barclays Capital, Research Division

So that should translate to?

Brian J. Rice

And we have a 1 point range in Net Cruise Costs.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. Okay. And then, just getting -- I think Adam, this might be a question for you or Dan. You guys gave us some very nice color and explanation about what's happening onboard with the European demand. I'm just wondering, are you doing anything from a marketing perspective to stimulate more onboard from Europeans? And I'm wondering what are they not spending on that the Americans are spending on?

Adam M. Goldstein

Well, Felicia, one of the elements is gaming and another element would short excursions. When you're comparing Europeans to Americans for European products, Americans going a long way to see Europe are a little bit more aggressive in buying the short excursion experiences that are available to them. And I did mention in my script that all of our brands are engaged in a whole variety of initiatives to increase onboard spending and some of it is related to, I think, the directionality of your question, which is as we have more people onboard from other nationalities besides the U.S. It's incumbent upon us to become more knowledgeable and more sensitive to their needs and where they see value on onboard spend and I suspect we will continue to get better about that over time.

Felicia R. Hendrix - Barclays Capital, Research Division

But are they -- the Europeans who might be going to the Caribbean, are they spending on offshore excursions?

Adam M. Goldstein

Yes.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. And then is there any difference in terms of ticket demand between the European customer and North American customer?

Adam M. Goldstein

Well, we're clearly doing revenue management in all the different countries on all the sailing all the time. So there's a lot of different initiatives and efforts as it relates to where our sourcing commitments have been made by the different offices so it's hard to make an overall general comparison like that. We're trying to maximize revenue in each market according with its preferences.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. Just wondering if you might be seeing some more economic sensitivity from your European consumer than your North American consumer?

Adam M. Goldstein

Well, I think we basically in the color commentary that we've given so far and then the summary of it all, you can see that our major sources of guests are hanging in there with us as it relates to load factor and price.

Brian J. Rice

Felicia, if I could just add, you may recall on the last call we spent some time and really tried to look at it at the itinerary level and the source market level. And the only commonality we saw in strength or weakness of yield was really at the itinerary level and when you factor that out of it, at a source market level, we didn't see a lot of differences.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. That's great. And then just, Brian, last question for you. For the first time in about a year, if I went back into this correctly, in the release you mentioned that relative to your debt obligations you would consider opportunistic -- opportunities. So I was just wondering if you could elaborate on that.

Brian J. Rice

Felicia, I think we kind of go between putting it in the press release and our scripts but I think we've always put that qualifier out there that if market conditions were attractive, we would consider accessing the markets. As of right now, I think as what Richard alluded to, we're in a very strong liquidity position. We have slowing CapEx, our maturities are very manageable for the foreseeable future and right now, we're actually very pleased to be in a delevering mode. That was not to signal any imminent transaction.

Operator

Your next question comes from the line of Steven Kent with Goldman Sachs.

Steven Kent - Goldman Sachs Group Inc., Research Division

I just was wondering a little bit about the difference between your outlook for the fourth quarter and the full year 2012. It sounds like you feel a little bit better about 2012 than you are about this short-term bookings. But it strikes me and maybe it was in some of your research, why wouldn't -- wouldn't a consumer be more hesitant to book a cruise for 2012, which is a longer-term commitment than make a short-term decision to go on a cruise in Q4? It just seems counterintuitive to me why there's the hesitation for Q4 and more confidence for 2012.

Daniel J. Hanrahan

Steve, I can certainly see how you'd interpret that from our commentary. I think a little bit of this is relative to prior expectations. Our fourth quarter on an absolute basis, we're talking about our yields going up, it was approximately 4%. And on a constant-currency basis, we're talking -- I'm sorry, I'm looking at the wrong number, we're seeing approximately 3% to 4% in Q4, and we're seeing 3% to 4% on a constant-currency basis. For the fourth quarter, frankly, that's not real bad. I think it's just that we, 3 months ago thought it might be an eyelash better than that. The currencies had been a drag on the fourth quarter. So I don't think we're necessarily trying to say we're real pessimistic about the fourth quarter. We're just not looking for a surge in close-in activity that we saw in the third quarter. I would say that the overall mood in terms of what we're seeing with the consumer, there's no difference between Q4 and 2012.

Operator

Your next question comes from the line of Sharon Zackfia with William Blair.

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

I think I've kind of lost track on where Mediterranean yields are expected to end the full year so maybe if you could update us on kind of full year Mediterranean yields and where those will end up. And then as you showed those slides, which looked really encouraging, I'm just wondering is the Mediterranean tracking the same way for 2012?

Brian J. Rice

Sharon, I don't have exact numbers in front of me to answer your question. I can tell you that the Eastern Med, as we've talked ad nauseam is going to be down significantly this year. The Western Mediterranean is up slightly, I would say, which I think we feel pretty good about the fact that we were able to achieve some increases in yields in the Western Med, given the capacity increases that both our brands and the industry experienced. I think in terms of next year, it's way too early to say our volume of business is up year-over-year in the Mediterranean but the pricing is flat to slightly down on an aggregate basis. But you have to take into consideration that is comparing to a difficult comparable because the Europe spring has not happened at this point. Obviously, I would say our bookings -- our APDs are well ahead of where we ended up the year but there's still a lot to play out between now and the summer.

Operator

Your next question comes from line of Harry Curtis with Nomura.

Harry Curtis - Nomura Securities Co. Ltd., Research Division

Quick questions. I guess I'm following up on that last question. How far down did the yields go for that subset that you had to rebook itineraries entirely in 2011?

Brian J. Rice

Harry, I can tell you that for the Eastern Med in aggregate, I believe our number was something in the range of $90 million to $100 million hit and I believe we said that in the third quarter that Mediterranean deterioration had cost us about 150 basis points on yield, which would be around that same number. But that would be the Eastern Med in its totality. I don't have numbers for the individual itineraries when we changed. That includes the negativism that we felt in the Holy Lands and Turkey as well.

Harry Curtis - Nomura Securities Co. Ltd., Research Division

So for the -- so for any given ship, what I'm trying to get a sense of is, by virtue of the itinerary change, did the yield on that ship or group of ships go down 10%, 15% versus what you would have expected?

Daniel J. Hanrahan

Harry, it's Dan. We're making the changes in itineraries for next year. The only changes that we made in 2011, and I'm may be misunderstanding your question, the only changes that we made in 2011 were we pulled Egypt -- stops in Egypt off the Holy Land cruises. So the numbers that Brian gave you are an accurate depiction of what's happened for the entire company in the Eastern Med and Holy Land this past year. For next year, the changes that we -- that Adam mentioned where we're reducing our capacity by 17% in the Holy Land -- in the Eastern Med and Holy Land, it's way too early to say what kind of impact that will have.

Adam M. Goldstein

This is Adam. I just want to comment briefly on Asia since Royal Caribbean is the brand that has the ship in Asia within our company. I think as you know from previous calls, we were full of enthusiasm in early March for Legend of the Seas having quite substantial year-over-year yield increases in 2011. Then, her deployment was radically changed because she couldn't do her China program anymore and she needed to go to Singapore on essentially no notice. So in the end, she had double-digit yield decline rather than the double-digit yield increases that we had been anticipating prior.

Harry Curtis - Nomura Securities Co. Ltd., Research Division

Okay, that's helpful. And then the second question is related to cost. Your cost per berth in the second and third quarter were under 1% per ALBD. And so you mentioned that some costs are shifting into the fourth quarter. What are those costs and does it imply that we should see a comparable lift in costs for 2012?

Adam M. Goldstein

Well, we continue, as I mentioned in my script, this is Adam speaking, to put a tremendous amount on focus and this is across all the brands on cost control. So there's a lot time ahead of us to work on minimizing 2012 costs and yet, realizing our ongoing strategic aspirations. I'll say in the case of our brand, that some of the shifting was marketing expense from third quarter to fourth quarter as we intend to have a fairly intense trade of marketing coming up soon for our brand and a variety of other general and administrative costs where we were either -- it turned out that programs and initiatives that we had planned to achieve late in the third quarter have ended up moving over into the fourth quarter by brand.

Operator

Your next question comes from the line of Kevin Milota with JPMorgan.

Kevin Milota - JP Morgan Chase & Co, Research Division

I appreciate the updated detail on deployments for the Eastern Med. Just trying to get a sense for where pricing has gone since the second quarter in that region. So if prices were down 40% to 50%, how much closer are you to getting back to par pre-events in the Middle East?

Adam M. Goldstein

I don't think that we can probably reclaim what we have suffered in the Eastern Mediterranean within one selling season. If there are no further disruptions, the attractiveness of that area to cruise in is significant as you know and we certainly would be hopeful to make progress against the comparable of 2011. But rather we could get all the way back to where we were in the past or where we would have been this year, I would say that will take more than one year.

Kevin Milota - JP Morgan Chase & Co, Research Division

Okay, good. Have prices gone up since that point or are you still in a pretty heavy discounting period for those itineraries?

Adam M. Goldstein

I think Brian mentioned a couple of questions ago that we are looking at somewhat better load factors and somewhat less pricing at the moment, but that's because we're comparing same time last year when none of this had happened yet.

Operator

Your next question comes from line of Tim Conder with Wells Fargo.

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

Just to follow on that, again, Brian or whoever wants to take this, it would seem then that if your bookings, your load factors are up and your pricing is where it is, then as your comps get easier post the Europe spring, it would seem that all else being equal that your yield should show some decent improvement out of the Eastern Med, am I missing something there?

Adam M. Goldstein

I don't think you're missing something there, Tim. The question is what will happen in reality. Where -- what we're facing this is a very different situation. Last year, we were optimistic and then geopolitical events came out of nowhere to disrupt the season. This year, one can, I think, reasonably assume that there won't be more geopolitical disruptions of that magnitude although one can never know, but it's the economic, let's say, geo-economic uncertainty that is hovering over us. And it's too early to say what the implications of that will be. We're pleased that we are able to have favorable load factor comparisons on a year-over-year basis at this point and we hope that, that will eventually pay off for us in terms of where we can go with price, but it's just too early to tell.

Brian J. Rice

I think the operative expression we would use here is measured optimism.

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

Okay, okay. Because Brian, I mean, I think in your earlier comments also you mentioned that it seemed to imply at least that it's really not a sourcing, you're not seeing any change in I guess sourcing folks and that's really driven by the itineraries, since you changed a lot of the itineraries, again get back to the same point all else being equal, it would seem that then you should start to see some nice progress and once you anniversary in the Europe spring is starting.

Brian J. Rice

Right. When -- I do want to say, as Dan and Adam both pointed out, we have less exposure to the Eastern Caribbean next year but we do have exposure. We do have about 9% -- Eastern Med, sorry, we are about 9% there.

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

Okay. Okay. And then just a couple of other clarification items here...

Richard D. Fain

I'm sorry, if I could just add one thing on that. You also -- while we normally will not have a repeat of the impact, we will start -- we start with -- we won't have the benefit of some of the same kind of people who stayed on last time and now there'll be a little more impact from the ongoing, as Adam mentioned, the economic impacts that we're experiencing and also things like what's happening in Greece, which wasn't there last year. So there's a lot of factors going on, I think, at this point.

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

Okay, okay. The other clarifications, gentlemen, and thank you again for all the color there. The 2/3 European itineraries, 2/3 of those itineraries being sourced from Europe, Adam, was that only for the roker [ph] of international brand or is that corporate wide?

Adam M. Goldstein

Corporate wide, about 3/4 from outside the United States and 2/3 from Europe.

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

Okay, okay. And then, Brian, your commentary in the press release, the $0.08 related to the fuel option. That is part of the total lowering of the guidance for the year by $0.15, yet you said that only $0.03 of the $0.15 was related to those options. Is that part of what you had said that you've monetized here early in the fourth quarter just, I guess, to kind of reconcile those?

Brian J. Rice

I'm not sure where you got $0.03. We said that I believe, it was $0.12 is due to FX.

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

Okay. Of the $0.15, right?

Brian J. Rice

Of the $0.15, $0.12 is FX.

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

So then $0.03 would be from the option, correct?

Brian J. Rice

So you'd know from the $0.03 -- well, you have $0.08 from the option and then you have $0.05 coming back from better operating performance.

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

Okay. And then -- but your...

Brian J. Rice

Two bad guys and one good guy.

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

Okay. Are you taking up of accounting in there the monetization in the fourth quarter of the options?

Brian J. Rice

There is a monetization but it's small. It's not material. Rebecca, I think we can squeeze in one more call.

Operator

Your final question comes from the line of Assia Georgieva with Infinity.

Assia Georgieva - Infinity Research

Two questions. One is probably going to be very quick. We didn't really talk about Q1 yield expectations. Should we think of something in the range of Q4, meaning 3% to 4% constant dollar or something a little bit less?

Brian J. Rice

Assia, I got to give it to you, never quit trying. We're not going to give any specific guidance for Q1 at this time, but good try.

Assia Georgieva - Infinity Research

Okay, all right. In Q4, it seemed that the prior implied guidance is of the end of July, was a range of 4% to 6.9%, and now we are going down to 3% to 4%. Again, Eastern Med doesn't play as big of a role during this time of the year and you have seen some nice close-in bookings you mentioned in Q3. You also mentioned that the last 6 weeks' bookings have been stronger because of sales events, et cetera. Shouldn't we stick to at least 4% yields constant dollar?

Brian J. Rice

I don't think we decided to change our guidance within the last hour on the fourth quarter. All the things you mentioned were baked in to our guidance for Q4. I can tell you that the FX hurt is quite a bit in the fourth quarter. Hopefully, with some of the actions we've seen today, maybe some of that can reverse itself. But I will point out one currency that we don't normally talk about that we're more sensitive to this time of year is the Brazilian real. But we did see a little bit of a haircut in fourth quarter on a constant-currency basis, mainly due to the Eastern Caribbean. There were some other small adjustments outside the Caribbean but in totality, it was less than a full percentage point.

Assia Georgieva - Infinity Research

Okay, okay. So maybe I miscalculated.

Brian J. Rice

Well, we'd like to thank everybody for joining us this morning. And as usual, Ian will be available throughout the day for any follow-up you may have and we wish everybody a great day. Thanks.

Operator

Thank you for participating. You may disconnect at this time.

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