Royal Caribbean Cruises Ltd. (RCL) Q4 2011 Earnings Report, Transcript and Summary

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.

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?

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. But 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 they've 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 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 recognize that the industry's safety record 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're 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. With that in mind, despite the impact of this year's earnings, we are continuing to look to the future and to build the profitability of our business. I would therefore like to shift from this unfortunate event, which has monopolized our thoughts, and focus on our core business. Now that business is thriving despite the challenges. Prior to the tragedy in Italy, we would've said that our business was facing some of the most significant near-term economic and geopolitical headwinds in our history, and we were winning. The U.S. market has shown surprising strength in proving how robust a market for cruising it is. Europe has been more difficult, but even there, we were anticipating higher yields in 2012 partially because of lower comps. Australia is doing well, as is the rest of the Pacific Rim. The effects of Japan's earthquake are behind us, and that gives China a huge boost. And there, we were adding Voyager of the Seas in China this spring. She will be the largest and, I would modestly say, I think the best ship serving that area and she's making a big splash. As a new market, the China opportunity does cost us a great deal to address and it will take some time to pay off. Nevertheless, we think this is an important strategic move for us and we have accepted the short-term cost that it entails. Costs are indeed actually a constant focus. More than 1/2 of the expected increase for 2012 relates to structural changes, which have direct revenue offsets, and we've tried to explain that. The other 1% to 2% relates to investments which will drive yield improvements going forward, such as ship revitalizations, international expansion and technology investments. As our press release indicated, we had great pricing momentum coming into this year, much better in fact than I believe folks were expecting driven in part by these ongoing investments. Now this year marks an important milestone for Royal Caribbean. For the first time in our history, the majority of our business is now coming from customers outside the U.S. This is the culmination of a strategic shift we started about 5 years ago and is in recognition of the fact that while the U.S. market continues to be strong and to flourish, the demand for our cruises and the demand for our ships is growing in an even more dramatic rate abroad. We have had to make a significant investment to make this happen and it certainly feels good to have reached such an important milestone. As I've said before, diversification is a good strategy even when it seems that the market to which you are diversifying is the one having issues in the short term. It's a two-edged sword, and in this case, European cruising happens to be the one impacted by economic challenges, geopolitical turmoil and the fallout from this -- from the tragedy. At the same time, China is experiencing the labor pains associated with any new market. But all of these challenges are transitory. Our long-term trajectory is unchanged. Even with the difficult economy and other factors, we were heading into a powerful 2012. The tragic events in Italy are a blow but only to the short term. Our record for safety, our record for outstanding vacations and our ability to develop new and exciting markets gives us confidence about the path going forward. And that confidence is undimmed. We are committed to staying the course in doing the best by our guests, our employees, our shareholders and our communities going forward. With that, I'd like to turn this back over to Brian to take us through a little more detail. Brian?

Thank you, Richard. On the second slide, we have summarized our performance in the fourth quarter. We generated net income of $36.6 million or $0.17 per share. Net Yields improved 3.5% on a constant currency basis and 3.2% on an as-reported basis. We saw strong performance in the Caribbean where ticket yields improved by double digits, and Asia continued solid recovery in the aftermath of the Japan tragedy. Europe yields were down overall driven by Holy Land and other Eastern Mediterranean itineraries. On the cost side, excluding fuel, our net cruise costs were up 3.7% on a constant currency basis and up 3.6% on an as-reported basis. As you know, we manage our costs on an annual basis and the impact from things like dry dock schedules, marketing and repair and maintenance expenses always cause timing issues among quarters. The fourth quarter was consistent with our guidance and part of another solid year of cost controls. On Slide 3, we have summarized our full year results. Net income was $607 million or $2.77 a share. As you may recall, at this time last year, we provided initial earnings guidance for 2011 of between $3.25 and $3.45 per share. Fuel price increases decreased our earnings by $0.20 per share, and the impact of the Japan earthquake and the Arab Spring cost us an additional $0.65 per share. All other factors, including solid revenue and cost performance, exceeded the upper end of our initial guidance. Net yields improved 2.4% on a constant currency basis and 4.1% on an as-reported basis. Ticket yields were very strong in the Caribbean, Baltic and Alaska, while pricing in the Eastern Med and Asia were down due to the geopolitical events. Pricing improved slightly more from the United States and Europe, but this appears to have been more driven by itinerary mix than the economy. On the cost side, net cruise costs, excluding fuel, were up 1.3% on a constant currency basis and up 2.3% on an as-reported basis. Finally, for the fixed-income folks on the call, I would like to mention that we generated $1.6 billion in operating cash flow and reduced our overall debt by over $650 million during the year. We continue our focus on returning to investment grade in the near term. Now I'm sure most of you are interested in hearing about the current booking environment. We tried hard to be as transparent as possible in the press release, but I must caution that it has been less than 3 weeks since the Costa Concordia incident. The demand environment is still in a state of fluctuation. And with very limited data, it is difficult to draw any definitive conclusions. That said, here is what we know. Immediately prior to the incident, our bookings were running about 5% ahead of a year ago and at higher prices. All 4 quarters of the year were booked at higher load factors and higher per diems than the same time last year. The incident occurred on January 13, and since that time, cancellation activity has been within normal levels. In the first 2 weeks after the accident when the media attention was greatest and practically all marketing activity was suspended, new reservations, combined for all of our brands and itineraries, were down approximately 20%. This week, the media coverage has begun to subside and advertising is beginning to come back. Over the last 5 days, new reservations are down in the low to mid teens, with each day showing slightly better performance. We have seen a pronounced difference between consumer behavior in North America and Europe. North American demand appears to be recovering steadily, and recently has been down high-single digits. European demand, on the other hand, remains more depressed, but even there, we are seeing the beginning of a recovery. We believe this is driven by a number of factors, including greater media coverage, closer proximity to the accident, less familiarity with cruising and to some degree the compounding effect of a relatively weaker economy. Our other international source markets, including Latin America and Asia Pacific are showing less impact from the incident. From a seasonal point of view, demand for spring and summer cruises has slowed the most, followed by close-in bookings. For the first quarter, we anticipate only a modest impact to yields because of the strength of our order book before the incident and the low cancellation activity. Our brands for the most part have maintained pre-incident pricing levels for the spring and summer as they continue to evaluate the demand patterns and determine the best revenue management strategy. This is one of the reasons for the increase in uncertainty and our extra caution in providing forward guidance. Interestingly, although the volume is relatively small, to date our new bookings for the fourth quarter and 2013 have not been affected. Again, the base is relatively small but we believe this is an indication that the incident will not have a long-term impact on our business. Now I would like to talk to you about our forward guidance. We actually debated quite a bit about whether to even provide guidance given the high level of uncertainty, but in the end, we felt it was important to be as transparent as possible. You will notice our guidance ranges are wider than usual but not as wide as all the possible outcomes. On Slide 4, you will see the guidance for the first quarter. We expect yields to be up 5% to 7% on a constant currency basis and between 4% to 6% on an as-reported basis. As we noted in our press release, we have made some changes related to our international distribution system and shifted some deployment for strategic purposes that will have a positive impact on yields but a negative effect on costs. The impact of these changes is greater in the first quarter. In the case of net yields, the impact of these changes for the first quarter is approximately 300 basis points, so on a constant currency basis, we are looking for a like-for-like increase of 2% to 4%. Net cruise costs, excluding fuel, are expected to increase 6% to 7% on a constant currency basis of which approximately 450 basis points is due to the changes I mentioned. Also driving the increase is a disproportionate amount of dry dock costs related to refurbishments in the quarter. Based on current prices, we have included $224 million of fuel expense for the quarter and we are 53% hedged. Turning to Slide 5. We have laid out our preliminary thoughts for the full year. It was just a few weeks ago we were building our forecasts around net yield increases in the mid-single digits. With less than 3 weeks of new data to digest, providing a revenue forecast is clearly more art than science. Some of the negative factors weighing in our consideration include the 20% decline in new bookings during the peak of WAVE season, tremendous awareness globally of the incident, apprehension among new cruisers and only meager signs of recovery so far for European source customers. Some of the positive considerations include improving trends from North American source guests. Most consumers view this as an isolated incident. We've resumed our marketing activity, and there is still some time to recover booking volumes prior to the summer season. Based on all this, we have set an initial target for net yields to increase between 1% and 5% on a constant currency basis and between flat to up 4% on an as-reported basis. Included in these figures is approximately 200 basis points from the changes in our international distribution and deployment initiatives. As we mentioned in our press release, these distribution changes, along with deployment initiatives, will increase our net cruise costs by approximately 300 basis points. Absent these changes, net cruise costs, excluding fuel, are expected to increase between 1% and 2% on a constant currency basis and flat to up 3% on an as-reported basis. The 1% to 2% constant currency increase is driven by modest inflationary pressures and strategic investments such as information technology. Based on today's fuel prices, we have included $889 million in fuel expense for the year and we are 55% hedged. Over the last 5 years, our brands have reduced fuel consumption by approximately 18% per APCD. And while our efficiency initiatives continue, our guidance for 2012 includes a slight increase due to deployment shifts. Our initial estimate for earnings per share for the year falls between $1.90 and $2.30. To help you with your reconciliations, I will mention that at today's prices fuel expense is $0.57 per share higher than 2011 and current FX rates cause a negative impact of approximately $0.20 per share versus last year. Now I'd like to turn the call over to Adam for his comments. Adam?

Thank you, Brian, and good morning, everyone. Although it seems like a long time ago now, we are nevertheless pleased to have finished 2011 with solid fourth quarter results. The Caribbean cruise market ended the year in good health, and a number of our programs around the world began their northern winter or southern summer seasons with momentum. Consequently, bookings for the fourth quarter remained strong through December and our outlook for 2012 was promising entering the WAVE. Our enthusiasm was bolstered by the launch of our very well-received new marketing approach on January 9 featuring the line, "The Sea is Calling. Answer it Royally." As the others have noted, the situation today is considerably more uncertain than at the time of the year -- turn of the year, excuse me. While a few of our products are relatively unscathed by the downturn in bookings over the last 3 weeks, we have experienced softness in our main portfolio of Caribbean and European cruises. We believe that a recovery of booking momentum is highly likely. The question, of course, is the timing and strength of the prospective recovery. As of Monday, January 30, we have resumed our full normal marketing effort in the United States inclusive of television advertising. In other countries, we are in the process of resumption. We continue to watch booking trend developments very closely. To this point, we have not taken any significant pricing actions. It is worth noting that relative to any other time of the year, we are currently taking a high volume of bookings and we are taking those bookings at higher prices than we were at the same time a year ago. In the past, I have commented on the diversity of Royal Caribbean International's customer base. While it is too early to tell how much disruption there will be to our normal sourcing pattern, it is reassuring to know that we can draw in customers from around the world to fill many of our cruises. For example, in recent years we have sourced about 75% of our guests on European cruises from outside of the United States. If North America should recover booking strength more rapidly than Europe, we have the possibility of marketing our European cruises more extensively in North America to raise the percentage of Americans and Canadians on European cruises. This is one benefit of being a global cruise vacation brand. Dan?

Thanks, Adam. Good morning, everyone. The fourth quarter performed better than we had anticipated at the time of our last call due to strong close-in demand across the Caribbean product, which accounted for about 1/3 of our capacity. Our Caribbean product sailing from South Florida performed particularly well, although we saw upside across nearly our entire portfolio. We started out the year very strong and in fact had a record booking week for Celebrity during the first week of WAVE. We continued to see this close-in demand for our Caribbean product, which makes up the majority of our portfolio this winter. We have all 4 of our Solstice-class ships sailing in this market, along with our “Solsticized" Constellation and newly "Solsticized" Summit, which just came out of dry dock this past week. We're on pace to finish ahead of where we finished in Q1 2011 and '10. In addition, our non-Caribbean products, which represent about 20% of our capacity for this time period, are also performing well and ahead of prior years. Further out, we are booked ahead of same time last year as well as 2010, although we are not immune to the slowdown that has already been referenced. While we are still working in a period of uncertain demand, we have started to see improvement in bookings this week. It's still too early to say that we're out of the woods. However, the demand we have been experiencing, with the exception of some close-in tactical pricing that we would do normally, is coming in at the same prices that we were getting during the record week I mentioned. We did commission research last week to look at how the consumer is reacting to the Concordia incident. Because of the coverage this has received, we looked more broadly than the last round of research I told you about: We looked at North America, the U.K., Europe, Australia and South America. While it's clear that awareness is nearly universal, it's also clear that the consumer sees this as an isolated incident and generally feel confident that the cruise lines are taking the necessary steps to ensure the safety of their guests. Past cruisers, in particular, continue to rate cruising high on their list of vacation options. For past cruisers, there is little to no difference in their intent to cruise, from the research we did back in October. Potential first-time cruisers did show a decrease in interest. However, we have seen no increase in cruise rejectors. Our net takeaway of this research is that while bookings have slowed down, we do not think the slowdown will be long-lasting. Before I close, I'd like to mention our solsticizing project continues. And as previously mentioned, we just completed the Summit revitalization last week. Summit, like the Infinity and Constellation before her, look magnificent and features many of the iconic venues and attributes that we showcase in all our Solstice-class ships. Millennium will go into dry dock in April before she begins her Alaska season and is the last of the Millennium-class ships to be completed. Finally, the Reflection, our fifth and final Solstice-class ship, is under construction in Germany for an October delivery and, like her sister ships, will be truly spectacular. In addition, I'm pleased to announce that we were recently named best cruise line at the annual Travel Weekly Globe Awards in London as well as the Best Luxury Cruise Company at the Travel Agents Association awards in Dublin, Ireland. These, along with all the other awards and accolades that we received during 2011, further cement our place as the leader in the premium cruise category not only in the U.S. but also in Europe. Brian?

Thanks, Dan. Nicole, We'd now like to open the call for questions. [Operator Instructions] Nicole?

[Operator Instructions] Your first question is from the line of Felice (sic) [Felicia] Hendrix of Barclays Capital.

Thank you for all the color pre-incident and post-incident. It's very helpful to get a picture of what was going on then and now. So interestingly, you've, well, actually, Adam, you mentioned that you've resumed advertising. [indiscernible] Dan, has Celebrity resumed advertising? Because I have a question related to that. And I guess, mainly, it is, the question is, do you have some kind of historical data points that could help us understand how much advertising typically will stimulate demand? Obviously, you've said that demand has started to improve. I would think that in correlation with resumed advertising, that would help. And I'm wondering if you would think that the WAVE season might now be extended, in other words, you might push that out a little bit farther since you've missed a few weeks.

It's Adam. Effectively, what we've done is taken the advertising that we didn't do as scheduled in the second and third weeks of the WAVE and redistribute it along with the other planned advertising across about a 5-week period that began this week. So we would traditionally do, and we had planned this year to do the most volume of advertising in the first quarter because of the WAVE. And we will expend the anticipated amount of funds in the first quarter that we had originally planned to do, just distributed differently by week. So our historical experience, I guess you could say, under more normal circumstances is that, that level of marketing has clearly inspired WAVE bookings. And we are certainly hopeful that the recovery process on a week-by-week basis will allow us to create the -- recreate the momentum that we had before.

Felicia, to answer your question: Yes, we are back fully in the market advertising. And I agree with what Adam said. I think that the advertising we're doing will definitely help stimulate demand, but I also think the fact that the incident is getting less coverage is also helping. In the research we did, we did see that people had not started to sway away from cruising in general but did see this as an isolated incident. So I think the improvement's a combination of things. Our marketing people would tell you it's the brilliance of their marketing, but I also think that it's, some of this is being driven by the incident starting to get into the past a little.

Felicia, it's Richard, and your -- the second part of your question was interesting. I don't know that I've thought of it in precisely those terms before, but I think one of the things we've experienced in the past is when something causes an interruption in bookings, we never fully get those back. There's a onetime impact that I remember a number of years ago, when hurricane shut down our call centers, we really felt that the calls lost during that day were never fully recovered. So I think there'll be some of that, but I do think the idea that this could extend the WAVE season is a possibility as well.

And then my second part of the question is actually for you, Richard and Brian. A lot of us are trying to figure out, and you probably are as well, what this incident could have on the industry as a whole in terms of costs, whether it's higher safety costs or higher insurance costs. Insurance premiums are going to go up in general or maybe for -- maybe not for you in particular, but how have you thought about your cost structure going forward, the costs that are beyond what's your, what's in your control?

Yes, and you're right, we certainly have thought about it. I'm not sure that we have any great insight into the question. There's so much we don't know. And of course, we and everyone else will be looking at this closely. Take them separately. With respect to actual new safety requirements et cetera, that's something I'm very much looking forward to. And I think you always learn something. You're well aware that our mantra is continuous improvement. But on the other hand, actually, I think, as an industry and as a company, our procedures and processes and safety expenses are done well. And I don't know that we're aware of anything that is, that we're aware of at this point, which would likely lead us in the direction that there's big costs coming there. We think, actually, it's more likely that you will see tweaking because our, I think our systems are pretty good, but that's the kind of thing we really need to keep an open mind about. We don't know if there's other things to be learned. We'll certainly be looking for that. And a similar answer with respect to insurance, that's even involved in bigger part of what and [ph] I don't know how insurance companies work. Obviously, I think many people say a significant incident like this affects every -- the whole insurance industry and that'll affect everybody not only in our industry but in other industries as well. But I think in the scheme of things we're still known and the insurance companies will look at us as a safe industry, so while I think there clearly will be something which, and by the way, we haven't made, we haven't tried to estimate it, I haven't tried to include it here, while there clearly will be something that we will learn from this and that we can do, we're not aware of anything at this point which would be dramatic.

The next question is from the line of Sharon Zackfia of William Blair. Sharon Zackfia - William Blair & Company L.L.C., Research Division: I guess a couple of questions. Brian, I'm a little unclear about some of the changes that happened to the yields and the net cruise costs. And really, what changed in the distribution system? And why some of the deployments would affect that so much? So maybe some more clarity there and how that flows through the rest of the year. I know you saw the biggest impact from the first quarter. Could you give us an idea of the cadence of the impact to yields and net cruise costs in the remaining 3 quarters?

Sharon, I'll give you an example. There were several changes that we've made in what we call distribution. Prior to this year, in one of our Latin American countries, the distribution was actually through a charter arrangement. And though we're staying partners with that distributor now, we'll actually not be chartering the ship and we'll be bringing all the revenues and all the costs into our structure. That also had a little bit of an impact on our fuel line, as well. It was a series of those sort of structures. It is more weighted toward the first quarter. I don't have the exact breakout in front of me, but I'm guessing more in the fourth quarter, probably the least amount in the third quarter, some in the second and some in the fourth is where that would be weighted. In terms of some of the other more structural things where we talked about deployment initiatives, Richard referenced the fact that the Voyager of the Seas is going to China. We also have a pretty significant increase in capacity in Australia this year. And those are really developmental markets for us, which is driving some of the higher fuel consumption. The cost of doing business in these markets is more expensive but -- and we've tried to break out the quantification on the yield side as well. We do get a benefit there. Sharon Zackfia - William Blair & Company L.L.C., Research Division: And then maybe a separate question. I, as well, appreciate the giving of guidance in such an uncertain time. I guess it's, I'm -- I guess I'm wondering how you're approaching the guidance as you look at this year. Are you taking kind of what you currently have on the books and creating some bandwidth around that? Are you taking the trends of the last 2 weeks and trend-lining that going forward? I just -- any kind of more granularity as we look at this guidance as to how you came up with it.

Sharon, I don't think there's a single methodology that we overweighted on anything. We probably used everything you just mentioned and probably 20 other scenarios. I think our revenue management team, although we have only 3 weeks of data, we have a lot of experience with different elasticity scenarios and understanding when you have a certain amount of shortfall in demand, what sort of elasticity would be required to be able to make up for that. We did a lot of what-if scenarios going from slow recovery to more rapid recovery and tried to come up with -- as I mentioned in my opening comments, this is more of an art than a science. But I think we have the right folks giving us these projections. And we spent a lot of time over the last week or so -- one of the reasons for the call today was to try to get that extra knowledge. Again, we -- there is a lot of uncertainty but this is our best estimate from all the tea leaves we've been able to read.

The next question is from the line of Kevin Milato (sic) [Milota] of JPMorgan. Kevin Milota - JP Morgan Chase & Co, Research Division: The questions here. Just trying to get a sense for how deployments are changing for '12 given some of the distribution initiatives that you're going through, so if you'd give [ph] some clarity in terms of capacity in Europe versus what you're moving around and then also how that kind of plays through for North America, so for the Caribbean and Alaska cruises would be great.

Kevin, it's Adam. Well, we've mentioned the major ones actually, I think, along the way. But certainly, the move of Voyager of the Seas to China and also Australia because of -- they have seasonal deployments in the 2 regions, which was on top of, already, a growth that we have as several brands, particularly Royal Caribbean and Celebrity in Australia, has moved more of our deployment portfolio to the other side of the world. And that's a bigger driver for us than anything that's going on this year in Europe, where actually we've reduced Eastern Mediterranean capacity, somewhat increased Northern European capacity. But Europe on the whole is not a meaningful change in our deployment, slightly down to be exact. Kevin Milota - JP Morgan Chase & Co, Research Division: And then also, from kind of a revenue management standpoint and pricing standpoint, you made some comments that you haven't seen pricing fall meaningfully. Is it more that you're holding the line on price directly after the Concordia event? Or -- so you're holding out for potentially higher prices as you see booking activity improve?

Kevin, it's Dan. Good question. If we were at any other time of the year, we would be really excited about the demand that we have. But because we're in the WAVE, it's down a little bit. So we have held out on the pricing. We have made some tactical pricing decisions in the first quarter that we would've made regardless of what had happened as we worked to fill in holes in our inventory, but at this point, we're getting good demand. We're just not getting WAVE demand. And this week, as you've heard everybody say, we're starting to see improvement, and the pricing has stayed the same.

The next question is from the line of Steve Wieczynski of Stifel, Nicolaus. Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division: Brian, I was wondering if you could help us kind of think about how, for your guidance for '12, and I know this is a pretty tough question to answer, but how are you guys thinking about the booking window for the next couple of months just given that it sounds like Dan really hasn't -- Dan talked about not moving pricing too much. But how are you guys, just what I'm trying to figure out is how -- what are you guys thinking the booking window here, going forward?

I think it's kind of a daily adjustment. I think it is important to recognize that, as needed, we are taking pricing action. Our initial read on this was that there was a contraction of the booking window. Clearly, for summer sailings, there's been less of an urgency to make the bookings. One of the reasons WAVE season is usually what it is, is you have a lot of people looking to escape the winter, you have people who are now looking at a new calendar and trying to plan their vacations for the year and getting ahead of their summer vacation planning. Plus, you have a lot of people who are already beginning to plan next holiday season. And the bookings that have held up the best are the further-out bookings, which is where we think we have evidence of the fact that this should be somewhat limited in its duration of impact. But we are, to some degree, betting on that more contracted window, but our revenue management team will be watching this depending on the particular market and product and brand that we're looking at and they are prepared to take the necessary actions in the near term to maximize the revenue within a given period. Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division: And then second question. You gave a lot of color around your outlook kind of pre the incident, but can you just kind of help us think about how you were thinking about the European market kind of going through '12 in terms of what you guys were expecting out of yields in that market?

Yes. I -- the Baltic did exceptionally well last year and has been off to a very good start, going forward. I think in our projections we were probably looking roughly to get about half of the impact of the Arab Spring back in the Eastern Med. We do have, as Adam alluded to, I think the number is about 15%, 16% less capacity in the Eastern Med in '12 than we had in '11, and obviously, that's helping us. And the tensions are not quite as escalated as they were a year ago. So we -- I think our internal projections were to, at that time, to get about half of it back.

The next question is from the line of Robin Farley of UBS.

I have a question. I think I probably know what the answer to this is, but it would be helpful to hear you talk about. Does the impact you're seeing on bookings from the Concordia, does that have any impact on your thinking about the option -- you have an option for a second Sunshine-class ship that expires later this month, and I wondered if you could just talk about how that affects your thinking.

Thanks, Robin. Obviously, something like this affects all of our thinking on almost any topic, especially in the immediate aftermath. And as you know, we won't specifically comment on what we're about to do. But I think I'm actually glad you asked it in retrospect. At first, I dreaded it, but I think I'm glad you asked it because I think it really helps emphasize a point, which is we just don't think this is going to have a long-lasting impact. It's obviously having a near-term impact and that's obviously painful, and it obviously has an emotional impact and that's painful too. But I think, as a practical matter, we think that people understand that cruising is safe and so we don't think in the long term this will have any huge impact on cruising. And so I think it is unlikely to play a significant factor in the decision about exercising the option. The -- that decision is a long-term decision, and I think the long-term outlook is not materially different.

The next question is from the line of Tim Conder of Wells Fargo Securities.

A couple of pieces, Adam and Dan. Can you comment what you're seeing, given the positioning of your brands as far as booking volume between the brands? Are you holding up better with the Royal Caribbean brand, the Celebrity brand? And then also with the recovery that you're seeing and I guess as a part of that question also, the on-board spending that you're seeing by brand post the event? So that's question number one, and then I'll circle back for number two in a second here.

Tim, it's Adam. Obviously, we are normally not making distinctions between brand performance on these calls. Under the circumstances, I will say that, as Brian mentioned and possibly Richard, too, in their original comment, one of the trends that has emerged over last few weeks is, relatively speaking, the reticence of potential first-time cruisers to come into the category. And as you know, one of the responsibilities of Royal Caribbean International for the company and for the industry is to attract first-timers into the category. So of our brands, we would naturally feel the most impact in the aftermath of a tragedy like this. And I'll turn it over to Dan for his comments.

Tim, my comments are similar to Adam's. We have a very strong Captain's Club program that we've shifted a lot of our marketing that direction and I think that's been helping us. And this is a little bit anecdotal, but I'll give you an interesting fact: We've worked hard on board our ships to sign up people for their next cruise. And in January, we saw no difference pre or post the incident. And in fact, January was a record month for us in terms of sign-ups. And I think it's important to note that Azamara is also doing well right now. We've seen good things there. And all our brands have strong loyalty programs, so I think that we have the ability to pull from a very loyal base and it's a big base.

Tim, if I can come back for a minute to your question on shipboard revenue. I think I mentioned on the last call that our brands were engaged in a variety of activities and initiatives to boost on-board revenue going forward. And there's, of course, extremely little data that has occurred in 2012, but to the extent that we've seen it, it appears that these initiatives are beginning to bear fruit, and we have not seen any notable decline or even any decline in shipboard revenue in the last few weeks.

Okay. And then the second question would relate to the yield guidance contrasted to the EPS guidance. And Brian, I know there's a lot of other things you talked about, the spending initiatives and the higher fuel and the FX impact, but given the 400-basis-point range in net yields, and I know that you guys are -- it's really struggling to -- and that's a wide understandable range, but that, with the roughly 26% share impact per yield point, and yet that would imply almost, from that alone, about a $1 range in an EPS, can you kind of walk us from that to the range that you have of $0.40?

Yes, Tim, I think we -- a $0.40 range for us on EPS is a very wide range. And I think it's safe. Again, we're not -- there is a lot more volatility here than we've seen in some time. And I think there are possibilities outside of both the yield range and the EPS range, but we try to give a range. I think it is unlikely that you would get the best of both worlds or the worst of both worlds. And so what we've tried to do is find a combination in which we felt we were in a reasonably comfortable range. We were focused more around the midpoints and the deviation from those midpoints when we're trying to give the EPS range.

The next question is from the line of Steve Kent of Goldman Sachs.

Just a couple of questions. First, when you think about how you'll go back on marketing and back on TV, would you consider keeping sort of your list price the same but maybe using more on-board promotions as an incentive to maybe getting people on? So sort of to induce some travel but maybe not have as much of an impact? And then secondarily, just as I think about the first quarter, my recollection is you were guiding 5% to 7% net yield growth. And how much of that is already locked in? And if I then do the math for the balance of the year, you're suggesting a much more dramatic slowdown for the rest of the year. Am I getting that right to get to that number that you're forecasting of 1% to 5%?

Steve, just quickly, I'll take the second part of the question. I think you're right. We, ordinarily, I think we would have looked for more of the summer to be driving some of the improvements given the recovery within the Mediterranean and what we were seeing in our advance bookings. I think we are looking at the biggest haircut, as a result of the incident, coming in Q2 and Q3, at this point in time. And I'll let Adam talk about the advertising.

Steve, well, one of the benefits of the sophistication of our revenue management approach is we have a whole arsenal of tools that we're using from time to time throughout the year for lots of purposes, not just in the aftermath of something very significant. And clearly, on-board credits is one of the main type of tools that we can engage when we need to be active promotionally. So we are looking across countries, products, varying cruise lengths, and we will try to apply the promotional techniques that make the most sense. If there is a market that has a higher percentage of air fee business, for example, then we can work around the flight in terms of promotional activity. If it's more of a cruise-only market, it might be on-board credits, as you mentioned. So we have a lot of opportunities and we're watching the trends emerge on a day-by-day basis, and then we'll start to apply whatever we need to apply to meet our expectations.

And how much is, Brian, how much is booked for the first quarter already? How much is essentially locked in?

It's a very high percentage. Obviously, January is behind us at this point in time. I think most of the volatility at this point would be some of the March sailings. And then as, I believe, in Tim's question, it -- a lot would come down to the on-board revenue spending. But I think we're pretty comfortable within our range at this point in time. I think Dan wanted to follow up on Adam's comments, as well.

Steve, I think your point's a good one. We are trying to make sure that we can keep our prices up. We launched a program this week where we did half deposits. And so instead of the full deposits, we did half deposits, and we think we've gotten some pretty good traction off that. We did an air promotion in the U.K. this week and we think we've gotten some real good traction off of that. So we're going to use the whole toolkit here and the objective is to keep that price where it -- where we think it should be. Good question.

The next question is from the line of Greg Badishkanian of Citigroup.

2 questions. First one is, I know there's nothing exactly like this, but typically, what's the length of the impact to bookings and net yield from previous industry incidents that maybe have gotten negative media coverage? And then the second part of that is, would you expect a bounce-back the following year from maybe first-time cruisers that are holding off this year so maybe you'll have some pent-up demand into 2013?

I think with respect to the first part of the question, we would have to say that this is just so unusual a situation that we really can't do much in terms of drawing comparisons. We think that the better job that we and our industry organizations and our travel agents do in communicating the facts about cruise ship safety will be an important element of reassuring the public. I -- our sense is, and we are already seeing it in the bookings, that, and as Dan pointed out, we saw it in some of the research that we've done, that the public really does get it. They really do understand that it is a safe and secure industry notwithstanding the very sensational headlines at the moment. But I think they separate the two. And even in a very safe environment, there's no, as we've said elsewhere, there's no such thing as perfect safety, just perfect dedication to safety. And I think our industry has that and will continue to emphasize that. So I think it's a question of how well we get that message out, and we're working to do that. I'm just not sure we can make comparisons to other industries. And with respect to the people and how this impacts next year, I think we will next year and in future periods, I think we -- I made the point earlier that some of this isn't so much convincing people. It's just, if people didn't take an action, they didn't book a cruise in this week, some of that just simply is never recovered, but it has no ongoing impact so I think there's sort of an automatic benefit next year. And we had an extraordinary loss of bookings for a few weeks in January, and just isolated on those bookings, that will give us a bump in the beginning of next year.

The next question is from the line of Assia Georgieva of Infinity Research.

Just one question. Assuming that the booking volumes from the last, let's say, 3 to 5 days remain constant, how long would you be willing to hold price? And if we go back to the H1N1 outbreak in Mexico in, back in April of 2009, when I think both you and Carnival actually held price for about a month, is this something you would be willing to do given it's WAVE season?

Assia, it's Dan. That's a good crystal ball question, I think. We have seen some improvement that's encouraging this week. And each week has gotten better. I think Brian, when Brian mentioned earlier and I had mentioned in my opening comments that we've done close-in tactical pricing to fill what we need to fill so to make sure that we don't just totally miss revenue, we'll continue to do that. We've had a lot of discussion around that topic. I mean, how long do we wait? I had a staff meeting yesterday. It was the #1 topic. At this point, we're holding fast. I think we've done some very good things with our marketing and with the promotions that we have in place and we've seen some traction. So for the time being, we're going to hold our ground. How long that'll last will depend upon what kind of results we get over time.

And Dan, even though it's WAVE, given current booking volumes, you can hold price for quite a bit...

Well, I think, if you look at our guidance, that would be -- that gives you an indication of what the volatility is and how wide the spread is. But yes, we'd like to hold price, but if we have to take pricing action to fill ships, we'll definitely do it.

All right, well [ph] we'll wait, and hopefully, we won't have to see that again. This kind of relates to Tim Conder's question, that the spread in yields is a little bit wider than one would expect to drop down to the EPS line.

Yes, Assia, it is. And we realize, if you take the high end of yields and the low end of cost and the low end of yield and the high end of cost, you're going to have a much greater spread. I think our range on costs are pretty tight that we've provided and is -- we've given you a lot of transparency as to what's driving that. This really is about the yields. But we've put forth our best effort here to try to give you a range that we think we can manage to, but again, there's still tremendous uncertainty out there.

The final question is from the line of Jamie Rollo of Morgan Stanley.

Just a couple of questions. First on the yield guidance pre and post the incident. You've reduced your expectations by about 200 basis points at the midpoint. I'm just wondering, given your fairly confident comments about the recovery in bookings recently, plus the fact you've sold, I guess, over the half of the year, is that sort of -- it seems quite a large number, that's all, given what you've seen most recently. And also on the yield guidance, on that sort of change versus, before the incident, you haven't changed your pricing, as you say. You might let that happen, but would you consider letting occupancy sort of slip for a bit and maybe try and hold prices rather than sort of price to fill?

Thank you, Jamie. I think you're right, the midpoint's around 200. I think the spread here is anywhere from a little impact to maybe as much as 300 or 400 basis points. Again, if we've conveyed a sense of confidence around the most, the last few days and extrapolating that to the fact that the damage is done and we're away from this, I want to be very clear: We believe there's still a tremendous amount of uncertainty here. We're giving you our best estimates based on 3 weeks of data. I think we are encouraged by the last several days, but I think, as Richard said, it's dangerous to extrapolate that. This is not a clear pattern at this point in time, but we've tried to be as transparent as possible. I think I want to be careful here, I think it's dangerous for us to be talking too much about our pricing strategy in a public forum. I think our revenue management team will be looking at this on an individual sailing basis, making judgment calls about how to best optimize our revenue on any given sailing and in total. Our strategies vary widely by brand and they vary by market. And based on the conditions, there will be occasions where we may sacrifice load factor for price and there will be other times where volume will be more important to us. And it is something that each brand has its own strategy. And we have a lot of product managers within the individual brands that -- they actually know their markets best, so it's not kind of a "one size fits all" revenue management practice.

And Jamie, if I could just emphasize one point that Brian made. I think we've actually gotten rather spoiled in our industry that we are able to predict our yields as accurately as we have. We really -- this is a situation that we don't feel that we have -- that our experience necessarily gives us as good an indication as we would like. And it really doesn't prepare us for this, so I actually would have said, if anything, I think you should take it that there is more risk than usual that we'll go outside the ranges rather than less risk. We're really very uncertain, looking forward. We hope we haven't conveyed more knowledge than we have. We've tried to be open, we've tried to -- I thought Brian summarized it very well by saying, "Here's all the pluses and here's all the minuses," but I don't think anybody yet knows how to balance those, and so we're trying to give the best information we can. But I think, in fairness to you, we need to say that the uncertainty is a big part of what we, that's ironic, that the uncertainty is a big part of what we know, and I would just emphasize that, looking forward.

Great, that's very clear. If I could have one quick follow-up. You mentioned the survey of potential cruisers and that the reduction in tension amongst the -- amongst those who are new to cruising. Could you just quantify what that change in tension was and also how important new cruisers are to you as a group?

Jamie, it's Dan. New cruisers are important to us as a group, so it's a good part of our business. Without -- because -- yes, it's 1/3 of our business. I'm being coached a little bit here. The survey, I want to point out, it's a point in time, so I want to be careful to not go overboard because what we did is we looked at country-by-country-by-country. And we saw different things in country. We saw that people that have cruised before, their interest has remained high. We saw that there was an increase, when we asked the question, "Are you more or less interested in going on a cruise?" we saw that there was an increase in less interested people that hadn't ever cruised before. They weren't -- they were cruise considerers. They weren't cruise rejectors, but they had an increase. And without getting into specifics on any individual market, it did increase for potential first-timers.

Okay. All right, thanks, Jamie. And thank you for everyone for joining us today. As usual, Ian will be available throughout the day for any follow-ups you may have. And again, thank you for joining us, and we wish everyone a great day.

Thank you. This concludes today's Royal Caribbean Cruises Limited Fourth Quarter Earnings Conference Call. You may now disconnect.