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Good morning. My name is Erica, and I will be your conference operator today. At this time, I'd like to welcome everyone to Royal Caribbean Cruises Limited 2014 Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent cheap last minute airline tickets any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Jason Liberty, CFO for Royal Caribbean, please begin your conference.
Thank you, operator. Good morning, and thank you, for joining us today for our fourth quarter earnings call. Joining cheap last minute airline tickets me here in Miami are Richard Fain, our Chairman and Chief Executive Officer; Adam Goldstein, President and Chief Operating Officer; cheap last minute airline tickets Michael Bayley, President and CEO of Royal Caribbean International; cheap last minute airline tickets and Laura Hodges, our Vice President of Investor cheap last minute airline tickets Relations.
During this call, we will be referring to a few slides, which have been posted on our Investor website, www.rclinvestor.com. Before we get started, I’d like to refer you to our notice about forward-looking statements, which is on our 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. Also, we will be discussing certain cheap last minute airline tickets non-GAAP financial measures, which are adjusted as defined, and a reconciliation of these items can be found on our website.
Richard will begin by providing a strategic overview of the business. I will follow the recap of our fourth quarter and full-year results. I will then provide an update on the current booking environment and will end with full-year and first quarter guidance for 2015. We will then open the call up for your questions. Richard?
Thanks, Jason, and thanks to all of you for joining us this morning. As always, I welcome this opportunity to provide a bit more color on our results for the year and on our perspective of the year ahead of us.
Before I begin, I’d like to take a moment to acknowledge the recent promotions of two accomplished veterans and leaders; Michael Bayley, who has taken over as President and CEO of Royal Caribbean International; and Lisa Lutoff-Perlo, who has taken over as President and Chief Executive Officer of Celebrity Cruises.
It’s been gratifying to watch their careers develop, over the several decades they’ve been with us. They really have differentiated themselves with their passion and their tenacity. cheap last minute airline tickets One advantage of promoting such experienced talent is that there is no learning curve, they both hit the road running and they were already implementing changes that will drive both brands forward. I say congratulations to them both.
It’s also a pleasure to be talking to you as we finished with one very good year, and as we start another exciting one. At Royal Caribbean, we start every discussion with how it will affect our Double-Double goals and I’d like to do that here too. I’m pleased to confirm that the results that we’re announcing for 2014 and the results that we are forecasting for 2015 are very much in line with our Double-Double program. cheap last minute airline tickets We remain convinced the program has realistic goals and they were on the right track for success.
On the revenue front, we continue to be very pleased with the performance of our newest vessel Quantum of the Seas and we’re thrilled to be taking delivery of her sister ship, Anthem of the Seas this spring. Both vessels are experiencing healthy bookings and are large drivers of the positive revenue picture for 2015.
Now, the last time I spoke on one of these calls, Quantum of the Seas was still under construction. You may recall, I was optimistic even then about how she would be received, but one can never be certain until the construction is complete. In this case, my expectations have proven accurate and the demand has been simply extraordinary.
The reaction in China has been particularly exciting. The Royal Caribbean International brand continues to be synonymous with cruising in China, and the market anxiously awaits the arrival of Quantum. We are thrilled with her booking and pricing cheap last minute airline tickets performance to-date, but we expect her to help further increase our market share in this important market.
Our capacity in China is growing 66% this year, and we look forward to continue yield accretion in this profitable market. At the same time, the Oasis class vessels on the Royal Caribbean International brand and the Solstice class vessels on the Celebrity brand, remain the best in their competitive set and continue to deliver returns, while the rest of our upgraded fleet continues to demonstrate improved performance.
Our brands have never been stronger and we will continue to capitalize on their equity as we move through 2015. In this regard, it’s important to note that our guest satisfaction for 2014 was at record levels. Equally important, cheap last minute airline tickets our employee engagement surveys also reached record levels. Obviously, these factors are related. We continue to believe that a more engaged employee team drives greater guest satisfaction, which in turn, drives greater brand strength, which ultimately drives greater returns on investment for our shareholder.
Separately, we are also very pleased that the SkySea cruises will begin operations later this year. SkySea is our joint-venture with Ctrip, and it will begin operating a revitalized Celebrity Century in China in the middle of 2015. This is yet another opportunity for us to broaden our reach and to take an increasing leadership position in this fast growing market.
cheap last minute airline tickets On the cost side, I am impressed with the efforts being made, and congratulate both our finance organization and our operating management on generating solid cost reductions in 2014. I know we originally target cost to be down slightly, and our ultimate cheap last minute airline tickets result of down 0.6% was better than I had expected.
In 2015, we continue our commitment to maintaining a cost-conscious culture. We’re projecting cheap last minute airline tickets cost being held to 1% or better cheap last minute airline tickets while still investing in strategic initiatives that drive rapid returns. I think it’s particularly interesting to note that virtually all the unit cost increase in 2015 is attributable to ramping up our operations in China.
Lastly, on the capacity component of our Double-Double program, our growth is immutable, at least through 2017. We did recently announce two new additions to the Celebrity Cruises brand under the name Project EDGE, but those vessels won’t join the fleet until 2018 or 2020. We also continue to be open divesting older tonnage as opportunities arise.
Now returning to last year’s results, 2014 was happily a record-breaking year for our company. Adjusted earnings per share were $3.39, am increase of 40% over the previous year. And we were pleased in ‘14 to be added in the S P 500 index, by any measure a great year.
I would like to thank the management team, as well as all the employees of Royal Caribbean cheap last minute airline tickets Cruises Limited for their dedication, their hard work in achieving these milestone results. The year ended on a slightly schizophrenic note. On the one hand, forward bookings were robust cheap last minute airline tickets and we ended 2014 the best book status cheap last minute airline tickets in our company’s history. cheap last minute airline tickets That’s pretty good. Starting the year with fewer berths to fill really helps us raise our yields as the year progresses.
On the other hand, closing bookings in the fourth quarter cheap last minute airline tickets were more sluggish than we expected. cheap last minute airline tickets The culprit continues to be a stubbornly challenging Caribbean and the dynamics which are driving that situation carry on through cheap last minute airline tickets the first quarter.
Fortunately, lower costs and better performance by our equity investments offset the yields. The big winners on revenue were in Asia, Europe and Alaska, with all products over delivered. Onboard revenue, another positive, with another year of good yield growth.
Now looking to ’15 as you know, we are now entering or have entered our Wave period, and we watch the pace of bookings during this period cheap last minute airline tickets closely. While, it’s still early in the Wave, overall we’re encouraged by what we see. Of course we always want Wave to be especially powerful, but what we have seen is a good, solid and typical start to the Wave period.
Looking again at 2015, it remains a tail of two periods. The first period is the first quarter, which as we have said before continues to struggle. This is the tail-end of a period with large capacity additions in the Caribbean, and also has the fallout from 2014’s Caribbean malaise. But the last nine months of the year are a very different cheap last minute airline tickets story. Once we lap - sorry, once we lap the first quarter, yields on all products are expected to be up in the mid-single digits.
As a result, although it’s still early days, we are expecting yields to increase 2.5% to 4.5% in 2015. Given all the above, we’re pleased to provide adjusted earnings guidance in the range of $4.65 to $4.85 per share for the full-year 2015. Midpoint of this range implies another 40% increase in earnings, and another step, good step towards our Double-Double goals. We’re well on our way to doubling our 2014 earnings, as well as reaching double-digit returns on invested capital by 2017.
I don’t have to tell you that an added benefit of moving towards the Double-Double cheap last minute airline tickets is that our free cash flow improves. We believe it is reasonable that are Board would consider returning capital in due course vis-à-vis increasing dividends and/or buying back shares.
Everyone knows that the world price of oil dropped precipitously soon after our earnings call at the end of October. But the impact on us from sharp movements in price are a little more complex than many peoples’ cheap last minute airline tickets world dropped suddenly staring in the early November. The black line on this chart shows that the prices we actually paid at the pump. Over the three months, our price dropped roughly the same 50% that Brent dropped. But just as it does at your local gas station, it took a little longer for the new cheaper oil to wind its way through the supply side of t