Q3 2019 Earnings Call

This conference call is being recorded I would now like to turn the conference over to your host Ms. end that add in logical Vice President of Investor Relations incorporate communications Mr. Marco. Please proceed.

Thank you Carmen and good morning, everyone. Thank you for joining us for our third quarter 2019 earnings call I'm joined today by Frank del Rio President and Chief Executive Officer of Norwegian Cruise line, holding and Mark Tampa Executive Vice President and Chief Financial Officer.

Frank will begin the call with opening commentary after which mark will follow to discuss results for the quarter as well as provide updated guidance for 2019 before handing the call back to Frank for closing remarks, We we'll then open the call for your questions.

As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website at Www Dot NCL age Ltd, Investor Dot Com.

We will also make references to slide presentations. During this call, which may also be found in our Investor Relations website.

Both the conference call and presentation will be available for replay for 30 days following today's call.

Before we discuss our results I'd like to cover a few items our press release with third quarter 2019 results was issued this morning and is available on our Investor Relations website.

This call include forward looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements.

These statements should be considered in conjunction with a cautionary statements contained in our earnings release.

Our comments May also reference non-GAAP financial measures.

Reconciliations to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation.

And with that I'd like to turn the call over to Franco real Frank Thank you, Andrew and good morning, everyone.

There are a few important parallels between the second and third quarters of 29 teens and I'd like to point out.

First the third quarter like the second marked another record setting quarter for Norwegian cruise line holdings as we posted not only the highest quarterly revenue in our history, but also the company's highest ever quarterly net yield.

At nearly $301 per day, the third quarter marked the first time net yield has ever have surpassed the $300 Mark not just for our company, but for any of that major cruise operators.

Even more impressive is that the record revenue and record net yield came in a quarter in which we experienced a 1.8% decrease in capacity days.

Also like to second quarter, the third quarter benefited from a continued strong demand environment that once again proved that consumer, especially the north American consumer is alive and well and lastly, both quarters benefited from our strategic initiatives around itinerary optimization part two.

Clearly in Alaska, and Europe , where we grew capacity in the quarter by 17 and 13% respectively.

Also similar to what we experienced in the second quarter, we overcame external and noncontrollable headwinds, both known headwinds and new ones demonstrating once again, the resilience of our business model and the power of the go to market strategy utilized by our three global brands.

One of the primary goals of this call is to once again cut through the noise.

And put in perspective, the impact of these short term disruptions and provide you with a clear picture of how we see our core business performing going forward.

So in the Corp, third quarter, we delivered another record setting quarter with strong financial performance and bottom line results that would have been even stronger if not for the following events.

First and I covered in our prior earnings call was the impact from the abrupt cessation of sailings to Cubo.

Given the southern minutes of the termination in the lack of lead time, we had to make any meaningful fleet redeployment changes the third quarter bears the largest negative earnings impact from that Cuba travel ban in this case 22 cents per share.

The Cuba impact thankfully diminishes over time, beginning in this year's fourth quarter and onwards through the second quarter of 2020, as we lap the canceled Cuba sailings and redeploy vessels that would have filled the Cuba, two other premium yielding itineraries, including Alaska, the eastern Mediterranean in Southeast Asia.

The second event was the previously disclosed technical issue on Norwegian Pearl that occurred in early July and which disrupted approximately one month of premium priced peak summer sailings in Europe , resulting in an impact of seven cents per share.

And third and most recently was the impact stemming from Hurricane Dorian, which cost several voyages function and the cancellation of two voyages during the quarter and was a drag to earnings of six cents per share.

I'm extremely proud of how our team members rose to the occasion in the aftermath aftermath of Dorian and came together not only to assist our valued gas, but also the citizens of the Bahamas, most affected by the ravages of the storm.

With a 50 plus the relationship that goes back to the early days of modern cruise industry. The path of Norwegian cruise line and have a Hamas our forever linked which is why we responded as quickly and as generously as we could to relaunch our hope starts year Hurricane relief campaign, together and transport relief supply as.

Well as collect monetary donations from team members travel partners concerns guests and others.

In less than one month and due to the overwhelming outpouring of support we were able to increase our commitment to $3 million, including a 2 million dollar cash contribution coupled with approximately $1 million in supplies to assist all hannon hard with emergence respond eight across the Bahamas, including debris cleanup and removal and the.

Rebuilding of community infrastructure, such as hospitals and schools in Freeport and the Abaco Islands.

Slide four shows a summary of this aid and while the immediate response was important and bringing we lead to the affected areas. Just as important was our extended support by resuming sailing to the Bahamas as soon as possible and bringing tens of thousands of guest particularly to Nassau and our private island at greater Pitt.

While the annual voyages to Cuba, and the technical issue one Pearl were previously taken into account in our guidance for the third quarter impact from Dorian laid some unforeseen obstacles to achieving our guided result, but achieved them. We did and then some by delivering earnings at once the.

Again exceeded guidance this time by eight cents per share and which if not for the impact from Dorian would have outperformed guidance by 14 cents per share.

This extraordinary performance demonstrates once again, the strong and resilient earnings capabilities of our business model, which combined with the excellent results stemming from premium peak season markets, such as Alaska in Europe helped our company exceed expectations and deliver once again, both the highest ticket and the highest onboard.

In the industry and by a wide margin.

Our performance in high yielding Alaska was bolstered by the addition of the better than new Norwegian Joy.

Joining her record setting sister ship Norwegian Bliss to form the cornerstone of our sizable deployment strategy in this growing and very profitable region.

In the coming years, we will further bolster our presence and commitment to the region on two fronts first with additional capacity operating sailings that are of that offer longer more port immersive and unique itineraries, which complement our current seven day deployments and second through the development of key port infrastructure and guest facing right.

Revenue generating projects, which will expand and enhance our guest experience and I will discuss in more detail later in my remarks.

Meanwhile, our ceilings in Europe benefited from our global sourcing model in our go to market strategy that allows us to source, the best or higher yielding guest regardless of their Providence.

The drive this point home, while North America, North American comprise the majority of our guest sourcing for Europe areas sailing.

It's important to note that the second largest contingent of stores gas, where these itineraries do not come from locally sourced European but from the rest of the world, including Australia, Asia and South America.

And Thats, a very important differentiator for us because we know that a guest that flies long distances to boarding ship is a higher yielding guess that one that drives their car or takes a bus or train to the port of embarkation.

But in spite of Europe's well publicized issues, including Brexit and the weakening German Italian economies book ticket revenue for the Norwegian brand's European sailings from European source that has actually increased by a whopping 43% since the introduction of the free at sea offering seven months.

Ago, which has obviously resonated extremely well with our target market and our travel agent partners.

As for the Caribbean, It's really a tale of two stories.

First demand for core Caribbean sailings, both for western and Eastern deployments remained strong with load and pricing ahead of same time last year across our three brands and extending well into 2020.

And as I stress last quarter and will again now we have not seen and quite frankly do not expect to see any deterioration in the overall demand dynamics for the greater Caribbean. If anything we have seen an acceleration of overall demand over the last four to six weeks, including demand for Caribbean sailings.

Which has resulted in our year over year load factor in book revenue lead to increased over this period.

Second the vast majority of the council, Cuba voyages from the Norwegian brand, which were by necessity converted to short Bahama intensive sailings, and which were already impacted by a much shorter booking window face additional headwinds from the impact of Dorian.

But the headwinds from Cuba, and especially during our short lived in nature and will sequentially diminish as we approach the lapping of the Cuba regulation change as the booking window for short Bahama sailing expands to normal timeframe and as certain ship, formerly selling to Cuba, and now solely sailing to the Bahamas repurpose.

Question to more premium destinations later in 2020, thus reducing capacity from this historically lower yielding destination.

The core Caribbean will always be a critical region in our deployment strategy as it has been for over 50 years since the first Norwegian cruise line should begin offering cruises from Miami.

And this strategy will continue as we launched Norwegian encore the brands newest largest and most innovative ship to date and the first new ship launch for the brand in the Caribbean in four years.

We took delivery of encore just last week and reports from her inaugural activities in Europe have been both stellar and more expensive than we could have have expected.

The award Encore can be defined as a reappearance or additional performances demanded buying audience for which artist or performers usually say their best material.

Thats indeed, the definition the Norwegian encore fully embodies for name as for features are indeed, a collection of the best of the breakaway plus class.

These vessels enter the fleet each included new and exciting features including the first gold card racetrack etsy, but they view the virtual reality Pat Galaxy pavilion in the stunning observation launched in May Norwegian Joy in blood perfect shift for Alaska cruising.

On the reaching encore, we have expanded elevated and enhance these features and added new ones, including the introduction of the new upscale dining concept owned by Scarpetta.

Collectively. These features are one of the reasons why encore is the best book highest price Caribbean introduced shift in Norwegians history and by a wide margin.

And another reason for encore success is the continued refinement and broad consumer acceptance of the free at sea marketing campaign, which has become the cornerstone of Norwegian brand's go to market and bundle strategy of focusing consumers on value versus price.

On the heels of encore will be the delivery of 70 splendor in January of 2020 for the Regent seven seas cruises brand.

You can see on slide five splendor fully embraces heard tagline of luxury perfected which has resonated extremely well with both the brands large contingent of loyal Pascal and target new ones.

The Halo effect from splendor is impressive.

For 2020, the region brands like sister brand Oceania cruises is already nearly 70% book and at higher prices versus same time last year, despite regions, 26% increasing capacity demonstrating the brands continued track record of profitably absorbing new capacity.

Splendor is not only the best book ship introduction for the region brand. She is also the highest yielding new ship introduction in the company's history. This has not only a big win for the region brand, but a big win for Norwegian Cruise line Holdings as did help extend our formidable dominant and leading the industry in net yield.

Both splendor, an encore are benefiting from from being introduced into a strong consumer demand environment. One weather continues to be no sign of a slowdown and were 2020 already shaping up to be another record year with occupancy in pricing outpacing 2019th record levels across.

All three brands.

You might recall that our that on our last few earnings calls I've made mention that booking windows cannot and should not expand forever.

Demand for our stellar brands has been so strong that while we have taken no significant overt action to consciously expand the booking window expanded by 10% in the third quarter underscoring consumers underlying appetite for cruising on our three brands.

And further demonstrating the strength of our forward business is the growth of our advanced ticket sales, which increased 12.5% over the prior year on a forward year capacity increase of only 8.7%.

In other words advanced ticket deposit growth has outstripped capacity growth by approximately 44%.

I'll be back at the end of the call with some final thoughts, but for now I'll turn the call grow over to Mark to review our results for the quarter in our updated expectations for the year in more detail Mark.

Thank you Frank unless otherwise noted my commentary compares 29 team in 2018 net yield an adjusted net cruise costs, excluding fuel per capacity day metrics on a constant currency basis.

As you can see on slide six strong revenue performance in the third quarter, primarily driven by exceptionally strong onboard revenue and strengthening close in bookings drove earnings above expectations with adjusted EPS of $2 in 23 cents, beating our guidance by eight cents. Despite a six.

Impacts from Hurricane Dorian.

The quarter experienced a direct impact from Dorian from three items.

First was the cancellation of two voyages as a result of the extended closure of Port Miami, which forced us to reroute two of our ships Norwegian breakaway ends on two New Orleans, resulting in lost revenue and additional cost to repatriate guest back home.

Second we're multiple itinerary changes not only for ships sailing from Florida, but for ships operating up and down the eastern seaboard as many of the ports were closed as a cautionary measure while awaiting the path for the weather system.

And lastly, our hurricane relief efforts, which totaled approximately $3 million.

If not for this impact adjusted EPS would have grown to $2 in 29 cents on a decrease in capacity days of 1.8% and would've exceeded our August guidance by 14 cents and the prior year years record of $2.27. Despite the impact of Cuba and Pearl.

Turning to slide seven net yield increased 3.9% for 3.3% on an as reported basis versus prior year on and capacity decrease of 1.8% outperforming guidance expectations by approximately 215 basis points.

Stripping out the noise in the quarter core fundamentals remain strong and if not for the previously disclosed impacts from Cuba, and Pearl coupled with Dorian net yield would have increased 6.7%.

This growth comes on top of prior years robust net yield growth of 4%, which included both the benefit of premium price, Cuba sailings and the premium priced inaugural Alaska season for Norwegian Bliss compared to current year, which included lower price for Hamas cruises that had to be filled in a very compressed sales cycle.

Turning to cost adjusted net cruise cost, excluding fuel increased 11% versus prior year and 10.2% on an as reported basis.

Making Q3, the highest growth quarter in the year consistent with our expectations.

This increase was the result of unanticipated costs due to Dorian such as guests repeat rate repatriation and costs related to relief efforts, along with incremental marketing to bolster sailings in 2020 combined with expense as outlined in our prior call, which included the scheduled 18 day Drydock of Oceanics Regatta.

Marketing expenses for sailings previously containing cubicles and operating cost associated with pearls technical issue.

Fuel expense for the quarter was slightly higher than expectations due to an increase in fuel price per metric ton net of hedges, which came in at $504 versus guidance of $492.

Turning to Q4 I'll direct you to slide eight to review deployment highlights as our ships repositioned to their winter deployments. There are two focal markets for the quarter the Caribbean in Europe , our Caribbean mix is up approximately 39%, which is down is which is down versus prior year well.

For the decreasing approximately 8% primarily due to the extended European season for deployment of Norwegian Getaway and epic along with the addition of Norwegian Pearl to the region.

Europe mix for the quarter increased to approximately 18% representing nearly 40% increase in capacity as a result of the extended season.

Looking at expectations for the fourth quarter on slide nine core business fundamentals are strong despite an expected incremental nine cents of headwinds driven by lower pricing and higher expenses entirely due to Dorian.

Let's focus on net yields first as a reminder, keep in mind that our Q4 outlook includes the expected diluted mix impact of approximately 125 basis points for the combined performance of blips and encore in the quarter.

Further this quarter also includes a scheduled dry dock of the highest yielding ship in the fleet reduce seven seas explorer.

Dorians 110 basis point drag on net yield as a result of the one two punch of Cuba sailings being converts of Bahamas, only sailings combined with the near term dampening of consumer demand for Bahamas sailings from the extensive media coverage surrounding the storm.

That said the good news is that the pricing impact we are seeing from that is expected to be fully offset in the quarter by strength in the core Caribbean, resulting in an improved outlook for net yield compared to our prior implied guidance.

And as time passes and and we distance ourselves from the impacts of Cuban Dorian the booking window will return to normal and more importantly half of our capacity in the hopped in the Bahamas basin will reposition to other higher yielding destinations such as Alaska beginning in early Q2.

To better illustrate the strength of our core topline fundamentals in the fourth quarter. When you strip out the noise from Cuba, Dorian and the mixed impact from the new Norwegian ships that results in an expected 5.7% increase in net yield over prior year solid growth of 4.7%, which as you.

Recall benefited from the premium price, Cuba, sailings and Norwegian Bliss is incredibly successful inaugural Caribbean season.

Turning to costs adjusted net cruise costs, excluding fuel is expected to be up approximately 2.25% or 1.75% on an as reported basis, which represents an increase of less than one half of 1% on an annual basis.

The increase is primarily due to cost to repair damaged short private islands infrastructure and to replenish its various beach fronts. As a result of the erosion caused by Dorian higher than expected dry dock cost required to harmonize explore to that of at CES sister ship splendor.

Higher inaugural expenses for the extended launch activities of Norwegian Encore in Europe , New York, and Miami, and slightly higher sales and marketing expenses to further bolster the successful launch of splendor and support the reagent brands, 26% growth in the year.

Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $498 with expected consumption of approximately 221000 metric tons.

Taking all of this into account adjusted EPS for the fourth quarter is expected to be approximately 69 cents, which includes an estimated impact of 26 cents from Cuba and Dorian.

Exclusive of these two items adjusted EPS guidance would have been 95 cents, an increase of approximately 12% over prior year.

Turning to the full year I'll walk you through the components of our revised adjusted EPS outlook on slide 10.

The year benefited from topline outperformance in the third quarter combined with a stronger revenue outlook for the fourth quarter, primarily in the core Caribbean, resulting in a 14 cents benefit to the full year accretion from the $150 million and shares repurchased in the third quarter accounts for three cents and foreign exchange fuel.

Another savings of approximately three cents.

These benefits were partially offset by the aforementioned marketing and dry dock cost of five cents.

And a 15% impact from Dorian of which 10 cents is attributable to revenue and five cents is attributable to costs.

As a result, we expect adjusted EPS to be inline with the midpoint of our August guidance of approximately $5.05.

To put the year in perspective, if not for the 67 cents of combined headwinds from Cuba, Pearland Dorian our guidance would've been approximately $5.72 or an approximate 16% increase over prior year and would have exceeded the high end of our original guidance range provided at the beginning of the year.

Looking at expectations for other key operating metrics on slide 11, we've increased our outlook for net yield growth for the year by 40 basis points to now be up approximately 3% or 2.4% on an as reported basis versus August guidance. Despite the impact from Dorian.

If not for this headwind net yield growth would have increased another 25 basis points to 3.25%.

And if not for Cuba, and Pearl is well net yield growth would've been approximately 5%.

Adjusted net cruise cost excluding fuel is expected to be up approximately 5.75% or 5% on again on an as reported basis. The 125 basis point increase versus previous guidance is primarily due to the impacts from Dorian and the previous previously mentioned items.

Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $490 with expect the consumption of approximately 836000 metric tons.

Focusing on the fuel environment on slide 12, we continue to strengthen our hedge program and during the quarter increased our overall portfolio.

While there is still a small amount of uncertainty in connection with the new IMO regulations going into effect on January Onest. We continue to expect our 2020 total fuel expense net of hedges to be on the higher end of our typical range of 6% to 7% of gross revenue.

This is consistent with our previous expectations and is driven by an increase in volume from capacity growth as well as higher pricing primarily related to the shift in mgo consumption from 30% to approximately 60% in 2020.

Looking ahead to the broader outlook for 2020, while it is still too early to provide guidance, we want to provide some puts and takes and a few items to keep in mind.

First regarding Cuba, as Frank mentioned earlier, the impact diminishes in 2022. The previously disclosed expected range of 20 to 25 cents per share for the full year.

This impacts the first half of the year on the topline due to the loss of the premium pricing that our Cuba sailings garnered.

Second Norwegian Bliss is lapping for successful inaugural first and second quarter of sailings stepping down from the pricing premium that inaugural seasons customarily command.

Lastly, the accretive benefit to yields from seven seas, splendor, which was offset by the expected diluted impact of Norwegian encore.

And in terms of dry docks 2020 will have a higher number of dry dock days versus 2019, including two extended dockings of approximately 40 days each for Norwegian spirit in the first quarter and Pride of America, and the second quarter.

In terms of the cadence for net yield growth the aforementioned puts and takes are heavily weighted to the first half with Cuba alone, providing a 200 basis point drag.

As a result, first and second quarter net yield growth is expected to be below the typical range of net yield growth that we normally aim to deliver.

All in all its steady as she goes in 2020 is expected to follow in the puts steps of 2019 as another record year.

While we have work to do to offset the multiple headwinds we've weathered over the last few quarters, our business fundamentals remain strong and we continue to be on a solid trajectory toward achieving our full speed ahead 2020 targets that were laid out at our Investor day.

Focusing on shareholder returns on slide 13, we took advantage of current valuations and executed $150 million and share repurchases in the third quarter. We have now returned over $1 billion since the beginning of 2018.

This represents approximately 9% of our shares outstanding or 19 million shares in total.

Of that total $750 million is related to our full speed ahead, 2020 targets and equates to more than half of the midpoint of our capital allocation target under the program of one to one and a half billion by the end of 2020.

Our board of directors continue to believe that the most efficient way to return capital to our shareholders is through opportunistic share repurchases.

As such and until the market valuations begin to reflect the proper value of our company. We will continue to use this method as the primary vehicle to return capital.

Our goal is to eventually have a more balanced approach to capital allocation and we will continue to evaluate the potential implementation of a dividend with our board.

As for the balance sheet as you can see on slide 14. It continues to strengthen and we have rapidly de levered since the acquisition of prestige in 2014 by nearly four turns with net leverage at approximately three times at the end of the quarter.

By year end, we expect leveraged to modestly elevate primarily due to the debt associated with the delivery of Norwegian encore, where we have little or no earnings benefit in the quarter.

Excluding that debt leverage is expected to be approximately three times at year end.

We expect our net leverage to continue to decline over the next four quarters, primarily through strong earnings generation and scheduled debt amortization.

Before turning the call back to Frank I'd like to discuss one metric we feel is vastly under appreciated our cash generation.

Despite an operating in an extremely capital intensive industry, coupled with our strong growth private profile. Our cash generation is expected to accelerate as we continue to realize the powerful earnings accretion our core business model provides as well as the incremental earnings power from the addition of Norwegian Encore.

And Sevenci splendor to the fleet.

This positive cash generation provides us the flexibility to continue to return meaningful capital to shareholders, while also making prudent investments for the future to further enhance returns.

With that I'll hand, the call back over to Frank to provide closing commentary.

Thank you Mark earlier in my comments I mentioned in the enthusiasm that we have for the growing Alaska market, which has led us to make significant investments to further strengthen our presence in this high yielding cruise market.

Prior to the arrival of Norwegian Bliss, we solidified our partnership with a part of Seattle by renovating a terminal at Pier 66, and we continue to cultivate various other partnerships in the region aimed at developing both port and guest facing infrastructure project in key points that will facilitate our growing presence.

Our itinerary enhancing projects include a new peer and reward coke catch it can the purchase of the last waterfront parcel in greater Juneau, and the development of a second peer and customer facing attractions at eyestrain point in Hoonah, all of which will give our guests enhance experiences onshore.

As they explore the last frontier and get all of our brand a leg up on the competition.

We're also investing in the guest experience onboard our ships with Norwegian spirit entering dry dock early next year as the last shipped to enter the Norwegian edge revitalization program with the most extensive beilfuss during renovation and the company's history.

The updated elements onboard Norwegian split will take the guest experience to the next level with new venue and a look and feel consistent with our recent new build launches and which touched every aspect of the ship with every venue state room and public area being completely revitalized to prepare for sophisticated travelers that.

Will sail on her exotic itineraries throughout Africa, Asia and Australia.

The combination of a better than new ship at a fraction of new build prices and immersive itineraries in the APAC region will benefit our strategic global sourcing strategy of attracting the highest yielding guest with an unmatched value Pat offering in the region.

As I closed up my remarks, I'd like to give a brief update on our ESG initiatives, which are summarized on slides that theme.

As I stated earlier, we recently reactivated our whole started tier program in the wake of Hurricane Dorian delivering needed food supply equipment and substantial monetary eight to the Bahamas and continue to provide aid wherever we can fit.

On the environmental front, we continued to make significant strides in our efforts to reduce single use plastics onboard our vessel.

Earlier, this year Oceania cruises and regent seven seas cruises partner with barrel water and recently Norwegian cruise line announced its partnership with test good to replace all single use plastic water bottles with environmentally friendly reusable and recycled bottles across its fleet by January Onest of next year, making.

Norwegian the first major global cruise line to go plastic water bottle free.

Lastly on the governance front. This morning Norwegian cruise line holdings was honored by the weren't womens form of New York for its commitment to greater female representation on its board of directors today women comprised 30% over Norwegians board with backgrounds, ranging from corporate executives to senior officers.

In the armed forces.

Our commitment to diversity, however extends well beyond gender. We are also committed to both social and professional diversity and today, 60% of our directors come from diverse backgrounds, which we truly believe will enhance our ability to better compete and increasingly complex global environment.

Before turning the call over to Q and I'll refer you to slide 16, which contains our key takeaways for this call.

First strong demand drove outperformance on the topline and on earnings beat versus guidance despite impact from Hurricane Dorian.

Second our core business fundamentals remain strong for the remainder of the year and well into 2020.

Lastly, we remain on a strong trajectory to achieve our 2020 full speed ahead targets.

And with that I'd like to open the call for questions and answers operator.

Thank you Mr. doing any view of a question at this time. Please press Star then one key on your touched on telephone in order to get US many people to do they can you. Please limit your time to one question easier question has been asked for you wish to be mostly ourselves from the Q Crestor keep.

And our first question is Felicia Hendrix with Barclays. Please go ahead.

Hi, good morning, everybody.

Frank starting with you just getting back to your earlier commentary.

Third quarter fourth quarter Sajid bullish around pricing.

For the remainder of the hearing into next year.

So as you look towards 2020 I was wondering if you could talk about what may have changed since you last updated in August but I think you mentioned in your prepared remarks that you've seen an acceleration in demand for that could you tell us that was referring to the remainder of this year or.

Plenty plenty.

No. It's primarily into 2020 2019 is just about done Felicia. So we have seen over the last four to six weeks and acceleration of our overall overall business demand.

Into 2020, and really into 2021, the booking window as I mentioned has expanded.

10% quarter over quarter, because a year over year.

And I think that is.

As good an indication of the strength of the overall industry and particularly of our company.

As we're able to drive both loaded on 8.7% increasing capacity and at higher prices.

I can't I can't.

Stress enough what our trifecta when that is that you can raise prices extend your booking window.

Increase your load in the face of what is.

An unusually high year in capacity go so we're very very happy with our performance, we continue to fine tune, our itineraries away from lower yielding.

Regions to higher.

Adding region.

And it's all coming home to roost and where we just couldn't be happier with our performance this year and what we expect to be another tremendous your next year.

Okay. That's helpful and then just as a follow up.

On your outlook also highlight that you've seen stronger revenues driven by the Caribbean enough fourth quarter.

Did mention.

I mean booking levels following during much of the 110 basis points impact was due to that in the fourth quarter and in terms of net yield.

But im just wondering as you look at the booking window and pricing for the Bahamas now relative to your normal booking windows and pricing in.

Where are you in terms now versus normalized.

With that leading into the first quarter in the first half yes. So it's good that you mentioned.

Bahama separately from the Caribbean, because core Caribbean, both western deployments in Easter deployments are strong higher load higher pricing.

Bahama as is the issue and it's a short term issue as we distance ourselves from the impacts of Cuba remember.

One Cuba came into the picture.

Shipped at one to Havana was also going to the Bahamas.

And so we stop calling those sailings Bahama cruises and started calling in Cuba cruises will now with Cuba out of the way they are back to being Bahama cruises and the Bahama cruises.

Our being impacted by several factors one that back to this time last year, we were in coupon. So the year over year comparisons are night and day in terms of.

Pricing, because Cuba demand at such a high price number two the effects of Dorian, which shortened the booking.

The attractiveness, if you will have the of the destination and in our case because cubo was so strong we had more capacity in the queue bus slash Bahamas.

Region than we normally would.

As I mentioned in my prepared remarks, as we move into 2020, we will be moving those vessels that had been in the in the Bahamas had been in the Caribbean idle that those regions and into higher yielding.

Markets, such as Alaska, and the eastern Mediterranean and in Asia. So it is temporary as we as we move forward sequentially the effects of Cuba diminish the effect of Dorian disappear.

But yes in Q4 of as you saw in our release.

The Bahamas is what is dragging down pricing to the tune of a 110 basis points, that's exactly right and just to add on that if you look at our for Q4 yield our prior implied guidance was flat, but excluding the impact the Dorian were actually up about about 100, 1000 20 basis points and Thats all primarily.

Coming from the Caribbean. So again, we're seeing strength in that core market and the Ford forward view.

So we want here anymore about during the first quarter.

Right.

Not as much.

Okay. Thank you.

Thank you in our next question is some guys Chuck Yang from Wolfe Research. Your line is open.

Hey, good morning, everyone. Thanks for taking my question.

So Frank I guess question for you I mean, obviously the forward booked position continues to expand your booking windows expanding have you thought about taking some more risk right now and not just on the pricing side, but just on some of the I guess.

Pricing decisions in terms of your deposit policies I know I think a year to though you raise the deposit data.

220 days is there any thought to raise that even longer and then some of your competitors have focused more on the non refundable side I know thats not really an area where were you guys have explored can you just talk about that opportunity and how you see that is something that you could expand into.

Good morning, Jug as you know in something I stress in every call.

We already have by a very very wide margin the highest deals in the industry not only in ticket, but an onboard.

That doesn't happen by chance that happens because we work it.

Every hour of everyday always looking for opportunities to raise prices.

Across our three brands and we do and so when you asked me if were.

If we're focused on or if we're doing anything on it that's all we do at that.

Thats the primary.

Of note.

Focus that we have is the combination of our go to market strategy, which means that we invest marketing dollars to stimulate demand in the marketplace versus reducing prices.

And whenever we believe that the booking window booking curve combination allows us we take prices up it's why we constantly are looking for the optimization of our itineraries always moving shift to higher yielding.

Temporaries.

Why we're so bullish on Alaska in Alaska used to be a three month.

Season June July and August So, we'll now we're seeing we're getting there and in April we are not leaving till October it's now a six month.

Season of very very high yielding not only in ticket, but incredibly high yielding on on onboard.

And so we're going to continue doing that we're taking spirit out of the winter Canary Islands marketplace. One of the historically low is yielding areas and we're sending her after her.

Refurbishment out to Asia, Australia Africa, more exotic itineraries to take advantage of Aarding huge customer base, our past guess of files that have never been to those areas because we've never sales of those areas before so all these things help the the selling process.

Of lower marketing costs higher occupancy higher yields more revenue more earnings per share and I think that our performance over the last four or five years.

Proves that that philosophy that strategy works.

Okay. Thank you and Mark just maybe a question on costs can you talk about what that incremental marketing is that's hitting this year Thats for 2020, maybe why you took the marketing up and then historically you've talked about ex fuel unit cost growing at a 1% to 2% range. This year's an unusual year with all the headwinds ex fuel unit costs up.

5%, if I look at next year, maybe as a starting 0.1 to two and then subtract out the 170 basis points, you're calling out for Cuba, Pearl and Dorian why is that not the right approach to look at it I know you called out the higher dry docks for next year, but.

You are still at 5% this year versus call. It one to two in a normal years can you help me think about that a little bit better.

Yes, so thanks, Joe let me start with the with the marketing side. So listen we've stated publicly we have a go to market strategy, we're not afraid to spend marketing dollars. When we're going to get a minimum four to fivex return and hopefully greater on that and I think you see that coming through in our net yield performance, we continue to outpace.

Reform and beat our guidance and beat our expectations and Thats not just by happenstance, it's through strong onboard revenue strong ticket pricing it's across the front. So that's something we're not afraid to do and we'll continue to do where it makes sense as long as we're driving more incremental benefits of the to the bottom line and as far as 2020.

Again, it's a bit early yes, our costs are elevated in 2019 and as we look forward, we should see some benefit rolling into 2020, yes, we do have higher dry dock days by about I think it's about 14 more additional days in 2020, but for now what we're going to we're going to maintain our stance that we're going to we're still thinking about one to two per.

On our cost side, and we're going to do everything that we tend to outperform that but as we're still finalizing our operating plans with the business for next year will allow will give you better guidance on that in our February call.

Okay. Thank you.

Thank you and our next question is from Steve We seen scheme with Stifel. Your line is open.

Hi, good morning, guys.

So first I want to dig into the third quarter little bit youll be the little bit more and I got the question is.

Your yield guidance by around 200 basis points, which obviously is very very strong.

Thats all.

We already have kind of a good one month under your belt when you gave that guidance.

So.

Can you help me understand little bit more how the last two months the third quarter why they perform.

So well.

Sure Yes, Steve This is mark so as I said in my commentary extremely strong onboard revenue spending and again whatever inventory we had on the books at that time, we were able to sell it at good pricing, but I don't want I don't want the I want you guys to underscore onboard revenue power.

If you look at I say this every quarter. If you look at our onboard revenue year over year I think on reported basis that was somewhere in the zone of 4% to 5% up and when you adjust that for all the GAAP allocation transfers that we have to make as well as the incremental benefit benefit from the joy our core onboard revenue was up mid single digits.

So.

Strong and we continue to see that and I always tell you guys that is really our Canary in the coal mine, we watch that day and weaken week out and we continue to see that strength strength coming through the business. So.

We're pleasantly surprised the consumer is alive and well and they are not afraid to spend money and he combining that with our many of our pre cruise initiatives, where we're getting a lot more of that consumers wallet before they ever step on the ship that has continues to be extremely beneficial for us a week, we continue to hone our strategies around that.

Okay. Thanks Mark.

And I guess as we look out next year, you're you referred commentary, obviously is pretty upbeat around what you're seeing right now.

If we kind of look at where consensus yields our next year, which are hovering over 2.72, 0.8% right now I understand you're not going up less that number but I guess, what I'm trying to understand here is.

Certainly pricing and load factors are are up in all four quarters. If you already said that I apologize.

Mark you talked about the first quarter second quarter be below your normal range or expectation I don't think your answer this but can you remind us what your normal range or expectation.

Sure. We typically advised that we aim for a 2% to 3% combined company yields growth and that obviously equates when you look at each of the individual brands, it's a bit of a higher.

Yield expectation for each brand when you consolidated so looking when you look at the first half as I said, we are rolling over Cuba, which we use is about a 200 basis points to a drag so I would not expect that youre going to see that 2% to 3% year over year growth for the first half it will be somewhat lower than that but again on a.

Full year basis, we're still comfortable that work that we're going to model within that range and we will achieve those targets.

Martin Sorry did you say the.

Pricing load factor is up in all four quarters right now.

Yes, you are 100% correct I thought Frank It said that in his prepared remarks, but we are up and pricing and load for all four quarters in 2020 across that Brian Good point.

If I missed that thanks, guys I appreciate it.

Thank you.

Our next question comes from Brandt, Montour with JP Morgan. Please go ahead.

Hi, Good morning, everyone. Thanks for taking my question.

So thinking about Caribbean in the first and I'll just for that kind of policies, but slightly for quick question.

If you will be intervals took out.

Indoor anything kind of through an impact.

Well look like in terms of pricing and volume year over year in magnitude versus where you were at this time looking out.

So I, it's very difficult to Harry brand, so I apologize, but I think you're asking what are what what our outlook look like if we stripped out Cuba and Doran is that was that your question.

Apologies just the how the book stacks up in the first half include the Easter diverging, Brian in terms of volume and price like the guidance, yes, we'd like I just said on the last question where were up in both price and volume for all four quarters and that we when we talk about that we are adjusting on a on a similar basis.

For Q, but because you have to that that was a significant book of business. So on a similar similar basis, we are up and load in that in that first half so.

Okay. Thanks, and then on Alaska.

From a lot of details on.

Project for you guys, you guys announced recently.

Give us any more extra color around sort of the longer term.

Ultimate upside in not only capacity, but but like you said the in the.

Upside there, let's say.

Alright, and onboard from those those Murray enhancements that you are you guys have there.

Well, we're going to continue testing the market and seeing.

How much additional capacity we can.

Allocate to that market as time goes by so over the last.

Three years, we three years ago, we had the Norwegian brand for example, three 2200 passenger ships.

2020, we will have.

12000, so we're almost we've almost doubled our capacity in Alaska over a three year period.

And we don't think we're done if we thought we were done we wouldn't be making the investments that we're making so.

We think that we've got.

As strong.

A presence in Alaska is as anyone and I think when it gets stronger as we as we finalize these investments.

As you know Alaska is a slotted area. The Best example, I have for you is the Glacier Bay permits that are granted by the US Parks Department, we were very fortunate to win.

Another 10 years I can't tell you how huge that is it sort of the cornerstone of our deployment strategy. There. It is the number one.

Destination that people want to visit in Alaska, and we got this for 10 years and so we're now adding to it and to make sure that we have the.

The birth capacity to bring our largest ships.

The two to the region.

And again.

It's very strong ticket prices and incredibly strong onboard pricing for our last itineraries that we want to take advantage of as much as again.

Great if I could sneak one more here how should we be thinking about returns on.

Those projects that you just announced.

Well.

I think they pay for themselves over and over again.

Alaska is a destination centric.

Region, you've got a half the land programs in place.

And we're taking the leadership role in developing these these very.

Hard to come by land.

Land capabilities.

But I'm not I struggled to give you a 8% ROI. If you will it's all going to be flown through our net ticket yields.

And that answer has got to come a little bit later, Brent. This is around strong strategic positioning making sure. We have the proper ports destinations that the consumer wants to go to we know there's not a lot of space left in Alaska to go through right. It's the last frontier. So to speak. So we are securing that for a long term basis, we know we get premium yields out of there.

So we will see that those returns come through in the top line, but.

Difficult to measure just from the specific initiatives that were that we're doing.

Got it thanks, a lot guys.

Thank you and our next question comes from Harry Curtis with Instinet. Please go ahead.

Good morning, everyone.

And the follow up on a.

On Mark's comments about the the first quarter or the first half drag.

It sounds like it's a tale of two halves so.

How much visibility can you share with us.

Do you have in the second half I think the reason the stock kind of fill out of bed when those when those comments were made was that.

Was that typically you don't have much visibility and so there is some question about the second half so it might help to share with us what details that you do have.

Sure I'll start off and I am sure Frankel jump in here, but look we have tremendous visibility on our on our second half books. We we always have and I think we've even mentioned in our prepared remarks that the premium brands are going to turn the year at 70% sold off for 2020, our remarks around first half and second half we're really just to go.

The give you some cadence in terms of don't expect the yields in the first have to be as high because we're rolling over very difficult comps from Cuba, and that's just that's just reality.

Back half, we will see a benefit from that so we're not implying in any form or fashion that we would expect our full year yield guidance to be out of our range of 2% to 3%. We fully expect that it's just going to be a front half second half story and not because of performance, but because of year over year comparison.

Since first half has five months as Cuba, and 19 and 2020 has zero.

Thank you for that clarification second question.

You talk about deposit growth.

And decent amount of that is probably tied to.

The new capacity coming so.

Are you able to give us a sense of if that deposit growth looks.

As encouraging on your core fleet as well.

Yes, as I mentioned, our our advanced ticket sales.

Liability of you on the balance sheet, which is what you're talking about is up 12.5%. Our forward 2020 capacity growth has only 8.7.

One the deposits are outperforming the capacity growth by 44%. So yes encore is part of the reason why were up 12, and a half present, but.

Adjusted for for capacity growth, it's obviously, a much broader than that.

I can't give you a number per ship or per type of vessel or for brand, but if you just look at on the face that it's outperforming the capacity goes by 44% you ought to get a lot of comfort that we're selling more than we were at this time last year at higher prices another data point.

He is the fact that are booking window has stretched by 10% year over year.

So look I can't I can't stress enough the underlying strength of the business. We have weakness in Q4, we've had weakness in Q3, and Q4 because of Cuba, and the effects of that because of Dorian.

2020 is going to be a heck of a year.

And we see no no like I said last quarter and I'll say again, we see no.

Measurable decline in the consumers enthusiasm for cruising then for cruising on ice we brand.

Thanks, everyone.

Operator, we have quest the time for one more question.

Thank you now in our next question is from Thomas Allen with Morgan Stanley . Please go ahead.

Thanks for fitting me in so just one question.

Just to the prior question you talked about still feeling confident in kind of a 2% to 3% net yield growth in 2020.

You also talked earlier about saying mid single digit onboard growth currently.

Do you need to continue to see that to reach 2% to 3% growth next year and what are kind of the gives and takes to think about.

Kind of continue that onboard growth. Thank you.

Yes, so look onboard growth as Frank said earlier, we punch. It we're looking at a day in day out what can we do how can we extract more dollars from the consumer how can we get that consumer earlier and to our ecosystem presell, we don't bake that in terms of our forward guidance. So if you look at our history most of our beats in the last I don't know.

Have great visibility on it you just never know sometimes that casino player can win sometimes they lose but but we don't need the <expletive> continued five per cent growth to hit our 2% to 3% numbers.

What was the second part of your question.

No I mean, but what what any gives and takes to think about if the what will end points at 5%, but you. Besides it but you know the color.

Yeah, I think it's gonna be <unk>, you know again, it continued strong consumer and our ability to continue to reach the consumer earlier in the booking cycle before they ever get on the ship that as a key key differentiator force than a key a key item that really helps us out perform.

Thank you.

Well thanks, everyone for your time and supporters always we will be available later today to answer any other questions you may have.

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