Q4 2019 Earnings Call
Good morning, My name is Mariama and I will be your conference operator today.
This time I would like to welcome everyone to Royal Caribbean Cruises Limited's fourth quarter 2019 earnings call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If he would like to withdraw your question press. The pound key. Thank you I would now like to introduce Chief Financial Officer, Mr., Jason Liberty Mr. Liberty the floor is yours.
Thank you operator, good morning, and thank you for joining us today for our fourth quarter earnings call. Joining me here in Miami, or Richard Feighner, Chairman and Chief Executive Officer.
Michael Bayley, President field Royal Caribbean International.
Hello, Mango, Leeny or vice President Investor Relations.
During this call we will be referring to a few slides, which have been posted on our investor website, Www Dot RTL investor Dot com.
Before we get started I wanted to refer you to our notice about forward looking statements, which had 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.
Samples are described in our answers you filing and other disclosures.
Please note that we do not undertake to update this information in our filings circumstances change.
Also we will be discussing certain non-GAAP financial measures, which our adjusted as defined and a reconciliation of all non-GAAP historical items can be found on our website.
Thank you say otherwise all metrics are on a constant currency adjusted basis.
Richard will begin by providing a strategic overview of the business I will follow but a recap of our fourth quarter and full year results for 2019, I will then provide an update on the current booking environment and then provide guidance for the full year and fourth quarter of 2000.
And 20.
Richard.
Thank you, Jason and good morning, everyone.
Obviously, the biggest issue today is the wound Corona virus and as you all though this virus has affected over 20000 people in China.
They have taken on pressure those steps to containment.
They have essentially locked down the country and there are acting quickly and aggressively to combat the spread so of other countries.
Unfortunately, no one knows how this outbreak will play out and we don't know how will ultimately impact us so far weve cancel some sailings are we modified somebody tuners and extend through March 4th.
These actions will cost us approximately 25 cents per share.
But it seems likely that we will have to cancel more but we don't yet know how many.
We also expect that there will be an impact on future bookings in China, especially in the immediate him in the immediate aftermath of the oldest but again, we just don't go.
One important bright spot isn't looking beyond the current outbreak we aren't seeing a big impact on overall bookings elsewhere.
But again and here I'm sounding like a broken record, we just don't know to.
To put things in context, China was expected to account for about 6% of our full year capacity and 4% of the capacity in the first quarter.
Spectrum overseas is currently our ownership in China with two other ships scheduled to enter the market in May and July respectively.
Spectrum was doing very well before this outbreak. So this is all very disappointing to us.
So far we've had to cancel eight China sailings and modified several itineraries that go through March 4th.
Unfortunately, there is still still too many variables on certain days regarding the situation to calculate the overall impact on the business well give you a good estimate of what the ultimate impact will be.
That said, we continue to feel positive about and committed to the long term growth potential in China, a market that we've been in for more than 10 years.
In conjunction with clear our industry trade group, we have initiated strong safeguards to help contains a spread of the disease and to protect our guests and crew.
These include regardless of nationality, the company will deny boarding to any individual who is traveling from two or through mainland China or Hong Kong in the past 15 days. These gas will receive full refunds there will be mandatory specialized health screenings performed on guests who have been income.
Tom talked with individuals who have traveled from two or through mainland China or Hong Kong is the past 15 days, all holders of China or Hong Kong passports, regardless of when they will last in China or Hong Kong.
Guess, who report feeling on well demonstrate any flu like symptoms and these standards also apply to employees crew members and contractors. All these steps we're taking in others are taking our exposure to the ultimately contained the virus, but we don't know how long that will take.
Now returning to 2019 I start out by saying that it was another incredibly busy and successful year.
Our teams achieved all time record financial results delivering an adjusted EPS of $9 50, sore 54 cents well introducing three new vessels launching the very successful perfect a destination consolidating silver see modernizing six ships and implementing its caliber on most of the fleet.
Our guest satisfaction scores or an all time high.
So our employee engagement scores.
Im gratified to note that our teams achieved these record results well also having more than their fair share of unique incidents like the oasis dry dock, Cuba Hurricane Doran et cetera.
I believe that this is a testament to a strategy that works a product that's great and a group of people that is the best at what they do.
No. This particular earnings call a special as we are once again announcing a new set of long term goals.
Our management team is very goal oriented and we have found that establishing clear simple and ambitious targets motivates our people and drive superior results.
This worked successfully with projects as diverse as double double perfect day and project edge. Our people are amazing and when we get all of them pulling in the same direction nothing stops us.
This case, our ideas to focus on what we're calling the three piece people profit and planet.
We strongly believe that if we tend to these three elements, we can achieve even greater heights.
We're calling the program 2025 by 2025. The program consists of five goals first tour, which are reflected in the title.
Slide one shows the logo, we're using internally for this program.
The first goal is to reduce is to reach adjusted earnings per share of $20 per share by 2025, we think that's a worthy goal so but I remind all of you on this call that are real objective is not to reach these goals but to exceed them.
It's a bit like tennis, where they always tell you not to not to hit the ball, but to hit through the ball. Our goal is not just to improve 2025 results. It is to use that as a stepping stone to a new base that will take us to new and better highs.
The second goal is to reduce our carbon footprint by an additional 25%.
That's on top of what we've already achieved with our WWF commitment today.
Now this goal that we're announcing today is 10% greater and will be achieved five years earlier than the international maritime organizations goal.
So big deal.
The third and fourth goals are to increase our employee engagement for the record levels were currently enjoying.
We always emphasized that our success is based on the awesome work of our employees and we want to ensure that we're taking the steps.
Necessary to to generate their continued commitment.
We're also proud of the level of guest satisfaction that this commitment produces.
Our fourth goal therefore is to continue to raise those satisfaction metrics.
Lastly, we need to accomplish all this while ensuring that we keep our focus on the returns we generate on invested capital.
This involves maintaining a high level of discipline on capital spending and an operating leverage.
We believe that we will do well even without such a program.
Nevertheless, adopting the clear and simple 2025 by 25 goals will help guard our decision making every day.
That will focus our attention on people's profits and planet.
These 2025 goals really motivate and drive performance, which in turn not only makes these calls makes achieving these goals more likely it makes exceeding these goals or likely to.
We do intend to provide greater detail on the specifics of the 2025 by 2025 program in our 10-K, which will be out in a few weeks.
Now I'd like to update you on the booking environment for the year.
Jason Jason will give a little more but I want to focus on it and given the uncertainties around the virus all of my comments will exclude the impact of that.
We're always eager to start the year and see what wave season Brink's, It's an important part of our volume, but also serves as a harbinger for the rest of the year and I'm happy to say that this year's wave makes us very optimistic about 2020.
I've always amazed by how accurate our revenue management teams have been of the past and this year. They expect yields to increase broadly in the range of Tudor quarter to foreigner quarter percent.
As always is some areas that do better than others and some special circumstances. For example, the Brushfires in Australia, but overall, our forecast for us for a nice bump to our already excellent 2019 yields.
Now it's also important to look at the cost side of the equation and we estimate that our net cruise cost excluding fuel will be up 1.75% to 2.25%.
Our cost outlook reflects our culture of continuous improvement and innovation.
Nevertheless, as I've mentioned in the past costs are not always perfectly aligned with the benefits they carry.
For example, we continue to invest in our people in new technology, and our sustainability efforts as well as to digital.
In all these cases, we've spent money in the past two years and we will continue to spend money in twentytwenty.
Something similar can be said regarding the employment of our capital.
These decisions are focused on the long term of our business and I believe they're very much in our investors best interest.
Lastly, our brag, a little bit about our selling new ships in 2020.
Among them is the first full year of operation of spectrum, She's celebrity floor in the Galapagos and new mine shift to in the German market.
All these ships had a phenomenal inaugural season in their respective markets and we're very happy with their performance.
However, during 2020 will deliver for additional do ships celebrity apex for the celebrity brand.
Silver's silver see Moon, and silver origin for Silversea cruises and Odyssey the sees for Royal Caribbean International.
All these new vessels attract significant premiums and will help position twentytwenty for another year of strong yield growth and success.
With that.
I will now turn the microphone back to Jason Jason.
Thank you Richard I will now take you through our results for the fourth quarter of 2019.
These results are summarized on slide three.
For the quarter, we generated adjusted net income of $1.42 cents per share, which is slightly higher than the midpoint of our guidance in summary revenue came in as planned and better than expected performance from our joint ventures and below the line activities more than offset the increase cost.
On the revenue side net yields were up 6.8% for the quarter inline with our guidance approximately 300 basis points over yield growth was driven by the benefits of silver see perfect day and terminal way.
New hardware and like for like you had improvement drove the other 380 basis points of yield growth for the quarter.
On the cost side net cruise costs, excluding fuel threepd were up 15.9%, which was higher than guidance driven mainly by marine related cost and employee related expenses.
In addition, during this quarter, we repurchased $100 million in shares.
I will now discuss our full year results, which we have summarized on slide four.
By all accounts 2019 with another year are very strong performance, we generated over $2 billion, an adjusted net income.
Resulting in earnings per share of $9.54.
Making 2019 another record year.
This record result was achieved despite the unfavorable impact from the incident and the Grand Bahamas shipyard, the abrupt cancellation of voyages to Cuba.
The operational disruption generated by Hurricane Dorian.
Our leading brands with World class workforce delivered strong financial performance, while also driving record net promoter scores and record employee engagement metrics.
To summarize the revenue performance for the year yields were up 8% crowning a decade of uninterrupted revenue growth.
This result was almost 50 basis points higher than our initial January guidance. Despite an 80 basis point headwind from a combination of Cuba policy change Hurricane Dorian immigration Bahama incident.
Strong demand from from our core products for our key markets and higher pricing related to our private destinations in the Bahamas.
Drove the ALP overall outperformance for the year.
Now the main driver of the year over year improvement were strong like for like yield growth.
Our incredible new hardware, the launching a perfect day and the consolidation of silver city.
On the cost side net cruise costs, excluding fuel were up 11.4%.
The main driver behind the year over year increase where the consolidation of silver sees operations the new operations a perfect day.
And our terminal.
In Miami.
Last day Pcvs due to the grab Bahamas shipyard incident and investments in technology and digital capabilities drove the balance.
Now I'll update you on what we're seeing in demand environment.
Over the last three months bookings have been consistently outpacing same time last year and wave is off to an excellent start with 2020 booking trends ahead for each of our our four brands.
In fact, the second for weaker January was a record booking week for the company.
Pricing has also been strong and as a result.
2020 is booked ahead of same time last year in both APV and load factor on a like for like basis.
We've been highlighting ongoing strength in demand from North America for at least two years and I'm happy to say that there are no signs hopes of a slowdown.
In fact, we are seeing better overall pricing and demand from North America than ever before were perfect day, and our ship modernization program, providing a clear boost.
We are sensor to the fact that this is an election year in the U.S. Consequently, we modified our booking curves to reflect the short lived slowdown that we typically see during the second or third week surrounding the election.
Now I'll give you a brief overview.
Of our capacity in deployment changes for 2020.
Our overall capacity will increase 4.8% year over year.
Itineraries in North America accounted for close to 60% of our capacity and are trending very well.
We have slowed we increased our capacity in the Caribbean driven by inaugural what's your seasons for celebrity apex and Odyssey overseas.
And therefore, the product will represent just over half of our overall deployment.
Other key itinerary changes include a year round shore Caribbean program.
Independent analyses visiting perfect day, and a similar program for the modernized oasis of the sees in the northeast.
Bookings for the Caribbean had been nicely higher the last year and all signs point to this year being our best Caribbean season, yet.
Alaska failings account for about 5% of our capacity.
And our book nicely ahead of same time last year.
Before we increased our 2020 capacity with an incremental ship for wall Caribbean more than offsetting the redeployment of another Marcia.
As it pertains to Bermuda this product only accounts for a small portion of our overall capacity and it was also booked well ahead of same time last year.
Now the robust booking environment trends from North American gas or also benefiting itineraries in Europe.
We also expect trends in the UK to be more predictable this year given the recent Brexit withdraw agreement.
That being said, we have made some changes to our European itineraries to reduce dependence on European markets and provide even more global appeal.
Overall European sailings were accounted for 17% of our capacity this year with dry dock timing inaugural seasons for celebrity apex, and silver moon driving capacity up year over year.
Bookings were similar to same time last year over the past three months and had been up nicely during wave.
Now moving to Asia Pacific These itineraries accounted for 17% of our full year capacity and account for 21% and the first quarter.
China in particular represents 6% about capacity for the full year and 4% in the first quarter with one ship spectrum overseas that home ports in Shanghai.
The failings were trending, particularly well prior to the outbreak of the Corona virus with Apds up nicely year over year and load factors in line with our expectations.
As I've noted, it's clear that the virus will impact to revenue in China at least in the short term.
Nevertheless, our plans to continue to growing this profitable market remains unchanged.
Australia sailings accounted for 7% of our capacity on our books slightly behind for the year.
However, recent trends in Q1 in Q2 have been better with particularly strong close in demand from the Australian market during wave.
Taking all of us into account if you turn to slide five it you will see our guidance for 2020.
As a reminder, and as Richard mentioned the remains too many variables and uncertainties to reasonably estimate the overall financial impact relating to the we win Corona virus outbreak.
Such our guidance and key metrics for the full year and the first quarter do not include any financial impact that relate to this very fluid situation.
Our yield outlook for 2020 is very strong we expect net revenue yield growth total quarter present to fourth quarter present for the full year, which which makes 2020, our 11th consecutive year of yield growth.
The underlying yield improvement is driven by new hardware strong demand for our core products and continued growth from our onboard revenue areas.
As I previously mentioned, we're very excited about the introduction of our four new ships shipped during 2020 as they will be important contributors to the overall net yield growth.
Now the timing of the new ship deliveries will result in more significant yield growth in the second half of the year than in the first half.
Net cruise costs, excluding fuel are expected to be up one in three quarters present to two in a quarter percent for the full year.
Cost control continues to be a focus however, this metric will have an uneven cadence throughout the year, mainly driven by the drydock schedule, the new ship deliveries and year over year comparable.
This will result in a more significant cost increase in the first half of the year then in the second half.
Our depreciation for the year, we'll be in the range.
A 1.376 billion in 1 billion 392 billion.
As a result, our investment in technology and digital projects are becoming a larger mix of our capital program and generally have a shorter useful life than our typical capital investments.
Also this year will deliver two new silversea ships.
As I mentioned in the past being in a luxury expedition segment silversea depreciation per berth.
Is significantly higher than our corporate average.
We have included 744 million a fuel expense for the year and were 54% hedged.
Based on current fuel pricing currency exchange in interest rates and excluding the impact from the current of ours, we expect another record breaking year with earnings per share between $10.40 and $10.70.
Now I'd like to walk you through our first quarter guidance on slide six.
Net revenue yields are expected to be down approximately half a percent.
Demand for the core products is very strong and our core Caribbean yields are up nicely for the quarter, despite a difficult comparable.
Now one way bookings trends have been strong for itineraries based in North America in Europe recent events around the globe have impacted demand for some of our international itineraries.
Specifically the unprecedented.
Bushfires in Australia, and recent activities in Hong Kong in the Middle East.
Our each having an outsized impact on revenue for the first quarter.
Moreover, as important to highlight the first quarter is also being negatively impacted.
Other structural elements, such as the discontinuation of Cuba, sailings, which equals a headwind of approximately 120 basis points.
The lack of new ship deliveries and a tough year over year comparable as we are lapping the inaugural season of two new ships during the first quarter 2019.
Notably both if you have a seasoned celebrity edge had very successful inaugural seasons and the Caribbean last year.
Additionally, FX in fuel are negatively impacting the quarter.
Year over year by approximately 15 cents.
All these issues make for a tough first quarter in terms of revenue growth.
Net cruise costs, excluding fuel are expected to be up approximately 3% for the quarter.
Taking all this into account and excluding any impact from Corona virus, we expect adjusted earnings to be in the range of 80 cents to 85 cents per share.
Before we open up a session for the Q in a I will highlight that we're very excited about the introduction of our 2025 by 2025 goals that will further support our focus on our people driving profit and taking care of our planet.
We have stress before that our strong financial performance is driven by modestly growing our yields effectively managing our costs and moderately growing our business.
With that Formula and mine, we have now set a goal of $20 and earnings per share by 2025, which equates to a compound annual growth rate almost 14%, while delivering strong returns on invested capital.
The meaningful growth trajectory, but we believe that we have the right formula and the right people to get this done.
At the same time, we are preparing these ambitious financial goals with environmental targets, specifically with reducing our carbon emission by 25%.
This does not happen overnight, we have been working on this for some time already.
With our World Class design engineering, and operation teams, developing new and different products and processes to meaningfully and positively affect our environmental impact.
With that I'll ask our operator to open up the call for a question and answer session.
As a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound or has Keith we kindly request that you limit yourself to one question and one follow up question. Thank you. Please standby, while we compiled acuity roster.
Yeah.
Your first question comes from Steve with Censky with Stifel. Your line is open.
Yeah, Hey, guys. Good money, so I know you've got a bunch of questions about China.
And I know this virus noises <unk>. The total unknown, but have you guys thought about any contingency plans you know in cases buyers impact last longer than expected and I guess, what I mean by that is what options do you have for those ships that are in affected markets can you can you move those would you try to move those or.
[music].
Could you actually take them out of service for up over a period of time.
Hi, Steve It's a Michael.
Yeah, I mean, obviously.
We have contingency plans for.
Well all of us ships deployed globally.
The thought of overall planning process. So in the case of.
I went to its really spectrum, that's being removed from the China market.
And that's safely sailing with our crew.
We have plans, obviously, but I think as we've always said, it's really difficult to understand what is going to happen I think we're waiting to see but we do have alternative plans in place and we can.
Either redeploy regionally or or outside of the region, but we do have plans in place.
Okay got you and then you know Richard or Jason you gave a lot of get details about your new 2025 program, but can you can you help us think a little bit about I think about what you know some of your underlying assumptions are that that go into that I guess, what I mean, as you're basically assuming around kind of 14 Percentish earnings growth.
Per year, which is obviously very very strong you know our your yield assumptions for the next couple of years kind of still inside that normal, which you guys without a normal 2% to 4% yield range.
Yes, Steve you know.
We set up these programs really to motivate our management and I I emphasize that these aren't we're not making predictions here, we're setting goals and our focus is to try and not only get people to focus on doing their job more effectively but also.
You use innovation define new and different ways to do it. So I don't think the I'm I'm in a position to say well, we're going to use this by yields in this by costs and this by new investments et cetera, We're looking at the whole plan typically and again I would also emphasize we're looking at five.
Goals and we think these are all very much interrelated.
We're not going to get the earnings we want if we don't get good returns on our invested capital we're not going to get good growth in our yields if if our guess aren't happy and our crew members aren't engage in our people aren't focused so all these things work together.
And we think together that's the way to achieve our best outcome, but Oh, we haven't broken it out in terms of this flush of yield this much from something else.
Okay got you and then Jason one quick housekeeping questions like that your capacity growth for the first quarters.
4.5% any idea what that would look like once you remove the.
The sailings that had been canceled right now is that is that material to that number.
Oh it <unk> it will certainly decrease I think it will decrease it by about 100 basis points on for those for those eight canceled sailings.
Based off of what we'll go through in the March 4th date.
Okay, great. Thanks, guys appreciate it.
Your next question comes from Harry Curtis with Institute Your line is open.
Hi, good morning, everybody.
A oh my first question has to do with the first quarter.
You are you had given us a a great deal detail, but there seems to be a fair difference in the equity.
Pick up a line item in 2020 versus last year can you speak to what a what the extent of that is and and Ah to what degree the Grand Bahama, a JV contributed last year and your expectations that had been built in for 2020. Thanks.
Hi, Good morning, Harried I actually you really hit on the main driver below the line.
Is the Grand Bahamas shipyard in the last of the dock.
Or for that yard and so we do not expect that dock or to be back on line in 2020 likely in 2021.
So the income that we were receiving which of course is a it's a joint venture.
And it's an equity pick up you bet. So that's where we have had had expected it.
The two could be and that's what's affecting us.
Okay at the second question.
Going.
Looking out to 2025 and how much cash do you think you should be able to generate after all capex over the next five five years.
And are you in.
In this goal not necessarily guidance.
Are you assuming any share repurchase a in this.
Thank you.
Yeah, So we're not going to.
You get into the ebbs and flows or whats there I mean, I think our formula for success, which is mater yield growth good cost control, while investing in our business in growing our business and I think at least for the next three or four years you. There's a very good understanding on on how our capacity is going to grow our is part of that I think when you look at <unk>.
Maybe if you run that 14% Cagar and you keep in mind that our goal is to maintain our leverage between three and three and a half times.
That will you leave you with a substantial amount of cash that will be available to shareholders.
Okay, but you should just directionally you should be also generating some operating cash.
A reasonable amount of operating cash net of capex with that growth rate yes.
Okay very good I appreciate it. Thank you very much I think sir.
Your next question comes from Jared shot show Tan with Wolfe Research. Your line is open.
Hi, Good morning, everyone. Thanks for taking my question.
So in the prepared remarks, you noted that you're not really seeing you know big impact on the non China bookings sense. The virus can you maybe elaborate a little bit on that and in terms of what you've seen with bookings or cancellations in the last week and then can you also just update us on what percentage of your deposits today, our nonrefundable versus what that way.
As maybe five years ago, and how that could be helping in this environment.
Hi, Jerry this is Michael good morning, Yeah, I think where kinda pleased with what we're seeing in all of my markets.
Around the world with of course, the exception to whats occurring in China.
When you look at the cool sent a inbound activity as it relates to questions concerns that Bofa trade partners and customers are asking is.
<unk> any issue related to the virus is relatively small their inquiries asking what our policies and practices are et cetera, but it's really a tiny percentage. It's under one on up sent to the acos coming in.
And we feel good about the booking activity for Caribbean, Alaska in Europe, and generally international with regards to the second question on the non refundable.
We didn't have them in place five years ago, I think if I recall, we introduced them about three to two to three years ago I'm very pleased with the results that we have I don't think we've ever given an actual percentage number of non refundable, but they're very attractive to the customers and of course, the very sticky sticky bookings.
So we're pleased year over year, we've seen improvement in the number of customers, who who choose that adoption yeah, just I'd just add onto it.
Thank you last week, just remember that it was it was the Chinese new year. So our expectations on booking activity was was actually pretty low.
Our commentary or my commentary around the booking environment is really what we're seeing to date. So when we think about your being in a strong reposition load factor position, our commentary as strength around north Americas demand for North American products in European products on the positive commentary about Europe.
It's all kind of incorporating what weve, what we've been seeing if you actually look at our 2020 bookings since our last call I'm, our booking activity is up 6% on versus a person that point in time. So if you. If you take out the current a virus just for you for a moment, what you're seeing is really kind of continued strength.
In demand for our brands and for our products.
Okay. Thank you. That's that's helpful. And then just a as a follow up but you know last year you were talking about double digit premiums for itineraries that had coke. Okay are you still seeing that right now or is there. Some degree of you know when you bring a new ship on there's inaugural pricing and then you start lapping that are you still getting those same type of premiums did.
Okay and then in your yield guide of two at a quarter to four and a quarter how much of that is because of coke. Okay. Both it ticket and the non ticket assumptions Hi, Jon Cruddas My club I'll, let Jason respond to the question on the yield guide, but with regards to perfect and the demand addressing coming through.
Very pleased with both demand and rate and I.
I think the volume that we're expecting out a perfect day. This year as close to 2.4 million guess weve deployed more ships into perfect day, and we've been really pleased with both the demand and the pricing for the product.
<unk>.
So.
Taking you're taking the midpoint of our guide you know about 100 basis points is gonna be driven by our the new hardware that's coming on in the balance of that which also includes perfect day.
Is coming from our from like for like improvement. So were you know were a baby. So we're very very kind of encouraged that you're right, we're not going to break out.
The five months of a perfect day in terms of our yield guidance.
Just to add to that on Friday, we opened up the cocoa Beach club in perfect day, and bat is another new element of the experience and the over water cabanas the selling for $1500 a day.
And to a pretty much book that.
Great. Thank you very much.
Hello.
We kindly request that you limit yourself to one question and one follow up question. Your next question comes from Felicia Hendrix with Barclays. Your line is open hi. Good morning. Thank you Jason I was just wondering if you could dissect for us the 25 cent impact or the anticipated actually say 25 cents EPS.
Impact friend or canceled eight cruises I'm just wanted to clarify or Pascal, that's mostly cost I know that when you can't sell cruises, there's usually not there's usually not a corresponding yield impact since you're moving removing the APC d., but in this case, especially the Chinese new year cruises.
To some of those yielded I'm wondering if some of those yielded higher than your corporate average and it sounds like there was any yield impact or if you're anticipating any old impact from the cancellations.
Yeah, Yeah. So.
Well that 25 cents the the vast majority of it so maybe a couple of pennies of it are is cost related or the balance of it is really is gonna be up our topline driven.
As you pointed out Felicia we did lose.
Two sailings.
At were during that that I'm very high yielding.
New year's week.
So we do expect it to play a little bit on on the yield, especially in the first quarter and less so on the balance of year as those APC. These are good get taken out obviously in the absolute revenue side.
The vast majority of about 25, Stan will come out of our our top one.
[noise] right, but still free is there anyway to kind of help us understand and I'm. Your guidance. You know how you were I guess is not in your guidance, but how to maybe think about the high higher yielding <unk> the loss of the higher yield increases because like if they were lower yielding then your corporate average they would not have an impact on that yields right.
Right, but in the first quarter there they are I'm, certainly higher than our our light quarter average, but as evidence for the full year, it's it's pretty close to the overall average yet okay. So, but there's no way to help us figure out if we want it to layered in our estimates like flat now we're not gonna be guiding a further yeah.
The first quarter for the full year as it relates to US right and then just regarding your kinda carry on a scale yet I'm. Just wondering if you could help us understand what your deployments to Australia is specifically on a quarterly basis and for the full year and.
Maybe help US no. So what are you going to mitigate the lower demand you're seeing for the region or any alterations you're making to accommodate for this situation. There and then also just hoping you can reconcile the comment that close in bookings were strong first scale, yet with the impact you're seeing in Australia.
Sure. So so Australia for the year.
Q1, Q4, or the heavy periods, there's a little bit their habits in Q2. So in the first quarter, Australia is about 12% of our capacity.
The fourth quarter, it's it's about 11% of our of our capacity.
In the second quarter, it's about 4% of our capacity. So it really the commentary was is there during those those brushfires what we what we saw was obviously the you know the consumer local consumer was very focused on what was happening.
They're in their country. So we saw a little bit a pullback on in terms of activity for close in what we what we did see as things kind of settle down there as an acceleration of demand.
And so we were able to to the two.
The filled it's just we're able to fill the ships, but at a slightly lower pricing just due to the timing of.
Of all of it.
I see more normalized behavior now.
Yes, okay.
Okay, great. Thanks, you got it.
Your next question comes from Jamie Katz with Morningstar. Your line is open.
Hi, Good morning, I, you guys made some commentary that you've ever reducing dependence on European markets. I think that's not surprising given some of the commentary we've heard in recent quarters, but do you have any additional insight on the implied weakness that that wed offer us maybe what you're seeing on a more country or regional specific basis.
<unk>.
I'll just I'll just make a few comments Michael can jump in it it's not a question of us shifting our sourcing base off of what we're seeing today based off what we were seeing a last year.
Our brands made changes to their deployment that really maybe the global appeal greater meaning that you can source.
For more markets versus maybe having a ship that weighs a significantly dependent on on the UK market as an example, so.
So our sourcing is a little bit different for Europe. This year, but a law, that's just driven by us globalizing.
The sourcing markets for for our brands and our products better based in Europe.
Okay, and then can I just get a clarification I'll ask I think you had said that it was I hadn't bookings, but I don't know that there was a commentary on pricing and I know for kind of all that was I'm sort of a dodgy area last year. So if you have any insight on the pricing and the reason that would be helpful. Thanks.
Yes, I would I would just comment and in general if if you if you take out I'm always a mark has azamara a won't be in Alaska. This year, it's one of our higher yielding brands and we expect a yield improvement in that product Fisher.
Your next question.
Your next question comes from James Hardiman with Wedbush Securities. Your line is open.
Hi, good morning, Thanks for taking my call. So.
Obviously pretty encouraging to hear that the current virus issue hasn't impacted any of it doesn't seem to have impacted the western bookings I was hoping you could talk a little bit about the flight crews market coming out of China, How big is that in and is there any impact in that 25 <unk> number.
From the from the of the potential passengers flying out of China getting on ships elsewhere.
Hi, James its Michael Yeah, I mean, we've we've actually been quite active in developing the outbound market and of course this kind of really hit during the.
Spring Festival week. So we had we had some outbound business going to ships around the world, but of course, a lot of that ended up canceling that that number is built into the 25 cents that we've already spoken about.
I know obviously there are no there's really no I pad business, but it peaked during the.
Spring week, and then it dropped and significantly after that so.
It's really minimal impact to the moment.
Hi, James just I, just add into it the benefits Oh I'm, obviously the the.
Ships like spectrum overseas, which is really dedicated but to the Chinese market has a greater impact to us because.
99.5% of those guests are our Chinese.
With the outbound space here, we have the opportunity to be able to source gas from other markets.
Of which which will help abate some of that risk.
That's helpful. And then just as a follow up in and this might be difficult at this point, obviously, but are there any rules of thumb as it we think about modeling your your earnings power not just as of today, but as news develops there any sort of rule of thumb every time.
I wish to avoid it gets cancelled the 25 cents you know eight voyages would get us to about three cents per ship is it that simple I'm assuming that it's not.
But how do we think about Matt and and have you thought about your communication strategy as we move forward and you learn more are we gonna be getting sort of update press releases or are we likely not gonna here from you for the next sort of three month as news of else. So.
So it it's not it's thought that linear or or.
What can you just take a certain number of upper voyage, there is variations depending on or the timing of those sailings a inside the months that are out there in and obviously, we don't have a second ship coming in now for for several months I think in terms of our communication strategy I don't think we have a a set timeline.
To it but I think that we kind of pride ourselves with being transparent.
Onto the investment community in as as as we learn more and it would be would try to take the opportunity to share that impact.
Got it good luck, thanks, guys Vicki.
Your next question comes from Tim Conder with Wells Fargo Securities. Your line is open.
Thank you and I think you for the color gentlemen, I'm just a couple more Jason you said that obviously as you continue to ramp up the technology component of your Capex that does have a a shorter depreciable life.
And then is that's where some of the additional spending is occurring along with some employee cost in 2020, but is there anything you're doing maybe.
Ramping up a little bit of marketing just given everything that's going on here year to date, and maybe increased uncertainty as to how that could or could not impact other areas thankfully. It hasn't. So far is there is there any component of that in your spending and then also on a related to the cost can you quantify for us.
The the Grand Bahama impacted the equity income or just some ballpark area as well as the wildfires and the other geopolitical items. Thank you.
Sure so I'm on on.
On the marketing side, there's certainly more marketing costs.
In the first half of your mostly guys just driven due to the election I'm coming up. So we are trying to get ahead of that or that cycle as it relates to grab Bahama you and as I said in the first quarter.
There's there's about 12 or 13 cents.
I'm, sorry, 12 to 13 million of of equity pick up loss.
Due to that that are that dry dock being closed.
Okay, and then in any any quantification on the they'll straightened wire fire impact or Hong Kong and Middle East impacts.
No, but but certainly Dubai due to the Middle East, Australia, and Hong Kong have are weighing on our yields in the first quarter.
Okay, and if I may through one other TV crews how's that looking at this point the demand from that JV, Oh on a year over year basis.
Yeah. So for 2019 was a more challenging topline year for.
For the German market.
But as we look into 2020, we're seeing a lot of strength.
In booking on both the rate in volume basis.
Great. Thank you.
Got it.
Your next question comes from Robin Farley with UBS. Your line is open.
Thank you Christian.
I think some sort of that's just not.
When we look at your Guy.
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I.
Thing, but you know that extends ranges get either.
[laughter] directly talking about 32% to 3%.
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Yes, it coming in ahead of that.
Robin <unk>, we're having or trouble hearing you. It's a it's very it's very in and out so I didn't I didn't I didn't even here the question.
Oh sure.
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You are that longer term.
I know, you're not [laughter] yield range it out as you.
[laughter], Bert I get about two or 3%.
So just wondering given that you've been kind of get ahead of that.
Couple of years.
Even outside of that the added drivers is it fair to say to think that if you came in at the range, where you've been growing yields the last three years that there would be upside to that 2025 number.
Sure. So so first as Richard says you know, we're we're not just trying to hit the ball, we're trying to swing through the ball and if you look at.
Hi, or or in my commentary.
I think I think what we're looking for here is you know to do the leverage the investments, we're making to have moderate yield growth and continued have good cost discipline.
[laughter].
Okay.
Other question was on <unk>.
Hi.
Thank you.
Okay.
It's like Oh that from China, the Durbin <unk> <unk> <unk> <unk> Oh.
Sometimes outlined on other integrators that range to be thinking about maybe it.
Right.
So the only what I heard there was China.
Robin So so why don't I'll follow up with you after the yeah to answer the question, but it was [laughter], it's very difficult to hear you saw a follow up with you.
Your next question comes from Stephen Grambling with Goldman Sachs. Your line is open.
Thanks, two faulting and can you hear me.
So I can hear you perfectly yes, often so first on to a how do you think about the value opportunity in continental Europe brands, whether organically through two we or via M&A longer term and then second on the near term first quarter targets can you just talked to what is embedded in the net cruise cost kind of across dry dock puts in.
Takes marketing costs et cetera. Thanks.
Well as as it relates to your TUI cruises, obviously I mean, the performance of that brand has been exceptional and we really believe that.
In the German market and two we cruises.
<unk> position in that market how its trading.
How its al it's growing up in its demand, we're very happy in which makes us very excited about the German market EM and the overall European market.
As it relates to.
On the costs I think you were talking about the first quarter do cost piece.
The main drivers I'm in that in that first quarter are are really just driven by investments in marketing and technology and and in Gionee I'm certainly perfect day plays into that will go a little bit about 60 basis points on the first quarter or cost increase.
So I guess a quick follow up on that so can you as it is anyway, you can help quantify that dry dock puts and takes as we think about the ships that are in and out and maybe the coffee each.
Well the dry docks for the before the for for the first quarter in itself is it's it's all its later in the first half of the year than it is Oh I'm sorry, there's more dry docks in the first half of the year than there is and in the first so probably about a point of that cost increase a more or less about a point of view.
Cost increases driven by almost having more dry dock days in the first half of your.
On the first quarter.
Great. Thanks, I'll jump back in the queue. Thanks.
Your next question comes from Brandt, Montour with JP Morgan Your line is open.
Great. Thanks for taking my question.
So you noted the contingency plans that you had in place in China I'm just wondering if the present situation. You know continue dawn I like it is and the greater China industry also looks to move ships elsewhere, which markets do you think will most likely be you know the most popular targets and how does how does that play into your strategy.
So, Brian obviously, where monitoring events and we're looking at competitors. We we have of plans in place alternatives.
We filled it true.
I really don't actually want to go into detail on this call about what those plans up because we are in a very competitive environment. So we don't want to start talking about where we're planning on deploying if this really does play out too much longer time spent.
Fair enough, Okay, and then on fuel just given the then mix shift in in the weighted that your hedge book. It is probably changed now versus 12 months ago can you give us sort of sensitivity between the two fuel grade or a fuel grade mix on the Apple.
The pump a portion of your exposure.
Well, our our goal is to is the mainly have a similar.
Mix of our fuel.
Through the balance of 2020 as we had in 2019, we are more hedged on on the M. Geo side and and those schedules will get published in our micro a or later in the day I'm for you to be able to have that makes a fuel and those hedge positions and then from their army should be able.
Well to well look at the the flex in Mgo an iPhone.
Fuels.
Great. Okay. Thanks, everyone.
Your next question comes from Asia, George if out with Infinity Research. Your line is open.
Good morning couple questions. The first one in terms of Green enforcement, Oh, but people have traveled to China in the back within the food basket can be a that seems to be somewhat easy looking at their passports, but it seems that couple of the other.
Items that you intend to force seem to be on on their system, whether they've been in contact with individuals well report feeling unwell.
Did that that would be much prevent a negative event, where you have even let's say one passenger we pointed with the virus because we sell what happens with Costa and does that was a significant yet.
Yeah, Hi, it's Michael obviously, it's a very dynamic and moving situation where monitoring this on a daily basis, where.
Have a medical team as part of our company and were very connected to the World Health organization and C.D.C. I think you'll see that is each day passes different countries in force different rules protocols and regulations, we implemented a protocols.
Early last week about almost up to two weeks ago.
And were monitoring all of these different protocols, so I think with regards to.
People, who from two a transit through mainland China Hong Kong.
Nearly all countries now are adopting the same kind of protocols generally we also have as you say part of it is an honest system, but we have a secondary screening system in place on a fleet that's been in place now for quite some time, which monitors activity in passport sort of close the passbook holder themselves.
And we are taking temperatures et cetera, et cetera. So yes, you're right I mean, I think I think it's of course, a possibility, but not only a countries, but a company itself. We're taking a series of what we believed to be very prudent and sensible actions that will not entirely eliminate the risk but massively mint.
Im eyes this risk.
Thank you Mike on my that's Smoky will not be allowed on the said because im wondering whether you might be able to prepare for my voice, but it's good to know that you're monitoring temperature data.
And as a follow up God bless that has been warm up good could that affect Voyager fell out of Japan or no other destinations.
For concluding thoughts trulia.
Yeah, I mean, I think again to my previous comments, it's it's really a dynamic moving situation. There are various changes that are being put into place by different countries et cetera, we've seen changed with l. lift from the for example.
The Western American Airlines, where they did a suspend flights in and out of China until the end of March would not really seeing a lot of regional disruption in terms of flights et cetera. What we are seeing is different countries adopting these various protocols, which.
Seem to be moving to a similar protocol I think the world Health organization made a point.
Last week when they spoke about the smaller countries that obviously have less resources to deal with this and they tend to still be making different decisions as it relates to their individual protocols, but that's more of an impact on individual itineraries and of course, we always have alternative thoughts of coal to to visit so.
Again, it's it's difficult to to answer specifically I think it's just a dynamic moving situation. The good thing is is that there is a really universal effort to work together to contain and minimize the impact of this situation.
Okay fair, operator that if I can mm one one in a im sure my wishful thinking, possibly with I'm, a 2020 mowing place do you think and maybe Jason you might be able to answer this but do you have to my <unk> a decline in.
So prices, which would all that the increased demand for NGL to a point, where we're not going to see quite as much of a pick up infield prices both pad.
Yeah, well I think that is I think that as a working theory. Its also why we've looked at our hedge position we're hedged more in mgo than we are and I AFFO is that it is it is rational that as as time goes on here demand for I AFFO is going to it to a drop continue to drop and of course demand for AMG.
It was going to continue.
To rise [noise].
Operator, we have time for one or more or less.
Operator, we have time for one more question.
Thank you. Your last question comes from Vince people with Cleveland Research. Your line is open.
Great. Thanks, just big picture just be curious how you feel today versus back in November setting aside the impact of Corona virus kind of across your core North American or European markets. How do you feel about the trajectory of bookings and pricing growth and maybe specifically.
I think it was in November that you noted pricing was tracking ahead for all quarters I'm, just trying to reconcile that with one Q, which I guess, it's kind of guided flat, but it has anything changed in the last 90 days with with one Q specifically.
No. This is Richard I think we were feeling quite good then and we have then.
Reassured by seeing the call volume and the the response on bookings in the in the wave period as as we said there are some exceptions and Weve pointed out a couple in the Gulf and in Australia, but the strength of the bookings.
Frankly, we have found outside of the krona virus, a we have found really very reassuring. So I think just from an overall point of view, we feel quite good about the year in and Vince just to add in and in our last call I'm. When we talked about the cadence of our yield growth.
We did point, though we expected a your Q1 to be lighter because you know our yields last year were up over 9%.
And then of course, we had Cuba, we were gonna have to deal with which is impacting us by 120 basis points. So we knew that Q1 was gonna be a more challenging our corner, which is why we set it at that point in time, but if you.
If you listen to our you know just are.
Well, we say since our last call. Our bookings have have have have have trended up by 6% for 2020.
That were just show that our our sentiment broadly is a is very very good.
No. We we've made this point in previous calls most industries when you look to the Calenderization.
It is is this cycle is time just for a defined and so you expect to certain sequence between the quarters our quarters within the year tend to be more defined by specific events the delivery of a new ship when they're dry docks take place so ours is.
More episodic and we have known and tried to telegraph for a while that the first quarter. This year episodic Lee is low but that doesn't impact our overall position for the year.
Great [noise].
Okay.
Thank you for your assistance Mariama, what the call today and we thank you all for your participation and interest and accompanying our call will be available for any follow ups, you might have and ER and we really wish you all again, a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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