Q2 2019 Earnings Call
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Good morning, My name is Nicole and I'll be your conference operator today at this time I would like to welcome everyone to the Royal Caribbean Cruises Limited second quarter 2019 earnings call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
We 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 second quarter earnings call.
Joining me here in Miami are Richard Fain, our chairman and Chief Executive Officer.
Michael Bayley, President and CEO of Royal Caribbean International and Growling mingle, Amy our vice President of 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 Dotcom.
Before we get started I'd like to refer you to our notice about forward looking statements, which is on our first slide.
During this call we will be making comments that are forward looking.
These statements do not guarantee future performance and do involve risks and uncertainties.
Examples are described in our SEC filings and other disclosures.
Please note that we do not undertake to update the information in our filings as circumstances change.
Also we will be discussing certain non-GAAP financial measures, which are adjusted as defined and a reconciliation of all non-GAAP historical items can be found on our website.
Unless we state otherwise all metrics are on a constant currency adjusted basis.
Richard will begin by providing a strategic overview of the business I will follow with a recap of our second quarter results provide an update on the booking environment and then provide an update on our full year and third quarter guidance for 2019.
We will then open up the call for your questions.
Richard Thank you, Jason and good morning, everybody and thank you for joining us today.
Im going to take a slightly different tack than usual.
Because there's so much happening at Royal Caribbean I'm going to use my time this morning to philosophy as a bit on our strategic focus and positioning.
Jason will then come back and provide more color on the near term results, but I do have a spoiler results. We are very pleased with these results.
Last month I had the pleasure of participating in the inauguration of our newest ship in the Galapagos celebrity floor. She's the first ship ever built specifically for sailing in the Galapagos and she is doing extremely well.
A beautiful ship with the latest advances and sustainability magnificent features for our guests and even research capabilities.
I also observed one thing in the Galapagos its very relevant to how we manage our business.
Ever since Darwin published his book origin of species.
The Galapagos have been a symbol of the concept of evolution.
What you notice there is it the species that thrive are not the strongest not the smartest not the fastest the species that survive. There are those that are most able to adapt that's true for animal species, and we believe its food for corporate species as well.
We believe that to succeed in today's world you need to adapt to an ever changing environment.
The ability to adapt is often called innovation, but innovation is really adapting to and do a leading change in a rapidly evolving world.
I'm proud of the people at Royal Caribbean, who continue to innovate and to adapt to that fast changing world.
We continue to do well because we continue to adapt our product to the changing desires of our current and future guests and the changing environment in which we operate.
Innovation has been and is a central tenet of our ability to drive change and to respond to change itineraries are just one example, they remain one of the most important considerations for our guests and this is both our duty and our opportunity to satisfy that demand in the best way possible. The most recent manifestation of that is perfect day at cocoa K.
To describe perfect days, a home run wouldn't do it justice it really resets the bar in the short cruise market.
But it's important to note that perfect day wasn't designed to steel customers from other cruise lines. It was designed to attract customers, who otherwise wouldn't be taking a cruise and it's doing that.
Huge roughly I think this makes an important point about our industry and why the industry has grown and why it continues to grow so nicely.
I know that many of you on this call follow other industries and that many of them have a highly inelastic demand curve.
If I have a property in Dallas, there's really very little I can do to attract more visitors to Dallas and so my focus is on getting a bigger share of those who already there.
Since the demand facilities in Dallas is inelastic and in the short term the supply is inelastic. The only short term strategy is trying to get a bigger piece of that pie.
In the cruise industry the demand curve even in the short term is highly elastic we can and we do attract new visitors to travel to our ships from far flung places.
Furthermore, over the years the cruise industry has innovated I adapted to better cater to what people want in their vacations simply put the industry has created better mouse traps and the world is beating a path to our door.
As a result, the demand for cruising is growing faster than might otherwise have been expected.
And it's not just the cruise lines that are adapting innovating.
Travel advisors are dominant distribution channel and while the industry has grown and adapted so to have our travel partners.
The role of the advisor of today is different from the travel agent of yesterday as the cruise industry of today is different from the crews of yesterday.
It is no accident that this year.
Even with significant industry supply growth and even with significant companies supply growth, where Joe enjoying one of the largest levels of price increases.
As our industry continues to adapt the industry the entire industry will continue to grow.
Part of that adaptation is the changing desires of the vacationing public.
I have long talked about how cruising has become more relevant to a public that now craze experiences over material goods.
That message has now become so ubiquitous that the other day I heard a ball bearing manufacturer talk about the experiential asked.
Of his product.
I can only imagine but in the cruise industry. The phenomenon is very real and the focus on experiences plays beautifully to our sweet spot.
For as long as I can remember people have worried about overcapacity in our industry.
[noise] more correctly I think we should be talking about the balance between supply and demand.
It's a balance not a question of one or the other.
And the distinction isn't mirror semantics talking about overcapacity implies that there is a fixed amount of demand, but a changing amount of capacity.
In fact, the situation is almost exactly the reverse with a relatively fixed amount of capacity and a highly variable amount of demand.
Fortunately our industry has been able to adapt to take advantage of this elastic demand curve and that is why it is continue to confound, those who expect lower demand growth.
One other issue that is often raised especially recently is the our award recession.
Our results have unquestionably <unk> been Boyd by an amazingly robust and sustained economy.
And we hear lots of pendants, predicting the imminent and that strong economy.
In fact, the only other time in my career when I can recall the predictions being more consistently negative was two years ago and we all know how that turned out.
But a downturn will certainly occur at some point and we are very conscious of that to my earlier point when circumstances change we are prepared to adapt.
And while no one is recession proof looking forward I think the industry has features that make it recession resistant.
The growing appeal of our product the relative price attractiveness, the fixed cost component the portability of our assets et cetera. All of these things make us better able to do well even in bad times.
A good example of that would be China with spectrum. The Steves started operating just a few weeks ago.
Conventional wisdom suggests the bringing a new ship into a market, whose economy is weakening and such a good idea.
But spectrum and our other ships there are doing very well despite the softer economy.
The reason again is that we're building the market not taking it as a given.
Adaptability and innovation are helping us produce improved results with more capacity and the poor economy again, good supply demand balance by improving demand rather than by trying to limit supply.
So this year is proving to be a very good year on many fronts. However, this month. It has also seen an important milestone in another related area, that's important to us and that area sustainability.
As most of you know in 2016, we launched a partnership with the World Wildlife Fund to take our sustainability efforts to a new level.
Royal Caribbean, we believe that what gets measured gets better and we established specific goals in three areas of sustainability. We did this in conjunction with WWF not only to be able to benefit from their expertise, but also because making specific measurable targets provides an accountability that is important to the success of a program like this.
The three areas, where we established these quantifiable goals when the areas of carbon footprint sustainable destinations and sustainable food production.
Specifically, we undertook a 35% reduction in carbon footprint from our 2005 base.
Offering a 1000 tours certified to the G.S.T.C. sustainability standards.
And responsibilities responsibly sourcing, 90% wild caught seafood globally, and 75% of pharmacy food in North America and Europe .
We set a public goal to reach these objectives by the end of 2020.
I'm happy to report that we are on schedule.
We achieved dark far carbon footprint goal earlier this year and just two weeks ago, we certified our 1000th sustainable tour operation.
We're not there yet are sustainable food sourcing goal, but we're working diligently to do so and hope to reach that target soon.
Looking forward, we have progressed rapidly on numerous fronts in this area.
Our new ships will use clean LNG as fuel we have installed advanced emission purification system on most of our fleet our program to eliminate single use plastics keeps advancing.
More and more of our ships are zero landfill capable our efforts to reduce food waste is ramping up our experimentation with zero emission fuel cells continues et cetera et cetera.
It's been a terrific year and it looks set to continue to do so.
Each quarter, we have been able to announce not only that we are doing well, but the way doing even better than we thought at the end of the prior quarter.
We are also looking at 2020 with the early bookings are exceptionally strong and provide optimism for 2020 as well.
We continue to be highly focused on controlling our costs.
Obviously, some of our aggressive strategic and innovative moves in areas such as technology and projects like perfect day. It puts pressure on these metrics, but so far we think the return on these vessels. These investments has been exceptional and we continue to focus on generating strong returns on our investments going forward.
In this update I have focused more than usual on our strategic focus as they used to say on the team I love. It when a plan comes together, we have a strong alignment throughout the organization on our strategic vision.
We see adaptations stroke innovation as a key driver of success.
We see positive momentum for having a good supply demand picture for our company and for our industry.
We see sustainability as a cynic one on.
We see cost discipline as core and we see a workforce that is passionate about delivering on all of the above.
Adaptability innovation is this is a complex challenge.
And as Charles Darwin observed, it's a never ending one.
We are doing our very best and we'll continue to do so and with that I'll ask Jason to provide an overview of the results.
Jason Thank you Richard.
I will be talking about our results for the second quarter of 2019.
These results are summarized on slide two.
For the quarter, we generated adjusted earnings of $2 or 54 cents per share.
Which is seven cents higher than the midpoint of our may guidance and 12% higher than same time last year.
Our net revenue yields were up 9.5% for the second quarter, which was in line with our May guidance. Despite the negative impact from the cubic travel ban.
400 basis points of this year over year improvement was driven by the additions of silver Sea perfect day in terminal a with the remaining 550 basis points being driven by our core business.
The abrupt removal of calls to Cuba from June sailings on Majesty of this season and Empress of the seas cost us 30 basis points and year over year yields for the quarter.
Well, the Cuba policy change was financially and operationally painful our underlying business remains very strong as we both outperformed on onboard revenue and saw further close in demand for our core products net cruise costs, excluding fuel were up 8.9% for the quarter, which was 110 basis points better than the may guidance driven by timing.
As we often said we manage our costs on an annual basis, rather than a quarterly basis.
Therefore, the positive cost variance that occurred in the second quarter, well simply reappear as an increase in our cost in the back half of the year.
This quarter, we also outperformed below the line driven mainly by lower interest costs and better performance from our joint ventures.
As Richard mentioned this morning.
Our brands are executing beautifully and demand continues to accelerate which is evident in our strong book position.
We remain nicely ahead in rate and our load factors are in line with same time last year at this point in the year, we don't expect to be booked ahead in volume given our increased mixed up short Caribbean capacity and the impact from the abrupt Cuba itinerary changes.
[noise]. This consistently strong demand is it a function of one thing but many.
The general economy continues to be strong consumer trends and demographics are very aligned with our business.
Our global footprint allows us to be nimble and adapting to market level trends.
And we continue to innovate the overall guest experience.
Industry, leading hardware like symphony of the seas celebrity edge and celebrity flora combined with new product innovations like perfect day Cook, Okay and Excalibur.
As well as the modernization of our fleet.
Significantly contributing to our top line and earnings growth.
Demand trends from North American gas continue to be very strong and that strength is more than offsetting some modest volatility from our European consumers.
As a result, all of our core itineraries are performing in line with or better than we expected when we gave guidance three months ago.
With Caribbean in China, sailings contributing the most to our improved non Cuba revenue outlook.
The strong performing Caribbean.
Accounts for a smaller percent of our capacity for the rest of the year than it did in the first half of the year at just under 50% of our Q3 and Q4 inventory.
We are always happy to see new bookings outpaced our expectations.
But what has been particularly impressive over the past few months is the pricing, we're receiving for sailings visiting perfect Dave Cook Okay.
Pricing on these failings has consistently been outpacing our lofty expectations and has been a major contributor to our improved non Cuba revenue outlook.
[noise] European Itineraries account for 16% of our full year capacity and about 20% of our capacity for the remainder of the year.
These sales continued to book in line with our expectations with celebrity edge, receiving significant pricing premiums and the overall fleet booked ahead of same time last year in pricing for both the Mediterranean and the Baltics.
Demand and pricing for North American gas have remained strong.
And as a result significantly more north Americans are sailing with us in Europe . This year.
On the last call we discussed the volatility in demand we were seeing from the UK given the ongoing Brexit uncertainty.
Since then we have seen an improvement with bookings from the UK up double digits over the past three months.
Europe remains our second highest yielding summer product and we are pleased with how this season is shaping up.
[noise], our highest yielding summer product is of course Alaska.
Alaska Sailings only account for 5% of our full year capacity, but are just over 10% of the third quarter.
We've upped our game from a hardware standpoint in Alaska This year.
With celebrity Eclipse ovation of the seas, and silver Muse, that's replacing older hardware.
Along with the first ever Alaska season for Azamara.
These hardware changes combined with strong demand from North America are contributing to our overall yield growth this year.
And finally, our Asia Pacific Itineraries account for about 15% of our full year capacity and 14% of the rest of the year.
Spectrum of disease arrived in Shanghai last month, and is getting very strong demand for sailings from China.
Where she will remain you around.
The addition of spectrum of the seas combined with further expansion of distribution channels in China are driving yield growth for the product.
Our Australian southeast products account for 6% and 4% of our capacity respectively.
And are performing in line with our expectations.
It's still a little too early in the booking window to comment too specifically on trends for 2020.
However, I will note that we are very pleased with the performance thus far.
Prior to the recent kuper related to redeployments, our load factors were in line with last year's record high and rates were and still are up nicely in all four quarters.
Now, let's turn to slide three to talk about our updated guidance.
For the full year 2019.
Overall, we are updating our guidance to $9 and 55 to $9.65 per share.
Which include a 15% improvement from our previous guidance due to better second quarter results and an improved revenue outlook for the second half of the year.
As it relates to our key metrics, we expect our net revenue yields to increase in the range of seven and three quarters percent to eight in a quarter percent for the year.
This updated guidance includes the negative impact of approximately 70 basis points from compensation and itinerary changes related to the recent travel restrictions to Cuba.
Excluding this impact the mid point of the Companys net yield guidance has improved by approximately 40 basis points versus our may guidance.
The improvement in our underlying business is split pretty evenly between Q2 Q3 and Q4.
Overall, our net yield guidance on a core basis for that is when normalizing for silver Sea perfect day, the new terminal in Cuba.
It is now more than 5%.
This performance is already one of the strongest in our history and comes during a period of more than 6% of capacity growth in the industry.
This revenue performance is really a testament to the strength.
Well the demand for our brands and for cruising.
From a cost perspective, we expect our net cruise costs, excluding fuel to be up 10% to 10.5%.
In constant currency.
This updated guidance reflects an increase in our cost mainly related to the travel restrictions to Cuba.
We expect fuel expense of $703 million for the year and we are 59% hedged.
In summary, based on the current business outlook.
Along with current fuel prices interest in currency exchange rates, our adjusted earnings per share are expected to be in the range of $9.55 to $9.65 per share.
Now, we can turn to our guidance for the third quarter, which is on slide four.
We expect net revenue yields to be up approximately 6.5% for the third quarter, including a benefit of approximately 340 basis points from the combination of silver Sea perfect day in Terminalling.
Yields are also included a negative impact of 110 basis points associated with Cuba.
The impact of Cuba, and a lower mix of Caribbean deployment combined with the timing of the silver see consolidation the launch of terminal a and the delivery of new hardware are contributing to a smaller although still significant yield increase in the second half of the year compared to the first half.
Net cruise costs, excluding fuel for the quarter are expected to increase approximately 11%.
So in summary, based on current fuel prices interest in currency exchange rates and the outlook expressed above our adjusted earnings per share for the quarter are expected to be approximately $4.35 per share.
With that.
I will ask the operator to open up the call for a question and answer.
At this time, if you'd like to ask an audio question you may do so by pressing star and the number one on your telephone keypad.
We do ask that you limit your questions to one and a follow up.
Well pause for just a moment.
The first question comes from the line of Steve within Askew Stifel.
Yeah, Hey, guys. Good morning, guys and Richard well done on getting a an 18 reference into your prepared remarks.
I guess, if we go back to January and we and we look at your original earnings guidance, which had a midpoint of 97 look at your midpoint now which is 960.
You know is it fair to say if you didnt have some of these headwinds you guys have faced you would be on a pace for probably a mid tens kind of a year and I guess, what I'm getting at here is you've absorbed 30 cents from Q about 25 cents from Oasis, If my math is right.
I think about 25 cents in fuel and FX is that the right way, we should be thinking about how 2019.
Could have shaped up.
Hey, Steve.
First thanks for the question thanks for the team.
Kudos for Richard.
That's very important that we have cultural literacy as well that's right, that's right, but but but see that's exactly right. I mean, there's there's definitely been some some real.
Hits this year.
As it relates to those three elements that you that you pointed out which are also relatively accurate.
To what the impact has been for this year. So if I, if we didnt have Cuba, if we didnt have the Grand Bahama incident, and certainly FX and fuel we wouldn't be talking to you about a number that would be in the low to mid 10 dollar.
You ranges.
Okay got you and then Jason you also back in January laid out a 350 basis point.
Positive impact from silver Sea cocoa K in the Miami parking terminal has anything changed there in terms of those impacts to two yields.
Well there was impact of or are pretty consistent on the yield side as well as on the cost side now of course, when we talk about perfect day, we're really specific about the on island activities on clearly the strength that we're seeing on the ticket yield side.
Is well ahead of what we could have even imagined it would be in terms of demand.
Which is also bolstering the strong commentary that that we have as it relates to the strength for.
Our business in the Caribbean.
Okay and the last one for me and I understand it's still early in terms of booking patterns and I don't think you're going to answer this question really.
But when we look out to 2020 and the Caribbean bookings.
Can we get any color in terms of how they have trended since the Cuban news came out and I understand you just opened up the booking window for you know for some of those ships but.
I think the fear thats out there today in the marketplaces that Caribbean yields will.
Materially rollover.
In the first half of 2020, given the lack of.
Cubin premiums.
Hi, Steve its Michael.
I'll jump in here on on the two ships that we had going to Cuba. We've we've for 2020, we've just opened them up.
And of course, one of those ships is going to perfect day. So the demand is Jason had mentioned for perfect day has been really it's exceeded our expectations and our expectations were pretty high. So we're kind of pleased with what we're seeing for 20 in perfect days, a key driver for the Caribbean performance and the and the ships that we dropped out of Cuba, what we're feeling pretty good about how they're performing I mean, it's early days yet as Weve said.
And Steve just to kind of add onto it, especially as it relates to to perfect day.
One you know it.
We launched perfect day, you in the middle of the second quarter.
And of course, there's are theres, a ramp up to that island and so we also plan to take a lot more guests next year in Q2 and Q.
Q3, and Q4 two perfect day.
And so I think just a general comments that we have around.
The back half of this year and also my comments on on 2020.
Our arm are generally saying that we continue to see very strong demand trends for the Caribbean.
Okay, great. Thanks, guys appreciate all the color.
Sure.
Your next question comes from the line of Felicia Hendrix with Barclays.
Hi, Thank you so much and so.
Jason.
You guys have raised your.
By 40 basis points ex Cuba.
And you've talked about the strong demand that you've seen in the core brands in that in the second half and because of that how youve raised your basically essentially raised your second half guidance you know I think you've touched on some of this in your prepared remarks and in your answer to Steve's question, but just wondering if you could just kind of peel back the layers to give us some more granular cover color.
What's driving that increase the your second half you've talked about perfect day, but how much of it is is price how much of it is is onboard you know just general strength that sort of thing.
Yes sure so.
Just just kind of focusing on on on on the back half of the year. The strength that we're seeing is coming from two elements. So about half of it is is being driven by better ticket and half of its being driven by better than expected on board and on the onboard side, it's more of the experience level.
Type of activities, which would also include a perfect day.
But on the ticket side, there's there's really.
All of our core products are seeing very strong demand and so they are either.
In line with our expectations or they are doing better in the two areas that are doing better which I had in my remarks has been the Caribbean and has been China and those are those are two areas, where we've seen an acceleration in demand.
Great. That's a perfect segue to my follow up which is is Europe and you talked about the softness there and we all know that you source globally and you take the best.
Customer for the best I scenario, but I'm just wondering for those who may have some concerns about Europe and kind of the European stores demand if that could be an overhang going forward can you just talk about your perceived optimism or maybe I should say cautious optimism about Europe .
Yes sure so.
We're also also what I had commented on was that over the past several or or really the past two months we've seen.
Much better trend and consistent trends from Europe , and also for the UK, but of course.
Because there was some volatility I'm going through wave and then going in into your early second quarter.
We recognized a much better or stronger demand trends coming from North America for European Sailings, and as you pointed out Weve got this global very diverse.
Our footprint.
That that is that is supported by your yield management tools and systems and people that manage this demand globally.
And so when we see better demand trends from one market versus another we shift our sourcing Marin and so Europe is in a very good shape and as it relates to the product and as I said as I said these demand trends from Europe .
Have not only stabilize but we've seen increases in there.
And they're they're booking activity over the past couple of months.
You know Felicia.
It's Richard here and then just.
Add on to that you asked for some color on how it's looking going forward.
And you recall very well and the first of all we never.
Give real guidance for the coming year. This early in the process. So.
We're doing what we normally do but if you recall back to 2016, we thought at the end of the year in the beginning of 2017 or unusually good and we might never see such a strong forward picture again.
And a year later, we were looking at and even stronger 17, then even stronger 18, and the same thing happened last year.
Now when we are looking forward, we are from a color point of view, we are feeling the strength of the market.
The Caribbean and the ability to.
Not only.
Handle the situation, Cuba, but essentially the rest of the Caribbean absorbed that without without a whole lot of of difficulty.
It's really unusual that you continue to see such a positive.
Forward perspective is as we are seeing in the market is in terms of general tone and color.
Thank you so much.
Thanks.
Your next question comes from the line of Robin Farley with Cvs.
Great. Thanks.
I think you addressed a lot of my question, which had to do with the fact that the Q the impact you've called out that 30 cents, what kind of for half a year and then when we looked into it to 2020.
I would think that you know a significant part of that would have been sort of compensating people that have booked already which.
Certainly have to do first.
Sold yet in 2020.
And discounting for things that are very close and.
She went 2020, maybe the ship going to cocoa K, even does better than it was kinda Cuba. So is there if you had to think about.
This impact.
From Cuba in 2020.
Fair to say it would be.
Well less than half.
Bps impact that.
Down in 19 like another way I think people made to feel comfortable that theres, not any kind of shoe to drop from that.
Tony Tony.
Thanks, Robert So so on on the Cuba front as you pointed out there's a few things that that that come with an abrupt.
Change in an itinerary. So one as you mentioned was compensation.
The second thing is is that of course, you have guessed I'm that cancel and of course, a an itinerary like Cuba, it's not like just a change in the Caribbean itinerary. This is a itinerary that people specifically you had signed up to go in to go and visit so.
Certainly that that had its financial and operational impacts you for this year.
As Michael commented.
One of those ships is going to go to perfect day in and of course demand for for for going a perfect day is exceptional.
And so I think we expect.
That that ship to do well and the other ship was also on on a on a very good deployment for next year. So we certainly don't expect that 30 cents impact that we've experienced this year.
To kind of settle in at the long term.
And you I don't know the answer is going to be.
Half of it or better than half of it.
But I know, Michael and his team and Larry on the RMR team and in the silver Sea team that are having impacts from Cuba have have put action plans into trying to recover as much of that is possible.
Great and then.
Just had a housekeeping item.
Your capex schedule it looks like it's gone up by about 100 million a year for the next couple of years and that could just be rounding.
I wondered if there was a particular initiative or something that.
That change that schedule.
Yeah sure.
I know it is mainly rounding a there's a little bit as as we ordered icon three that the that I that that plays into that number and then of course your announcement on holistic and so forth is in some of our planning.
In terms of investments in the coming years.
Great. Thank you very much.
<unk>.
The next question comes from Greg Badishkanian with Citi.
Great. Thank you.
Yeah I was just following up on Richard's comments about cocoa K, not primarily competing with other cruise lines, but.
But really trying to get from other.
Passengers from other travel segment.
What percentage of that of those passengers, who maybe new to cruise and then also from a benefit perspective.
Are you seeing that.
Primarily.
Help you from a yield perspective or is it just the overall demand for cruising in that in that helps up like you youve absorbed some of the.
Passengers that otherwise would have went to Cuba. So there's there's some other benefits from just that.
Increasing euro.
Your load from that.
Hi, Greg its Michael.
In.
In total in 19 in through into 20.
11 of the Royal Caribbean ships will be going to perfect. The coke okay.
So you can imagine the amount of the volume that we're taking to perfect day has gone up by a factor of about four and we were already taking a lot of guess to cocoa K before we underwent all of this work can change the whole.
Experience.
It's also a key component of.
Sure strategy that we introduced a couple of years ago. If you may recall, we put myrna navigate independents through Royal amplified and we.
Completely change the product offering in the short term market and literally put the biggest best ships in that short market, which is about.
20, something percent of the entire American cruise market. So we already started to see demand increasing for those products because that truly great products. When you combine that with perfect day, we've seen a real uptick since we opened perfect day.
And people have begun to experience. It I think today, we've taken maybe 350000 people to perfect day since we opened.
It's now rated the number one resort globally for Royal Caribbean, It's knocking it out of the park in terms of truly delivering a phenomenal day. The guest satisfaction is extremely high.
And.
So the demand that we're seeing is coming from all segments. It competes very well with Orlando. It's it's got a truly wonderful day, both thrilling chill and it is also driving new to cruise because approximately 40% of the short market is new to cruise so.
It's it's really ticked the box across all of these different dimensions and in terms of the demand that we're seeing since weve opened and people are beginning to understand what kind of experience the says.
Were seeing both significant increase in volume and of course, that's driving right.
And.
Great just to just to add yeah.
Really over the past several years and you've heard us talk about as we've talked about this also on our Investor day.
But you know as as the consumer trends the demographic trends point more towards experience in travel and and and multi generational and really kind of spans the products that we offer you combine that with the innovations that we've talked about whether it's whether it's perfectly cocoa K or the modernization or the new ships.
And then you have just perception of cruising.
Is has really accelerated in all of these things are leading to a real change in mix, where there is a much more new to cruise as a percent of our mix than we have experienced really in in decades.
And that is and that is because of all these different things in which we're we're doing in the industry is doing to attract new and fresh demand.
And just to add to that Greg I think Corona is trying to organize and invest a trip and in November to perfect day, hopefully, you'll get an opportunity to compass NIPT because when you've seen it's an experienced it you're going to truly understand what a game changer. This this product and experiences.
Yes, that's a good getting investor day.
Great color for sure.
Your next question comes from the line of Jamie Katz with Morningstar.
Hi, Good morning, what you guys have talked about in the past as Excalibur quite a bit which wasn't really mentioned very much on this call and I'm curious how the rollout has really helped facilitate the outperformance any insight maybe that could help us quantify that or what you guys expect going forward would be helpful. Thanks.
[noise], so it's Richard and.
The Excalibur rollout has been excellent.
It's.
It's now our objective was to get.
At or close to a it across almost all of our fleet before the end of this year and that continues to be on track.
The it's really worked out very well for doing two things it improves the experience to our guest it makes it easier to board. It makes it easier to do what you want most importantly, it it really simplifies the process. When we started this kind of technology process, Lisa talked about giving people back the first day of their vacation because they didnt have to spend that time to orchestrate themselves and with the app with the photo recognition.
You are going from a lengthy process so essentially no process.
That helps improve the experience and then.
And that of course, it helps us with our our ticket sales, but it also helps our onboard revenue because it makes it easier for people to get to the kinds of experiences to do the kinds of activities as they want to do it makes it easier for them to do so in advance and people who book in advance tend to spend more on board when they get there. So it's it's been a home run for US. The Excalibur team has been exceptional and really put together something that people really like and and work and we're building on it. So what you see so far is really a platform that you can build on and so we didn't talk about it say, we we have so much to talk about so we always have to make choices of course, and then regarding spectrum. It sounds like the launch spend slightly more successful than some of the prior launches into the China market has onboard.
[noise] spending been trending any differently for passengers on the ship relative to ship in the past if he has been able to generate more revenue.
Previous.
Yeah, Hi, Jamie its Michael Spectrums launch.
Our own.
The product has been exceptionally well received we've got a very it's a fairly significant price gap between competitors in the market.
And we've seen a real uptick in the onboard revenue I think we've got the right product and we're attracting the right demographics and we're seeing that with the onboard spend so I would say, we've certainly seen a recovery from from a couple of years ago. We're feeling good about spectrum, we're feeling good about China.
[noise].
Correct.
Operator next caller. The next question comes from the line of her show him with Wolfe Research.
Hey, good morning, everyone. Thanks for taking my question.
So I want to drill down a little bit more on the 2020 booking commentary, which you referred to as exceptionally strong but can you also provide us a little bit more of a quantitative context, because I think you said prior to Cuba. The load factors were in line.
And rates were up in all four quarters. So is the implication that sense the Cuba travel ban here in the last month and a half call. It that the load factors are now down in 2020, and I guess help me just kind of reconcile that with some of the.
The positive tone you have here on the on the booking commentary and then any differences in brands or or regions that you would call out as well.
Yes, sure Jared and I tried to address it in my remarks, Bobby I'll talk a little bit more specific about it.
So our load factors for next year are I mean, very slightly down on a year over year.
Which is really kind of what you would expect and what we do expect because of two things one of which is we have more short product on next year and that short product is it closer in booking product. So that would be one thing and second as we just redeployed.
Cuba ships, and so you're you're kind of somewhat kind of starting over again.
On those ships and so that had a little bit of an impact on our load factor, but what I also said.
Was that our pricing was nicely up and that includes no longer having a high yielding.
Cuba as part of that mix.
And so we are quite encouraged about the booking environment for 2020.
Whether it's a booking volumes or whether it's the pricing that we're seeing and the load factor change is what what we very much expected it would be.
And of course, as we've talked about in the past if we if we would like to we could have that load factor be higher but we are always trying to optimize maximize our revenue.
Okay. Thank you and then just two quick housekeeping questions for me I mean, youve absorbed a lot of Capex in the last few quarters, and obviously havent repurchased stock are you still expecting to repurchase stock in the back half of this year.
When capex Decelerates here, a little bit and then separately for next year as you think about fuel expense.
You're you're hedged dollar value goes up from this year to next year, but I think some of that might just be year now hedging the higher dollar mgo instead of FFO. So.
Correct me, if I'm wrong on that and any any color you can provide on how we should be thinking about fuel expense next year, just with all the puts and takes on the hedges I think make it a little bit difficult to try to forecast that for us.
Yes, sure so I'll I'll take the fuel first and then I'll talk about stock repo second.
On the fuel side. That's what you said was exactly right. If you look at our fuel mix as it relates to our hedging program, we are indexed higher to mgo relative to our our historical mix.
And.
Now we've also talked about in the past that our expectations is generally the mix of fuel that we burn today I AFFO versus mgo should remain more or less the same because of our.
Investments and great execution of implementing our ERP systems on the ships, which will allow us to continue to burn the the higher so for iPhone fuel.
And so I would.
I think that that's that's how we've kind of set our hedge portfolio for next year.
As it relates on the stock repo side as we've said, we're going to do it opportunistically.
And also to kind of make sure that were in line with our our credit metrics of three to three and a half times.
And then and we certainly get to that location here in the back half of the year.
And so we will be looking at that as we always have opportunistically.
Okay. Thank you.
You got it.
The next question comes from the line.
Tim Conder with Wells Fargo security.
Thank you and congrats to the team on the continued strong execution.
Just a couple of.
Gentlemen, here it looking to 2020 just to.
Is it fair to say, you're not really seeing any change in the trends that have been exhibited so far in 19 as far as regional demand.
In sourcing in particular also you Havent really commented that much on Germany.
So if you could just remind us the percentage you source out of Germany.
Of your global and specifically, what you're seeing out of two lead just an update there and the trends that we're seeing.
Given softening economic outlook and of course, what's been out there in the market from other competitors.
Sure. So first as it relates to 2020.
I'm not going to start.
Kind of breaking this down by region or by market in any way, but I think as Richard pointed out, which I think is really that which is really the cases.
Each year, we we.
We talk about how strong the demand environment is as we look into the future year.
And it ends up being that or better.
And as we look at 19, which is another very strong.
Our year as I talked about in my remarks, if you kind of strip out.
The perfect days in the in the port of Miami than silver season, Cuba, five plus percent yield improvement.
On a on a pretty large capacity growth here.
Those trends that we that that we have seen this year are very much. So what we're seeing as we're going into into 2020.
And so I'll kind of leave it there versus I'm not going to get into the different markets and the products at this time because it is it is too early for us to provide specific commentary there.
Germany is a very small percentage of our overall on capacity for our consolidating brands.
Obviously on most of our sourcing for two we is for to be cruises.
TUI cruises is having.
Another very strong year.
Demand for that product, even though there has been I know some some reports about concerns around Germany.
In terms of demand that is not really hitting TUI cruises.
Yeah at least to date, it's not.
Okay. Thank you and then secondly, just wanted to ask.
On the destination development Theres been a lot of talk about cocoa K and how exceptionally well that's performing.
How are you just any update that you can give us the adjacent to Richard or or micro whoever wants to take this.
As to how you're thinking and potential.
Timeframe for or maybe something else elsewhere in the world similar to owned and operated and then anything else from when we should maybe start hearing something out of the holistic.
JV of some additional projects there. Thank you.
Hi, Tim.
I think as Richard.
Previously stated you know, obviously destination and destination development is really at the center of a forward looking strategy and Weve.
Really started to mobilize behind that both with holistic or which of course, we announced a month or so ago and.
Deeply engaged in multiple possible opportunities and.
Particularly the one in Freeport that where the team is working on currently.
With regards to perfect day, I think weve being genuinely delighted with the demand that we're seeing for perfect day and the experience that we're delivering is really at a high level. So I think it's fair to say that we're seeking further opportunities in this space and when we are ready to make announcements will be happy to let you know.
Thank you.
Your next question comes from the line of Harry Curtis.
Hey, just as a quick follow up on a on on that question. Maybe if you can think of put this into perspective.
At cocoa K.
What inning are you in in terms of its its ability to drive your long term growth and.
In the Caribbean.
And.
Are the returns on invested capital such that it really does make sense, particularly to to to either add capacity there or to.
To seek a just an entirely new.
Opportunities that will drive five year growth in the Caribbean.
Harry it's really difficult to answer those questions and.
And the detailed way I think.
It's it's pretty obvious that and I think we've got a we've stated this now several times, we're genuinely delighted with the performance of perfect day and the response has been.
Outstanding we feel as if it's going to be a key driver of future growth. It certainly demonstrating that today with demand from from all markets.
I think you know we will pursue opportunities and when we are ready to make announcements will be we'll be happy to make those announcements, but we're really pleased I think this idea of.
Really curated.
Outstanding destination experiences that can manage volume.
For Royal Caribbean is Directionally, where we're heading and.
Henry just to just to kind of add on Michael's comments, you, obviously enhancing the guest experience.
<unk> is a kind of key tenant for us, but also obviously, obviously is improving shareholder returns and in going into these investments. Obviously our goal here is to be investing in ways that are improving.
Our return on invested capital and from that improving Marsh shareholder returns I'm. So it's these are these are pretty high bar projects.
And as we've talked about perfect day is is doing exceptionally well in an exceeding I think those those are those lofty.
Oh profiles from returns.
Thanks, Jason and my second question is in talking with the kind of potential non investors if you will.
The issue is you know is always.
Concern over over not necessarily this year, but the next year and.
So maybe it's a pretty good idea to give folks a sense of even though you're booked at roughly the same level. So so far for next year.
Give folks a sense of historically at this point in time, how how well book is Royal Caribbean for the first quarter, how well book is it for the second quarter, because there is enough business on the books in the first and second quarters.
To that should a lay that that fear.
Yeah, well I'm not going to start breaking down a book status by each quarter, but the commentary the the I would say the bullishness that we have about the booking environment certainly relates to Q1 and Q2 of next year, which we have a much better visibility.
Into in and I think it's if you if you're for those that are always concern on the capacity side I would just I would remind everybody that next year.
Our capacity is up only about 4%.
Versus this year your capacity was 8% and if you normalize for silver sea it was little bit over 6%.
And so we feel very good about the book position and we feel very good.
But over the next four quarters look like we feel very good about the next six quarters look like at this point.
I guess my Nate maybe if I can just add to ask a more general way of sure.
Presenting that.
If you look at the first half is it reasonable to think I mean go back five years or seven years.
Is it can you can you say to investors, who are skeptical that you've got 40% of <unk>.
The business in the first half booked already or 50, I mean is it is there is there a chunky enough business amount of business on the books to say look we we we are doing really well. This is not a business that that comes in.
Last minute.
As evidenced by the the business that we have in the first half 2020 already on the books.
Well I I, Havent, memorized, where I've I've lost Oh, the data points from five to seven years ago, but what I do know for a fact.
Is that we are in a much stronger book position on a volume or as a percent of our future revenue.
Than we were a five to seven years ago. Each year, we've talked about being booked ahead and add at higher load factors and rates and and so.
As a book percentage, especially over the next 12 to 18 months, where you were in a very.
Strong book position.
Harry I also have two a mind you and the others.
As we've said a number of times on the call we decide how much we want to be booked and.
There are times, when we say for various reasons it ought to be.
More or less.
That's some extent, we can drive that number and I think that the the focus on it.
Is it half a percent more or less than last year is is actually could lead you down the wrong path because that is something we choose what it should be.
The fact is that over the last number of years and.
And by the way I recall on one of these calls several years ago, saying well, we're more book now than we ever had before and I don't think it will raise I think next year, you'll see it to go down because I think next year will want it to be less and in fact.
I was wrong and.
Our revenue management people decided that we could absorb the taking more in the beginning so I just want to give you a caution.
That.
Being booked more isn't per se.
Automatically say the market is stronger it's much it's often times.
It's just our revenue management people think given the kinds of crews as we offer and the kind of booking patterns that we're seeing.
That's a choice we make.
Okay and I appreciate all that and that might the point I was trying to make is somewhat different which is which is that you do have a significant amount of the first half of next year booked.
And that should give investors confidence but.
I appreciate is accurate they're hearing your your statement is accurate. So okay. That's all I was trying to trying to get at thanking you got.
And we do have time for one more question today.
The question will come from the line of Sharon Zackfia with William Blair.
Hi, good morning.
I guess I think Richard mentioned the R word so I'm sure as you all sit around and think about various economic situations you do have.
Plans for how you add to address any kind of pervasive economic slowdown understanding you're not seeing that in your business yet.
I mean, how would you characterize.
The differences today, and how you should think about operating Royal Caribbean.
Through some sort of slowdown versus you know 2008 2009, when you curtailed you know the the ship orders and all of that I mean, what's different today and how you would go to market.
Yes, sure so I'll start off by sharing by saying you know.
As it relates to the R word or.
Or recession.
Obviously, a lot of our plans and we have many scenarios that we would consider depending on what type of a situation than we were.
In but of course, I think we should all remind everybody and this was somewhat in our in our remarks and Richard's remarks is we now operate a very kind of global and diverse business.
That that's sources guess, obviously from different parts of the world, but I'm also a different segments. We also have itineraries that go to a thousand different places so what's available to our guess is much more.
Diverse and and I would say, it's unfortunate that were still quite a value relative to the land based vacations that we of course, you keep trying to close.
We also have a much stronger balance sheet much stronger liquidity position and I think we would evaluate our sets a plans in case there was a change in the wins.
But as you pointed out and as we've talked about here on the call I'm, we're not seeing any of those changes whether it's in our booking our daily bookings or whether it's the on board.
Trading activities as guests are spending with us each and everyday.
You know that's got a follow up you had at your revolver would you have grown throughout the last recession would you have cancelled or not cancelled, but curtailed ship order as much as you did.
Yeah. There is definitely regret that we have in terms of our pull back on our growth we would all be talking about higher earnings numbers today better return profile today, if we hadnt slowed down our growth or our investment efforts in.
Expanding our global footprint investing in different projects that would have put us in an even stronger position than we are today.
Helpful. Thank you.
Great well with that I'll ask the operator, I'm sorry, I. Thank you for your assistance today, Nicole I'll and we thank you all for participating and the interest you have in the company.
And we will be available all day for for follow ups that you might have actually more so if we get to ask role. If you have any follow ups today and we wish you all a very great day.
This does conclude today's conference call. We thank you for your participation and ask that you. Please disconnect your line.