Q3 2019 Earnings Call
Good morning, everyone and welcome to our third quarter 2019 earnings Conference call I am on old dominate President and CEO Carnival Corporation and plc.
Today, I'm joined by our Chairman Micky Arison, as well as David Bernstein, Our Chief Financial Officer, and Beth Roberts Senior Vice President Investor Relations.
Thank you all for joining us this morning.
Before I begin please note that some of our remarks on this call will be forward looking therefore, I must refer you to the cautionary statements in today's press release.
As you know our company has been closely tied to the Bahamas for many decades and I'd like to extend our deepest concern for those affected by Hurricane Dorian.
Some of whom our own employees business partners.
As a native of New Orleans, My family I lived through a number of hurricane that can only imagine the harsh ships in the wake of this type of storm.
We've already made meaningful contributions to the rebuilding effort in the Bahamas, which were masked by the generosity of the making amount on the Arison family Foundation.
Our shift provided critically important supply directly to the region very quickly as did our partnership with tropical shipping to collect can deliver needed supply to the national Emergency management agency in the Bahamas.
In fact, our entire industry has written up at this time of needs.
Brands and partners in the Bahamas.
Two of our private destinations in the region half Moon key and Chris as Keith both very positive destinations for our guests thankfully sustain minimal damage and were up and running very quickly our joint venture Grand Bahamas shipyard, although in the direct path is also up and running with Bahamian revenues back at work and providing much needed.
Economic contribution to the recovery of the island.
As part of the recovery and rebuilding process, we remain fully committed to our two major new developments.
Our exciting Grand Bahama Island development, and a second development on half in key.
We'll continue our support in the coming months than we have no doubt that the spirit of them, Amy and people will overcome and rebuild to be stronger and more resilient than ever.
Turning to our financial results, we delivered third quarter adjusted earnings per share of 2063 cents.
Higher than the midpoint of June guidance by 11 cents per share and 27 cents per share higher than last year's record results.
For the full year, we are adjusting the midpoint of our adjusted earnings guidance by five cents.
And narrowing the guidance range.
From 4025 cents a 4035.
To 4023 cents, so for 2027 cents.
Primarily due to an eight cents drag from few and currency.
Lower unit cost driven largely by ongoing efforts to leverage our scale more than offset voice disruptions, which in part contributed to lower revenue yields than anticipated in our prior fourth quarter guidance.
David will take you through our guidance in greater detail.
Now I'd like to thank our 150000 employees, who go above and beyond everyday as well as thousands of travel professionals, who support our world leading crews brands.
It was their effort that enable us to overcome and unusually high level of headwinds from economic malaise in some key countries in Europe , including heightened uncertainty around Brexit as well as the aforementioned voyage disruptions, resulting from shipyard delivery delays hurricanes and rising geopolitical tensions.
Which necessitated close end deployment changes in our high yielding destinations like Cuba, and the Arabian Gulf.
As we discussed last quarter, our east segment sourcing, primarily UK and European gas and representing roughly 38% of our capacity has continued to face heightened geopolitical and macroeconomic headwinds, which impacted our operating performance this year.
Continental European team performed very well, especially given the environment and our growth in these markets has continued to outpace general travel.
Growing into contracting travel markets does impact ticket prices in light of the further deterioration in an already challenging economic environment in Continental Europe .
In political uncertainty across the eurozone and reduced consumer confidence we have been evaluating further opportunities to optimize future operating performance and cost.
We're deep into our evaluation have already implemented in action plans to accelerate demand and right size capacity sourced from southern Europe by removing two shifts from the cost to your fleet in fiscal 2020.
Followed by the cost the Mediterranean as previously disclosed, leaving the fleet in May of 2021.
The capacity of these three smaller ships will be offset by the delivery of the extremely efficient 5200 bird cost us marotta. So route is the first new ship deliver for cost in Europe in five years since capacity a demo which is still among the highest returning vessels in our entire fleet.
In addition, the new cost differential will head straight to China in September 2020.
Combination of other moves will result in two Costa ships, leaving the far East base fleet by the end of 2020, including the previously disclosed cost the atlantica.
Also the planned and intentional rotation in the cost the fleet with the removal of these five smaller ships along with the addition of larger more efficient ships like cost us more Aldo should provide the foundation to continue to improve the return profile of the cost of brands.
This is an acceleration of our long term strategy for Costa and will deliver a reduction in capacity growth in southern Europe for 2021.
In addition, we have taken actions on itinerary planning to optimize the current demand environment in southern Europe by reducing exotic itineraries along with their accompanying low yielding repositioning cruises.
Replacing them with more convenient and affordable cruises closer to home and eliminating the costly air component.
At the same time. This itinerary optimization provides further efficiencies by streamlining operating costs since earning Germany as we indicated in June land base tour, operator travel demand has trended down significantly this past year why EDA has grown double digits, but was unable to hold price in that environment.
We now know we were not alone in that experience recently disclosed economic trends in Germany experienced a meaningful deceleration over that same time period.
Despite the current headwinds are either brand has outperformed the German traveling cruise market and is among the highest returning brands in our portfolio with continued double digit growth in operating income.
It is entering a period of slower cruise industry supply growth in Germany, beginning in the second quarter, we should naturally fostered improved supply demand balance in 2020.
Turning to the UK It was unfortunate to see the recent news on Thomas Cook, we extend our deepest concern for those impacted employees and travelers.
And of course, we will protect all our guests who are booked all piano or acute ours.
Despite ongoing uncertainty around Brexit over the past fiscal year, our UK brands have grown revenue yields and profits in 2019.
As you would expect we have seen greater volatility in bookings due to tensions between the UK and Iran. Necessitated withdraw of high yielding Arabian Gulf voyages very close in as well as the no deal Brexit headlines and the resulting negative impact on consumer confidence.
Having said that UK consumers have consistently proven to value their holidays through cycles, and we are well positioned to capture our share of holiday spend given the greater certainty provided by our pound Sterling denominated vacations.
We believe our UK business is well positioned going into 2020 with bookings well ahead of the prior year.
And Nashville, both our existing fleet and for our own in the first new shift for our UK brand in five years and the largest ever purpose built for the UK, which will be delivered just before the peak summer season.
Now as we expected I want to his booking at significant premium to our other UK shifts on a comparable basis.
We remain confident we will continue to outperform the overall travel market despite ongoing challenges in the UK and in Continental Europe .
We built 30 or assets and take decisions many years and advance fully aware that we can that time, the economic cycle that we deliver them into.
Accordingly, we assume every ship, we'll see more than one recession is 30 year life.
As we are demonstrating in southern Europe , if we find these headwinds to be more than temporary in nature. We can it will make the changes necessary to grow profitably.
As we've shown in the past we believe our crews brands will continue to be recession resilient, given the low penetration levels of cruise attractive value proposition and high satisfaction levels relative to land base vacation alternatives.
In North America.
Demand for our brands in the core Caribbean product remains, particularly strong and that's despite the disruption caused by the suddenness of the U.S. government policy change for travel to Cuba.
Also we are beginning to see a lift and ticket price and from a Daniel class as we ramp up our marketing efforts in that trade.
And as we continue to expand medallion throughout the process fleet.
While demand for travel to Alaska is certainly healthy we believe there is a temporary over concentration of supply in 2019, considering the 15% industrywide capacity increase.
Nonetheless, Alaska remains a high yielding market for us with a 2019 season come into a calls we're already working to create demand for our brands to meet the more than 8% capacity increase expected in 2020.
Our brands offer the best way to see Alaska, particularly when paired with our land based products. We have five brands, serving the contemporary premium and luxury segments through 18 shifts ranging in size from 450 birds to 3600 birds.
We have the largest share of the cruise capacity in Alaska at an even larger share of the premium land base crews to our products primarily through process and how we have long been leaders in Alaska.
We are unique in our position Alaska as we own and operate a combined land in cruise experience, we own Tim lodges, three largest where purpose built to combined with our crews products and offer our guests the best and brought US experience at Denali National Park, we have an exclusive rail service with a fleet of 20 don't cards to cynically and seamlessly transferred.
Between the shift in our last network.
We have more weekend crews departures and fully more round trip options from Seattle, Vancouver, Los Angeles, San Francisco, we offer more days important more opportunity to see glaciers as well as other unique highly sought after crews tour programs, so more remote locations, including Canadian Yukon tours and today.
Tours.
With that as number one and taking more guests are less than any other cruise line and how America line just one the cruise critic cruisers Choice Award for best in Alaska as awarded by consumers.
In America line will step up the guest experience even further in Alaska, beginning this summer 2020 with KONI.
One of its newest ships in fact, our approved portfolio coupled with our landbank footprint provides an unrivaled strategic advantage in Alaska.
And we are ramping up our marketing efforts to leverage that and to step up our communication with the trade and consumers to drive greater awareness around Holland America, and Princess as the best ways to experience Alaska.
On the cost side, we remain focused on driving savings through our ongoing efforts to leverage our industry leading scale. We're ahead of plan and now expect to deliver $115 billion better than the $75 million originally projected and bringing the cumulative total to $470 million.
As always if we see an opportunity to drive demand and generate a return we will invest.
On the leadership front, we are excited to announce that Peter Anderson has joined US as head of ethics and compliance that's a new ROE that is bringing together functions and people that were previously distributed across the corporation and complementing that with new talents roles and processes to help take us to best in class and broad base compliance.
Peter whose background as a form of federal prosecutor, along with a wide breadth of experience, including as a court appointed monitor will report directly to me.
Also on the sustainability front I eat apparel it will be fitted with the first lithium ion battery storage system ever deployed on a cruise ship.
The powder cruise ships repulsion at operation for limited periods of time.
This will complement each other industry, leading technology, we've already deployed to reduce emissions, including cold irony and the use of LNG.
In fact, eight and over the first shift from the cruise industry to be solely powered by LNG was recently named the first ever cruise ship to be awarded the Blue Angel certification by Germany Federal Ministry for the environment fourth environmentally friendly ship design.
These efforts all part of our ongoing industry leadership to proactively develop innovative solutions for environmentally friendly operations.
We pioneered the use of advanced our quality systems to reduce emissions and we have an additional 10 next generation LNG cruise ships on order.
Now as you are fully aware, we're truly a global company with nearly 50% of our Geff source outside the U.S.
We have a leading presence in every established market for crews travel with over 6 million crews get annually source outside the U.S.
The global aspect of our business has produced industry, leading position with over $5 billion of annual cash from operations attractive returns on capital and the strongest balance sheet in our industry.
Being global has proven to be a positive. However, we are subject to uneven economies around the world in the short.
We have taken a number of steps to drive results going forward and our deepened analysis, considering additional actions to mitigate any ongoing headwinds.
Now, we're positioning ourselves for 2020 and beyond and will provide further guidance for next year in December .
Over time, we continue to expect to achieve the double digit return on invested capital that we believe our businesses inherently capable of delivering.
Sure. Some of these headwinds proved to be more than short term in nature. As we have always said, we can and will bring capacity more in line with demand if it makes economic sense to do so.
And we've already begun to do so in southern Europe as I shared in these comments.
With that I'll turn the call over to David.
Thank you why now before I begin. Please note all of my references to revenue ticket prices and cost metrics will be in constant currency unless otherwise stated.
I'll start today with a summary of art 2019 third quarter results, then I'll provide an update on our full year 2019 guidance and finish up with some insights on 2020 booking trends and a few whether things to consider for 2020.
As Arnold indicated our adjusted EPS for the third quarter, which $2.63.
This was 11 cents above the midpoint of our June guidance.
The improvement was driven by favorability a net cruise costs without fuel.
The majority of which was due to the timing of expenses between the quarters, while the remainder with due to cost improvements which were realized during the quarter.
Now, let's look at our third quarter operating results versus the prior year.
Our capacity increased 5.8%.
Our North America, and Australia segment, more commonly known as our any brands was up 1.7%.
While our Europe , and Asia segment, more commonly known as our EA brands was up 13%.
Our total net revenue yields were down half a percent.
Now, let's break apart to two components have net revenue yield.
Net ticket yields were down 1.3%.
Our M&A brands were up almost 1% driven by yield improvements in the Caribbean, while our EA brands were down 3.5%.
Net onboard and other yield increased over 2% with increases on both sides of the Atlantic.
In summary, our third quarter adjusted EPS was 27 cents higher than last year, driven by the benefit from 5.8% capacity growth.
3.2% lower net cruise cost per LPD, excluding fuel and finally six cents from the accretive impact at the stock buyback program.
So now let me provide you an update on our full year 2019 September guide.
Our adjusted EPS for 2019, $84 in 23 cents to $4 in 27 cents versus $4.26 per 20 team.
The midpoint of our September guidance is five cents lower than the midpoint of our June guidance.
There are a number of puts and takes driving the changes in her guidance.
First hurricane Dorian tensions in the Arabian Gulf and the previously announced delayed delivery of cost December Outta cost 46 set.
Second.
Lower fourth quarter net revenue yields are forecast to cost six cents driven by a combination of lower net ticket yields and lower net onboard and other revenue yield.
We continue to expect our any brand yields to be up for the year, but slightly less than our previous guidance.
While our EA brands are still expected to be down for the year, but slightly more than our previous guidance.
Third the combined impact of fuel pricing currency cost eight cents.
Fuel prices seven cents and currency as a penny.
All of this was offset by seven cents from our cost improvement efforts, which were finalized during the third quarter.
As well as an additional seven cents a favorability related to depreciation expense the gross accretive impact of our stock buyback program and a variety of other items.
Turning to 2020 booking trends.
At this point in time, our cumulative advanced bookings for the first half of 2020 are ahead of the prior year on occupancy at prices that are aligned with last year.
Now lets drill down into the cumulative booked position for the first half of 2020.
Cumulative advanced bookings for any brands are higher than the prior yearend occupancy and in line Nonpractice.
While cumulative advanced bookings for our E. Eight brands are in line with the prior year on both occupancy and Craig.
Now turning to the full year.
While it is early at this point in time cumulative advanced bookings for the full year 2020 are also ahead of the prior year on occupancy at prices that are also in line with the prior year.
During the fourth quarter 2017, you will see a step up versus prior year in our promotional activity focused on 2020 bookings, which is one of the reasons for the increase in the fourth quarter 2019, net cruise cost per hail, beating excluding fuel in our September guide.
And finally, a few as things to consider for 2020 .
We are forecasting a capacity increase of 7%.
Given that 2020 capacity increased by brand, we will have a negative mix impact of approximately half a percent for both the first half and full year 2020, which will impact our reported net revenue yields.
For those of you who are modeling 2020 .
Using fourth quarter September guidance fuel prices and FX rate.
The impact at the lower fuel prices and the stronger dollar will end favorably impact 2020 by about seven cents.
Lower fuel prices are a favorable penny while currency is an unfavorable eight cents.
In addition on the fuel side, we previously indicated for 2020, we will increase our usage at mgo as a percent of our total fuel consumption as a result of the new high and low sulfur emissions regulations, which go into effect on January Onest 2020.
Again, using fourth quarter September guidance fuel prices.
Fuel mix impact of the higher priced NGL will unfavorably impact 2020 by 24 set.
We currently anticipate mgo to represent approximately 40% of our fuel consumption in 2020 versus approximately 20% in 2019.
For clarity the fuel price impact and the fuel mix impacts are additive when modeling 2020 .
The fuel price impact is done by grade. So we do one calculation for HFO price changes and weren't calculation for NGL price changes.
While the fuel mix impact, we calculate the change in fuel expense due to the change in tight the fuel grade we use in this case that changed from approximately 20% MTO to approximately 40% MGM.
Please note that given the new IMO regulations. It is even more answer at this point in time than most years with next year's pricing will be for either HFO for NGL keep this in mind when using the year over year impact we calculated using the fourth quarter September .
Guidance fuel prices, let me give you the current rules of thumb fuel price changes by fuel grade based again on fourth quarter September guidance fuel price.
For HFO, a 10% change in the current spot price represents an 11 cents impact for 2020 with the impact evenly spread across the four quarters in the year.
For NGL, a 10% change in the current spot price represents at 12 cents impact for 2020 again, the impact is evenly spread across the fourth quarters of the year.
Fuel expense for 2020, using fourth quarters September guidance fuel prices would be 1.79 billion for the full year versus 1.5 billion for 2019.
We currently expect depreciation to be around 2.41 billion for 2020 versus 2.16 billion per 29 team.
For net interest expense, our current expectation for 2020 is around $220 million versus $190 million for 2019.
We will provide the remainder of the guidance metrics for 2020 during December earnings call as we normally do each year.
And now I'll turn the call over telling them.
Thank you David operator, please open the lines for questions.
Thank you, ladies and gentlemen, if you would like to register for a question at this time. Please press the one that followed by the four on your telephone.
You will hear three tone prompt to acknowledge your request.
If your question has been answered and we'd like to withdraw your registration. Please press the wine followed by the three.
If you using a speakerphone please lift your handset before in junior request.
One moment please for the first question.
And our first question is from the line of Greg Badishkanian with Citi. Please go ahead.
Okay.
Great. Thank you Sir your line is open you May proceed with your question.
Okay, we'll move onto the next question. Our next question is from the line John Richardson with Wolfe Research. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my question.
Morning, So good morning, the guidance for this year suggests EPS could potentially contract for using the low end and just based on what you've told us so far with your booking commentary or fourth quarter yields exiting this year the fuel headwind.
Do you think it's reasonable that earnings could contract in 2020 as well and then how are you thinking about the dividend in that context is there a max leverage that you are willing to entertain to continue to fund the current rate. Thank you.
Thank you this way too early to give guidance for.
2020, as a lot of noise out then we will be well prepared to give guidance on the next call.
So that will be starting to guidance.
We're going to work hard obviously to deliver the fourth quarter with all the things that happened in all the noise out there.
Where within striking distance so.
Previous guidance with full year and as far as the dividends concerned. We've said this many times that our dividend payout ratio, we target 40% to 50%.
So.
In the past, we have seen situations, where winds earnings went down the payout ratio went up but we believe that 40% to 50% target is sustainable in the long run and Thats why we chose that and with the strong balance sheet. We believe that fit the dividend is sustainable at that level of course, we wouldn't.
Raised the dividend until we saw earnings call backup.
Got it Okay, and then as we look at Capex through this year is a record year next year is.
Similar to this year in terms of elevated Capex that right. Now obviously you don't have any earnings growth next year, I think could potentially look kind of similar I know you're not.
So you don't get wanting to give guidance on 2020 right now, but then your ROI see is also now declining I know these are two important metrics for you.
So at what point do you start to meaningfully reduce capacity I know you mentioned some tweaks here and there was cost a bit.
I, just don't necessarily appear to be needle movers to your overall capacity I mean, correct me if I'm wrong on that but at what point do you start to get a little bit more aggressive on.
Reducing some of the capacity here.
Well look at it brand by brand trade by trade, which is what we always do I think.
Again, we haven't given guidance for next year, we've had a lot of stress, where we have capacity increase for example in Germany, what our either brand, where we had substantial capacity.
Increase there and obviously with all the things going on under some pressure on yields in different places.
We'll monitor fall over time, we introduce we plan ahead on capacity.
For the ships, we have what plant some years ago, we can always time on perfectly would.
Economic cycles within a given country.
Even trade, but they assets, our mobile and we built 30 year assets, we know that those there your assets about individually faced various recessions over that three year period of time, but overall we're building.
Capacity managing capacity.
To produce results over time.
Turning to the capacity growth.
We look at 2020 Q.
Oh.
All right time slots I'd like to be 5.3%, which is well below the over 6% increase we had expected just three months to that.
And the capacity moves we make our material.
And the trade that.
Brands that we make.
Okay. Thank you.
Thank you.
Yes.
Our next question is from the line of Steve was it ski with Stifel. Please go ahead.
Hey, guys good morning.
So you gave us.
Good morning, our know how you doing.
So you gave a lot of commentary around 2020. This point I know, it's I know, it's still are there I know you're not going to give guidance, but the commentary you've had in the release about booking volumes and pricing since June .
Coming down I guess is really causing some concern and I guess can you help us break down maybe which markets.
Or geographies have weakened in terms of bookings since we heard from you back in June .
So so.
The hard part about looking at the booking volumes and pricing since June is all the noise that is out there in the in the bookings remember we had the Cuba situation, we had the carnival this hurricane Dorian.
Tensions in the rate being Gulf, we had to change the itineraries for oceana, so with all that in ways that is very difficult to read through and it's one of the reasons why there's a little bit greater degree of uncertainty and why we feel uncomfortable trying to give guidance for 2020 it.
This point.
Just to reemphasize, what they were saying we did have during the hurricane we as Arabian Gulf, We had a ship delay smart Aldo now thats going to impact us on the topline with liquid data damages no cash flow wise, we're going to be good with that but there's other ramifications of that.
In terms of future crews credits and short term impacts.
You've got the no deal Brexit situation, obviously the environment in the UK.
Tours not as positive as it was as a clear change in Germany.
Where the.
Travel market is down we've outperformed in Germany versus the travel market and versus crews, but nonetheless is.
Strained environment.
Persistent economic malaise in the rest of Continental Europe , just had a few price spikes. So and then a future crews credits from Cuba Investor. So all of those things and then on top of that a tougher comparison in the fourth quarter gross versus Cubo, although the Caribbean is very strong.
Cuba pricing last year in the fourth quarters not available to us in this fourth quarter. So all those things paint a picture with a lot of noise that.
And with all of that you know the results hit us within striking distance of the guidance. We gave in June on our earnings basis and.
We are preparing.
To take on the headwinds next year and be positioned well.
But I guess, if we do by add on to your European business.
Yeah, I guess the question would be the pressures that are you're seeing over in Europe .
Would that be more related to macro issues or is that more related to over capacity or is that.
Basically equal balance of both those issues.
I think there's no question the macro environment constrains, the ability to grow capacity and grow yields.
Same time, there's a constraint on that.
And then you've got the geopolitical things where again, we had this not just a matter of planning us amenities. The sudden changes so when you have.
Oriana haven't to suddenly change and itinerary that was well booked.
And then change to a different criteria that you now have to book with a much shorter booking window and the similar kind of situation of the happened in some instances with Cuba.
With the Hurricanes those dynamics create a lot of noise now we always plan.
With some things to go wrong.
This year would you bet combo platter of things that overwhelmed even you know our planning and does just that what we would dancing with but longer term.
Europe is a strong market. It is true in the short term we all the index I guess we have.
Three times the number of guess say that ROI will have.
It's U.S. we have.
10 times, a nominal NCL way of ex us so anything that youre not going well that we get more impacted but the reality is on the longer term is served us well and we have the strongest balance sheet.
Were the largest scale and we have great returns overall.
And maybe if I could ask one more quick one for David David can you expand a little bit more in terms of what you were referring to in the fourth quarter.
In terms of higher I don't know, Pete said marketing or advertising cost and I guess, what I'm getting at is.
Can you maybe help US also thinking about the promotional environment. That's out there today and that doesn't mean, you're going to get promotional on price I assume.
No no doubt the first of all the only comment is we're investing to create the demand given the fact, we have a 7% capacity increase coming in next year, and we're going to pre invest of course than wave season that make sure.
We're doing everything we can to create the demand environment, we need to be successful in that that's the overarching term. It is not promotional like discounting. This on but yes go ahead I guess in hindsight is should we use the word advertising.
It was relating my comment was relating to net cruise cost being higher in the fourth quarter and that being driven hot to some extent by the higher advertising on a year over year basis.
Okay. Thanks, I just want to make sure I just want to clarify that appreciate it guys. Thanks.
Thank you.
Our next question is from the line Harry Curtis with Instinet. Please go ahead.
Good morning, everybody.
I wanted to.
Follow up on the on.
The capacity that's that's that's shifting out of your markets.
Well first of all that's you, it's not a huge amount of capacity, but but where is it going.
The ships that were talking about them, because I'm, assuming that you're referring to a.
Different places some are being sent to China somewhere being sent to other markets, where we have strength.
And in some are leaving the police summer again look at least some are being so yes.
Okay. So.
Yes.
As a as going back to Jerry's question.
Hi.
Does it make sense to not just sell these ships, but to actually retire some of the old capacity.
Because that would.
A radically.
Give you an opportunity to to lift pricing on the next tier.
And improve brand image for example is that being considered.
First of all our brands do not have tarnished images of the brands are strong.
They're doing really well, we don't salespeople on old tired ships the ships have to resonate with the gas and so any ship. We have you hit it maybe a 100 year hotel, but it could still be a pristine hotel with great service and Sonus before so thats. The first thing second thing is in terms of disposing of ships when we say.
Well that we don't sell them into competing markets. So when we're not selling chips in some markets, where we're going to be competing directly with it. So that capacity is not only weve in our fleet us is generally speaking.
Leaving the market that we're operating.
And when I say market I mean, the type of crews that we do and and the type of travel experience that we're marketing.
So those will be the two comments, but again, if we get to the point where.
We feel there's a need to.
No we're not afraid to scrap was shot or no.
If there's not a market.
Outside of our market to sell it to at this point no again, we feel pretty confident that.
We are on the right path, we obviously are examining very closely.
Every segment in every trade to see if there's additional moves we need to make we saw a persistence of.
Economic malaise in Continental Europe , especially southern Europe , and persistence overtime Casa has been improving as performance overtime and kudos to our team there to they've done a very good job this past year and with all the other dynamics going on right now we felt it was smart to replace some of.
The capacity, we currently have with much more efficient capacity.
Which is cost us more aldo and so as opposed to adding net capacity.
We'll be replacing capacity with much more efficient capacity that will give us some help.
Both from an operating expense standpoint, but also moderating capacity for the next period of time here. So we can continue to improve performance of costs.
Very good and just my last question is.
Related to.
Kind of.
And renovation and maintenance Capex expense this year, and maybe look and looking out to 2020 to 21 that I believe you're spending between maintenance and renovation capex about $2 billion.
How is that likely to trend in 2020, and 21 and what are you trying to achieve particularly with your.
You are renovation cash capex.
What inning are you win with respect to upgrading.
Some of the existing fleet.
So that the number should be pretty consistent in 20, and 21 is as we move out.
Some of that in addition to Capex in the fleet will go towards Port development.
Yesterday, we.
Put out the press release about that.
About art port facilities and Grand Bahama.
And as far as the what inning we're in.
You know.
Got it take a look at every brand is a little bit different has different average age I mean, some at the brand brands have as Arnold try to indicate in his comments have continually maintain the chef and continually retrofitted them.
To keep consistency across the past Felipe.
So there's always more to do.
As time goes on but we feel that we're in good shape and good consistency across each one of our brands at this point.
But we will never be done it's an ongoing process.
Okay. Thank you very much.
Thank you.
Our next question is from the line of Felicia Hendrix with Barclays. Please go ahead.
Hi, Thanks, a lot.
David.
Hi, there.
Maybe can you just give us some more color on your any a brands for the remainder of 2019. It just sounds like that segment got incrementally worse since the last time, you updated us and I was just wondering what was driving that.
So the M&A brands, there's a lot of things going on there.
Between Cuba and invest staff.
King Dorian lot in delays.
And a lot of challenges in North America.
We saw that challenges in late season, Alaska as well and so overall.
As we have said in our prepared remarks, we had taken the.
The guidance down six cents.
That was attributed both to North America and DTA brands.
Oh.
I'm sorry go ahead, yes, no yeah I was just on a snowball.
Again, the Caribbean is very strong.
And overall we have.
Increase in yields for the year.
In a brands.
There is some I guess in the forecast is down slightly from what it was but but we have increasing yields in any brands overall for the year.
Okay, because the question okay. So.
Cuba, and so for Cuba, and this does those are issues that you knew about last quarter and so like if I could bucket things out or segment things that sounds like just maybe some of the noise. There is lingering a little bit more than you thought.
It's a combination of they so yes, we knew a volatile but you know you have future crews credits and when those good claimed the not claim et cetera, and then I'm just because of the suddenness of them.
It changes.
Rebooking and booking curves and decrease you know.
Noise and so so there's a lot of noise in there, but again since you're talking Cuba, and you're talking to us, though I do want to point out that the Caribbean is very strong.
Thank you for that because I think one of the other items that you threw in their waste Hurricane Doreen I, just think that theres been a concern out there that post hurricane Doreen, there's been booking lull in that might not that might have an extended impact into 2020. So.
It might be a segue into 2020 also because some of your language change there too. So if we could maybe just focused on that one driver.
Yeah, we're not we're not giving guidance, we've talked with the booking trends already for the first half of 2020, but I would say it relates more to the comments about the last six months of booking trends we have all this noise in there.
That and we're sorry, and all that out to see exactly where we are but the the booking trends we share for the first half of next year you're way ahead.
In line on pricing.
Okay, but I know you I can you guys are twice type of 2020, the language changed a little bit too because the bookings are now ahead versus well ahead and is that just mainly from E or is it noise that you continue noise, you're seeing in the Caribbean.
Just.
That was more the North America, the NOAA brands, but it has to do with the booking activity during the third quarter, but suppose the booking activity during the third quarter was down in both in North America and the brain.
Well, we're still ahead.
Right.
Okay and and just.
<unk> and Alaska.
Look I know the industry is gonna grow supplied Alaska high single digits next year, but it is significantly less than the industry group. This year. So is there an opportunity for you in Alaska to do better year over year I know, it's really early.
It's early but clearly.
Less capacity growth craze additional opportunity, but mainly for us we're investing as I mentioned in my comments.
To make certain that the true advantage, we have in Alaska with our strong brands.
Effectively communicated a recognized but I guess our brands. So don't really Wallace a high return market for us as a high yielding market back.
Five years ago, there was temporary over concentration of supply and the Caribbean similar kind of capacity increase and things.
When cellphone yield for a bit but today the Caribbean is very strong well above the peak pricing previous peak well above that base five years ago with substantially more capacity in it and we think over time you all lascaux oil will probably felt the same way.
And finally, just final clarification sitting on I thought you guys had previously said that your IMO and Geo mix with 70 30. So now it's 60 40.
Changed.
No we had said about.
35%.
Approximately.
Remember, we always around these numbers.
It did move up a couple of five percentage points.
We took it we refine the number by taking into account a usage in court as well as.
The commissioning time for some of the installations of advanced air quality systems.
With that are yet to come.
And if there is there a chance that the.
Pricing the IPO pricing improves from what you're seeing now because or.
Those gets lower.
Yes.
If we knew where we go forecast steel pricing would be a really good. So yeah, I always like to cut Imbruvica get worse. If you look at that forward curve. The forward curve will tell you that it will be significantly lower in the January ish timeframe. However, I won't say the forward curve is always a good.
Yes, [laughter], so I'm not here to forecast, but I can give you an FX and the other thing that I do want to point out on the fuel mix with Mgo. We have said this before that as we continue the installation of the advanced air quality systems, we'll see that 40% decline.
Over time back towards that 20%.
Okay, because you're not using the forward curve to put you can your forecast today no I was very specific we use the current spot prices in the that we use for fourth quarter guidance. Okay. Helpful. Alright. Thank you.
Our next question is from the line of Robin Farley with yes. Please go ahead.
Great. Thank you I'm I wanted to ask a little bit about your comments about the early 2020 commentary and and how bookings have been in the last three months I guess.
Thinking about maybe what that rate of decline.
Has been and I Wonder if you could give us a little color on.
North America, which may be disrupted in the last month by a lot of storms and and slotting in things that.
Would maybe be more temporary versus maybe some of the things in continental Europe .
You talked about that maybe you would expect to continue.
Just to try and get it feel for how that rate of change from here forward assuming that volumes.
For north from North American passengers recover to normal levels kind of after hurricane disruption and then also the German market just thinking about the fact theres less.
Supply of much slower rate of supply growth next year in Germany do you have it kind of an early take on.
Is that shaping up to be to be better even I know your your general commentary in the last three months hasn't been.
Okay. So I'll start and then David about May have some comments as well first of all those those forward. Your last one for US Mrs. Germany, again, I want to give our team kudos because they have totally outperform the travel industry in Germany, and they've outperformed the rest of the cruise industry in Germany, but.
But clearly there's been a.
Change and consumer sentiment and overall.
The travel market hasn't sales decline in face of substantial capacity increase that we have this year looking forward to next year this less capacity growth for us and for the industry.
So that bodes well, Germany was able to grow their earnings this year even.
Even even with the noise in the background and so on and so I think our team is as well position to try to drive results next year, and we have to see how deep and extensive whatever the Malays is in Germany will persistency how would affect us.
But there is definitely opportunity in Germany.
The rest of Europe is as we said we made the the modifications that on impact later in 2000.
For the cost of Brian .
No, but the UK.
As did have some short term disruption recently with the Arabian Gulf situation.
That geopolitical tensions caused us to change you know itineraries and shorten the list, which have already talked about that has an impact on these reported numbers that were summarized in bookings over the last three months and so on and so forth.
Also a future crews credits involved and what have you, but all of all the UK market is strong and as I mentioned on the call UK consumer tends to still have a good healthy appetite for holiday and vacation and cruise even when things.
Our goal not as well there.
An economy standpoint, as you might like also we do have the benefit piano and Thats one of the advantages of having the national brands.
That is pound Sterling base, and so it kind of what a lot of the.
Currency fluctuation things that can impact choice of travel.
That.
Other offerings might have and if you move into North America.
Again, the Caribbean is very strong Carnival brand continues to perform really well cut their perform even better without the noise absolutely.
But but the reality is strong and.
North America is.
Going into next year, we were going to study very closely to see what's happening overall, you see some general softness from a lot of this noise and geopolitical noise and other things I even happening today.
But as far too early to predict and give guidance on that yeah. I think we should stop there because by giving more specificity relating to all these booking trends will provide information.
Too far more information than I really want to give to our competitors at this point in time.
Okay.
And then just I don't know if you.
How many comments on on Thomas Cook, and whether that taking that supply out of the.
Sort of broader vacation, Mark and tour operator market in the UK.
Well is that ultimately do you think is an opportunity in terms of picking up share. So vacation Mark when you think about previous times at tour operators to have come out of the market I know it's been a couple of years. That's I don't know if you have any thoughts around that.
We don't have any predictions around the ramifications.
Kind of Sad day, because obviously with all the employees have been been impacted them.
A number of travelers are being impacted as we said on.
My comments.
Protecting although those that were booked on.
[laughter] arch in art.
And then people will still traveling in UK and they'll find a way to do that and does it in the in both even better for crews versus not or for us versus others that at this point I'll ever comment.
Maybe just just a last question on that point is when you just think about.
Your distribution in the UK are you able to.
Replaced what you had been distributing through them through other channels and through direct channels or do you expect any kind of change in your distribution.
Thank from.
Ability to book, yes, when a healthy situation and we'll be able to.
Adapt to the changes.
And be able to continue to perform and in our UK brands are performing.
Okay, Alright, great. Thank you for instance.
Our next question comes from the line Brandt Montour with JP Morgan. Please go ahead.
Great. Thanks, Good morning, guys I'm just a quick question on any commentary around fourth quarter net yield growth I think you mentioned, David that you're Pennsylvania lower onboard growth.
To remind us sort of what what's the onboard growth rate you got generally put one quarter out and is there something your screen.
More passengers kind of in the near term that is causing give me a little more cautious there.
Real quickly, but I would like to just point out that onboard both in a and E.D.A. goal segments. Once again is off this year over last year and I think there's only been one year in the 40 740 years, we've exited onboard revenues have an increase and they're up again.
So that's that's the overarching comment on wallboard revenues, but I'll, let David asked your specific question, yes, again, the the amount of fire in the in the.
The guidance so.
Typically in our around.
Our guidance, we provide something around two ish plus or minus depending on the quarter itineraries and other things.
So in this particular case.
We're just they are still up in the fourth quarter, we were just saying that they wouldn't be up.
Quite as much as we head into June guidance in the fourth quarter and some of that had to do with onboard credits relating to Cuba, which were given to people on board to ship I think we got that total Cuba impact correct. The split between onboard and ticket may have been off a little bit it may have been at some other.
Noise in the numbers, but we're talking about small movements here and just trying to get people some direction and candid with you know we can't really forecasts on where revenues. So we'll see what happens in the teams are working to drive onboard revenue correct. What is impacting our onboard revenue has been on par occupied.
He led to given all of the near term inventory, that's and put into the market and the pricing discipline at the brands are trying to maintain we are up a little bit.
Marginally lower on the occupancy in our forecast versus the last one which has a knock on impact onboard revenue.
That's very helpful. Thank you and then just quickly to circle back on the advertising.
Commentary, just where sort of regionally or were brand specific when you think that does dollars will be focused the mostly then it can you give us enough sense for maybe the cost benefit.
Announced around stepping up that marketing spend what that really to do for yield when you've done this in the past.
I'm, providing that level of detail would probably be gone.
Yes aligned we'd want to go in terms of.
Revealing versus competitive set and stuff, but the bottom line is when we use the word term advertising broadly is a combination of efforts to create demand and.
There is obviously.
Obvious markets.
That.
Anticipate.
That going into solid suggests anticipate zones.
Great. That's it for me thank you.
Thank you.
Well take one or two more questions because we will go over.
Certainly our next question is from the line of Tim Conder with Wells Fargo Securities. Please go ahead.
Thank you Yeah, I'm just wanted to circle back on the North America.
The Orient in what's the with several other items is there way to him to breakout the Dorian impact on from a consumer side.
To 29 to fiscal 19 here and then any any comment you didn't give or anything related to your impacted the grand PAMA shipyard for your ownership position and then how that may disrupt your dry dock schedules.
From that.
Yeah, I'll talk about shipyard real quickly or joint venture there Oh the shipyard we're finalizing.
Reviews of you know exactly what we want to do in terms of the dock that was damaged that decision. They made relatively shortly that decisions being made in mind with all of the partners.
Desires to ensure that we have the most cost effective.
Drydock available.
Those that are coming up to be schedule. So when the middle of finalized and all that with the partners hasn't yet been finalized but.
Is being finalized in the context of making certain that we are.
Cost effective in the repair our new build whichever way, we go in and ultimately.
In servicing the needs of the various partners of the are so [noise].
That's fair to say the shipyards up and running as we speak today servicing ships their ships. There I believe they did put out a press release, indicating that so.
People are back to work contributing to the economic viability of the island and as far as Hurricane Dorian is concerned I mean, if it had an impact on our business. We had a couple of canceled cruises and a couple of crews is where we had a change itineraries and change the embarkation day.
You know we haven't seen anything that is different about this particular hurricane than any other in terms of booking trends or anything else.
Yeah, we see some noise in the booking trends as a result of each and every hurricane.
Okay and David on that specifically could you is there any specific number you can put on the impact or canceled cruises crews credits whatever related to Dorian and 18, yes. They would help give color on some of the prior questions that have been.
Thank you everyone is trying to focus on on North America, and then one other thing I'd like to ask if you wouldn't mind. Thank you for the color on Europe , you didn't mention Asia in your press release.
Can you talk about.
Any weakening that you're seeing there how much of that is due to higher capacity.
From the industry yourselves, putting some overcomes the ships there or are you seeing maybe a reduction in Chinese outbound travel for cruising in Asia, Australia, or UK guests, who would go to Asia or just any additional color on these in general there. Thank you I think the press release refers to the segment is.
The way we define the segment, we say Europe and Asia. If you look at the business in Asia is.
And very strong this year.
You know were up.
Overall, and so we've had a very good year in and Asia, both in China, and Japan, and so you know age of US has done a good business. This year. So we have not seen.
Weakness in Asia this year.
And and we did say that the combined Dorian delayed delivery of cost system around that and the tensions in the Arabian Gulf.
Cost us four to six cents.
In the.
In the fourth quarter, what was interesting is remember the Arabian Gulf Itineraries just changed in late October So Dorian in summer elder were a big a part of that four to six cents.
Okay. Thank you gentlemen.
Thank you.
One last question.
And our final question is from the line Stephen Grambling with Goldman Sachs. Please go ahead.
Thanks for sneaking me in a given all the headwind you're talking to and 2020 I guess what are the levers you have to more aggressively cut costs and protect profitability such as what you saw a little bit and this quarter, maybe asked another way what's the range of net cruise cost I think about should the environment remain weak or even deteriorate further.
Again, we won't give guidance on costs, what I can tell us historically you know we've said you know the target of 70 $580 million just from sourcing improvements and.
This year think as I reported.
We'll be well north of $100 million things hundred $50 million and savings this year, how much of that we put to the bottom line and how much we choose to reinvest and create demand so thats part of our.
Internal planning processes, which will be wrapping up here in a few weeks.
And so as we look ahead, we see continued opportunity.
For sourcing savings on the across multiple fronts and will be advising with that will be as we look ahead, but obviously you know as you saw that happened. This past quarter, we do have flexibility outside of things that or demand specific.
To make changes we need to part of what we're doing also though isn't the case of cost, though what caused the smart Aldo.
It's putting just much more efficient hardware.
So not only do you moderate the capacity by taking out the let's just be actually improving.
Operating base because this is just a lower effect net cruise costs operating vessels. So those are things. We're doing and then we'll continue across base I have data that make a comment yes. So let me repeat what I think I've said a couple of times before in 2020, given the 7% capacity.
The increase that we have coming we get tremendous economies of scale, both the onboard those new ships because they are larger as well on shore side and as a result of that we believed that the cost guidance per 2020 will be better than the cost guidance for 2019.
But I'll stop there who will go through our planning process and we'll give you more detail in December .
That's super helpful. Thanks, so much.
Okay. Thank you everyone really appreciate it and look forward to follow up you guys I'm in the coming weeks. Thanks very much. Thank you.
That does conclude the conference call for today.
Thank you for your participation and ask that you. Please disconnect your lines.