嘉年華遊輪 (CCL) 2017 Q3 法說會逐字稿

Good morning, everybody, and welcome to our Third Quarter 2017 Earnings Conference Call.

I'm Arnold Donald, President and CEO of Carnival Corporation & plc.

Thank you all for joining us this morning.

Today, I'm joined by our Chairman, Micky Arison, via phone from New York; as well as David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President, Investor Relations.

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 statement in today's press release.

As you know, the well-being of the Caribbean region as well as Mexico and the Southern United States, including Florida and Texas, are all very important to the cruise industry, especially for us.

On behalf of Carnival Corporation, I would like to extend our deepest concern for those affected by the earthquake in Mexico as well as Hurricanes Harvey, Irma and Maria, some of whom are our own employees, our business partners and, of course, our loyal guests.

Being a native of New Orleans, where I lived through a number of hurricanes with my family, I can relate to the hardships that remain after the storm passes.

We have been and continue to be active in providing relief to those who have been impacted.

We have already made meaningful contributions to the rebuilding effort in Texas, in Florida and in the Caribbean, which were matched by the generosity of Micky and Madeleine through the Arison Family Foundation.

And our ships immediately provided critically important supplies to several Caribbean destinations quickly after the hurricanes.

Be assured we will continue to bring many resources to bear for those impacted by providing ongoing help and support in the coming months.

Meanwhile, it's important to note that the Caribbean is open for business and is going strong.

I would also like to express my sincere appreciation for our team members, both shore-side and shipboard, who pulled together through the events to ensure uninterrupted operations, especially those employees who volunteered to man our headquarters here in Miami and those who volunteered to relocate around the country, ensuring our business continuity.

And of course, our crew members, our crew members who ensured a phenomenal guest experience in the face of the unavoidable voyage disruptions.

Now turning to our financial results.

We achieved another record third quarter adjusted earnings of $2.29 per share.

That's nearly 20% higher than last year's third quarter, which was, itself, record-setting.

And we exceeded the midpoint of our guidance by $0.11.

Year-over-year for the third quarter, strong operational improvement contributed $0.36 per share to the bottom line.

That's $270 million more than the prior year, enabling us to also significantly exceed the high end of our June guidance range.

Despite ongoing geopolitical challenges; despite itinerary restrictions preventing port calls to some of our most premium destinations, like Turkey; despite challenges in China, including disruptions in Korea; despite Hurricane Harvey; despite Hurricane Irma; despite Hurricane Maria and despite Typhoon Talim.

Despite all these challenges, the strong demand created for our world-leading cruise brands again enables us to increase the midpoint of our previous full year guidance and raise our full year earnings expectations to a range between $3.64 and $3.70.

That is well above the high end of the guidance range we established last December.

And despite fuel and currency both moving against us by $0.33 per share combined, and including the many unforeseen headwinds I just mentioned, that is $0.22 above last year's record full year results.

This performance is a strong testimony to the power of our world-leading cruise brands and a firm conviction in our company's inherent ability to deliver double-digit return on invested capital in 2018 and beyond in a sustained fashion in a broad range of operating environments.

Look, our consistently strong financial performance is through the achievements of our more than 120,000 employees around the world who deliver exceptional guest experiences day in and day out, even when faced with daunting challenges like the recent weather disruptions.

But of course, still, it would not be possible without the strong support of our valued travel agent partners.

And concerning our travel agent partners, just last month, we were honored to be recognized by the American Society of Travel Agents with the 2017 Supplier Partner of the Year award, ranking us #1, making us the top pick across all categories of travel as chosen by the travel professionals themselves.

I could not be more proud of the collective efforts of our 120,000 team members.

We also achieved a number of other accomplishments that position us further along the path to sustained double-digit return on invested capital, beginning with welcoming the luxurious Sheng Shì Gong Zhu Hao Majestic Princess, the first international cruise ship tailor-made for China.

She embarked on her maiden season, sailing from Shanghai with NBA all-star Yao Ming and his wife, Ye Li, both born in Shanghai and both former players on China's national basketball teams, serving as mainly ambassadors during an inaugural ceremony widely covered throughout China.

Majestic Princess has been very well received by our guests and distribution partners alike with unique features tailored for China, including the largest shopping space of any cruise ship, showcasing nearly 1,100 square meters of luxury boutiques.

Other exciting features include a dining experience designed by Michelin Star chef, Richard Chen; an interactive family enrichment program, China Camp Discovery; very popular karaoke rooms; and a large mahjong and gaming area.

Occupancy levels have been very high, as are our guest satisfaction scores.

We remain on track with our strategic lean enhancement program as we continue to deliver more efficient vessels while replacing less efficient ones over time.

As demonstrated by our April sale of Pacific Pearl as well as our recently announced sale of Costa neoClassica, expected to leave the fleet next April; and our P&O Adonia, expected to leave the fleet next March.

We remain on pace with our historical average of removing 1 to 2 ships per year.

Towards that end, we've taken a write-off on assets currently deployed in Australia which are less efficient, with the intention of replacing those assets with more efficient vessels over time.

Additionally, in Australia, we've taken a write-down on goodwill and trademark for the P&O Australia brand.

P&O Australia generates revenue yields, both ticket and onboard, in line with our other brands in Australia.

However, they have a higher operating cost in Australia and a disproportionate number of less efficient assets.

Of course, the write-down is a noncash event.

And in fact, we continue to project record cash flow this year of roughly $5 billion.

Also during the quarter, we further progressed on our ongoing efforts to stimulate demand for cruise globally and well in excess of our measured capacity growth.

As highly anticipated, Carnival Cruise Line began calling in Havana.

Departing from Tampa, Carnival Paradise is the largest ship sailing from the U.S. to Havana today and is capturing attractive ticket price premium.

Holland America created huge awareness and consideration, launching a series of featured cruises in partnership with O Magazine, beginning with Oprah herself sailing on board Eurodam in Alaska over the summer.

Our award-winning travel experience TV shows most recently garnered 10 Telly Awards in their first year of production.

This original programming continues to expand on our strategy to increase awareness and demand for cruise vacations with a broadcast of more than 150 30-minute shows with viewership reaching an audience of over 190 million to date.

Building on the strong ratings from inaugural year, these 3 popular series have been extended for a second season on ABC and NBC.

Season 2 of The Voyager with Josh Garcia premieres on NBC beginning Saturday, September 30.

Ocean Treks with Jeff Corwin and Vacation Creation with Tommy Davidson and Andrea Feczko make their new season debuts on ABC the following week.

We have many more efforts in the pipeline to increase consideration for cruise globally, beginning with the launch of our own digital streaming channel, OceanView.

OceanView is powered by our proprietary ocean experience platform announced at the Consumer Electronics Show in January.

Our latest innovation, leveraging our industry-leading scale, promises to accelerate and expand engagement with compelling experiential content streaming 24/7 for free on land and at sea.

The OceanView channel will go live this Thursday on major digital platforms, including Apple TV, Amazon Fire and Roku as well as shipboard on our corporation's portfolio cruise brands.

Ultimately, OceanView will extend our engagement with our established base of 12 million guests annually as it expands across our fleet.

Further, OceanView will launch with 2 new and inclusive ocean original series, GO and Local Eyes.

On Thursday, we will celebrate our new proprietary digital network with a public relations event in New York City.

So please come join us in Times Square as we take command of most of the digital screens there.

Come check it out in person.

At the event, we will also showcase our new mobile gaming platform, PlayOcean, featuring a portfolio of original mobile games and interactive experiences available on land and available at sea.

This new gaming platform expands gaming beyond the casino into new categories by giving everyone, including cruise fans, gamers and players, the opportunity to engage with our brand through play anytime, anywhere.

PlayOcean taps into the growing interest in mobile gaming by offering a selection of original games that can be played at home and onboard select ships.

Like OceanView, PlayOcean is also powered by innovative ocean experience platforms announced at the Consumer Electronics Show.

Of course, another important way we're leveraging our scale is through the upcoming launch of our Medallion-class experience, featuring Ocean Medallion, which is also powered by innovative experience platform.

Even before implementation, Ocean has created phenomenal awareness for us with over 16 billion media impressions to date.

We are now just months away from the sailing of our first Medallion-class pilot ship featuring a transformational vacation experience.

Later this year, the Ocean Medallion will debut on Regal Princess, followed by Royal Princess.

Another fourth ship will become Ocean Medallion class next year following the planned multi-month refinement period, bringing the total to 6 ships by the end of 2018.

The Ocean Platform will step up our already high guest experience delivery by offering highly personalized travel at scale.

Last and certainly not least, our best-in-class revenue management tool is progressing very well.

The development process has helped maximize the learning in terms of both pricing process and strategy and overall cross-brand collaboration.

In 2018, 6 of our brands will benefit further from these tools.

On the cost side, our efforts to leverage our industry-leading scale are on track.

While we made some onetime decisions this year to accelerate investment in a few areas, have no doubt we continue to focus on managing cost, and that will be reflected in future results.

All of this, all this positions us well heading into 2018.

At this point in time, for the first half of 2018, we are already well ahead on both price and occupancy.

We are truly excited about our strategy to create demand, and it's resonating with our guests by providing even better guest experiences and the latest efforts to increase consideration for cruise globally.

We have so many opportunities to continue the momentum into 2018 and beyond, including innovations like our transformational ocean experience platform, featuring, again: Ocean Medallion, our new guest experience platform; PlayOcean, our new proprietary mobile gaming portfolio; OceanView, our new proprietary digital streaming network; the second season for our 3 award-winning television shows; the launch of 2 more proprietary original content digital productions; and of course, our new yield management system.

All of these efforts are purposefully designed to increase awareness and demand for our portfolio of world-leading cruise brands, building further confidence in the continued path to sustainable double-digit return on invested capital.

At the same time, we remain on track to achieve record cash flows this year, enabling accelerated returns to shareholders through opportunistic share buybacks of $370 million year-to-date, nearly $3 billion in total in the last 2 years, while distributing $1.2 billion in dividends annually and growing.

With that, I'd like to turn the call over to David.

Thank you, Arnold.

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 our 2017 third quarter results, then I'll provide an update on our full year 2017 guidance and finish up with some insights on 2018 booking trends and a few other items to consider for 2018.

I'm pleased to say our adjusted EPS for the third quarter was a record $2.29.

As Arnold indicated, this was $0.11 above the midpoint of our June guidance.

The improvement was primarily revenue-driven, $0.06 favorable, as the increased net ticket yields benefited from stronger pricing on closing bookings on both sides of the Atlantic, while onboard and other yields continued to benefit from a variety of ongoing initiatives.

We also benefited by $0.02 from the net impact of fuel price and currency.

Now let's turn to our third quarter operating results versus the prior year.

Our capacity increased almost 3%.

The North American brands were up over 2% while the European, Australia and Asian brands, also known as our EAA brands, were up 3.5%.

Our total net revenue yields were up 5.1%.

Now let's break apart the 2 components of net revenue yield.

Net ticket yields were up 5.6%.

This increase was driven by our North American brands' deployment in the Caribbean, Alaska and Europe as well as our EAA brands' deployment in Europe.

These increases were partially offset by decreases in our China deployment as previously indicated.

Net onboard and other yields increased 3.2%, with increases on both sides of the Atlantic.

In summary, our record third quarter adjusted EPS was better than last year's previous record-setting third quarter, with a strong operational improvement of $0.36 and the $0.04 accretive impact of the stock repurchase program both being partially offset by the net unfavorable impact of fuel prices and currency, costing $0.03.

Our third quarter results did include a noncash charge of $392 million for goodwill, trademark and ship impairment driven by our decision to strategically realign our business in Australia.

This charge represented less than 1% of our assets.

The charge was included in our U.S. GAAP results but excluded from our adjusted results, given the nature of the charge.

Next, I want to provide you with an update on our full year 2017 guidance.

We are increasing our full year earnings expectation, resulting in an increase to the midpoint of our previous guidance range.

For 2017, our full year earnings expectation is now $3.64 to $3.70.

The increased guidance is a reflection of the strength that we have seen in net revenue yields in the back half of the year, which was enough to offset both the $0.10 to $0.12 earning impact of voyage disruptions and other expenses from the recent Hurricanes Harvey, Irma and Maria; along with Typhoon Talim in the South China Sea; as well as an increase in net cruise costs, excluding fuel.

Our September guidance for net revenue yield is an increase of approximately 4% compared to June guidance of approximately 3.5% or a 0.5 point increase, which includes the hurricane and typhoon impacts.

Excluding the impact of the recent hurricanes and typhoons, we believe our yield increase would have been almost 4.5% or nearly 1 point higher than our June guidance, which is a reflection of the strength in our business.

Our September guidance for net cruise costs, excluding fuel, per ALBD is an increase of approximately 2.5% compared to June guidance of approximately 1.5%.

0.3 points of the increase results from a decrease in ALBDs and additional expenses driven by canceled voyages due to the hurricanes and the typhoon.

The remaining increase is driven by certain pension plan expenses, litigation cost and investments in environmental and other areas.

Now let's turn to 2018 booking trends.

Since June, booking volumes for the first half of 2018 have been running ahead of last year at nicely higher prices.

At this point in time, including the last few weeks of bookings that were impacted by the news flow from the hurricane, cumulative bookings for the first half of 2018 are still well ahead of the prior year at nicely higher prices.

However, it is early and the circumstances are still fluid.

Now let's drill down into the cumulative booked position, first for our North American brand.

The Caribbean program is ahead of the prior year on occupancy at nicely higher prices.

For all other deployments, occupancy is well ahead of the prior year at slightly higher prices.

Second, for our EAA brands.

For European deployments and seasonal Caribbean program, occupancy is slightly ahead at nicely higher prices.

For all other deployments, occupancy and price are well ahead.

And just a few other items to consider for 2018.

We are forecasting a capacity increase of 2.2%.

Given the amount of capital reinvestment in our existing vessels and other areas of our business to drive yield improvement, we do anticipate that depreciation expense will increase percentage-wise more than capacity as it has in the past few years.

We currently expect depreciation expense to be around $2.03 billion for 2018 versus $1.86 billion for 2017.

Although it is early, we believe that we are well positioned for continued earnings growth and achieving our double-digit return on invested capital goal in 2018.

And now I'll turn the call back over to Arnold.

Thank you, David.

Operator, please open the call for questions.

(Operator Instructions) And our first question comes from the line of Robin Farley with UBS.

There are a lot of topics that I'd like to ask about, but I will just maybe stick to this one first, which is -- your guidance is, I think, remarkable given all the concern about disruption and the uncertainty, your booked position.

I wonder if you can talk a little bit about maybe more recent booking trends, just given that maybe it's not clear when some of the Eastern Caribbean itineraries would go back to normal.

How is that impacting new bookings for the Caribbean in the last kind of 2 or 3 weeks?

Thank you for your question.

First of all, I think it's just important to point out that there are so many ports in what we call the Caribbean but overall in the region.

And so many of those ports, the vast majority of them are fully operational.

Beautiful sunshine and beaches and excursions and whatnot, so there's lots of alternative itinerary planning we can do.

There's about 5 frequently -- heavily frequented ports that have been substantially impacted, okay?

And in those 5 ports, I was in St.

Maarten's myself a few days after the hurricane hit.

And at St.

Maarten's, as in many other ports as well, the people there are very resilient.

They're focused on getting things up and running fast.

Things are better today than they were when those places were hit with severe storms in the past.

For example, in St.

Maarten's, they tell me back when Louis hit, it took them 3 months to get power back on the island.

They had power in a bunch of the districts just a few days after the storm hit this time.

And so those places, I'm cautiously optimistic they'll all be up and running, or most of them will, before the end of the year, which places them well for the peak season.

But even without those ports, there's many places we can go.

Our own destinations are in great shape.

And so we have not seen a lot of cancellations.

I'm going to get your question about the last 3 or 4 weeks in a second.

I'll have David make a comment.

But frankly, we have not experienced lots of cancellations.

Cancellations are running, like, 1% right now.

And so things are positive.

So I'll have David comment about the last 3 to 4 weeks.

Yes.

Clearly, Robin, the last few weeks of bookings have been impacted.

As I said in my notes, there's been a lot of news flow on the hurricanes.

And any time you've got that news flow, it's going to impact the level of bookings, and there have been some quiet days.

But we are very well booked for the fourth quarter.

Hopefully, in the coming days, the news flow will reduce and bookings will start picking up again.

But we're well booked and we tried to include in our fourth quarter guidance what we expect to be the impact of the booking trends for our fourth quarters.

Yes.

And I would just say on the comment again -- on concerning the recent -- obviously, during the middle of a storm -- the storms, people weren't booking, people were distracted with other things.

And that's obviously impacted the bookings for that period of time.

But things are returning and they're looking positive.

It's early.

We have to see.

If it stays, in the media, Robin, in a negative way, obviously, that would be a downer.

But we think that there's no reason for that.

It's part of our job to make certain people know that there's plenty of great places to go in the Caribbean, and even those places impacted are coming back.

There's already ships going back to the keys and so things are riding pretty quickly.

That's great.

And maybe just one other question on an unrelated topic, just the write-down in Australia.

And I -- just to understand because I think about some of the ships you have in China seasonally changing to Australia part of the year.

Does this -- does the write-down or the impairment charge change, like, anything with your itineraries or your supply there?

Or like literally nothing changes in your operations?

So the reason for the write-down was clearly around less efficient vessels that were in Australia, that's the bulk of it, and then some goodwill and trademark related to the P&O Australia brand, per se, which had a disproportionate number of those less efficient vessels and also had higher cost, given the itineraries that they run with those less efficient ships and the lack of scale.

So that what's related to that.

But in terms of China, of course, Australia is a opposite kind of summer season for China.

So ourselves and others will move ships back and forth between the 2 high seasons and in those 2 locations, but the write-down has nothing to do with that.

The write-down was strictly related to less efficient vessels and the plan to put more efficient vessels there over time.

Australia is a strong market, has been for us and will continue to be.

And we're looking forward, over time, the ships will come out over time and we'll replace them, over time, with more efficient capacity.

Our next question comes from the line of Steve Wieczynski with Stifel.

So I guess you guys have done a really good job over the last couple of years of extending wave season more into the fall as you essentially incentivized your customers to book out earlier.

So I guess the question is, do you guys think this year's wave season could be delayed a bit and go back to a more kind of normal wave season, given consumers' possible hesitation around booking a Caribbean cruise right now?

Well, I think again, we're right in the middle of it, and so it's hard to say what's ultimately going to happen.

But it's our job to make sure people know there's no reason to wait, that the Caribbean is a wonderful place to go, many places to go there.

We have 40-plus ports that were unaffected; plus, our own destination, plus all the ports in Mexico weren't affected.

So there's plenty of places to go.

So we'll see.

We did have a little disruption for the few weeks here.

We're still in hurricane season, so we have to be fluid and pay attention to this.

And we're still in media season.

So hopefully, the media will begin to show the fast recovery and all the wonderful places there are though.

I mentioned I was in St.

Maarten's.

I was in Nassau.

The Bahamas, of course, they are wide open right now.

I was in Nassau just last Friday and things look good there.

Plus going into next year, we already have -- we're ahead, and so we have less inventory to sell now in '18 than we've had in previous years.

Okay, great.

And then second question, I guess moving over to China right now.

There's a lot of news out there in the marketplace right now.

Obviously, you still have the Korean travel ban that you're trying to work through.

But there's rumors now that potentially, there could be travel bans around coming to Japan.

And I know there's capacity next year for 2018 is going to be down.

But can you just maybe fill us in, in kind of how you're thinking about that market right now as we kind of move into next year around the travel bans?

Yes, sure.

Right now, obviously, we're planning to go as normal.

But should -- technically, there are no bans, of course, as you know.

But the Chinese are not going to Korea right now.

And if it turns out that, for some reason, they're not going to Japan, then we'll have to do what do we do in other places in the world, which is change itineraries and figure out.

Maybe we'll do -- see if we can get approval for some just domestic sailings in China, maybe some extended sailings down to Southeast Asia, to Thailand, Vietnam, other places.

But we'll reconfigure and do what we need to do.

The good news in that is it's less than 5% of our capacity in China.

It's only a few ships.

And again, if that were to occur, it would be one of those deviations like all the stuff I rattled off in opening here that we just have to manage through.

And every year, we don't plan for specific occurrences, but we know there are going to be challenges.

Every year, there's geopolitical issues.

Every year, there's disease scares.

Every year, there's typhoons, cyclones, hurricanes.

Every year, there's overcapacity in some market.

All that stuff happens year in and year out, and we just have to consider that as normal state of business and be prepared to manage it.

And as you can see, so far, we've been able to do that.

Our next question will come from the line of Felicia Hendrix with Barclays.

And just wanted to thank you for how helpful this release has been and the prepared comments because there's obviously been a lot of uncertainty heading into your earnings.

Thanks, Felicia.

So we've talked a lot so far about this booking lull that's come.

You've had your 2 major markets, Texas, Florida, distracted.

There's a misperception about the Caribbean and what's available and what's not.

And you talked a bit about maybe the media picking up.

But I'm sure you, Carnival, aren't just also going to sit on your hands waiting for the phones to ring again.

So just wondering if you could kind of touch on how Carnival is going to -- is planning to stimulate demand.

And I'm wondering there probably is some kind of booking hole a bit due to the lower call volume.

Should we expect to see some discounting?

Or will the demand be stimulated more through strategic promotional activity?

Well, at this point in time, we're well ahead on bookings and well ahead on pricing.

Fourth quarter, we're largely booked already.

And so at this point, we're not looking to stimulate with pricing.

It's a fluid situation.

If that -- if it calls for that at some point, obviously, we'll make an economic decision.

But at this point, that has not been the case.

Our plan to simulate are first to get the good news out via the, media, to continue deliver on the ships.

Obviously, we do a lot on social media.

We have lots of people sailing right now in our ships in the Caribbean.

And we're doing lots of social media with the folks on the ships as well as social media outside of the people in the ships to make certain people are aware.

You mentioned Florida and Texas.

Of course, media impact there, in many cases because the travel agents themselves, their offices were closed, right?

I mean, they shut down for the storms or whatever.

But even in the Midwest, of course, where there might be less geographic sensitivity and they hear there's a storm in somewhere in the Caribbean, they think the whole Caribbean is gone or whatever or they see something on CNN that's highlighted one part of one island, and they think every island in the Caribbean looks that way.

And so that's something we have to purposefully combat and offer people just the true picture.

And that's our job.

That's what we have to do.

And so far, we're doing that.

And we'll have to see, it's fluid.

And we'll have to see how it goes.

But at this point in time, all I can tell you is what it is, we're ahead on bookings and price.

We have less inventory to sell next year.

And at this point, we haven't engaged in any big discount.

And we've been working with our travel partners to make sure everybody is fully aware that the Caribbean is open.

As Arnold talked about before, more than 40 ports where we can take our guests.

There are only several that are closed.

So we're very encouraged.

And it is a fluid situation, and we'll monitor it.

And as Arnold indicated, we will make decisions as we go along and do what's necessary.

And then just a lot of people have been, as we've all been trying to analyze the impact of these 2 major storms, and a lot of people have been using Katrina as a proxy in the aftermath, right?

And so directly after Katrina, at the time, Carnival took a bunch of charges, but there was a $0.03 hit directly from the Katrina for the fourth quarter.

But then there was this unanticipated about 1.5 years of residual negative impact to the industry and to Carnival following Katrina.

So can you just help us and the investors understand why this may be different this time and why you think that cruise performance in '18 should not be similar to that of 2006?

I mean, is it solely because of how strong the booking curve is?

Or maybe you could just kind of differentiate the 2 situations for us.

Well, I'll give some comments and then I'll ask Micky to give some comments, too, since obviously, he lived that first hand.

But for us, first of all, the one thing that's different is we have much more momentum.

We're working much harder to create demand.

So there's a lot more going on from a demand creation picture today than existed back then, and that's a huge difference.

We're also going in with lots of momentum for the year, which wasn't necessarily the case back then.

The embarkation destinations and stuff were impacted disproportionately in '06 versus this time around.

And so embarkation versus transit is a much bigger difference.

You have to get the airlift back in.

There's a whole bunch of dynamics going on there.

And so in some regard so far, it's still a fluid situation, it's still the hurricane season.

But so far, that's a huge -- another big difference.

But having said all that, I think the biggest difference is where we're positioned today, the fact we are proactively creating demand, the fact that we are working with media today so they kind of present a fair picture and help inform people what the real situation is.

And we have a much larger base now of previous cruise-goers who understand and know, and that also allows us to continue to perform.

But Micky, you might want to share, at this point, any comments you have about the historical perspective.

Well, the huge difference so far is that with Katrina, we lost a key home port.

And losing a home port is totally different than what we've experienced to date.

Obviously, there's still a question about San Juan as a home port, but we only operate one Fantasy class ship out of over 100 ships in San Juan, and hopefully, that will be open again in a few weeks.

You have to remember New Orleans was basically closed for a couple of years and we had chartered ships to the government to try to make up for it.

Houston, as an example, you say, "Well, but isn't Houston similar?" Houston, we operated the very next weekend with 3 ships that sailed absolutely full with just a handful of cancellations to mention.

But it's a totally different situation thus far.

As Arnold said, though, the hurricane season isn't over, so we have to be a little bit cautious about what happens to the rest of the season.

I would like to add that, unlike in '06, where we were alone to chartering to the government and helping out in New Orleans, I have to say I'm extremely proud of the way the industry reacted to these hurricanes.

And I don't -- I clearly am not talking just about Carnival.

I'm talking about Royal Caribbean, NCL.

Everybody was falling over themselves trying to find out how they can help, what ships they can send, what people they can evacuate, what supplies they can send.

And that was the entire industry, and I have to say I'm really proud of the way everybody responded.

Thank you, Micky.

And is there any chance you guys will tell us how booked you are for 2018?

You can always use the historical averages that we give you by quarter.

And just we're close to the high end of those historical averages, which kind of give you a good feel for where we are.

Our next question comes from the line of Greg Badishkanian with Citigroup.

Great.

So 2 questions.

First, just as a follow-up, obviously, you're well booked for next year, well ahead on pricing and occupancy.

Is there a point where you would start to get nervous where if the booking pattern didn't recover, that 2018 won't turn out to be, like, another strong year?

Is there a -- Thanksgiving?

Or is there some date where you want it to return to normal?

Yes.

Thank you for your question.

It's true, we have a bunch of different brands and they all have their own optimized booking curves to maximize yield and returns, and so they're all monitoring daily and constantly.

There's not like one date that's a drop-dead date.

It's more where you're on the booking curve along the way.

And obviously, we need a little bit of patience for the obvious disruption when the hurricanes were happening and stuff.

So -- but beyond that, we're watching how quickly things return and we'll make the necessary adjustments.

We've reflected all of that in our guidance for the quarter.

And then concerning for 2018, it's early yet.

And all we can tell you is what we've told you.

All right.

Okay.

And just to follow up on Europe.

So North American passengers going to Europe.

Has this had, if you just even look at the last week or 2, has the weather had an impact on booking trends going to that market since it wasn't impacted by the hurricanes?

Yes.

There's not a lot left in the European season, the seasonal European season for the North American brands in terms of left to sell because we are well booked.

And the season really just goes through the end of October.

So we haven't noticed anything significantly different.

But remember, it's just a small amount of sales that you would have expected in early September for those voyages.

And what about booking out for 2018, European sailings by North Americans?

Is that...

No, nothing significant.

We haven't noticed anything other than bookings in the Caribbean.

Our next question comes from the line of James Hardiman of Wedbush Securities.

Thanks for all the helpful color to try to tease out the various factors here.

There's a couple of stats that you guys referenced.

I was hoping to get just sort of a little bit more color.

The 40-port stats that are open in the Caribbean, what's the denominator on that?

How many total ports are there?

And Arnold, you talked about 5 impacted ports heavily trafficked by cruises.

I think you mentioned St.

Maarten was one, San Juan, but what would the other 3 be?

Okay.

So the other ports, we've got Grand Turk, which is our own...

No, the high -- the top ones are St.

Maarten's, St Thomas, San Juan...

Dominicana.

Dominicana, Tortola.

Not so much for the North America brands but some of the European brands are pretty active in Tortola and Dominica.

And they wouldn't be sailing there right now anyway.

They'll be coming up later in the year and we'll see how those -- but there are alternative ports that they can go to.

Did I answer that part of your question?

You wanted to know the denominator.

I think in terms of where people really go, ballpark, we can ballpark it.

I'd say in total, maybe 7% to 9% of the ports in the -- what we would call broadly the Caribbean, Southern Caribbean, Western Caribbean, Eastern Caribbean, would have been severely impacted to the point where they were shut down for some period of time.

So something like that, okay, is the (inaudible).

But the vast majority of ports are open.

And again, there's options and alternatives and plenty of fun places for people to go and do things and enjoy the great vacation experience and the great vacation value that cruising is.

Very helpful.

And then the $0.10 to $0.12.

I guess 2 questions on that.

Was there any 3Q impact?

Obviously, Harvey was the very end of August.

So I guess, a, was there any 3Q impact?

And as we think about the $0.10 to $0.12 in the fourth quarter, can you just help us visualize the various buckets of what that represents?

I'm assuming the majority of that is cruises that were extended with no revenues associated.

But I'm guessing there were some cruises that never departed.

I'm guessing there were some credits that you were giving passengers.

I don't know if the aid that you provided contributed to that number as well.

Can you just give us some color on how to think about that $0.10 to $0.12?

Sure.

Well first of all, in the third quarter, there was a little bit less than $0.01 impact, negative impact as a result of Hurricane Harvey, but if was tiny.

The $0.10 to $0.12 was in total for the year, including that impact.

$0.09 of the $0.10 to $0.12 were canceled voyages, expenses we incurred, some lower occupancy on the voyages that took place.

Immediately.

Immediately after Irma.

And the other $0.01 to $0.03 is the estimated booking impact to the fourth quarter.

Perfect.

And then I guess, just very lastly here, I think we generally know that wave season is an extra busy time for bookings.

How big is the month of September typically?

And then assuming that Florida and Texas are the markets that are being most impacted in terms of bookings, any idea how significant those markets are in terms of booking actual cruises?

Overall, this is a low booking period normally anyway seasonally.

Just the time of year is a low booking period.

So that, in a way, is helpful.

In terms of the specifics, David.

Yes.

But I mean, if you come down to Florida at the moment and you look around, other than some piles of trees and things on the front of everybody's lawn that needs to be picked up, South Florida and most of Florida is back in business.

There were some areas that were more heavily hit.

So our expectation, is yes, there are a few people who were impacted.

And those who were directly impacted, particularly in Florida, are small numbers.

But the rest are back in business and life is continuing.

And so we're very positive about the future.

And similarly in Texas, we don't see any extraordinary slowdown or negative impact at this point.

Our next question comes from the line of Jaime Katz with Morningstar.

So I'm curious about the components of yield growth, and it looks like this is the second quarter where you guys have pulled together ticket price growth that has been faster than onboard growth, at least on an as-reported basis.

And so I'm wondering, anecdotally, if you have seen less incentives are required to motivate consumers to get on the ships, and whether or not that's disproportionately benefited any of the brands over other brands.

Well, I would say that the greatest incentive for people to get on our ships is the reality that it's a great vacation experience and it's already a great value.

So we haven't done extreme discounting or anything like that to fill the ships in quite some time.

We do offer incentives and packaging of some onboard activity options and that sort of thing.

And along with the booking curve, there are combination of things that are offered at different stages across various brands.

But if I understood your question, we really haven't seen a need to drive all kinds of special deals.

Basically, we're creating demand.

The brands are very assertively doing that in their own brand, individual brand promotions and activities.

We talked about OceanView and OceanPlay all that today.

That has global footprint.

We didn't talk about the shows.

We talked about the shows in the U.S. base for you guys.

But frankly, we have shows in the U.K. We have shows in Italy.

So we do global demand creation.

And I think that's frankly been the biggest driver.

That combined with the execution on the ships which exceeds guest expectations.

And word of mouth remains our most powerful marketing tool.

Okay.

And then for first half results looking as strong as they do at this point, given the uncertainty in the North American market maybe with the weather-related headlines, are there any European countries that have been performing noticeably better this year relative to past years that are worth calling out?

I would just say in general, overall, our European brands have enjoyed a strong year as is evidenced by what we shared with you guys.

And so overall, it's been really great.

If you wanted to single out countries, I think practically speaking, you'd have to single out Germany as doing even better than the others only because with the capacity increases in Germany and the number of people cruising, that the penetrations in that market, the number of people cruising, is starting to outpace any other country in Europe, although the Brits would like to give that a run for the money.

And so I would say Germany continues to be particularly strong.

But overall, we're doing well in Europe.

Our next question comes from the line of David Beckel with Bernstein.

My question -- my first question is about the drive-cruise market for the Carnival brand specifically.

I was wondering, can you give us any color on what percentage of occupancy typically comes from drive-cruise, and maybe specifically Florida as a percentage of your overall Carnival brand occupancy?

And given the widespread, I guess, I'll use the word destruction, but it sounds like things in South Florida are okay, the rest of the state did suffer quite a bit of damage.

Is that something that maybe concerns you looking out into the early and midpart of next year?

Well, as I said, ships are starting to go back to the keys already.

That was the place that suffered the most severe direct impact, I guess.

The Western Florida coast, Naples, Tampa, et cetera, again, as sort of what David said, primarily is clean-up.

A lot of trees and stuff down, but power's back on.

People are in offices and things are -- life is going back to normal.

From a ships and ports standpoint, we were able to go into the ports we need to get into.

And people were able to drive and get there.

So at this stage, that would be an overall comment.

We don't give a lot of details by brand specifically, but I think overall, we could give you some directional stuff about drive market and the number in Florida.

Yes, I think we've said many times.

And I think it's 50% of America lives within a 6-hour drive of the Carnival homeport.

So the drive-up market is important to Carnival Cruise Lines.

And it is a big part of that business and is part of their success.

But the drive-up market does expand outward.

It's not just within an hour or 2 drive of our home port.

People are willing to drive the whole day.

And you go to the ports, and whether it's Galveston, Mobile, New Orleans, Charleston, Beaumont; and of course, all the ports here in Florida, they're up and running and people can get to them.

That's really helpful, appreciate that.

And a question about destinations.

You mentioned that some ports are more affected than others but they'll eventually get up and running, say, by the end of the year.

Has there been situations in the past where a port was up and running by the destination itself was not desirable for one reason or another because the plant and infrastructure wasn't quite built up to receive tourists?

That happened in New Orleans, of course, back when Katrina hit because it took out the whole city, pretty much.

So that was definitely the case for New Orleans.

I would say, as I said, I was in St.

Maarten's.

And look, we don't know yet.

We have to see what happens.

But what I can tell you is the resiliency of the people, the focus they had.

They were already cleaning up.

Power was back up in a number of areas.

A number of people, even in St.

Maarten had been unaffected, their home as unaffected, et cetera.

But the boardwalk there has sand on it.

There was a large ship that floated up into downtown.

The marina was ransacked with wind and what-have-you.

But most of that stuff's cleanup.

We have a excursion there we own, and we were going to open it.

In fact, the day I visited with the day we were going to open it.

And obviously, we didn't with the hurricane.

But our excursion, which has zip-lining and a number of other venture things there in St.

Maarten.

It is going to be up and running by December for sure.

So that one, I know because we have control and we know exactly what's happening with it.

I would suspect that some of the excursions, especially the ones beach type and water things would be operating even sooner than that.

And so again, we have to see.

I don't want to over-promise.

If that doesn't happen, there are many places to go in the Caribbean.

We have destinations, Half Moon Cay, Princess Cay, our private islands.

We have Mahogany Bay in Honduras.

We have Cozumel, we have operations.

We have a number of -- Grand Turk.

We have a number of places that we own ourselves that we can take guests and have the highest rated guest satisfaction scores of any destinations.

And there are many places in the Caribbean that are open for business.

And all of the Bahamas and the Southern Caribbean is completely open, et cetera.

Our next question comes from the line of Harry Curtis with Nomura.

Pretty much most is answered.

Had sort of a dark question, but it's really one that's important because your point of embarkation in Florida, I think that it's generally -- there was a sigh of relief when the eastern side of Florida was -- didn't get the brunt of the storm.

What kind of -- can you discuss the infrastructure resilience?

And in the port of Miami, should a Cat 4 or Cat 5 hurricane impact your points of embarkation in Eastern Florida?

I think unfortunately, Cat 4 or Cat 5 gives you an intensity of a storm, but it doesn't really tell you the damage and risk because there are so many factors in a hurricane.

For example, if you look at Turks and Caicos, they got directly hit with a Category 5. And for (inaudible), the main city there, is pretty much intact, okay?

At the same time, and some other places that got hit when the storm was down to a Category 4 and they have much more severe damage.

So it depends on so many things, storm surge.

It depends on height of buildings because the winds are higher 10 meters up than they are lower.

Depends on how the structures are connected.

So many different things factor in.

So for the port of Miami, it's Miami.

So Miami is pretty much engineered, in many cases, to take hurricanes.

And if you look around the world, even in New Orleans for that matter, the ports come up pretty quickly.

The question is what happens with the rest of the area and access to ports, air lift to get in and so on and other services.

I would say anything can happen.

First of all, it's very difficult, as you can look out over time for a storm to hit Miami directly, even this one.

They tend to either hook or slice just because of the nature of the weather and all that.

But if they do hit, then I would say that Miami is as prepared as any major metropolitan area to recover.

And then I just have a housekeeping question.

If my math is right, David, is the implication on share repurchase that since the end of the third quarter, you've bought just over $200 million worth of stock back?

That's correct.

Our next question comes from the line of Tim Conder with Wells Fargo Securities.

Thank you for all the explanations you've given on the call here.

Maybe to drill a little bit in, just to ask the question, one more angle on it here.

Have you seen the bookings in this pause that we have seen here for the Eastern Caribbean itineraries in particular, be impacted?

And I guess, clearly, that's what you're watching here, looking especially for the first half of '18.

And I'll ask a similar question related to the China.

Given the ramp in North Korea rhetoric, have you seen any impact of bookings or pricing for Chinese consumers in the Asian market as a result of that over the last couple of months?

Yes, thanks for your question, I'll take the China part.

No, we haven't seen any big booking trends related directly to noise around North Korea tensions or anything like that in China.

So that's a pretty straightforward one.

So no, I haven't seen -- we haven't seen anything.

David?

And on the Caribbean.

So we are paying very close attention to all itineraries.

But we have -- as we talked in our comments, we have seen a slowdown in the Caribbean bookings in general because of the news flow.

And that's why what we're trying to do is make sure everybody completely understands that the Caribbean is open for business.

They're going strong.

There's many great ports to go to.

And I won't take the time to reiterate everything that Arnold previously said, but it's important we work with our travel partners, get this news out to make sure everybody understands that it's a great opportunity to have a great onboard ship experience and a great port experience in the Caribbean.

And people are sailing there right now and having a great time.

Okay, okay.

And one last question, any updated commentary related to China capacity for the industry in 2018?

There's, I guess, mixed reports.

One of the industry publications are saying down 13%.

Just any color that you can give, an update on the industry capacity there for '18?

Yes.

For 2018, from what we've seen for the industry, the expectation is it's pretty flat.

Yes.

I think more directly said, but I have to tell you that I understand why you asked the question.

But the reality is China is still an embryonic market.

It represents a very small percent of industry capacity, certainly a small percent of ours.

It's still a -- it's going to be up and down because it's an embryonic market and it's a B2B market still even though people, including ourselves, are trying to expand distribution, get to a more typical market type of dynamic from controlling pricing.

When I say control, affecting pricing through a distribution channel that's more direct and so on.

All that's on the way but we're really still tiny relative to the overall outbound tourism base in China.

We're still tiny relative to our overall capacity and the market is still evolving.

Long term, it's going to be a huge market.

But right now, everybody's gotten their number of ships, and there's only so many ships that can be there.

So flat or down 13%, to be honest with you, I don't even know it if makes much difference in China at this point.

Operator, while we chose to let the call go over to answer as many questions as we can, well, at this point, we'll take one more call.

One more question, yes.

And the final question comes from the line of Jamie Rollo with Morgan Stanley.

Yes.

Just 2 quick questions...

Jamie, they always save the best for last now.

Go ahead.

No pressure, then.

On so just 2 questions, please.

First, on capacity growth for the Caribbean next year.

I think you said on the last call, you were up 4% or 5%.

So do you still expect to be at that thicket?

Or might you reduce it?

And what you think the industry capacity growth is for next year for the Caribbean?

And then on costs, I think your 100 basis point increase in cost guidance, I think 0.7% was from extra dry docks.

I'm just wondering, does that reverse next year?

And apart from the depreciation comment, are there any other sort of big cost factors we should think about for 2018?

Yes.

I'll let David comment on the cost first and then I'll handle the other question to wrap it up.

Go ahead.

So, Jamie, on the cost side, the other 0.7 wasn't dry docks in comparison to our June guidance since the 1 point increase.

We said 0.3 points was related to the lower ALBDs and the additional hurricane expenses.

And I gave some examples in my commentary on what the other 0.7 points were.

It was the pension expense.

It was the additional investments in environmental and other areas and there was also some litigation costs.

But on a full year basis, back in December, 0.7 points of the year-over-year increase was related to dry dock.

And most of that dry dock cost actually seems to be hitting in the fourth quarter, which, as you would expect, is the slow time of the year and the time of the year that we choose to dry-dock a lot of ships.

And then concerning the Caribbean, we -- the industry's going to be up a little over 6%, I believe.

We're up in a little over 5%.

We have absolutely no intention of reducing capacity in the Caribbean.

It was up 6% this year, and you can see we did well.

The Carnival brand outperformed, and overall, we did on the -- we did well in the Caribbean.

And we think we are doing a decent job of creating demand.

We still think there's some consumer attitude tailwind that's helping us as well.

And at this point, we are not giving guidance for '18, but that would be the circumstances we see.

We don't have any intentions of reducing capacity in the Caribbean going forward.

That answer your question, Jamie?

Yes, it does.

Thank you, everyone, for participating.

We really appreciate it.

Again, we're totally committed, as you guys know, to achieve a double-digit return on invested capital in 2018.

We feel we're well positioned to do that, and we thank you for your time.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.