嘉年華遊輪 (CCL) 2018 Q3 法說會逐字稿

Good morning, everyone, and welcome to our third quarter 2018 earnings conference call.

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

Today, I'm joined by our Chairman, Micky Arison; as well as David Bernstein, Chief Financial Officer; and Beth Roberts, our 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 statement in today's press release.

We delivered a record third quarter, earning $1.7 billion on revenues of $5.8 billion, the highest quarterly performance in the history of our company.

Adjusted earnings of $2.36 per share were higher than last year's record-breaking results of $2.29 and $0.09 above the midpoint of June guidance.

Once again, our operating performance overcame fuel and currency moving against us, this time by a further $0.02 per share compared to our June guidance, bringing the total drag to $0.08 for the quarter compared to the prior year.

Strong execution will deliver a further $0.09 of improvement to the bottom line this year compared to our June guidance, more than overcoming a further $0.06 drag from fuel and currency, enabling us to increase our full year guidance by $0.03 from a range of $4.15 to $4.25 to $4.21 to $4.25.

Again, these results are a testament to the efforts of my fellow very passionate team members across our company globally who go above and beyond every day and of course, also a testament to the tens of thousands of travel professionals who so enthusiastically support our brands.

On another note, since we released our sustainability report this quarter, it is appropriate to point out the combined efforts of our 120,000-plus team members, all who furthers our strong commitment to sustainability, helping to achieve a 26% unit reduction in carbon emissions since establishing the goal to passing our 2020 target 3 years ahead of schedule and leaving us on track to achieve 9 additional sustainability goals, as discussed in our recently published annual report, Sustainability from Ship to Shore.

We also closed the quarter on another positive note, celebrating the naming of our AIDAnova at a spectacular open-air concert and light show by Grammy-winning DJ and producer, David Guetta, at the Meyer Werft shipyard in Papenburg, Germany.

The sold-out event was attended by more than 25,000 people and viewed online by thousands and thousands more, another example how we create demand for our world-leading cruise line brands.

This next-generation ship was designed exclusively for our German guests and reinforces our leading industry presence in Germany, twice that of our closest cruise peer.

AIDAnova is also significantly more efficient.

In fact, she is over 20% more unit cost efficient and over 35% more fuel efficient than the AIDA fleet average, which bodes well for returns in the future.

AIDAnova makes history as the world's first cruise ship ever to be powered in port and at sea by liquefied natural gas, which is yet another of our many efforts to further our environmental stewardship.

During the quarter, we completed contracts for 2 more next-generation ships powered by LNG, both by our Princess brand to be delivered in 2023 and 2025, bringing the total number of ships on order fully powered by LNG to 11.

Other ongoing efforts by our brands to create demand this past quarter included: Carnival Cruise Lines launching Homeport Advantage campaign, highlighted by a customized airship.

The blimp visited a number of critical port cities to raise awareness for Carnival Cruise Lines' industry-leading 18 U.S. embarkation options.

In the process, Carnival showcased 4 of the fleet's ships.

In fact, just last week, the Choose Fun airship came to Miami to welcome Carnival Horizon to its new year-round homeport.

It was done with a well-publicized event hosted by Carnival's Chief Fun Officer, Shaquille O'Neal, and players from the Miami Heat.

This month-long campaign has garnered nearly 200 million media impressions.

Holland America announced a partnership with Rolling Stones to create Rolling Stone Rock Room, bringing a live classic rock experience to its innovative Music Walk, complementing Lincoln Center Stage, Billboard Onboard and B.B. King's Blues Club.

Holland America Line has also partnered with O Magazine for a new Girls' Getaway Cruise to be offered onboard their next ship, Nieuw Statendam.

Oprah Winfrey, the ship's godmother, will personally join this very special sailing.

Princess topped 1 billion media impressions on the back of the Summer of Shark campaign, building on the strong partnership with Discovery Channel and the 30th anniversary of Shark Week.

Also, luxury brand Seabourn received approval to begin sailing to Cuba, featuring 5 ports of call in Cuba.

Seabourn is our third brand to offer departures to Cuba, joining contemporary Carnival brands and premium Holland America.

In total, we have 7 ships and 80 calls in Cuba next year, 50% more than this year.

In the U.K., P&O Cruises revealed the name of its newest ship, Iona, in a social media event featuring U.K. TV personality, Stephen Mulhern.

Iona opened to strong demand with its first day of sales achieving double the record volumes Britannia had 4 years ago.

For Cunard, new global deployments have been driving strong demand.

They just completed the third Transatlantic Fashion Week, a very successful program.

Next summer, Cunard will return to Alaska for the first time in 20 years, which has also been booking very strong.

In Italy, Costa celebrated its 70th anniversary with a highly publicized festival in hometown Genoa, drawing 120,000-plus attendees and millions of media mentions.

We also made meaningful progress on our innovation efforts this past quarter, again putting our industry-leading scale to work.

As you know, this quarter, we completed the rollout of YODA, our state-of-the-art revenue management, to 6 of our brands, which will continue to drive incremental revenue, particularly in the second half of 2019 and beyond.

We achieved a major milestone this quarter in our measured ramp-up of our OCEAN platform, having our first full ship, Caribbean Princess, with all guests onboard experiencing Ocean Medallion class cruising.

Guest satisfaction scores onboard Caribbean Princess for the period are up substantially and are among the highest in the fleet.

We continue to make refinements and add more features while pacing ourselves toward expanding deployment across the Princess fleet.

We are closing in on fiscal 2018 and remain on track to deliver record full year results and more importantly, achieve double-digit return on invested capital based on the strategy we put in place 5 years ago.

We are also very excited to usher in 2019 as we continue on our journey to sustain double-digit return on invested capital with continued growth in both earnings and returns over time.

Next year, 4 new more efficient ships will enter service, beginning with Holland America's Nieuw Statendam; Sky Princess; Costa Smeralda, purpose-built for our European guests; and Costa Venezia, Costa's first ship to be purpose-built for China.

As you can see, our new capacity is thoughtfully deployed across different brands as well as different source markets and destinations.

At the same time, we have sold into the secondary markets a higher number of ships than past years.

We recently announced 4 ships will leave the fleet next year.

We will continue on our path of measured capacity growth, adding more efficient ships, replacing less efficient ships over time.

All told, we are expecting net capacity growth to be 4.7% next year and below 5% compounded annually through 2022.

And with 20 ships on order, which are [scale fleet economies], we expect this more efficient capacity to drive greater earnings growth going forward.

And we've been consistent with our execution around measured capacity growth.

We're spreading that growth over a number of brands and increasing number of geographic regions, and we're careful when and where we add capacity.

As always, there will be temporary overconcentration of capacity in individual markets, there are every year.

And as we have demonstrated, we can and will continue to manage that because overall, we operate in an industry that is both underpenetrated and capacity constrained.

And we're working aggressively to grow demand for our brands, which will allow us to continue to fill our ships at increasingly attractive rates while still providing a better value relative to the equivalent land-based alternatives.

We look to continue to drive earnings and return on invested capital as we shift towards higher-capacity increases and cost containment, driving proportionally more of our growth in earnings, leaving us less reliant on the same levels of revenue yield improvement to continue to achieve higher earnings and returns.

At the same time, our strong cash flow and balance sheet enable us to accelerate our share repurchase program, opportunistically acquiring nearly $750 million of Carnival shares since June and investing over $1.2 billion in share repurchases so far this year, bringing the total to $4.4 billion cumulatively since resuming the share repurchase program just 3 years ago.

In fact, we replenished the share repurchase program back up to $1 billion twice this year, first in April and again this past quarter.

The share repurchase, of course, is in addition to our recurring dividend distributions.

As you may recall, we also increased our quarterly dividend in April, bringing dividend distributions to $1.4 billion annually.

Our strong cash flow and balance sheet leave us well positioned to continue to opportunistically return cash to our shareholders.

We remain unwaveringly committed to growing earnings and growing return on invested capital over time through a combination of creating demand in excess of measured capacity growth while containing costs and leveraging our industry-leading scale.

Our team has continued to deliver, and that execution, when combined with the strong fundamentals that characterize our industry, along with continued successful efforts to create demand, as demonstrated by the many achievements already realized, to sustain the momentum, we confidently remain on track to deliver double-digit return on invested capital in 2018 and beyond.

With that, I'll turn the call 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 2018 third quarter results.

Then I'll provide an update on our full year 2018 guidance and finish up with some insights on booking trends and a few other items to consider for 2019.

As Arnold indicated, our record adjusted EPS for the third quarter was $2.36.

This was $0.09 above the midpoint of our June guidance.

The improvement was primarily driven by 2 things: $0.06 from increased net ticket yields, which benefited from stronger pricing on close-in bookings on both sides of the Atlantic; and $0.03 from lower net cruise costs, excluding fuel, due to the timing of costs between the quarters.

Now let's look at our third quarter operating results versus the prior year.

Our capacity increased 1.7%.

Our North American and Australia segment, more commonly known as our NAA brands, were up approximately 3%.

While our Europe and Asia segment, more commonly known as our EA brands, were down about 1%, driven by 2 ship sails earlier in the year.

Our total net revenue yields were up 2.9%.

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

Net ticket yields were up 2.2%.

This was driven by a number of factors: first, an increase in our NAA brands in Alaska on like-for-like itineraries, which had higher yields than last year's record levels; second, increases in yields for our NAA brands' itineraries in Europe; and third, increases in yields for our EA brands in Europe and China.

These increases were partially offset by a decrease in our NAA brands' itineraries in the Caribbean, as included in our previous guidance due to last fall's weather impact.

Net onboard and other yields increased 5.1% with increases on both sides of the Atlantic.

In summary, our third quarter adjusted EPS was $0.07 higher than last year with solid 2.9% revenue yield improvement worth $0.18 and a $0.06 accretive impact of the stock repurchase program, both being partially offset by higher net cruise costs, excluding fuel, which cost $0.08 as well as the unfavorable impact from changes in fuel price and FX rates costing another $0.08.

Next, I want to provide you with an update on our full year 2018 guidance.

As Arnold said, our full year September guidance is now in the range of $4.21 to $4.25.

We continue to have strong operational performance.

The $0.03 improvement in the midpoint of our September guidance was essentially driven by 3 things.

First, we flowed through $0.08 of operational benefit from higher revenues.

$0.06 occurred in the third quarter with an additional $0.02 from further improvements we are now forecasting for the fourth quarter.

Second, we benefit from $0.02 accretion relating to the shares repurchased since the start of the third quarter.

And third, higher fuel prices, net of fuel derivatives, and the stronger dollar is expected to unfavorably impact the year by $0.06 in total for $0.03 each.

While our guidance for net cruise costs without fuel per ALBD did increase from 1% to 1.5%, this was offset by favorability in depreciation and amortization.

Most of the variances in both of these line items relates to the accounting treatment for ship sales during the quarter.

Turning to 2019 booking trends.

Since June, booking volumes for the first half of 2019 have been running significantly ahead of last year's pace at prices that are lower than the prior year.

Pricing was up in all the major programs but more than offset by lower prices in the Caribbean, which represents almost 40% of our capacity for the period as we are comping to pre-2017 weather impact.

If we isolate the first half of September, which was impacted by the weather last year, booking volumes for the first half of 2019 have been running significantly ahead of last year's pace, well into the double digits at prices that are higher than the prior year.

At this point in time, cumulative advanced bookings for the first half of 2019 are ahead of the prior year at prices that are in line.

Now let's drill down into the cumulative booked position for the first half of 2019.

First, for our NAA brand.

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

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

Second, for our EA brands.

The Caribbean program is ahead of the prior year on occupancy at lower prices, while their European itineraries, occupancy is ahead at prices that are in line.

And finally, a few other items to consider for 2019.

We are forecasting a capacity increase of 4.7%.

For those of you who are modeling 2019, using September guidance, fuel price and FX rates, the impact of higher fuel prices and the stronger dollar will unfavorably impact 2019 by about $0.27 per share.

Higher fuel prices, net of fuel derivatives, would cost $0.15 while currency is an unfavorable $0.12.

Given the timing of the calculation, substantially all of the unfavorable fuel price and FX impact is evenly split between the first and second quarter.

While it is early, with many decisions yet to be made, our expectation for 2019 is that net cruise costs without fuel per ALBD will increase slightly in constant currency.

However, we do expect that the net cruise cost increase in the first and second quarter will be higher than the full year increase.

We currently expect depreciation to be about $2.24 billion for 2019 versus $2.02 billion for 2018.

Booking trends for next year have been strong and are strengthening, driven by yield management decisions, which we believe will optimize net revenue yield growth.

Based on current booking trends, we expect solid net revenue yield growth in 2019, with the first half expected to be up somewhat less than the net revenue yield guidance for the fourth quarter of 2018, primarily due to very strong prior year comparison.

For the full year, we believe we are well positioned for continued earnings growth in 2019, weighted to the second half of the year due to the fuel and currency impact in the first half.

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

Thank you, David.

Operator, please open the line for questions.

(Operator Instructions) We have our first question on the line from the line of Steve Wieczynski from Stifel.

So a couple of questions here with you.

So I guess, a somewhat confusing part of your commentary is around the booking since the first half of September, which you mentioned are both up on price and load versus what you've seen since June.

And I know you talked about -- that's mostly related to the Caribbean and the easy comparisons there because of the hurricane activity.

So I guess, the question is when you look at 2019, and I think David helped us here a little bit, but is there any way to get a -- give us a little bit better picture of what maybe the rest of the world kind of looks like in maybe a little bit more detail versus what David said, kind of excluding the Caribbean?

What I'm getting at here is trying to get a clearer picture of like-for-like markets, if that makes sense.

Yes, I'll do that.

And I think I'll just take the opportunity now to do a broader comment on bookings and yield.

We do achieve a premium on new ships, but you guys have to remember, we have 9 brands serving differentiated markets.

And there's a range of yields across the brands which also influence overall yields, especially in booking periods.

So while you'd get a yield benefit within a brand, that doesn't necessarily translate into a mix benefit to overall yields.

So to give you an example, if a brand that is below the corporate averaging yield brings on a new ship and that new ship has a premium but the premium is still below the corporate fleet average, the brand does better on yield, but overall corporate yields are negatively impacted while we're making more earnings.

So essentially, even if average yields are held back by mix, we still are growing earnings.

Now of course, and we create demand to drive yield across every ship in all the brands, and we're receiving an earnings benefit as new ships are more efficient.

We focus more on returns and earnings than yield.

And when looking at booking trends, there's a plethora of things you have to consider when you look at yield, especially year-to-year comparisons.

So demand -- other than demand, including relative capacity changes among the brands like I just talked about, itinerary changes, both destination and duration, management of the booking curve.

Each brand is optimized in its own booking curve.

Timing of charters, mix of value packages which impact onboard ticket price, which is in bookings -- ticket prices of in booking versus onboard, which comes later when guests are on board.

And just to give you a little flavor, and I'll let David comment on the rest of the world, because I know people are concerned for some reason around capacity, but Western Caribbean has the highest capacity increase in the Caribbean for us but collectively, across our brands, is up.

Carnival is the only brand maybe in the industry that is year-round in the Caribbean with capacity year-round.

And Carnival has increase in capacity next year and is up on occupancy and on yields in the Caribbean.

And so when you look at yield, for us, it is a composite of a lot of different moving parts.

And in the end, we're focused obviously on driving earnings ultimately.

And the fact is with capacity, we're less reliant on absolute yield movement, but obviously, we're still going to focus on growing yields.

So with that, David, go ahead and talk a little bit about the rest of the world.

Sure.

I did in my prepared remarks.

I mean, I was very clear in terms of -- all the major programs were up in terms of pricing for the quarter in terms of the booking trends, except the Caribbean.

Now one of the things that I want to make sure everybody understands is the booking period we're talking about is the first half -- bookings for the first half of 2019.

So during that period, we're 40% -- almost 40% in the Caribbean.

If you go back to what we were talking about in June, we said bookings -- booking volumes prices were in line.

And now yes, we did say booking -- the volumes, the prices were down.

But back in June, we were talking about the back half of 2018 where the Caribbean only represented like 26% or 27% of the total in the back half of '18.

And as the Caribbean represents a bigger percentage, you just see the weighted average.

Now we had now lapped the booking issues in the Caribbean, the weather impact, and we talked about how in September, the booking -- the prices on the booking volumes were higher.

And so the comparisons are different.

Last year was weather impacted, and so we're in a much better position as we move forward.

When you look at the full year 2019, there's a lot of positives there.

I mean, you look at the European program for the full year and we're booked ahead of the prior year on occupancy at higher prices.

And the same thing is true for Alaska.

And these are markets where, when you look at the capacity increase, our 4% capacity increase, so 4.7% next year, we do have quite a bit of capacity increase in both Europe and Alaska and we're seeing great booking trends.

We're ahead at higher prices.

So we're very confident and that's what gave us the conclusion, as I said in my notes, that we expect solid revenue yield improvement in 2019.

Okay, got you.

That's a lot of good color.

And one more quick question.

I'm not sure you're going to answer it.

But David, you talked about -- I think, in your commentary, you talked about how when you look at kind of the full year next year, for '19, I can't remember the exact adjective you used but somewhere along the lines of healthy yield growth.

And you're talking about the first half being a little bit weaker relative to last year, back half of the year being very strong.

So I guess, when we sit back in 12 months from now, is it still possible that you can -- you'll be able to grow kind of the full year yields in a similar position to what you could do or what you're going to do this year?

We're certainly going to work very hard to do just that, and every brand is focused on that.

That's clearly what we're working on.

At this point, we're not giving guidance for next year or anything, but we know you guys have models and we're just trying to give you some directional insight.

David?

So one of the things that we're talking about for the first half of next year is the fact that we had very, very strong comparisons to -- from prior year comparisons.

In the first quarter of 2018, we achieved net revenue yield growth of nearly 4%.

The Caribbean is nearly half of our deployment in the first quarter.

And since it was so well booked last year in the fall when -- it had very minimal impact from the weather disruptions.

So we did have nicely higher yield.

And that's a headwind in the comparison in the first quarter of 2019.

So we are expecting sequential yield improvement in the Caribbean in the fourth quarter and again in the first quarter, and that's with significant capacity increases in both quarters in the Caribbean.

And when you look at the second quarter, we achieved net revenue yields that were nearly up 5%, and that was with a challenging Caribbean.

And that was more than offset by yield growth of 8% in all of the programs.

So the first half of 2018 was a great yield improvement for us.

And with those challenging comparisons and not lapping the Caribbean booking impact until the second quarter, we gave you our best guess for the first half of the year.

But as I said, we do expect solid net revenue yield improvement in 2019, and we'll give you more color on that in December.

We'll get to our next question on the line from the line of David Beckel with Bernstein Research.

So it sounds like much of the concern around pricing is focused on the Caribbean still.

But would it be fair to say since last quarter that the conditions in the Caribbean in terms of demand and pricing are at least as good or better than they were last quarter?

Or in other words, are things improving?

Yes.

I think we keep saying that overall, the yields we're achieving each quarter are improving.

We see a sequential improving trend in yields.

We see a sequential improving trend in the booking.

It's just that given the timing of events and the way we will book from a booking perspective, we don't lap last year's comparisons, as I said, until September.

And from an actual yield perspective, we're not going to see a lapping until the second quarter.

And there's -- as I mentioned, there are a lot other variables involved in terms of mix of brands, et cetera, when you talk about a region like the Caribbean.

And so we see lots of evidence of strength, and we don't typically give brand by brand guidance or anything or even information.

But I've already mentioned, for example, the Carnival brand, which is the largest brand we have in the Caribbean, has higher capacity for next season, is up in occupancy and up in yield already.

And the Western Caribbean has high capacity increase but up in yields.

So the Caribbean is strong and we've had record years there.

Carnival continues to outperform.

We have a lot of other dynamics that go in that, make an average yield number look a certain way, as I tried to articulate earlier.

But overall, the Caribbean is strong.

We do have some difficult comparisons, but we're growing earnings there and we'll continue to grow earnings there.

And as a quick follow-up to that, you did make a great point about mix and noncomparable factors.

If you were to strip some of the most obvious mix and brand and itinerary factors out, how would the position in the Caribbean look for first half?

You already commented on Carnival obviously.

I would just say, in the last 3 months, we are booking more Caribbean because it's a bigger part of the base in the first half.

And we are expecting sequential improvement in yields in the Caribbean at the end of the day.

So what you're seeing in that last 3 months is a greater concentration of Caribbean business booked.

And we'll proceed to our next question on the line from the line of Jared Shojaian with Wolfe Research.

So I want to go back to that first half '19 yield guidance.

Your booked position right now, you're ahead at prices that are in line.

I mean, I would think that should get better as time goes on if the guidance is implying about 2% or less than 2% you're planning for the fourth quarter.

So can you just help me understand some of the puts and takes there versus are you sort of guiding to what you have on the books right now, not really assuming that you get any sort of benefit from pricing starting to improve just with easier comparisons?

Or how are you really thinking about that?

Okay.

So basically, when you look at the first half of the year, given the historical ranges of where we're at -- and for the first quarter, at this point, we've always said 50% to 70% is booked and for the second quarter, 30% to 50%.

And so what's on the books, we've said, is we're at the higher end of those ranges.

So we're over half booked for the first half of the year.

And that half is essentially, as we said, is with prices in line.

So what we are looking at is as we move forward, to get to the yield improvement that we're guiding, is the expectation that the bookings that will be coming in will be better than the prior year.

And we'll get to a point that we're, like we said, something less than the fourth quarter revenue yield.

There's also the onboard, that's part of the factor.

And remember, we manage the business not for one line item but manage the business to optimize the total net revenue yield between both passenger and onboard.

And so that's part of the factor as that goes into the whole guidance.

Okay.

And can you just talk about some of the differences you're seeing right now with your bookings and pricing for North American sourcing versus foreign sourcing?

I mean, it seems like the U.S. consumer is really strong right now.

Are you seeing better trends from North American sourcing versus foreign sourcing right now or is it fairly similar?

We're seeing good strong bookings on both sides of the Atlantic in terms of sourcing.

I gave a comment in terms of the various markets in terms of where we're booked today.

On both sides, we see similar trends in the Caribbean but good solid strength in all of the other itineraries around the globe for all of our brands in both segments.

Okay.

One last just quick clarification for me.

It sounds like you guys are expecting second half '19 yields to be better on a year-over-year basis than the first half.

Is that correct?

Yes, we did not say that.

We just said solid net revenue yield growth for the year, and we'll give you more detail on the full year in December.

It's just that very little is booked at this point.

And we'll get to our next question on the line from the line of Jaime Katz with Morningstar Research.

I'm curious if you have any commentary on China, there was very little spoken to.

And given that one of your competitors is exiting the market, I'm curious if there are any trend changes that you've seen in recent periods.

I would say that, first of all, just keep in mind, China is a small percent of the total, so we always start with that.

But yes, clearly, with less capacity in China going forward, it creates an easier environment to operate in.

We are going to have, as I mentioned, Costa Venezia, which is going to be Costa's first purpose-built ship for China.

So as we look ahead to next year, we have less capacity in the first half year, more capacity in the second half of the year.

But China continues to be accretive for us.

We continue with the same policy we've had all along that as long as overall is accretive, we'll have ships there.

If they're not accretive, we move them out.

And right now, it's still relatively small part of our total, but it's doing well because it is accretive.

And I think it's fair to say that in the last -- both in my prepared remarks this quarter and last quarter, I noted that part of the net ticket yield increase was due to increases in China.

So we have seen some favorable trends in the last 2 quarters.

And that's as a result of all the things we've been doing with the travel distributors and all the changes we've been making in China.

So we feel very good about the market and its direction.

Okay.

And then can you elaborate a little bit about some fleet changes that you guys are making?

You're obviously moving back into Long Beach next year with your Carnival ship, and Galveston, you're revisiting with a ship that was not there.

Is there still -- do you guys still feel like there's a significant opportunity set to penetrate more U.S. markets that have maybe been underserved to support the demand for the oncoming capacity increases?

Clearly, one of the strengths of the Carnival brand and in some of our U.S. -- other U.S.-based brands is being able to access more of the market as a drive market.

And so that's been an ongoing approach for the brand.

That is proven successful.

I believe we're up to almost 18 different U.S. points for Carnival where they sail all up in the U.S. And so yes, we continue to look for effective itineraries that guests want to go on, but giving them easier access to get to the ships.

And it's an ongoing part of our overall strategy for Carnival and to some extent, for our other North American brands.

And it's not unusual to see us move larger ships into markets as the markets develop and to also give people an opportunity to go on a different ship.

So it's a normal part of the overall strategy that we've engaged in over time.

Okay.

And on a housekeeping note, the 4.7% capacity growth next year is with the 4 ships coming out, correct?

Correct.

And we'll get to our next question on the line from the line of Robin Farley with UBS.

Just going back to your yield guidance for next year.

And I think you guys have very consistently delivered yield growth like 100 to 150 basis points ahead of what your initial guidance is this year and sort of in the last 2 or 3 years, and so fully appreciating the conservatism and all of that.

Just when we think about the comments, so it sounds like September, not surprisingly, right, things booked since then showing higher pricing, higher volume, given the comps.

And I know you are not giving guidance for the second half of next year.

But maybe you could tell us how much of Q2 would typically -- in other words, from September forward, how much of Q2 would typically be booked?

In other words, if Q1 is mostly booked before September, less opportunity for the kind of what would -- what will be your yield growth in kind of a post-hurricane with the benefit of the comps in it, not in Q1.

But in Q2, will most of that be booked from September forward?

And then the other thing, I think that Arnold did say something like full year growth would be weighted to the second half of the year.

And just based on what you said, isn't it reasonable to think that your second half yield growth would be higher than the 2.5% rate that you were kind of saying, might be the top of your initial guidance, at least, simply because both you have less Caribbean exposure again in the second half and then just also because most of that would be booked in the sort of easier comps that started 2 weeks ago.

Yes.

Yes, Robin.

First of all, my comments were on earnings, much more so than yield in terms of the second half next year.

And that's because a lot of the fuel and currency impact that we're currently seeing is occurring in the first half of the year.

That's part of it.

Also because we tend, from a spending standpoint, to spend money in advance of the season [of doing wave], et cetera.

And so our cost will be more weighted in the first half of the year than the back half.

So that was that comment.

But real quick before David comments, just a couple of quick things.

The Caribbean has been very good and is strengthening further.

And I hear still a tone that people think there's a big challenge or yield risk in the Caribbean and et cetera.

And the reality is we have had multiple periods where we've been ahead on occupancy and lower on pricing and I remember about a couple of years ago when people were concerned about that and we turned out just fine because a lot of this is also managing -- the booking curve is yield management.

So [as -- when you time] and some of the other things I mentioned, when you have charters, what your mix is of guests in terms of people who have a higher propensity to spend onboard and you're attracting those people on, all those things impact.

As well as for us, our mix, if we have a lot of ships coming in from brands that are lower yield overall than, say, Carnival brand, for example, our fleet average, that will give us a weighted yield picture even though we're growing earnings.

And over time, that stuff tends to wash out and correct itself.

You get onboard revenues that will contribute yield, et cetera.

So we don't want to create any image that there's a struggle in the Caribbean because there isn't.

We have record growth.

We're building on strength.

There's details and comparisons.

But in the end, we're really focused on growing earnings with our yield management, things that we do.

And we've been delivering and we intend to deliver.

So go ahead, David.

So I think I alluded to before in terms of the bookings, the first quarter, historically, at this time, 50% to 70%, and the second quarter, 30% to 50%.

And we've said before, we're at the high end of the historical range.

So you just use the exact number for illustrative purposes.

There's still 30% left to go on the first quarter and 50% left to go on the second quarter.

So clearly, while they're both in line for the first half, there's more opportunity in the second.

But as we've always said before, Robin, we give you our best guess on what we think will happen.

The ticket is 3/4 of the total and there's also onboard.

And there really isn't advanced bookings on that, so we're giving you our best guess for the first half of the year at this point.

Okay.

No, I appreciate that.

And my tone, by the way, just I wasn't suggesting a concern about the Caribbean.

I was more suggesting that you're being really conservative.

But it's certainly (inaudible)

I actually wasn't speaking about you, Robin.

Thank you.

That was (inaudible) thank you.

Just so nobody misunderstood.

But -- just so -- so just bottom line is the majority of second half bookings will take place in this period of -- where this post-September volume, up double digits and pricing higher.

So I think it's reasonable to think that second half growth, which you're not saying, but I'm just throwing out there.

Okay.

And we'll get to our next question on the line from the line of Felicia Hendrix with Barclays.

You guys have given us a lot of color, which I think is very helpful in particularly emphasizing the point that there's nothing wrong in the Caribbean.

So thank you for that.

And David, just to kind of reiterate this.

When you gave the kind of market and segment color earlier in the call, and you talked about in the first half the NAA brands, the Caribbean ahead on occupancy and at lower prices and the same for the EA, that's simply a function of kind of what you've already been talking about in the release, right?

Like since June, booking volumes for the first half have been running significantly I mean, that's not really reflective of the improvement that you've been seeing in September, correct?

Yes, correct.

It's reflective of the fact that the prior year comparison was not weather impacted, and so that reflects in the comparison.

Okay, great.

Super clear.

And then Arnold, when you talked about the Western Caribbean and how you're seeing an increase in occupancy and yield despite the significant increase in capacity, was that just -- could you clarify, was that for the full year or was that for just the first half?

It's probably for both.

It's for both, Felicia.

And as we have on the books, so the full year is the first half.

Yes, exactly.

Yes.

Okay, okay.

But your point was just that people are concerned about increases in capacity in the Caribbean and particularly in the Western Caribbean and we're just not seeing that.

Yes, we have near double-digit increase in capacity on the Western Caribbean and we're up on occupancy and up on yields.

Yes.

Okay, great.

And then just final.

The language in the release talking about yields for the first half of '19 and how they're going to be lower than fourth quarter guidance, you guys have provided a range of 1.5% to 2.5%.

I think the investment community tends to hone into the midpoint of ranges when companies give them.

So is that a fair bogey, like were you thinking about the midpoint when you gave that comment or the high end or the low end, just to give us some parameters?

It's fair to say that all 3 numbers -- if I was giving guidance, if I had to pick a specific guidance, whether it be a range or a midpoint, that the guidance I would give today would be less than the guidance in the fourth quarter.

We're not giving an exact guidance because it's early.

We're just trying to give you directionally.

And to answer your question, it would be less than the 2% midpoint would be the midpoint of the guidance we would give.

But it's too early to give an exact number at this point.

And Felicia, again, I just want to emphasize that a lot of things were driving it, including capacity, relative proportion of capacity from the different brands.

So while the yield is whatever it is, we are constantly focused on growing earnings.

And so there are brands that are below the average for the fleet that have significant capacity increase and are achieving an improvement in yield for that brand.

But because it's weighted and especially, you get to a destination market like the Caribbean, it can pull down the overall average, okay, of growth.

But we're still actually earning more dollars.

So just -- that's one of many variables.

Yes, and well appreciated.

And just all of us who've been looking at cruise for 1 million years or even not, have -- we're all unfortunately focused on yield.

So...

Yes, you're right.

But -- I know.

But yes -- no, mix, I think everybody kind of gets the mix issue, especially since one of your competitors has spelled that out pretty clearly over the past year or so.

Okay.

And so and then not to get cute, David, but when you say lower than the fourth quarter guidance, are we talking about significantly lower or just kind of a little bit lower?

We'll give you more color on that in December.

It's about the best I can do at this point.

We still have a lot of work to do, and that's our best guess.

And we'll get to our next question on the line from the line of Tim Conder with Wells Fargo Securities.

A couple of questions.

On the June to August, the booking commentary, how much of that was mainly impacted by base loading as you look into the early part of next year?

And then obviously, for the Caribbean, and that potentially impacted the overall booking curve, yet now you're saying that the booking curve continues to expand.

If we didn't have the Caribbean issue, are we kind of at the maximum point of the booking curve to whereby if you further expanded obviously, it's always a trade-off of pricing and extending the booking curve?

Or do you view yourself and maybe the industry finally at that point where, "Hey, we're going to restrain this back because we feel we're going to start to give up too much in pricing upside"?

We're always in pursuit of that optimized booking curve that maximizes obviously earnings.

And it varies by destination, by brand, by source market, I mean, there's a gazillion variables there.

And so we're not in absolute kind of singularly focused pursuit of moving the booking curve further out.

That's not how we think about it at all.

With YODA and the collaboration of our yield, our price management experts and stuff, we are really just trying to optimize each one and frankly, each itinerary for each ship, and it comes out the way it comes out based on all the variables there.

But David?

Yes.

And you've characterized it as base loading.

I really characterize more the way Arnold is describing it is we're making good decisions to optimize the revenue when the ship sails.

And we try to capture bookings and pricing along the way to optimize the end game.

And so that's really the goal, and the goal isn't anything other than maximum revenue yield.

Okay.

I guess, [John], another way maybe to ask it, again, we've seen the booking curve for the industry and every one sort of lengthen out the last few years.

If you had to fall down on one side of the fence, is that -- would you expect that to further lengthen ticket to an industry perspective?

Or would you think the industry's more in the point of potentially trying to harvest some more price?

I think that the more we create demand, the more likely it is for the booking curve to inch further out, and you guys get even better yields along the booking curve than you would have before.

So I think that's more the answer.

The better we are creating demand, the more likely you would see it kind of inch out a bit.

There's obviously some theoretical limit to that, and some would argue obviously that we're approaching that now.

But we are really just trying to optimize along the booking curve to maximize earnings.

Yes.

And there are also one-off things that occur over time like the Iona, the P&O Cruises' new ship that just started booking, and it's been booking like crazy.

And it doesn't get delivered until 2020 and that's included.

So all of this, it's just there's a lot of variables and we're trying to make good decisions to optimize the revenue yield over time.

And you got different itinerary lengths and everything, which are affecting all of this.

And we're just trying to give you the big picture and as it rolls up.

But we make decisions at a very micro level, cruise by cruise, cabin category by cabin category to maximize the yield.

This isn't an overriding goal one way or the other.

The decisions are made in a micro level.

Okay.

And lastly, gentlemen, thank you, appreciate that.

Australia, and asking that from the perspective of -- that market's been great for the industry for a while.

And then China is improving yet we see the industry maybe shifting some seasonal capacity to Australia the last year plus here.

How was your China sourcing as a percent of your global sourcing relative to your capacity in China?

And I guess, again, folding that in with the Australia piece there, how that's looking?

Well, on the China portion, in terms of if you leave the domestic sailings volume, you mean like fly/cruise sourcing to China, it's growing, but it's still a relatively small percent obviously of the total number of almost 13-plus million guests we have a year.

It's a relatively small number.

But it's definitely growing.

And over time, given the size of the market and the fact it's the largest outbound travel country in the world, that we expect that to increase over time and we have seen it increase.

You mentioned Australia obviously.

We've seen it increase in Chinese guests going to Australia and getting on ships, but we've also seen in Alaska and other places, too.

So that would be that comment.

Australia overall continues to be a very strong market for the industry and certainly for us.

And we have good performance there with our P&O brand but also our other brands that are there.

We've made a commitment up in Brisbane, which we announced in terms of a cruise, terminal expansion, again kind of reflecting the growth potential in Australia and a way to sustain that.

So it's been a good market and we expect it to continue to be.

But over time, China fly/cruise is going to be significant.

There's little doubt to that.

But also, the domestic market is going to be significant over time.

And we are still very proud of our relationship with CSSC as we move towards ultimately putting our joint venture into the market and sailing ships.

And as we look at taking on capacity that we've already announced on the 2023 and beyond, through that joint venture to help China build within their 5-year plan, which is a sustainable long-term cruise market, that ultimately could be as large as the global market is today.

And for Australia last year, we talked about the strategic realignment of P&O Australia, and we have sold some ships so the capacity will be going down in '19 for us in Australia.

But we have announced the addition of ships in 2020 and 2021, 2 with the P&O Australia brand.

It is a great market for us, and we are seeing a lot of fly/cruise business for many of our brands out of Australia all over the globe to Alaska, to Europe and other places as well.

It's a great fly/cruise market for us.

And we'll get to our next question on the line from the line of Assia Georgieva with Infinity Research.

I wanted to -- I don't think anyone mentioned that, but I was very happy with the numbers.

Could I just go back again to the Q1, Q2 question?

So in Q1 last year, we still haven't really felt the impact of new bookings affected post the hurricanes.

So Q2 will be more of a beneficiary from those easing comps.

In addition, in Q1, we seem to have quite a bit of capacity last year.

So is it fair to say that there's still a lot of room for improvement, especially for Q2?

We're not going to see down or flat yields in Q1?

And could again possibly see with sequential strength, as you mentioned, strong and strengthening upside to your current Q1 expectations still?

So I don't want to repeat what I already said.

I mean, we gave you our best guess for the first half, and we gave you directional guidance and we work very hard to do our best and to optimize.

And there is, as I said before, a lot of bookings yet to come on the first and second quarter, and we will do our best to optimize that and produce great results for the company.

David, I have to try.

A quick housekeeping question.

Could we get the capacity figures for Q1 and Q2, given that we have Carnival Horizon coming in and Seabourn Ovation, et cetera?

The capacity in Q1 is up 4.7% and the capacity in Q2 is up 4.7%.

Q3 is 5.8%, Q4 is 3.7%, which gets you back to 4.7% for the year.

We'll proceed with our final question for the day with the line from Jamie Rollo with Morgan Stanley.

I think you said sequential yields are getting better in the Caribbean.

So it'd be quite helpful if you could just give us some numbers or some direction about that, sort of perhaps by quarter this year so we can sort of see the cadence.

And if I could just add on to that.

I think, Arnold, you said, you're talking about driving earnings growth less through yield growth and some of your recent orders, have been much bigger for Carnival and Princess.

And you're selling perhaps more ships than usual.

So could you talk a bit about that sort of earnings versus yield trade-off and whether that means -- could you just expect sort of lower pace of yield growth going forward?

I'll take the second part first, the earnings versus yield.

And so again, I will repeat a little bit.

The bottom line is we are absolutely focused on earnings.

And to get there, you have to have yield for sure.

But because we have 9 brands and we have a mix, we can improve a brand, as I mentioned, in yields but bring down the corporate average in the process if that brand evolves below the fleet average.

In doing so, we're still growing earnings.

And so we're clearly focused on earnings and for obvious reasons.

And I know that you guys, it's easy for you all to follow yield because you can't follow the rest.

But even within yield, it's a huge mix for us and so that's part of it.

And when you're looking at bookings in particular, then you have all those other variables I mentioned because of mix between ticket versus onboard, and onboard won't show up until people actually sail.

You have charters, you have all these different things that can affect what yields look like, during a booking period, along with the mix.

And you have the actual yield management strategy itself for pricing considerations.

So all of that comes into play.

But overall, we are absolutely focused on earnings.

We have been strong in yield and are strengthening in terms of our yield management.

Booking trends for next year have been strong and are strengthening.

And those will be the summary of things that we say and we weren't trying to give guidance for the first half.

We were just again just giving you guys some directional input with the color around why things might look the way they do.

Go ahead, David.

Yes.

And on the Caribbean, we don't give detailed percentages ever by brand, by market for competitive reasons.

But we have said that the second and third quarter Caribbean yields were down.

And for the fourth quarter, we don't expect them to be down as much, and we said that we expect sequential improvement in the first quarter.

So we are seeing an improving trend overall on a year-over-year basis as we move through the weather impact from the prior year.

So it's fair to say that Caribbean price, simply looking at it by month, is above where it was 2 years ago?

Should we look at it that way?

I have -- I actually don't have all that detail.

I'd have to actually look at the 2 years ago to answer that question.

But you can give Beth a call.

But it's certainly looking better than same period last year, yes, so -- okay?

Everyone, thank you so much.

We really appreciate it.

And we look forward to continuing to deliver, and we look forward to our next call.

Thank you.