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Operator
Good morning, and welcome to the Norwegian Cruise Line Third Quarter 2014 Earnings Conference Call. (Operator Instructions). On today's call from Norwegian Cruise Line are Mr. Kevin Sheehan, President and Chief Executive Officer; and Ms. Wendy Beck, Executive Vice President and Chief Financial Officer.
Mr. Sheehan will begin the call with opening commentary followed by Ms. Beck who will provide detail regarding the quarter. The call will return to Mr. Sheehan for final comments after which we will open up the call for your questions. As a remainder, this conference call is being simultaneously webcast on the Company's Investor Relations website at www.investor.ncl.com and will be available for replay for 30 days following today's call.
Before discussing the Company's results, I would like to cover a few items. The Company's press release with third quarter 2014 results was issued last night and is available on its Investor Relations website. I would also like to review information about forward-looking statements and the use of non-GAAP information as a part of this call. The Company's comments today may include statements about expectations for the future. Those expectations are subject to known and unknown risks, uncertainties and other factors that may cause the Company's actual results and performance in future periods to be materially different from any future results or performance suggested by these expectations. The Company cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any forward-looking statements during the quarter. If you would like more information on the risks involved in forward-looking statements, please see the Company's SEC filings.
In addition, some of our comments may reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in the Company's earnings release and website. With that, Id like to turn the call over to Mr. Kevin Sheehan. Mr. Sheehan, you may proceed.
Kevin Sheehan - CEO
Thanks, and good morning everyone. Boy it has been a busy couple of months here at Norwegian. And as you know we recently announced an agreement to acquire Prestige Cruises parent company of Oceania Cruises and Regent Seven Seas. Teams from both companies have been working diligently on integrating the two organizations to set up an optimal organization that I will take you through in a little bit, that will facilitate knowledge-sharing and decision-making while ensuring we identify opportunities to leverage each brands strength. Under one organization the combination of Norwegian, Oceania and Regent brands will result in a unique cruise operator with a portfolio of brands that cover every key segment in the cruise industry. Norwegian offers the freedom and flexibility of a resort style vacation onboard some of the most innovative ships in the industry. Oceania offers an upper premium experience with unparallel culinary offerings on its fleet of midsize ships. And Regent offers the ultimate all inclusive luxury cruise experience.
In addition to working on this important integration, the team at Norwegian did not lose focus on what is important and that is delivering exceptional cruise vacations to our guests, over half a million of them in fact this quarter alone, from Copenhagen to (Inaudible) to Miami to (Inaudible). Norwegian welcomed more passengers this quarter than at any time in our 47 year history. This growth will only continue as we look forward to the delivery of the Norwegian Escape and the rest of our Breakaway class ships in coming years. In the quarter we continued with our successful four ship deployment in Europe. And for the first summer in over a decade Norwegian offered a seven day Caribbean cruise to Miami on board on our newest ship Norwegian Getaway. This quarter not only marks a record milestone in terms of passengers carried and a return to summer cruising in the Caribbean, it also marks our 25th consecutive quarter of trailing 12-month adjusted EBITDA growth. The result during that time is a 23% compounded annual growth rate in adjusted EBITDA and an expansion of our adjusted EBITDA margin by 1600 basis points. But we are nowhere near our goal line. We have many critical initiatives that we must and will execute on to continue our momentum.
So I have brought in some additional fire power to take Norwegian to the next level. A couple of weeks ago we welcome Drew Madsen to the Norwegian team. Drew joins us as President and Chief Operating Officer of Norwegian Cruise Line focusing on the Company's core day-to-day business. After a long search for a proven leader to add to our already accomplished and diversified management team, Drew's strong track record of success with more than 30 years of leadership experience in the hospitality and consumer products industry makes him the perfect addition.
Marking another milestone in our Company, we celebrated the (Inaudible) of Norwegian Escape which marked the beginning of construction of our largest ship to date and the first in four ship Breakaway plus class fleet. At 4200 berths she will be the largest ship to home port year round in Miami offering seven day cruises beginning in November 2015. Norwegian Escape will boast proven features from our Breakaway class ships along with new and unique elements. These proven features include the Waterfront and 678 Ocean Place our game changing innovative designs first introduce on Norwegian Breakaway. This concept includes an ocean front boardwalk lined with restaurants, bars and shops combined with three expansive flowing decks of dining, bars, entertainment, gaming and more. Along with these two popular spaces, a number of new venues and interactive experiences will be announced in coming months leading up to her delivery. These are just a few of the many highlights in the quarter.
Before turning the call over to Wendy, I would like to touch on a topic that would be remits in not addressing here. The entire industry through (Inaudible) has set protocols with respect to Ebola across our fleets and also as part of the embarkation process. We have seen an impact on the margin over the last several weeks. However, booking levels have moved back to pre news levels over the last couple of days, and barring additional sensationalism by the news media or a major outbreak we anticipate this will be old news going forward.
With that, I will turn the call over to Wendy who will go over our financial results for the quarter. Wendy.
Wendy Beck - EVP, CFO
Thanks Kevin, and good morning everyone. The following commentary, unless otherwise noted, compares third quarter 2014 and 2013 on an as reported basis. A 13.1% increase in capacity days coupled with a 3% improvement in net yield resulted in an increase in revenue to $907 million from $797.9 million in 2013. The capacity increase was the result of full quarter of sailings from Norwegian Getaway in her first summer season of 7 day voyages in the Caribbean. Her addition to the fleet and year round deployment out of Miami resulted in an increase in our third quarter Caribbean deployment to 23% from 13% in 2013.
The 3% improvement in net yield was the result of higher net tickets, on-board and other revenue along with ongoing margin improvement initiatives. This yield improvement is even more impressive considering the strong comps we are rolling over from the third quarter of 2013. These comps included a 3.7% increase in net ticket per diems which were augmented by the strong demand in pricing associated with the launch of a first-in-class ship in this case Norwegian Breakaway, which sailed her inaugural summer season in Bermuda at this time last year. In addition to the benefit of Norwegian Breakaway strong pricing, we also strategically help pricing through the third quarter following the industry incidents which occurred earlier in 2013.
Lastly, net yield experienced a benefit from foreign exchange rates in the period, which on a full results basis impacted adjusted EPS by approximately $0.02. Going forward we expect foreign exchange to inversely impact the fourth quarter of approximately the same amount.
Now turning to the costs. Adjusted net cruise costs excluding fuel per capacity a day increased 2.6% or 2.2% on a constant currency basis. The increase was a result of the strategic investments we have made to enhances the guest experience via initiatives under the Norwegian NEXT program. Kevin described these initiatives on our last earnings call and additional information regarding Norwegian NEXT can be found on our website at www.ncl.com\next.
Also consistent with last quarter we made incremental investments in marketing to bolster demand in future quarters. Fuel expense for the quarter benefited from lower prices in the quarter. Decreasing 7.8% to $641 per metric ton net of hedges versus $695 in 2013. Looking below the line an increase in interest expense net in the quarter to $32.3 million from $26.6 million in 2013 was the result of higher average interest rates and balances in the period. Regarding taxes while we reported income tax expense in the period of $2.5 million compared to $7.9 million in 2013, the 2014 period included a $2.7 million benefit as result of the true-up following the filling of the Company's 2013 tax returns.
Adjusted EBITDA in the quarter increased 20.5% to $326.7 million from $271 million in 2013. On a trailing 12-month basis adjusted EBITDA increased to $809.5 million while the associated margin improved to 27.6%. As Kevin mentioned earlier, this marks our 25th consecutive quarter of adjusted EBITDA growth, which translates into a compounded annual growth rate of 23%.
We are pleased with the bottom line results for the quarter, which includes an almost 30% increase in adjusted EPS to $1.11 up from $0.86 in 2013 as result of capacity growth from the addition of Norwegian Getaway. Growth in net yield from both ticket and on-board and lower fuel prices offset by continued investments and initiatives related to Norwegian NEXT.
Looking at the remainder of 2014 we have provided guidance along with associated sensitivities for the fourth quarter and full year 2014 in our earnings release. This guidance excludes the impacts from the acquisition of Prestige Cruises, which is expected to close in the fourth quarter of 2014. We expect the increase in net yield in the fourth quarter to be in the range of 3.5% to 4% on in as reported basis, and 4% to 4.5% on a constant currency basis.
Turning to costs. We expect adjusted net cruise costs excluding fuel per capacity day to be flat to down slightly on an as reported basis and flat to up slightly on a constant currency basis. This guidance includes the rescheduling of the drydock of Norwegian Gem from the fourth quarter of this year to 2015. The drydock was originally scheduled earlier than required primarily to carry out projects related to Norwegian NEXT such as adding the popular O'Sheehan Bar and Grill and relocating Moderno Churrascaria to a new more prominent location adjacent to Cagney's Steakhouse. In addition work is underway for the installation of the ship's exhaust gas scrubbers.
Thanks to the hard work and planning by our technical and hotel operations team these projects which are critical to elevating the guest experience and delivering on the Norwegian NEXT promise, will not have to wait for the ship to be drydocked and instead are being carried out while the ship is in service. We will however have a number of state rooms out of service while work continues on these other and initiatives. Offsetting the expense savings from the drydock rescheduling our continued investments in marketing and initiatives surrounding the Norwegian NEXT program.
Now moving to the bottom line. Our adjusted EPS guidance for the quarter is in the range of $0.37 to $0.41. Looking at the full year we have narrowed the range of net yield to 3.2% to 3.3% on both an as reported and constant currency basis. We expect adjusted net cruise cost excluding fuel per capacity day to be flat to up slightly both on an as reported and constant currency basis. For adjusted EPS we are narrowing guidance to $2.28 to $2.32 raising the midpoint of previous guidance by $0.025 for the year.
Looking at deployment for the fourth quarter, 59% of our capacity is in the Caribbean as Norwegian Getaway marks her first fall in Miami, 17% in Europe, 6% in Hawaii and 3% in Bermuda. The balance of our deployment is in other itineraries. While the closing of the acquisition of Prestige Cruises is expected to occur prior to year end, thus allowing us to commences 2015 as combined Company, we wanted to give some color on the outlook for the year at least from the Norwegian brand perspective. We are looking to a normalized 2015 whereby industry capacity growth in the Caribbean moderates and is expected to be slightly down for the year. While we are lapping the introduction of Norwegian Getaway which joined the fleet in January 2014 and welcoming Norwegian Escape to our year round deployment in mid November 2015, the combined impact of these (Inaudible) resulting in a more organic 2015.
Giving some color into the first quarter of 2015 we are expecting tougher comparison on a net yield basis as a result of a few items in the first quarter of 2014 which saw solid net yield improvement of 3.8%. The quarter included two unique high yield dock side charters, Norwegian Jade for the Sochi Olympics which was under charter for almost half of the quarter and Norwegian Getaway for the Bud Light Hotel associated with the Super Bowl in New York. In addition, we strategically held pricing and sacrificed load as we entered the wave season. And lastly, in 2014 we experienced a healthy year-over-year increase in the volume of charters from our Sixthman charter business, however, in 2015 the volume will be consistent with 2014.
Before turning the call back to Kevin, I would like to recap our results for the quarter. Net yield growth in the quarter was up 3% versus prior year, adjusted net cruise cost excluding fuel per capacity a day increased due to the strategic investments aimed at enhancing the guest experience, fuel pricing improved while interest expense increased due to higher rates and overall borrowings and the bottom line result was a 29% increase in adjusted EPS which exceeded our guidance for the quarter.
With that, I will turn the call over to Kevin for some closing comments. Kevin?
Kevin Sheehan - CEO
Thanks, Wendy. As I mentioned in my opening comments, we remain on tract to close the acquisition of Prestige Cruises International, and are hard at work on our integration plans to establish the industry leading diversified cruise operator. We currently anticipate closing the transaction in mid November.
To date we have taking the following step in the process to close the transaction. First we've received Hart-Scott-Rodino clearance. Next on October 16th we received clearance for the SEC information statement providing shareholders 20 days notice regarding the pending transaction. We've also received approval from Sace Italy's export credit agency to assume the debt related to Oceania's two most recent ships along with the 2016 Regent delivery. In addition, we held successful meetings with banks and also with the rating agencies in anticipation of a notes offering which will be marketed in the very near future.
The Prestige and Norwegian teams are working together to integrate two organization in a very thoughtful way. The organization structure which I think will be the blueprint for the industry, will include Drew Madsen running Norwegian, and Regent and Oceania with Frank Del Rio at the helm as Chief Executive Officer, with Kunal Kamlani continue running the day-to-day business as President And Chief Operating Officer. In addition to the two Presidents, Wendy along with (Inaudible) and a few other areas will report directly to me. Also reporting to me will be Jason Montague the current Chief Financial Officer of Prestige, who will head the integration full time. This is important to me as we are also matrixing four areas; ship board operations, human talent both shoreside and shipside, passenger services and destination services.
This structure is poised to realize significant additional synergies over the coming years as we continue to carefully employ best practices to position our business for long-term success always looking to enhance the guest experience as we move forward. As a result of the projected timing of the transaction closing, we expect our next call to review fourth quarter and full year results to be the first as a combined entity. Following reporting our year end results, we will host an Investor Day in early February to provide additional information on the new combined entity and provide 2015 forward-looking commentary. This will allow our leaders time to entrench themselves in their new roles, focus on the integration of the combine organization and provide more clarity on 2015. One other point, for each quarter through 2015 we will detail the key metrics for Norwegian and Prestige, and for 2016 and thereafter we will report on consolidated basis consistent with our industry peers.
This is an extremely exciting time at Norwegian, and we look forward to bringing you another report of solid results next quarter. Again anticipating completing the year with an increase of over 60%, as well as more than a double in the two year period since we went public. Thank you for your continued support. We would like to go ahead and open the call for questions.
Operator
Thank you, Mr. Sheehan. (Operator Instructions). Our first question is from Greg Badishkanian of Citigroup . You may begin.
Greg Badishkanian - Analyst
Great. Thanks. Could you give us a little bit of color on the Caribbean versus Europe in terms of maybe how you think the net yields are progressing for 2015? Obviously 2014 was a little bit tough on the Caribbean.
Kevin Sheehan - CEO
That is a great point. As we look at it actually the fourth quarter is pretty well set so let's focus on 2015. On 2015 the thing that we have done I think that was a very smart move is we are significantly more loaded on the Getaway and the Epic and the Breakaway is also more loaded for the first quarter, which I think will enable us to be in a stronger position as we go through the wave season to continue to optimize the pricing as we get through that quarter. And for all the Caribbean market for our Company we are well ahead in every quarter for 2015, so I think that is all had good news. And then on the pricing side and I think you have to take this a little bit into perspective and you've heard this before from other players, the first quarter is a little bit of stilled the growth, but it is a little bit not a big year-over-year growth. I think it is under 1% for the industry growing to 53% from 52.2%. But what happens in the second and third and the fourth quarter is that contracts, so there is actually an improvement from the prior year. So that should bode well as well. So the European market continues to work consistent with what has happened in the prior year, but the first quarter is going to be a little bit -- I think Wendy touched on this, we had a phenomenally successful charter for the Olympics in Sochi, and it was significantly above what that ship would have done had it stayed in the market in the worse part of the year. As you know, that is the weakest part of the year. So we were able to improve our yields in that first quarter because of that. So we will be lapping that as well as the Bud Light Hotel. As we see it today, if the booking patterns play out as we expect, we believe the first quarter will be close to positive maybe a point up or so and then it gets much better as you get past first quarter. So the first quarter along with the industry is one we are all focused, but things seem to look like they are really improving as you get past that first quarter.
Greg Badishkanian - Analyst
That's great color, Kevin. Just another separate question if I could, when you announced the acquisition, I think you had a page of different synergies that you could achieve which was greater than the $25 million. Has that page turned into two pages or have you cut that down to a half page?
Kevin Sheehan - CEO
Not that I'm going to tell you today. I would say and I have been told to contain my enthusiasm because we haven't closed yet, but the synergy number that we communicated on the announcement is I would say in the bag. Having the organization set up the way we are I think we have enormous opportunities. It is going to be something that will be opportunities not only that we will realize on day one but as with Jason and I working full time on this we are going to be getting into each and every area making sure we have best practices and of course best proposition to our guests and the travel agents to make sure they see that this is a business that is on the run from an improvement in guest scores for all three brands. So we are really excited about it. But the punch line I think is that we will be hopefully benefits, but I don't want to get too far into it, that will come out quickly in 2015. But the nice thing about this is in addition to the (Inaudible) management initiatives that we are still working on the Norwegian side that will have opportunities on the Prestige side, these margin opportunities will be a run way for three, four, five years. Because you want to be careful as you do this to always make sure that the guest thinks we are improving the proposition as apposed to anything else.
Greg Badishkanian - Analyst
Great. Thank you very much.
Operator
Thank you. Our next question is from Steve Wieczynski of Stifel. You may begin.
Steve Wieczynski - Analyst
Good morning, guys. Kevin, I know you have talked before about your margins, and the margin improvement there has been pretty impressive. But as you dig in a little bit more with Prestige and I think you just addressed this a little bit, but how much more upside do you think there is going forward in terms of your margin structure over time?
Kevin Sheehan - CEO
It is funny when we talked about this it was probably less than 18 months ago I think we were at about 25%, and we said we were going to be up 500 basis points and now we are halfway there. I think if the industry stays in a reasonable place and hopefully the economic stuff starts to get a little -- it is never going to be a big, huge positive economic rebound but if it is on the margin a little bit better, employment has gotten significantly better, interest rates remain low if that starts to catch up with the consumer spending we believe there is an enormous I don't want to -- Wendy will kill me but there is probably another 500 basis points. And when we look at our model, we are not looking at aggressive stuff. And I think you guys have all built models two to three or whatever each individual firm has used for pricing and on-board revenue and just doing what we have done for six and a half years and continuing that momentum, I think there is an enormous opportunity. And then on top of that opportunity for putting three great brands together smartly will enable us to have a nice benefit. Yes, so we have a little bit of work to do to make sure when we consolidate that we continue on our journey, but I believe we have that opportunity without getting too much into it. So it is all good.
Steve Wieczynski - Analyst
Okay, great. Second question with Prestige, it is basically going to be a two-part question. You talked about Norwegian in terms of what you are seeing so far in 2015. Can you give us maybe some high level color of what you are seeing with Prestige? And on the synergy side, I know you said you are not going to give us an updated number, but as you dig in a little bit more to Prestige if there is upside to that $25 million synergy target what area do you see the most upside or potential upside coming from?
Kevin Sheehan - CEO
I think we are being very, very careful in integrating these brands. We have three great brands that are doing phenomenally well in the market, so we have to be very thoughtful and careful. I think we eluded to last time when you go to all the hundreds of ports the three brands go to and having a little more fire power, I actually had dinner with the premier of Bermuda on Thursday night -- what is today? Thursday. Tuesday night, a couple of days ago. I have no life by the way. So we had dinner, and of course his interest level is more excited because he is saying, Oh, my God, you have these other two great brands and the ship can get into Hamilton. So I am telling you we are going to engage and optimize every one of these opportunities. Bermuda is a magnificent location. And as you know the big ships go into dock yards at one end of the island and it was the other end that we used to go in with the smaller ships. So we are looking for ideas on how to improve on that experience like we used to do with the smaller ships start on one side of the island and then we would move to the other side. So with these two additional brands, we certainly have his attention and he wants to make sure we are aligned on our success going forward. He is a brand new premier of (Inaudible) I am embarrassed to say since I joined the Company seven years ago. But this guy is a career politician and I think he understands the mathematics behind it, that is just one example. So port opportunities are there. We have destination services as you saw was a separate service. All of the work we do in short (Inaudible) getting best execution on the cost side. It never hurts to go around with a new organization scale and say, hey, look, this is the pricing we had and now blah, blah, blah. So we see opportunities there. We see lots of opportunities on the fuel side. Lots of work we have been doing, you guys have heard all of the great work we have done over the last number we expect to be able to benefit some of that on the Prestige side but also continuing as we are learning on these new ships. So back to the original question, how do we see 2015? So they are booked solidly for 2015, and their revenue is up significantly for 2015. I do want to say they are feeling a little bit of the same stuff in the first quarter. So the first quarter is the journey for all of us in the industry and then once we get past there the rest of the year looks pretty darn good.
Steve Wieczynski - Analyst
Okay, great. Thanks for the color appreciate it.
Operator
Thank you. Our next question is from Harry Curtis of Nomura. You may begin.
Harry Curtis - Analyst
Good morning everyone. Maybe if we could take a step back and Kevin, you could give us a bit of history on why the coming together of the two companies makes sense and versus this transaction not happening one or two years ago what were the challenges then?
Kevin Sheehan - CEO
That is a great question, Harry. I think I elude to this has been a long, long process for me. I started this conversation four years ago with one of the founder guys from Apollo and we both walked away saying, oh my God, this makes so much sense, get it done. And that was without getting into the noise of all the different owners and where the funds were invested and on and on. It just turned out that it was a much more complicated thing at that time. And here we were launching between Epic and Breakaway and taking the Company, so we were distracted with all these other exciting initiatives. So running continuously toward where we are reporting today when the S1 went out for Prestige, I saw that as an opportunity to restart that conversation. I actually had talked to Frank Del Rio over the last couple of years a few times. And we both kind of said (Inaudible) make an awful a lot of sense and we just never got past that until the S1 was filed. And when it was filed I put together a proposition, and I have to tell you it was very clear from a strategic stand point and all the rest of it, but you never know with different partners what their separate strategies are long or short term with our stock. As I expected, it was a complicated process. At the end of the day all of our Board members were really excited when we showed them the opportunities for the transaction.
It is just so compelling where you look at the ability for us to have more scale, and as you know we have done a terrific job on the scale side of the business and we will continue to do that. But it also gave us opportunities to be in different segments of the market but also learnings that we can now really dig into. And you look at Prestige and what a phenomenal job they have done on yields and then you say what about Pride of America? You have this unique experience in Hawaii that nobody competes with us at all, and why can't we adopt a better marketing program more like what they do. I think that is a big opportunity. Another one of the big opportunities is on the Haven and just looking at the Haven and what we see in the Haven is our very successful guests usually are on with extended family; kids and grandkids. And they stay up in the Haven and the rest of the family may be in other parts of the ship. And it is a wonderful experience because those multi-generational groups can then go into -- the kids can go into Nickelodeon and the teenagers go on the rope courses and the water parks and everybody can get together in the wonderful restaurants we have. So there is a unique experience that we can provide for that affluent guest. So here we are now we are all excited about that and the opportunity that we can realize from taking our data base on both sides and saying how do we do a better job of driving the guest to the right propositions because the same thing holds true for our Haven person that may not be aware of the other propositions and introducing them to Oceania and Regent. To me the cost stuff that is going to happen, where this is exiting is us learning and being intellectual about how we optimize the revenue. The multiples of the stocks in general as you know are all driven by the top line and we are so focus on that. And of course you've seen what we have done for six and a half years or whatever with taking this brand and bringing it to the prominence it is today even before the transaction. So we are very excited about what the opportunities are with the three Companies put together.
Harry Curtis - Analyst
Thanks, Kevin.
Operator
Thank you. Our next question is from Robin Farley of UBS. You may begin.
Robin Farley - Analyst
Great, thanks. I just wanted to clarify a couple of things. I know you talked a lot about qualitatively the outlook next year. But it sounded like you said actually up 1% for yields in Q1. I just want to make sure I understood that correctly (Inaudible) what to expect in guidance? And then there was there any sort of range qualitatively to think about yields for next year after Q1. It sounded like you said better than the 1% growth.
Kevin Sheehan - CEO
Yes. So it is too earlier to get too far into the numbers. As you can imagine, Robin, we are still in the budget process, but the yield numbers I am looking at for the full year are -- and I didn't have to go back and push back to anybody. They came in at a level that was very comfortable to me relative to the model, so I can say that. And had that is skewed a little bit because of the first quarter as you said. If the booking pattern continues the way we see it, we can finish the year with a positive 1%. But that is a huge -- I have to tell you given the market dynamics in the first quarter and the fact that we had Sochi and the Bud Light Hotel in the first quarter that is a phenomenal result, because it was a huge, huge number from the Sochi incremental amount. So to give you a little bit of color on that. And as Wendy mentioned on the conference call, just one other thing remember it is really on an organic year other than on the margin, right. So the Getaway you are going to have four, six sailings at the beginning of the year and Escape by the time it gets into service is just four to six sailings in the back end of the year. I think it will be a testament of us as an organization how we operate in an organic environment. We did this in other years and proved ourselves where we were able to drive very good yields and we are up to the task again.
Robin Farley - Analyst
Okay, great. Then I wonder just to quantify a couple of other things the items, Wendy, maybe this is in wheelhouse, but how much did shifting the drydock out of Q4 how much does that help expense non fuel expense per unit or maybe an EPS whatever is the way to think about how much that is helping Q4? And then can you quantify how much the charters -- what the charters contributed to your Q1 yield growth last year and earlier this year to think about what you are comping against with it? And then last thing if I can throw it in there, there have been some interesting dynamics in the last two quarters with your growth yields and your net yields. Is that the yield guidance for Q4 and into Q1 should we think about that maybe a similar thing where maybe more of the net yield growth is coming from the netting against gross? Where maybe gross yield wouldn't be up but it would be the change in commissions?
Wendy Beck - EVP, CFO
Okay. So first off regarding the benefit of deferring the Gem drydock it is about a $2 million to $3 million benefit net of all the work we are doing in addition to taking the cabins out of service to get all the Norwegian NEXT programs done while the ship is running.
Kevin Sheehan - CEO
So remember we took the ship it wasn't due for drydock for another year and we got so anxious to get the O'Sheehan Pub and Churrascaria situated in the right areas and all of that so that is why we set the drydock prematurely. And once we went through and sharpened our pencils we said this doesn't have to be done until it consistent with requirements, so we pushed that out. So when these numbers $2 million to $3 million is probably the benefit and you have some cabins that are taken out for the workers that are doing the work and we are also getting the scrubbers up and running too. So there is a lot of stuff going in the fourth quarter relative to getting the ship to the level we believe drives the excitement of the brand. You had some other stuff.
Wendy Beck - EVP, CFO
Sure. And then on the -- I'm sorry. It was the yields, right?
Kevin Sheehan - CEO
The yields.
Wendy Beck - EVP, CFO
Yes. So it is the commission transportation other line as we had said last quarter. We expect that on a run rate basis to be 15.5% and 16%. Last quarter it was at like 15%, this quarter it was at 15.8%. There are a number of things that we will see a permanent benefit in, and that is due to renegotiated port contracts with significant GTF savings that actually benefits our customers, also renegotiated credit card costs. We are flowing even more casino channel business through, which is as you know very efficient way to get guests onto our ships from a commission stand point and then more targeted incentive programs. So you will see that continue, that is not just a one-time benefit or two quarter benefit. You will see that, Robin, even into the outer years and we have a lot of work to do with the Prestige transaction to continue to go back and renegotiate even more great deals especially on the port and the credit card side.
Kevin Sheehan - CEO
Robin, did you also ask about the on-board?
Robin Farley - Analyst
I was asking what the charters in Q1 last year the Sochi and the Bud Light Hotel just to sort of think about how much they added. When we are thinking about the comping, that the up 1% is really on I guess what part of that 3.8% increase last year or earlier this year was from those charters?
Kevin Sheehan - CEO
We don't want to get into too specific. You are asking questions nobody gives you that kind of detail and we are only one brand. I would say that it was probably a little over a point of the growth without getting more specific than that.
Robin Farley - Analyst
Okay, great. Thank you very much.
Operator
Thank you. (Operator Instructions). Our next question is from Steven Kent of Goldman Sachs. You may begin.
Steven Kent - Analyst
Good morning. Two questions, one, can you talk about your interest in expanding into Asia? We have heard that from some of the other cruise companies especially with the Prestige acquisition because I think they do go into Asia and do some itineraries, and how do you feel about the Norwegian brand going in there? And second, I am still struggling with the pricing of Caribbean versus Europe. And CCL and RCL generally European trends were good. I wanted to hear your thoughts. And I have to tell you I was surprised I actually saw MSC giving a free cruise on one of their new ships in the Caribbean if you booked in the Mediterranean for next summer. I just thought that was pretty aggressive stance and whether you are seeing that in other places or other ways.
Kevin Sheehan - CEO
Let me start with that. I mean I can't really quote too much on MSC. It is a great brand, it is a family owned entity. As you know they are moving out of the Caribbean as the winter season ends and going back to Europe, so you can do your own thoughts on that. You have to remember MSC is a great brand over in Europe and it has really not been consistently in the United States. It is a massive ship, a massive new ship they have port in here along with as you know all the inventory that we've talked at length about. So I think some of that is the reality of getting them in their comfort zone, guests on their ships in their core markets so that is that. As far as Europe we see that continuing. We feel the pricing in Europe -- remember we said we had great pricing as an industry in 2014. Let's be real about it, we all had a lot of carnage in 2012 and 2013. So getting positive pricing is good of course, but we have a road to go and I think we are all focus as an industry on getting back to our ripe old place. I think that is two, three year journey. But we see good pricing in Europe continuing. As far as Asia which I think was the last piece, yes, Prestige is a very global brand both Oceania and Regent. They both go to well over 300 destinations over the course of the year throughout Asia and other markets around the globe. Yes, there is learnings on that for us of course. We also have had learnings from Star Cruises. So, Steve, the point is there is a lot of inventory going over to those markets, and Kevin is a little bit more conservative and yell at me if you want. And the other guys joke about, hey, you're not going to come in until we all break the market in and then you're going to come in and waltz your way in, and I said that is really what you do when you have 13 ships growing to 14, 15, 16, 17 over a six year period. We are going to be cautious. We are going to stay where we know we have a return that we can continue to deliver the consistency that you've seen since six and a half years or whatever it is ago. And we will be open, of course, and as we get out in the future whether it is 2016 you should start to see us having a much clearer strategy about -- because we do believe we have guests that want us to be in those markets and we will over time get there but again with an air of caution.
Steven Kent - Analyst
Okay. Thank you.
Kevin Sheehan - CEO
And, Shannon, we have time for one more question.
Operator
Our next question is from Assia Georgieva of Infinity Research. You may begin.
Assia Georgieva - Analyst
Good morning. Good job on Q3. And I had a couple of quick questions. Pride of America does it make sense to possibly move that ship into the Oceania (Inaudible) have any new builds coming in and try to explore the full potential of that unique destination?
Kevin Sheehan - CEO
Great question and it is something we are talking about. I am not 100% sure whether it does or doesn't. But you're right the yields that would be garnered under one of the other brands would be higher. We think we have the ability using their marketing approach to benefit greatly from the delta that is there today, but that is something that is on the cards. We have new leaders on the three brands, and that is going to be an intellectual conversation that we will have amongst ourselves. And we are going to as you know everything we do at Norwegian at the end of the day is with a view to our shareholders. We are here to drive value for our shareholders. So if you're right and that would be a better result, we would be open to anything.
Assia Georgieva - Analyst
And you offered me a good segue into the shareholder view. In terms of the stock that will be used as a part of the purchase price what kind of lock up agreements do you anticipate and lock up terms?
Kevin Sheehan - CEO
That is a great question, and we debated it. Because to be honest with you the Apollo guys were open to doing anything because they are so excited about the prospects of this Company. But at the end of the day, I think what we did was we locked up -- where did we end up? We locked up the new shares for a year to December 15th -- through 2015 and some of the senior people from Prestige as well. But it wasn't a big deal because everybody gets it and is excited about where we are going. We could have done -- I probably said more if we wanted it, but I think you also want to see some liquidity open up to into our shares. But the way I look at it is now that we have become a bigger Company, a bigger market cap Company the remaining private equity (Inaudible) Holdings to me are three big shareholders. And we look at them -- of course they have a little bit terms, but we look at them as three big investors no different than the other investors that we have. We are working for everybody.
Assia Georgieva - Analyst
Great. Thank you so much, Kevin.
Kevin Sheehan - CEO
Thanks everybody. And thanks for your time and your support. Look forward to our next quarter, and as always we're here to answer your questions if there is anything that we haven't covered. Thanks so much.
Operator
This concludes today's conference call. You may now disconnect.