挪威郵輪 (NCLH) 2014 Q4 法說會逐字稿

Good morning, and welcome to the Norwegian Cruise Line Holdings fourth-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder to all participants, this conference call is being recorded.

I would now like to turn the conference over to your host Ms. Wendy Beck, Executive Vice President and Chief Financial Officer. Ms. Beck, please proceed.

Thank you, Amanda. Good morning, everyone, and thank you for joining us for our fourth-quarter earnings call. I'm joined today by Frank Del Rio, president and Chief Executive Officer of Norwegian Cruise Line Holdings; Drew Madsen, president and Chief Operating Officer of Norwegian Cruise Line; and Jason Montague, president and Chief Operating Officer of Prestige Cruise Holdings.

Frank will begin the call with opening commentary, followed by our brand presidents, Drew and Jason, who will go into a little more color for their respective areas. I will follow with commentary on the results for the fourth quarter and full-year 2014, as well as provide guidance for 2015 before turning the call back to Frank for closing words.

We will then open up the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's investor relations website at www.nclhltdinvestor.com and will be available for replay for 30 days following today's call.

Before we discuss our results, I would like to cover a few items. Our press release with fourth-quarter and full-year 2014 results was issued last night and is available on our investor relations website. I would also like to review information about forward-looking statements and the use of non-GAAP information as 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 forecasts or estimates. And we undertake no obligation to update any forward-looking statements. 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 measure and other associated disclosures are contained in the company's earnings release.

Now with that, I'd like to turn the call over to Frank Del Rio.

Thank you, Wendy, and good morning, everyone.

Before going into my commentary, I'd like to start off by saying how excited I am at being able to lead the most dynamic cruise operating company in the industry. My experience in the cruise industry goes back 20 plus years, and I am more eager and passionate about this opportunity than perhaps any other in my career.

As the founder of Oceania cruises, I understand the entrepreneurs mindset and what it takes to build a brand from scratch, which is why I have the utmost admiration for those pioneers that founded Norwegian Cruise Line close to 50 years ago. With one ship sailing round-trip voyages out the [vent] nation port of Miami, these trails blazers did what no one had done before. And in the process, not only founded a venerable brand, but they also laid the groundwork for the cruise industry as we know it today.

To be able to lead the organization that includes the pioneering Norwegian brand along with two brands that are leaders in their respective market segments and synonymous with upscale travel, is a once in a lifetime opportunity that I truly relish. The recent histories of Norwegian Cruise Line and Prestige, particularly the Oceania cruise brand, have run along similar paths.

Both brands are innovators, with Norwegian introducing a slew of industry firsts from the development of a private island destination to the rollout of its signature freestyle cruising. Meanwhile Oceania cruises carved a niche by defining the upper premium segment with an offering that includes unparalleled cuisine, personalized service, and exciting itineraries.

Their unique business models and the significant potential of both brands attracted private equity who made substantial investments in each during 2007 and 2008. Both brands also embarked on disciplined new-build programs, which resulted in the successful introductions of Marina and Riviera for Oceania cruises and Norwegian Epic, Breakaway, and Getaway for Norwegian Cruise Line.

Their paths diverged slightly though, as Norwegian focused on internal operations to resurrect the brand, while the shareholders of Oceania cruises combined it with Regent's Seven Seas cruises to form Prestige Cruise holdings, which I have had the privilege of leading since its inception in 2008. So it is only fitting, then, that the next step in Norwegian's growth strategy was to look for acquisition opportunities to grow and diversify.

Finding the perfect partner was as easy as looking out of Norwegian's corporate headquarters window and just down the street to Prestige. The experience gleaned from uniting Oceania cruises and Regent into Prestige, which quickly became the leading operator in the upscale market segment, turned out to be the perfect precursor to the opportunity of combining Norwegian Cruise Line and the Prestige brand into a new diversified cruise operator.

It's an opportunity, quite frankly, that I along with 30,000 team members through the Prestige and Norwegian banners have thoroughly embraced. Norwegian's diversification into the upper premium markets was one of two similar events for the Company in 2014, and I will return to talk about this important acquisition later in the call.

Just as important, 2014 will be remembered as a year of solid growth for Norwegian Cruise lines in the form of both fleet expansion and organic growth. The brand welcomed Norwegian Getaway to the fleet in January in a boisterous christening that captured the energy and vibrancy of her year-round home port in Miami.

Since then, her contributions to the brand have been numerous. First she marks Norwegian's return to year round seven-day cruising from Miami after a decade-long absence. And not only does the Norwegian brand now have a flagship in Miami, she continues to be the line's highest rated ship in terms of guest satisfaction.

And this is no small feat given the logistics of managing 4000 plus guests, 20,000 plus dining areas, and a host of entertainment venues and lounges. My congratulations go out to Getaway's officers, crew, and staff for a tremendous accomplishment.

In addition to Norwegian Getaway, the brand had the benefit of a full year of sailings of Norwegian Breakaway, which was introduced in April 2013. Lastly, strength in Europe and Alaska itineraries drove organic pricing growth and helped offset pronounced promotional environment for Caribbean itineraries.

The second significant event of 2014 was Norwegian's expansion and diversification into the upper end of the cruise market with the acquisition of Prestige Cruise Holdings. Due to the timing of the transaction late in the year, the result of the acquisition will be more apparent in the coming year. However, the long-term benefits of such a transaction are abundantly clear to anyone who follows industry. And I will discuss it with you later in the call, so putting that topic aside for now, the strategic set of Norwegian and Prestige is highly complementary.

Combining our three brand results and vacation offerings have run the gamut from an entry-level three-day cruise to the Bahamas for those who want to test the waters in what a cruise experience is like, to a 180-day around-the-world voyage geared to the most avid and adventurous travelers. In between is a rich, diverse portfolio of 21 ships ranging in size from 500 to 4,100 berths, year-round and seasonal offerings from home ports worldwide to over 350 ports around the globe.

The ships accommodate groups of size from singles, to couples, to large families and offer experiences ranging from contemporary to ultra-luxury. When you combine the Norwegian Oceania cruises and Regent Seven Seas brands, the number of offerings we can provide our guests grows exponentially and we believe is unmatched in the industry.

In addition to the best-in-class assets, the new Norwegian organization boasts an exceptional management team with a depth and breadth of experience both from within and outside of the cruise industry. These leaders fit well into an organizational structure that I personally developed to ensure two things: First, that the market integrity product characteristics and brand attributes of each brand will remain intact and unaffected by the combination; in other words, each brands will continue to deliver the guest experience that they are known for, and any changes, likely to be the adoption of best practices learned across the fleet, will be invisible to the guests.

And second, that a culture of collaboration, knowledge and sharing, and teamwork exists to not only maximize cost and revenue synergies, but also to share best practices in order to enhance the guest experience in cruise operations throughout the three fleets. We have designed this organization to take the best from each brand and craft ways to extend those concepts and ideas across the organization, which in turn elevates the entire company.

Three distinct brands and one incredible organization is my mantra. And it provides the direction going forward of how this new organization will operate. One of the specific functions of this new org structure that epitomizes this philosophy is dedicated to identifying, quantifying, and implementing synergies throughout the organization. This synergy function is headed by a seasoned senior vice president, who I've appointed Chief Integration Officer, reporting directly to me, and includes resources and expertise from both the Prestige and the Norwegian organization.

At the time of the acquisition, we promised synergies in the $25 million range, and we are certain we will achieve that figure this year. In addition, we are well on our way to vetting out additional expense synergies and revenue opportunities, which we will share with you in future calls. At the time of the acquisition, we promised cost synergies in the $25 million range. And we are reiterating this level for 2015, having identified synergies in the consolidation of office operations, insurance costa, port fees, and shore excursion concessionaire contracts.

In addition, I am pleased to report we have also identified revenue synergies of $15 million, exclusively from opportunities in onboard revenue for first-year synergy of at least $40 million. And that is embedded in our guidance. These same line items that constitute $40 million synergy savings in 2015 equate to some $50 million in 2016 based in a full year.

The overall strategic plan that had been put in place by Kevin remains substantially unchanged. My leadership team and I will focus on stimulating organic growth, much of which will come from the learnings that the three brands will share. And then, creating a culture of flawless execution, which together, we expect, will accelerate net yield growth, suppress costs, and lead to increased earnings-per-share.

In addition, we will tap our collective experience in developing leading brands and cultivating a loyal guest base that we know is willing to pay a premium for great vacation experiences. Many of these initiatives will focus on investments to drive demand and bolster the top line, as evidenced by the recent expansion of Norwegian's North American sales teams and the creation of a corporate level chief of international operations with responsibility over the three brands.

Lastly, we are investing in marketing initiatives to stimulate demand and promote upcoming capacity addition. The traditional marketing, which was already planned, is already bearing fruit as demonstrated by Norwegian Escape, which is booking better than our two Breakaway class predecessors. We are also investing in expanding Norwegian's presses in the Canadian market, a rich market for the Prestige brands in which Norwegian has historically lagged.

Turning to our results, while Wendy will go over them in detail, I'd be remiss to not give them the spotlight they deserve. The benefits from Norwegian's fleet expansion and organic growth have brought about strong results. Adjusted earnings per share for 2014 grew an impressive 61% over the prior year and come on the heels of a 45% increase in 2013.

Excluding the consolidation of Prestige's results, adjusted earnings per share for 2014 grew by 65%. Adjusted net yield for the year increased 4.8% including Prestige and 3.3% on our Norwegian stand-alone basis. These results demonstrate the ongoing strength of the Norwegian brand.

Now there's a lot to cover this morning on this call, so I'll hand it over to Drew now to discuss the Norwegian brand in more detail. Drew?

Thank you, Frank, and good morning, everyone.

Since this is my first opportunity to speak with all of you, I thought I would start with a very brief summary of my background before joining Norwegian. I spent the first half of my career in the consumer products industry, primarily at General Mills in various marketing and general management roles. Most recently, I spent the last 15 years at Darden restaurants, which used to be part of General Mills, and had the opportunity to serve as president and Chief Operating Officer and a member of the board of directors for the last nine years.

Now, while at Darden, I learned that the ability to earn a competitively superior total shareholder return over a sustained period in the restaurant business was driven by three critical dynamics. First, you need to create a compelling experience that your guests just can't get anywhere else.

Second, you need to build a culture that embraces both executional excellence and innovation, so that you can earn superior guest loyalty by consistently exceeding their expectations in the near term, while evolving your experience to stay relevant over the long-term. And third, you need to maintain a strong business model for both existing units and newly built units to ensure the sales growth driven by improving guest loyalty ultimately produces the appropriate amount of cash flow and value creation for investors.

Now, while there are clearly differences between restaurants and cruise ships, there are also meaningful similarities in important areas. And I was attracted to Norwegian because of their tremendous performance since 2008 on each dynamic that I just described, as well as by their significant growth potential going forward.

And that strong performance certainly continued during 2014. One incremental quarter of sailings from Norwegian Breakaway, which came into service in April of 2013, and close to a full year of operation from Norwegian Getaway, which came into service in February of 2014, helped produce another year of record results. First, we carried a record number of guests during 2014, breaking the 2 million guest mark for the first time in Norwegian's history.

In addition, the business achieved 3.3% net revenue yield growth during 2014. And with a net revenue yield of $189.69, we have now surpassed our 2008 record net yield by 11.5%. And a continued strong focus on discipline cost management and profitability ensured that our returns remained strong as well, as evidenced by our record adjusted EBITDA margin of 28.5%.

So in summary, our foundation remains strong, the strategy that's been in place for several years is working, and the business is well positioned for continued profitable growth. Looking ahead, in 2015 Norwegian will open the first of our Breakaway plus class ships, Norwegian Escape. She's built on the proven platform of her Breakaway class predecessors, with additional state rooms and public areas, enhancing not only her ROI, but also the experience for our guests.

Norwegian escape will have the largest haven complex on our fleet, two new dining experiences from James Beard award winner, Jose Garces, the first snow-room spa treatment at sea, and will also debut venues tied to our new partnerships with Margaritaville and the Michael Mondavi family winery. Her arrival will establish Norwegian as the premier brand sailing from Miami with the newest and most innovative hardware deployed in the cruise capital.

Now along with Norwegian Escape, we will also debut our newest creation in the Caribbean, Harvest Caye. This unique island destination offers guests a relaxing beach experience with the usual activities, while also taking full advantage of the surrounding natural attractions. Our guests will also have the opportunity to explore the architectural, cultural, and natural riches of southern Belize's mainland. Harvest Caye will serve as an anchor for our Western Caribbean itineraries beginning in the fall.

As Frank already mentioned, our plan for 2015 also includes incremental marketing investment in television during the wave season that we did not have at this time last year, as well as more support for the launch of Escape than we had for the introduction of Getaway last year. And to date, bookings on Escape are in line with our expectations and well ahead of where they were for Getaway at a similar period last year.

In addition, given the importance of the North American travel agent distribution channel to our business, we also recently announced the substantial expansion to our North American sales team almost doubling the number of business development managers in the field and increasing the overall sales group by more than 40%. Building on our partners first philosophy, this investment signifies our commitment to having the most engaged, empowered, and responsive sales team in the cruise industry in order to promote the long-term success of our valued travel partners. We believe this investment will more than pay for itself by providing the organization capability required to effectively sell our growing capacity and to more fully penetrate underdeveloped markets where we already do business.

I'll now hand the call over to my colleague, Jason Montague, to give some commentary on Oceania and Regent. Jason?

Thanks, Drew, and good morning, everyone.

As this is the first earnings call including the Prestige brands, I thought I would start with a quick background on myself as well as both Oceania and Regent.

I personally had the good fortune of working with Frank since we launched Oceania back in 2002. In addition to assisting with the launch of Oceania, I also headed up the integration efforts when Regent was acquired back in 2008. And for the last five years, I served as Prestige's Chief Financial Officer. My experience with both brands has allowed me to have a deep understanding of the entire operation for each. And I couldn't be more excited to lead both brands moving forward.

The Oceania cruises brand is a market leader in the upper premium segment and was a pioneer of this segment. Oceania is focused on providing affluent and mature cruises with a gourmet culinary experience, elegant accommodations, personalized service, and worldwide destinations all at a compelling value.

With five midsize ships, Oceania visits approximately 330 ports around the globe and is ranked as one of the worlds best cruise lines by Conde Nast Traveler and Travel and Leisure. The fleet includes three 684-passenger R-class ships and two 1,250-passenger O-class ships, which were introduced in 2011 and 2012.

In 2014 Oceania reached an important milestone in recording its 1 millionth booking, which is a testament for a brand that was just established a little over a decade ago. The Regent Seven Seas cruises brand is a market leader in the luxury segment of the industry.

Regent, established in 1992, provides the cruise industry's most inclusive vacation experience, which includes free air transportation, free unlimited shore excursions, dining in all specialty restaurants, all gratuities, premium wines and spirits, and for the concierge suites, free pre-cruise hotel night and free Internet. The brand operates three award-winning all-suite ships totaling 1,890 berths that include itineraries to approximately 300 ports worldwide.

The Regent brand focuses on providing the highest level of personal service, inviting shore excursions, world-class accommodations, and top-rated cuisine. Both brands target customers who are 55 years of age or older, have a net worth of over $1 million, is well-educated, and is a seasoned world traveler. This target audience has reached an age and wealth status where the convenience, comfort, and luxury amenities of an upscale cruise product are extremely appealing. Oceania and Regent have also built loyal and repeat customer bases whereby 44% and 51%, respectively, of their 2014 passengers were repeat guests.

Also in 2014, approximately 59% of Prestige's total guests responded to Prestige's customer satisfaction survey of which 97% of responders reported that their cruise experience met or exceeded their expectations. And 93% reported they will likely return.

Both brands have also implemented a differentiated price enhancing revenue management strategy that encourages our target market to book early to obtain the most attractive value offering, with bookings made up to 21 months in advance of sail date. When we launch new itineraries, we clearly articulate to potential customers and travel agents that the prices are subject to increase as the cruise date approaches, as well as the specific dates at which those price increases may occur.

We believe the travel agent community favors our pricing strategy as it allows them to provide value to their customers in a completely transparent manner, resulting in early bookings. This early booking cycle also allows us to make more informed decisions about pricing, inventory management, and marketing efforts.

We also have new capacity additions at both brands coming in 2016. Oceania has purchased an additional R-class ship that is a sister ship to Regatta, Insignia, and Nautica. The 684-passenger ship will be named Sirena and will undergo a $40 million dry dock in March of next year and will join the fleet in April 2016.

These R-class ships are extremely popular with the loyal Oceania customer base. And the yields of these original Oceania vessels continue to increase despite Oceania adding additional 2,500 in new berth capacity in 2011 and 2012, with the introduction of the Marina and Riviera O-class ships. The inaugural season for Sirena will open for bookings next month, and we couldn't be more excited to have this fourth R-class ship join the fleet next year.

Regent's newest ship, the Seven Seas Explorer, is being built by Fincantieri in Italy and is set to launch in July 2016. At 56,000 gross registered tons and carrying just 750 guests, the all-suite, all-balcony ship will boast among the highest space ratio in the cruise industry and is designed to be the most luxurious ship ever built, with every inch of the vessel evoking elegance and grace.

With the one-of-a-kind opulent 3,875 square foot suite, extravagantly designed lounges and show places, and lavish gourmet restaurants, Regent is setting a new standard for luxury vacations with the launch of Explorer. Explorer has been met with unprecedented demand, setting single day and single week records for bookings when she opened sales exclusively to our Seven Seas society members, demonstrating the strong loyalty and pent-up demand from our guests.

In regards to current business trends, regional and geopolitical issues impacting booking levels include Ebola, which had a negative impact on our exotic sailings, as well as the Putin/Ukraine conflict, which did not start impact prior-year numbers for the Black Sea and Baltic sailings until later this quarter last year. Specific to the Regent brand, we are also seeing significant increased booking activity in 2016 with the excitement over Explorer, and I believe this has had a slight negative impact as it relates to 2015 bookings.

Based on the voluminous direct feedback from the travel agent community and from our past guests, I also believe the booking velocity was negatively impacted during fourth quarter by the announcement and closing of the Prestige transaction with Norwegian. Continual feedback we received indicated that travel agents and guests were concerned that the overall Oceania and Regent experience may be negatively impacted by the acquisition and that they were going to take a wait-and-see approach before booking either brand.

We have made a concerted effort at both brands to reassure our partners and guests that our focus is to maintain and improve on the existing outstanding vacation experiences that each brand delivers to every guest. The combination of this communication effort as well as the announcement of Frank assuming the role of president and CEO of Norwegian cruise line holdings has had a positive impact. And since the Frank announcement, we have seen positive year-over-year booking velocity at both brands. I'll now hand the call back over to Wendy Beck.

Wendy?

Great. Thank you Jason.

I'll begin with commentary on full-year results, which unless otherwise noted compares full-year 2014 and 2013 on an as-reported basis. These results include a partial period of Prestige, the acquisition of which closed on November 19 of 2014. To better demonstrate results excluding the stub period, we have also included certain metrics that exclude the results of Prestige and the impact from the acquisition, which we will refer to as Norwegian standalone.

For the full-year 2014, the company generated adjusted earnings per share of $2.27 on an as-reported basis, which is a 61% improvement from prior-year and, as Frank mentioned earlier, comes off of a 45% increase in 2013. On a standalone basis, Norwegian generated adjusted EPS of $2.32, a 64.5% increase from last year and at the upper end of our guidance.

Adjusted net yield on an as-reported basis increased 4.8%. Net yield on a Norwegian standalone basis increased 3.3% or 3.2% on a constant currency basis on both improved tickets and onboard net yields, the strong pricing in Europe and a strong Alaska season, we have offset the promotional year that we experienced in the Caribbean.

Adjusted net cruise, cost excluding fuel per capacity date, increased 3.5% on in as reported basis and 1% on the Norwegian standalone basis, driven by investments in our Norwegian next-fleet enhancement program and increased marketing expenses to stimulate demand in the fourth quarter and into wave season. We present net cruise cost metrics, excluding fuel expense, as we feel it better reflects the underlining earnings power of our Company. While we utilize hedges to mitigate fluctuations in fuel prices and provide predictability of our future fuel expenses, the recent sharp reduction in fuel prices has proved steeper than in the past, resulting in a significant impact from our hedged portfolio.

In 2014, our fuel price per metric ton, excluding the impact of hedges, was $605 compared to $686 in 2013.

We experienced a negative impact in 2014 of $10.3 million, or $0.05 per share, on our hedged portfolio due to recent reductions in fuel prices, compared to a benefit of $4.7 million, or $0.02 per share in 2013. Net of hedges, fuel price per metric ton decreased to $625 compared to $675 in 2013.

In order to facilitate the calculation of future impacts of fuel prices, we have included annual hedge percentages along with the average price per metric ton of the hedged portfolio in the guidance section of our earnings release. Interest expense net was $151.8 million versus $282.6 million in 2013.

2014 included $15.4 million related to financing transactions in connection with the acquisition of Prestige, while 2013 includes $160.6 million in expenses associated with debt prepayments. The increase in interest expense was a result of higher overall borrowings attributable to the addition of Norwegian Getaway to our fleet and the acquisition of Prestige.

As planned, pro forma leverage for the year ticked upward to approximately 5 times as a result of the Prestige acquisition, and we continue to anticipate we will be below 4 times within the next 18 months. The impacts of the Prestige acquisition are more evident in the results for the fourth quarter where approximately half the period includes Prestige's results.

On an as-reported basis, adjusted earnings per share was $0.36, or $0.40 on a Norwegian standalone basis. Adjusted net yield increased 11.1% in the period, driven by a 3.9% increase in Norwegian standalone net yields and the addition of the premium priced Oceania and Regent fleets.

Adjusted net cruise cost, excluding fuel per capacity date, increased 9.9% on as-reported basis, while it was essentially flat on a Norwegian standalone basis. As with full-year results, the impact on our hedged portfolio, as a result of lower fuel prices, was primarily felt in the first quarter. Fuel price per metric ton net of hedges was $599 in 2014, down from $649 in 2013. Excluding hedges, prices were $529 and $656 in each of these periods.

The impact on our hedge portfolio for the fourth quarter of 2014 was $10.5 million, or about $0.05 per share, while 2013 experienced a negligible benefit. Interest expense net increased to $56.4 million from $24.6 million, primarily due to the aforementioned charges related to financing transactions and incremental interest expense from additional debt incurred in relation to the acquisition of Prestige.

Now looking to 2015, we have provided guidance along with associated sensitivities for the first quarter and the full year 2015 in our earnings release. In addition to providing guidance on an as-reported basis for net yield and net cruise cost, we are also providing guidance on these metrics against 2014 combined company results as the basis with which to compare 2015 expectations. These combined company results assume the consolidated results of Norwegian and Prestige to the first-quarter and full-year 2014 as of the beginning of that year.

As discussed in our prior comments, we are expecting tougher comps for the Norwegian brand in the first quarter of 2015, due to a strong first quarter of 2014, which saw net yield rise 3.8% as a result of an extended charter of Norwegian Jade for the Sochi Olympics and a charter of Norwegian Getaway during the 2014 Super Bowl in New York, as well as an increase in the number of six-man charters in 2014, which level off in 2015.

In addition, in January the Norwegian brand will lap the first year of Norwegian Getaway, whose year-round Caribbean itinerary was impacted by the promotional environment in the region, which we see continuing into Q1. Later in the year, Norwegian Escape reaches Miami to a Caribbean environment where capacity growth will have stabilized. The impact of Norwegian Getaway's operation during the promotional Q1 and the benefit of Norwegian Escape's entry in a less proportional Q4, in essence offset each other, resulting in a year of organic growth for the Norwegian brands in the Caribbean [corridor].

Turning to the Oceania and Regent brands, as Jason previously mentioned, by virtue of their more intricate product offering and early base-loading strategy, those brands have the benefit of extended booking windows, which provide greater visibility into our future revenue. With this back drop, we present the following guidance for first-quarter 2015.

On an as-reported basis, as a result of the combination with the premium-price Prestige brand, we expect adjusted net yield to be in the range of 17% to 18%. On a combined-company basis, we expect to be down to 1% to 2% and flat to down 1% on a constant-currency basis as a result of the promotional environment for Caribbean itineraries, which we see extending into the first quarter.

Adjusted net cruise cost, excluding fuel per capacity date, on an as-reported basis is expected to increase between 27% and 28% die to the consolidation with Prestige. However, on a combined-company basis, we expect an increase of 4.5% to 5.5%, or 5% to 6%, on a constant-currency basis due to incremental marketing expense that includes a return to television advertising for the Norwegian brand.

And lastly, adjusted earnings per share in the quarter is expected to be in the range of $0.20 to $0.24. While the first quarter is still experiencing the challenges of a promotional Caribbean environment, there is optimism for the balance of the year as demonstrated by the following full-year 2015 expectations. Adjusted net yield is expected to increase approximately 17.5% on an as-reported basis or on a combined-company basis. We expect yield improvement of approximately 1.5%, or approximately 3% on a constant-currency basis. The spread between as-reported and constant-currency is wider than normal as a result of recent strengthening in the US dollar.

Adjusted net cruise costs, excluding fuel, is expected to increase approximately 23.5% on an as-reported basis. While on a combined-company basis, we expect an increase of approximately 2.75% to 3.25% on a constant-currency basis due to increased investment in marketing, including a return to television for the Norwegian brand and incremental marketing leading up to the introductions of Norwegian Escape, Seven Seas Explorer, and Oceania Sirena, and incremental dry-dock expense compared to prior year.

As I previously stated, we felt it would be useful to investors to isolate the impact of fluctuations in fuel prices, as it relates to our hedged portfolio, in order to provide a better picture of the underlying performance of the business. We have included projected fuel prices per metric ton for the first quarter and full-year 2015, both excluding and including the effect of our hedged portfolio.

The negative impact on results due to the average cost of our hedges versus current market prices is approximately $35 million, or $0.15 per share, in the first quarter and $120 million, or $0.52 per share, in the full-year 2015. Regarding depreciation and amortization, we have guided to full-year depreciation expense of between $335 million and $345 million, which is on an adjusted basis, that excludes the amortization of intangibles related to the acquisition.

And lastly, in a year that is substantially organic growth-driven, adjusted EPS is expected to be in the range of $2.70 to $2.90, which represents an approximately 23% increase from 2014 combined-company adjusted EPS. Turning to deployment, the addition of Oceania and Regent has diversified our deployment to include destinations outside of those covered by the Norwegian brand. To demonstrate the benefits of this diversification, the following compares 2015 deployment on a combined basis to 2014 on a Norwegian standalone basis.

Caribbean capacity in 2015 is down to 40.4% compared to 47.9% in 2014. This includes the partial periods of Norwegian Getaway and Norwegian Escape, both sailing year-round Caribbean. And as a point of reference, Norwegian Caribbean deployment for 2015 is 45.5%. Europe itineraries are up to 22.8% of our deployment compared to 20.7% in 2014.

Bermuda and Alaska itineraries remain about the same at approximately 7.5%, each while the share of Hawaii deployment dips to 5.3% from 6.4% in 2014. Up from negligible amounts in 2014, Asia, Africa, Pacific now accounts for 3.3% of our itineraries, while South America will account for 1.6%.

For the first quarter of 2015 deployment is as follows, 67.9% of capacity is in the Caribbean in 2015 compared to 72.1% in 2014, with the Norwegian brand deploying 74.1% of its capacity in the region in 2015. Europe deployment is essentially flat at 11%, while Asia, Africa, Pacific, and South America both increased from negligible amounts in 2014 to 7.4% and 1.9% respectively in 2015.

This diversified and global deployment embodies the future of the new Norwegian organization, more diverse and more exciting, and higher-yielding theaters of operation, and with the potential to do even more. This year marks my fifth year at Norwegian, and I can say that right now is the most excited and eager that I have ever been about the opportunities that lie ahead for this organization.

With that, I'll turn over the call to Frank for some closing comments. Frank?

Thanks, Wendy.

While my six-week tenure at Norwegian is just a little bit shorter than yours, I too share in the excitement of the opportunities that lay before us. The timing of the Prestige acquisition was such that it allowed us to begin 2015 with strong momentum generated by the potential and opportunities of this combination.

Our unified and passionate team is hard at work to ensure that we build upon Norwegian's strong foundation to grow our three brands and improve upon their already industry-leading financial performance. I know that some of you are expecting some sort of revolutionary announcement regarding Norwegian's future. But it is simply too early in the game to make any definitive declarations regarding expansion into new markets, orders for new ships, or any other major strategic announcement.

These things may happen in time. And if they do happen, they will be after intense study and careful consideration. I have a proven track record in building leading brands with award-winning product offerings supported by loyal customers while driving significant revenue and profit growth.

Couple this with a Norwegian brand that has delivered five years of consistent earnings growth and best-in-class metrics, and I believe that by pooling our talents and exploiting the opportunities that lie ahead will result in the most dynamic, the most innovative, and, quite simply, the best cruise operating company in the industry.

Thank you all for your continued support. We'd like to go ahead and open up the call for questions.

Thank you, Mr. Del Rio.

(Operator Instructions)

Our first question comes from Harry Curtis with Nomura. Your line is open.

Good morning, everyone. Frank, I had a quick question.

And it's really just looking for a bit more detail about what you're really excited about, given putting the two Companies together. Can you talk a little bit more about the combined Companies or the advantages of the combined Company scale, the age of its fleet, topics like that, that give you some enthusiasm for the next three to five years?

Harry, it gives me a lot of enthusiasm.

And I think you hit a couple of the major points. The scale opportunity is tremendous. Coming from 6,500 beds to over 40,000 beds and 18,000 more on the way are certainly exciting. And it just gives us so much more room to be able to apply the known basic business principle that led to outsized returns and great growth in both revenue and profits at the Prestige brand, and to bring those concepts over to the Norwegian brand.

Like I said earlier, I've been here six weeks, but I can tell you that this management team is excited. They're engaged. They understand what we're trying to do. They agree with the philosophy that we're trying to incorporate across the organization. And it's going to yield wonderful results that you're going to see in time, both in the revenue section of the P&L and the cost section of the P&L.

In terms of the fleet, Norwegian has got a heck of a fleet with more fantastic ships coming. Escape is just a ground breaker for us, a game changer, if you will. And I think that our customers are agreeing with us. As Drew mentioned, the sales of Escape are really off the charts. We're really happy with both the velocity volume of bookings and our pricing. The trends are incredibly strong. And we'll be looking to raise prices on Escape because, quite frankly, the load factors are just remarkable.

Getaway, Breakaway, Epic -- all fantastic ships in their own right still generating double-digit yield premiums over the rest of the fleet, excluding Pride of America, which is a one-time -- or is a unique product in and of itself. The Prestige fleet is a heck of a fleet. The Marina and Riviera were greatly -- they were very well accepted, I should say by the Oceania faithful. And now, being able to bring to the fleet a fourth R-class ship. Those ships are timeless. The level of support evidenced by the strong per diems that those ships generate is just mind-boggling. And so being able to purchase the vessel and refurbish her for an all-in cost of some $180,000 per bed against the backdrop of the per diems that she generates is an incredible ROI story.

And then there's Explorer, the Regent newbuild. Regent hasn't had a newbuild since 2003. So we may accelerate the next Regent ship a little bit faster than every 13 years. [Anual] is excited, and as Jason mentioned, the overwhelming outpour of support by the past guests is off the charts. She will be the most luxurious cruise ship ever built. And I think that kind of product commitment by the Regent brand is really resonating with these ultra-high net worth individuals who are the ones who take these cruises.

Frank, just a quick follow-up on that.

In the third quarter conference call, trying to boil this down to Norwegian's combined earning power with Prestige, Kevin mentioned the potential for the organization to double earnings through 2017. You've only been there a number of weeks, but do you think that he was heading down the right path?

I do. You know, if you look back to the actual performance of the Company since its ICO in 2013, the Company generated $1.41 in earnings per share in 2013. In 2015 if you take the midpoint of the guidance that Wendy laid out, we'll be at $2.80, so we will have doubled earnings per share in two years. And we believe that $5 is certainly -- or slightly above $5 -- is the target for 2017, which would be another 79% increase over where we are for 2015.

And of course, if you have those kind of earnings per share improvement over time, by definition your ROIC is also going to improve. And as you may recall, in 2013 when the ICO took place, the ROIC for Norwegian was 7%. We believe we will break into double digits next year. And in 2018 we will double our ROIC from the 2013 starting point of 7%, so some 14% in 2018. So it's a strong financial performance.

Frank, thank you.

Thank you.

(Operator Instructions)

Our next question comes from Robin Farley with UBS. Your line is now open.

Great, thanks.

I have a question a little bit more near-term focused. I was interested in the line in your release that talked about the acceleration in bookings in wave season in the last three weeks. And I wonder if you could give a little color around that. Do you think that volume was independent of the specific marketing spend? Or was it driven by specific promotions? Or is it just broadly across the board you're seeing that in the market?

We are seeing it across all brands, although, the Norwegian brand probably saw the most pronounced spike during the last three weeks. And it's continued through this week, so we have a chat on Friday, I would tell you that it's going to be four weeks and not just three. So the trend continues.

You know, Robin, you never know why, when business is good or when business is bad, it's never one single factor, it's always a combination of factors. But we do have a compelling promotion in the marketplace, especially for the Norwegian brand that's seen the highest spike. As you know, we come from a mindset at the Prestige brands where we market to fill, as opposed to discount to fill. And while I'm not suggesting that, that strategy will work exactly the same way at Norwegian as it does at Prestige, I think it's worth pursuing and see how much we can convert this idea that the only leverage that a company has to stimulate demand is lower pricing.

And so we introduced a promotion at Norwegian that didn't focus on lower prices, but focused instead on more value. And that's something that we have, over time, perfected at the Prestige brand. And as you know, the Prestige brands have the highest per diem in their classes of anyone in the industry. So, look, we're fixated on yield increases. We're fixated on earnings per share improvements.

I know as an old accountant that you have to have a balanced attack. So it's not going to be just on the heels of yield improvements that we're going to get our earnings per share up, but also on cost control and cost consciousness. To give you an example on that, one of my direct reports in our new org chart will be the head of purchasing. I want the entire organization to understand that effective purchasing and keeping costs down is important. And that's why the head of purchasing reports directly to the CEO.

But you'd lead with revenue. You can't save your way to success over the long-term. But you can't ignore it. You can't be sloppy with costs. You've got to be very crisp. When you operate a company that has 17 million, 18 million bed-days a year, every dollar you find is another 17 million or 18 million, or $0.08 or $0.09 of earnings per share to the bottom line. And an organization of this size, I will tell you that there are plenty of these $1 nuggets of opportunities to reduce costs. We've already found some after five weeks. And there are just as many of those opportunities to -- perhaps in the revenue side, of which we also find some very exciting opportunities.

So it is going to be a balanced attack. We're going to strike at both finding costs -- and not just this six-month synergy that everyone will focus on. This will be an ongoing operation. If you look at the numbers that we were able to generate at Prestige with only 6,500 beds and able to control our costs year after year, even with the introduction of new ships, you'll know that our management team has that mindset of keeping costs down. It's not just about revenue growth.

That's great. And then just the other thing I would ask is, looking at the difference between growth and net yield, that looks like it's been a driver of net yield, the lower commissions line. Is that something that will anniversary in Q2 this year? Because that also seemed to help in Q2 and Q3 last year. Is that something you'll anniversary in Q2 this year? Or do you think that can actually continue to drive incremental net yield?

Robin, it's Wendy. I'll take that.

So, as we had mentioned on both the Q2 and the Q3 call, we did have some fundamental changes in our cost-of-sales structure. We worked very hard to really leverage our overall scale by expanding casino partnerships, renegotiating agreements -- particularly port agreements -- credit card processing fees, and then, in addition, lowering our air subsidies. This is going to carry on. This is not a one-time benefit, but we reset the bar on an ongoing basis. But with that said, when you bring in the Prestige brand, their cost of sale is significantly higher, being an all-inclusive type business, or a lot of it's all-inclusive --

Giving you an example where the businesses are a little bit different.

As you recall, Robin, at Prestige just about every booking includes air. We market it as free air, but it's rolled into the price of the product. Whereas at Norwegian, given all the deployments of the vessels out of home ports -- we now have ships in New York, in Miami, in Tampa, New Orleans, Houston -- people drive to the ships a lot more. And so at Norwegian, the air participation of our guests buying air to take a cruise is below 2%. And so you, basically, have two different worlds, where in Oceania and Regent it's almost 100%, and in Norwegian it's negligible.

My guess is that as we tinker with the Norwegian itinerary and reposition vessels away from the Western Caribbean, primarily, which is the lowest-yielding itineraries in the marketplace and the glut that we've seen over the years, into perhaps higher-yielding itineraries, I think the air participation at Norwegian will tend to increase because customers simply cannot drive to the places that we may put the ships.

And I just wanted to tag in there. So we had reset the bar that our commissions transportation other line was running ongoing at about a 15% clip. But that, again, was not from (technical difficulty) travel agent commissions. It was the other things that I mentioned. PCH, on the other hand, was more around the 30% mark, so on a consolidated basis you should anticipate somewhere in the upper 18% range.

Great, thank you.

Our next question comes from Steven Kent with Goldman Sachs. Your line is open.

A couple of questions.

Frank and Wendy, you mentioned a couple of times cost and revenue synergies. But how is it going to work if, since Prestige used Apollo Chandler to do quite a bit of their operations? If you find something that you want to implement from Norwegian onto the Prestige brands, how will the shareholders see the benefits of that?

And then, you've now mentioned a couple of times the potential for maybe some more ships. Any thoughts, Frank, on Regent and Oceania brand supply growth? Norwegian is much further out as you started to give some thought as to where you would go with the Regent and Oceania brands out into the 2017, 2018, 2019.

Regarding the new vessel additions, you know we're -- the Prestige brands, historically, have grown organically. As I mentioned earlier, the last new ship that Regent introduced was in 2003 when the Voyager came online. So 13 years may be a bit long, even for you, Steve. But with the new vessel coming in 2016, we have no plans in the horizon to add another Regent vessel. My sense is, is that on an ongoing basis, assuming a stable marketplace with no outside major events influencing the overall market, that a luxury line like Regent could take delivery of a vessel every five years or so.

The Oceania brand perhaps can take a new vessel every 36 to 42 months, because these brands have one thing that many other brands don't have, and that is pricing power. Like most luxury goods, whether it's in cruising or in other consumer staples, the having limited supply gives you pricing power. And so over the years, the CAGR of net yield growth per diems at both the Oceania and the Regent brands have outperformed the contemporary brands of public companies. And so we think that kind of dynamic will continue. And we'll add capacity when it makes sense, but it's not the kind of business model that depends on new capacity to grow the bottom line. The Prestige brands have shown that you can do it without adding new capacity.

On the other hand, Norwegian has got quite a bit of capacity already coming online -- four vessels to 2019. Give me a few more weeks, and I'll maybe give you an update. But after the first six weeks here, I'm not pressed to announce a new order for delivery in 2020 or 2021, Steve. I will tell you that I do want to start looking at ways to organically grow the Norwegian brand similar to what we did at Prestige if it can be worked out. There are differences between the products, differences between the market segment.

But to give you an example, a new vessel generates $100 million of net income. Given the size that Norwegian has now reached, Norwegian would have to generate net yields above and beyond the norm. Let's assume for a minute that the norm is 3%. So Norwegian would have to generate yield growth of 6%, 3% more, to generate the same net income that it would have to generate, by ordering a new 4,000-plus passenger vessel. So the question will be, can you grow your top line and your bottom line in a manner other than ordering another vessel and levering up the balance sheet and waiting three years for the ship to come along?

We've proven that we can do it at the Prestige brands. And we will try; we will investigate. We're going to improve the product. We're going to improve the delivery of the service on board to see whether we can generate an extra 3%. You know, when you look at it in absolute terms, a product like Norwegian, the average per diems are in the neighborhood of $130 a day. So an extra 3%, you're talking $4. So you ask yourself, can you have a compelling enough product that people are willing to come to you and pay an extra $4 a day, an extra $28 a week, an extra $56 for the Mr. and Mrs. who are coming on board? And I look at myself, and I say, I think we can. We're not asking for the world. But you've got to deliver a top-notch world-class product, and that's what we aim to do.

In terms of what you said earlier about some of the product and services that are outsourced to a third party. They do a great job. The reason why Oceania and Regent generate the per diems they generate is because the product is worth it. And for the most part, this third party is the one who delivers the onboard product experience. They've been partners for a long time, and they've got a contract that lasts through 2020 that will be with us until then. They're great partners.

And already we've begun trying to figure out ways where both parties can leverage the buying power of each, the logistical prowess that each one has. Apollo is very good at logistics. With the Prestige fleet scattered throughout the world they have figured out how to get tomatoes and carrots and chicken and everything else to the ships in a very efficient manner. And we think we can piggy back off of what they do at the Norwegian brand. So we think there are ways to negotiate with Apollo, still keep them on board on the Prestige brand, but be able to realize some savings in the Norwegian side.

Okay, thank you.

Our next question comes from Jamie Katz with Morningstar. Your line is open.

Good morning. Thanks for taking my question.

I'm curious about sourcing from other markets. I know the US is still very important, but how do you see increasing penetration overseas, especially in light of any FX changes in the recent quarter?

FX issues aside -- because those come and go in cycles -- I will tell you that one of the biggest opportunities that I see at the Norwegian brands is to expand their footprint internationally, especially with the four new ships coming. To give you an idea, if the Norwegian brands were able to source the same percentage of guests internationally, outside of North America, that the Prestige brands generate, that would produce 210,000 new passengers a year -- just about the number you need to fill one of the new Breakaway-plus [class] ships.

Canada alone, if the Norwegian brand can penetrate the Canadian market to the same degree that the Prestige brand has penetrated the Canadian market, it's 100,000 new passengers a year. So we think there's a lot of opportunity, relatively low-hanging fruit to increase the business at Norwegian internationally. The fellow that I have tapped to head our international operation is one of the co-founders of Oceania. He's been with me since day one, a proven leader, a fellow named Bob Bender. He's been the one responsible for leading the rapid growth of the Prestige brand internationally. He's been growing the business 25%, 30% a year for the last four or five years. And I think he can do the same at Norwegian.

And then I think on the call you guys had mentioned identify, quantify, and implement plans to reduce expenses above and beyond the $25 million in synergies. Is there any opportunity that has presented itself that maybe would be meaningful enough to talk about right now? Or are you still in the process of really working through that?

Yes, you know, we don't want to get ahead of ourselves. We don't want to promise what we can't deliver. We don't even want to whisper a different number other than the ones we've already told you about. But after five weeks, have I exhausted every single opportunity that may be out there? No, I haven't. Is there more? Probably. I don't want to quantify what probably means, but it's a big company. We spend over $3 billion a year. And so there is room to find more synergies.

Likewise, I'm excited about revenue synergies. Lots of opportunities for the brands to learn from one another on revenue, on sourcing customers, on raising prices. And so you're already seeing a bit of it in the release today. We've identified $15 million this year of solid revenue opportunities that, combined for the full year of 2015, combined with the cost is a run rate of 50.

So we're going to keep digging. The chief integration officer is focused solely on that. He and his team are incentivized to find every nugget of gold that's out there. And if I know Harry Sommer, who's heading that up, he's going to do a hell of a job.

Excellent, thank you.

Our next question comes from Steve Wieczynski with Stifel. Your line is open.

Hey, guys. This is actually Brad in for Steve.

So Frank, in our conversations with members of the trade and the agent community, what we often hear is high praise for the way in which Prestige handled those relationships previously. Just curious -- beyond the expansion of the sale centers that you highlighted on the call, is there any opportunities you see on a combined Company basis to improve relations with the travel agent community and, perhaps, educate them more on the cross-selling opportunities that exist between the two brands?

Yes, in terms of relations, I don't think the relations need any improvement or catching up. I think Andy Stuart and his team are well respected, liked -- loved, if you will -- by the agency community. They know him well. Norwegian has always been a very strong supporter of the distribution system. So I think we're in good stead there with agents across all three brands.

In terms of opportunities, one of the first things that we've done is to take a look to see what travel agents are booking one brand versus the other. And if we see gaps, we're reaching out to say, look, you're a big supporter of Norwegian. We love you for that, but you're not selling much Oceania or Regent. How can we talk to you about that and vice versa? And so that is a big opportunity. And the biggest opportunity is outside of North America, especially in Canada, and in the UK, and in Australia, and in Germany, where we have relationships with the distribution system in those places that one brand may not be taking advantage over another.

In terms of cross-selling opportunities, the Prestige brands rely heavily on direct marketing. When you're selling products whose per diems are sometimes over $1,000, the shotgun approach doesn't work very well. You've got to be very targeted. So having direct mail, having the names, addresses, email addresses of known cruisers is important. But to give you an example, at Oceania and at Regent, each of those brands has a past guest file of some 150,000 households. And out of that 150,000 households, roughly half the business, as Jason said a moment ago, comes from the past guests. So if we could find another couple hundred thousand households of known cruisers that Oceania and Regent can market to, that would more than double their source of who we go market to.

And guess what? We found 210,000 households in the Norwegian past guest database that have the psychographic, demographic spending habits similar to the Oceania customers and the Regent customers. So we're going to be marketing heavily to them. And so we love the opportunity of cross-selling high-end Norwegian customers to Oceania and Regent.

By the same token, you've got Pride of America out in Hawaii, whose per diems are very similar to and approaching the numbers that Premium lines are getting, and is sometimes exceeding the premium line. And we think that, that product, in many cases, behaves more like an Oceania product than it might the rest of the Norwegian fleet. And so we're going to be introducing some of the techniques in the Norwegian side how we fill the Oceania brand. This idea that you book early because, if not, prices are going to go up, and you create a sense of scarcity, of which there already naturally is -- because Pride of America in Hawaii, it has no competition, as you know.

So we just think that the board is littered with opportunities to really -- perhaps more so than is typical in any situations -- to adopt best practices. Because you have a business very similar in many ways, but very different in some others.

Perfect. Thanks, guys; appreciate the color.

Our next question comes from Tim Conder with Wells Fargo Securities. Your line is open.

Thank you. Just wanted to circle back, if you could, Frank or Wendy. I appreciate the previous color on pricing and that. But if you could give a little bit more of occupancy and pricing color by region across the quarters, if possible?

And then, secondly, Wendy, on the fuel side -- just to understand a little bit of how the weighted average price of $525 metric ton, given that 68% was hedged at [$520] and then at the pump you're using $350. So a little bit of that and how much of a typical lag effect do you see with your fuel deposit? Two, three weeks, four weeks, from that perspective? Thank you.

So first off, we don't actually -- I would say it's really two different stories this year. I mean, Q1 is driven largely by the pressures that we have in the Caribbean, versus Q2, Q3, and Q4 are all shaping up very nicely by all the brands. There is not an area that we're concerned about. Europe is shaping up. Alaska is shaping up. So we don't give detailed color by the different regions, but it's looking good, and that's reflected in our guidance of the approximately 3%.

Regarding the fuel, Tim -- so we're at $350 for the full-year. Our fuel price per metric ton is approximately $350. And then, net of hedges it is $525, so we're looking at this $175 per metric ton delta there. And that's why we really wanted to carve this out, so you guys had clarity and color on the fact that, yes, we entered into the hedges. And I probably should explain this. But you know, as Norwegian standalone, we started out with a philosophy for hedging a minimum of 50%.

But standalone, we tended to lean more towards hedging more and being opportunistic to have the certainty and the predictability within our earnings. Now, with the addition of the Prestige brands, we will go back to a more classic strategy of probably 50% hedged. We are looking at hedges in the outer years right now. But we have a little bit more room instead of having to lock in that predictability on the financial side. But we also think it's very important to look at the underlying business. And that's why we wanted to really give clarity here to say, okay, ex the hedges, the true operations is what we wanted to make sure you guys understood.

Okay, great. Thank you.

Assia Georgieva with Infinity Resources. Your line is now open.

Good morning. I had a follow-up to Tim's question.

And Wendy, maybe you can help me with this. I understand that for Q1 there are a couple of effects. First of all, the Caribbean, and secondly, some hesitancy on the part of travel agents for the PCH brands. Do you think that this is a one-time item? Or should we expect greater yield seasonality. A weaker Q4 and Q1 in terms of both yield and EPS? Or should the Prestige brands actually help smooth out the weaker winter months that are typically the Caribbean for NCL?

Great, hello, Assia.

So as we had actually talked about on our previous earnings call, we're rolling over a number of items in Q1. And we knew that it was going to be a tough lap in Q1, so on top of it being a promotional environment in the Caribbean. Of course we hoped that it would strengthen, I should say. It really hasn't. I mean Q1 has, I think, been a tough quarter for all of our competitors and ourselves. But we are rolling over the Sochi charter from last year. That really was a huge premium for the Jade for roughly a month versus the winter Med, which is not strong pricing.

The other item is the Bud Light charter. And then, last year we had the maximum amount of charters on for our six-man group. We almost had the entire quarter actually chartered out on the Pearl. And so we're rolling over that this year. It's consistent 2015 to 2014. So, long story short, I think this is a one-time anomaly on Q1. I don't think that Q1 in general is going to be tainted. It's the things we're rolling over.

With Q4, we're starting to see the -- we have a reduction in capacity at the same time that we bring in the Escape. We see Epic is going to stay year-round in Europe. So again, we're feeling very optimistic and good about Q2, Q3, and Q4, including the Caribbean.

And relative to -- I'm sorry, Frank.

No, go ahead and finish.

Okay. Relative to basically a year ago, given that we saw a little bit of slowdown in bookings and some acceleration more recently, do you feel more confident in the Q2 and Q3 outlook?

Well, I was feeling pretty confident last year about this time before we had the situation in the Ukraine that had a dampening effect on European business. That situation has not corrected itself, but there is hope that the ceasefire will stick. And so we're seeing business pick up in the Baltic region and in the northern Europe region a little bit.

But, yes, I am optimistic. I think business is booking well four Q2, Q3, and Q4, and just as importantly into 2016. It's never too early to talk about the next year. And I will tell you that all three brands are better booked today for 2016 than they've ever been at this time of the year for the following year. And this in spite of the fact that you've got more capacity at all three brands with new ship introductions. So I've always believed that the cruise industry is a very strong leading economic indicator because of the long lead times. And the Prestige brands in particular have much longer booking windows than what you see at the more contemporary brands like Norwegian. And so at this point, if I were an economist and a betting man, I would tell you that the outlook for 2016 and beyond is looking good right now.

We have time for one more question, please.

Thank you. Our last question from Joel Simkins with Credit Suisse. Your line is now open.

Good morning, everyone. Glad I was able to sneak on this.

In terms of, I guess for Frank, you mentioned you're not really going to commit to anything on capacity on this call. But could you just give us a sense of how the shipyards are communicating with you guys right now? Do you feel like there's incremental capacity if you wanted to make more orders? Do they seem to be a bit more hungry for orders, given what's going on in the energy sector?

You know there's always room for Jell-O. And there's always room for one more ship to be built. But I don't see the shipyards any more aggressive than they usually are. In fact, I will tell you that they're probably a little less aggressive in terms of pricing than they were in 2009, 2010 on the heels of the great recession. So it's pretty much a normal environment for the new builds.

There was some issues with what's going to happen with the Finnish shipyard. It looks like it's been acquired by Meyer Werft, so that's good. We have a great relationship with Meyer Werft in Germany, who's been building the Norwegian ships for quite some time. We have a great relationship with Fincantieri, who has built the two Oceania ships and is currently building the Regent ship. So we have flexibility. We will be able to drive a hard bargain when the time comes, because we do have these relationships with the two leading yards in the world. And of course, interest rates remain low. And, for the time being at least, the euro is low. So it is a good time to order ships, if one was to be disposed to do that. We're not right now.

Okay, thank you.

Okay. Thanks, everyone, for your time and for your support. And as always, we will be available to answer your questions after this call. I will see many of you, hopefully, next Wednesday in New York for our investor conference. Until then, have a great day. Thank you.

Thank you, everyone. This concludes today's conference call. You may now disconnect.