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Operator
Good morning and welcome to the Norwegian Cruise Line Holdings second quarter 2016 earnings conference call. My name is Stephanie and I will be your operator. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions for the session will follow at that time. (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. Andrea DeMarco, Head of Investor Relations. Ms. DeMarco, please proceed.
Andrea DeMarco - Head of IR
Thank you, Stephanie. Good morning, everyone, and thank you for joining us for our second quarter 2016 earnings call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings, and Wendy Beck, Executive Vice President and Chief Financial Officer. Frank will begin the call with opening commentary, after which Wendy will follow to discuss results for the quarter, as well as provide guidance for the third quarter and full-year 2016 before turning the call back to Frank for some closing remarks. We will then open 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 second quarter 2016 results was issued this morning 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 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 forecasts or estimates and we undertake no obligation to update any forward-looking statements. If you would like 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. With that I'd like to turn the call over to Frank Del Rio. Frank?
Frank Del Rio - President and CEO
Thank you, Andrea, and good morning, everyone. Wendy and I have a good amount of material we would like to go over, so we will dive directly into our commentary on second-quarter results and our revised expectations. The second quarter marks yet another quarter of healthy earnings, having achieved year-over-year adjusted earnings-per-share growth of 13% that continues our track record of delivering strong financial performance. Earnings for the quarter had several puts and takes, which Wendy will go into more detail later in the call.
The second quarter and the months following saw a series of news-grabbing geopolitical events that, when combined with other operational considerations, result in a revision to our earnings expectations for the back half of 2016 and into 2017. This revision includes our expectations for $5.00 adjusted earnings-per-share in 2017, which given current conditions, we have withdrawn and instead replaced with an achievable annual earnings-per-share growth target of 15% to 25% over 2016 adjusted earnings per share.
The reasons for our revision can be attributed to four primary drivers: a challenging operating environment in Europe, the impact of weaker foreign currencies, a sharp increase in Miami-based Caribbean capacity, and our decision to maintain pricing discipline consistent with our go-to-market strategy. The main drag to our earnings expectation has been the rapid and steep deterioration of the operating environment in Europe and the negative impact that successive instances and geopolitical events have had on cruise demand to the region, especially from our core North American consumers.
Three fundamental factors coalesced to cause this deterioration. First is the sheer number of incidences and the magnitude of the events themselves that have taken place primarily across Europe in the last several months. Just prior to last quarter's call, the world was coming off the attacks in Brussels, which led to a slowdown in bookings in the immediate aftermath. By the time of our first-quarter call in early May, we had begun to see modest booking traction over the prior four weeks following the Brussels attacks, which caused us to be hopeful that the momentum would continue.
The guidance we provided at the time assumed no upside from an improved European booking environment whose slowdown we believed was behind us. Unfortunately, the opposite happened, and the faint traction we had seen following Brussels quickly collapsed by the occurrence of further events, culminating with the attack at the Istanbul airport, and only deteriorated further with the Bastille Day tragedy in Nice and the failed military coup in Turkey. This pattern of fits and starts, where bookings would begin to gain some traction only to be quickly stalled by the occurrence of another headline event, has been characteristic of the overall operating environment in the past several months.
Along with the occurrence of these adverse events, our current passenger sourcing mix has also played a role in the weak performance of our European itineraries. While our international marketing initiatives continue to gradually increase our sourcing from local European markets, the fact is that today we source the majority of our guests from North America. For instance, our highest yielding ships in the region historically source approximately 70% of their guests from North America. These guests are also some of the most risk-averse, and their demographic is such that the majority are not bound by work or school schedules, meaning they can delay their vacation to another time of the year if they do not feel safe traveling to a particular region.
This drop-off in North American demand added pressure to rely more heavily on sourcing from local European markets, which comes at a lower ticket price and lower on-board spend. In the second quarter, all brands sourced more passengers from Europe than in the prior year. The last factor contributing to the difficult operating environment in Europe is our 7% year-over-year capacity increase and our overall heavy deployment to the region, which spans from the beginning of the second quarter to the middle of the fourth quarter across all three brands.
Europe has historically been the strongest performing destination during the peak Q2 through mid-Q4 cruising season, and as such, we deploy the majority of our vessels there. This year, half of our fleet is dedicated to operating Europe itineraries during this 6 to 7 month season, and particularly during the entire and all-important third quarter. It is important to note that, of these 12 ships, eight are the highest yielding in our fleet and include our two latest additions, the Oceania Sirena, and the Regent Explorer.
To put this ship deployment into perspective, the percentage of brand capacity in the region is approximately 28% for the Norwegian brand, 87% for the Oceania brand, and 81% for Regent. And while the Baltic region has performed to expectations, the additions of Oceania Sirena and Regent Explorer resulted in a 32% increase in Mediterranean capacity for these two brands combined, adding additional pressure to the rest of our fleet in the region. Adding to the capacity pressure was a narrowing of our itinerary offerings as a result of our previously announced suspension of calls to Turkish ports across our three brands in 2016 and into 2017.
While it is difficult to find a silver lining in this challenging European operating environment, we believe that we have now fully factored the total impact of how the region is currently performing into our outlook, which we believe removes significant uncertainty for the remainder of the year.
The second key driver of our revised 2016 expectation is the impact of a stronger dollar, or conversely, weaker global currencies, particularly those in Europe as a result of the Brexit vote in the UK earlier this year. The next major driver to our 2016 revised guidance is our Caribbean deployment, particularly out of Miami. While the strong fundamentals in the region remain intact -- I want to repeat that: the strong fundamental in the region do remain intact -- the high year-over-year expectations that we place on the region to deliver strong pricing growth, despite a steep capacity increase, did not fully materialize.
As a Company, our capacity growth in this market is 37%, 28% and 10% in the second, third and fourth quarters, respectively, which outstrips that of the industry in each of these quarters by a wide margin. The major catalyst for this capacity growth is a deployment of two of our largest and newest ships, Norwegian Getaway and Norwegian Escape, in Miami for the low season months of April through October. This doubling of capacity during the lowest-yielding period in the Caribbean resulted in pricing that, while higher than prior year, was less robust than our high expectations. And while a 40-day charter of the Norwegian Getaway helped alleviate some of the pricing pressure, there was still a good portion of the period which was susceptible to the impact of this significant capacity increase.
For 2017, we have remedied this deployment concentration by shifting the Norwegian Getaway to the higher-yielding Baltic region for the peak season beginning in mid-Q2, a region which has historically outperformed the Caribbean in any operating environment. Oceania Cruises has a similar capacity profile in Q4 2016 and Q1 of 2017, when its two largest ships are both operating from Miami to the Caribbean region for the first time. For fourth-quarter 2017 and first-quarter 2018, this capacity concentration has also been remedied with the redeployment of Oceania Marina to Tahiti and South Pacific itineraries.
The last major driver to our revised expectations come from our continued commitment to our core go-to-market strategy of maintaining pricing discipline by minimizing discounting, and instead focus on increasing value. The deal versus price. In normal operating environments, this strategy results in optimized yields. And while we have generally adhered to this strategy throughout this challenging period, the expected outcome is slightly lower occupancies, resulting in lower on-board revenue, which combined, generate lower net yields than originally anticipated.
Our adherence to this strategy during a challenging operating environment demonstrates our commitment to operating this Company for long-term success. Substantially abandoning this strategy could result in a few more points of yield, and therefore revenue. However, it would come at a high cost of eroding hard-fought, long-term pricing gains which are infinitely more difficult to regain than they are to lose, and which would have a larger negative impact in future quarters.
To summarize, our prior expectations for 2016 have been pared back due the four main factors: the challenging operating environment for European itineraries, the weakening of global currencies, our steep capacity increase in Miami-based Caribbean itineraries, and our commitment to maintain pricing discipline. As a result of these factors, we have revised our earnings expectations and anticipate adjusted earnings-per-share to be in the range of $3.35 to $3.45, a healthy 18% increase at the midpoint of guidance versus prior year. Our confidence in these projections take into account that our current book position for 2016 is 96%.
Looking to 2017, we have extrapolated the impacts of the current operating environment into next year. The result is a tempering of earnings expectation which will fall short of our previously stated $5.00 in adjusted earnings per share. Nevertheless, in continuing our string of delivering strong year-over-year performance, we anticipate that adjusted earnings per share will grow in the range of 15% to 25% in 2017 as our current booked position for next year shows first half pricing up mid-single digits on comparable occupancy levels.
Now I'd like to turn the call over to Wendy to go into our results and earnings expectations in more detail. Wendy?
Wendy Beck - CFO and EVP
Thank you, Frank. Good morning. Unless otherwise noted, my commentary compares 2016 and 2015 per capacity day metrics on a constant currency basis and includes the results of our land-based operations in Hawaii, which were excluded in our guidance. I'll begin with commentary on our second-quarter results, followed by color on booking trends and finish with an update on our full-year 2016 guidance.
Adjusted earnings per share increased 13% to $0.85, coming in at the top end of our guidance range of $0.80 to $0.85. Softness in top-line results versus our expectations was partially offset with a reduction in costs. Many of the factors that Frank mentioned in his commentary led to lower-than-expected yield growth in the second quarter, particularly the impacts from the challenging operating environment in Europe and our capacity increase in the Caribbean.
These headwinds resulted in adjusted net yield growth coming in below our expectations, with adjusted net yield growth on a constant currency basis up 1.2%, or 0.8% on an as reported basis. Excluding our land-based operations in Hawaii, adjusted net yield growth was up 1.3%, or 0.9% on an as reported basis. Looking at costs, adjusted net cruise costs, excluding fuel, per capacity day, increased 4%, or 4.1% on an as reported basis, well below guidance of 6.25% or 6% on an as reported basis. Excluding our land-based operation in Hawaii, adjusted net cruise costs, excluding fuel, per capacity day was up 4.2% or up 4.1% on an as reported basis.
Favorability to guidance was mainly due to lower general and administrative expenses, primarily related to a reduction to management incentives. Cost savings associated with food costs and a reduction in dry-dock expenses due to efficiencies with our Norwegian Edge program, as well as timing of certain marketing expenses.
Turning to fuel, our fuel expense per metric ton net of hedges decreased 15.9% to $469 from $558 in the prior year. At face value, fuel expense, net, appears to be favorable versus guidance for the quarter. However, when combined with a $3.2 million realized loss recorded in other expense, related to a portion of our fuel hedge portfolio which was deemed ineffective, our all-in fuel expense was essentially flat to guidance.
Taking a look below the line, interest expense, net, increased to $68.4 million compared to $52.4 million in the prior year, mainly due to an increase in average debt balances outstanding, primarily associated with the delivery of Norwegian Escape in October 2015, and higher interest rates due to an increase in LIBOR rates. The increase also reflects a write-off of $11.4 million of deferred financing fees related to the refinancing of certain of our credit facilities.
As for other income and expense, there are a few puts and takes impact that line item. First was the aforementioned loss due to ineffectiveness of our fuel derivatives of $3.2 million. Second was a loss of $9.4 million from the fair value decrease related to a foreign exchange collar for the Seven Seas Explorer newbuild, which we customarily adjust out of earnings. These losses were partially offset by a gain in foreign currency.
Looking ahead, let's take a look at our markets and deployment around the world for the third quarter. On a consolidated basis, approximately 22% of our deployment mix is in the Caribbean compared to 19% for the prior year, due to the addition of Norwegian Escape to our fleet. This higher mix of Caribbean itineraries results in a roughly 28% capacity increase in the market, which is less than the second quarter due to the full ship charter of Norwegian Getaway for 40 days in the period.
Europe account for 36% of our deployment mix for the third quarter. The addition of Seven Seas Explorer and Oceania Cruises Sirena to the fleet increased capacity in Europe for these brands combined by 32%, which is a steep increase in capacity for these brands to absorb in a market that has proven to be more challenging than anticipated. As for other key markets, Alaska accounts for 16%, Bermuda 12%, and Hawaii 5% of our deployment mix, all of which are performing in line with our expectations.
Now I'd like to walk you through our guidance and expectations for the third quarter and full-year 2016. As a reminder, due to the pending sale of our land-based operation in Hawaii, all guidance and sensitivities exclude the results of this operation for both current and prior year. In addition for your reference in our fourth-quarter 2015 earnings release, we provided key metrics for 2015 by quarter and full-year excluding these results to assist with modeling on a like for like basis.
Let's start by bridging the change to our adjusted EPS guidance from the time of our last call. $0.34 is attributable to lower revenue, of which approximately 70% of the decrease is due to the aforementioned impact on sailings in Europe. 20% is due to the tempering of our revenue expectations for the Caribbean, which still remains a solid market with year-over-year pricing up mid-single digits, and the balance due to other itineraries, mainly South America, which has been impacted by headline events in the region and repositioning in other sailings. $0.12 is due to the impacts of foreign exchange combined with increased fuel prices.
These reductions were partially offset by lower general administrative expenses which include management incentives, along with cost reduction initiatives and operating expenses, which account for $0.11.
Now turning to guidance for the third quarter. Adjusted net yield is expected to be up approximately 2.5%, or up approximately 1.75% on an as-reported basis. Adjusted net cruise costs, excluding fuel per capacity day, is expected to be up approximately 1.75%, or approximately 1.5% on an as-reported basis. Adjusted EPS is expected to be in the range of $1.57 to $1.62 for the quarter, a double-digit increase over prior year.
Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $510, with expected consumption of approximately 170,000 metric tons. Our guidance now includes a new level of detail for our fuel hedge portfolio to provide additional transparency for this line item. We've included a table in our earnings release which provides a breakdown of our hedged fuel consumption based on our two main fuel types. Heavy fuel oil or HFO, and marine gas oil or MGO. We provide the percentage of our HFO consumption that's hedged and the average price per barrel based on Gulf Coast 3%, which is a proxy we used to hedge this fuel type. We've also provided the percentage of our MGO consumption that's hedged along with average price per barrel of Brent, which is the proxy used to hedge this fuel type.
Guidance for full-year 2016 is as follows. Adjusted net yield is now expected to increase approximately 1.75%, or 1% on an as-reported basis. Adjusted net cruise costs, excluding fuel per capacity day, is now expected to be up approximately 1.25%, or approximately 1% on an as-reported basis. As a result, adjusted EPS is now expected to be in the range of $3.35 to $3.45. While we will provide guidance for the fourth quarter on the next call, I'd like to provide some color on the quarter.
Q4 will encompass a 46% increase in capacity for European itineraries for Oceania Cruises. An increase in Caribbean capacity due to the absorption of the two largest chips in the Oceania Cruises' fleet, which will both be sailing in the Miami-based Caribbean region. And a significant capacity increase for the Oceania Cruises brand in South American itineraries, where we have experienced some softness. Also keep in mind we are rolling over a record high-yield performance for the fourth quarter of 2015 where we posted growth of 7.4%.
With that, I'll turn over the call to Frank for some closing comments. Frank?
Frank Del Rio - President and CEO
Thank you, Wendy. Before turning the call over to Q&A, I'd like to take a few minutes to discuss a couple of updates that I would be remiss not to cover with you. First is a milestone for the Regent brand, with the much-anticipated delivery of Seven Seas Explorer. This is the first ship for the brand in some 13 years and she undoubtedly lives up to her reputation as the most luxurious cruise ship ever built. Seven Seas Explorer has brought not only a new standard of luxury to cruising, but also a new level of pricing that is impressive even by the high standards already set by the Regent Seven Seas' brand.
Turning to the Norwegian brand, less than a year from now the line will introduce its first purpose-built premium ship for China, a market with the means to reach and even exceed the size of those in North America and Europe. The advent of cruising in China gives the industry a third core markets allocate inventory which did not even exist 10 years ago. In the fourth quarter of last year, we announced our intention to enter the Chinese market, and shortly after finalizing itineraries, we immediately engaged with the top charter travel agents in China to begin the education and sales process.
At this point in the selling cycle, we are well along in allocating our available inventory among our top travel partners and the early results are very encouraging. To date we have allocated the vast majority of our 2017 inventory for Shanghai sailings and almost all of that for our six Beijing departures. While these are only allocations, and not yet hard contracts, the strong interest exhibited by the travel agent community for Norwegian Joy has been exceptional. The allocation selection period is followed by negotiations that lead to signed contracts, and I'm happy to report that not only have we closed on our first set of charter contracts for Shanghai sailings, but that these contracts closed at prices that meet our internal targets.
The signing of these contracts, coupled with strong indications of interest in the allocation process, and an entry into the market at a time where capacity increases have begun to moderate after years of rampant growth, gives us continued confidence in our China deployment strategy and reaffirms our expectations that China will be accretive to 2017 yields and earnings, and will be a source of positive ROIC growth. We are looking forward to bringing the Norwegian brand's distinctive product offering and the market's first premium purpose-built ship to the Chinese cruising public, and believe that the development of this market will provide strong financial benefits for years to come.
And with that, I'd like to open up the call for questions.
Operator
(Operator Instructions). Harry Curtis, Nomura.
Harry Curtis - Analyst
Good morning, everyone. Frank, with respect to 2017 guidance range of up 15% to 25%, can you give us a sense of what you are building in for yield growth, or what the range of yield growth might look like for both Europe and the Caribbean? And then in that -- embedded in that up 15% to 25%, where does China fit into that?
Frank Del Rio - President and CEO
Good morning, Harry. As you can imagine, today is not a happy day here at Norwegian headquarters for the obvious reasons. But we do believe that the circumstances were such that we had to reset expectations to take into account current booking environments. I don't want to get too far ahead of ourselves and provide you yield guidance of the implied 2017, except to tell you that it is moderate. We believe we have taken into full account the environment that we are in, and so the 2017 projections, by definition, have the effect of the flow through and have the effect of more tempered expectations into the future.
In terms of China, as my commentary just said, we continue to feel very good about China. Things are progressing well, the interest is high, our pricing is fair. The way we've decided to engage with the travel agent community there is slightly different than the norm, and is being well accepted. And so, our view on China has not changed, and therefore whatever was -- whatever variable was part of the prior guidance remains intact for China.
Harry Curtis - Analyst
But is it -- I'm still trying to understand. Is it part of -- is it baked into the up 15% to 25%, or would there be upside.
Frank Del Rio - President and CEO
No, no. It's baked into the 15% to 25%.
Harry Curtis - Analyst
It is? Okay, that's good. And then just turning to the Caribbean, we heard from Royal that the Caribbean actually looks like it should be reasonably strong in the fourth quarter, but the implied yield for Norwegian is essentially flat for the fourth quarter. Can you talk about the puts and takes in the fourth quarter, and where you are seeing the most pricing pressure?
Frank Del Rio - President and CEO
The whole story on Caribbean for us is not one of market weakness per se. Year-over-year, our ships are outperforming where they were this time last year. It's a recognition that the high expectations we had just aren't being met, and we believe that that is almost exclusively due to the heavy concentration of inventory in the weak period. And that's why we had previously announced that Norwegian Getaway was moving out of Miami and into the Baltic to take some of the pressure off of this key four- or five-month period from mid-Q2 through very early Q4.
Wendy Beck - CFO and EVP
The other thing I would just state is although for Q4 our Europe capacity is only 15%, it is skewed. So in October we've got 32% of our capacity in Europe. Still a significant amount there. And we've already called out the fact that we're going to have two of the large Oceania ships in the Caribbean. So once they come out of Europe, we are absorbing the capacity in the Caribbean.
Harry Curtis - Analyst
Okay. So is it fair to say then, that still with the capacity that you have in Europe, that we are still seeing double-digit declines in European pricing in the fourth quarter?
Wendy Beck - CFO and EVP
Yes. That is fair to say. And then the other thing I would just call attention to again is we are rolling over very strong numbers from the prior year at 7.4% yield growth.
Harry Curtis - Analyst
Okay. That does it for me, thank you.
Operator
Felicia Hendrix, Barclays.
Felicia Hendrix - Analyst
Thanks a lot. Just to stay on that line of discussion, so when we think about the fourth quarter, I just wanted to be clear. What is the bigger drag on the fourth quarter, is it your European deployment or is it the Caribbean?
Wendy Beck - CFO and EVP
It's both. It's definitely -- it's a couple of items there. So, it's the Caribbean capacity adds, it's European weakness, and then also we've called out that we are seeing some softness in our South American itineraries also that moderates our numbers for Q4. And again as I just mentioned, 32% of our capacity in October is still in Europe.
Felicia Hendrix - Analyst
Right. Thank you for that. And then just to be clear, so the discussion that you're having about the Caribbean and your Miami-based ships, it sounds to me that -- and this is why I'd like to see if I'm interpreting this correctly -- it sounds to me that you were just too optimistic regarding your performance there versus you seeing any kind of change in the Caribbean. So what I'm trying to get at is the Caribbean as a market overall performing any different than what you expected previously?
Frank Del Rio - President and CEO
No, I think you pretty much are clear on that. The Caribbean is performing strong. Year-over-year it's better than it was this time last year. Our expectations were outsized, and they didn't materialize.
Wendy Beck - CFO and EVP
But we recognize, Felicia, that we've got two of the -- it's our two newest Norwegian ships, large ships, side-by-side, when most folks in the cruise industry move their assets to more premium itineraries, and our two ships were left here during the softer Caribbean sailing. So again, we've fixed that for next year, but unfortunately it ended up being weaker for the two ships during the softer months. But overall we are seeing strength in the Caribbean.
Felicia Hendrix - Analyst
Okay, that's fine. You said that was up single digits. Are you seeing that same kind of growth as you look out to the first quarter in the Caribbean?
Frank Del Rio - President and CEO
Yes. First quarter looks very, very strong. We are ahead in both price and load. As I said earlier, that statement holds true even for the first half, where we are ahead in mid to high single digits in pricing, and slightly up on load. If you focus just on Q1, the load is even higher than just low single digits, and the pricing is even stronger than mid-single digits. So, Q1 I think under -- highlights the strong overall product line of NCLH brands because it's quarter that has the least amount of Europe. Europe is the main driver of what's causing the downward revisions and Q1 has very, very little Europe in it.
Felicia Hendrix - Analyst
Thanks. Last one from me, I just want to clear the air on this. With the challenges that you are having and the commentary you made in the release about your Miami-based cruises, are you seeing any impact from the recent Zika headlines?
Frank Del Rio - President and CEO
The short answer is no, we are not seeing any evidence. But the reality is that the only evidence that we can actually get our hands around and quantify if there was one, would be cancellations. And there haven't been -- there has not been any uptick in cancellations. The unknown is always how many bookings would have taken place that haven't taken place because someone was concerned about Zika. Every event is either going to be a positive, a negative or neutral. I think we can all agree that no one would dare make an argument that Zika is a positive.
It's difficult to make an argument that it's even neutral. So the question is, if it's negative, how bad a negative is it? And for that I don't know. I can't quantify it. Our business remains strong, our occupancies are in line with prior years, and our NPDs are up. Hopefully this situation will be contained. Hopefully it will not spread and the news outlets will stop covering it as much as they've had, at least here in South Florida. But it is having an effect, I believe, in our South American itineraries, as Wendy commented on.
We do have quite a bit of capacity down there, and the situation there is more acute than it may be here in South Florida. And so, we are seeing softness in South America, and we're having to do more of what we do in the marketplace to stimulate demand for folks that go there.
Felicia Hendrix - Analyst
Thanks for the clarity. Appreciate it.
Operator
Steve Wieczynski, Stifel.
Steve Wieczynski - Analyst
Morning, guys. So if I can go back to 2017 and re-ask the question in terms of implied guidance there, you say 15% to 25%; I understand you don't want to give what the yield number is going to look like. But is there a better way to think about how you think about individual markets? Meaning, I guess what I'm trying to get at is do you think that Europe next year, the way you guys are thinking about it -- are you assuming Europe is going to be down again in 2017?
Wendy Beck - CFO and EVP
We are assuming that it will be similar environments to what we are riding through this year. So obviously the unknown is how will Europe shape up. So we assumed conservatively that we would be riding through similar circumstances to how 2016 has shaped up. No rebound or clawback is built into the numbers.
Steve Wieczynski - Analyst
Okay, got you. So when you look at 15% to 25%, it's almost -- I don't want to say worst-case scenario, but is that a fair way to say it?
Wendy Beck - CFO and EVP
I don't know we would say worst-case.
Frank Del Rio - President and CEO
We recognize the degree of the restatement here. And so we wanted to be straight down the middle; what's our best guess as based on what we are seeing today. With a touch or a dose, if you will, of conservatism to be on the safe side, but I don't want you to think that we are sandbagging numbers here, because we are not. We think that the European environment is challenging. We are hopeful that it turns; it will turn sooner or later. But given the magnitude and the number of events that have shaped the environment today, it is difficult to be very optimistic that things will turn around.
Usually when events would occur, they would be isolated. We saw the pattern repeat itself time after time. There would be a period of time when bookings would slow, cancellations would not tick up to any consequence. And after a few weeks, when it was no longer headline news, people would forget and we'd get back to normal, and the healing process would commence. There's been no healing process in this environment because it's one after the other after the other after the other. When will it stop? Anyone's guess. We are assuming that whatever environment we have today continues into the booking periods into 2017.
Steve Wieczynski - Analyst
Got you. And second question, Frank, you talked about China; gave a pretty good overview there. With your 2018 Breakaway Plus ship, how do you view that in terms of where that's going to be allocated? I know one of the markets you have talked about would be taking that to China. Is that still pretty realistic at this point?
Frank Del Rio - President and CEO
Steve, we never -- I recall, we never mentioned or never discussed that the 2018 vessel would go to China. The 2018 vessel will go to non-Caribbean -- primarily to non-Caribbean North American itineraries. Basically the same deployment that the Norwegian Joy was going to undertake before we decided to send Joy to China. It's the 2019 Breakaway Plus vessel that could go to China, if we see that there is room for another vessel there.
Steve Wieczynski - Analyst
And when will that decision be made?
Frank Del Rio - President and CEO
By the end of the year. As you know, 2019 vessel comes out in Q4 of 2019. And we have to give direction to the shipyard as to which version of a Breakaway Plus vessel to build: a version for the Western market or a version for the Chinese market.
Steve Wieczynski - Analyst
And then last question real quick, Frank, with the stock at obviously sub-$40 today, can you give us an idea of where you guys view buybacks at this point?
Wendy Beck - CFO and EVP
Sure. At this time we are remaining consistent with the fact that we want to continue to delever to that 4 times leverage. And we plan to be repurchasing shares shortly thereafter.
Frank Del Rio - President and CEO
But we will remain opportunistic, we will remain vigilant, but we don't think that what we believe to be a short-term drop in the stock price ought to change our view of what to do with our free cash flow.
Steve Wieczynski - Analyst
Thanks, guys. Appreciate it.
Operator
Jared Shojaian, Wolfe Research.
Jared Shojaian - Analyst
Good morning. Thanks for taking my question. Frank, you said first half pricing was up mid-single digits. Can you just give us the number if you strip out Explorer and Sirena? Because I would imagine those two ships are skewing it upwards, since their booked much further out at generally pretty nice premiums. Is that right?
Wendy Beck - CFO and EVP
Good morning. It does. So we are getting pricing premiums with those ships, in particular the Explorer.
Jared Shojaian - Analyst
Okay. Because if you were to strip those out, are you still booked at higher prices going forward?
Wendy Beck - CFO and EVP
Yes, we are.
Jared Shojaian - Analyst
Okay, great. Thanks. And then lastly, I'm a little surprised by the magnitude of the cut for the second half of the year. Just considering how much was already booked, and now you are saying moderate yield growth for 2017 despite the sharp drop-off here. So I'm just trying to reconcile your comments to 15% to 25% earnings growth next year, reflecting the current environment. So what gives you confidence that 2017 yields can still grow moderately in the midst of everything that's going on right now? Thanks.
Frank Del Rio - President and CEO
Well, look. We are taking into consideration the sluggishness that we are seeing in the European marketplace, primarily from our core North American consumer. And are projecting a very modest yield profile for those bookings to be made in 2017. The main driver of yield growth in 2017 will not be Europe. It will be other destinations, which we have said remain strong. Alaska, Hawaii, Bermuda remain strong. The Caribbean remains strong on a year-over-year basis, just short of our high expectations.
Jared Shojaian - Analyst
Thank you.
Operator
Robin Farley, UBS.
Robin Farley - Analyst
Great, thanks. Just trying to quantify the magnitude of the change here. It seems like, given that you are guiding to yields down in Q4 and the implication of your EPS change in 2017, is your guidance for European pricing down in the 20% to 30% range? Because if we just think about what kind of yield change it would take to take $1 off of your earnings next year, it seems like a lot of that is coming from Europe, but that would imply something in that 20% to 30% decline range.
Frank Del Rio - President and CEO
No, I think that's several times too much. We do expect European 2017 yields to drop from where they are, where they are in 2016, but not to that magnitude. But we really don't want to get into yield growth by region, by quarter, at this time. We will provide full guidance as we normally would during our Q4 commentary that will take place in early February.
Wendy Beck - CFO and EVP
Robin, I would add that we have seen strength in our other markets this year -- Alaska, Bermuda, Hawaii -- we've told you guys that, somewhere in the magnitude of high single digits up. But our European itineraries were high single digits down, so we have assumed a similar type environment, where we will see nice growth in other markets ex-Europe, more moderate pricing in Europe as we go into 2017.
Robin Farley - Analyst
Okay. And then maybe also just a clarification on 2016. You mentioned the capacity increase in the Caribbean as being the reason that maybe June quarter as strong as you had thought. What does that tell us about new ship premiums in 2016 with the Escape in there? Would've thought that would've been a driver of premium yields, not a contributor to too much supply making pricing tough. So what can we conclude about pricing on the new ships or the new ship premiums for 2016?
Frank Del Rio - President and CEO
The whole issue, at least with us, is we had lofty expectations. So we want to reiterate that the actual performance of our vessels in the Caribbean, even with having more capacity there than we probably should, at least in the low season, is up year-over-year. We just thought it was going to be higher. And so prior to the situation that evolved in Europe, we decided that it was best to move Getaway out and put her, as we said, in the Baltic. Because the Baltic has a nice short season, roughly 4 months, and every possible environment that we've ever seen easily outperforms the Caribbean during the same time period.
But you've got to remember that in 2016, the capacity days for NCLH in the Caribbean was up some 15%, whereas it was down low single digits for our competitors. In 2017, things reversed themselves. Perhaps a bit of a contrarian view, where NCLH's capacity in the Caribbean drops by 4.5%, while our two main competitors grow mid single digits. So we think we've taken the risk out of the Caribbean also by rebalancing the deployment of our vessels on a seasonally adjusted basis, out of the weak Caribbean into the high-yielding Baltic.
Robin Farley - Analyst
And maybe just a final clarification. With the Caribbean pricing up but not up as much as you thought, is that more due to new ship performance, or the same ship performance, or a little bit of both?
Frank Del Rio - President and CEO
Getaway is the only vessel that was there for two periods that you can compare year-over-year. In the prior year, she was doing Eastern Caribbean itineraries, which are typically higher-yielding than the Western Caribbean that she is now doing. So on a pure year-over-year basis, not taking in consideration the itineraries, Getaway was slightly down. Escape, however, is higher in the Eastern Caribbean itineraries that she took over for Getaway. And so you can make certain implications there that the Getaway drop is not so much Getaway itself, but because she was redeployed to the lower-yielding Western Caribbean.
Robin Farley - Analyst
Okay. Great. Thank you.
Operator
Tim Conder, Wells Fargo Securities.
Tim Conder - Analyst
Thank you. Can you hear me? My apologies, on the road here, Frank. If you could give a little more color regarding your forward bookings over the next 12 months, just maybe globally and pricing. I think you alluded to it out through second quarter, but just wanted to make sure that that was a global basis. And then just again to maybe refresh Caribbean and Europe, whether you want to say first half 2017 or however you want to frame it.
Frank Del Rio - President and CEO
Look, in Q4, load factors are about flat year-over-year as our NPDs; roughly flat, slightly down. 72% of the inventory is already booked for Q4, so there is still 30% of the inventory to book. We are seeing better pricing over the last four or five weeks, so we think that that NPD has a chance of recovering a little bit. In terms of 2017, as I mentioned earlier, Q1 looks very, very strong. Looks very, very strong, both in load and in pricing compared to the same period last year.
As you sneak into Q2, the load factor isn't as strong as Q1. We are in essence down slightly, down very low single digits in load. And in pricing we're up. So for the first six months of 2017, the period of time where we have some level of significant bookings, pricing is up mid to high single digits, and load factor is just about flat. So against those expectations -- remember, we are comparing a revised, more conservative outlook for 2017 compared to where we were this time last year when we were bullish.
So the fact that we are even with last year, a year where at this point in time we didn't know about all these bad things that were going to happen that affected the marketplace as it has, I think is a good thing. Because the built-in expectations for performance are a lot less for 2017 than they were this time last year for 2016, even though 2017 is performing on par with 2016 in terms of load and up on pricing.
Now, there still a lot of bookings to be made before Q1 and Q2 are over, but at least at this early point we feel very good about Q1, primarily because there's very little Europe in Q1. I feel less confident about Q2, but because of what we've baked into Q2 and Q3, etc. for next year, in full recognition of the weakness that Europe is displaying today, we can make the statement that we make that our EPS growth next year ought to be in the 15% to 25% range above what we did this year.
Tim Conder - Analyst
Okay. So again, based on Europe as is. And then just to clarify again on the Caribbean, the real issue -- again, your projections you felt you were too optimistic, and with Getaway and Escape both being there simultaneously, and you feel that that should self-correct to a degree. So you would view it more as an issue more concentrated to yourselves, rather than an industry pervasive issue? Is that a fair way to characterize it?
Frank Del Rio - President and CEO
That's correct, Tim. Because I don't see it as an issue in our other markets. We believe it's a seasonal situation. For example, on the positive side for the Caribbean, some time ago we decided to take Epic out of Europe in the winter and relocate her to Port Canaveral in the winter months. And she is doing fabulous. Load factor is up double digits and NPDs are up double digits for Epic versus where she was deployed in prior periods in Europe.
It's part of finding the right balance of where to put your ships so you can generate the highest yields, the highest returns, and it's a moving target. The good thing about ships, they have propellers, they have rudders, and you can move things around depending on how you see things developing. At one time we thought that the Miami market was strong enough to handle two of our vessels. We now believe that we can generate better returns for ourselves if we move one of them seasonally to the highest-yielding European itineraries, which is the Baltic.
Tim Conder - Analyst
Okay. And lastly, when does the window for insiders or the Company open up, if you did want to do some modest share repurchase here at this time? Is there a period after you release earnings here?
Wendy Beck - CFO and EVP
Yes, it's within 48 hours, so on Thursday it opens.
Tim Conder - Analyst
Okay. Great, thank you.
Frank Del Rio - President and CEO
We have time for one more question, please.
Operator
Greg Badishkanian, Citigroup.
Greg Badishkanian - Analyst
My questions are just related to the behavior of North American passengers booking in Europe, let's say for near-term sailings versus sailings in second, third quarter of next year. Are they less unwilling to book far out in advance? Is it more the nearer term, where are they concerned about the nearer term but maybe they think things are going to clear up and the bookings are a little bit stronger for next year for North American passengers?
Frank Del Rio - President and CEO
No, I haven't yet seen the North American customer make that call. It's a bit early, Greg. The peak booking window for North Americans to go to Europe is late Q3, certainly Q4. So a little bit early. But the point we'd like to emphasize is that we are not counting on it. We are assuming that the same set of factors that we see today continue well into the future, and therefore the 2017 numbers are what they are shaking out to be.
Greg Badishkanian - Analyst
Okay. And then also, I don't know if you mentioned it on the call, but typically it's about two-thirds of your passengers for European sailings are sourced from North America, a third from Europe. When do you expect that mix to be closer to a 50-50?
Frank Del Rio - President and CEO
It takes time, unless you want to just buy the business. And one of the things we don't want to do is to drop prices unnaturally. While we are hopeful that this European environment changes, we don't anticipate that is going to change overnight. It will take some time to repair, assuming there are no additional incidences to reopen the wounds, so to speak. But remember that Europeans tend to book lower cabin categories; you tend to have to price the product lower to them. And then once on board they spend a lot less on board.
And so unless you think what we have here is a permanent shift, where North Americans will not want to go to Europe to the degree that they are accustomed to -- and I don't believe that for a moment, I believe this is a temporary situation, I just don't know how temporary it is -- then you don't want to put -- you don't want to have that skewness. Remember, we don't have European-centric brands like our competitors do. And so when you compare different sourcing mixes, you've got to take that in consideration.
Greg Badishkanian - Analyst
Good. Thank you.
Frank Del Rio - President and CEO
Well, thanks, everyone, for your time and support. As always, we will be available throughout the day to answer any additional questions you may have. Thank you.
Operator
This concludes today's conference call. You may now disconnect. Everyone have a great day.