挪威郵輪 (NCLH) 2016 Q3 法說會逐字稿

Good morning and welcome to the Norwegian Cruise Line Holdings third-quarter 2016 earnings conference call. My name is Amanda and I will be your operator.

(Operator Instructions)

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

I would now like to turn the conference over to your host, Ms. Andrea DeMarco, Vice President of Investor Relations and Corporate Communications. Ms. DeMarco, please proceed.

Thank you, Amanda. Good morning, everyone, and thank you for joining us for our third-quarter 2016 earnings call. I am 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 fourth quarter and full year 2016, before turning the call back to Frank for closing words. 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 for the third 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 adjusted by these expectations.

The Company cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any forward-looking statements. If you would like more information on the risks involved in forward-looking statements, please see the Company's SEC filings.

In addition, some of our comments may reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in the Company's earnings release.

With that, I'd like to turn the call over to Frank Del Rio. Frank?

Thank you, Andrea, and good morning, everyone. Thank you for joining us on this post-election Wednesday.

Please allow me to take you back some 50 years to 1966. Lyndon B. Johnson was President, and the United States and the Soviet Union were in the thick of the Cold War. Star Trek premiered on CBS and Caesar's Palace had just opened on the Las Vegas Strip. The Department of Transportation was founded, and an actor named Ronald Reagan became the unlikely governor of California. A little spooky this morning, but that's what happened.

It was a year that shaped our country in terms of politics and pop culture. It was also a time when Americans were fully reaping the benefits of the post-war boom and one of their main aspirations was to see the world. The same year, a small ship made its maiden voyage from the port of Miami to the Bahamas. These weekly scheduled voyages ushered in a sea change in the way Americans and later, the world, would view holidays at sea.

The M/S Sunward carried just 550 passengers, pioneers, really, in a new type of vacation, one where you packed once, embark and disembark the ship in the same city and in between, experienced a world very different from your own. Compared to today's cruise industry, the accommodations were spartan. The service was barely passable and the food was better known for its quantity rather than its quality.

Yet, the unique experiences afforded by this new approach to vacations kept guests coming back for more. Norwegian Cruise Line, back then known as Norwegian Caribbean Line, was the Company that offered this unique new vacation experience and throughout its first 50 years, has never stopped innovating.

Most of you on this call know many of Norwegian's innovations have been industry firsts, from developing the industry's first private island experience in 1977 to launching the first 2,000-plus passenger ship in the Caribbean, and from pioneering service to Alaska from Seattle to bringing back American flag cruising in Hawaii.

But perhaps its biggest innovation aside from pioneering the modern cruise industry vacation was the introduction of freestyle cruising. Norwegian took one of the last vestiges of the old ocean liner experience, that of nightly assigned seating in a single venue, and introduced in its stead, a dining offering more typical of a resort vacation.

The line offered a variety of dining venues on every vessel, allowing guests to choose to dine when they want, where they want, and with whom they want. Today, Norwegian's unique capability at delivering this product offering is unrivaled in the industry and is the primary choice for guests looking for a less structured cruise vacation.

Today, Norwegian Cruise Line Holdings has grown with the addition of sister brands, Oceania Cruises and Regent Seven Seas Cruises, solidifying its standing as the world's third largest cruise operator. Despite its size, the Company punches far above its weight. Since its initial public offering in 2013, NCLH has generated double-digit annual adjusted earnings growth per share, a trend expected to continue in 2016 and 2017 and grew its return on invested capital to approach double digits.

The Company also continually posts strong revenue growth and outsized income per berth. Along with a history of strong financial results, our three brands also have a long history of industry accolades. Most recently, the editors of Cruise Critic awarded Norwegian Cruise Lines the best cruise line for entertainment; Oceania Cruise as the best line for dining; and Regent Seven Seas received two nods, one for best suites and another for Seven Seas Explorer as the best new luxury ship.

As an aside, Seven Seas Explorer has been extremely well-received with our popularity extending beyond an incredibly strong inaugural year in 2016 where bookings and pricing set brand records. In the inaugural Town & Country Magazine's Travel Issue Cruise Awards Norwegian Cruise Line was voted best overall and best food for mainstream line. Oceania cruises was voted best for food and short excursions; and Regent Seven Seas won for best suites.

These are just a few of the numerous awards our brands have garnered over the last few months alone. These impressive industry awards, along with our strong financial performance, would not have been possible without the contributions of so many incredible people over the past 50 years.

To our loyal guests, offering you an incredible vacation experience at a terrific value is at the core of everything we do, and we thank you for your continued patronage over the years. To our travel agent partners, you are the ones that bring our wonderful ships to life, long before our guests set foot aboard.

The importance of your contributions to Norwegian are undeniable, and we deeply appreciate your support throughout the last five decades. To our shoreside employees, you have witnessed this Company grow and develop into a world-class organization, and as a result of your many contributions, we are as successful as we are today.

And lastly, to our shipboard staff and crew, to many of our guests, the main draw of a Norwegian Oceania or Regent cruises is not innovative hardware, the gourmet cuisine, the top-notch entertainment nor the exotic destinations visited. It is you. It is the smiles that you conjure, the exceptional service that you provide, and the passion that you demonstrate that breathes life into our ships.

You are the heart and soul of this Company and on behalf of everyone that I've ever sailed, worked or represented our three wonderful brands, I offer you our sincerest thanks. To mark the 50th birthday of Norwegian Cruise Line, we invite all current and past guests, travel partners, employees and crew to post their memories on norwegiansfirst50.com, or to post their favorite social media outlet, using the hashtag Norwegian's First50.

Norwegian Cruise Line's 50th anniversary marks a significant milestone, not just for our Company, but for the modern cruise industry. It is an industry that I have been actively involved in for nearly 25 years, and it is extremely gratifying to have been a small part of its development. Cruise vacations continue to provide an unrivaled vacation experience at an amazing value, and the industry, as a whole has done an incredible job of bringing this winning combination to millions of guests around the world. What began as a Florida-centric offering aboard small ships has grown into a global industry, which as large as it is, remains underpenetrated and ripe for continued growth in mature, developing and emerging markets.

One of these developing markets is destined to become one of, if not the largest, cruise market in the coming years. A nascent market just 10 years ago, China today has grown at a rapid pace to become the second-largest source country and the world's fastest growing cruise market. The cruise industry's expansion in China has many similarities to other cruise industries developed in the United States, and while the growth in China market has been impressive, it is still on its very early stages of development.

We look forward to actively participating in the growth and expansion of this important market, and we do so beginning next summer, with the launch of Norwegian Joy, the first and largest purpose-built ship for Chinese consumers. The vessel maintains many of the hallmarks of the Norwegian brand, a variety of dining venues, top-notch entertainment and innovative onboard activities, and combines them with features customized for Chinese guests, including larger connecting family staterooms and the largest shopping complex in Norwegian's fleet, carrying an impressive list of global luxury and lifestyle brands.

We have received tremendously positive feedback on Norwegian Joy's offering, both directly from our travel partners in China, as well as indirectly with Norwegian receiving the most anticipated brand award at this year's annual CCYIA Trade Conference in Tianjin. Norwegian Joy's unique offering customized for Chinese guess is resonating extremely well with travel partners and thus far, we are very pleased with the pace of signed charter contracts and its related pricing.

And while China represents an important opportunity for our Company, it is not the only market where we are diversifying our international footprint. We have several initiatives underway to drive more customers from all over the world to our brands. While we continue to expand our sourcing efforts in Europe, we are also focused on developing our infrastructure and sourcing from other markets, including Australia and in Asia, outside of China.

We have made great progress in Australia and New Zealand, where sourcing for the Norwegian brand alone has increased approximately 20% in 2016. This region is important for us because it's also one of the lowest customer acquisition costs across our brands and is among the highest net ticket prices, with guests eager to book more premium itineraries, such as Europe and Hawaii.

This expansion of sourcing in Australian and New Zealand will also benefit our Asia-Pacific deployment, where Norwegian Star begins her first season in the region in the next few weeks and our return to Sydney and Auckland sailings in 2018 aboard Norwegian Jewel. To also bolster our presence in the region, we have recently opened sales offices in Tokyo, New Delhi, Mumbai, and Singapore to help accelerate development of these emerging markets for all three brands.

Looking to today, our financial performance for the third quarter marks the highest single quarter revenue and earnings in our Company's history. The addition of Norwegian Escape, Oceania Sirena, and Seven Seas Explorer contributed to revenue reaching $1.5 billion and growth in adjusted earnings per share of 20%.

To put this performance in perspective, adjusted earnings per share for the first nine months of 2016 were $2.85, which is just $0.03 shy of the $2.88 we generated for all of 2015, our previous record year. For full-year 2016, while our Mediterranean season was softer than anticipated, mainly due to the external geopolitical events, performance was strong in our other main markets such as Alaska, Baltic, Hawaiian and Caribbean. As a result, we expect to deliver strong adjusted earnings per share growth for this year.

In 2017, we began to leverage the benefits of our deployment optimization initiatives. These initiatives include the return of Norwegian Epic to sail in the Caribbean in the first quarter, where she is significantly outperforming her prior-year deployment out of Barcelona, and redeploying Norwegian Getaway in the late second and third quarters from non-peak Caribbean itineraries to the premium Baltic region.

As of today, first half of 2017 booked business show both pricing and loads ahead of this time last year. As we look to the second half of 2017, please keep in mind that at this time last year, pricing on the books was reflective of strong demand for Med sailings that were taken place at the time, and which were prior to the negative impact from the success of geopolitical events that rocked the region beginning in mid-November 2015 through mid-July 2016.

Therefore, when comparing year-over-year position, it is not a like-to-like comparison until we lap the effects of these negative events later in our bookings cycles. As a result, second half of 2017 is currently showing flat occupancies, with lower pricing year over year. That said, recent bookings volumes have been encouraging, particularly for the all-important Mediterranean region, where we have seen positive trends over the last eight-week period from our top yielding North American source markets across all three brands.

Looking at the year as a whole, and taking the aforementioned impacts from geopolitical events into account, and excluding Norwegian Joy, 2017 is showing commensurate occupancies with slightly lower pricing. While directionally, our underlying fundamentals remain in line with prior expectation, what has tempered our earnings outlook somewhat are the adverse effects of foreign exchange and fuel prices that have arisen since the last time we spoke, both of which are beyond our control. It is important to note that excluding these fluctuations, we expect to deliver solid double-digit growth in 2017 adjusted earnings per share.

With that, I would like to turn the call over to Wendy to go over our results and earnings expectations in more detail. Wendy, please.

Thank you, Frank.

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 from our third quarter guidance. I will begin with commentary on our third quarter results, followed by color on booking trends and an update on our fourth quarter and full year 2016 guidance, finishing with an early look at 2017.

Adjusted earnings per share increased 20% to $1.62, coming in at the top end of our guidance range of $1.57 to $1.62. Adjusted net yield growth increased 3.4%, or 2.8% on an as reported basis, mainly due to higher pricing versus prior year. Looking at cost, adjusted net cruise cost, excluding fuel per capacity day, increased 1.7% on both a constant currency and as-reported basis, mainly due to an increase in marketing expenses.

Turning to fuel, our fuel expense per metric ton net of hedges decreased 11.5% to $500 from $565 in the prior year. When combined with the $2.5 million realized loss recorded in other expense related to a portion of our fuel hedged portfolio, which was deemed ineffective, our all-in fuel expense came in slightly higher than guidance.

Taking a look below the line, interest expense net increased to $60.7 million, compared to $49.8 million in the prior year, mainly due to an increase in average debt balances outstanding, primarily associated with the delivery of Norwegian Escape and Seven Seas Explorer, as well as higher interest rates due to an increase in LIBOR rates.

Other expense was $5.3 million, compared to $1.7 million in the prior year. The increase was primarily related to unrealized and realized losses on fuel swap derivatives and foreign-exchange derivatives hedge contracts, as well as foreign currency transaction losses.

Turning to markets, and deployment for the fourth quarter on a consolidated basis, our deployment mix in the Caribbean is approximately 47%, which includes capacity growth of 10% due to a partial quarter of Norwegian Escape, along with increased capacity for both Oceania Cruises and Regent Seven Seas Cruises in the region. This market tends to be the most promotional in fourth quarter and is performing in line with our expectations, with pricing up mid-single digits and occupancy down slightly when compared to same time last year.

Turning to Europe, where pricing has remained soft year over year, the region accounts for 15% of our deployment mix for the fourth quarter. This deployment includes a 46% increase in capacity for Oceania, which was disproportionately impacted by the challenging environment during the seasonally low period. The balance of our deployment is a mix of itineraries, all of which are in line with expectations, with the exception of South America, which continues to experience softness.

Before walking you through our guidance and expectations for the fourth quarter and full year 2016, I'd like to discuss the sale of our Hawaii land-based operations. As this transaction has experienced delays in the required regulatory approval process, we no longer expect the sale to close in 2016. As such, we have moved away from excluding the results from this operation in our guidance.

Including our Hawaii land operations and guidance, results in a slight lowering of net yield and a slight increase in net cruise costs, resulting in no impact to earnings per share. For the fourth quarter, capacity will increase approximately 10%, mainly due to the full year of operation of Norwegian Escape, as well as the addition of Seven Seas Explorer and Oceania Cruise and Sirena to the fleet midway through the year.

Turning to adjusted net yield, we anticipate a decrease of approximately 2.25%, or 2.75% on an as reported basis, as a result of three key factors. First, we are rolling over extremely strong yield growth of 7.4% in the fourth quarter of last year. Second, as the aforementioned challenging environment in Europe, where pricing is down mid-single digits and occupancy down slightly versus same time last year.

Lastly, is South America, a market in which we have a significant capacity increase of 36%, with continued softness. Adjusted net cruise costs, excluding fuel per capacity day, is expected to be down approximately 2% on both a constant currency and as-reported basis.

Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $453 with expected consumption of approximately 182,000 metric tons. Taking all of this into account, adjusted EPS for the fourth quarter is expected to be in the range of $0.53 to $0.57.

As for the full year, adjusted net yield is expected to increase approximately 1.75%, or 1% on an as reported basis. Adjusted net cruise costs, excluding fuel per capacity day, is expected to be up approximately 1.25% on both a constant currency and as reported basis. As a result, adjusted EPS is expected to be in the range of $3.38 to $3.42.

Taking a look at our deployment mix for 2017, we are pleased with the optimization of our slate of itineraries for next year. The Caribbean will make up 37% of our deployment mix, which impacts in the region, decreasing by mid-single digits, primarily due to the shift of Norwegian Getaway to the Baltic region during the peak summer season.

Meanwhile, Europe, which will experience a capacity increase of approximately 10% will comprise 23% of our deployment mix. This is, again, primarily due to the aforementioned shift of Norwegian Getaway to the Baltic region where we expect her to garner higher pricing compared to sailings in the Caribbean during the non-peak summer season where she sails this past year.

Our Asia, Africa and Pacific deployment mix increases from 3% to 8%, primarily due to the introduction of Norwegian Joy to the Chinese market as well as the shift in Norwegian Star to our itinerary sailing in Asia and Australia, which are marketed primarily to Western consumers. As for other markets, Alaska remains at 7% of mix, Bermuda remains at 6% of mix, Hawaii increases slightly to 5% of mix, and the balance is in other itineraries.

As we look to 2017, there are a few items I'd like to discuss. First, we will have a light number of drydocks versus 2016, with five of the eight occurring in the first quarter.

Second, we will be up against tougher comps in the third quarter, as we lap to premium price 40-day charter of Norwegian Getaway in a period. Third, we are lapping the introduction of Seven Seas Explorer, which entered the fleet in a premium market at peak summer season after experiencing record early bookings at the higher prices typically expected in an inaugural season.

2017 marks Explorer's first full year of operations, resulting in a normalization of pricing that takes note of both peak and non-peak seasons. Finally, as Frank has mentioned in his commentary, last year, at this time, the effects from geopolitical events in Europe that impacted 2016 had yet to materialize. Therefore, current comparisons are against the stronger booked positions in both occupancy and pricing.

While these factors were included in the preliminary earnings range we provided last quarter, since that time, significant fluctuations in the fuel and currency markets have impacted these initial indications. A strengthening of the US dollar, particularly against the British Pound, as well as the sharp increase in fuel prices, resulted in headwinds versus the prior expectations.

As a result of these headwinds, both of which are out of our control, we anticipate delivering double-digit growth in adjusted EPS in 2017. As we customarily do, we will provide more detailed guidance for the coming year in our fourth quarter earnings release.

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

Thank you, Wendy.

Next week, the cruise industry's newest port of all, Harvest Caye, will open for guests sailing Western Caribbean voyages. Located off the southern coast of Belize, this tropical destination is unique in the industry, offering visitors the option of experiencing a five star resort-style beach getaway or exciting eco-friendly excursions on the mainland.

The responsible environmentally sensitive development of this island has been a priority for Norwegian since day one. Its privileged location near the world's second largest barrier reef meant that an even higher level of care and planning was necessary to complete the final product.

And what a product it is. This unique and unparalleled eco-oriented destination immerses guests in the flora, fauna and culture of Belize through its nature center, extensive green areas, and shops surrounded by local Belizean artisans. We look forward to our debut next week as the premier destination in the Western Caribbean.

And from the warm waters of southern Belize, we turn our attention to the Pacific Northwest, where Norwegian recently revealed plans for its upcoming 2018 newbuild, the Norwegian Bliss. As the pioneer cruising to Alaska from Seattle, it was only fitting that in Norwegian returned to the Emerald City to debut its first ship to enter service directly into an Alaskan deployment.

Details regarding the ship's features will be revealed over the coming months, but one recent partnership we are happy to announce is with Wyland, the world-renowned wildlife artist who Norwegian commissioned, to design the hall arts for Norwegian Bliss. His design, Cruising With the Whales, depicts the majesty and diversity of the waters of Alaska and the Pacific Northwest.

The importance of protecting Alaska's delicate ecosystem is paramount, which is why Norwegian Bliss will not only be our first ship to debut in Alaska, it will also be the first to debut in the market with Exhaust Gas Scrubbers, which reduce emissions of sulfur into the air by up to 99%.

The attention paid to environmental concerns and the development of Harvest Caye and the deployment of scrubber-fitted Norwegian Bliss demonstrates Norwegian's continued commitment to protecting the oceans and the destinations in which we sail. As part of our continued commitment to green systems and technology, Norwegian Jewel, Norwegian Pearl, and Norwegian Gem were each successfully retrofitted this year with new closed-loop Exhaust Gas Scrubber Systems, similar to Norwegian Bliss, which will be significantly reduce air emissions, thus reducing our fleet's environmental footprint. These are just a couple of the examples of our overall sustainability efforts of which I look forward to sharing more details with you in the future.

Before turning the call over to questions, I'd like to once again thank everyone who contributed to the success of Norwegian's first 50 years and to also thank those working on the numerous exciting initiatives that are already contributing to a strong start to our next 50. From our upcoming debut in China to our newest island destination to our flagship in Alaska, these initiatives are positioned us to continue delivering strong growth in revenue, return on invested capital, and earnings well into the future.

And with that, I'd like to open up the call for questions.

(Operator Instructions)

Felicia Hendrix, Barclays.

My first question is, it has a few parts. First part is, clarification because, Frank, at the end of your initial prepared remarks, you said that excluding the fluctuations and factors you can't control like FX and fuel, EPS guidance is up double digits, but the way it was written in the release and then how Wendy described, it sounded like it was not excluding. So I just wanted to get some understanding on how to look at that 2017 outlook.

Look, we don't want to go a whole lot into 2017 expectations. That's what Q1 is all about. What we're saying is since we last spoke, two items, FX and fuel, have gone against us. And if those trends continue, those are headwinds to our previously stated 2017 expectation. So we just want to alert you that those items are real. They have occurred. They are occurring. They are beyond our control.

But they are included in hitting double digits.

Correct.

Okay. So it's EPS guidance is up double digits, including the effect of fuel and FX?

Correct.

Okay. And then Wendy, can you help us understand what the incremental fuel/FX headwind is since the last time you gave us color on 2017?

Yes. For 2017, it looks like it's somewhere in the range presently of $0.10 to $0.15.

Okay and that $0.10 to $0.15 is incremental from August?

That's correct.

Okay. And also, last -- for your last call, you said that yield growth would be moderate. Has that changed?

Yield growth, we still -- we re not going to give you guidance, but yes, it would be moderate and it would also be positive.

Okay. Those are my questions. Thank you very much.

Robin Farley, UBS.

I want to clarify also in the 2017 outlook, in the release, you talked about occupancy commensurate with prices slightly lower for the full year 2017. But I think, Frank, in your comments, it sounded like you said excluding the Joy which is going to China, if that was the case, commensurate with lower price excluding Joy, so I just want to clarify whether that's the case in both situations and how Joy would change that 2017 outlook.

Hi Robin. Yes, the statement excluded Joy. As you know, the charter model in China is very different than what we are accustomed to here. So in all the numbers that we have provided you, the effects of Joy are excluded. We are continuing to be very bullish on China.

Everything that we've seen, thus far, continues to confirm our expectations. That China will be accretive, that China's pricing, as we see by the charter contracts, we have under our belt thus far are consistent with our prior statements of expecting pricing up some 20% over the Norwegian fleet average.

In terms of 2017, loads, right now, are flat to slightly higher than they were this time last year, but it's very important to understand and Wendy mentioned it in her prepared remarks. If you recall, the series of events that really hurt the business last year, particularly in the Med, began just about now a year ago, November 13, if my memory serves right.

And so, especially, when it has to do with pricing, the pricing that we have on the books today a year ago and how we ended were very different. Remember, a year ago today, we still believed that we were aiming for a much higher 2017 earnings per share, that the Med primarily caused us to ultimately take down.

So you have to understand that when you're looking at the business today versus a year ago, you have to take into consideration those series of events that damaged the business going forward. So not until we have an opportunity to lap this period are they really comparable. It's not so much on load because load is load.

It's more on pricing. So we're very pleased where we stand on load, especially for the first half of the year. We're okay with where we stand for load for the full year. Our first half pricing is very strong. It's the -- it's where the second half, which is primarily driven by heavy concentration of Mediterranean cruising where this year-over-year comparison has got to be carefully analyzed because you are comparing two very different periods.

Okay, great. That's helpful. And then just one other clarification on 2017 EPS. Should we be thinking about double-digit growth as being around 10% and if that's the case, did the -- from the midpoint of the previous guidance is up 15% to 25%. Is about, call it, $0.20 or $0.30 reduction in EPS outlook for next year.

And Wendy, I know you said FX and fuel combined are negative $0.10 to $0.15 of that. Would you say the other piece is more -- you've mentioned opening a number of international marketing offices. Is it more that or is it more cautiousness on the yield side that -- thinking about that change since the last call?

I think you answered my question for me or at least, you tried. So let me clarify. Look, we still are very well-positioned for 2017, like we were last time we spoke. In fact, if anything, we're better positioned in some ways, certainly first half. We're not going to provide a whole lot more guidance on 2017. I don't even want to use the word, guidance; it's more of an indication.

You know when -- it's next quarter when we provide more clear guidance. But 2017 will greatly depend on the Mediterranean. It is, by far, the highest yielding itineraries across the board today; again, if you compare where we are on pricing for second half to where we were this time last year, it's a negative. But this time last year didn't sustain.

Pricing eroded and it eroded significantly because of all the events that occurred, which resulted in what we're going to generate in terms of earnings per share this year which, by the way, is a record for the Company but lower than what we expected.

So I don't want to -- look, double-digit is a broad statement, and I am not necessarily walking away from our prior comment, but I just think, at this juncture, still very early vis-a-vis 2017, there is a -- we ought to leave it at that. I will point out, as I mentioned in our -- in my prepared remarks, that business from North American source consumers, especially for Mediterranean sailing for 2017, have been up significantly, double digits, strong double digits across all three brands in the last 8 to 10 weeks.

And we would expect that, given that we have not had any major geopolitical events occur since mid-July, that healing process that we always talk about has finally taken hold and business has begun to come back, as we would expect. So if this trend continues, we will soon begin to lap prior year weakness as the prior year begins to take the effects of the geopolitical events that hopefully, we won't have this year.

Great. Thank you very much.

Harry Curtis, Nomura.

I wanted to follow up on the sequential pricing weakness in the third quarter this year and the fourth quarter in the Med to get a better sense in Europe of what the comp actually is. Can you give us or what would be very helpful is, if we could understand how weak the pricing wise, how much did it fall in the third and fourth quarters in the Med this year?

That's a complicated question to answer, Harry, with any great detail. But what I would point you to is, at this time last year, the Company still believed that we could deliver our original earnings per share growth and in spite of tight cost controls, the reason we had to take our earnings guidance down for both 2016 and 2017 was because of the significant yield maturation that we saw primarily in Mediterranean sailings.

And we did say on the last call that Europe was anticipated to be or that what we're seeing was down high single digits, and that did prove out, Harry.

Okay. And then Wendy, can you remind us what your fuel hedge, the pricing of your fuel hedge and the percentage for next year?

Yes. So we are 79%. We give a lot of color in the press release, Harry, but we are 79% on average. It's broke out between HFO, 81% at a price just under $60, and then for MGO, we're 75% hedged on Brent and it's about $41 a barrel. I would also add regarding fuel, we have about a 90% correlation to our hedges to the price we actually pay at the pump. So that puts us about one-fourth of our fuel bill in 2017 that's exactly subject to market fluctuations.

Okay. And my last question, just has to go is related to the year's supply growth. Just overall, do you think that your -- the growth in your capacity which has been stronger than your competitors, do you think it's just outstripping your ability or your marketing systems to fill that capacity growth?

No. I don't think so. If it had been a -- let's take ship by ship. Joy -- excuse me, Escape is performing very, very well in the Caribbean. For 2017, it's performing extremely well, especially in the second and third quarter is when we have moved Getaway to Baltic, which is also performing extremely well compared to what her performance had been in the Caribbean.

In terms of Explorer, the Regent Explorer, she had just a gangbuster record setting year in 2016, in both loads and yields, setting brand records. And as we look at 2017, that vessel is also continuing the same trends that we saw in 2016.

In fact, her pricing is up over 2016, even though she's going to be operating a full year as opposed to in 2016, her inaugural season where she came in midyear which is the high season. Sirena, the Oceania vessel that came in, in April of 2016 is probably the one that performed the least well, and that's primarily because the Oceania brand had five of her six ships in Europe, three of her six ships in the Mediterranean in 2016.

So it was little bit of bad luck that we put an (inaudible) vessel for the Oceania brand in the market that took the brunt of the geopolitical events. The good news going forward is that neither Oceania nor Regent have any new capacity coming online until 2020.

At the Norwegian brand, the new capacity in 2017 is going to China, and I gave you commentary on China. We're very pleased with our China is coming along. And so, Norwegian won't have any new capacity for the Western market until 2018 when the Norwegian Bliss goes to Alaska.

That does it for me. Thank you.

Steve Wieczynski, Stifel.

So Frank and Wendy, your third-quarter yield guidance, or constant yields guidance was 2.5% and came to about 90 basis points higher than that. Can you help us understand what was the biggest delta of that change versus your guidance that you gave, given there was only 50 days left in the quarter the last time you guys reported. I know the release says improved pricing, but can you give a little bit more color on that?

Sure. So good morning, Steve. It's primarily related to higher participation with our casino player program. So that's a good thing. But it definitely -- we saw more participation than we had anticipated at the time that we gave our guidance.

(multiple speakers) So it was part of on-board revenue.

Okay, so it really wasn't anything on the price side of things; it was more on-board driven?

Well, yes. Ultimately, it's going into our net yields, but it's -- that's the largest driver was in on-board revenue was casino.

Okay, thanks. And then second question, if you -- I don't know if you'll answer this or not, but if you exclude Europe from your full-year 2017 commentary, is it fair to say the rest of your business would be up in both price and occupancy?

Yes, absolutely, Steve. Across the board, Caribbean performing very well, Hawaii, Bermuda, and when we say Europe, we have to be careful because the Baltic is performing very, very well and continues to perform well. It performed well in 2016. So in a nutshell, 2017 depends on the Mediterranean.

And again, we are cautious about Mediterranean bookings, but the last eight to 10 weeks have been very strong compared to the same period last year and it's important the last eight to 10 weeks last year were record-setting and were before the series of geopolitical events occurred.

So if I am comparing just the last 8 to 10 weeks, that gives me encouragement in an environment today that is post-geo events versus the same period last year prior geo events, and I am up. That gives me encouragement that if it continues, the Mediterranean will be a positive contributor towards 2017 results as opposed to it being a negative as it was for 2016.

Okay, got you. And last simple question for you, Frank, does the Breakaway Cruise Ship for 2019, any update in terms of where that ship might be deployed? I know you talked before about China and I know you had to make the decision by the end of this year and we haven't heard anything yet at this point.

We're still on track to make a decision at the end of this year and we will give you an update at the next earnings call as to which way we're going.

Okay, great. Thanks guys.

Tim Conder, Wells Fargo Securities.

Just staying on the Med and Europe you operate, given that we are seeing a quiet window, incident window, thankfully and hopefully, it continues here, what are you seeing from the industry's perspective here. Would the industry maybe saying, okay, the pricing is improving, or North American sourcing is improving here over the last 2.5 months, let's get that on the books, rather than pushing price more. How you see that dynamic more so from an industry perspective or if you want to comment from Norwegian's perspective?

Well, first, you -- at least, my philosophy is, first, you make sure you have a good base of occupancy. We were much further behind in obtaining that occupancy for 2017 Mediterranean cruising, especially for Q3 and beyond, the last time than we are today, as a result of that strong performance, I have been talking about for the last 8 or 10 weeks.

We have closed the gap and if this continues for the next eight weeks until year end where we had some softness last year as the effects of Paris and San Bernardino started to take place, we have some year over year concept we believe if the environment continues, we will be able to be. So look, I think that 2017 is a year of reconciliation for Mediterranean.

I don't think it's going to be a record year. I think it will be a much better year than 2016. We won't see the dilution of pricing throughout the booking cycle as we saw last year due to the successive events -- each successive event caused more vacuum in the system and more pricing pressure. So I see, for example, that occupancy should be better this year than last year.

If you recall, our Q3 occupancy is a couple points below what we did in 2015. We believe that, that should reverse itself, and our expectations for pricing improvement are very much tempered for 2017. It's very much a show-me.

I'm encouraged by what's happened in the last 8 to 10 weeks, but 8 to 10 weeks doesn't make an entire bookings cycle. If it continues, we will have better news to share with you at the next earnings call.

Okay. Thank you. I guess that would [lead in] then as a follow up on some previous questions here to the definition of double digits versus your prior 90 days ago, the 15% to 25%. Just any definition or range that you can give us on double digit? I guess the inference here would be that (multiple speakers) 15% to 25% it was.

Look, we all know what double digit means. I don't want to get cute with you. I don't want to suggest we're walking away from our prior indication. I just want to let you know that those two events occurred -- not events, but those two factors are now weighing against. Quite frankly, if the FX turns positively and fuel prices drop, those factors, which are negative today, can turn positive.

But I think we ought to leave guidance once -- for the next call. We'll have 90 more days under our belts, have a much better view about 2017, certainly for first half and a much better view for second half, which is the one, quite frankly, that is more of a question mark today. So again, you shouldn't read a bear story into it. You shouldn't read a bull story into it. I think that we've performed relatively well this year against some difficult -- in a difficult environment. At the midpoint of our 2016 guidance, we will deliver earnings per share of 18%-plus, and we want to hope to -- hopefully continue that trend into the future. But I just as soon not give you any more details on 2017 than we already have.

Okay. Fair enough. And last question, Wendy, you cited on the interest expense a little bit in Q3 here, the move in LIBOR. Granted, the moves we're seeing today in the markets in general, who knows where that shakes out after a few weeks, year or month or so? But when we look at the 10-year today and I know that's different from LIBOR, but can you give us any sensitivity on your interest expense exposure for 2017, as it stands?

Yes. So first off, for Q3, that equated to about $2.3 million in interest expense and it's about 47 Bps year over year, or potentially, say, $0.06 from an EPS standpoint for full year.

You said $0.06, -- I'm sorry, Wendy?

$0.06 EPS impact (multiple speakers) about 50 basis points.

How should we think about it in sensitivity of LIBOR or however you want to term it for 2017 just on an annual basis?

Hard to say. A 50 basis point change is about $0.06.

Okay. Thank you.

Greg Badishkanian, Citi.

Just thinking about Europe again, asked a little bit differently. How much of the second half do you have remaining to book because if you're seeing better pricing, better bookings, and I think double digit that was in reference to price, and you have easier comparisons beginning in mid-November, but then you said it should be a record year. I'm just trying to understand, how much can you move the needle as we get into next year?

You're talking about 2017, Greg?

2017. Correct; yes.

So there is a lot of inventory yet to book for second half of 2017. If you look at it on a year-over-year basis, we said that on a load basis, the second half is flattish to where we were this time last year with pricing down. And so the good news is, I've been mentioning, is over the last 8 to 10 weeks, we have seen booking volume exceed that of the same 8 to 10 week period last year so that we have eaten into the gap that existed.

We still have a gap and if the last 8 to 10 weeks repeat themselves, let's say over the last 8 weeks of the year to the end of the year, we ought to end the year slightly ahead. But it all depends on whether we continue to realize the trends that we've seen over the last 8 to 10 weeks, which have been strong versus last year, both in load and in pricing.

Right, right. Okay. Good. That's helpful. And then just on China, can you give us a little more color, as you talk to other, some of your big travel partners there, just how the market has been progressing over the last few months, just to give us a different perspective?

Yes. I am not hearing negative chatter coming out of China. I think that some of the challenges that may have occurred in the last 24 months ago seemed to have waned a bit. I think part of it is, is that the capacity expansion into China in 2017 is somewhat tempered compared to prior years. For example, into the Shanghai arena, that we're going to be bringing our Norwegian Joy into, if you exclude Norwegian Joy as a participant, capacity in Shanghai is actually slightly down.

And so I am seeing a pretty positive environment. I know that from our own business, we are very, very pleased with the pace of which our charter contracts are coming in terms of volume, in terms of what percentage of our capacity is being filled, and I am very, very pleased at the pricing.

The pricing continues to be in line with our previous indications of which, as you recall, it was some 20% better than the Norwegian fleet average. So overall, I think that most competitors, if not all competitors, seem to be less or more confident about China than perhaps they were this time last year where there was some question marks. So overall, it's good. We're excited about our growing traction and presence there.

Okay, great. Thank you.

Okay. Thanks everyone for your time and support. It's always a pleasure to speak to all of you. And as always, we will be available to answer your questions the rest of the day. Have a great day, everyone. Thank you.

This concludes today's conference call. You may now disconnect.