挪威郵輪 (NCLH) 2017 Q2 法說會逐字稿

Good morning, and welcome to the Norwegian Cruise Line Holdings Second Quarter 2017 Earnings Conference Call.

My name is Leanne, and I will be your operator.

(Operator Instructions) As a reminder to all participants, this conference call is being recorded.

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

Ms. Beck, please proceed.

Thank you, Leanne.

Good morning, everyone, and thank you for joining us for our second quarter 2017 earnings call.

I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings.

Frank will begin the call with opening commentary, after which I will follow to discuss results for the quarter as well as provide guidance for 2017, 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 with second quarter 2017 results was issued this morning and is available on our Investor Relations website.

This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements.

These statements should be considered in conjunction with the cautionary statements contained in our earnings release.

Our comments may also reference non-GAAP financial measures.

A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release.

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

Frank?

Thank you, Wendy, and good morning, everyone.

In the second quarter of 2017, the stars aligned just right as we took each of our 3 leading cruise brands and their award-winning, 25-ship fleet to new heights.

The booking environment was as strong as any we've witnessed in recent history and was aided by a confident consumer that was willing to spend more than ever before on onboard activities to enhance their vacation experience.

This strong booking environment was coupled with deployment initiatives undertaken to optimize deals, plus existing itineraries were enhanced with the addition of new destinations that garnered double-digit yield premiums.

Lastly, we benefited from the sustained benefit that comes with a comprehensive, fleet-wide revitalization program that ensures that the industry's youngest fleet remains fresh and relevant.

The outcome in the quarter were all the factors I just mentioned coalesced to produce strong record results, including a record adjusted net yield growth that allowed us to confidently raise our earnings per share and yield growth expectations for the remainder of 2017.

The extraordinarily strong booking environment, which we have experienced and have been discussing in our most recent calls, continues to thrive.

To use a nautical phrase, this rising tide is lifting boats throughout the industry.

At Norwegian Cruise Line Holdings, however, we have leveraged and fine-tuned our unique revenue optimization strategies of providing value-packed offerings earlier in the bookings cycle to build solid loads at healthy per diem.

We also deployed the marketing support needed to fill whatever close-in inventory remains in order to avoid price erosion late in the booking cycle and thus, ensure maximum yield growth.

The result was a yield performance that exceeded our expectation and further solidified our position as the cruise operator with the highest absolute net yield in the industry.

The robust booking environment is benefiting from near-high positive consumer sentiment, especially from our broad North American consumer base.

Not only is the result a consumer willing to pay more for their cruise fare, but also a consumer willing to spend more for onboard experiences, such as shore excursions and other experiential activities.

This behavior is also encouraged by our revenue optimization strategy where the inclusion of value-added onboard offerings as part of the ticket price through programs like Norwegian brand's Free at Sea and Regent's all-inclusive fares means that guests have had time to replenish their wallets between booking and sailing dates, resulting in increased overall onboard spending.

This onboard spend phenomena has taken hold not just from North-American-sourced consumers.

Our value-added strategy of adding more offerings into the ticket price, particularly for the Norwegian brand, has also proven successful in European-sourced markets, to the point where the sum of ticket pricing and onboard spend gap has narrowed, so that we are agnostic as to whether bookings originate from North America or from international markets.

The quarter also benefited both from our deployment optimization initiatives as well as the inclusion of new destinations to our itinerary portfolio.

An example of the former is the Norwegian Getaway's redeployment to the Baltic region beginning early in the summer season.

This redeployment of the formerly year-round Miami-based ship allows us to take advantage of significantly higher per diem in peak summer Europe compared to low season summer Caribbean.

The move also bolstered pricing for Norwegian Escape in the second and third quarters as she is now our sole Miami-based Caribbean megaship during the summer, running alternating Eastern and Western Caribbean itineraries.

The latter of these itineraries includes calls to the region's newest purpose-built destination, our Harvest Caye resort in Belize.

As I stated earlier, sailings to new destinations benefited the quarter, and Harvest Caye continues to be one of our highest rated destinations in our entire portfolio of over 500 ports of call.

But in terms of benefiting the quarter, no new destination has had quite the impact of Cuba.

Our voyages to Havana have been a home run since we began sailing on Oceania Cruises in March of this year.

The second quarter particularly benefited from 11 sailings to Havana.

Included in these initial sailings were 9 4-night sailings onboard Norwegian Sky, which garnered very healthy ticket price premiums compared to Norwegian Sky's former 4-night Bahamas-only itinerary.

And while early on we were unsure as to whether these pricing premiums would endure, subsequent sailings in Q2 and beyond have continued to gain meaningful premiums, which we now believe are sustainable given the limited capacity to call on Cuban ports and the low likelihood of any near-term infrastructure improvement in Havana.

The success of Norwegian Sky voyages to Havana has prompted the Norwegian brand to add a second ship to regularly call on this historic city.

So beginning in May of 2018, Norwegian Sun will begin sailing 4-day itineraries to Havana from Port Canaveral.

In addition, demand is extraordinarily strong for Oceania Cruises sailings to the island in 2017 and in 2018.

All in, 2018 capacity that includes calls to Cuba is double that of 2017, now reaching approximately 4% of our deployment mix.

Performance in the quarter also benefited from investment in our fleet enhancement program, particularly the Norwegian brand's Norwegian Edge.

The enhancements tied to the program have facilitated our ability to charge higher ticket prices and further boost onboard revenue.

These enhancements make the contemporary space's youngest fleet even more desirable with a core quality of offerings that is more consistent from our smallest to our largest new vessels.

Looking ahead, and while I may sound a bit repetitive from our commentary last quarter, the momentum from the strong demand trends that we have experienced over the last several quarters continues to have a positive impact across our brands, across deployments and across quarters.

I had mentioned in our prior call that we expected pricing for second half 2017 sailings to begin to surpass last year's levels as strong demand was driving improved pricing for remaining inventory.

This expectation has come to fruition, and pricing for sailings in the second half is now up mid-single digits.

In addition, the second half of 2017 is so well booked that the dearth of inventory left to sell has resulted in a vast majority of the strong booking momentum shifting to 2018 sailings.

This pivot is true for all 3 brands, which are now well ahead in load and pricing versus same time last year.

There was one seminal event late in the second quarter that while it did not impact results for the quarter itself, marked an important milestone in our globalization and diversification strategy.

That event of course was the launch of our China-based ship, Norwegian Joy, in Shanghai.

While her first revenue cruise was not until June 28, the period prior to her launch was dedicated to familiarizing her unique offerings to travel agents and the Chinese cruising public.

By the time Norwegian Joy arrived to her new homeport of Shanghai for her christening, she had already received a flurry of media coverage, resulting in an incredible 5 billion impressions.

The number of impressions doubled to 10 billion as a result of extensive media coverage from her inaugural and christening activities headlined by her godfather, and China's king of pop, Leehom Wang.

This media coverage complemented the year-long marketing campaign we launched to introduce Norwegian Joy as a first-class, at-sea experience to the Chinese cruising public, from television commercials to billboards to an e-commerce-based sweepstake with our marketing partners at Alibaba that attracted nearly 1 million participants.

We started from scratch and built the foundation for a solid brand backed by premium hardware.

Norwegian Joy's launch however, came on the heels of travel restrictions to South Korea.

The resulting uncertainty surrounding itinerary deployment, coupled with our lack of offering history in China, caused us to perhaps be overly conservative and cautious in our last earnings call.

Fortunately during the first 6 weeks of operation, Joy's performance has been slightly better than what was included in the estimate embedded in our prior guidance.

Cruise pricing for future voyages appeared to have stabilized, and load factors for voyages in the last 6 weeks have been some of the highest we have ever experienced.

We look to build on this momentum with the hopeful return of sailings in South Korea at some point in the near future.

Now I'd like to turn the call over to Wendy to go over our excellent results for the quarter and revise upward guidance for the remainder of the year in more detail.

Wendy, please?

Thank you, Frank.

Unless otherwise noted, my commentary compares 2017 and 2016 adjusted net yield and adjusted net cruise cost excluding fuel per capacity day metrics on a constant-currency basis.

I'll begin with commentary on our second quarter results followed by color on booking trends.

And then we'll close with our outlook and guidance for third quarter and full year 2017.

The second quarter of 2017 marks the latest in a series of record-setting quarters for the company.

Both revenue and earnings were the highest in our history for Q2, and we reached our 36th consecutive quarter of adjusted EBITDA growth.

Results for the quarter came in well ahead of expectations with adjusted earnings per share of $1.02 above guidance of approximately $0.95.

Adjusted net yield increased to a record 8.1% or 7.2% on an as-reported basis versus the prior year, outperforming guidance expectations of up 5.5%, driven by strong close-in demand coupled with strength in onboard revenue.

Looking at costs, adjusted net cruise cost, excluding fuel, was in line with guidance, increasing 2.7% or 2.6% on an as-reported basis versus the prior year due to an increase in marketing, general and administrative expenses, partially offset by lower cruise operating expenses.

Turning to fuel, our fuel expense per metric ton net of hedges was $469, which was flat to prior year, but unfavorable versus our guidance.

The increase in our fuel price per metric ton compared to guidance was primarily due to changes in our expected mix as we consumed more MGO than anticipated during the ramp-up to full utilization of our exhaust gas scrubber technology that is expected to become fully operational in the second half of this year.

Taking a look below the line, interest expense net decreased to $64.2 million compared to $68.4 million in the prior year.

Interest expense for 2017 reflects an increase in average debt balances outstanding, primarily associated with the delivery of new ships and newbuild installments as well as higher interest rates due to an increase in LIBOR.

Interest expense for 2016 included a write-off of $11.4 million of deferred financing fees related to the refinancing of certain of our credit facilities in 2016.

Turning to the third quarter, capacity is increasing approximately 9%, primarily due to the addition of Norwegian Joy to our fleet.

As for our deployment mix, approximately 40% is allocated to Europe, up from 37% in the prior year, mainly due to the repositioning of Norwegian Getaway to the region.

The Caribbean represents approximately 16% of our deployment mix in the third quarter, down from 22% in the prior year, mainly due to the aforementioned repositioning of Norwegian Getaway to the Baltic region.

The Asia Africa Pacific region has become a sizable share of our global deployment mix and now accounts for approximately 8% of our deployment with the introduction of Norwegian Joy to the Chinese market in the third quarter.

As for other key markets, Alaska accounts for 16%; Bermuda, 11%; and Hawaii, 4% of our deployment mix.

Before I walk you through our guidance and expectations for the third quarter and full year 2017, I'd like to remind you about some key drivers benefiting our sizable yield growth in the first half of the year versus the back half.

The first half of the year benefited from the addition of Regent Seven Seas Explorer and Oceania Sirena in the fleet, which garnered much higher yields than the blended NCLH corporate average, while in the back half of the year, we lapped their entry into the fleet.

Now focusing on the third quarter, as a result of higher ticket prices from the robust booking environment, we expect revenue to come in stronger than originally anticipated.

Adjusted net yield is expected to increase approximately 1.75% or 2% on an as-reported basis even in light of the following factors.

First, we are up against tougher pricing comparisons in the third quarter, and we are lapping both the premium price 40-day charter of Norwegian Getaway for the Rio Olympics and the introduction of Seven Seas Explorer, which entered the fleet in the peak summer season after experiencing record early bookings at the higher prices typical of an inaugural season.

Second, Norwegian Joy entered the fleet just prior to the beginning of the third quarter.

As we previously discussed due to the mix of our portfolio of brands, when any Norwegian Cruise Line ships joins our fleets, their yields are lower than the blended NCLH corporate average, which inherently impacts our corporate yield growth.

Excluding the aforementioned factors, our third quarter net yield guidance on a like-for-like basis would have been in excess of 5% compared to our guidance of up 1.75%.

That said, I want to reiterate that these megaships are highly accretive to both revenue and earnings.

Now turning to costs, adjusted net cruise cost, excluding fuel, is expected to be slightly up 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 $455 with expected consumption of approximately 195,000 metric tons.

Taking all of this into account, adjusted EPS for the third quarter is expected to be approximately $1.83.

Turning to the full year, as Frank mentioned in his opening remarks, the booking environment has remained extremely strong.

Strength in all core markets across all our brands have resulted in the raising of our outlook for adjusted net yield by 150 basis points, which is now expected to be approximately 4.25% or 4% on an as-reported basis.

Turning to costs, adjusted net cruise cost, excluding fuel, is now expected to be up approximately 25 basis points to up 1.75% on both a constant currency and as-reported basis.

The approximately $5 million increase in the cost guidance is primarily attributable to the cost associated with higher-than-anticipated load factors and incremental start-up cost for Norwegian Joy as she enters service in the Chinese market.

Looking at fuel expense, our fuel price per metric ton net of hedges is now expected to be $456 with expected consumption of approximately 785,000 metric tons.

The increase in price is primarily the result of the impact of rising fuel prices since our last earnings call as well as the previously mentioned changes in our expected consumption mix.

As a result of our strong second quarter performance and a continued robust booking environment that we believe will positively impact our next 2 quarters, we have raised our full year guidance of adjusted earnings per share by $0.14 to a range of $3.93 to $4.03, which surpasses the high end of our prior full year guidance range.

Of the guidance increase of $0.14, $0.07 is due to outperformance in the second quarter, and approximately $0.18 is due to the outperformance we anticipate earning during the remainder of the year driven by stronger than previously expected yield growth, partially offset by $0.05 of expense due to higher fuel cost, $0.02 due to the increase in net cruise cost ex fuel attributable to our recently launched China operation, and the balance is due to an increased tax provision as a result of the improved performance of our U.S.-based operations and a slight change to our interest and depreciation expense.

With that, I'll now turn the call to Frank for closing remarks.

Frank?

Thank you, Wendy.

As I had mentioned in my earlier commentary, the same strong overall business environment that has benefited 2017 has permeated well into 2018.

And no ship has benefited as much from this pivot as the first purpose-built ship for Alaska sailings, Norwegian Bliss, which we will welcome to our fleet in May of 2018.

Today, her book position in terms of cabins sold is at a level that took the next best booked, Breakaway newbuild, an additional 10 weeks of sails to reach.

In terms of pricing, she recently exceeded that of the previously best priced Breakaway newbuild at this point prior to sailing.

We fully expect Bliss's strong performance to continue to climb and indeed be boosted by the marketing initiatives and media coverage surrounding our upcoming announcement of Norwegian Bliss's cutting-edge features and offerings.

I look forward to updating everyone on these announcements as well as our results and other updates next quarter, but for now, I'll turn the call to Leanne to open the call for questions.

(Operator Instructions) And our first question comes from Andrew Didora with Bank of America.

Frank, Wendy, I know your overall net yield growth is impacted by your fleet mix.

So is there any color you can provide on how each of your brands did in 2Q, just relative to your overall system, net yield growth of the 7.2%, and maybe how you're thinking about that in the back half of the year?

Yes.

We don't comment on individual brands, but I can tell you that all brands contributed to the beat.

As I mentioned earlier, high tide raises all boats, raises all brands.

And that is certainly true for our 3 brands.

And Andrew, I would just add that when you look at our second quarter net yield growth on a like-for-like basis, it's roughly 5% of the 8.1% like-for-like.

And then we have the benefit of the Explorer and the Sirena.

Great, and just a follow-up question.

Wendy, you mentioned just slightly higher interest expense as LIBOR creep -- LIBOR and your principal balances creep up.

How are you thinking about leverage here?

On our numbers, we can see you can delever about 0.5 turn per year with your growth and some cash build.

Would you want to delever quicker as maybe interest rates come up?

Or are rates just still too attractive to allocate capital to debt reduction now?

Good question.

So it's about 0.5 turn on an annual basis if we just naturally are deleveraging.

And we're always looking at what's the next move to improve the balance sheet.

As a reminder, we said that we want to delever down into the 3 to 4x range, probably preferably down to the lower end of that.

Your next question is from Felicia Hendrix with Barclays.

Frank, last time I called a ship a boat, I almost got executed.

So...

Almost.

First I just wanted to on the Joy, it's obviously been a nice surprise.

Not sure if you're going to call out how much it was responsible for anything in the quarter, but I'm really -- if you can, that'd be great.

But I'm also really hoping you can talk more about what you're seeing in onboard yield -- on onboards there.

I know you had high expectations.

So I just wanted to know kind of if that has beaten even your high expectations, and if the Joy's made you feel more confident about this ship addition in 2019.

Yes.

Good morning, Felicia.

Onboard revenue at one time, we expected to be up to 20% higher than the average fleet.

As you know, the Norwegian brand has the highest onboard yield of any of our competitors.

So it was a high barrier to reach.

The South Korea restrictions have affected both the ticket per diems and on onboard.

And so the outlook that we had previously noted, and certainly, the revised one -- that we revised upwards today, does include what we're seeing in the onboard space.

Having said that, we have certain initiatives underway that we believe will improve the onboard revenue generation, like it would on any new vessel.

This is not only a new vessel for us, but a new market.

So we still have some opportunities to improve upon what we've already seen.

Okay.

And then just to complete this question, just talking about how -- does it make you feel more confident about 2019?

I think it's too early to talk about 2019.

We're committed to the Chinese market.

Obviously, there have been some bumps in the road the last year or so.

We've seen what others have done in terms of deployment in the future.

We're committed to being in this market.

And like any market, it will have ups and downs.

Perhaps the Chinese market is a little more volatile than some of the other more mature ones, but we're committed to being in China in the long term.

We clearly see the psychographic dynamics of that Chinese market where hundreds of millions of people travel outside of China every year.

And we think that cruising is a fantastic value, not just for the Western world, but for the Asians as well.

And we want to be a part of that.

Great.

And just maybe the next question, my follow-up, so you gave us some nice optimistic color on 2018 overall regarding loads and pricing.

And previously you guys were trying to keep the investment community tempered because of what new Norwegian branded ships do to the overall mix.

But I'm just wondering, given the momentum that you're seeing, was that prior tempered view maybe too cautious?

And can we see a 2018 yield growth like we're seeing this year?

This year, as I mentioned in my, I think, opening sentence, all the stars aligned up very nicely.

And it would be difficult to predict another almost perfect year as we've seen this year.

So no, I wouldn't want you to model in the kind of yield growth that we're seeing this year for '18.

I think you would be overshooting it by quite a bit.

Nevertheless, we do like the way 2018 is coming in.

Business is strong.

We're building loads very well at good pricing.

So we like the way it's coming in.

A bit early to really give a definitive answer.

But just historically, it would be difficult to predict another year like 2017.

And I would just add, Felicia, that as I said in my commentary that the first half of '17 greatly benefited from the addition of the recent Seven Seas Explorer as well as the Oceania Sirena.

We don't have that same benefit in the second half of the year.

And instead, we're bringing in the Joy, which will get a half year benefit from in '18 as well as a half year benefit from the Norwegian Bliss, both of those being Norwegian ships as we've talked about being below the NCLH average.

So it's hard to achieve the same type of yield growth that we just posted for Q2.

Our next question is from Harry Curtis from Nomura Instinet.

Very good results.

And just following up on the prior questions.

To what degree did you, based on the -- in Europe, kind of oversell or more cautiously sell for the 2017 than usual?

And in the sense that do you think it's had much of a drag on your yields this year, particularly in the second half?

Harry, not as much in the second half because the drag that you talked about is simply the function of the booking curve.

So remember the business started to turn, in our view, sometime in mid to really the late Q3 period last year.

And by that time, we had a sizable amount of inventories sold for the 2017 Europe season, more so in the upscale brands that have a longer booking curve than the Norwegian brand.

And as that turnaround took hold and business continued to improve and we gained confidence that, that was sustainable, we continued to raise prices.

But you can't take off the books the lower price business that was already on.

In fact, history tells you that as you raise prices, people are less apt to cancel those bookings because they got a deal.

So as we progress through the booking cycle and into the -- each quarter, the effect of that weakness that we saw throughout '16 in terms of bookings moderates.

So the -- that effect is greater in Q2 than in Q3 for example, and to some degree -- to the degree that we have business in Europe in Q4, even less there.

And looking ahead, given the strong demand, what do you plan to do in 2018?

Will you keep holding -- will you hold back more for 2018 in anticipation of better close-in bookings next year?

When you mean hold back, you mean hold back inventory for sale?

Yes.

When demand is there, you take it, Harry, and you take it at higher pricing.

And that's what we're seeing.

So as I said in my commentary, we're well ahead across all 3 brands in both load and in pricing for 2018.

Okay.

And then my second question is related to -- just add a little bit more color on the second half guidance versus where your booking and yield trends are.

You talked about mid-single-digit yields, but your outlook is for 2% yield.

And I'm just wondering what is -- what are the offsets that we should be considering for the back half of this year?

Sure, great question.

So you really are alluding to it with how much was already booked.

So if you look at the remaining category of cabins left to sell, it's primarily the Norwegian brand that's left for the back half of the year and primarily even into Q4.

And then even if you parse the types of cabins, it tends to be the lower categories of cabins that are booking close in.

So although it's -- we are thrilled with where we stand with the mid-single digits in pricing, it -- there's not enough of the mix for the blended NCLH yield to materially move the numbers for Q3 and Q4.

And then on top of it, as I previously mentioned, Q3 we were further rolling over the Rio charter from last year as well as the inaugural season of the Explorer and Joy.

Your next question is from Robin Farley with UBS.

One question I want to clarify, and I think maybe your comments did already, but just to clarify.

In the release, you talked about the next 4 quarters having strong volume and firm pricing.

And then you say the next 2 quarters have price and occupancy up mid-single digits.

So I wonder if you could just comment on the first 2 quarters of 2018, whether strong and firm means that -- does that mean up for both of them for just -- just looking at those first 2 quarters of '18.

We're not going to talk about individual quarters in '18.

My commentary broadly said that as of now for 2018, we're well ahead both in price and in the loads versus same time last year.

And that is true for all 3 brands.

Okay, great.

And then just one clarification.

Just looking at your CapEx for 2017.

It looks like since last quarter, it went up by kind of $250 million to $300 million.

I know you had called out previously that the Project Leonardo would be adding about $70 million in CapEx this year.

What's the other kind of $200 million in CapEx since last quarter that you'll up spending?

Yes, so great question.

So it is bringing on the Joy.

It's also the Norwegian Edge program, as that continues to roll out, and then as you mentioned, the Leonardo ship.

Okay, but the Joy or something with the Edge ended up coming in a little higher in '17?

Yes, and then a little bit of FX.

Your next question is from Tim Conder with Wells Fargo.

Let me maybe return to a question that was alluded to earlier.

Frank, could you address the booking curve?

The whole industry, as you said, is doing well.

The stars aligned this year.

So how do you -- do you look to further expand or do you want to further expand the booking curve?

Or is it sort of at the, in finance terms, the efficient frontier at this point?

Yes, that's something that we look at constantly, the trade-off of an incremental bookings versus the outlook for future price increases.

I'm one of the opinion that when demand is there, you take it, and you take it and you keep pushing pricing until that demand hits a resistant point.

And so the commentary I'll tell you is that throughout the last couple of quarters, certainly today, we're telling you that across the board, across markets, across brands, across periods, pricing is strong.

That consumer is alive and well, especially the North American consumer is showing a lot of strength certainly versus last year in Europe.

And as you know, that can -- that North American consumer is the best consumer: books the earliest; books the highest cabin category; and once on board, spends the most money.

So today, our booking curve is at an all-time high, a little over 7 months on average.

And that is a significant improvement over where it was this time last year.

Do I want to take it higher?

I don't have any preconceived number in my mind that I want it to be 8 months versus 6 months.

7 months is certainly where we are today, and I'm very happy with it.

And I'm also very happy with the per diems that, that booking curve is generating.

One cannot look at one without the other.

So today's business environment is strong, and we're getting both load and price.

Okay.

And then any commentary from your perspective -- Wendy, you gave some color I think on Q3.

But looking to '18 from an industry global capacity allocation, Europe, Alaska, North America, China and some of the major regions, what you see from an industry perspective at this point?

Sure.

So for 2018 total, we're anticipating for the industry that capacity will be up mid-single digits.

That's the same for the Caribbean and Europe, both up mid-single digits, and China being down mid-single digits.

Okay.

And Alaska, Wendy?

I don't have Alaska.

Yes, I'll have to follow up with you on that one, Tim.

Our Alaska obviously capacity will increase nicely, given the introduction of Norwegian Bliss.

And as I mentioned earlier, her book -- her advanced bookings both in load and pricing are really impressive.

So we're eager to get our hands on her and deploy her to Alaska.

(Operator Instructions) Your next question comes from Jared Shojaian with Wolfe Research.

Frank, maybe you can help me understand the Cuban impact a little bit better.

How much of your 4.25% yield growth guide is Cuba?

Is it 50 basis points?

100 basis points?

And since you're ramping Cuba further in 2018, could that contribution to yield increase further again next year?

Yes.

Jared, we don't comment on yield -- our region-specific or ships-specific yield.

But I will tell you that Cuba is performing very well.

I think I described it as a home run.

Certainly, Cuba contributed to the yield beat, both in Q2s and in -- expected to be in Q 3s and 4. We believe that always looking at deployments that enhance our profit profile.

And moving the Norwegian Sun there in spring of '18 will certainly do that.

And given the inherent infrastructure limitations to Cuba, there is only so much capacity that can enter Cuba.

So we're very fortunate that we've been able to maximize our presence in Cuba and in Havana in particular.

And in doing so, we've been able to increase the -- our deployment there to be about 4% of our capacity from 2% in 2017.

All 3 brands will call on Cuba with the Norwegian brand having the most impact of roughly 60 sailings, 59 to be exact for 2018.

Then the Oceania brand will have 21 sailings.

So again, I want to remind everyone that while looking at individual deployments and ship contributions certainly impacts overall yield growth, the Norwegian Cruise Line Holdings story is not a yield growth story, because of the makeup, the unique makeup of our 3 brands and the categories that they're in.

It is a revenue growth, and more importantly, an earnings growth story.

So I urge everyone to focus on our drivers for earnings growth over the years to come, and not so much on the yield growth necessarily.

Okay.

So let me follow up on that point then.

If I look at your unit costs, they've been running around 1% to 2% annually, which I know is in line with your long-term target as well.

And I appreciate that you're not prepared to give any guidance on next year.

But maybe can you just help us quantify the mix impact of bringing on Norwegian metal versus a normal year?

And is negative unit cost growth for next year, is that in play at all?

Yes.

So we're not prepared to give you guidance on '18 today.

Clearly, we do benefit as we bring on more of the -- especially the large Norwegian ships.

Our guidance has always been in that 1% to 2% range.

And all I would tell you is that there will be some benefits to bringing in the Bliss as well as a half year of the Joy.

Your next question is from Steve Wieczynski you from Stifel

So Wendy or Frank, I guess, what's embedded for Joy for the rest of the year in your guidance?

And I know the last time we talked to you, you were talking about embedding a price or a yield drop through the rest of the year.

So maybe how you're thinking about Joy now that you've been operating that for, call it, 5 or 6 weeks, are you guys expecting pricing to remain flattish from where it is today?

Or does it get slightly better or worse?

Again, Steve, we don't provide guidance by market or by specific ship.

What we're seeing in the marketplace has already been embedded in our future guidance.

As I stated earlier, we were pleasantly surprised that she's performed as well as she has versus our revised expectations during the first 6 weeks.

The -- we're about to enter in the -- starting in September sometime, the shoulder season.

And the shoulder season is somewhat different than the peak summer season.

So pricing, do not expect pricing to increase in absolute terms in the shoulder season versus summer.

How it will compare to prior season, we're not sure because we weren't there in prior seasons.

But we think that our overall guidance for the company certainly takes a cautious look at what we expect out of Joy.

Okay, great.

And then second question, I guess a bigger question around Europe.

Frank, it seems like that North American passenger is really starting to -- willing to head back over to Europe.

And again, that is your sweet spot over there.

But I guess the question is how do you guys balance your book of business now over there?

Meaning, are you still trying to source more locals so you don't get impacted again if that market turns around, like what happened last year?

Or are you still really trying to get as many North Americans on board as possible?

You might have missed my point earlier, but I said that we have now reached a point of parity where we're agnostic whether that consumer books from North America or from international markets.

We've done certain things in our revenue management and our marketing and our product offerings that has de facto increased the per diems and also the onboard yields.

So today, there is a very nice balance.

We have increased our business in absolute terms with the introduction of Getaway in the European market.

But disproportionately, more North Americans are booking our European itineraries than the same time last year.

Our next question is from David Beckel with Bernstein Research.

Your estimate of cost growth increased 25 basis points.

You explained that well due to load factor.

But it's the second increase in as many quarters.

Just a broader question I guess, do you feel more comfortable increasing cost in a strong demand environment such as what we have today?

Or would you have increased cost this year sort of regardless of the environment?

I think this was an unusual one this quarter.

We've never had a ship in China.

And so the 25 basis points, which is approximately $5 million, is totally related to the launch of the Norwegian Joy in China.

To seat it, it was additional start-up costs as well as the fact that we are experiencing record occupancies, the top record for all of Norwegian Cruise Line ever.

David, I would also follow up.

As an old business adage, it takes money to make money.

And we have seen margin expansion.

And so we're very pleased to take up our net yield growth by over 8%.

And only having to increase costs overall by 25 bps is a very strong trade-off that I'll take any time.

That's a great point.

I appreciate that color.

Some of your peers have seemed to be investing in marketing and revenue-generating spend ahead of expected future demand for even next year.

Is that something that you might be anticipating within your budgets either this year or next year?

Well, certainly, it just doesn't happen automatically.

Our marketing spend, while in line with expectation, is generating very, very strong results in terms of both load and yield.

Part of the revenue-generating initiatives we've undertaken is the CapEx that we've invested in revitalizing our vessels.

And so that gives us an opportunity to showcase our ship in the best light possible.

And our travel agent partners are recognizing that, and so are our guests.

That's helpful.

And as a quick follow-up, if I could.

You mentioned Alibaba briefly.

But I was wondering if there are any specific anecdotes you could pass along as to how well that partnership is progressing?

No, they -- they're great partners.

We did some fantastic work alongside them to introduce Joy to the Chinese market.

A lot of the impressions that I mentioned earlier in my commentary was a direct result of the marketing work that we did alongside them.

We continue to have discussions with them on how we can commercialize, if you will, our -- this partnership.

We are still waiting for certain licenses that will allow us to sell our cruises directly to the consumer in China.

And I think once that happens, we will be able to monetize, if you will, that relationship a little bit better.

Your next question is from Mark Savino with Morgan Stanley.

Just wanted to follow up on the back half yield guidance.

I think if you look at sort of what's implied for 3Q and 4Q, it implies sort of a similar yield growth in the fourth quarter.

And I would have thought, given some of the comp issues in the third quarter, that 4Q may be sort of sequentially stronger.

So I was just wondering if you could maybe comment on that, and if there's maybe something else that may hold back that 4Q yield growth.

Sure.

So as I've mentioned, we will not have the benefit of the Explorer or the Sirena in Q4 of this year.

And instead, we have the benefit of Joy, which is not accretive to yield but certainly is to the bottom line.

And then on top of it, it is the remaining category of cabins left to sell, again primarily Norwegian, primarily lower metas that don't tend to help the overall corporate yield, obviously on a stand-alone basis for Norwegian but not when you take the blended NCLH yield growth.

So we believe we put out appropriate guidance for the implied Q4.

Okay, that's helpful, and then just a quick housekeeping question.

You talked about a higher mix of MGO in the quarter, which drove up your fuel expenses a bit.

What's the right sort of mix for between HFO and MGO in the back half and then going forward into 2018?

It's roughly a 70-30 mix, 70 HFO, 30 on MGO.

That's pretty good.

And then just to keep in mind too, we're approximately 76% hedged.

In the press release, we break that out by the types of fuel.

And there's approximately an 80% to 90% correlation there.

Your next question is from Stephen Grambling with Goldman Sachs.

This is Rebecca Stone on for Stephen Grambling.

I was wondering if you could talk a little bit more about the higher marketing expense.

How much of that is coming from the Norwegian Joy versus marketing programs such as targeting Europe itineraries more?

Or new initiatives related to targeting new-to-cruise consumers and your expectations for that higher marketing expense going forward?

So we had already talked about the fact that there was $15 million incremental expense that would be in the first half of 2017 versus 2016.

And that would be initial start-up, marketing, offices, et cetera, to make our entrance into the Chinese market.

Then of course in Q1 on our last quarter call, we talked about the fact that we were having incremental marketing expenses for both Cuba and China post the South Korea travel ban, which that extrapolated to about $7 million between Q2 and Q4 of this year.

Yes, but the spend that we're incurring is certainly a very what I would call, a very efficient spend.

Given how well booked we are for the rest of '17 and my commentary on the status of bookings for '18 versus what we're spending in marketing is very efficient.

Bookings are coming in strong, and we're not having to overmarket, if you will, or overpromote.

It's a very, very good pipeline.

And so we don't see marketing expense being a driver of cost, certainly not in the next 2 quarters.

That's very helpful.

And then I was wondering if you could comment a little bit more about your fleet enhancement program.

What has feedback been with Edge?

What changes have you made, exceeded your expectations?

Or what changes have been the largest contributors to higher onboard spend on these ships?

The Norwegian Edge program and also the -- there's the program, similar program that we launched on the Regent brand, has been very, very well received by travel agents and consumers both.

We revitalized both staterooms and public areas.

We've introduced new restaurant concepts.

And by making the ships' general atmosphere, general look be refreshed, more relevant, people feel better on board.

They're out of their cabins, if you will, and just a -- it's an environment that facilitates higher spend.

And as you know, the Norwegian brand leads the industry by a very wide margin and has the ability to generate onboard revenue.

So we're very, very pleased that we're able to do this relatively quickly now with 15 ships.

We've been able to do this over a 3-year period.

2018 is the last year of the Norwegian Edge program in any big way.

I believe we will have one more vessel to dry-dock and refurbish in 2019.

So the heavy lifting, if you will, for the program including the Regent program, will end in 2018.

We have time for one more question, Leanne, and if there's anybody there?

Your last question is from Vince Ciepiel with Cleveland Research.

A question on like-for-like, you mentioned that it was, I think 5 of the 8 in 2Q.

I'm curious how much of the 4.25% that you expect for this year and the 1.8% last year was like-for-like?

That's a great question, Vince.

So it's actually immaterial on full year.

And it's because of the strength that we gained from an NCLH blend perspective with bringing in the Regent Seven Seas Explorer and the Oceania Sirena in the first half of the year, offsetting not having them in the back half where we're bringing in additional Norwegian capacity.

Great, thanks for explaining those moving pieces.

And then also you've emphasized how Norwegian is kind of more of an earnings growth story, given how new ships can swing yields and that maybe it's not indicative of the core trends.

So if you could just take a step back and think about Europe specifically this year, are your like-for-like ships there growing earnings year-over-year in Europe?

Yes, that's a very pertinent question.

I will tell you that NPDs for our Q3 will be up 5% on a like-for-like basis and the difference between like-and-like and the overall is that Getaway is in the Baltic for the first time this summer.

So 5% growth in Q3, given the prior commentary about how some of the inventory for Q3 Europe had sold earlier on in the bookings cycle before the upturn in bookings, I think bodes very well.

Well thanks, everyone, for your time and support this morning.

And as always, we will all be available to answer any questions you may have later in the day.

All the best.

Bye-bye.

This concludes today's conference call.

You may now disconnect.