皇家加勒比遊輪 (RCL) 2016 Q1 法說會逐字稿

Ladies and gentlemen thank you for standing by and welcome to the Royal Caribbean Cruises' Ltd.

first-quarter 2016 earnings conference call.

(Operator Instructions)

It is now my pleasure to turn the floor over to Jason Liberty, Chief Financial Officer.

Please go ahead, sir.

Good morning and thank you for joining us today for our first-quarter earnings call.

Joining me here in Miami are: Richard Fain, our Chairman and Chief Executive Officer; Adam Goldstein, our President and Chief Operating Officer; Michael Bayley, President and CEO of Royal Caribbean International; and Carol Cabezas, our Vice President of Investor Relations.

During this call will be referring to a few slides, which have been posted on our investor website, www.RCLinvestor.com.

Before we get started I would to refer you to our notice about forward-looking statements which is on our first slide.

During this call we will be making comments that are forward-looking.

These statements do not guarantee future performance and do involve risks and uncertainties.

Examples are described in our SEC filing and other disclosures.

Also we will be discussing certain non-GAAP financial measures which are adjusted as defined and a reconciliation of these items can be found on our website.

Richard will begin by providing a strategic overview of the business.

I will follow with a recap of our first-quarter results, provide an update on the booking environment and then provide an update on our full-year and second-quarter guidance for 2016.

We will then open up the call for your questions.

Richard?

Thanks Jason, and good morning everybody, it is a pleasure to have the chance to provide more color on the quarter and to talk about our direction going forward.

Internally, we start almost every meeting talking about the Double-Double, and I'm going to follow that practice here as well.

Obviously it is gratifying to report results that are so much higher than we have ever enjoyed in any winter quarter in our history, and it naturally strengthens our confidence in our ability to reach these targets.

As a reminder, our Double-Double program established targets to double our 2014 earnings per share, and to reach double-digit ROIC by 2017.

That means earnings per share next year in excess of $6.78 and ROIC of 10% or better.

The results that we are reporting today not only bring us closer to those goals, but they also demonstrate how powerful our brands are and how well they are doing.

As gratifying as today's results are, I should also reiterate that we manage our business and we assess our performance on an annual basis not on a quarterly one.

We always have pluses and minuses affecting different seasons and different itineraries.

In today's case, we are in the happy position that just about everything in the quarter that could have gone right, did.

Ticket revenue was stellar, onboard revenue was terrific, costs were well controlled and even below-the-line items helped.

While it is impossible to isolate out some things, it is interesting to note that strong, last-minute demand helped our bookings at the same time while we were simultaneously enforcing our price integrity program.

It is very validating to me that we saw such strong close-in demand for products like the Caribbean, despite our program designed to eliminate last-minute discounts.

A key driver of our future success continues to be the success of our executional efforts.

Execution is everything, and it is going very well indeed.

Our brands are firing on all cylinders, costs are well controlled and our new ships are getting rave reviews.

As a result our guest are coming back in ever-increasing numbers and we're raising the demand from those who have never cruised before.

I would like to take this opportunity to express my appreciation to the men and women at Royal Caribbean, at sea and on land, who are working so hard and so well every single day.

The key to the Double-Double, and the key to our success beyond Double-Double, is our ability to execute at the highest level.

We are indebted to all of them for doing so.

Of course, as always is the case, some markets do better than others.

This year we have seen particularly good results in the US markets.

We've seen some weakness in the Mediterranean sailings, but strength in the Caribbean, Baltic and Alaska.

China continues to be one of our great success stories, and now represents 9% of our capacity.

The market there has received the Royal Caribbean international brand exceptionally well, and that market continues to grow at extraordinary rates.

Brand image is particularly important in China, and we have been very pleased with the exceptional position Royal Caribbean has earned there.

Total industry capacity in China over just the last two years has more than quadrupled.

That is an extraordinary amount for any market to absorb.

Against that background, the fact that our yields have held up there as well as they have is powerful evidence of the scale of the opportunity.

In 2017 and 2018, industry capacity growth drops to only about 50% per year, and that gives us further comfort about the future there.

Most importantly, I believe our unique strategy in China is working very well.

Firstly, we have brought to the market the best ships, the biggest, the baddest and the newest.

The Chinese appreciate that we have acted so positively towards their country, and that has enabled us to establish an unusually strong first mover advantage.

Secondly, we've worked hard to educate and assist the distribution system there.

We haven't just taken advantage of existing channels but we have actively worked to make them more successful.

We have the largest team in China dedicated to training and supporting the distribution system.

That helps the travel agents be successful, and helps them sell our product.

Lastly we have aggressively invested in ways to link us more directly with the end consumer, and help establish a deeper connection with our guests.

All of this has enabled us to communicate successfully what makes Royal Caribbean better, different and special.

A few weeks ago we took delivery of Ovation of the Seas and in two weeks we will take delivery of Harmony of the Seas, extraordinary.

Ovation is simply magnificent.

The reaction has been overwhelming to her numerous innovation, such as RipCord by iFly; Voom, the fastest Internet at sea; the amazing lounge Two70; and 18 restaurants which our guests can choose amongst.

The Chinese public appreciate that Royal Caribbean took the lead in bringing new hardware to China, and Ovation will be the first cruise ship to be named there, by the very famous singer, actress, Fan Bingbing.

Delivery of Harmony of the Seas in two weeks should be just as exciting, albeit on this side of the world.

She builds on the incredible success of our Oasis series of ships, and she is one of the most anticipated new ships of the year.

Lastly, in June we are very excited to be taking delivery of TUI Cruises' newest ship, Mein Schiff 5. TUI Cruises continue to perform exceptionally well in the German market and this vessel will add to its success.

Before I turn the call back to Jason, there is one last item I wish to cover.

For a company to be successful in today's world it is important that we not only do it right, but we also do the right thing.

At Royal Caribbean, ethical leadership is an important part of our world view.

It is something that matters to our people, but it is a different metric to measure.

Fortunately, there is an organization called the Ethisphere Institute, and it was organized specifically for the purpose of encouraging good corporate stewardship.

I am therefore extremely pleased that Ethisphere recognized Royal Caribbean in 2016 as one of the World's Most Ethical Companies.

We value this honor and we intend to continue following our mantra of continuous improvement.

With that it is my pleasure to turn the call back to Jason.

Jason?

Thank you Richard.

I will begin by talking about our results for the first quarter.

Unless I state differently, all metrics will be on a constant currency basis.

Our first-quarter results are summarized on slide 2. Adjusted earnings were $0.57 per share, nearly double our guidance of $0.30 and almost triple Q1 of 2015's results.

Net revenue yields were up 7% for the quarter, approximately 300 basis points higher than our guidance.

This past quarter's results were exceptionally good, driven by continued strength in both ticket and onboard revenue, as well as a weaker dollar and better fuel prices.

On the ticket side, strength in North America resulted in significantly better-than-expected close-in demand and pricing for the Caribbean.

Onboard revenue was up 8.7% for the quarter.

While we saw year-over-year improvements in most key onboard revenue areas, beverage and Internet led the majority of the outperformance.

Costs for the quarter were in line with guidance.

As we discussed on our last earnings call cost metrics for the first quarter were expected to be higher year over year, driven by investments in China, timing of marketing, and additional dry-dock days.

Below the line we saw continued outperformance from our equity investments.

During the quarter lower fuel prices and a weaker dollar contributed approximately $0.08 to the improvement.

As previously discussed, we eliminated Pullmantur's two-month accounting lag during the first quarter of 2016.

The negative impact to earnings of $0.10 per share was in line with the guidance provided on our last earnings call.

This represents the results from November and December of 2015, and has been adjusted out of the Company's key metrics.

Now I will turn to the demand environment for the balance of 2016.

During our last call, we shared that wave was off to a good start.

This trend continued throughout the first quarter and certainly contributed to our strong yield performance in Q1.

We are now approximately 80% booked for the year with both load factor and pricing at a similar level to same time last year.

When adjusting for China, which is a much closer-in booking environment, we are ahead in both volume and rate for the balance of 2016.

Additionally, our guests continue to plan their vacations further out.

Over the past quarter our booking window has extended even further, and is at its highest levels yet.

Our product mix in the back half of the year is weighted more towards the Caribbean and high-yield in China itineraries than it was last year, and we also have less exposure to the weaker Latin America market.

Q3 and Q4 include the full benefit of two new-builds entering the fleet.

In May Ovation of the Seas will begin her 53-day repositioning sailing to her new home in Tianjin, China.

Harmony of the Seas will be in the Mediterranean this summer before repositioning to the Caribbean in early Q4.

The China market is highly anticipating the arrival of Ovation of the Seas in Tianjin at the end of June.

Overall, trends for China are within our expected range, albeit at the lower end for sailings from Shanghai.

That said, we have sold a higher percentage of China inventory over the past three months than we sold during the same period last year.

As a whole, the portfolio is still expected to deliver yields significantly above the average, and continues to command a significant premium in the China market.

Our winter 2016, 2017 Australia sailings have seen strong early demand at rates that are similar to last year, despite continued capacity growth in the market.

Moving to Europe, demand for Mediterranean sailings has been strong particularly from European points of sale, and load factor is ahead of last year.

However, recent geopolitical events did have an impact on booking volumes in the United States.

While bookings have now returned to typical levels, we had to lower pricing and shift sourcing to recover the volume lost during the initial lull in demand.

Our global presence enabled us to quickly adjust our sourcing activities, but our rate has been impacted since North American consumers typically pay more for our European cruises than guests sourced more locally.

As a result, we have lowered our yield expectations for these itineraries.

Outside of the Mediterranean, European business is far more encouraging with volumes and rate both in a good position for the Baltics.

North American base products account for just over half of our 2016 capacity and are proving to be another bright spot this year.

As I mentioned, we did see a softening in demand for Europe cruises following the events in Brussels; however, overall demand for cruising from North American consumers remains extremely strong, and our Caribbean, Alaska and Bermuda itineraries are each poised to have a strong year and generate nice yield improvements.

The Caribbean performed extraordinary well in Q1, and the balance of the year is also in a strong-book position.

There is particularly strong interest in Harmony of the Seas, which begins her sailings in the Caribbean during the fourth quarter.

Alaska and Bermuda are booked nicely ahead of same-time last year in both occupancy and pricing.

Anthem of the Seas will sail to Bermuda from Cape Liberty throughout the summer, and is receiving strong demand at superior prices.

And we are also trending toward a record yielding Alaska season.

If you turn to slide 3, you will see our updated guidance for full-year 2016.

Net revenue yields are expected to grow 2.5% to 4%, an increase relative to previous expectations.

This guidance incorporates the robust Q1 performance, partially offset by a reduction in expectations for the Mediterranean.

As is always the case, performance will vary a bit across products and by quarter, but on the whole the balance of the portfolio is relatively on par with previous expectations.

From a cost perspective we are anticipating net cruise cost excluding fuel to be up approximately 1%, which is slightly higher than previous expectations driven mainly by the delay in the start date of Empress of the Seas.

We anticipate fuel expense of $734 million for the year and we are 65% hedged.

Since our last earnings call fuel prices have modestly increased while the dollar has weakened relative to our basket of currencies.

The combination of these two factors is contributing approximately $0.15 to our full-year earnings, of which $0.08 was realized in Q1.

Based on current fuel prices, interest rates and currency exchange rates, our adjusted earnings per share are expected to be in the range of $6.15 to $6.35, $0.25 higher than the previous guidance.

The $6.25 midpoint represents a 33% improvement in earnings per share, further strengthening our position to reach Double-Double next year.

Before we discuss second-quarter guidance I would like to give you an update on our $500 million share repurchase program.

As of this call, we have repurchased $450 million in shares under the current authorization, leaving $50 million which will be spent opportunistically this year.

We remain focused on improving shareholder returns and we will remain balanced between those efforts on our target to obtain an investment-grade rating.

Now we can turn to our guidance for the second quarter which is on slide 4. We expect net revenue yields to be up approximately 1% for the second quarter.

There are several factors limiting yield growth for the quarter.

While booking volumes for the Mediterranean have recovered since the attacks in Brussels, promotional activities were necessary to stimulate demand for closer-in sailings.

These weaker trends in the Mediterranean are having a disproportionate impact, especially in the second quarter.

From a structural standpoint, there is a drag on Q2 yields from the high-yielding holy week sailings, which took place in March this year versus April last year.

Also, we are introducing two new ships during the quarter which involve a ramp-up of occupancy and a lower-yielding long-positioning sailing.

As a result we expect yield growth to be smaller in Q2 than in the back half of the year.

Net cruise costs excluding fuel are expected to be up approximately 2%.

Based on current fuel prices, interest rates and currency exchange rates, our adjusted earnings per share for the quarter are expected to be approximately $1.

With that, I will ask our operator to open up the call for a question-and-answer session.

(Operator Instructions)

Greg Badishkanian of Citi.

First question with respect to the strength in the North American itineraries, Caribbean and Alaska, how much of that do you think is -- you said the close-in bookings were very strong but you didn't discount heavily like you've done maybe in the past -- so how much of that is due to passengers who otherwise would have went to Europe, are staying at home versus maybe improved marketing, where they were just waiting for these discounts, they never came so these decided to book anyway.

Greg it is Michael.

Good question.

I think it is difficult to pinpoint one of these different elements, I think it is a combination of several factors.

Certainly, some of the softness that we see in Europe I think the Caribbean is the beneficiary of that, a lot of the Americans that previously were planning on going to Europe are now going to the Caribbean, so that is great, they are also going to Alaska.

We have got great hardware in the Caribbean and the American market this year, so we have moved some of our ships around with Anthem in New York and Harmony in Port Canaveral; in the fourth quarter with Allure in Port Canaveral; Oasis in Port Canaveral; Liberty, that we've just revitalized, sailing out of Galveston.

So I think the combination of the quality of the brands, the hardware, some of the softness in Europe has really buoyed up the demand from the American market for the products in the Caribbean.

Just on China, if you look at apples to apples or comparable sailings, how comfortable are you -- I know you probably expect a bit of degradation due to the capacity coming in -- how comfortable and how in line are those with what you have been expecting, let's say, even if you go back to last year?

I think -- it's Michael again -- I think we said that we had an expectation that China yields would be down in 2016 versus 2015.

We just finished the first quarter and everything came in as we expected for this first quarter so we are feeling quite comfortable that we will come in against our expectations.

One final on Cuba, what do you think the opportunity is for Royal to take advantage of that market, and maybe potential timing of benefits?

I think obviously, we have been watching all of the news and we've been doing our own planning.

I think the opportunity will be good for Royal when everything is opened up appropriately, and we are planning to do just that.

I think it is going to be an interesting opportunity for us, it will be great for our customers, our guests and our travel partners.

I do not think it is going to have a massive material impact on our overall business, it will just be very positive for us.

One quick overall, we're going to try to limit the questions to one or two questions, there are lot of individuals in the queue to ask questions, if we can manage it to one or two that would be great.

Kevin Milota of JPMorgan.

Two questions here for you, first on board could you give us some more color on -- obviously you called out the Virgin Internet -- but is the trend that you experienced here in the first quarter something that we can look to continue in the second, third and fourth quarters?

That being first, and then second on Shanghai you called that out in your China commentary, maybe give a little more color on what you are experiencing in China to take that down to the bottom end of the range.

Many thanks.

On the onboard side, I think this general trend is something that we do continue to expect to see.

Obviously, an 8.7% growth is wonderful and I don't think we expect that same level of rate going forward because there are some year-over-year comps that become more challenging.

I would say that the brands are adding a lot more to the offering, they're doing more on a pre-cruise sales perspective.

On the Internet side, there will be more and more Royal ships that will have Voom as we go into Q2 and beyond; and also in the first quarter, Celebrity introduced Xcelerate, and that's with an X, which is not to the same level as Voom, but is far superior to the Internet capabilities relative to the competitive set.

I think overall the trends -- we have had several years now of positive trends -- should continue.

Kevin, on the question on Shanghai, obviously we look at China -- typically everybody looks at it as one market but really of course it is three markets; it's the North and it's the South and it's Shanghai, and we have presence in all three of those regional markets.

Shanghai is the biggest market for us, I think it is about 50% to 60% of our total China business.

Capacity is up in the Shanghai market in 2016, quite a lot.

I think what we are seeing there, and we've talked about that as we expected yields to be down moderately, and that is certainly true, and in Shanghai that is what we are seeing.

It's a little bit towards the lower end of the range that we expected.

Steve Wieczynski of Stifel.

First question, I guess if you go back to -- if I look at your commentary from the fourth quarter about your book load position for non-China itineraries, it seems like based on your commentary today those itineraries have gotten a good bit better, is that a pretty fair statement?

Yes, Steve, I think the booking environment, first just to tee it up, two thirds of our capacity growth this year is going into China, which is a much closer-in booking environment.

So the year-over-year comp is a little bit more challenging because you have more of a closer-in environment in your mix.

When you take that out, as you said, even going into the fourth quarter call as well as what we have seen through wave, we have seen strength and we are in a very good book position on both the load factor and APD basis.

Steven, it is Richard, if I could just add one comment on that.

I think it is important to understand that we have a fair amount of flexibility in terms of managing that to the level that we want it to be.

Last year and this year we really have record levels of capacity booked at this time and at the end of last year.

As a practical matter, we probably do not want to have much more than that.

That is a revenue management question, a lot depends on how we're managing our price integrity program, how we expect bookings to be in the later period, so it is not only an indicator of how strong demand is, it is also something that we manage to get to a level that we want.

Going forward I wouldn't really expect us to be looking for higher levels of capacity booked than we have been seeing over last year and this year.

Second question, I do not know if you'll be able to answer this, but in terms of the Easter shift in holy week, how much - I don't know there's a way to quantify how much that benefited 1Q and then how much is it taking out of 2Q in terms of yields?

Steve, it is approximately 20 to 30 basis points that would swap from one quarter to another, and also the strength that happened in the first quarter was really across the entire quarter, it was not necessarily isolated to this holy week sailings.

So I think that is something else I wanted to point out, that it was close-in strength for really all North American products during that quarter.

Felicia Hendrix of Barclays.

Jason, as we think about the second half, I know this isn't necessarily a time when you give guidance for third quarter, but given some of the misunderstandings about the second quarter, I was wondering if you could help us understand the cadence of the quarters for third and fourth quarters?

Because I think if you look at consensus now it looks like it is evenly split.

For your yield guidance for the remainder of the year, how much of that is coming from your new ships and how much is coming from the core?

Cadence-wise as it relates to Q3 and Q4, and I think taken into account some of our commentary around the Med, you guys should consider that Q4 should be higher than Q3, as it relates to the cadence.

Also taking into account that we're going to have much more Caribbean, a product mix in the fourth quarter, and we talked about the strength of North American market and the book position that is relative to that.

As it relates to the core, I would say the majority of the yield growth -- I would say majority meaning greater than 50% of the yield growth -- is coming from the new hardware that is coming online in the back half of the year.

I do want to stress the back half of the year because though Ovation is now in our environment and Harmony will be in a couple of weeks, those ships do take some time to ramp up and also re-position.

The fourth quarter sounds like normally it's seasonally not stronger than the third, but given what is going on now that is what we should see.

That is right.

My next question for Michael on China, this is a bigger picture question, but I think almost every investor meeting I have I get asked this question, so I think it is worth addressing.

I was wondering if for a moment you could talk about the company's commitment to the region, and the industry's commitment to the region, because there is a lot of investor concern that if pricing doesn't remain its premiums or pricing comes down, we all know that the supply coming on, will the cruise lines back off on their commitment to the region; and ultimately could it affect the supply/demand balance that the industry is facing today elsewhere?

So I was just wondering if you could talk about how you are thinking about the China investment, and is there a realistic scenario where that commitment changes?

I think it is a great question.

We've been in the China market now for nearly nine years, and we've been investing in the market, building distribution, building our sales presence, building our relationships, and more importantly building the brand and building a good customer base.

I think as we have said previously we have done very well in the market in terms of being the recipient of the Best Cruise Line for eight years in a row, the recipient of the Best Premium Cruise Line; so we have done a lot of work in building the brand.

I think there's this question about supply and demand, then of course distribution.

When you look at supply, obviously, we tend to get at times anxious, because more capacity is coming into the market.

But I think really the question is, is how much demand is in the marketplace.

What we see, if you look at just the sheer size of the outbound market in China, it is the largest outbound market in the world and it has been growing at an incredible rate.

Cruise as part of that outbound market is really quite tiny, it is relatively small.

We believe that the opportunity for cruise is quite significant in terms of the long-term development, and that is why we've been in the market for nine years.

So we are quite optimistic about the future of China as a marketplace, and I think we have been quite careful and strategic about the decisions that we have made.

I think when we introduced Quantum last year that was really -- proved to be a successful decision.

Customers come into the travel agents and request Quantum, request Ovation and request Royal Caribbean.

So our commitment is quite strong to the development of China in the future as a marketplace.

As you think about your profitability there, which you have said before is on a per-passenger cruise day basis higher than the rest of your regions, when you think about the profitability aligned with the premiums that you are seeing now, where would that break even level be?

I don't think I can answer that question specifically.

I think it is true that China continues to trade at the high end of the ticket yield range and deliver high onboard revenue yields, and our Chinese sourcing delivers high profit and returns across, against all of the global markets.

We feel that the opportunity is very good.

Harry Curtis of Nomura.

There has been some discussion about the positive impact that we are seeing from the net effect of FX and fuel, but to what degree are the results this year, particularly the costs, somewhat more elevated than they are going to be next year?

You are being penalized because of the 50-plus day shift of Ovation, also the delay of Empress.

To what degree are there higher costs that you are just not going to see next year?

Harry, I think on the cost side as we talked about over the long run here, we are managing these costs, I think in a very effective way and it is certainly a factor in our progress towards the Double-Double target.

I don't think that there are specific one-off costs in this year that are -- that exist.

I think that most of the cost growth that you are seeing relates to things, as an example, would be the Internet, putting Voom or Xcelerate on our ships; there is a cost to that.

Improving our footprint, which we will continue to do in China, there's a cost to that.

I don't think that there is something that is specific to this year, I think it is more in general that this is investment cost to grow our business.

If you look out over the past three years our costs on average have been basically flat, and I think that is a pretty strong result.

But I think going forward there are going to be costs that we have to manage, for example, improving marketing in order to improve yield.

Moving on to the second question, with no new ship deliveries next year, what is a reasonable level of cash that should be returned or could be returned to shareholders next year?

I think obviously, capital return is something that will be a discussion with our board.

We clearly want to be in a position to balance investing in our growth, which is pretty well planned, be an investment grade credit, and then providing capital returns to our shareholders.

I think for us, we want to get through the authorization, the $500 million authorization that we still have $50 million left to do, and I'm sure we will address that in the future as those decisions are taken.

So it is reasonable to think that you're not going to stop at the $50 million left?

I would say that it is reasonable to think that our management team and our board will be considering that dividends and share buybacks are mechanisms to return capital to shareholders.

Tim Conder of Wells Fargo.

First off, congratulations on managing through a lot of moving parts along the way.

I wanted to circle back to China here.

Adam, Jason or Richard, can you give us your color on what your net yield range is for China on a year over year, and maybe break that down into the like-for-like itineraries versus the impact of more year-round capacity and clearly adding shoulder periods which pulls that average down?

We don't give specific guidance on our net yield in the market, but as Michael commented it is certainly a significant premium to our fleet average as well as a significant premium to the marketplace there today.

We also commented on the fourth quarter call that we expected yields to be down in China, and we still expect that and as Michael commented I think the only pressure point has been Shanghai, where there has been a lot of capacity in place.

I think people should look at China, as well as Asia, in total.

It is a market that the average yield is higher than the average, and as we add more capacity in, that improves our revenue and that improves our profitability.

That is how you should see us continuing our strategy.

The profitability, Jason, again to clarify from prior question is given that on the yield side, is it higher than the balance of the world, is that fair to assume?

On a return perspective?

Yes.

It is both on yield and on returns, it is certainly higher than the average.

Could you expand on your comments about connecting more directly with the Chinese consumer and then lastly, how should we think about the cadence of the new ships from Mein Schiff coming in, and the impact there on the income from TUI, in particular below the line?

Tim, I can talk about how we have been connecting with the customer in China, one of the things that we have been doing is investing more in the consumer marketing direct to customer.

So, for example, this year we launched a television campaign in Tianjin and Shanghai with dedicated Chinese TV commercials, and what have you, and we've been spending more time just talking directly to the consumer.

And of course, over time we've literally built up a loyal database of customers who have sailed with us, and they are great advocates for the brand and they talk about Royal Caribbean in the marketplace.

It is a gradual process, and it is a process we've been engaged in for some time and we will continue to invest in.

And then TUI?

What was the question on TUI?

How should we think about the cadence as the Mein Schiff 5 and Mein Schiff 6, as those come into the flow, how should we think about that impacting that equity income line?

I think we do now break out that profitability line, or the equity pickup line in our filing, and I think it is reasonable to consider that, that trend change year over year will continue as the new ships come on board.

Robin Farley of UBS.

Just looking at your full-year yield guidance, it is not up by as much as the outperformance in Q1.

Should we think about that more as just -- it is within the range, you're being conservative, it's rounding, or is it -- do you have a slightly more conservative view of the rest of the year because of your comments about the Med?

I'm just thinking about -- it sounded like Q2 a little lower than consensus but I would think the Med would be more of a Q3 impact than Q2, so maybe how to think about that.

Robin to that point, the increase in our yield guidance for the year which gives a midpoint of 3.25%, a lot of that is a read-through from Q1 and then on from Q2 to Q4 we are taking a -- I wouldn't say it is a more conservative posture but a more realistic posture as it relates to the Mediterranean, and so our expectations, our yields are going to be lower.

It is disproportional in Q2 for a few reasons, one of which is the ships are now repositioning or have repositioned to Europe so they do have May sailings and June sailings.

As I talked about the lull that we saw after the recent geopolitical events, that there was a need to do some price stimulation on some of the more closer-in bookings that related to the Med, and which -- that lull really occurred with the North American consumer.

You are comfortable with Q3 because after that lull post-Brussels, in other words you have seen it pick up since then for the Med sailings later in the year?

It has picked up, actually our load factors are higher.

As I commented in my remarks, we're still seeing more guests from Europe, and European consumers do spend a little bit less on ticket and certainly less on onboard and that does weigh in on both Q2 and Q3 yields.

Lastly, just a quick clarification you mentioned sales in China higher in the last three months.

Is that just volume higher or did you mean actually load higher like capacity adjusted volumes higher?

It is volume, but the common holds for capacity adjusted.

Steven Kent, Goldman Sachs.

Two questions, what percentage of your European summer sailings are typically US-sourced, and how has that changed this year?

Not sure if you addressed it yet, but the Empress of the Seas delay, what is causing that?

Steven, I think Jason is looking at the numbers on the European sourcing, I can talk a little bit about Empress of the Seas.

We brought Empress back from Pullmantur, it had been over with Pullmantur for approximately nine years.

We obviously had an expectation -- we were going to do a certain amount of work with the ship, and as we started the work we realized that we simply had more work to do.

We wanted to make sure we brought the ship up to the standard that our customers are used to with Royal Caribbean International, and a lot of that work required more time to complete it, so we had to extend the work time.

I think now we've got the ship scheduled to come back into operation at the end of May.

This was customer-facing stuff rather than engineering?

No, it was related to customer experience.

Steve, on the European sourcing side, for European products about 2/3 of our guests for European sailings come from Europe, and this year it will be 3 or 4 percentage points higher, as we have shifted that sourcing.

Sharon Zackfia of William Blair.

Jason, can you give us for the Mediterranean what your capacity is over the spring and summer versus last year?

Med capacity year over year is basically flat, it is up about 1% for us year over year.

Just to clarify on Robin's question earlier, the lull that you saw from North American demand, that is recovered?

I wasn't sure if you were saying you recovered it with the European sourcing, or if you've seen the North American customer come back to more normalized booking cadence for the Med?

The lull is overall recovery in terms of load factor.

As Michael commented before, the North American consumer, though is still very interested in Europe, but some of that interest has shifted to the North American products, where we have seen a lot of strength.

Stuart Gordon, Berenberg.

A couple of questions, please.

I'm interested on Voom, I was just wondering how many ships you now have that are connected and how will that change over this year and how has it been changing?

Also, could you give us a flavor for how you think about your guidance, clearly the close-in bookings and the onboard spend was extremely strong in the quarter, but how do you think about that when you are putting together your guidance?

Is the assumption based on what you are seeing in booking trends that the point in time, or do you try and be more dynamic about it?

Stuart, this is Michael, I can answer the question with regards to Voom.

On May 1 literally every ship in the Royal Caribbean International fleet will have Voom on board, so we are literally now implementing it ship by ship.

I cannot recall how many ships have it currently, but literally by -- in a few days every single ship will have it.

What pace was that?

Sorry Michael, has that been evenly spread over the last 12 to 18 months?

I can't recall Stuart, how many ships we had about a couple of months ago.

This has literally happened over about a 90- to 120-day period that we have implemented the entire fleet, so it has literally gone from 5, 6, 7 ships to 23, 24 ships over the past 90 days.

Thanks.

Stuart, as it relates to how we think about guidance, certainly our guidance is really a reflection of what we are seeing in the booking environment prior to the call, and certainly we have seen patterns on close-in, we would certainly be taking that to account in our guidance.

There was particular strength in the first quarter from the North American consumer for the Caribbean.

And on the onboard, as we continue to rollout Voom as Michael indicated, or Xcelerate on Celebrity, those are new things we are introducing that not all the time -- you create the results that we saw as we introduced new things; but clearly that worked well for us in the first quarter.

Vince CIepiel of Cleveland Research.

I had a question on the new pricing policy.

On a prior call you mentioned there would be some residual impact in 2016, maybe some cabins going empty.

Could you comment about how you have seen this trend year-to-date?

I think you also mentioned that by 2017 the impact would be positive, do think you're still tracking in line with that target?

Yes, I think it is still putting out pretty much as we expected.

We do think there is some impact on capacity or on occupancy in 2016, but as we said we don't think the effect has been huge, and we think that by 2017 it will be positive.

Nothing has changed in our perspective as to how that would play out.

Secondly on net cruise costs, I know you guys have mentioned they tend to be a little lumpy on a quarterly basis.

I think there was the thought that the fourth quarter would be lower and the guidance seems to imply the second half maybe turns negative year-over-year.

So if you could comment on the quarterly cadence 3Q versus 4Q in terms of net cruise cost?

I think costs for the third quarter will be lower than they are on the fourth quarter, should be the expectation.

What drives that is, obviously, there's the new capacity coming online, but also we don't have any dry dock days in the third quarter, and last year we did.

That makes that year-over-year comp more achievable, so that should be how you think about the cadence for the back half of the year.

Jaime Katz of MorningStar.

I'm actually curious about some of the smaller brands, first the performance of Pullmantur over the last few months in light of the Mediterranean environment.

I think it has been some time since we have heard anything about the relationship with Ctrip.

So I am curious if we can learn more about any of the read-throughs that you have gotten from them about the Chinese consumer, or anything that has changed with that relationship.

I'll comment on Pullmantur, as you know we did take a change in strategy, we decided that it would be better to pull back a bit and focus on the Spanish and French markets.

That actually seems to be doing well, and actually Pullmantur ironically has had some of the more positive variances in our company.

At the same time, as I know has been said publicly, we periodically look at strategic opportunities and we would do that for any of our enterprises but we will see where that takes us.

But right now, ironically, Spain in particular is proving itself to be turning around quite strongly; it is doing so from a very low base, but it does appear to be doing so.

I think we are feeling better about that market than we have in a long time.

I will ask Adam to talk on the Ctrip.

Hello Jaime, Ctrip is our partner in SkySea, and we are very pleased to be in partnership with them.

They are an excellent company, forward-looking, very much a fundamental part of the growing Chinese travel market, and good partners wishing for the long term.

SkySea, the name of the cruise line that is our venture with Ctrip, will be coming up on its first anniversary in about three weeks.

So she is a very young cruise line with one ship and doesn't have the kind of presence yet in the Chinese market that would even compare to Royal Caribbean International, as Michael has been discussing.

We hope to build a different profile of client, a client that understands that this is a primarily Chinese-owned venture and will offer certain opportunities, whether it is through technology or the guest experience, that will be differentiating in the marketplace, but it is very early days still.

We will have to see how the second season goes, and we hope to be able to grow SkySea in the future.

Assia Georgieva of Infinity Research

I had a couple of quick questions, in terms of the European-sourced passengers, they tend to book closer in than the North American passenger.

Do you think that there still may be an opportunity in May and June to where that lull, post-Brussels, gets taken away from people's minds, and we might see some close-in pickup?

Hello Assia, the European markets have been quite good so the lull was more impacted to the North American customer than it impacted the European customer, European sourcing has been pretty good.

And there is a transition point that occurs around May, June in terms of a natural shift between demand, between the North American market and the European market.

As you've pointed out it is more of a late booking market for the Europeans.

It is going to pick up anyway out of the European markets, but the European markets are in pretty good condition.

Richard, quick question for you, I think in your opening remarks you mentioned $6.78 EPS target for 2017?

I may have missed something, but somehow I had a $7 figure stuck in my mind.

I didn't actually, maybe I should have been clear, that is the Double-Double number, so our EPS in 2014, our adjusted EPS was $3.39, and our Double-Double target is simply double that, and if my math is right and I sure hope it is, that is $6.78.

I think people may have been rounding that to $7, and I know some people think that we're doing better than the Double-Double, but we set out the Double-Double it was an aggressive target when we set it out.

The objective was to mobilize the people in the company to that goal, it served that purpose very well, and obviously if we do better than the $6.78 that would be terrific too.

So I don't think we've -- we're not giving guidance for 2017, but that is literally the target that we set a year or two ago when we set those targets.

Jared Shojaian, Research.

Just want to follow up on that yield and discounting commentary.

I know last year you talked pretty regularly about how eliminating these last-minute discounts was a headwind, and judging by the closing strength you're seeing right now, looks like it is a nice tailwind here in 2016.

So can you quantify how much of your yield guidance for the remainder of the year is attributable to any of these tailwinds, and specifically trying to think about this in the context of 2017.

Is there any reason why the yields we're seeing this year can't be repeated again next year?

Anything you can share on early 2017 bookings yields would be helpful.

As it relates to 2017, we will be addressing that as we move into future quarters, because it's really too early to provide any kind of forecast on things going forward.

But I would say that the impact we talk about as a relates to the price improvement program, those are to us quantifiable things, for example, number of cabins that go empty.

What is not quantifiable is really us, continuing to build a better book of business at higher load factors, higher rates, in a window that keeps extending.

In that are more quality bookings and some of that is because of the reconditioning of the consumer knowing that we're not going to be discounting close-in.

Those benefits are very difficult to measure but we do think on a volume perspective that, that kind of turns itself around into next year.

And as we've always done in the past, we will give color on 2017 as we move more toward the back half of the year.

As a follow-up, what are your expectations for timing on Cuba?

Caribbean obviously has been very strong this past fourth and first quarter, and some people are wondering how you can drive incremental yield off some of these comps?

Do you think Cuba could be that source of incremental yield growth as we head into 1Q 2017, or is it to soon to be talking about it?

Jared, it is Adam.

We have a keen desire, I think Michael might have expressed this before, to take our guest to Cuba.

Obviously, if you think about what we have been doing since 1970, our ships keep cruising in a giant circle around Cuba without going there.

We are excited about it, but this is a dialogue that continues with the Cuban government and the timing of permission to go is unclear, although we are optimistic.

So it is hard to predict when any involvement in Cuba would have become part of our business.

And as we've tried to express on previous dialogues, Cuba's infrastructure is very, very limited in terms of the overall amounts of capacity that it can take.

If it develops well over the years coming, eventually it probably can become one of the mainstay marquee Caribbean regions, but that is a long way off.

So we hope to be there in the short term but it would be on a fairly limited presence.

I think we have made it pretty clear that we don't think even when it is operational it will be a major part of our business, so I wouldn't have thought that, that per se looked at in isolation would be a driver.

However, I think two things; it actually will help general yields in the area because I think it does raise interest, the publicity about Cuba, discussions about Cuba, raises interest in Caribbean cruising.

The other thing is I want to dispel any notion that we think the yield improvement that we are getting today is particularly high.

We have got some terrific new vessels, we have got really very strong market position of our brands, of our operations, so we think the big driver, and we think it will continue, it has been a driver we think will be a driver is actually how powerful our brands are doing in the marketplace.

Operator, we have time for one question.

James Hardiman of Wedbush Securities.

You may have already answered this, but I want to be 100% clear on the China dynamic.

Obviously yields for China itself are down versus last year, but Chinese yields are significantly higher than your average.

Net-net, is China helping your yields this year, and as I think about next year -- I know you are not going to get into 2017 guidance -- but should we expect a similar impact to overall yields next year?

I think there is some fear among investors that there is a delayed impact based on the way that the charter process works, and that we still haven't felt all of the fallout from some of the charters losing money on some of the cruises last year.

James, this is Michael.

I think some of the charters lost money for a period of time in 2015 because of South Korea moves and the typhoons.

But sometimes I think we forget that those very same charters made a lot of money over the past eight years and continue to make money, and they are chartering space as they previously had done.

I think it was a glitch that impacted some of the charters during that period, and I think a lot of them now have recovered from that.

Certainly, the China business is very positive for our overall business, as I think we have already commented it is a high-yielding market and it contributes nicely to our overall yields; it is above average.

So when we look into 2017 for example, I think Richard had mentioned, that growth for the industry in 2017 is closer to 50% versus the close to 100% over the past few years; so capacity is slightly -- overall growth is slowing little bit in 2017.

For Royal Caribbean International we've already announced our deployment for 2017 and overall I think we are up about 8% or 9% in the market in 2017.

Last question for me, on the other income line there's a lot of moving parts there.

I think if you add back the Pullmantur accounting it was about a $20 million positive.

Any way you can give us guidance on that line for the full year and maybe how to think about the puts and the takes there?

I think if you were to take our yield and cost, the differential is the other income line, and the element of the other income line that really changes outside of an FX and those type of things, is the improvement in our equity investments.

So I think if you look at the year-over-year growth especially in the back half of the year, of what we disclosed in our filing for TUI, that is a good proxy to think about how other income and expense will grow for the back half of the year.

Because if you take an account the interest, you take into account TUI, that should get you pretty close.

Thank you for your assistance, Laurie, with your call today we thank you all for your participation and interest in the company.

Carol will be available for any follow up you might have today and I wish you all a very great day.

Thank you, that does conclude the Royal Caribbean Cruises, Ltd.

first quarter 2016 earnings conference call.

You may now disconnect.