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Operator
ladies and gentlemen, thank you for standing by and welcome to the Royal Caribbean Cruise Lines Third Quarter 2017 Earnings Call.
(Operator Instructions) Thank you.
I would now like to turn the conference over to Mr. Jason Liberty, Chief Financial Officer.
Please go ahead, sir.
Jason T. Liberty - Executive VP & CFO
Thank you, operator.
Good morning, and thank you for joining us today for our third quarter earnings call.
Joining me here in New York 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 Carola Mengolini, our Vice President of Investor Relations.
During this call, we will be referring to a few slides which have been posted on our investor website, www.rclinvestor.com.
Before we get started, I'd like 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 filings and other disclosures.
Please note that we do not undertake to update the information in our filings as circumstances change.
Also, we will be discussing certain non-GAAP financial measures, which are adjusted as defined, and a reconciliation of all non-GAAP historical items can be found on our website.
Unless we state otherwise, all metrics are on a constant currency adjusted basis.
Richard will begin by providing a strategic overview of the business.
I will follow with a recap of our third quarter results, provide an update on the current booking environment and then provide guidance for the full year and fourth quarter of 2017.
I will then close with our early thoughts for 2018.
We will then open up the call for your questions.
Richard?
Richard D. Fain - CEO & Chairman
Thank you, Jason, and good morning, everyone.
It's been an eventful quarter and certainly an eventful year.
And as always, I'm pleased to give some commentary.
I'll start by commenting on the unusual set of hurricanes we experienced this summer.
I know that most of the country has moved on to other things, but this was such an unusual and such an impactful set of storms that I need to comment on it.
Firstly, I would like to emphasize just how unique this series of storms was.
It's highly unusual to be hit with 5 major hurricanes in a row under any circumstances.
But these storms were unusual for another reason as well.
Each of these storms follow the path that exactly matched our major trade routes.
Somehow, these storms seem to know exactly when and exactly where to hit to cause the most destruction and the most misery.
The devastation was [horrendous] . You can't look at all the damage without feeling the pain our friends had to bear and are still experiencing every day.
For us, we have estimated that the direct cost of the storms was in excess of $55 million.
That makes it, by far, the most expensive hurricane season in our 45-year history.
But we and they are resilient.
You can see how hard our friends in the Caribbean, in Texas, and in Florida have worked to return to normalcy.
They have worked tirelessly to rebuild the homes in the communities that were so devastated.
Communications in the Caribbeans are not greatly improved and water has largely been restored.
We can attest that living without electricity is a trial, but the situation's getting better every day and is now mainly a problem in the rural and residential areas.
Fortunately, everyone seems to appreciate just how important tourism and especially cruise tourism is to the economic recovery that will be so critical going forward.
The government and the local people are highly focused on bringing the tourism infrastructure back up to snuff.
They know that tourism continues to be the economic driver that will speed the recovery effort, and they have pushed us to reinstate our calls as quickly as possible.
The travel agent community has also been a very positive force in this effort.
They can get the word out better than anyone else, and they have done so yet again here.
I've had a chance to visit some of the hardest hit areas, and I'm very impressed with the progress they are making.
We resumed operating cruises from San Juan almost a month ago, and we will return to the destination as a port of call later this month.
This Friday, we returned to St.
Thomas where our partnership to restore and enhance the iconic Magens Bay has already produced dramatic results.
St.
Martin has been rapidly rebuilding and we will return there in just a few weeks.
Overall, I am happy and frankly very impressed to report that the tourist areas where our guests go are largely back to their original state.
While many residential areas that were damaged are still under repair, the tourist areas that we visit suffered less damage and have mostly been cleaned up.
I'm also proud of our industry's response in providing humanitarian assistance to this area.
Their needs are so great that our impact is necessarily limited, but it's good to be able to give back a little to the region that has been our partner for so long.
I'd like to thank our employees who worked so hard during this challenging period, in many cases, having to do so while dealing with their own exposures at home.
The logistical issues were daunting.
For example, we had to make more special working arrangements in just the month of September than we would normally expect to do so in any normal 3-year period.
We had to reroute ships, make new provisioning arrangements and communicate with thousands of nervous travelers.
Our team did all smoothly and efficiently, hats off to them.
As an aside, having spent time looking at the situation in the Caribbean, I am convinced that the Caribbean countries that were hit will emerge down the road stronger than they were before the storms.
It's going to be a tough slog to get there, but get there, they will.
There's clearly a determination not only to fix what was destroyed, but to rebuild better than ever.
Cruise tourism will undoubtedly be one of the drivers of that resurgence, and we at Royal Caribbean intend to be a constructive force in that process.
I'd like to turn now to the impact of the storms on our bookings.
Obviously, the hurricanes interfered with our normal bookings in the area.
During the several weeks of the storm, Caribbean bookings dropped precipitously, both to the hurricane period and for the period beyond, and none of that is surprising.
But what is surprising is how quickly our bookings in the period recovered.
The drop-off in bookings was very rapid, but the recovery was also rapid.
Today, virtually all of our bookings in the region are back to pre-storm levels.
There are exceptions, but these remain outliers.
Now this pattern of rapid recovery has implications well beyond just these storms.
We believe that this unusually fast recovery may actually be a reflection of an important cultural change.
We've noticed a significant change in the way people in general seem to respond to unusual events whether those events are weather, geopolitical acts or something else.
Years ago, a bad incident would have a strong and a lasting impact.
Whenever something happened, our bookings would fall and they would stay down for an extended period.
People seem to call -- curl up in a ball and obsess about whatever the issue was.
It could and it did impact bookings for a really long time.
Even after the event left the front page, people would persist on focusing on it.
Eventually, they would move on and bookings would recover, but that process seemed to take forever.
More recently, we have seen a much more sanguine response.
Instead of the incident lingering for a long time, the recovery seems much quicker.
People seem to be more apt today to see such events as ordinary with little impact.
The events still aren't normal, but they're seen as less relevant to the broader audience.
In effect, the public appears to become inured to such one-off events.
There's still interest in the event and concern about it, but people seem to continue living their lives with less change.
They move on.
From a societal point of view, I have to say that it's discouraging that we've reached such a point.
It's distressing that the incidents are now so common that society seems to have formed a thicker skin towards them.
On the other hand, as a response to the actual events, it's probably more constructive if society doesn't allow such things to interfere with our normal day-to-day existence.
From a purely commercial point of view, this cultural shift is very helpful.
It's much better for us if a negative impact of such incidents is so much more fleeting than in the past.
Against this background, we are extremely pleased and frankly, a little surprised, that we're still able to stay within our EPS guidance for the year at a range of $7.35 to $7.40 a share.
Indeed, a couple months ago when we upped the midpoint of our guidance to $7.40, we thought that we were being reasonably aggressive with our forecast and we certainly didn't expect that we would be raising it anytime soon.
The fact that we have been able to withstand a $0.26 hit from the storms and still achieve this level of profitability reflects how strongly the market is performing this year.
It's also nice that this performance has allowed us to reach an interesting milestone.
Our Double-Double Program continues to produce the forward momentum we were hoping for.
Indeed, it is exciting and gratifying to note, as Jason did in the press release, that we've already achieved Double-Double for the 12 months ended September 30.
Specifically, for the last 12 months, our earnings have been more than twice our 2014 EPS and our ROIC exceeded 10%.
All this, 3 months ahead of schedule.
As you know, the purpose of the program was to galvanize our 67,000 employees to all pull in the same direction.
I'm overwhelmed by how well our teams responded to the program, and I'm extremely grateful for their efforts and initiatives to make the Double-Double so successful.
Now we won't declare victory until 2017 is over, but the very strong energy created by the Double-Double Program has been a home-run for us.
We want to see that energy, that passion, continue indefinitely.
So since it's the final year of the Double-Double, we wanted the developer program that leveraged the culture and the discipline instilled by that program, while also including a broader set of goals.
As suggested in earlier calls, these goals are focusing more on the drivers of success than only the outcomes.
We're calling this journey our 20/20 Vision.
The 20/20 Vision program calls for further improving our brand's already excellent guest ratings, calls for raising employee engagement scores and it calls for achieving the sustainability commitments made with the World Wildlife Fund.
These drivers should help us achieve double-digit earnings per share by 2020 while further improving our double-digit return on invested capital.
We see 20/20 Vision as our guiding focus for the organization over the coming years.
Now shifting back to the consumer environment and the current booking environment, I'd like to comment on another important consumer trend.
The very strong year we're having is, of course, partially due to a strong economy and to the high level of confidence that appears to be prevalent among consumers.
However, the trend also reflects a significant shift in the way cruises are viewed by the public, a shift which has been building for a long time.
On most of these calls in the past, we've discussed the supply-demand curves for the cruise industry.
Usually, the focus of that discussion has been very much weighted towards the supply side.
Implicitly, the demand side of the equation was used almost as a given.
As a result, we really talk much about demand and focus more on supply.
I think that misses an important part of the equation.
So today, I want to comment more on the demand side of the equation because we're experiencing some very real changes there, and those changes of the demand side are important to our future.
The first point I want to make relates to a phenomenon that seems to be impacting consumers generally.
You've all heard me comment in the past that people seem to be more interested today in buying experiences than buying things.
5 or 10 years ago, I probably would have cited Samsung or LG as a primary concern of ours because people are so focused on buying new TV sets or new appliances or whatever.
More recently, the focus has decidedly shifted to people looking for experiences, in particular, experiences for the whole family.
This shift in the way people vacation plays beautifully to our sweet spot.
I believe that we are experiencing the benefits of that shift today and is partially the reason that we're doing so well.
Another factor is that while societal norms have changed, we also have changed to accommodate.
Over the years, as people's habits and tastes have changed, we shifted our product to take advantage of these new consumer-buying practices.
For example, in the 1970s and 1980s, there was a dramatic shift in the way ships were designed and built.
Instead of ships being designed as a form of transportation, we shifted to ships that were designed specifically for cruising.
Our aspirations at the time were for ships to be more yacht-like.
Now that change really brought cruising to the modern area.
But in the '80s and '90s, there was another change in people's expectations.
The public's vacation desires changed and we needed to shift with them.
We shifted our design focus from trying to be yacht-like to being more like hotels.
We started to design ships with more spacious public areas that are outfitting and more amenities on board.
We wanted the ships to feel more open, to have more things to do and to have more luxurious feel of a modern hotel.
Our design metaphor changed from trying to seem like a yacht to feeling more like a full-service hotel.
Again, that fit in nicely with trends and consumer interest and it resulted in better sales.
Now over the last decade or so, travel habits have further changed and our ship designs have shifted yet again.
Consumers now want a more active vacation and more things to do to and to experience.
In response, we changed our design metaphor from trying to be like hotels to being more like cities.
Today, our ships have more of the features of cities with a cornucopia of activities, amenity and design.
We don't simply check the box with bars and restaurants and discos, we talk about designing parks and gardens and neighborhoods and quiet spaces.
We model our medical facilities on urgent care facilities.
Our specialty restaurants compare to anything you will find on land.
We have every stripe of nightlife.
You can sail with us for 7 nights and never experiencing the same things twice.
And again, adjusting our products to suit to changing wishes of the consumer has paid off in a very nice way.
Our guests really enjoy the broader choice and amenities that the new ships offer.
And again, accommodating these wishes has resulted in improved demand for our product.
At the same time, we have also focused on doing a better job of integrating the shipboard experience with the destinations and the cultural enrichment.
Ironically, as we continue to offer more and more options for the guests on the ship, their appetite for new experiences off the ship has grown as well.
We are taking many steps to satisfy this area too.
And again, we believe that accommodating such desires drives improvements to our bottom line.
The result of all this evolution has been that cruising and people's vacation habits have evolved together.
Vacation habits have evolved over the years and we have evolved our offerings to suit.
This has made cruising a more relevant and important vacation for more and more people, nirvana.
Now all of this change in consumer's vacation preferences and in our products has driven a major change in the way we view our customers and in the way our customers view us.
This may be one of the more profound changes in our industry for a long time.
To understand this profound shift, we have to look at historical approaches.
For many years, old and outdated misconceptions about cruising were common in the population.
Many consumers thought of cruising through the lens of outdated stereotypes.
We in the industry often complain about the inaccuracy of such misconceptions that our marketing was geared to correct the image.
This sense of not being properly understood pervaded our industry and profoundly influenced all of our communications.
But then a strange thing happened.
The evolution of consumers' changing tastes and of our changing product converged.
The prevalence of these old erroneous perceptions has waned.
In effect, we have won the perception war.
We have crossed the tipping point and we're moving beyond it.
Yes, there are still many people out there who suffer from these old misperceptions, but their numbers are dwindling every day.
Today, while this issue remains an issue at the margin, cruising has now firmly established itself as a relevant and a desirable vacation option for consumers generally.
This is especially true as we look at the younger generation who have embraced cruising as never before.
For example, one independent study performed by the Harris Organization asked people whether cruising is perfect for them or very good or whatever.
In the last 6 years, the percentage of respondents who state that cruising is perfect or a very good fit has almost doubled.
Even more exciting is the fact that the percent of millennials giving that answer has risen even more quickly.
You can see that on Slide 2 graphically.
Now I'm not suggesting that these misconceptions don't still exist.
We know that they do and we won't be happy until everyone understands what a great vacation cruising offers and why it is relevant to them.
Nevertheless, we believe that cruising has moved into a new arena and that the increasing relevance of cruise in people's holiday plans is partially responsible for the improved environment that we are and have been experiencing.
We are proud to have been a part of this transition, and we intend to continue pressing the envelope so that this trend will continue to expand.
Looking forward, we believe this increased demand will play an important part of the supply-demand equation as we enter a period with somewhat higher supply coming online.
2017 has been a particularly strong year with a good economy, good consumer confidence, driving high demand.
Our forward bookings for next year would indicate a continuation of yield growth.
However, it would be na?ve of us to continue to assume that the unusually strong 2017 would continue indefinitely.
Now before I turn the call back to Jason, I'd like to comment on some of the other changes happening in our business.
This past August, we cut steel for a new Quantum Ultra class ship, and we confirmed the ship's name Spectrum of the Seas.
Like its sister ships, Quantum of the Seas and Ovation of the Seas, she steps in for the Chinese market where she will make her debut in 2019.
This is our 10th year in the China market.
While this market has recently experienced bumps in the road, we believe that the significant investments we have made, the management team we have developed and the assets that we have deployed put us in a strong leadership position.
We remain committed to this strategic part of the world, and we believe it will continue to pay good dividends.
Now I also can't wait to show off our new arrivals next year, Symphony of the Seas, which is arriving in the spring of 2018, and Celebrity Edge, which debuts in the fall of 2018.
We also recently announced the Azamara Pursuit will join our Azamara Club Cruises brand, which increases our capacity there and upgrades our capabilities.
We are also introducing 2 major fleet renovation programs for our Royal and Celebrity brands: Royal Amplified and Celebrity Revolution.
We believe that these major upgrading efforts, will help further solidify our position as a leader in hardware and innovation.
With so much going on, you can see why we're excited about the future.
Before I turn the microphone back to Jason, I want to express again my appreciation and my admiration to all of our employees who worked so hard and with such skill at delivering fantastic vacations to so many.
With their support, the future is indeed bright.
Jason?
Jason T. Liberty - Executive VP & CFO
Thank you, Richard.
Before getting into the results, I want to discuss the impact of the unprecedented hurricanes on our key statistics.
As we stated in the release this morning, the hurricane impacted our third quarter by $0.20 per share and approximately $0.06 per share for the fourth quarter, for a total of $55 million for the full year.
The impact from the storms, especially related to lost ACPDs, are causing some noise in our key statistics.
While we address these admirations when I talk about the third quarter results and fourth quarter and full year guidance, I wanted to recap what is happening in the underlying business.
Overall, strong demand for our Europe, North America and China products, combined with strong onboard trends, are expected to offset virtually all the impact from the hurricanes.
We had viewed our previous revenue guidance as reasonably aggressive, but we were pleasantly surprised by the additional strength in last-minute demand.
Looking at expenses, we are ending the year roughly where had previously expected, except for costs related to the storms, including our humanitarian efforts.
However, the metrics may look different for 2 reasons: firstly, the storms caused us to shift the timing of some expenses from the third quarter to the fourth; and in addition, the storms caused cruise cancellations, which resulted in fewer APCDs.
The absolute amount of cost remained as expected, but the cost per APCD went up.
I will now walk you through our results for the third quarter.
We have summarized our third quarter results on Slide 3. For the quarter, we generated adjusted net income of $3.49 per share, which was $0.04 better than previous guidance.
These results included $0.20 negative impact related to the hurricanes.
Better-than-expected close-in demand from our core products, combined with the timing of costs, more than offset the impact from the hurricanes.
Our net revenue yields increased 5.3%, which was more than 1 point higher than the midpoint of our guidance.
Strong close-in demand for China, Europe and North America products drove the outperformance.
Onboard revenue yields were up 5% for the quarter, driven mainly by better-than-expected short excursions and Internet packaging.
While the storm-related revenue losses negatively impacted our absolute revenue for the quarter, they were essentially neutral to overall yield as the yield of the impacted sailings were similar to the quarter average.
Turning to costs, net cruise costs, excluding fuel, were up 5.7%.
Our cost metric came in higher than guidance driven mainly by the reduction in the APCDs.
On an absolute basis, cost came in better than expected driven by timing.
Now I will share trends we are seeing in the demand environment for the balance of 2017.
As you would expect, demand for Caribbean sailings softened as the hurricanes move to the Caribbean and Gulf beginning in late August, and while Caribbean's bookings are virtually back to normal, we did experienced 5 to 6 weeks of softer trends.
However, the demand for all itineraries remain strong throughout, and our total bookings has been above last year's level since the last earnings call, that was including and excluding the Caribbean.
As such, we remain in a much better booked position than at this point last year for the fourth quarter and are up nicely on both rate and volume.
Before getting into our early thoughts for 2018, I will take you through our full year guidance and fourth quarter guidance.
I will now discuss our full year guidance for 2017, which is on Slide 4. Net revenue yields are expected to be up approximately 6%, an improvement versus prior guidance despite the negative impacts of the hurricanes, which is affecting year by approximately 20 basis points.
The combination of the outperformance in Q3 and strength in our underlying Q4 business is driving the increase and our yield guidance for the full year.
Net cruise costs, excluding fuel, are expected to be up approximately 2% for the year.
As I noted earlier, our actual cost, including the hurricane, are generally in line with our previous guidance, but the per berth figures were distorted by the storms.
We anticipate fuel expense of $686 million, down slightly relative to prior guidance.
We are 65% hedged for the remainder of the year at a price of $498 per metric ton.
Based on current fuel prices, interest rates and currency exchange rates, our adjusted earnings per share is expected to be in the range of $7.35 to $7.40.
In summary, we were able to stay with our EPS guidance for the year at a range of $7.35 and $7.40, despite a $0.26 negative impact from the hurricanes.
We've been able to accomplish this through a strong booked position, solid onboard revenue trends, better fuel prices and better-than-expected performance from our joint ventures.
We remain on track to exceed our Double-Double goals, which we have established more than 3 years ago.
As Richard mentioned, on the trailing 12-month basis, we've already reached these targets.
The culture and discipline established on the Double-Double Program will provide the foundation for a new 3-year financial targets that we are terming 20/20 Vision.
The Double-Double formula for success of modest yield growth, strong cost control and more capacity growth, combined with improving our customer advocacy and our employee engagement is expected to further improve on a double-digit return profile and deliver double-digit earnings per share by the end of 2020.
Before I walk you through our fourth quarter guidance, I would like to elaborate on capital returns.
Since our last earnings call, the company increased the quarterly dividend by $0.25 to $0.60 per share and repurchased $125 million in shares.
These actions, combined with the upcoming completion of our Double-Double Program and our new 20/20 Vision further reflect our commitment to continuously improve our returns for our shareholders.
Now let's turn to our guidance for the fourth quarter, which is on Slide 5. We anticipate net yield increase of 2% to 2.5%.
While the hurricanes did not negatively impact per berth figures in the third quarter, the extended period of soft bookings and impact of future crew certificate redemptions is reducing Q4 yield by approximately 50 basis points, mostly on our San Juan departures.
Net cruise costs, excluding fuel, are expected to be up approximately 8.5% for the quarter.
We have planned significant cost increases in this quarter due to the planned investments of revenue-generating activities.
This increase in our cost metric was exasperated by a shift in cost from the third quarter and lower-than-expected APCDs due to the hurricanes.
Taking all of this into account, we expect adjusted earnings per share to be $1.15 to $1.20 per share for the fourth quarter.
Now I will take you through some preliminary insights for 2018.
While it's still too early to provide a lot of commentary on 2018 trends, I will share that are full year APCDs and load factors are currently higher than same time last year.
This is particularly encouraging when you consider that we ran a record booked position at this point last year and are seeing even better early booking trends for 2018.
We will not be providing specific guidance for 2018 until our fourth quarter earnings call, but we do expect 2018 to be our ninth consecutive year-over-year improvement.
Before moving into some cadence considerations for next year, I wanted to note that 2017 is expected to deliver a yield improvement of approximately 6%, which is not typical, and we'll make for more difficult comparables next year.
There are a few factors that will influence the cadence of our yields throughout 2018.
In 2018, 3 of our brands will welcome a new ship into their fleets, increasing our overall capacity to approximately 4%.
We will take delivery of Symphony of the Seas in the spring, introduce Azamara Pursuit in late summer and welcome Celebrity Edge in December.
In addition, we'll see a year-over-year yield benefit in the first quarter from the 2017 sale of Legend of the Seas.
As such, we will see hardware benefits in all 4 quarters of 2018.
We will have more dry dock days in the first half of 2018 than we did in 2017, which will help yields in Q1 and hurt yields in Q2.
Also, the earlier timing of the Easter will boost yields in Q1 at the expense of Q2.
Now I'd like to provide you an overview of our deployment for next year.
Caribbean itineraries will account for about half of our total deployment next year and will include introduction of Symphony of the Seas in the Caribbean in the fall and new summer programs in the Northeast.
Before heading to the Caribbean, Symphony of the Seas will sail her inaugural summer season in the Mediterranean, replacing the Freedom of the Seas in Barcelona.
As a result, Europe itineraries will account for 17% of our total capacity, up slightly versus 2017.
Approximately 18% of our 2018 capacity will be in the Asia Pacific region, which is slightly less than in 2017.
Mariner of the Seas will turn this ship back to the Caribbean market in the spring, resulting in a short-term capacity reduction in China prior to Spectrum of the Seas' arrival in 2019.
Now I would like to ask our operator to open up the call for a question-and-answer session.
Operator
(Operator Instructions) Your first question comes from Steve Wieczynski of Stifel.
Steven Moyer Wieczynski - MD of Equity Research and Gaming & Leisure Research Analyst
I guess, the first question's going to be around the 20/20 Vision.
When you break it down, I know you're going to hate me saying this, but it does actually seem conservative at first glance with only kind of 11% to 12% EPS growth through 2020.
Just wanted -- the consensus is already kind of north of $10 per share for 2019.
So can help us think either what analysts are getting too aggressive with or maybe help us think about some of the drivers you've embedded in your thought process?
Jason T. Liberty - Executive VP & CFO
We won't hate you, and also not surprised by the question.
So I think as we look at our 20/20 Vision, again what we're seeing specifically is that we expect our earnings to be in the double digits by 2020.
We're not giving a specific target of a specific number.
But I'll tell you, I would say that the foundation, which is moderate yield growth, good cost control, moderate capacity growth, that is what we believe, from what we've seen in the past, is that kind of formula to success.
So I don't think we're trying to guide to a specific number.
What we're trying to do is again pivot the organization to coordinates that are based on that formula that gets you to a double-digit earnings.
Richard D. Fain - CEO & Chairman
Steven, it's Richard, if I could just add something to that.
And yes, we won't hate you.
But first of all, I think there are many companies that are giving 3-year targets with, you said, only 11% to 12% growth rates.
I think that's pretty good in the first place.
But I also think I'd like to emphasize that these programs really aren't intended to be financial targets for the investment community.
This is something that really, that we use for employees, for ourselves, to drive how we manage the business.
And it's really intended to focus on the drivers of success, on the good performance of our fleet, the satisfaction of our guests, the engagement of our crew, et cetera.
And so the financial metrics come out of that.
But internally, I think that was really the success of the Double-Double, was it got everybody pushing to the things that would make us successful.
And so I would just emphasize that, I understand it needs to have that kind of financial metrics as well and those are important, and it's -- that's also part of what we need to communicate to our people.
But I would just like to say, I think we feel quite good about the 20/20 program and think it will drive us to continue to excel.
Steven Moyer Wieczynski - MD of Equity Research and Gaming & Leisure Research Analyst
Okay, got you.
And the second question, I don't know if Richard or Jason wants to take this, but it seems right now there's this perceived notion out there from a bunch of investor that there's -- that there could be first quarter Caribbean weakness for 2018 given the storm impact.
Can you guys address that and maybe help us understand if that's something you're seeing at this point?
Jason T. Liberty - Executive VP & CFO
Yes, sure, Steve.
Yes, certainly, from -- as we mentioned in our remarks, yes, there were 5 to 6 weeks of softness in demand and obviously, that would be specifically around the Caribbean.
So what I would lead you to that, we've said that we expect to be up on both the rate and volume basis for 2018.
I would add that we were actually up quite nicely on both rate and volume for the first quarter, and the Caribbean is contributing to that.
Steven Moyer Wieczynski - MD of Equity Research and Gaming & Leisure Research Analyst
Okay, got you.
And if I can sneak one more quick one.
And Richard, you obviously have your pulse on Washington, D.C. and there's obviously been a lot of chatter out there around potential tax policy changes.
Can you guys just give us an update in terms of how you're thinking about any potential changes coming down the pike?
Richard D. Fain - CEO & Chairman
I think Adam maybe would comment on that.
Adam Goldstein;Vice Chairman
Well, obviously, we, like probably every other company and industry in America, is watching very carefully what's happening in Washington.
Our industry association, CLIA, and our tax advisers are clearly spearheading that.
We're not expecting any changes at this point, but this is a fluid situation.
We have to watch every day.
The cruise industry, although we're growing and we're proud of our success and where we've come over the last 50 years or so, a very small industry and the scope of the types of things that seem to be on the radar screen for the politicians in Washington.
So at this point, I would say the outlook is positive for us.
Operator
Your next question comes from Robin Farley of UBS.
Robin Margaret Farley - MD and Research Analyst
Great.
I was interested on the commentary that Q3 came in better because of the close-in strength in Europe and China and North America.
But one question each on China and Europe.
First in China.
Will you expect yields to actually be positive for the full year or just sort of better than what you had thought?
And then are the -- is the lack of capacity growth next year in China changing your conversations there about price with the charter sellers and where those commitments are going?
And then on Europe, I was just curious about the close-in strength because one would sort of expect that because the airfare has -- in other words, I guess, I was going to ask about that European strength that was driven by European sourcing or North American sourcing.
Just I would think that the airfare component would make it tough to do last minute and just thinking about the fact that you're going to have European supply growth next year to help us think about that.
Jason T. Liberty - Executive VP & CFO
I'll just take the first point on China yields for this year, and I'll let Michael talk about what he -- his point of view on China with there being lower capacity for next year.
We don't -- obviously, we haven't and we don't guide specifically by market.
So the comment around strong close-in demand was relative to our expectations and it's a trend that we had been seeing creeping up but it was even better than we had expected in the third quarter and also with that going to the fourth quarter, and I'll let Michael talk about '18.
Michael W. Bayley - President & CEO of Royal Caribbean International
Yes, we're kind of encouraged a little bit by the capacity reduction in the China market in '18, and there's also the rumors with regards to South Korea opening up, and we're all waiting to hear if there will be an announcement on that.
So when you combine those 2 factors together and you look at the work that we've been doing on building distribution and opening up all of the channels, we feel as if -- we feel quite good about China in 2018.
And we know it's been a -- we have good years and then some bumpy years, but we're feeling as if '18 is looking quite promising.
On Europe, there's always that switchover time on the sourcing for European product.
It sources typically very well out of the North American market.
And the closer you get into sailing, then we tend to source more out of the European markets.
One of the things that we've got in '18, of course, is Symphony of the Seas will be introduced into Europe and will be sailing out of Barcelona.
We're very encouraged by the forward bookings for Symphony of the Seas, and it's outperforming Harmony at the moment.
Robin Margaret Farley - MD and Research Analyst
Okay, great.
And then maybe just one final clarification on the double-digit earnings.
So it's not -- I just want to make sure that it's really -- you mentioned double-digit earnings, not double-digit earnings growth rate, so I'm assuming that made at least $10 a share, which would actually be above that 10% earnings growth.
Just want to clarify that's what you mean by that and curious how much share repo you're including in that.
Jason T. Liberty - Executive VP & CFO
Yes.
So Robin, as it relates to the target, the target is double-digit earnings per share between now and 2020.
Now to get to double-digit earnings, you need to have double-digit earnings growth rate as well, but the target is specifically around earnings.
And then as it relate to share repurchase, that -- the goal is based off of how we see the underlying performance and moderate yield growth, good cost control and moderate capacity growth.
Operator
Your next question comes from the line of Greg Badishkanian of Citi.
Gregory Robert Badishkanian - Former MD, Senior Analyst & Associate Director of Research
First, so when would you expect booking trends to fully normalize where passengers are maybe not a little bit concerned about going to the Caribbean.
And then sort of a second part to that is some of the other regions were a lot stronger, and they've been -- were at least very strong.
Do you think that some of your North American passengers are, let's say, foregoing booking Caribbean cruises and deciding to go elsewhere like Europe or Alaska?
Michael W. Bayley - President & CEO of Royal Caribbean International
We're already seeing booking trends return to normal and pre-hurricane levels, so we've already seen that kind of correction take place.
And then with regards to this, the idea that maybe people are booking other destinations other than Caribbean, I mean, that happens in the normal give-and-take of the year anyway that people do switch out destinations, but we haven't seen anything noticeable in terms of a trend occurring with regards to that idea.
Gregory Robert Badishkanian - Former MD, Senior Analyst & Associate Director of Research
And then the level of also promotional activity, I'm assuming that's elevated to spur demand in the Caribbean for the fourth quarter and in first quarter '18, how long would you expect that to last assuming that it is elevated?
Is that just the next few months and then things should be very normalized?
Michael W. Bayley - President & CEO of Royal Caribbean International
Yes.
I mean, it's funny you bring that up.
I don't feel like our promotional activity has been any greater or any lesser.
We did -- after the hurricanes passed, we did have more promotional activity for a short period of time.
But now we've gone into our regular kind of promotional calendar cadence that is quite typical as we push into Q4 and as we look at how we're booking into '18.
So it's really returned to its normal levels.
And of course, just as a reminder, we have our price integrity program that we're very pleased with, and that's also helping us out.
Operator
Your next question comes from Jamie Katz of Morningstar.
Jaime M. Katz - Equity Analyst
I have a question surrounding capital expenditures, actually, given that they have bumped up a bit.
And I know you guys kind of mentioned that was going to be mostly surrounding this Royal Amplified and Celebrity Revolution program.
And I assume a lot of those efforts tie into some of the evolving consumer behaviors that you discussed earlier.
So will you talk a little bit about what the majority of that delta in spend is going to and then if maybe some of that is tied into some of the technology that you're planning to launch?
Richard D. Fain - CEO & Chairman
It's Richard.
Most of that are the 2 ship modernization programs that you cited.
It's been something and we found we've been very successful with that and some of the ones we've been doing over the last few years, so this is a continuation of that.
Some of the things that we've done on our newer ships are just really very impactful in terms of consumer trends and what they want, and so that's very much a part of it.
So that's the bulk of it, actually.
There is also some of it that is related to our technological investments, in particular, our digital investments, which we call Excalibur.
So we've talked about that.
We have an Investment Day where we're going to be talking about that in -- today -- or tomorrow in a lot more detail.
We see those technological investments.
We've frankly already been making a lot, but I think we see the need increasing, and so that is part of the increase that you're referring to.
Jaime M. Katz - Equity Analyst
And then just out of curiosity, for the high-end consumer, are you guys seeing some better spend there?
Obviously, there's a new Azamara ship coming on, and I'm wondering if there's any like bifurcation that you guys are seeing between sort of the middle-market consumers and the high-end consumers that are bolstering your confidence in that part of the market.
Michael W. Bayley - President & CEO of Royal Caribbean International
It's Michael.
We're seeing, really, all over kind of a lift in onboard spend coming from all segments, and we think that's reflected really in consumer confidence and how well the stock market is doing.
So whether it's the higher-end customer or mid-level, everybody's spending a little bit more at the moment.
Jason T. Liberty - Executive VP & CFO
Yes.
And Jamie, just to add, I mean, I think one trend in which we talked about in our remarks, is one that you see across the board, is you're seeing people spend much more money on experiences than on things like retail as an example.
So me and my commentary around short excursion or Internet or beverage, more things that are experiential in nature than something out of a gift shop is where you see this change.
And that's not just in higher end, it's really kind of across all classes.
Jaime M. Katz - Equity Analyst
Does that change about how you think about allocating the square footage of the ships going forward with the retail space versus the space to develop other things versus parks or activities like zip lines?
Michael W. Bayley - President & CEO of Royal Caribbean International
Yes, it does.
Interestingly, as -- when we talk about the 2 programs, Celebrity Revolution and Royal Amplified, really, a lot of the thinking that's going into that is really thinking through how our guests spend is changing and you'll start to see that when we bring these ships out of the modernization program that we've really reallocated space to generate better revenues in the areas that we see guests now naturally gravitating to.
Operator
Your next question comes from David Beckel of Bernstein Research.
David James Beckel - Former Senior Equity Analyst
I've kind of a high-level question maybe for Richard or whoever wants to jump in.
But it sounds, Richard, like you're painting a very positive secular picture of the industry in general, spending trends, which would seemingly suggest that yields could continue to improve, maybe not at obviously the rate of this year because of onetime events, but certainly very strongly.
And I'm just wondering, how do you square that strength with what appears to be a long-term internal goal of moderate yield growth?
Are you -- you said you're trying to pivot the organization to certain coordinates.
Are you pivoting them to like a 2% to 4% range?
Or you're actually kind to get them to push a little bit more aggressively to the higher end of that range?
Richard D. Fain - CEO & Chairman
Well, David, thank you, I think you summarized my view accurately.
I do think that the underlying strength of the industry is powerful and I think that will continue.
I just think one needs to be a little bit realistic about how quickly you can move those things.
And so we think obviously, we're not trying to direct the organization to a level of yield increase.
We clearly want to maximize that.
What we want to pivot the organization to is to provide the things that will drive consumer to our travel agents and to our website and basically to buy cruises.
And hopefully, that will result in continued strong yield improvement.
So I -- by saying moderate yield increase, I think we're really trying to telegraph that to get strong results, we don't need staggeringly large yield improvements.
We're in an industry where we can get relatively moderate yield increases that results in nearly very strong bottom line growth.
But obviously, if we can break out of the 2% to 4% range as we did this year, we intend to exercise every effort we know how to, to accomplish that.
David James Beckel - Former Senior Equity Analyst
That's helpful, I appreciate that.
And just one quick follow-up on China.
You mentioned -- or you touched on it briefly, but particularly, as it relates to recent strength that you've seen relative to your expectations, can you pinpoint that strength at all to certain efforts you've made in like widening the distribution channel or anything more directly influential by your activities in that market?
Michael W. Bayley - President & CEO of Royal Caribbean International
Yes, David.
I think we've been actively developing the China market for many years, and certainly the last couple of years we increased the intensity of the development of the various channels.
And we've put a lot of focus on that development and we put a lot of resources into the market to do that.
We've been quite pleased with the results that we generated, particularly, for example, in the direct channel.
It's done very well for us.
And then expanding the base of sellers, of course, beyond the typical wholesalers, we've made progress there.
So I think we've seen -- we're beginning to see the results of the work that we've put into the market over the past several years beginning to come pay back for us.
Operator
Your next question comes from Felicia Hendrix from Barclays.
Felicia Rae Kantor Hendrix - MD & Senior Equity Research Analyst
I wanted to follow up on Steve Wieczynski's question that he asked at the beginning of the call and maybe worded it a different way.
I'm just wondering if there's anything in the 20/20 Vision that would preclude you from getting to double-digit earnings by 2019?
Or maybe said in another way, would it be a stretch for you to get there by then?
Jason T. Liberty - Executive VP & CFO
So we haven't even given guidance yet for '18, let alone for '19.
Felicia Rae Kantor Hendrix - MD & Senior Equity Research Analyst
Very demanding.
Jason T. Liberty - Executive VP & CFO
Very demanding, I know.
I think -- we're going to stick to, as we look at our targets, that one of those being that we reach double-digit earnings per share and continuing to improve on our ROIC.
Obviously, you can do the sensitivities on yield and on cost that would get you there before.
But I think that again, we're trying to focus on moderate yield growth and good cost control during the period.
Felicia Rae Kantor Hendrix - MD & Senior Equity Research Analyst
Okay.
And then sticking with the 20/20 Vision, that obviously implies your optimism for the next 3 years.
There's certainly a narrative in the investment community that states that supply increases over that time could limit the growth trajectory of your business.
So I was just wondering, can you discuss to what extent supply played a role as a variable in your outlook and how you think it impacts your growth over the next several years?
Richard D. Fain - CEO & Chairman
It's Richard.
So obviously, I think that was a point I was trying to emphasize.
You have to look at both sides of that.
You have to look at the supply side of it and the demand side of it.
And I absolutely agree with you.
The increase in the supply is clearly a factor in that.
I think the reason that I'm expressing confidence is that I believe that the increasing demand is -- more than compensates for that because -- and the new ships are more attractive and they bring in more people and also, they attract higher yields.
So I think we've tried to look at this and we've tried to put the 20/20 Vision together, taking into account all that we know about the next year -- the next few years, and that includes the supply side, which, as you say, is a little bit higher than it has been.
Felicia Rae Kantor Hendrix - MD & Senior Equity Research Analyst
And then my final is just a housekeeping.
And Jason, thank you for giving us the color on the cadence of the quarters.
I just wanted to clarify, do you expect yield to be up each quarter next year and then just that second quarter could be up less because of the dry docks and then also taking into account kind of shifting Easter or do you expect the second quarter to be down?
Jason T. Liberty - Executive VP & CFO
I would say that we expect the yields to be up in all 4 quarters.
But as you pointed out, we expect in Q1 to be higher than it would be in Q2 because of the shift in Easter and the dry dock impact.
Operator
Your next question comes from Jared Shojaian of Wolfe Research.
Jared H. Shojaian - Director & Senior Analyst
If we think about the puts and takes to costs for next year, you called out more dry dock days and you have the gain on Legend that you're comping against, but then you also have the hurricane tailwind as well.
So is it reasonable to think that next year, costs will look a lot like '14, '15 and '16 as far as the growth rate in terms of the NCC x fuel?
And then any thoughts on how we should think about D&A for next year as well?
Jason T. Liberty - Executive VP & CFO
Well, again, we're not going to give specific guidance for 2018.
I think you did do a good job of talking about some of the headwinds and some of the tailwinds.
But what I can tell you is that we will continue, and it's very much ingrained in the DNA of the company for us, to strongly manage our costs.
But of course, as I said, there are some headwinds that we're going to have to manage through next year like we do every year.
And on the D&A side, I think the key considerations are obviously, there's new assets that are coming into play with Symphony, Edge, which is really not affect -- in effect.
It comes in the latter part of the year and Azamara Pursuit, those are some of the elements that will impact D&A.
So I would expect D&A to rise obviously more than '17 because in '17 we had no new capacity.
Jared H. Shojaian - Director & Senior Analyst
And then just one housekeeping question.
You talked about the cruise credits and the impact that, that's having in the fourth quarter.
Can you help me understand how you accounted for those?
And will we see an impact for future yields in 2018 as well from those credits or is it just an immaterial impact?
Jason T. Liberty - Executive VP & CFO
Yes.
I mean, it's all -- I mean, it's immaterial relative certainly to our revenues.
Effectively, if we had a passenger that had changed or had called up because of the impacted sailing and weren't able to take them, we would provide future crews certificates.
So a lot of that negative impact would've been taken in the third quarter.
And then as those future -- as those certificates get redeemed, they would be -- that's when the revenue would be recognized in the future.
Operator
Your next question comes from Harry Curtis of Nomura Instinet.
Harry Croyle Curtis - MD and Senior Analyst of Gaming, Leisure & Lodging
Two quick questions.
Most of my questions have been answered.
Jason, you mentioned higher dry dock days in the first half.
Just from 30,000 feet in 2018, well, most of the dry dock days be -- or the comparisons be higher in the first half.
Will they trend to more normal levels in the second half?
What I'm trying to get a sense of is overall, in '18, will dry dock days be relatively close in '18 versus '17?
Jason T. Liberty - Executive VP & CFO
No.
So I would say that in '18, certainly, the dry dock days are -- or most of them are in the first half of the year, but they -- the dry dock days are more typical to what we saw in 2016 versus 2017 and -- but I mean, those are kind of accounted for in the capacity growth numbers that we provided.
Harry Croyle Curtis - MD and Senior Analyst of Gaming, Leisure & Lodging
And then my other question.
We haven't touched on Cuba.
Given the travel warnings, have there been any -- I would doubt it, but any impact on the inquiries that you're getting for cruises to Cuba and to what degree are those cruises that are touching Cuba getting a pricing lift as a result of it?
Michael W. Bayley - President & CEO of Royal Caribbean International
It's Michael.
Initially, when all of this hit the media, we obviously received a spike in calls and communication from guests and travel partners.
I mean, everybody was trying to seek clarity.
But after literally a few days, things just returned to normal and the business is very good for our Cuba product.
Operator
Your next question comes from Tim Conder of Wells Fargo Securities.
Timothy Andrew Conder - MD and Senior Leisure Analyst
Just a couple of follow-up here, whoever wants to take this.
I mean, clearly, the domestic capacity, it's been talked about growing and so forth.
But Richard, you even mentioned that you think going forward here, the demand is more than going to compensate for that looking into '19 and '20.
Can you give us an update what's happened in the last 3 years here with first-time cruisers?
You've said before that, that's started to grow.
And more in particular, the millennial mix, how much that has grown.
Maybe we'll get it tomorrow, but I wanted to ask the question here.
And then also an update on the fleet-wide rollout of the Wi-Fi in the Excalibur.
Does that change in any way or are you accelerating that here, booking into '18 and being into early '19?
Michael W. Bayley - President & CEO of Royal Caribbean International
Tim, I'll take the first part of the question with regards to the new-to-cruise and millennial.
Certainly, for all of the brands, but in particular, for Royal, we've got an acute focus on developing the new-to-cruise and millennial market, and we've been very pleased with the progress that we've made over the past 3 years and in fact, if you go back before that 3-year period, we are actually in a situation where year-over-year, we saw of decline in new-to-cruise and millennial.
And over the past 3 years, we've seen the very good increase year-over-year.
So that's kind of very much part of our marketing and communications focus on new-to-cruise and millennial and we're seeing good progress and we continue that journey.
Timothy Andrew Conder - MD and Senior Leisure Analyst
Any color you can -- I apologize, any color you could give there related to millennials as a percent of the mix versus 3 years ago?
Jason T. Liberty - Executive VP & CFO
Okay, Tim.
Just to kind of give you a sense, over the past several years, we're carrying about 30%, 33% more millennials than we did several years ago.
Richard D. Fain - CEO & Chairman
Tim, on your question on the rollout of Excalibur, the new digital system, it's pretty much going along the path that we had previously said.
The hurricanes did mess this up a bit, obviously disrupted operations for a good 6 to 7 weeks, and that probably caused a corresponding delay in some of the [detailed] rollouts.
But overall, we're still expecting to be -- and you'll see more of this tomorrow, of course, 12% or 13% by the end of '17, half by the end of '18 and almost everything by the end of '19.
So by and large, as frustrating as the disruption was, that's pretty much going on track.
Operator
Your final question comes from Sharon Zackfia of William Blair.
Sharon Zackfia - Partner & Group Head of Consumer
Two quick questions.
On the equity investment income, that was up a lot year-over-year, so maybe if you could touch on what was driving that?
And then secondarily, I feel like you guys cite Internet every quarter now, and I don't know if you've given this before, but I don't recall.
What percent of passengers now are taking up your option to have the Internet available to them at sea?
And have you taken any price on that?
Or is that really a penetration metric that we're looking at?
Jason T. Liberty - Executive VP & CFO
On the equity income side, it's really mainly the story around our joint ventures.
TUI would obviously be the leader of that, but we also have a joint venture with Pullmantur now.
And it's really -- those are the kind of underlying drivers below the line.
And then on the Internet side, no, we don't give a percent in terms of how that number has grown over time, but it is a combination of both rate and penetration that is driving up our Internet as well as we keep introducing new things that attract people to use more bandwidth on the ships.
Great.
Okay.
So thank you, Paul, for your assistance with the call today, and we thank you all for your participation and interest in the company.
Carola will be available for any follow-ups you might have, and we really wish you all a great day.
Take care.
Operator
Ladies and gentlemen, Thank you for your participation in today's conference.
This concludes today's call.
You may now disconnect.