Norwegian Cruise Line Holdings Ltd (NCLH) — Q4 2018 Transcript

Thank you, Liz. Good morning, everyone, and thank you for joining us for our fourth quarter and full-year 2018 earnings call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings; Mark Kempa, Executive Vice President, Chief Financial Officer; and Andy Stuart, President and Chief Executive Officer of Norwegian Cruise Line. Frank will begin the call with opening commentary, after which Mark will follow to discuss results for the quarter and full-year as well as provide guidance for 2019 before handing the call back to Frank for some closing remarks. We will then open the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website at www.nclhltdinvestor.com. We will also make references to a slide presentation during this call, which may also be found on our Investor Relations website. Both the conference call and presentation will be available for replay for 30 days following today's call. Before we discuss our results, I'd like to cover a few items. Our press release with fourth quarter and full-year 2018 results was issued this morning and is available on our Investor Relations website. This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements. These statements should be considered in conjunction with the cautionary statements contained in our earnings release. Our comments may also reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. With that, I'd like to turn the call over to Frank Del Rio.

Thank you, Andrea, and good morning everyone. The team at Norwegian Cruise Line Holdings had an outstanding year in 2018, achieving several key milestones and accomplishments. The highlights are available on slide four of the presentation. I want to take a moment to acknowledge and thank our more than 33,000 team members around the globe for their remarkable contributions to our record results and their commitment to providing exceptional vacation experiences and world-class hospitality to the 2.8 million guests who sailed with us last year. We began 2018 in a strong position, and I’m happy to report that we started 2019 even better. I will provide more information about 2019 later in my comments. In 2018, we saw stronger than expected demand and significant spending onboard across all our brands and markets. The launch of Norwegian Bliss, the most successful new ship in our history, significantly contributed to our exceptional performance. When we launched her in April, we expected strong performance and pricing, but we exceeded those expectations with extraordinary demand, ticket pricing, and onboard revenue metrics. Notably, Bliss's ticket yields remain strong, even with her second Alaska season approaching. 2018 brought record highs in numerous financial metrics, including revenue exceeding $6 billion and GAAP net income just shy of $1 billion. We led the industry in net ticket and onboard revenue yield by a considerable margin. As shown on slides five and six, we not only led in these categories but also achieved a revenue growth of 12.2% against a capacity growth of just 8.5%, along with a 24% rise in adjusted earnings per share. This year marked our fifth consecutive year of double-digit earnings growth and our sixth year of net yield growth, with over a decade of continuous growth in adjusted EBITDA. We made significant strides toward our Full Speed Ahead 2020 targets set at our investor day in May, and we are increasingly confident in achieving those goals. 2018 will certainly be remembered as a breakout year. Additionally, we reached an important milestone with the exit of our main sponsors, including Apollo Global Management, exiting its 11-year investment in Norwegian Cruise Line Holdings. As mentioned, we took delivery of Norwegian Bliss, which continues to receive strong demand, particularly for her upcoming second Alaska season. We also launched the OceaniaNEXT program, enhancing our brand’s classic vessels and introducing ambitious initiatives that I will discuss later. These achievements have strengthened our financial and operational foundations for our long-term strategy as we move into 2019 and beyond. We entered this year in a record booking position and at record pricing, allowing us to capitalize on the 2019 wave season, which has seen the highest pricing of source inventory in our company’s history. Our booking curve has extended about 9% over last year, with advanced ticket sales at the end of 2018 standing 22% higher than last year. Our Oceania Cruises and Regent Seven Seas brands are also performing well, being over 80% booked for 2019 and nearly a third booked for 2020 at higher prices. We believe consumer confidence continues to be strong despite challenges like stock market fluctuations and geopolitical uncertainties. Our marketing efforts have improved recognition of the benefits of early booking, contributing to our elongated booking window. Furthermore, we have seen increases in guests booking future cruises while still on board, thereby reducing our marketing costs. Additionally, we benefit from a shift in consumer spending toward experiences, maintaining strong onboard revenue. Our expanded global sales and marketing organization enhances our ability to attract high-value guests. In Europe, we saw double-digit pricing growth in both 2018 and 2019. In Alaska, we anticipate a strong season with Norwegian Joy joining Norwegian Bliss and Norwegian Jewel, and Norwegian Joy is booking well at higher prices despite her shorter booking window. In the Caribbean, our business continues to grow as we look forward to the late-year introduction of Norwegian Encore. As we look to 2019, we have a record booking position, a successful capacity absorption, and a confident consumer willing to book well in advance and spend more onboard. I believe these factors point to a strong encore performance ahead. I will return later to discuss our long-term initiatives, but now I will hand the call over to Mark for more detailed insights into our results and guidance.

Thank you, Frank. Unless otherwise noted, my commentary compares 2018 and 2017 net yield and adjusted net cruise cost excluding fuel per capacity data metric on a constant currency basis. I'll begin with commentary on our fourth quarter and full-year results followed by color on booking trends and close with our guidance for the first quarter and full-year 2019. Throughout my commentary, I will be referring to the slide presentation which Andrea mentioned earlier in the call. I am pleased to report we have another record quarter, one where the company generated the highest fourth quarter revenue and earnings in its history. Adjusted EPS of $0.85 exceeded expectations by $0.07. As you can see on Slide 8, the beat was driven by $0.02 of revenue outperformance from strong well-priced close-in bookings and exceptionally strong onboard revenue. A $0.04 benefit below the line from the impact of fluctuating foreign exchange rates on our advanced ticket sales obligation which we expect to reverse in 2019 and will impact our reported revenue and yield metrics. And a $0.04 benefit for interest and other below-the-line items, all of which were partially offset by higher ship operating expenses as well as performance-related compensation expense. Turning to Slide 9, net yield increased 4.7% or 4.2% on an as-reported basis versus the prior year outperforming guidance by 70 basis points. The beat was driven by strong well-priced close-in bookings and exceptionally strong onboard revenue across all major revenue streams. Excluding the benefit from our new Norwegian brand capacity, Norwegian Bliss, which garnered yields above the NCLH corporate average in the quarter, our fourth quarter net yield growth would have been approximately 4.5%, which excludes approximately 75 basis points of revenue dilution from China operations related to the itinerary optimization initiative. Turning to costs, adjusted net cruise cost excluding fuel increased 3.6% versus the prior year and 3.4% on an as-reported basis. Our total fuel expense was in line with expectations as fuel consumption savings offset an increase in fuel prices per metric ton netted hedges which came in at $496. Turning to full-year results, 2018 finished strong and we delivered yet another record year of financial performance. Both revenue and earnings were the highest in our history and we achieved a record adjusted EBITDA margin of 31.3%, up from 30.7% in the prior year and expanded our double-digit adjusted ROIC to 11%. Turning to slide 10, full-year adjusted earnings per share grew 24% to $4.92 or $0.37 above the mid-point of our initial full-year guidance issued last February. This result comes despite a 7% impact from unfavorable fuel prices. Our performance in the top line from continued strong demand for our portfolio of products and Norwegian Bliss's record-breaking season contributed to the beat against guidance. Revenue grew over 12% versus the prior year, reaching a record $6.1 billion. Other key financial metrics for the full-year 2018 include net yield growth of 3.5% or 3.7% on an as-reported basis which exceeded the mid-point of our prior guidance by 20 basis points. The year benefited from the successful introduction of Norwegian Bliss, strong demand for European sailings, additional high-yielding sailings to Cuba, well-priced close-in demand, and stronger than expected onboard revenue. Excluding new Norwegian brand capacity, full-year net yield growth would have been approximately 3.8%, which excludes approximately 30 basis points of revenue dilution from China operations. Adjusted net cruise cost excluding fuel increased 2.6% or 2.9% on an as-reported basis. And fuel prices per metric ton, net of hedges increased to $483 from $465 in the prior year. It's important to note that overall fuel pricing decreased since our last call. Our substantial hedge position entering Q4 as well as the lag in the, at the pump pricing minimized any tailwind from the market declines. Shifting to 2019 on a full-year basis, our capacity is expected to nominally increase approximately 2.7%. With the annualization of Norwegian Bliss along with the late November introduction of Encore to the fleet partially offset by the approximately 50-day dry dock and repositioning for Norwegian Joy. As Frank mentioned earlier, 2019 is the first year of a four-year stretch of moderate capacity growth for our company. I'll direct you to slide 11 to review some deployment highlights. For the year, a little over a third of our capacity is in the Caribbean which includes Norwegian Bliss and Encore's debut in the region. While capacity in Europe is up in the low teens as we deployed six Norwegian ships to that region in the peak summer. Norwegian Joy's redeployment results in a decrease in APAC share of our deployment and increases Alaska's share which equates to approximately 27% capacity increase in the region. First quarter deployment is similar to the prior year with the exception of Norwegian Joy as she enters dry dock before repositioning to Alaska. Looking at expectations for the full-year on slide 12, strong booking trends have continued across all core markets at all three brands. Adjusted EPS for full-year 2019 is expected to be in the range of $5.20 to $5.30, or approximately 7% growth over the prior year at the midpoint. This includes an adjustment for the one-time non-cash write-off in depreciation and amortization of approximately $25 million associated with Norwegian Joy's enhancements, which will make her even better than a record-breaking sister ship Norwegian Bliss. Since our last earnings call, we have seen a decrease in both fuel prices and interest rates, which has been partially offset by unfavorable foreign exchange rates, resulting in a net tailwind of approximately $0.10 per share. As previously discussed, our expectations for 2019 earnings growth in the high single-digit range is primarily a result of four factors. First, we have moderate yearly capacity growth of approximately 2.7%. Second, we are lapping extremely strong financial performance in 2018 with adjusted earnings growth of 24%. Third, we are incurring marketing and launch costs associated with two upcoming ship launches, Norwegian Encore in late 2019 and Seven Seas Splendor in early 2020, with minimal in-year contribution due to the timing of deliveries. And lastly, the itinerary optimization initiative skews both our yield and cost metrics higher in 2019 due to a partial year benefit from higher revenues, which will be substantially offset by the associated costs, including the extended dry dock and repositioning for Joy. Net yields for the year are expected to increase 3% to 4% or 2.5% to 3.5% on an as-reported basis. This performance is on top of the already robust 3.8% growth we delivered in 2018, which excludes approximately 30 basis points of revenue dilution from China operations. When excluding incremental capacity from Norwegian Bliss and Norwegian Encore, it results in only minor differences in our annual net yield guidance of 3% to 4%. Norwegian Bliss's Caribbean sailings are garnering yields above the NCLH corporate average and are offset by below corporate average yields when sailing in the Mexican Riviera. Concurrently, Encore's one month of revenue service does little to move the needle. Adjusted net cruise cost excluding fuel is expected to be up approximately 3.25%, or 2.75% on an as-reported basis. This is primarily due to an increase in total dry dock days and associated costs versus the prior year due to the fewer capacity days, which increases our system-wide unit cost. Due to the approximate 50-day Norwegian Joy will be out of service to complete her dry dock, reposition to Seattle and carry out inaugural activities. Incremental marketing costs associated with the deployments of the vessels involved and the itinerary optimization initiative, and marketing and inaugural expense for Norwegian Encore and Seven Seas Splendor. Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $465 with expected consumption of approximately 860,000 metric tons. We have continued to strategically layer on additional hedges for 2019 and 2020, and we are now hedging into 2021. As a result, we currently have 57%, 53%, and 33% of our total fuel consumption hedged for 2019, 2020, and 2021. There are a few key items to keep in mind for the balance of 2019. When looking at the cadence of net yield growth, the first quarter is expected to be the lowest yield growth quarter primarily as a result of the Easter holiday shift into the second quarter, as well as Norwegian Joy's final China sailings during the low-priced winter season. We expect net yield growth for the remaining three quarters to be relatively consistent, as Norwegian Joy's redeployment to North America will offset the tougher comps from the lapping of Norwegian Bliss's inaugural season, as well as the impact from six scheduled dry docks for the high-yielding Oceana and Regent brands. As for the cadence of net cruise cost excluding fuel per capacity day, the third quarter is expected to be the highest growth quarter, mainly due to the timing of dry docks, with one scheduled dry dock for an Oceana vessel occurring at the tail end of the quarter compared to zero dry docks in the prior year. Q2 is expected to be the second highest quarter primarily due to the dry dock and repositioning on Norwegian Joy. Now, let's take a look at our expectations for the first quarter, which can be found on Slide 13. Net yield is expected to increase approximately 2.5% or 2% on an as-reported basis. This growth comes despite headwinds from the shift of the Easter holiday into the second quarter, which includes premium price sailings for the spring break period, as well as Norwegian Joy's final China sailings. Excluding the benefit from our new Norwegian brand capacity Norwegian Bliss, which is garnering yields above the NCLH corporate average while sailing in the Caribbean, net yield growth is expected to be approximately 2%. This comes on top of 4% growth in the prior year. Turning to costs, adjusted net cruise cost excluding fuel is expected to be up approximately 2.5% or 2% on an as-reported basis. As for fuel expense, we anticipate our fuel price per metric ton net of hedges to be $456, with expected consumption of approximately 215,000 metric tons. Looking below the line, we expect a $0.10 one-time benefit from tax planning initiatives as discussed on our previous call, which has shifted from Q4 to Q1 and is expected to be partially offset by a $0.04 exchange loss, resulting in a net benefit of approximately $0.06. Taking all of this into account, adjusted EPS for the first quarter is expected to be approximately $0.70, a 17% increase over the prior year. As Frank mentioned earlier, in 2018, we made significant progress towards achieving our full speed ahead 2020 targets that we provided at our Investor Day. As you can see on Slide 14, we've reported better-than-expected adjusted EPS growth of 24%, increased our double-digit adjusted ROIC to 11%, delivered our balance sheet to 3.3 times, and returned $400 million for approximately one-third of our targeted $1 to $1.5 billion of capital to shareholders. Looking at slide 15, our cash generation continues to accelerate and we remain extremely focused on returning meaningful capital to our shareholders. In 2018, we repurchased a total of approximately $665 million worth of shares under our previous and current repurchase authorizations. We have a $600 million remaining on our current $1 billion, three-year authorization. Our goal is to have a balanced approach to our capital allocation strategy while maintaining maximum flexibility. We continue to explore with our board the potential initiation of a dividend. With that, I'll hand the call back over to Frank for closing commentary.

Thank you, Mark. Well, my earlier commentary focused on our 2019 story. I want to reinforce that we are focused just as much on the long-term and on our sustainable success as we continue to make sizable investments to drive future returns even higher. We continue to invest in the growth and quality of our fleet with recently announced new ship orders for the Oceania and Regent brands, which number one, expands our new build program to 11 ships featuring approximately 28,000 berths for delivery over the next nine years to 2027, a 50% increase from current capacity levels. Number two, these new orders give us new state-of-the-art tonnage for our three best-in-class brands and number three, provide us with measured capacity growth for years to come, all financed at historically low-interest rates. We also continue to invest in our existing fleets through the OceaniaNext initiative I mentioned in my earlier commentary and Norwegian Edge, which saw the penultimate ship in a program Norwegian Sky undergoing comprehensive refurbishment that has left the ship in as good as new condition, elevating our offering in a three-and four-day Bahamas and Cuba market. We continue investing in port-related and destination-specific infrastructure with a new dedicated state-of-the-art terminal at Port Miami under construction, a partnership to develop the strategically important IT straight point port in Alaska, and the completion of exciting new guest-facing developments at Great Stirrup Cay, our Bahamas private island. And last but not least, we continue investing in technology with Cruise Freedom, our innovative technology platform that leverages the very latest proximity and location technologies including wearables. Cruise Freedom will meaningfully enhance the guest experience and will be ready to make her debut on Norwegian Encore late in 2019. We'll have more news on that as we get closer to Encore's launch. Today, we've covered a lot of ground. So we provided some key takeaways which you can find on slide 16. Looking back, we delivered a breakout year in 2018 with record-setting financial results driven by strong demand and the exceptional performance of Norwegian Bliss. Looking to the intermediate term, we look to build on our strong book position and deliver another record-breaking year in 2019. And last but not least, we are ahead of pace to deliver on our full speed ahead 2020 targets. On behalf of our 33,000 employees, I'd like to thank all of our stakeholders whether you are a shareholder, a creditor, a travel agent partner, a vendor, or our valued guest for continued confidence and trust and support. And with that, I'll open the call for questions.

Good morning everyone, very strong results. I had a couple of questions. Frank, if you could discuss given your record booking level, the strategy going forward balancing the need to continue filling your fleet this year and next versus pushing prices, because you are so well ahead, is it not likely that just the math behind being ahead you had less cadence to sell. So what is the balance we should look forward to between pushing prices versus occupancy?

Good morning, Harry. So the load is in very, very good shape both for 2019 and 2020 as we stated in our commentary. So we're focusing on price. We're pushing prices higher everywhere we can both in 2019 and 2020. You saw the booking curve elongate 9% year-over-year, and I always say that I'm not sure what the optimal booking curve is, but anytime I can push the booking curve out and raise prices at the same time that's good for our business. So I think overall, while we still had a lot of cabins to fill the emphasis will be on raising prices across all three brands.

Very good. And then the follow-up question is, 2019 is another sizable renovation year for your legacy fleet and as you exit 2019 if you could describe the competitiveness of the legacy fleet vis-à-vis its need for any significant additional renovation spend beyond 2019?

Yes, well, dry docks are a continual phenomenon in our industry required by our class, but I will tell you that the heavy lifting, as I mentioned several times in prior calls will be behind us at the end of '20. The entire Regent fleet has now been completely refurbished. The OceaniaNEXT program has one vessel behind us that was done at the tail end of '18, two more in '19, and the last one will be in '20. We just finished Norwegian Sky. I just walked through the day after she came out of dry dock, she literally is as good as new. And the last one we're going to focus on is Norwegian Spirit. And I don't think it's any coincidence that our record industry-leading yields are as a result of how well we maintain our vessels. And that's something that is core to our strategy of offering consumers the very best product possible, and we can see that consumers are willing to pay for it.

So the bottom line is that your free cash flow in 2020 should look pretty measurably then?

It will because of our performance and our increased yields. It will because we'll have more capacity. 2020 will be a very sizable year in capacity. We have two new vessels, each of them operating roughly 11 months each. And one of them is what I suspect will be the highest yielding ship in our fleet, the new Regent Splendor. So yes, free cash flow is something that we expect to accelerate. It's part of our 2020 target of returning up to $1.5 billion to our shareholders one way or the other. And as we mentioned during our prepared comments, we're well on track to achieve that.

That's great, everyone, thanks very much.

Thank you.

Hi, good morning. Your very detailed prepared remarks blew through like almost all my questions.

Did we miss one?

Sorry?

Did we miss one?

You missed a few.

Oh.

I wanted to discuss your first quarter net yield guidance. Could you explain some of the positive changes regarding your outlook since your last report? Looking back, the consensus appeared to suggest that your first quarter guidance would be less optimistic than anticipated. I'm aware that Frank mentioned that pricing is improving, but could you elaborate on what has transpired from then to now to clarify the market strength? That would be very helpful.

Yes, Felicia, this is Mark. I think it's just a result of what we've been seeing in the overall industry. We're seeing strong pricing in all of our markets. The Caribbean is doing fantastic. We're guiding 2.5% for the first quarter and about a half a point of that is related to the Bliss and she's operating in the Caribbean, but when you strip out the new capacity the underlying organic fleet is strong. And that's coming across all markets. So we're just seeing good business everywhere we operate.

My point is that it seems to have been getting stronger even in a short period of time, right? Because if we reflect on when you last reported, the expectation was that the number would not be as high as what your guidance indicated.

Yes, we're seeing strong pricing on our remaining inventory and we're seeing significantly strong trends in our onboard revenue as well. So that's helping profit up. So when you put that together, it's creating a nice, healthy momentum for us.

Great. Regarding Alaska, Frank, you made several excellent points. However, the investment community is worried about the capacity increases we’re experiencing in Alaska this year related to Joy. I'm curious if you believe that Joy and Bliss will positively influence the entire region, enhancing consumer demand in Alaska, or do you think your ships might be taking market share from existing supply?

It's hard to say, Felicia. Certainly, our ability to deploy top hardware to the region for two consecutive years has generated excitement, particularly for our brand. Our third vessel in the Alaska region, Norwegian Jewel, is performing exceptionally well, even with Joy and Bliss contributing to its success. We've experienced two years of double-digit growth in capacity, not just for our company but across the industry as well. This highlights the strength of Alaska as a destination. It's a short season, and people understand they have a limited timeframe to visit, which drives demand. Alaska has become an essential destination on many families' bucket lists, and our ships are designed with families in mind, offering a wide range of activities. Millennials, in particular, are drawn to the outdoor and environmentally friendly aspects of Alaska. It has much to offer, and I hope that next year, in 2020, we will see more moderate capacity growth in that region.

Great. Thank you so much.

Thank you.

Thank you.

Hey, good morning everyone. Thanks for taking my questions. So Frank, I was pretty surprised to hear your comments on the Bliss and just your ability to hold it in some cases, raised prices from a year ago. So I guess of your 3% to 4% yield guide for the year, how much of a tailwind have you baked in from Bliss, if you baked in a tailwind at all and then, can you also parse out how much of a tailwind you've baked in from the Joy redeployment?

Yes, hi, Jared. This is Mark. We guided 3% to 4%, and first, let's talk about Bliss. Bliss is performing exceptionally well; in fact, she's booking at or above the levels achieved in her first year, which is quite rare. However, we also need to consider year-over-year comparisons, which may slightly dampen that figure. So essentially, Bliss is providing a minor tailwind for the year. Regarding Joy, we initially indicated that the itinerary redeployment would contribute $0.30 in accretion for 2020. If we analyze that, removing dry-dock costs, which are about $0.03 to $0.04, and factoring in that Joy operated for only two-thirds of the year in '19, we arrive at an estimated accretion of about $0.17 or $0.18. As we mentioned, this redeployment is entirely focused on revenue, including ticket and onboard revenue increases. When we compare that to our point of yield, around $0.23, it translates to about 75 basis points of yield tailwind for the quarter and year. Considering the reduced capacity days due to maintenance, we expect to be in the 1% range. Therefore, our underlying organic fleet growth aligns with our expectations of 2% to 3%, consistent with our targets set each year.

That's really helpful. Thank you. And I know it's a little early to be talking about 2019 or 2020, but I'm going to ask you about anyways, just given some of your comments. And, it seems to be shaping up well, and on the yield side, you've got several tailwinds with Splendor and Encore and analyzing Joy. And then on the cost side, you have tailwinds from lapping the dry-dock and the marketing spend, et cetera. So is it unreasonable to assume that 2020 yields and costs could look better than a normal year just assuming kind of a steady macro environment from here?

Yes, assuming a steady macro environment that's always the necessary requirement with Splendor coming on certainly she's going to bring premium yields to our corporate average. But that's going to be somewhat offset by Encore again, so Encore, as we said, Bliss is doing well in the Caribbean Encore is our best booked ship, new build launch in the Caribbean. But you have to look at her on an annual basis, so at this stage looking forward, it's a bit early. We don't necessarily believe that Encore may be accretive to our system yields, but it is, it's looking great but it's just still way too early to make that commitment. And then in terms of the cost, yes, I think we will see some deceleration on the cost front from '19 to '20 given some of the one-time or ramp-up in costs that we've seen this year.

Okay, very helpful. Thank you very much.

Hey, good morning. One of your peers talked about a little bit of weakness from Europe source customers, just given the macro uncertainty there. Are you seeing that at all?

Yes, the U.K. has been a little up and down. But unlike our peers, where we don't have national brands that require a whole lot of locally sourced business to make things work. Our percentage of business that comes from Europe is a little bit less than half of our total internationally sourced business. So can Europe be doing a little better? Yes, probably could. But again, our domestic demand is so strong for Europe just for Europe itineraries that we're not relying a whole lot on Europe sourced business to sell our vessels. We are more focused on raising prices in Europe and over the last two years, we now have two consecutive years, so we've been able to raise prices for Europe sourced business over 20% as we hone in on our best guest strategy with only 26 ships, the demand that we are seeing for our products allows us to be selective and what customer's resource and quite frankly we're going for price. And so as I said before we raise prices to the point where there's parity for us the source market we are in different whether a Brit or a German or an American books our cruises because we price it accordingly. And so I think that's one of the key differences for us and some of our peers that we simply don't have to rely on the European market as much as others may have to.

Thank you for your help. I wanted to know if there are any updates on how the free air promotion is progressing since last quarter.

Hi, I'll take that one. We've been very happy with how we free air has been received. It's in the very hard are focusing on the value over the price and we see it as one more tool in the toolbox and so we're able to use it where it makes sense then that tends to be in some of our further out inventory longer hold product. It's definitely a program not a promotion, it's something that we can use that at times where it makes sense to add value, keep the story well away from pricing and along with the beverage package, the dining package, Wi-Fi, shore excursions, an opportunity to add value move away from price and continue to have this really strong pricing deployment that we've been showing. So if you like it you'll continue to see it and we'll place strategically where it makes sense for this.

Good morning. Mark, you mentioned the Norwegian fleet enhancements and suggested that these could lead to an additional $0.30 in earnings for 2020. I'm curious if you could share where that estimate currently stands. Is that still an accurate range? It seems there might be some potential for upside given the strong demand and pricing trends we're seeing in the market right now.

Yes, $0.30 that was our best guess we always try to give you our most educated forecast and I think it's you know it it's really early, that we are seeing great signs, great booking patterns on the Joy and the other redeployments that we initiated but it's still early. I think we're confident in that number but to say that we're exceed at this point I think is a bit premature.

Okay, got you. And then second question would be around fuel consumption I guess, if we look at the first corner consumption of 215 tons and then compare to the full-year estimate of 860. Assume pretty big step up in consumption in the last couple quarters just wondering what you know might be driving that and then also maybe how we should think about consumption in 2020 as well if there's anything that we should be thinking about around consumption over the next 12 or 24 months. Thanks.

I believe that in the first quarter, a significant part of that will be Bliss as she transitions to her dry dock and departs from Asia. I apologize for mentioning Bliss instead of Joy. Looking ahead, if we normalize our consumption per capacity day for 2019, excluding Joy's repositioning and Encore, which is set to be delivered later in the year, we expect our consumption to decline by approximately 0% to 1%, aligning with our targets. In 2020, we anticipate an increase in that figure, likely in the range of 2% to 3%, as we assess the larger ships coming on board.

Good morning everyone, appreciate you taking the questions. So I know the way away on China I just want to ask about the Regent Spirits plans to deploy the next year is that still the plan and how is your thinking regarding a lot I believe that market changed the if it all sense, so technician was enough last July. Thanks.

Yes, Brandt, it will be year-round trips to Asia. We're always looking to deployed vessels at the highest yielding itinerary as you know you've heard me say many times itineraries is the number one driver of yield. So will continue evaluating and but yes Spirit will go to Asia and I think in second part of your question is have we seen anything different in the Chinese market. I would now ply with that Joy has performed a line slightly ahead of what we had expected in the first quarter of 2019 but nevertheless, her deployment to Alaska for all the regions you heard so far today in a prepared statement was the right thing to do.

Great. Thanks. And just following up, just a little bit of housekeeping on CapEx and I apologize if you already touched on this but CapEx guidance came up a little bit for this year and next year as wanted get a sense how much of that is the new port you announced in Alaska and what else maybe in there.

Yes, so that our agreement with the port and the infrastructure in Alaska, that's an asset-light agreement so it's not really a lot of CapEx is coming on that very similar to our Port of Miami agreement. The increase is really driven around the additional ships that we recently announced as you recall we announced two new builds for Oceania and one additional for Regent cruises and in addition to our Leo five and six class. So that in conjunction with some further investments that we planned to make around technology and other infrastructure.

I had a quick question about onboard spending in the beat in Q4, can you provide a little bit more color on exactly where I know you mentioned across all components but are there specific initiatives you put in place that are driving stronger than expected on-board spending or is it more a function of just the robust consumer environment and just to follow up on that for 2019, what do you sort of expecting in terms of onboard spending growth on a year-over-year basis?

Yes, so for Q4 we saw great trends across all of our streams. So I think the key is and we've been saying this is we've been investing in and getting the consumer touch point earlier in the booking cycle. So we're selling more ahead, we're bundling more ahead. So what happened is the consumer is coming on board with a clean wallet, a fresh wallet. So that helps us. We're seeing strength in our casino channels it's just really across every channel. As pivot to 2019, we typically look for 1% or 2% of growth in onboard revenue. Obviously, we always try to outperform that's our typical modeling range and the early signs of what we're seeing in January and February are looking good. We're seeing continued strong trends there, so very positive.

Great. If I could just add a quick follow-up there, can you remind us about what percentage of your, I guess is mostly plus Norwegian passengers are packaging or what percentage of onboard spend is pre-packaged verses actually on board the ship?

Yes, I don't know that we've given specific details on that but I think we're probably north of half of our guests are in this part or in the bundle packaging deal.

Good morning. I wanted to circle back to fuel expenses, at the Investor Day you mentioned the potential that MGO could step up to 60% of the mix is that still the thinking going into next year? And then it looks like your hedged position increased from 3Q release or the 4Q release, and now 50% hedge for 2020, which is ahead of schedule. I think you normally target to be 50% in the current year, so how are you thinking about fuel costs going into 2020, would that change, could you elaborate a little bit on that?

Yes, certainly. So everything we see for 2020 we are still targeting that, you know, roughly 60% MGL mix. We have a significant investment in our scrubber technology. And all the ships that are coming online are coming online as planned within our date range. So that's positive. In terms of hedging, what you guys have seen is since our last call in November at one point fuel markets were down almost what, 17% or so, so we took advantage and we layered on more hedging for both '19 and '20. And more particularly, we layered it on in our gas oil which is our proxy for MGO. So we were able to obtain some favorable pricing. And in terms of our strategy, we aim to be at a minimum 50% hedge going into the year, but we have always said that when there are dips in the market, we'll opportunistically ramp that up and that's what you saw over the course of Q4.

Great, thanks. And then just separately on the Caribbean, could you touch on what you are seeing on a regional basis? I know that throughout 2018 it sounds like the western was improving and maybe coming in at a bit of a premium to the east. I am just curious what you are seeing as demand has recovered for eastern Caribbean sailing and what pricing looks like there, and just your thoughts on Caribbean pricing as a whole for 2019 versus '18?

Yes, it's Andy. I'll take that. Overall, we are very happy with Caribbean. As Frank said in his opening comments, we have seen the acceleration overall. Pricing is up in the Caribbean, load factor is up in the Caribbean. We are seeing it broadly across the region. And Bliss, of course, has been an outstanding deployment in the Caribbean as well as in Alaska trade. And so in the east, she has performed extremely well. So we really don't see any hangover in the Caribbean at all. We just see acceleration and performance. Strong pricing, strong load, and feel very good about the outlook.

Operator, I think we have time for one more question.

Thank you, and congrats to the whole team on the conclusion of the year, I wanted to circle, Frank, on the Med and in particularly the eastern Med and with the Splendor coming and maybe shifting around a little bit of capacity, that historically has been a very high yielding segment for the industry. What are you seeing there with demand? I know some itineraries have been slowly added back for your sales in the industry. But what are you seeing and how do you see that looking on out in the '21 and so forth at this point assuming no changes in geopolitical obviously?

Yes, I am ready for that question, Tim. For the first time since 2016, we will return to the eastern Mediterranean this coming summer with 12 sailings, increasing to 20 sailings in 2020. I am pleased to report that all 12 sailings in 2019 are better booked and at higher prices than the surrounding sailings that do not include Turkey. Turkey is the key destination in the eastern Mediterranean, which has been somewhat off-limits to the industry for the last couple of years. The North American consumer, who primarily books these eastern Mediterranean cruises, seems eager to return and is willing to pay a premium, which is encouraging for 2020. As you know, itineraries are developed and made available for sale 18-24 months before the actual sale date, allowing us to test the waters and observe the outcomes. It takes time to ramp up, so if there are no further disruptions or reasons to avoid the eastern Mediterranean, I expect that we, along with the rest of the industry, will likely increase deployments to the eastern Mediterranean starting in 2020 and continuing into 2021. This is good news. When the eastern Mediterranean is performing well, it rivals any other itinerary, if not being the best. We are all looking forward to expanding our presence in that region. Thank you, Tim.

Okay. Then a quick follow-up here for me, Mark, just a little bit more detail, if you would, can you enumerate what the tech investments are in the CapEx and then when you anticipate having all those tech enhancements rolled to the fleet?

Yes. I think it's a bit early to say what we are investing in. I think we are looking at all different aspects. As we said, we are looking for rolling out some new technology with the Encore later this year. And as we go forward, we want to make sure our platforms and our systems behind the scenes are capable to handle that as we look forward and maybe we start integrating voice features or artificial intelligence down the road. But we are doing some catch-up here. We are making investments slowly but surely but you are not going to see anything radically different than what we have already announced. It's more back of the house.

Thank you, Tim. And thanks everyone for your time this morning and your continued support. As always, the team will be available to answer your questions later today. All the best. Bye-bye.