Norwegian Cruise Line Holdings Ltd (NCLH) — Q1 2019 Transcript

Thank you, Andrew, and good morning everyone. Thank you for joining us for our first quarter 2019 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 and 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 provide updated guidance for 2019 before handing the call back to Frank for 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. 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 would like to cover a few items. Our press release with first quarter 2019 results was issued this morning and it's 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 to 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.

Well, thank you, Andrea and good morning everyone. I'm happy to be here today to report on our first set of results for 2019 and as I'm sure you saw from this morning’s earnings release, the results are very good. Performance in the first quarter exceeded what were already high expectations with a top line beat driven by strong pricing growth, robust close-in bookings, and higher onboard spend. Combined, our first quarter beat with a strong wave season saw new bookings come in at the highest pricing ever at each of our three brands, and the outcome is an increase to our full year net yield growth guidance and an increase to our full year earnings expectations. The midpoint of our adjusted earnings per share guidance now stands well above the high end of our previous guidance range, an outlook that would result in our seventh consecutive year of double-digit adjusted earnings per share growth, further extending our stellar track record of strong and consistent financial performance. Additionally, during the quarter, we repurchased $200 million of our stock, bringing our total capital returns to shareholders under our Full Speed Ahead 2020 Targets to $600 million as we continue to make progress towards achieving the shareholder return, net leverage, adjusted return on invested capital, and adjusted earnings per share growth targets under the plan. As discussed in our prior call, we entered 2019 in a record book position and at higher prices. Our strength entering the year meant we were able to maintain our focus on driving prices, and drive we did, as wave season pricing came in at record levels. For the balance of 2019, we are booking in a similar load position to last year's record levels and at higher pricing on a comparable basis. Our load position is normalized for the significant difference in booking patterns of Norwegian Joy's charter sales model while deployed in China versus the traditional distribution and booking curve model in the West, along with certain changes in our 2019 itinerary mix, which includes a higher number of Caribbean and Bahamas cruises of less than seven days, booking closer to the sale date. Additionally, and much more importantly, the quality and stickiness of our booked revenue has improved year-over-year, resulting from the full effect of our earlier final payment date policy, improved year-over-year booked deposit structure, and a significantly higher proportion of 2019 business that includes our guests' air travel booked through Norwegian's Air program. Keep in mind that year-over-year record book positions, by definition, cannot continue to expand indefinitely, nor would we want them to. As someone who has been in this industry for over 25 years, there's always a nagging question that no matter how good your revenue management systems predict future demand or how effective your marketing campaigns push sales, perhaps some money was left on the table. And while that question can never be fully answered with absolute certainty, fortunately in the case of Norwegian Cruise Line Holdings, if there is any money left on the table, it's on the margin as evidenced by our strong first quarter performance and increased net yield guidance for the balance of the year. Besides the momentum driven by the strength of our brands, our new hardware introductions, and unique go-to-market bundling strategy, macroeconomic factors continue to buoy consumer confidence. As we have stated over the last few quarters, we continue to see a strong macroeconomic environment, one that most economists and market watchers believe will continue for some time, and the fears of a near-term recession or downturn have greatly diminished, particularly in the United States, as evidenced by strong first quarter GDP growth and recent Fed commentary. Fears of industry oversupply have also now subsided as the industry overall and Norwegian Cruise Line Holdings in particular have shown their ability to successfully absorb new capacity coming online, but all of this would not be possible without a confident consumer willing to spend money on vacation travel. Consumers across the globe continue to have a strong appetite for cruises. This is especially true here in North America where we maintain an advantage, given our strong sourcing in the region and our focus on global versus national brand and our exit from the lower yielding China market. But that's not to say that we are narrowly focused on our home market. One of the advantages of operating a growing but still manageable 26-ship fleet is that we can focus on sourcing the best guests wherever they may reside. We have done this by making inroads into several sizable markets where growth is exceptionally strong, including Australia, Israel, Brazil, and Mexico. Meanwhile, in more mature European markets like the UK and Germany, we have recently shifted the Norwegian brand's go-to-market offering. A year ago, we introduced a Premium All-Inclusive product in these markets, which has had the desired effect of quickly and significantly raising prices to parity levels with those in North America. With the mission accomplished, we have now transitioned to the Free at Sea offering that has resonated so well in North America and in the rest of the world, providing consistency of brand messaging around the globe. Results over the first five weeks of Free at Sea in the UK and Germany show an encouraging double-digit increase in booking volume over the prior year and even more over the first quarter of this year at comparable net pricing from those two important source markets, despite the dampening influences of Brexit and other regional economic factors. Once onboard, our global consumers continue to exhibit their confidence in two ways: First, our onboard revenue performance to date has exceeded our expectations and has been outperforming last year's record levels. Part of the reason is the enhanced stickiness of onboard revenue from increases in pre-booking offshore excursions and other offerings and the benefits from the Norwegian brand's Free at Sea go-to-market strategy. Pre-booked onboard revenue is solidly up double digits for the first quarter of 2019 compared to 2018. With the second half of the year essentially organic and capacity growth only coming from Norwegian Encore, whose ticket yield will likely be lower than the corporate average due to our introduction into low-season Caribbean itineraries, onboard revenue is expected to be a key contributor to net yield growth. Second, guests continue to book their next cruise before even finishing their current one in record numbers. Our strategy of capturing guests who experience our award-winning vacation experiences has resulted in hefty record onboard cruise sales and the sale of future cruise tickets across our brand. The first quarter saw many highlights across our three brands. For the Norwegian brand, this quarter marked the first peak season of Caribbean sailings for our most successful new build to date, Norwegian Bliss. Her performance in the Caribbean this past quarter was extraordinary, as she garnered a premium compared to similar ships we deployed last year in the region and to other ships currently sailing similar voyages, powering the brand and the company to a successful Caribbean season. In addition, the Norwegian brand was busy preparing Norwegian Joy for her debut in Alaska. The vessel was virtually unknown in the North American marketplace as recently as nine months ago, so the Norwegian sales and marketing teams were diligently and quickly increasing awareness and introducing the vessel to travel partners and consumers in an abbreviated timeframe. As part of Joy's North America introduction, the team launched a successful campaign to celebrate the intersection of travel and education and recognize the contributions of educators in the United States and Canada with a chance to win a cruise vacation. The campaign drew 46,000 nominations from over 1.4 million votes with 30 winning educators from across North America. I had the opportunity to visit Norwegian Joy on her first sailing to Vancouver, and I can attest that she is an even more impressive ship today than the day she was delivered, with upgraded public spaces and other revenue-generating venues geared to Norwegian's broad audience. Norwegian Joy houses many of the same innovative features that make her virtually identical to her sister ship, Norwegian Bliss, including a 25,000 square foot forward-facing observation lounge, perfect for indoor viewing of Alaska's world-famous vistas, and the exhilarating top of the ship's electric go-kart racetrack. She also includes several unique features that set her apart, providing additional diversity and richness in cabin mix and offering guests an upgraded choice above their traditional balcony stateroom but not quite reaching the exclusivity and luxury of the ever-popular Haven Suites. Joy also features the Galaxy Pavilion, a 100-person capacity gymnasium-sized space featuring immersive gameplay, racing simulators, and a host of virtual and augmented reality experiences. The one-two punch of Norwegian Bliss and Norwegian Joy is the cornerstone of our deployment in high-yielding Alaska, giving Norwegian the largest, youngest, and most innovative hardware in this premium destination. In terms of performance in the region, we're extremely pleased that pricing for Norwegian Joy's Alaska voyages is easily surpassing those of Norwegian Pearl, the 2,200-passenger ship she replaced. Joy is not only garnering better pricing than her predecessor, but she also carries an additional 1,800 guests. The onboard revenue opportunities on Norwegian Joy far exceed those of her predecessor and are expected to drive meaningful improvement to the Norwegian brand's 2019 yield. Norwegian Bliss continues to achieve historic yields in the region, with certain sailings continuing to price higher than her record-breaking inaugural season last year. Norwegian Cruise Line Holdings' Alaska deployment also leverages our investments at the Port of Seattle in our development partnership at Icy Straight Point to deliver guests the best Alaska experience in the industry. Additionally, we are proud to have been awarded a 10-year permit to sail Glacier Bay, Alaska's most popular cruise destination during peak and shoulder seasons through 2029. These permits are granted only once every decade by the U.S. National Park Service based on a competitive and rigorous set of criteria. With Alaska now representing 9% of our annual capacity and with its expected continued growth as a key deployment region, our strategic investments to develop new destinations and maintain access to premium attractions set the foundation for further growth in this high-yield region. Meanwhile, Oceania Cruises and Regent Seven Seas Cruises continue their stellar booking performance, with both brands having little inventory to sell in 2019. The strong booking momentum is vividly displayed as both brands are now approximately 40% sold for 2020, achieving this milestone earlier than ever before and at higher pricing. Oceania continues to roll out fleet and product enhancements under its Oceania NEXT program. Insignia underwent their first enhancements under the program in a comprehensive dry dock late last year, and the feedback from guests and travel partners has been extraordinary. In keeping with its brand promise of offering the finest cuisine at sea, Oceania recently rolled out an expansive and diverse new selection of plant-based cuisine that reflects our guests' evolving palates and heightened focus on wellness. These enhancements continue to strengthen Oceania’s industry-leading position as having the finest cuisine at sea. Our guests' repeat rate of over 50% is as high as it's ever been, and just last month the release of the brand's 2021 winter deployment resulted in the largest single booking day in the brand's history. For Regent, the construction of Seven Seas Splendor is well underway, and we eagerly await the January 2020 arrival of the ship that embodies luxury perfected. Splendor will not only set a new standard for luxury cruising but will also be the first ship in the cruise industry to launch with a female captain at the helm. Captain Serena Melani joined Regent in 2010 and became the brand’s first female Master Captain in 2016. We are proud to have Captain Melani leading Seven Seas Splendor during her inaugural season. Demonstrating the strength of Regent's popularity among wealthy consumers, the total value of bookings for 2020 sailings is significantly outpacing the brand's capacity increase of 26%, stemming from the addition of Splendor to the fleet and at higher prices. This is one reason that advanced ticket sales for Norwegian Cruise Line Holdings were 18% higher at the end of the first quarter compared to the end of the first quarter in 2018, despite a sub-3% increase in capacity for the company in 2019. This indeed has been a stellar quarter for the company, so I would now like to turn the call over to Mark to discuss our outperformance in the quarter and our improved guidance for the remainder of the year.

Thank you, Frank. Unless otherwise noted, my commentary compares 2019 and 2018 net yield and adjusted net cruise cost excluding fuel per capacity day metrics on a constant currency basis. I'll begin with commentary on our first quarter results, followed by color on booking trends, and close with our guidance for the second 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 yet another record quarter, one where the company generated the highest first quarter revenue and earnings in its history. Adjusted EPS grew 38% over the prior year to $0.83 and exceeded our prior guidance by $0.13. As you can see on Slide 4, the beat was driven by: $0.06 of revenue outperformance from exceptionally strong onboard revenue and well-priced close-in bookings; a $0.04 one-time incremental net tax benefit in connection with certain tax restructuring strategies, recorded as a $0.07 benefit below the line, partially offset by other tax-related expenses of $0.03 in net cruise cost, ex-fuel. It should be noted that this net tax benefit is incremental to the $0.10 that was already included in our February earnings guidance. Lastly, a $0.03 benefit from foreign exchange and other below-the-line items, including a partial benefit from our share repurchases in the quarter. Turning to Slide 5, net yield increased 4.1%, or 3.2% on an as-reported basis versus the prior year, outperforming guidance expectations by 160 basis points. The beat was driven by exceptionally strong onboard revenue across all major streams and better-than-expected pricing on close-in bookings. Excluding the benefit from new Norwegian brand capacity, Norwegian Bliss, which garnered yields above the corporate average in the quarter, first quarter net yield growth would have been approximately 3.1%. Turning to costs, adjusted net cruise cost excluding fuel increased 3.6% versus the prior year and 3% on an as-reported basis. When comparing to guidance, cost was higher primarily due to the previously mentioned tax-related expenses of $0.03. Total fuel expense was in line with expectations as fuel consumption savings offset an increase in fuel price per metric ton net of hedges, which came in at $461. Now let's discuss capacity and deployment for the second quarter. Our capacity is expected to increase approximately 2% primarily due to the addition of Norwegian Bliss to the fleet. I will direct you to Slide 6 to review deployment highlights. In the second quarter, our Caribbean mix is approximately 26%, slightly higher than the prior year due to Norwegian Bliss. Our deployment mix in Europe represents approximately 27%, a slight increase from the prior year due to the addition of Norwegian Pearl sailing out of Amsterdam. With the repositioning of Norwegian Joy to Alaska, mix in that region increases to approximately 13%, and conversely, the APAC mix decreases to 3%. Our expectations for the second quarter can be found on Slide 7. Net yield is expected to increase approximately 5.5%, or 5% on an as-reported basis, primarily driven by strong performance from our core fleet. The benefit from Norwegian Joy’s redeployment to North America accounts for approximately 200 basis points of growth in the quarter. Excluding the benefit from our new Norwegian brand capacity, Norwegian Bliss, which is dilutive to the corporate average yield while sailing in the Mexican Riviera, net yield is expected to be approximately 6.5%. Turning to costs, adjusted net cruise cost excluding fuel is expected to be up approximately 5.25%, or 4.5% on an as-reported basis, primarily due to direct costs from the dry dock repositioning and integrally events of Norwegian Joy, as well as the approximately 50 days Joy was out of service, which results in fewer capacity days to allocate operating expenses over, thereby increasing our unit cost basis. Looking at fuel expense, we anticipate our fuel price per metric ton, net of hedges, to be $485 with expect to consumption of approximately 207,000 metric tons. Taking all of this into account, adjusted EPS for the second quarter is expected to be approximately $1.33, or a 10% increase over the prior year. Looking at expectations for the full year on Slide 8, net yields for the year are expected to increase 3.5% to 4.5%, or 3% to 4% on an as-reported basis, which represents a 50 basis point increase at the midpoint versus our prior guidance issued in February. Excluding incremental capacity for Norwegian Bliss and Norwegian Encore results in only a marginal difference to our annual net yield guidance. As a reminder, Norwegian Bliss’ Caribbean sailings in Q1 garnered yields above the corporate average and are expected to be 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 on a full-year basis. Adjusted net cruise cost, excluding fuel, is expected to be up approximately 3.5%, or 3% on an as-reported basis. The 25 basis point increase versus prior guidance is due to the previously mentioned tax-related expenses. Looking at fuel expense, we anticipate our fuel price per metric ton, net of hedges, to be $490 with expect to consumption of approximately 845,000 metric tons. We now expect adjusted EPS to be in the range of $5.40 to $5.50, which is above the high end of our previous range and would result in an 11% increase versus prior year at the mid-point. Excluding a $0.10 impact from unfavorable fuel prices and foreign exchange rates, our guidance would have been in the range of $5.50 to $5.60, or a 13% increase over prior year. On Slide 9, I'll walk you through the components of the $0.20 raise to our adjusted EPS outlook for the year. $0.14 of incremental net yield growth is made up of top line outperformance in the first quarter of $0.06, combined with a stronger outlook for the remainder of the year of $0.08, and a benefit from fuel consumption savings and other below-the-line items including a partial benefit from our share repurchase in the quarter. The previously mentioned one-time incremental net tax benefit of $0.04 is all partially offset by headwinds from higher fuel prices and unfavorable foreign exchange rates of $0.10. Our updated outlook represents double-digit adjusted EPS growth over the prior year, which would continue our track record of delivering double-digit annual adjusted EPS growth to seven consecutive years. As a reminder, this guidance excludes one-time expenses of approximately $25 million for enhancements to Norwegian Joy associated with her redeployment in North America. Looking at fuel and the upcoming change in regulations, we continue to refine our fuel strategy to manage a changing landscape and minimize volatility. In Q1, we sold the remainder of our Brent hedge positions for a gain and replaced them with gas oil hedges, which we believe gives us better correlation to the fuel we consume. Additionally, we entered into costless collars for approximately 14% of our remaining MGO consumption to further reduce volatility for the remainder of 2019. The collars protect us from the risk of rising prices while allowing us to benefit from potential price declines. Slide 10 provides a summary of our hedging program and our strategy in relation to the IMO 2020 regulations. We also minimize volatility around the interest rate environment with the addition of a three-year, $230 million interest rate swap, which increases our fixed debt ratio to approximately 75%. For the remainder of the year, there are a few housekeeping items to keep in mind around the cadence of growth in net yield and net cruise cost excluding fuel. Net yield growth for the third and fourth quarters is expected to be similar, and for net cruise cost excluding fuel per capacity day, we expect growth in the third quarter to be similar to that in the second quarter. Our progress towards achieving our Full Speed Ahead 2020 targets continues on an upward trajectory. As you can see on Slide 11, in March, we repurchased $200 million in shares, increasing the cumulative amount of shareholder returns to $600 million in connection with our target of $1 billion to $1.5 billion by the end of 2020. As previously mentioned, our goal is to maintain a balanced approach to capital allocation strategy while maintaining maximum flexibility. Any further capital returns for the remainder of the year would likely be skewed towards the latter part, and we continue to explore with our Board the possible initiation of a dividend. With that, I'll hand the call back over to Frank for closing commentary.

Thanks, Mark. As we wrap up the call, there are a couple of subject matters I would like to highlight. First, is a topic which I'm sure is on the mind of anyone who follows the industry—Cuba. Current regulations continue to allow for people-to-people travel, and we continue to follow and comply with any and all directives from the various agencies of the federal government. We expect more clarity regarding travel to Cuba in the future, but in the meantime, we will continue to offer cruises to the island as planned. The second topic is our commitment to the environment, highlighted in our third annual Stewardship Report, detailing our sustainability goals and impactful initiatives underway. These include the elimination of plastic straws across our 26-ship fleet and our two island destinations in the Bahamas and Belize, our industry-first partnership with the Ocean Conservancy's Trash Free Seas Alliance, and our Hope Starts Here All Hands and Hearts campaign to rebuild schools and infrastructure on Caribbean islands impacted by the 2017 hurricane season. Most recently, Oceania and Regent announced their commitment to eliminate a combined five million plastic water bottles a year through a new partnership with Vero Water. I encourage everyone to view our online report, which details many more actions we are undertaking to conserve resources and protect the environment. Before turning the call over to Q&A, I would like to leave you with a few key takeaways. We delivered another record-breaking quarter with first quarter results outperforming expectations. The solid demand environment and wave season drove an increase in our outlook for net yields and adjusted earnings per share, which is now above our previous guidance range. We are well positioned to deliver on our Full Speed Ahead 2020 targets and continue to return capital to shareholders. And with that, I'd like to open up the call for questions and answers.

Hi, good morning everyone. Thanks for taking my question. So I want to ask about the 4.1% yield growth in the first quarter. That's obviously a pretty impressive result. Last call you were saying the first quarter would be the lowest growth quarter, partly because you don't have the mix benefits from Joy until the second quarter. As I look at your revised guidance, you're only assuming about 3% yield growth in the second half, which is about a point below what you achieved in the first quarter. So can you talk about why that dynamic changed with the first quarter, which was supposed to be the lowest rate quarter, now looking like the back half is a bit lower? Should we interpret that as the back half potentially having some conservatism baked in for whatever reason, whether that's Cuba or something else? Thank you.

Thanks Jared. Hi, this is Mark. So the first quarter was stellar; we had exceptionally strong performance from our onboard revenue streams across all ships. Bliss continued to knock it out of the park in Q1. So we just had a great quarter, and it came from all geographical areas, which is very encouraging. In relation to the second half, I think you had mentioned our implied guidance is roughly 3%. I think our implied guidance on a constant basis is about 3.5%. Look, nothing has changed since our last call. Our core fundamentals have not changed, and they continue to be strong. Q2 is coming in much better than we anticipated. As we rolled back into the back half of the year, there’s always variability around onboard revenue, but it has continued to be strong quarter after quarter. We expect it to continue, but we've taken a measured approach. We have years of data that guide our expectations, but we've taken a bit of a measured approach and I don't want to bank solely on that for the back half of the year. That could be potential upside. The core fundamentals for the back half have not changed.

Great. Thank you. And then just one quick follow-up. Can you help us think about the yield premium on your itineraries that include a stop at Cuba? Is it full flow-through, or is Cuba also a higher-cost market for you? Thank you.

It's not a higher-cost market. We've always said that the pent-up demand and the relatively tight supply of berth capacity in Havana both drive higher prices. We are hopeful that the administration finds a way to keep the cruise industry sailing to Cuba.

Okay. And care to talk about the yield premium at all?

We've said it is substantial and it remains so, but we're not going to give you destination-by-destination pricing guidance more than we already do.

Good morning everyone. So Frank, in the press release you referenced the revitalization of Sky. How many more ships are still yet to be renovated, and once that's completed, what do you do with the incremental free cash that lower CapEx might imply? Thanks.

Yes, Harry, so through 2019, we have a couple more ship revitalization programs planned. At the end of last year, we launched the Oceania NEXT program. So by the end of this year, three of those four vessels will be done. Looking ahead to 2020, we really only have one major ship to undergo revitalization, and that’s Norwegian Spirit, which will be deployed to the Far East. It does raise an interesting question. We’ve been investing quite heavily in our fleet revitalizing all three brands and I think today those fleets are in the best condition they've ever been. We continue to invest in other land-related initiatives, whether it's in our islands or terminals in Miami; what I mentioned about Alaska. Given our yield guidance, our earnings per share, growth guidance, and lower non-new ship CapEx going forward, you'd expect the company to have more free cash flow available for distribution to shareholders. As Mark mentioned earlier, we've already distributed roughly $1 billion to shareholders in the last four or five quarters, and hopefully, that will continue. We are also exploring the timing and amount of a dividend with our Board.

So, thank you. And the follow-up to that is, when you think about the incremental investment that you're making on land-based facilities, what's the return on that? Does it enhance your ROIC? Does it get you at or above the 12% target that you have?

Yes, I don't think we would invest if we didn't believe it was accretive. The industry is competitive. For example, in Alaska, now representing 9% of our capacity, it’s the highest-yielding destination we have. We think we have a competitive footprint there, and we need to continue to invest to maintain that advantage. Being awarded those Glacier Bay permits for the next 10 years is a feather in our cap. Those were highly sought after, and our ability to maintain what we had, and even increase some, certainly adds to our premise that Alaska is a future growth destination for us.

And Harry, we've been very vocal about our investment in Harvest Caye over the last few years. We’ve noted that our Western Caribbean itineraries are garnering a premium compared to what they used to get. Our continued investments in various land-based strategic initiatives will be complementary to our targets.

I’ll just add that when we added Harvest Caye to the Western Caribbean, it was the first time that the Western Caribbean achieved a premium over the Eastern Caribbean. It made a substantial measurable difference to the performance of the Western Caribbean itinerary.

Thank you. These are terrific results.

Thank you.

Hi, thank you, and good morning. So Mark, you gave us some great color in your prepared remarks about your organic fleet growth versus how things are growing driven by your new hardware versus your organic fleet growth. But I'm wondering if we can delve deeper into the organic Norwegian fleet. Are you seeing similar upside to ticket pricing and onboard as your overall guidance implies? Or is it just being driven by stronger pricing on organic Oceania and Regent?

We are seeing strong pricing in both our ticket and onboard pricing across all three brands and in all geographies. So there's not one brand that's buoying another; I want to be very clear. In terms of our organic core fleet for Q2, we're guiding to 5.5% yield growth, and Bliss is dilutive in the quarter by about 100 basis points. That implies we’re growing at 6.5%. Joy’s redeployment to North America is contributing about 200 basis points. Essentially, our core fleet is performing at around 4.5% growth next quarter, which is strong and we're very happy with that. The fundamentals have not changed across the board.

That's great. And with the onboard revenue, you're seeing strength in ticket pricing driven by demand. You also have more demand for onboard revenue. Now that the app is up on 16 ships, how should we consider the onboard revenue trajectory over the next few quarters? Can that be incremental to what you're already seeing?

Yes. We typically model 1% to 2% onboard revenue growth. As more onboard revenue gets presold prior to consumers stepping onboard, we gain increased visibility on that and can focus on more fresh wallet engagements. We prefer to take a measured approach. In terms of the app, I'll flip that over to Andy for commentary.

As you said, Felicia, we’ve now upgraded the app across the fleet. We're pleased with it; it connects the pre-cruise experience with the onboard experience, greatly enhancing presales for dining, entertainment, shore excursions, and we've had considerable success with this. Usage of the app has seen a 20% increase since we launched the new application compared to iConcierge, and we’ve seen a 26% increase in the uptake of packages related to chat and voice over IP on the ship. The app has a rating of 4.7 in the App Store, showing that guests like it, are using it, and it effectively drives revenue.

Great, thank you for that color.

Hey guys, good morning. Mark, this is probably for you, but when you announced those fleet deployment changes almost a year ago, you mentioned you expected to earn about a $0.30 uplift in 2020. Given what you've seen from these changes, do you think that $0.30 estimate might be conservative?

Yes, you hit the nail on the head. It's still early and we are seeing great progress on the Joy as well as significant sales momentum on the Pearl that we're working with in relation to the deployment changes. Those ships had a compressed sales window of nine months versus the typical 24 months. I'm comfortable with our $0.30 estimate, but as we progress through the year, if we believe there will be a meaningful difference, we will certainly update you.

Okay, great. Thanks. And then second question for Frank. There have been rumors that you and some of your cruise CEO colleagues went to D.C. about the Cuba situation. If true, what can you share about that and how you feel about the current situation?

You've never been more right, Steve. I’m not going to answer that question directly. Look, as an industry, we are cohesive on this issue. This is not a competitive advantage where one company or brand wins and another loses. We're all working together to try and maintain what we have. It's good for the industry, and this isn't the best way to apply pressure on the political side, which I don't want to get into. It’s business as usual until it’s not. I don’t even want to predict what might change moving forward because it’s still too early to know. It’s government at work, not business, so we just have to wait and see.

Okay, great. Thanks guys. I appreciate it.

Good morning everyone. Thanks for taking my question. Frank, you talk about the book position not being able to grow indefinitely, which we all appreciate, and it also sounded like volumes on your book position would be up year-over-year, if not for mix. So my question is when do you foresee reaching that tipping point when you start to leave volume on the table to get price?

There's a delicate balance between price and load, always has been. If we're doing our job right, our booked position can't perpetually increase or we simply aren't pushing for higher prices. My view is that if you don't ask for higher prices, you're never going to get them. Nobody volunteers to increase prices without being asked. Today, we are pleased with the balance between pricing and load. We haven't set our year-end load factor targets for 2020 yet, but based on what I know today, I doubt we will want to be better booked than we were at the end of 2018 for 2019 sales.

That's helpful. Thanks. And then you gave some good color on Oceania and Regent's booked position for 2020 compared to last quarter. What type of booking behavior are you seeing on your further-out booking cohort for the Norwegian brand? Any similar stats would be helpful?

The Norwegian brand is on par with Oceania and Regent in terms of performance into the outer quarters, even into 2020. All three brands are performing well. For the Norwegian brand, it’s a bit early for booking curves as they have longer and more exotic, expensive sailings that tend to book earlier than the shorter ones. Directionally, all three brands are moving in the same positive direction.

Great, thanks again.

Hey, good morning. So you talked about having more less-than-seven-day trips in the Caribbean and the Bahamas. How are you managing the shift to last-minute bookings compared to last year? And can this impact net yield growth?

Yes, shore cruise capacity is significantly up year-over-year. We have 30 additional short sailings. There’s a slight increase in exposure to closer-in bookings, but it’s not material. It’s the normal booking window for those sailings that are closer in, and we planned for that through our revenue management system, so it’s a small adjustment.

Thomas, I wouldn’t characterize it as last-minute bookings. It's a new norm, a more compressed booking pattern for those voyages. It remains within our normal parameters of our revenue management system.

That’s helpful. Thank you. And just regarding fourth quarter bookings for the Caribbean, any incremental color you can provide, possibly between East and West Caribbean or anything else?

We’re seeing very strong fourth quarter bookings, particularly for the Caribbean. The response to Norwegian Bliss in the Caribbean has been tremendous. We're also adding Norwegian Encore to the fourth quarter Caribbean for the Norwegian brand. This new ship is a major asset in driving demand into the region. Norwegian Encore commences in November in the Caribbean, showing strong early load and pricing. This leads to a very strong Q4 Caribbean for us. We’re encouraged with where we stand today.

Encore is the best booked Caribbean introductory ship ever.

We're very happy and expect to see that trend continue.

Thank you for the questions. There's been a significant entry to the private island space in the Caribbean. Given the similarity of your product versus one of your competitors, are you seeing any pressure on pricing in light of their success, or is it more of a situation where a rising tide lifts all boats?

I think the investments across islands are good for the industry. These destinations drive tremendous guest satisfaction. We see that, along with the others. This will serve as another engine for growth as consumers recognize exciting destinations with a plethora of activities, translating to positive feedback. It will be one more engine that expands the industry.

That's great color, thanks. And as a quick follow-up, what is your cruise passenger capacity to that island? Do you envision expanding that capacity in the region at any point in the future?

I don't have a specific number, but we are definitely expanding our capacity at the island. We've added a number of sailings on Norwegian Sun this year. She’s expanded into the three- and four-day market out of Port Canaveral. So calls in to Great Stirrup Cay are increasing, and I see that continuing as the fleet expands. The destination, driving the highest guest satisfaction across all of our destinations will receive more calls.

Great, thanks. Mark, you outlined the Q2 yield guidance, pointing to a 4.5% like-for-like yield, which looks strong, particularly compared to 2018. But I’m curious about the 50 basis points raised to your full-year yield. Is that broad-based, or is it pointed more towards Joy or Bliss as contributors to that increase?

Generally, it's broad-based, but we are seeing growth from our core fleet. We’ve begun reaping the benefits from our significant investments in revitalizing the fleet over the last two to three years. That’s paying off. The growth mostly comes from our organic fleet while our new capacity is also doing well. We previously indicated that the Joy’s redeployment to North America would contribute about one point of our total yield growth for the year, and she is still performing in that zone. The uplift is primarily from our organic fleet and across the board.

Great, thanks. And on yield with further visibility into both Encore and Splendor for 2020, I know it's early, but historically, it’s been mentioned that adding a Norwegian-branded ship could have dilutive aspects based on the math, but Encore is performing well. Any concerns to that and also allude to Splendor potentially producing nice premiums, but being small capacity-wise?

Splendor is selling well—revenue on the books is very pleasing. That could create a slight tailwind for our yield growth next year. Encore is also doing well. She’s expected to be our best booked Caribbean ship. However, it’s still early. These two ships could represent slight tailwinds or potentially push yield growth, but we will update you as we get more visibility.

Encore, for 2019, is expected to be slightly below the corporate average. The great unknown will be her onboard revenue production, which hasn’t occurred yet. Splendor, due to her ultraluxury status and all-inclusive nature, has the highest yields of any of our ships. Meanwhile, the overall brand is booking ahead of our capacity increase of 26% in 2020. We are happy with the set-up both for Splendor and Encore being contributors to yield and earnings per share growth.

We’ve got time for one more question, operator.

Just squeezing me in, thank you so much, nice quarter. I'm curious about UK and Europe. The commentary you offered regarding your booking increases has differed from the uncertainty we've been hearing from the peer set. Have you also focused more on sourcing in other regions, or are you still forward-looking regarding geographic sourcing diversification, given your tilt toward North American consumers?

Yes, Jamie. As I mentioned in my prepared remarks, we redesigned the Norwegian brand’s go-to-market offering in the UK and Germany about five weeks ago, switching from Premium All-Inclusive to Free at Sea, which has dramatically increased overall volume at comparable prices. Over the last eight weeks, we’ve experienced significant growth in both volume and pricing in those regions. We expect this trend to continue as we deploy more ships to Europe. The Norwegian brand has six vessels in Europe this summer, and we see that as a catalyst for more business from the UK and Germany.

We have time for one more question. I think we do. We have three minutes left. Anyone wants to make a quick question?

Lucky me. Thanks for fitting me in here. I had a quick question on costs, net cruise costs. Coming into the year, we have the Encore and Splendor timing dynamic that affected that net cruise cost number. It sounds like taxes are also impacting that number. How many of these costs go away, and most of those should drop off next year? When thinking about the 1% to 2% normal rate, what would that look like for 2020?

Yes, as I mentioned in my previous remarks, we typically model between 1% and 2% ongoing. In 2019, we are facing significant hurdles in costs, including launch expenses surrounding Encore without any associated revenue, marketing expenses related to redeployment, and then expenses arising from Splendor launching in January next year. I expect some of these costs to drop off, so we should find ourselves in a normalization phase in 2020, returning to the 1% to 2% band expectations.

Well terrific. Thank you all for your time and support today. As always, we will be available to answer any further questions throughout the day. Thank you.