Royal Caribbean Group (RCL) — Q1 2019 Earnings Call Transcript

Thank you, operator. Good morning and thank you for joining us today for our first quarter earnings call. Joining me here in Miami are Richard Fain, our Chairman and Chief Executive Officer; 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. 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 metrics, which are adjusted as defined and a reconciliation of all non-GAAP financial 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 review of the business. I will follow with a recap of our first quarter results, provide an update on the booking environment, and then provide an update on our full year and second quarter guidance for 2019. We will then open up the call for your questions.

Thank you, Jason and good morning everybody. It's been a great first quarter and we're on our way to another great year. So I look forward to chatting about it a little bit. As we stated in our press release, this quarter we were able to beat our earnings guidance essentially due to higher revenues and our revenues for the full year are also looking better than what we expected with higher pricing in every quarter. I have to stress that we're both delighted and a little bit surprised with this very nice outlook as our initial guidance was already very strong. We think that this is a result of several elements, our superior new buildings, strategic revenue management decisions, our global footprint, very well-positioned brands and an enhanced destination offering. Now, while our revenue outlook has only gotten better, our earnings forecast was negatively impacted by some things outside our control namely currency, fuel and an incident that occurred at the beginning of April at the Grand Bahama Shipyard. The accident impacted the year's operation and therefore affected directly and indirectly the ships that were scheduled to be drydock there. Luckily, there were no serious injuries but we did have to cancel three sailings on Oasis of the Seas in order to have her repaired. This is a very unusual event and not only have we never experienced anything like it, I've never heard of anybody else experiencing it either. Now as it pertains to our improved business outlook, I should first highlight the new buildings that our guests will be able to enjoy this year. First, we continue to enjoy delicious yields on our new ships from last year, Celebrity Edge and Symphony of the Seas. We continue to find that our guests appreciate the innovation and the focus that's characterized our new ship and more importantly they're willing to pay for it. In May, we will introduce the beautiful and relatively small Celebrity Flora, which will debut in the Galapagos targeting the expedition segment. This ship was especially designed for that very unique itinerary and is already making a huge statement in the market. Two weeks ago, we took delivery of Spectrum of the Seas and she is indeed beautiful. She's currently caring happy guests en route to China, and when she arrives in Shanghai in a few weeks, she'll be the largest and the newest ship in Asia. This will help reinforce Royal Caribbean's existing leadership and our commitment to that market. Many of you have heard me say that we have three new fundamental focuses to our strategy going forward. They are people, destinations and technology. I'll start with destinations, because we have a very dramatic new initiative coming online shortly. In the coming weeks, we will officially open Perfect Day at CocoCay, our private resort in the Bahamas. To say that she is a beauty is a massive understatement and we believe that we have created a truly game changer for the cruise industry, in fact for the vacation industry. On this island, we will offer guests ample opportunity to thrill or chill. On the thrill side, we have the appropriately named Thrill Waterpark that features more than 13 water slides. One of them is the tallest in North America. We have a massive wave pool with ziplines, rock-climbing walls and all sorts of adrenaline-amplifying features. On the chill side, we have amazing beaches as well as the largest freshwater pool in the Caribbean, with a swim-up bar that offers endless opportunities to relax and unwind. Now for those who'll be looking for a more scenic view is the opportunity to climb 450 feet above the island in Up, Up and Away, a helium balloon that will provide some of the best views in the Bahamas. While the island will officially open to guests in a few weeks, we have been slowly opening individual venues as they become ready. And the feedback has been nothing short of exceptional. As you walk around the island or scroll through videos on Instagram, you hear the familiar catchphrase, 'I love this place.' I have to say that all that love from our guests is turning into nice returns for our shareholders too. Itineraries that include Perfect Day and preclude revenue for the island attractions are up double-digits versus the same time last year. Now, I have to warn you, if you give him even the slightest opportunity, I know that Michael will go on endlessly about this wonderful new extravaganza of his and he is rightly proud of. Now, switching to the technology focus of our company, we have Excalibur, our own data and digital platform. And here we are transforming the onboard experience. With one single app, our guests can now control so many more aspects of their cruise experience, that it frees them up to enjoy their vacation more, instead of spending time organizing it. I'm particularly excited this is already been so broadly deployed that 60% of our guests can get it available. And, towards the end of the year it will be virtually all our guests. And the ratings that it's getting in the Apple App Store are 4.7. So a real success story for us. We're very pleased about it. And we're working on leveraging these opportunities. Now, besides our efforts in technology in destinations, I have to update you on the work we're doing regarding our human capital. You've heard me say many times, that what makes us successful is the people, the people, the people. This success has enabled us to grow a lot, but we are growing fast at a time when the competition for talent is fierce. When skill sets are constantly evolving, and where the way we work is rapidly changing. New technologies are shaping how we work, where we work and the skills we need for that work. Because of all that, we are putting forward a number of initiatives to ensure that we're able to attract the best talent, while helping our own people develop their critical skills and collaborate even better. We are investing in giving our employees the tools to do their jobs, and we are also investing in upskilling and reskilling internally, both for our employees on board and onshore. I can't stress enough that our success depends on the people, the people, the people. One last topic I'd like to touch on is related to environmental stewardship. Back in 2016, we announced our partnership with the World Wildlife Fund, to take our sustainability performance to the next level. This partnership pushed us to set ambitious sustainability goals in three key areas: greenhouse gas emissions, sustainable food supply, and destination stewardship. We believe that what gets measured gets better. Setting measurable goals, and then publicly reporting on our performance against those goals holds us accountable and that's the best way to make progress. I'm pretty proud of the fantastic work achieved by our global tour operator team in their efforts to bring our guests more sustainable tours. We have now reached 80% of our target of 1,000 sustainable tours by 2020. This effort takes us beyond our own internal operations and supports sustainable travel and livelihoods at the destinations we partner with. It's quite simple: without the places tourism can't thrive. I'd like to take a moment to discuss some of the most recent announcements related to Cuba. As I'm sure most of you know, last month the U.S. administration took a decision that is likely to prompt litigation related to companies that do business in Cuba. If such legislation does ensue, we believe that we possess all defenses. And we're not expecting to change our itineraries as a result. The administration also commented on possible changes to the regulations that apply to travel to Cuba. At this point, we don't know if there will be any changes, what those changes might be or to what extent they would impact us. Only 3% of our itineraries currently go to Cuba. Any impact would depend on what the regulations say and how much advanced notice we and our guests would receive.

Thank you, Richard. Before getting into the results, I'd like to discuss the impact of the unfortunate incident in the Grand Bahama Shipyard on our key metrics. As we stated in the release this morning, the early April incident resulted in several canceled sailings and higher repair costs that will impact our full year earnings by approximately $0.25 per share. While the cruise cancellations negatively impacted our absolute revenue for the year, these shorter season sailings were essentially neutral to our overall yields. As you can see on slide 2, an improvement in our business outlook has offset all the $0.25 impact from FX and fuel and even most of the $0.25 negative impact from the Grand Bahama incident. This improved outlook is a result of our strong top line results in the first quarter and an increase in the revenue performance for the balance of the year. I will now walk you through our results for the first quarter of 2019. These results are summarized on slide 3. For the quarter, we generated adjusted net income of $1.31 per share, which is approximately $0.21 higher than our guidance and approximately 20% higher than the same time last year. Net revenue yields were up 9.3% for the quarter, which is approximately 150 basis points higher than the midpoint of our previous guidance. The main drivers of the positive variance were continued strength in onboard revenue and better-than-anticipated close-in demand. As I have mentioned over the past couple of quarters, guests spend on onboard activities has continued to shift towards areas that involve experiences over buying things and this quarter was no different. Shore excursion and various types of packages were key contributors to the quarterly beat. In addition to the onboard revenue strength, our results also benefited from better-than-expected pricing on close-in demand, especially for Caribbean and Asian sailings. Our results for the quarter included the benefits from Silversea and Terminal A, however yields were still up almost 6% when excluding those benefits. This is particularly gratifying when considering this level of yield improvement was on top of a 4.9% yield increase in the first quarter of 2018. Net cruise costs excluding fuel were up 9.6% for the quarter slightly lower than our guidance driven by timing. Additionally, better-than-anticipated performance below the line driven mainly by our joint ventures helped contribute to the earnings beat in the first quarter. Now, I'd like to update you on what we're seeing in the demand environment. I noted on our last earnings call that WAVE got off to a very strong start and we experienced two record booking weeks early on. That booking strength continued, contributing to a record-breaking WAVE season for the company. Bookings during WAVE were up nicely year-over-year and we are particularly pleased with the pricing power we have achieved so far this year. Since the beginning of the year prices on new bookings have been up nicely. Our book per diem is now further ahead from the same time last year, when compared to three months ago. As a result, we are booked at record levels in both rate and volume for the year despite the increased mix of short Caribbean capacity, which tends to book much closer in. It's rare that booking patterns are strong in all regions of the world and like most years we are seeing some variation this year. We are enjoying very strong demand from North America and from Asia-Pacific whereas we believe uncertainty around Brexit has softened demand from the U.K. Our yield management and deployment optimization tools combined with an established global footprint help ensure we source guests from regions with high-quality demand. Therefore, this year we expect to source more guests from North America than we did last year. This is one of the advantages of the operating structure and capability that we have been building over these years. Now, I'd like to update you on what we're seeing in each of our core products. The Caribbean accounts for just over half of our capacity this year and their products have been trending very well. Our new and modernized ships, Perfect Day and the overall strength of our brand have consistently been driving better-than-expected results for our Caribbean itineraries. Perfect Day at CocoCay hasn't officially opened yet, but it's clearly fueling additional and higher-yielding demand for our Caribbean itineraries. Bookings and pricing have been exceeding our expectations overall for the Caribbean, with sailings visiting Perfect Day up by more than other Caribbean itineraries. Europe will account for 16% of our 2019 capacity, which is about flat year-over-year. Bookings from North America and Australia have been up nicely over the past three months, which have offset a slight decrease in bookings from other source of markets like the U.K. From a pricing standpoint, the product is receiving a nice boost to the significant premiums of Celebrity Edge and the Mediterranean. Asia-Pacific itineraries account for about 15% of our full year capacity this year and are trending very well. China itineraries will account for about 6% of our full year capacity. The continued expansion of our distribution channels and imminent arrival of our newest ship, Spectrum of the Seas are contributing to another strong year for the product. Australia and Southeast Asia itineraries account for 6% and 4% of our capacity respectively and remain core to our Q4 and Q1 deployment. Trends have been in line with our expectations for both of these products. Alaska accounts for about 5% of our full year capacity but is about 10% during the summer. Each of our brands has made hardware changes to the Alaska offering and as a result, our capacity on this high-yielding product is up year-over-year. These changes along with strong demand from North America are contributing to yield growth for the summer season. If you turn to slide 4, you will see our updated guidance for the full year 2019. We expect net revenue yield growth of 7.5% to 9%. This represents an approximate 75 basis points increase from the midpoint of our previous guidance. About half of the improvement was driven by the outperformance in the first quarter, with the remainder driven by a better business outlook for the rest of the year. From a cost perspective, we are anticipating net cruise costs excluding fuel to be up approximately 10% for the year. The increase in this cost metric relative to our previous guidance was mainly driven by the reduction in capacity due to the canceled sailings and increases in repair costs related to the Grand Bahama Shipyard incident. Since our last call, the dollar has strengthened versus our basket of currencies and the combination of a stronger dollar and higher bunker prices have negatively impacted our earnings per share by approximately $0.25. We expect fuel expense of $707 million for the year and we are 58% hedged. Based on the current business outlook, along with current fuel prices, interest and currency exchange rate and the 25% negative impact of the incident at the Grand Bahama Shipyard, our adjusted earnings per share are expected to be in the range of $9.65 to $9.85 per share. Excluding the headwinds from fuel currency and the Grand Bahama incident versus our January guidance, adjusted EPS for the year would have been in the range of $10.15 to $10.35 per share. Now I will turn to our guidance for the second quarter, which is on slide 5. Net revenue yields for the second quarter are expected to be up approximately 9.5% and our net cruise costs excluding fuel are expected to be up approximately 10%. So, in summary, based on the current fuel prices, interest and currency exchange rates and the outlook expressed in my earlier comments, our adjusted earnings per share for the second quarter are expected to be in the range of $2.45 to $2.50 per share. If you exclude the impact from the Grand Bahama Shipyard and the currency and fuel headwinds versus January guidance, our adjusted earnings per share for the second quarter would have been in the range of $2.65 to $2.70 per share. With that, I'll ask our operator to open up the call for a question-and-answer session.

Yes, guys. Good morning. So first I want to dig into the first quarter yield beat a little bit more. And I guess the question is you beat the midpoint of your yield guidance by around 150 basis points, which is, I mean, ridiculously strong. And that's after you already had a good one month under your belt when you gave that guidance. So can you help me understand a little bit more how the last two months of the first quarter performed so well? Was that more onboard-related? Or was that more close-in related? Or was it a combination of both of those? And then maybe also if you could elaborate a little more around those onboard experimental experiential products you called out in the release as well. That would be helpful. Thanks.

Sure. Well, thanks Steve. So on the first quarter beat, yes, you were right. We were about a month in when we gave guidance. Really it is a combination of very strong onboard trends and better close-in demand, specifically in the Caribbean and then China outperformed our expectations for the quarter. On the onboard side, which has been exceptionally strong we saw an over-index of spend on shore excursion our packages like beverage packaging, internet package and again more focused on the experiential stuff versus seeing more spend occur within the retail shops.

Hey, Steve, this is Michael. I just wanted to add as well that I think as time passes, we're becoming a lot more sophisticated with our ability to pre-cruise market products, services and experiences. And I really feel like we're making good progress. The other element of course is that we're seeing a lot of demand for the products and the activities and experiences that we've got on Perfect Day. So we're kind of excited about what we see there. And I think I heard that you actually were there a couple of weeks ago.

Yes, I was. It was great. And so my second question was going to be directed towards you Michael. And it was going to be a question on CocoCay. So I guess, what I want to ask here is, how do you potentially -- or how do you combat the potential overcrowding possibility on that island? And I guess, what I'm getting at is with a new pier now there could be days where you could see 9,000, 10,000 passengers on that island. And I guess, how do you make sure the customer experience won't be impacted? Or another way of saying it is, do you think there is a passenger level that would create a negative passenger experience?

Yes. I mean, obviously, we've given this experience the name Perfect Day. And we've designed Perfect Day to deliver what we think will generally be a perfect day for our customers. And we -- from what we've seen so far with between 4,000 and 6,000 people on the island, we've got a huge amount of space available. So we've engineered designed for peak and the peak was way up close to 10,000. We obviously now we'll operate it with bigger ships coming to Perfect Day, and we'll see how we go. I think we're feeling pretty optimistic about the potential for three ship calls versus two ship calls that could take us up to 12,000 a day. And remember, it's a fairly large island and we've only developed about a third of it.

Okay. Got you. And then real quick Jason on the cost side of things for Perfect Day, Silversea and Miami, Cruise Terminal those went up by about 50 basis points in your guidance. Just wondering which one of those three is kind of driving that increase? Or is it pretty much across all three of them?

Yes. Some of it's just rounding Steve, but yes some of that's also just further, I mean, investments in Silversea would be really the driver of that and that's more on the product side.

Okay, great. Thanks guys. Appreciate it.

Sure.

Hey, good morning, everyone. Thanks for taking a question. I want to ask about the $0.25 from the Oasis ship. I would think that you get that back next year, but you also didn't really raise your capacity guidance for next year by the equivalent amount. And I'm also not really sure how the accounting works on the free credits that you offered. If that impacts this year or if that could spill into next year as well so can you just talk about that a little bit?

Yes, sure. So as it relates to the $0.25 most of that – well, all of that $0.25 will take place in 2019. There is some leak over for future cruise certificates into 2020 that will also impact next year. But the way that we, I mean, this is generally most of this will be something that we will be able to recover in the future. There are some things as it relates to the yard that could potentially impact us into 2020. But for the most part, this revenue loss is EPC loss that will be things that we'll lose this year but gain back next year.

Okay. Thank you. And Jason, I want to dig a little bit on the Silversea synergies. When you first announced the deal you were talking about $50 million of synergies. Can you confirm that those are $50 million of operating synergies exclusive of the debt refinancing? And then maybe specifically I think in last call you talked about how some of the synergies are already in your cost guidance. If you could just break out of the $50 million how much is currently embedded into your guidance for this year?

Yes, so I won't give a specific number. But the way we look at the $50 million which was really more on a cost perspective that would be synergies that we would be recognizing over a two to three year period of time. We are on a very strong track to meet that potentially even a little bit earlier. So there is a good piece of it that is in the 2019 numbers, but the majority of it will start to come into next year and into 2021.

And the $50 million is excluding debt refinancing in the first quarter of next year?

Yes, it is.

Hi. Thank you. Good morning. So this is probably directed to all of you, but maybe more specifically to Jason. You're all clearly bullish as reflected in your prepared remarks and commentary and the release. So when -- thinking about your increased guidance, is it coming more from ticket or onboard? And then Jason, I was also wondering if you could just comment on the sentence in the release where you kind of mentioned that the booked position and rate and volume are a product of a number of factors including market forces, itineraries segmentation and revenue management decisions?

Okay. In terms of the mix of the outlook, it's probably in different a little bit higher on the ticker side. But I mean, the onboard is also a big driver of this. As we commented and Michael commented about our pre-cruise sales to our outlook into how people are planning to spend while they are on the ship is very good and we saw that take place in the first quarter. So it is a combination of both onboard and ticket. I mean the onboard is also a very big driver of this, as we commented and Michael commented about our pre-cruise sales to our outlook into how people are planning to spend while they are on the ship is very good and we saw that take place in the first quarter. So it is a combination of both onboard and ticket that we expect to drive the yield -- the 75 basis point uplift in our yield outlook for the 2019 period of time. The comment in the release is really just leveraging what we have been saying on our calls for some time to just kind of to keep in mind that yes, we're in a very strong demand environment and our ability to identify and harvest that demand with the tools and techniques that we have we feel very good about. But we have said that we -- there is this kind of constant internal debate about are we taking too much on too soon? And that's sometimes leaving money on the table. And I think that's really what that statement is about is that your booked position is not just a reflection of the demand it's also a reflection of your revenue management decisions to take those bookings at that point in time. And that was really more just kind of stressing that point again.

Okay. That's helpful. Thank you. And then just kind of bigger picture, I think, if you ask any of us in the investment community two years ago, no one probably would've been able to predict that demand would be as strong as it today. I mean your like-for-like net yield growth is going to be now to 4% to 5.5% for this year -- well above your historical range. And you guys talked a bit about this in the prepared remarks and we know hardware is part of the driver there. But if you have to kind of call out the hardware versus your tech investments and other demand drivers kind of how much is that driving that high like-for-like net yield outlook? And where are we in terms of those investments being able to further drive yields? Are we kind of at -- if you're looking at a scale from 1 to 10, are we kind of at the 2 to 3 range or are we at the kind of 7 to 8 range?

Felicia, it’s Richard. I'll take a stab at that and Michael and Jason can add in if they have others. It is hard. I'm not sure a couple of years ago we ourselves would have predicted a strong market as we're seeing today. I think we look at it as an entire experience and it's hard to say well the technology is really helping. At the risk of offending Michael, Perfect Day is making the change. And it's clear both are by the way and both have been very effective. And we've been pleased with the reaction to our new ships. So, Celebrity Edge has just been going gangbusters and Celebrity Flora which is coming out -- it's about to come out is going gangbusters as well. And the Island and the technology, the people, our ratings, and our ratings on our guest appreciation of our wonderful crew members is going up. And these things work together and I'm not sure I know how to separate them out. The other aspects of that is we all enjoy reaping the benefits of that and you're quite right, we do enjoy reaping the benefits of that. But these things take a long time in advance to orchestrate. And so we are incurring a lot of costs both capital costs and operating costs to put in place these things which then don't pay off for a while into the future. And I also will admit that it's a little frustrating to have to invest now and reap the rewards later. But this is a long-term industry. We think our success is very much related to our ability to focus on what's happening not this year, but what's happening down the road. So, I'm not sure I know how to separate those things, but I think we all worked together to accomplish the goal.

Yes and I just want to add one other thing. I think it's good to kind of break down a little bit of it. Of our core yield growth this year, about a third of it is the new hardware and a little bit over two-thirds of it is improvement in our like-for-like business. So I think it's a combination of all the things that Richard talked about as well as just stronger demand overall, cruise perception of cruise continues to rise demographics are certainly following into the favor of cruise, a lot of multi-generational travel. And so -- yes, I think that the piece this year which is -- if you heard us in the past we would typically say half of our yield growth was coming from the new hardware and half was coming from just core like-for-like yield growth. This year we're seeing an elevated amount of yield growth on just a like-for-like basis.

And actually not to blabber your question, but it opens a lot of really important doors. The other thing that's happened is the cruise industry not just us, but the whole industry is doing a better job of addressing the growth in the public's demand for experiences over things. And so I think we have been also just fortunate that our industry is in the sweet spot of the direction that the public seems to be going in as well.

Thank you. That's helpful. And just a quick clarification when you guys kind of break out your like-for-like yield versus the other things like Silversea and the Terminal and Perfect Day. Specifically on Perfect Day when you're breaking that out beyond like-for-like, is that just coming -- is that just about the revenues that are coming from Perfect Day? Or are you including the increases in pricing that you might be seeing on the ships that are touching Perfect Day?

Yes, it's really focused on the on-island revenue that's there. In term of the yield growth it's -- that's something that's in the core yield number.

Hey thanks for the question. I just want to dig a little bit deeper into the improvement in the rest of the year. First question is just trying to get at how much of that is Royal-specific and how much of that is a better environment? You called out onboard, it sounds like a lot of that is Royal-specific initiatives and higher ticket price some of which relates to Perfect Day. Are you also seeing higher ticket prices associated with an overall increase in demand for cruise? And as a secondary part of that question is the improvement in the year that you're seeing pretty uniform across all future periods?

Sure. So certainly Perfect Day and Royal are helping us in the yield outlook story here. But we're seeing broad very strong demand for cruise. If you look at Celebrity -- especially with Celebrity Edge, I mean yield growth associated with that or the overall demand for Edge has really been exceptional. So, I don't think it is a specific segment. I don't think it's a specific brand. I think we're seeing overall very strong demand for cruising in general. And yes that outlook at least for this year is a pretty consistent path in terms of yield growth. But I do think it's important just to put it in perspective, I mean seeing some of the strength we've seen on our core yields this is not what we typically see in a year. So yes, I think we're yes as Richard commented, we are very delighted to see the global demand accelerating. But I always would kind of -- looking out into the future I would not expect this type of yield improvement year in year out.

Got it. That's helpful. And my second question is about Europe. Understanding that you can source guests from different markets, when you have been tapping the European markets, you said volumes were down. Are you actually -- is your pricing down in those markets? Or are you instead simply diverting demand to other markets? And in those other markets, is that putting pressure on pricing when you have to rely a little bit more on other markets to replace that European demand?

Hi, David, it's Michael. I think the beauty of global infrastructure is we can switch on and off demand with relevant pricing relatively easy. We did expect some volatility and softness in the U.K. market this year. It's because of Brexit and we assumed there may be some volatility in Europe. But Europe's doing exactly what we needed to do this year and we're fortunate that the demand from the North American markets has been particularly strong. And we also have good demand for our European products from Asia Pacific as well. So it's a mix. I think that we are lucky that we do have this global structure and we go through careful planning in terms of the year before in trying to guestimate what's going to happen in each of these markets. And I think we've done a pretty good job this year in figuring out what's going to happen.

Good morning and thank you. Just a quick follow up on that. Could you just touch on European demand for European product particularly for TUI?

Yes so I'll comment specifically on TUI. I think as – obviously, we saw strength in the first quarter from our joint ventures and our largest joint venture is TUI. So hopefully that can provide you some kind of insight in terms of how TUI is trading. I think as Michael said, we expected there be some a bit softness as it relates to the U.K. It's not a volume, it's just more we're seeing better demand from other markets. And of course, when we see that, we're going to look to grab that demand and optimize our yields. And when you look at the other markets, northern markets in Europe are a little bit stronger than the southern markets. And yes, I know there's been some talk around Germany, but overall as it relates to TUI cruises which is really more where we are that business continues to perform very well.

And we're also picking up positive commentary on at least the very early stages of bookings for 2020. Can you give us some color on that please?

Yes it's definitely too early to start to comment on 2020. We're obviously seeing very strong demand trends that are accelerating our yield outlook for the -- for this year and we will comment on 2020 as we start to get to the back half of this year.

Okay. Well I'll try a different one then. It didn't look like you used any cash to repurchase stock, but you should generate some free cash flow this year. What you're thinking around that of these prices?

Okay. It's a different approach, but it's -- so as we've said for some time I mean our North Star here is looking at more investment grade credit metrics so it means maintaining between three and 3.5 times. We get closer to the lower end of those metrics as we get to the back half of this year. And as we've said for a long time that we very much believe in returning capital to our shareholders and improving shareholder returns. But as it relates to share repurchase, we do that opportunistically and we will certainly be looking at that in the back half of the year.

Hey, good morning. Couple for me. So I apologize if you already answered this. I don't think you did, but the non-organic stuff, the CocoCay, the new Cruise Terminal, Silversea, you're now saying that's a 400 basis point benefit to the yield guide. I think that was previously 350 basis points. Really impressive after just one quarter. I guess what drove that specifically between the three major initiatives there?

Yes, well the 400 is really just relating to the second quarter, which we have not provided any guidance for. We still expect about 350 basis points in our yield guide for the full year.

Okay. That's helpful. And then sort of following up on the Europe question. You’ve now had a few weeks at least since that deadline was delayed about six months, and we've heard some commentary that maybe that should help -- maybe just a slicing things a little bit too thin for you. But can you speak to whether or not the demand in the UK, which you called out as being fairly weak earlier in the year, is that getting any better given that we've got at least a short-term for you?

Hi, James, it's Michael. I think we commented earlier that we expected some softness or some volatility in the UK market, and we kind of planned for that. Interestingly, what we have seen is fairly good demand for products outside of Europe. So we've seen an uptick out of the UK market for products in the Caribbean and for Asia-Pacific coming out of the UK market. And I think that's happening generally out of the UK market. But -- and for our ex-UK products, demand has continued to be pretty robust. It's the UK gas booking product in the Mediterranean that's probably the most, I would say, volatile. And I think that's based upon anxiety of how exactly the visa issue is going to be resolved. But it's all of course, as we all know, it's an incredibly uncertain. And I think that's what's creating that uncertainty with the customer in terms of booking those products. But the other products are doing quite well.

And then, lastly for me -- go ahead.

No, no James, I was just going to add to -- just keep in mind that if that decision was taken pretty late in the booking cycle for that consumer for the Med.

Yes, it's Michael. I think we are tracking about where we thought we would be. We expect the trend to remain soft in that particular segment.

Yeah. I mean the vast majority of it was either Oasis relating to the APCDs or so on the repair cost. There are some other small related investments like in technology and so forth that we're making, but not large sums of money.

James, it's Michael. I think we're kind of pleased with Alaska. I mean we -- I think as Jason mentioned earlier, we increased our capacity in the Alaska market by quite a lot this year. Ovation of the Seas is the largest newest ship to go into the Alaska market. Celebrity Edge is the second Celsius class ship. Our capacity was up in the high double-digits. I think it was something like 24%, 25% increase in capacity. It's only about 5% of our total capacity for the whole business, and of course, it's the highest yielding geographical market that we have. So, we've added quite a lot of capacity. We're doing very well in the market, and we're pleased with our results there. I think maybe other brands and products are having a struggle, but we're feeling pretty good about where we are.

I'm curious if you would like to comment on the expansion of the distribution channels in China that was mentioned. I'm curious mostly, how that's changed maybe over the last year, and how you sort of envision that changing in the year ahead to help sort of fortify the brand locally?

Hi, Jamie, it's Michael. We're feeling again pretty good about the journey that we're on with the distribution in China. I'm not going to comment specifically about percentage changes that we've achieved over the past couple of years. We decided, I think it was three years ago we set the course to change the model in terms of distribution, but also product and itinerary lanes. And we set ourselves internal targets to ensure that we were on the right track, and we've met or exceeded those targets each year for the past three years. And we feel like we're really in a good place in terms of where we want to go. Obviously the fact that we've brought -- we're bringing Spectrum of the Seas our newest and latest Quantum Ultra ship into the China market I think really supports the decisions that we've made previously. And Spectrum's arrival has generated a lot of anticipation and excitement in the China market for the arrival of Spectrum and the bookings are in a really good place.

Okay. And then, I know it's small, but there's this minority interest that's sort of flowing through now, and I'm curious what the right way to think about the cadence of that is going forward? Because we don't really have any frame of reference historically.

Yeah. Hi. I think you are talking about the non-controlling interests? Yeah. So it really just relates to the one-third interest that we don't have, because we consolidate Silversea. That flows through our P&L. It would be 100%, and then the non-controlling interest gets taken back down for the one-third. And so, it is going to be difficult to model, I can see externally this year. But it should be a relatively small amount in each quarter that impacts us as we build this overseas business up.

Thank you, and congrats, first of all, for a good start of the year, gentlemen. On 2020, Jason, I wanted to circle back to that. I know you said it's early and you give more color. But during your earlier comments about there's an ongoing debate as which it should be as to how much bookings you want to take on and the trade-off versus giving that price. So can you say at this point for 2020 how you're booked and pricing trends relative to looking into 2019 at this point last year? Just any color there. And maybe flush through a little bit more, should we anticipate the booking curve to continue to expand as part of that debate or not?

Yeah. Well, another good attempt, Tim. I could say, but I won't. It is very early on. Obviously, we're in a very good booking environment. But I'm not going to comment or we're not going to comment on the booking position for 2020. We're -- we've obviously seen very good trends into this year that would result in raising our yield guidance, but it is way too early to start to comment on the outlook or to give you even a book position that may or may not provide you the proper realities of what the future looks like.