Carnival Corporation & plc (CCL) Q3 2017 Earnings Report, Transcript and Summary

Good morning, everybody, and welcome to our Third Quarter 2017 Earnings Conference Call. I'm Arnold Donald, President and CEO of Carnival Corporation & Plc. Thank you all for joining us this morning. Today, I'm joined by our Chairman, Micky Arison via phone from New York; as well as David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President, Investor Relations. Before I begin, please note that some of our remarks on this call will be forward looking. Therefore, I must refer you to the cautionary statement in today's press release. As you know, the well-being of the Caribbean region, as well as Mexico and the southern United States, including Florida and Texas, are all very important to the cruise industry, especially for us. On behalf of Carnival Corporation, I would like to extend our deepest concern for those affected by the earthquake in Mexico, as well as Hurricanes Harvey, Irma, and Maria, some of whom are our own employees, our business partners, and of course our loyal guests. Being the native of New Orleans, where I lived through a number of hurricanes with my family, I can relate to the hardships that remain after the storm passes. We have been and continue to be active in providing relief for those who have been impacted. We have already made meaningful contributions for the rebuilding efforts in Texas, in Florida, and in the Caribbean, which were matched by the generosity of Micky and Madeleine through the Arison Family Foundation, and our ship immediately provided critically important supplies to several Caribbean destinations quickly after the hurricanes. Be assured, we will continue to bring many resources to bear for those and impacted by providing ongoing help and support in the coming months. Meanwhile, it’s important to note that the Caribbean is open for business and is going strong. I would also like to express my sincere appreciation for our team members, both shore-side and shipboard, who pulled together through these events to ensure uninterrupted operations. Especially those employees who volunteer to man our headquarters here in Miami, and those who volunteer to relocate around the country ensuring our business continuity, and of course our crew members. Our crew members who ensured a phenomenal guest experience in the face of the unavoidable voyage disruptions. Now, turning to our financial results, we achieved another record third-quarter adjusted earnings of $2.29 per share. That’s nearly 20% higher than last year's third quarter, which was, itself, record-setting and we exceeded the midpoint of our guidance by $0.11. Year-over-year for the third quarter, strong operational improvement contributed $0.36 per share to the bottom line. That is $270 million more than the prior year, enabling us to also significantly exceed the high end of our June guidance range. Despite ongoing geopolitical challenges, despite itinerary restrictions preventing port calls to some of our most premium destinations like Turkey, despite challenges in China, including disruptions in Korea, despite Hurricane Harvey, despite Hurricane Irma, despite Hurricane Maria, and despite Typhoon Talim, despite all these challenges the strong demand created for our world-leading cruise brands again enables us to increase the midpoint of our previous full-year guidance and raise our full-year earnings expectations to a range between $3.64 and $3.70. That is well above the high-end of the guidance range we established last December. And despite fuel and currency both moving against this by $0.33 per share combined, and including the many unforeseen headwinds I just mentioned, that is $0.22 above last year's record full-year results. This performance is a strong testimony to the power of our world-leading cruise brands and affirms conviction in our company's inherent ability to deliver double-digit return on invested capital in 2018 and beyond in a sustained fashion in a broad range of operating environments. Look, our consistently strong financial performance is through the achievements of our more than 120,000 employees around the world who deliver exceptional guest experiences day-in and day-out, even when faced with daunting challenges like the recent weather disruptions, but of course still it would not be possible without the strong support of our valued travel agent partners. And concerning our travel agent partners, just last month we were honored to be recognized by the American Society of travel agents with the 2017 supplier partner of the year award ranking us number one, making us the topic across all categories of travel as chosen by the travel professionals themselves. I could not be more proud of the collective efforts of our 120,000 team members. We also achieved another accomplishment that position us further along the path to sustain double-digit return on invested capital, beginning with welcoming the luxurious Sheng Shi Gong Zhu Hao Majestic Princess, the first international cruise ship tailor made for China. She embarked on her maiden season sailing from Shanghai with NBA all-star Yao Ming and his wife, Ye Li, both born in Shanghai and both former players on China's national basketball teams, serving as mainly ambassadors during an inaugural ceremony widely covered throughout China. Majestic Princess has been very well received by our guest and distribution partners alike for its unique features tailored for China, including the largest shopping space of any cruise ship showcasing nearly 1100 square meters of luxury boutiques. Other exciting features that include a dining experience designed by Michelin Star chef, Richard Chen; an interactive family enrichment program, China Camp Discovery; very popular karaoke rooms; and a large mahjong and gaming area. Occupancy levels have been very high as are our guest satisfaction scores. We remain on track with our strategically enhancement program as we continue to deliver more efficient vessels, while replacing less efficient ones over time. As demonstrated by our April sale of Pacific Pearl, as well as our recently announced sale of Costa neoClassica, expected to leave the fleet next April, and our P&O Adonia, expected to leave the fleet next March. We remain on pace with our historical average of removing one to two ships per year. For that end, we have taken a write-off on assets currently deployed in Australia, which are less efficient with the intention of replacing those assets with more efficient vessels over time. Additionally in Australia, we are taking a write-down on goodwill and trademark for the P&O Australia brand. P&O Australia generates revenue yields, both ticket and onboard, in line with our other brands in Australia. However, they have a higher operating cost in Australia and a disproportionate number of less efficient assets. Of course, the write-down is a non-cash event and in fact we continue to project record cash flow this year of roughly $5 billion. Also during the quarter, we further progressed on our ongoing efforts to stimulate demand to cruise globally, and well in excess of our measured capacity growth. As highly anticipated, Carnival Cruise Line began calling in Havana. Departing from Tampa, Carnival Paradise is the largest ship sailing from the U.S. to Havana today and is capturing attractive ticket price premium. Holland America created huge awareness and consideration launching a series of featured cruises and partnership with O Magazine, beginning with Oprah herself sailing on board Eurodam in Alaska over the summer. Our award-winning travel experience TV shows recently garnered 10 Telly Awards in our first year of production. This original programming continues to expand on our strategy to increase awareness and demand for cruise vacations with the broadcast of more than 150 30-minute shows with viewership reaching an audience of up over 190 million to date. Building on the strong ratings from the inaugural year, these three positive theories have been extended for a second season on ABC and NBC. Season two of The Voyager with Josh Garcia premieres on NBC beginning Saturday, September 30. Ocean Treks with Jeff Corwin and Vacation Creation with Tommy Davidson and Andrea Feczko make their new season debuts on ABC the following week. We have many more efforts in the pipeline to increase considerations for cruise globally, beginning with the launch of our own digital streaming channel, OceanView. OceanView is powered by our proprietary ocean experience platform announced at the Consumer Electronics show in January. Our latest innovation, leveraging our industry-leading scale, promises to accelerate and expand engagement with compelling experiential content streaming 24/7 for free on land and at sea. The OceanView channel will go live this Thursday on major digital platforms, including Apple TV, Amazon Fire and Roku, as well as shipboard on our corporation’s portfolio cruise brand. Ultimately, OceanView will extend our engagement with our established base of 12 million guests annually as it expands across our fleet. Further, OceanView will launch with two new and inclusive ocean original series, GO and Local Eyes. On Thursday, we will celebrate our new proprietary digital network with a public relations event in New York City. So please come join us in Times Square as we take command of most of the digital screens there. Come check it out in person. At the event, we will also showcase our new mobile gaming platform PlayOcean, featuring a portfolio of original mobile games and interactive experiences available on land and available at sea. This new gaining platform expands gaming beyond the casino and to new categories by giving everyone, including cruise fans, gamers, and players the opportunity to engage with our brand through play anytime, anywhere. PlayOcean taps into the growing interest in mobile gaming by offering a selection of original games that can be played at home and on-board select ships. Like OceanView, PlayOcean is also powered by innovative ocean experience platforms announced at the Consumer Electronics Show. Of course, another important way we're leveraging our scale is through the upcoming launch of our Medallion-class experience, featuring Ocean Medallion, which is also powered by innovative ocean experience platforms. Even before implementation, Ocean has created phenomenal awareness slots with over 16 billion media impressions to date. We are now just months away from the sailing of our first Medallion-class pilot ship featuring a transformational vacation experience. Later this year, the Ocean Medallion will debut on Regal Princess, followed by Royal Princess. Another fourth ship will become Ocean Medallion class next year following the planned multi-month refinement period, bringing the total to 6 ships by the end of 2018. The ocean platform will step up our already high guest experience delivery by offering highly personalized travel at scale. Last and certainly not least, our best-in-class revenue management's who is progressing very well. The development process has helped maximize the learning in terms of both pricing profit and strategy, and overall cross-brand collaboration. In 2018, six of our brands will benefit further from these tools. On the cost side, our efforts to leverage our industry leading scale are on track. While we made some one-time decisions this year to accelerate investment in a few areas, I have no doubt we continue to focus on managing cost and that will be reflected in future results. All of this positions as well getting us to 2018. At this point in time for the first half of 2018, we are already well ahead on both price and occupancy. We are truly excited about our strategy to create demand and is resonating with our guest, while providing even better guest experiences and the latest efforts to increase consideration for cruise globally. We have so many opportunities to continue the momentum in the 2018 and beyond, including innovations like our transformational ocean experience platform, featuring, again: Ocean Medallion, our new guest experience platform, PlayOcean, our new proprietary mobile gaming portfolio, OceanView our new proprietary digital streaming network. The second season for our three award-winning television shows, the launch of two more proprietary original content digital productions, and of course our new yield management system. All of these efforts are purposefully designed to increase awareness and demand for our portfolio of world-leading cruise brands, building further confidence in the continued past to sustainable double-digit return on invested capital. At the same time, we remain on track to achieve record cash flows this year, enabling accelerated returns to shareholders through opportunistic share buybacks of $370 million year-to-date, nearly $3 billion in total in the last two years, while distributing $1.2 billion in dividends annually and growing. With that, I would like to turn the call over to David.

Thank you, Arnold. Before I begin, please note, all of my references to revenue ticket prices and cost metrics will be in constant currency unless otherwise stated. I will start today with a summary of our 2017 third quarter results. Then I will provide an update on our full-year 2017 guidance, and finish up with some insights on 2018 booking trends and a few other items to consider for 2018. I’m pleased to say, our adjusted EPS for the third quarter was a record $2.29. As Arnold indicated, this was $0.11 above the midpoint of our June guidance. The improvement was primarily revenue driven, $0.06 favorable as the increased net ticket yields benefited from stronger pricing on closing bookings on both sides of the Atlantic, while on-board and other yields continue to benefit from a variety of ongoing initiatives. We also benefited by $0.02 from the net impact of fuel price and currency. Now let’s turn to our third quarter operating results versus the prior year. Our capacity increased almost 3%. The North American brands were up over 2%, while the European, Australia, and Asian brands also known as our EAA brands were up 3.5%. Our total net revenue yields were up 5.1%. Now let’s break apart the two components of net revenue yield. Net ticket yields were up 5.6%. This increase was driven by our North American brands deployment in the Caribbean, Alaska, and Europe, as well as our EAA brands deployment in Europe. These increases were partially offset by decreases in our China deployment as previously indicated. Net on-board and other yields increased 3.2% with increases on both sides of the Atlantic. In summary, our record third quarter adjusted EPS was better than last year's previous record-setting third quarter with a strong operational improvement of $0.36 and a $0.04 accretive impact of the stock repurchase program both being partially offset by the net unfavorable impact of fuel prices and currency costing $0.03. Our third quarter results did include a non-cash charges of $392 million with goodwill, trademark and ship impairment driven by our decision to strategically realign our business in Australia. This charge represents less than 1% of our asset. The charge was included in our US GAAP results, but excluded from our adjusted results given the nature of the charge. Next, I want to provide you with an update on our full-year 2017 guidance. We are increasing our full-year earnings expectations resulting in an increase to the midpoint of our previous guidance range. For 2017, our full-year earnings expectation is now $3.64 to $3.70. The increased guidance is a reflection of the strength that we have seen in net revenue yield in the back half of the year, which was enough to offset both the $0.10 to $0.12 earnings impact of voyage disruptions, and other expenses from the recent Hurricane Harvey, Irma, and Maria along with Typhoon Talim in the South China Sea, as well is an increase in net cruise cost excluding fuel. Our September guidance for net revenue yield is an increase of approximately 4%, compared to June guidance of approximately 3.5% or a half point increase, which includes the Hurricanes and Typhoon impact. Excluding the impact of the recent Hurricanes and Typhoon’s we believe our yield increase would have been almost 4.5% or nearly 0.5 higher than our June guidance, which is a reflection of the strength in our business. Our September guidance for net cruise cost excluding fuel per ALBD is an increase of approximately 2.5%, compared to June guidance of approximately 1.5%. 0.3 to the results from a decrease in ALBDs and additional expenses driven by cancelled voyages due to the Hurricanes and the Typhoon. The remaining increase is driven by certain pension plan expenses, litigation costs, and investments in environmental and other areas. Now let’s turn to 2018 booking trend. Since June, booking volumes for the first half of 2018 have been running ahead of last year at basically higher prices. At this point-in-time, including the last few weeks of bookings that were impacted by the news flow from the hurricane, cumulative bookings for the first half of 2018 is still well ahead of the prior year at nicely higher prices. However, it is early and the circumstances are still fluid. Now let’s drill down into the cumulative book position. First, for our North American brand. The Caribbean program is ahead of the prior year on occupancy at nicely higher prices, but of all other deployments occupancy is well ahead of the prior year at slightly higher prices. Second, for our EAA brand. For European deployments and seasonal Caribbean program, occupancy is slightly ahead at nicely higher prices. For all other deployments, occupancy and price are well ahead. And just a few other items to consider for 2018. We are forecasting a capacity increase of 2.2%. Given the amounts of capital we invested in our existing vessel and other areas of our business to drive yield improvement, we do anticipate that depreciation expense will increase percentage-wise more than capacity as it has in the past few years. We currently expect depreciation expense to be around $2.03 billion for 2018 versus $1.86 billion for 2017. Although it is early, we believe that we are well positioned for continued earnings growth and achieving our double-digit return on invested capital goal in 2018. And now I will turn the call back over to Arnold.

Thank you, David. Operator, please open the call for questions.

[Operator Instructions] And our first question comes from the line of Robin Farley with UBS. Please proceed with your question.

Great. There are a lot of topics that I would like to ask about, but I will just maybe stick to this one first, which is your guidance was I think remarkable given all the concern about disruption and the uncertainty, your booked position. I wonder if you can talk a little bit about maybe more recent booking trends just given that maybe it’s not clear when some of the Eastern Arabian itineraries would go back to normal, how is that impacting new bookings for the Caribbean in the last kind of two or three weeks?

Good morning, Robin. Thank you for your question. First of all, I think it is just important to point out that there are so many ports in what we call the Caribbean, but overall in the region, and so many of those ports, the vast majority of them are fully operational, there is beautiful sunshine in beaches, and excursions and whatnot. So there’s lots of alternative itinerary planning we can do. There is about five frequently - heavily frequented ports that have been substantially impacted. Okay. And those five ports, I was in St. Maarten's myself a few days after the hurricane hit, and St Maarten’s and the other ports as well, you know the people there are very resilient. They are focused on getting things up and running fast. The things are better to date than they were when those places where hit with severe storms in the past. For example on St. Maarten’s, they told me back when Louis hit, it took them three months to get power back on the island. They had power in a bunch of the districts just a few days after the storm hit this time. And so those places, cautiously optimistic, they will all be up and running or most of them will before the end of the year, which places them well for the peak season. But even without those ports, there are many places we can go, and our own destinations are in great shape. And so we have not seen a lot of cancellations. I'm going to get to your question about the last three or four weeks and the second, I have David make a comment, but frankly we have not experienced lots of cancellations, cancellations are running like 1% right now and so things are positive. So, I will have David comment about the last 3, 4 weeks.

It is clearly, Robin the last few weeks of bookings have been impacted, you know as I said in my notes, there’s been a lot of news flow on the Hurricanes, and any time you have got that news flow it’s going to impact the level of bookings, and there have been some quiet days, but we are very well booked for the fourth quarter, hopefully in the coming days the news flow will reduce, and bookings will start picking up again. But we are well booked and we try to include in our fourth quarter guidance what we expect to be the impact of these booking trends for our fourth quarter.

I would just tell on the comment again - on concerning the recent - obviously, during the middle of a storm, the storms - people weren't booking, people were distracted with other things and that’s obviously impacted the bookings for that period of time, but things are returning and they are looking positive as early. We have to see if it stays in the media Robin in a negative way, obviously that will be a downer, but we think that there is no reason for that and it’s part of our job to make certain people know that there is plenty of great places to go in the Caribbean and even those places impacted are coming back. There is already ships going back to the keys and so things are riding pretty quickly.

That’s great. And maybe just one other question on an unrelated topic, just the write-down in Australia, and just to understand because I think about some of the ships you have in China seasonally changing to Australia part of the year, does the write-down or the impairment charge change like anything with your itineraries or your supply there are like literally nothing changes in your operations?

The reason for the write-down was clearly around less efficient vessels that were in Australia, that’s the bulk of it, and then some goodwill and trademark related to the P&O Australia brand per se, which had a disproportionate number of those less efficient vessels and also had higher costs given the itineraries that they run with those less efficient ships and the lack of scale. So that was related to that, but in terms of China of course Australia is an opposite kind of summer season for China, so ourselves and others will move ships back and forth between the two high seasons in those two locations, but the write-down has nothing to do with that. The write-down was strictly related to less efficient vessels in the plan to put more efficient vessels there over time. Australia is a strong market, has been for us and will continue to be, and we are looking forward over time, you know the ships will come out over time and we will replace them over time with more efficient capacity.

Great and very helpful. Thank you.

Thank you.

Our next question comes from the line of Steve Wieczynski with Stifel. Please proceed with your question.

Hi good morning guys, good morning Arnold. So, I guess you guys have done a really good job over the last couple of years of extending wave season, you know more into the fall as you essentially incentivized, you know your customers to book out earlier. So I guess the question is, do you guys think this year's wave season could be delayed a bit and go back to a more kind of normal wave season given consumers possible hesitation around booking a Caribbean cruise right now?

Well I thank again. We are right in the middle of it and so it is hard to say what is ultimately going to happen, but it is our job to make sure people know there is no reason to wait that the Caribbean is a wonderful place to go, many places to go there. We have 40 plus ports that were unaffected, plus our own destination, plus all the ports in Mexico were unaffected. So there is plenty of places to go. So, we will see, we did have a little disruption for the few weeks here. We are still in Hurricane season, so we have to be fluid and pay attention to this and we are still in media season. So hopefully the media will begin to show the fast recovery and all the wonderful places they are to go. I mentioned I was in St. Maarten’s, I was in Nassau. The Bahamas of course are wide-open right now. I was in Nassau just last Friday and things looked good there. Plus going into next year we already have, we were ahead and so we have less inventory to sell now in 2018 then we’ve had in previous years.

Okay, great. Thanks for the color and then second question, I guess moving over to China right now, you know there is a lot of news out there and in the marketplace right now, obviously you still decree and travel ban that you’re trying to work through, but there is rumors now that potentially there could be travel bans around coming to Japan and I know there is capacity next year for 2018 is going to be down, but can you just maybe fill us in kind of how you're thinking about that market right now as we kind of move into next year around the travel bans?

Sure. Right now obviously we’re planning to grow as normal, but should - technically there are no bans of course as you know, but the Chinese are not going to Korea right now. And it turns out there for some reason they are not going to Japan. Then what we will have to do, what we do in other places in the world, which is change itineraries and figure out maybe we will do, see if we can get approval for some just domestic sailings in China maybe some extended sailings down the Southeast Asia to Thailand, Vietnam, other places, but we will reconfigure do we need to do the good news and that is, is less than 5% of our capacity in China. It is only a few ships and again as, if that were to occur, it will be one of those deviations like all the stuff I rattled off in opening here that we just had to manage through and every year we don't plan for specific occurrences, but we know there are going to be challenges. Every year there is geopolitical issues, every year there is disease scares. Every year, there's typhoons, cyclones, hurricanes. Every year, there is overcapacity in some market. All that stuff happens year-in and year-out and we just have to consider that as normal state of business and be prepared to manage it and you can see so far we have been able to do that.

Okay great. Thanks for the color. Appreciate it.

Thank you.

Our next question comes from the line of Felicia Hendrix with Barclays. Please proceed with your question.

Hi, good morning and just wanted to thank you for how full this release has been in the prepared comments because obviously there has been a lot of uncertainty heading into your earnings. So we have talked a lot so far about this booking law that’s come, you know you have had your two major markets Texas, Florida distracted, there is a misperception about the Caribbean and what’s available and what’s not, and you talked a bit about, you know maybe the media picking up, but I'm sure you Carnival, aren't just also going to sit on your hands waiting for the phones to ring again, so just wondering if you could kind of touch on how Carnival is going to - is planning to stimulate demand and I’m wondering, there probably is some kind of booking hole a bit due to the lower call volume, should we expect to see some discounting or will the demand be stimulated more through strategic promotional activity?

Well at this point in time we are well ahead on bookings and well ahead on pricing. Fourth quarter were largely booked already, and so at this point, we’re not looking to stimulate with pricing that’s a fluid situation that if they call for that at some point, obviously we will make an economic decision, but at this point that has not been the case. Our plan is to stimulate our first to get the good news out via the media. They continue to deliver on the ships, obviously we do a lot in social media, we have lots of people sailing right now in our ships in the Canadian, and we are doing lots of social media with folks on the ship and as well as social media outside of the people on the ships to make certain yield people are aware. You mentioned, Florida and Texas of course, the media impact there in many cases because the travel agents themselves, their offices were closed, right, I mean they shutdown for the storms or whatever, but even in the Midwest of course where there might be less geographic sensitivity and they head as a storm, and so we are in a Caribbean, it takes the whole Caribbean is gone or whatever or they see something on CNN that is highlighted one part of one island and they think every island in Caribbean looks that way. And so that’s something that we have to purposefully combat and offer people just the true picture and that is our job. That’s what we have to do and so far we are doing that and we will have to see it is fluid. We will have to see how it goes, but at this point in time, what I can tell you is, what it is, we are ahead on bookings and price we have less inventory to sell next year, and at this point we haven’t engaged in any big discount.

And we have been working with our travel partners to make sure everybody is fully aware that the Caribbean is open as Arnold talked about before and more than 40 ports where we can take our guest. There are only a several that are closed. So, we are very encouraged and it is a fluid situation and we will monitor it as Arnold indicated. We will make decisions as we go along and do what is necessary.

Thank you for that and then just, lot of people have been, as we've all been trying to analyze the impact of these two major storms, and a lot of people have been using Katrina as a proxy and aftermath, right. And so directly after Katrina at the time Carnival took a bunch of charges, but there was a $0.03 hit directly from the Katrina for the fourth quarter, but then there was this unanticipated about a year and a half of residual negative impact to the industry and it’s a Carnival following Katrina. So, can you just help us and the investors understand why this may be different this time and why you think that cruise performance in 2018 should not be similar to that of 2006, is it solely because of how strong the booking curve is or maybe you could just kind of differentiate the two situations for us?

Well I will give some comments and then I will ask Micky to give some comments, too, since obviously, he lived that first hand. But for us first of all, one thing that is different is we have much more momentum, we are working much harder to create demand. So there is a lot more going on from a demand creation picture to date that existed back then, and that’s a huge difference. We are also going in with lots of momentum for the year, which wasn't necessarily the case back then. The embarkation destinations and stuff were impacted disproportionately in 2006 versus this time around and so embarkation versus transit is a much bigger difference, you have to get the air lift back in as a whole bunch of dynamics is going on there. And so in some regard, so far there is still a fluid situation still a hurricane season, but so far that is a huge, another big difference, but having said all that I think the biggest difference is where we are positioned today. The fact that we are proactively trading demand. The fact that we are working with media today so they kind of present a fair picture and then help informing people what the real situation is. And then we have a much larger base now of previous cruise-goers who understand and know, and that also allows us to continue to perform. But Micky, you might want to share at this point any comments you have about the historical perspective.

Well the huge difference so far is that with Katrina we lost a key home port and losing a home port is totally different than what we have experienced to date, obviously there is still a question about San Juan as a home port, but we only operate one China Sea [ph] class ship out of over 100 ships in San Juan and hopefully that will be open again in a few weeks. You have to remember New Orleans was basically closed for a couple of years and we had chartered ships that the government did try to make up for it. Houston as an example, you would say, well isn't Houston similar. Houston we operated the very next weekend with three ships that sailed absolutely full with a bit of a handful of cancellations to mention. So, it is a totally different situation, but as Arnold said, though the hurricane season isn’t over, so we have to be a little bit cautious about what happens for the rest of the season. I would like to add that unlike those six where we were alone chartering to the government and helping out New Orleans, I have to say I am extremely proud of the way the industry reacted to these hurricanes. And I don't, I clearly am not talking just about Carnival, I am talking about Royal Caribbean, NCL. Everybody was falling over themselves trying to find out how they can help, what ships they can send, what people they can evacuate, what supplies they can send, and that was the entire industry and I have to say I am really proud of the way everybody responded.

Thank you, Micky.

Thank you. And is there any chance you guys will tell us how booked you are for 2018?

You can always use the historical averages that we give you by quarter and just, you know we are close to the high-end of those historical averages, which kind of give you a good feel for where we are.

Great. Thank you so much.

Thank you, Felicia.

Our next question comes from the line of Greg Badishkanian with Citigroup. Please proceed with your question.

Great, thank you. So two questions. First, just as a follow-up, you know obviously you are well booked for next year, well ahead on pricing and occupancy, is there a point where you would start to get nervous where the booking pattern didn’t recover that 2018 won’t turn out to be like another strong year, is there a Thanksgiving or is there some date where you wanted to return to normal?

Hi Greg, good morning. Thank you for your question. It is true that we have a bunch of different brands and they all have their own optimized booking curves to maximize yield and returns. And so they are all monitoring daily and constantly. There's not like one date that's a drop-dead date. It's more where you're on the booking curve along the way and obviously when you have a little bit of patience for the obvious disruption when the hurricanes where happening and stuff, so. But beyond that we are watching how quickly things are returning and we will make the necessary adjustments. We have reflected all of that in our guidance. For the quarter and concerning for 2018, it was early and all we can tell you is what we have told you.

Okay. Just a follow-up on Europe, so North American passengers going to Europe, has this had, if you just see the last week or two, has the weather had an impact on booking trends going to that market since it wasn't impacted by the hurricanes?

There is not a lot left in the European season, the seasonal European season for the North American brands in terms of less to sell because we are well booked, and the season really just goes through the end of October. So, we haven't noticed anything significantly different, but remember it’s just a small amount of a sales that you would have expected in early September for those voyages.

What about booking out for 2018 European sailings by North American? Is that…

Nothing significant. We haven't noticed anything other than bookings in the Caribbean.

Good. All right, thank you very much.

Our next question comes from the line of James Hardiman with Wedbush Securities. Please proceed with your question.

Hi, good morning. Thanks for taking my call and thanks for all the really helpful color to try to tease out the various factors here. There is a couple stats that you guys referenced, I was hoping to get just sort of little bit more color on the 40 port stats that are opened in the Caribbean, what’s the denominator on that, how many total ports are there? And Arnold you talk about five impacted ports heavily trafficked by cruises. I think you mentioned St. Maarten was one, San Juan, what would the other three be?

Okay, so the other ports we have got Grand Turk, which is our own …

No the high - the top ones are St. Maarten's, St Thomas, San Juan, Dominicana, Tortola. Not so much for the North America brands, but some of the European brands are pretty active and Tortola and Dominicana. And they wouldn't be sailing there right now anyway, they would be coming up later in the year. We will see how those, but there are alternative force that they can go to. Did I answer that part of your question, you wanted a little bit of the denominator. I think this is the time where people go really go, we can ballpark it, I would say in total may be 7% to 9% of the ports and we would call broadly the Caribbean, Southern Caribbean, Western Caribbean, Eastern Caribbean. Would have then severely impacted to the point where they were shut down for some period of time. So something like that, okay. But the vast majority of ports are open and again there is options and alternatives and plenty of fun places for people to go and do things and enjoy the great vacation experience and great location value that cruising is.

Very helpful. And then the $0.10 to $0.12 I guess two questions on that, was there any 3Q impact, obviously Harvey was the very end of August. So, I guess A, was there any 3Q impact and as we think about the $0.10 to $0.12 in the fourth quarter can you just help us visualize the various buckets of what that represents, I’m assuming the majority of that is cruises that were extended, but no revenues associated, but I’m guessing there were some cruises that never parted, I’m guessing there were some credits that you were giving passengers, I don't know if the aid that you provided or contributed to the number as well, can you just give us some color on how to think about that $0.10 to $0.12?

Sure. Well first of all in the third quarter there was a little bit less than $0.01 impact, negative impact as a result of Hurricane Harvey but it was tiny. The $0.10 to $0.12 was in total for the year, including that impact. Nine of the $0.10 to $0.12 were cancelled voyages, expenses we incurred, some lower occupancy on the voyages that took place immediately after Irma, and the other $0.01 to $0.03 is the estimated booking impact for the fourth quarter.

Perfect. And then I guess just vary lastly here, I think we generally know that wave season is our extra busy time for bookings, how big is the month of September typically and then assuming that Florida and Texas are the markets that have been most impacted in terms of bookings, any idea how significant those markets are in terms of booking actual cruises?

Overall, this is a low booking period normally, anyway seasonally. It’s just a time of the year, it is a low booking period. So that, in a way it’s helpful. In terms of the specifics, David.

Yes, I mean, if you come down to Florida at the moment and you look around, other than some piles of trees and things on the front of everybody’s lawn that needs to be picked up, South Florida and most of Florida is back in business. There were some areas that were more heavily hit. So there are expectations, yes there are a few people who were impacted and those who are directly impacted, particularly in Florida or small numbers, but the rest are back in business and life is continuing and so we’re very positive about the future.

And similarly on Texas, we don't see any extraordinary slowdown or negative impact at this point.

Extremely helpful. Thanks guys.

Thank you.

Our next question comes from the line of Jamie Katz with Morningstar. Please proceed with your question.

Thanks. Good morning. So I am curious about the components of yield growth and it looks like this is the second quarter where you guys have pulled together ticket price growth that has been faster than on-board growth at least on an as reported basis, and so I’m wondering anecdotally if you have seen less incentives are required to motivate consumers to get on the ships and whether or not that’s disproportionately benefited any of the brands over other brands?

Well I would say that the greatest incentive for people to get on our ships is the reality that is a great vacation experience and is already a great value. So, we haven't done extreme discounting or anything like that to fill the ships in quite some time. We do offer no incentives and packaging of some on-board activity options and that sort of thing; and along the booking curve there are combination of things that are offered at different stages across the various brands, but if I understood your question, we have really haven't seen a need to drive all kinds of special deals. Basically, we are creating demand. The brands are very certainly doing that on their own brand and visual brand promotions and I take it with ease. We talked about OceanView and PlayOcean and all that today that has global footprint. We did not talk about the shows, we talked about the shows in the US base for you guys, but frankly we have shows in the UK, we have shows in Italy. So we do global demand creation and I think that’s frankly been the biggest driver that combined with the execution on the ships, which exceeds guest expectations and word of mouth remains our most powerful marketing tool.

Okay. And then for first half results looking as strong as they do at this point given the uncertainty in the North American market may be with weather related headlines, are there any European countries that have been performing noticeably better this year relative to past years that are worth calling out?

I would just say in general overall our European brands have enjoyed a strong year as is evidenced by what we shared with you guys. And so overall it has been really great. If you want to single out countries I think practically speaking, you would have to single out Germany as doing even better than the others only because with the capacity increases in Germany and the number of people cruising that the penetrations down in that market and number of people cruising is starting to outpace any other country in Europe, although the Brits would like to give that a run for the money. And so, I would say Germany continues to be particularly strong, but overall we’re doing well in Europe.

Thank you.

Thank you.

Our next question comes from the line of David Beckel with Bernstein. Please proceed with your question.

Hi, thanks a lot for the question. My question, my first question is about to drive cruise market for the Carnival brand specifically, I was wondering can you give us any color on what percentage of occupancy, typically comes from drive-cruise and maybe specifically Florida as a percentage of your overall Carnival brand occupancy? And given the widespread, I guess I will use the word destruction, but it sounds like things in South Florida are okay. The rest of the state did suffer quite a bit of damage, is that something that maybe concerns you looking out into the early and mid part of next year?

Well as I said ships are starting to go back to the keys already that was the place that suffered the most severe direct impact I guess. The Western Florida coast, Naples, Tampa, et cetera, again as sort of what David said, primarily is cleanup, a lot of trees and stuff down, but power is back on, you know people in offices and things, their life is going back to normal, it’s from a ships and port standpoint we are able to go to the ports. We need to get into, and people are able to drive and get there. So at this stage there will be a overall comment. We don't give a lot of details by brand specifically, but I think overall we could give you some directional stuff about drive market and the number in Florida.

I think we have said many times and I think it is 50% of America was within a six hour drive of a Carnival Home Port, so the drive up market is important to Carnival Cruise Lines and it is a big part of the business, and it is part of their success, but the driver market does expand outward, it is not just within an hour to drive of our home port, people are willing to drive the whole day.

And if you go to the ports whether it's Galveston, Mobile, New Orleans, Charleston, Beaumont; and of course all the ports here in Florida they are up and running and people can get to them.

That’s really helpful. I appreciate that. And a question about destinations you mentioned that some ports are more affected than others, but they will eventually get up and running, say by the end of the year, has there been situations in the past where port was up and running, but the destination itself was not desirable for one reason or another because the plan to and infrastructure wasn’t quite built up to receive tourists?

That happened in New Orleans of course back when Katrina hit because it took out the whole city pretty much. So that was definitely the case in New Orleans. I would say, as I said, I was in St. Maarten’s and look we don't know yet, we have to see what happens, but what I can tell you is the resilience of the people, the focus they had, they were already cleaning up, power was back up in a number of various - number of people even in St. Maarten have been unaffected, their home was unaffected et cetera. But the board walked there had sand on it. There was a large ship that followed up into downtown. The Marine was ransacked with wind and what have you, but most of that stuff is cleaned up. We have an excursion there that we own that we were going to open it, in fact the day I visited was the day we were going to open it and obviously we did with the hurricane, but our excursion, which has zip-lining and a number of other venture things there in St. Maarten. It is going to be up and running by December for sure. So that one, I know because we have control and we know exactly what’s happening with it. I would suspect that some of the excursions, especially the ones beach type and water things would be operating even sooner than that. And so, again we have to see, I don’t want to overpromise, if that doesn't happen there are many places to go in the Caribbean. We have destinations Half Moon Cay, Princess Cay, our private islands. We have Mahogany Bay in Honduras. We have Cozumel, we have operations, we have a number of Grand Turk. We have a number of places that we own ourselves that we can take guests and have highest rated guest satisfaction scores of any destinations. And there are many places in the Caribbean that are open for business, you know and all over the Bahamas and Southern Caribbean is completely open et cetera.

Great. Thank you so much.

Thank you.

Our next question comes from the line of Harry Curtis with Nomura. Please proceed with your question.

Hi, good morning everyone. I think most is answered, good morning. I had sort of a dark question, but it is really one that is important because your point of embarkation in Florida, I think that it’s generally there was a sigh of relief when the Eastern side of Florida was, didn't get the brunt of the storm, what kind of infrastructure - can you discuss the infrastructure resilience and in the Port of Miami should a Cat 4 or Cat 5 hurricane impact your points of embarkation in Eastern Florida?

I think unfortunately Cat 4, Cat 5 gives you an intensity of a storm, but it doesn't really tell you that the damage and risk because there are so many factors in a hurricane. For example, if you look at Turks and Caicos, they got directly hit with a Category 5. And for [indiscernible] the main city there is pretty much intact, okay. At the same time, some other places got hit when the storm was down to the Category 4 and they had much more severe damage. So it depends on so many things. Storm surge, it depends on height of buildings because the winds are higher, 10 meters up then they are lower, depends on how the structures are connected. So many different things, factor in. So for the Port of Miami is Miami. So Miami is pretty much engineered in many cases to take hurricanes. And if you look around the world even in New Orleans for that matter you know the ports come up pretty quickly. The question is, what happens with the rest of the area, and access to ports, air lift to get in and so on and other services. I would say anything could happen. First of all, it is very difficult as you can look at over time for a storm to hit Miami directly, even this one. They tend to either hook or slice, just because of the nature of the weather and all that, but if they do hit, then I would say that Miami has prepared as any major metropolitan area to recover.

Thank you for that and then I just have a housekeeping question. If my math is right, David, is the implication on share repurchase that since the end of the third quarter you have bought just over $200 million of the stock back?

That’s correct.

Okay. Very good. Thanks very much.

Thank you.

Our next question comes from the line of Tim Conder with Wells Fargo Securities. Please proceed with your question.

Thank you. And again, thank you for all the explanations you have given on the call here. Maybe to drill a little bit in, I just ask the question one more angle on it here, have you seen the bookings and this pause that we have seen here for the Eastern Caribbean itineraries in particular the impact, and I guess clearly that’s what you are watching here looking especially for the first half of 2018, and I will ask a similar question related to the China, given the ramp in North Korea rhetoric, have you seen any impact of bookings on pricing for Chinese consumers in the Asian market as a result of that over the last couple of months?

Yes, sure. Thanks for your question. I will take the China part. No, we haven't seen any big booking trends related directly to noise around North Korea tensions or anything like that in China. So that is a pretty straightforward one. So I haven't seen - we haven't seen anything.

And on the Caribbean, so we obtained very close attention to all itineraries, but we have, as we have talked in our comments we have seen a slowdown in the Caribbean bookings in general because of the news flow and that’s why what we are trying to do is make sure everybody completely understands that the Caribbean is open for business. They are going strong, there is many great ports to go to, and I won’t take the time to reiterate everything that Arnold previously said, but it is important we work with our travel partners, get this news out to make sure everybody understands that it is a great opportunity to have to have great on-board ship experience and a great port experience in the Caribbean.

And people are sailing there right now. They are having a great time.

Okay, okay. And gentlemen again thank you for that and one last question, any updated commentary related to China capacity for the industry in 2018? There is, I guess mixed reports, one of the industry publications are saying down 13%, just any color that you can give an update on the industry capacity there for 2018?

Yes, for 2018 from what we have seen for the industry, the expectation is pretty flat.

Yes, I think more directly, but I have to tell you and I understand why you asked the question, but the reality is, China is still an embryonic market. It represents a very small percent of industry capacity, certainly a small percent of ours. It is still, it is going to be up and down because there is an embryonic market and it is a B2B market still, even though people, including ourselves are trying to expand distribution get to a more typical market type of dynamics from controlling pricing, when I say control, effecting pricing through a distribution channel as more direct and so on. All that underway, but we are really still tiny, relative to the overall outbound tourism based in China. We are still tiny relative to our overall capacity and the market is still evolving. Long-term it is going to be a huge market. But right now, everybody's gotten their number of ships, and there's only so many ships that could be there. So flat or down 13% to be honest with you, I don’t even know if it makes much difference in China at this point.

Okay great. Thank you again gentlemen. Appreciate the color.

Operator, well we chose to let the call got over to answer as many questions as we can, well at this point we will take one more question.

Thank you. And the final question comes from the line of Jamie Rollo with Morgan Stanley. Please proceed.

Yes thanks, thanks for the [indiscernible] just two quick questions, the first…

Hey Jamie, they always save the best for the last man, go ahead.

No pressure than. On, so just two questions please, first on capacity growth for the Caribbean next year, I think you said on the last call, you were up 4% or 5%, so do you said expect to be at that figure or much reduce it? And what you think the industry capacity growth is for next year for the Caribbean? And then on cost, I think you 100 basis point increase in cost guidance, I think 0.7% was from extra dry docks, I am just wondering does that reverse next year and apart from the depreciation comment, or when you have a sort of big cost factors we should think about for 2018? Thanks.

I will let David comment on the cost first and then I will handle your other question to wrap it up, go ahead.

So Jamie on the cost side, the other 0.7 wasn’t dry docks in comparison to our June guidance. The point increase we said 0.3 of a point was related to the lower ALBDs and the additional hurricane expenses, and I gave some examples in my commentary on what the other 0.7 points were, it was the pension expense, it was the additional investment in environmental and other areas, and it was also some litigation cost, but on a full year basis back in December, a 0.7 points of the year-over-year increase was related to dry dock and most of that dry dock cost actually seems to be hitting in the fourth quarter, which as you would expect is the slow time of the year and the time of the year that we choose to dry dock a lot of shares.

And then concerning the Caribbean, the industry's going to be up a little over 6% I believe. We are up in little over 5%. We have absolutely no intensity of reducing capacity in the Caribbean, it was up 6% this year, and you can see we did well the Carnival brand outperformed, and overall, we did well in the Caribbean. And we think we are doing a decent job of creating demand. We still think there is some consumer attitude tailwind that is helping us as well. And at this point we are not giving guidance for 2018, but that would be the circumstances we see. We don't have any intentions of reducing capacity in the Caribbean going forward. Did I answer your question Jamie?

Thank you very much. Yes it does. Thank you very much.

Thank you. Thank you everyone for participating. We really appreciate it. Again we are totally committed as you guys know, to achieve a double-digit return on invested capital in 2018. We feel we are well-positioned to do that, and we thank you for your time.

Ladies and gentleman that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.