Good morning, everyone, and welcome to our first quarter 2019 earnings conference call. I'm Arnold Donald, President and Chief Executive Officer of Carnival Corporation and PLC. Today, I'm joined by our Chairman, Micky Arison, as well as David Bernstein, our Chief Financial Officer, and Beth Roberts, Senior Vice President, Investor Relations. Thank you all for joining us this morning. 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. We delivered first quarter-adjusted earnings per share of $0.49. That's higher than the midpoint of December guidance by $0.07 per share and $0.03 per share lower than last year, which includes a $0.03 drag from fuel and currency.
For the full year, we're updating our adjusted earnings guidance range, previously $4.50-$4.80, now $4.35-$4.55 to reflect the significant drag from fuel and currency moving against us, impacting our full year by $155 million, or $0.22 per share since the time of our December guidance. Our guidance reflects continued improvement in operating performance. We are maintaining the operational guidance we gave for the year with an update for changes in fuel prices and currency. Included in the midpoint of our guidance is $0.25 per share earnings growth from operations over the prior year, which is a reflection of our 120,000-plus employees who go above and beyond every day, as well as hundreds of thousands of travel professionals who support our world-leading cruise brands.
It is their combined efforts that are helping us to once again withstand multiple headwinds, including cyclones in Australia, Brexit uncertainty in the U.K., heightened political uncertainty in Germany and France, as well as ongoing economic malaise in much of Europe, including Italy. Despite those headwinds, wave season was consistent with the strength of demand we experienced going into the year, building further confidence in our full-year revenue expectations. For our North American and Australia brands, NAA, our booked position is ahead of the prior year at higher prices, while our EA brands are well ahead of the prior year at lower prices. Our brands are strong and growing, including Continental Europe, where we continue to expect revenue growth driven by double-digit capacity increases.
We remain confident we are on a path that includes delivering over time, double-digit earnings growth, and elevated sustained double-digit return on invested capital through a consistent strategy of creating demand in excess of measured capacity growth while leveraging our industry-leading scale. While our strategy is consistent over time, the relative contribution from the components of our earnings model, as we've stated previously, may change a bit. Going forward, our earnings growth will include a higher contribution from capacity growth. That increase in capacity will lend itself to more predictable revenue growth and enable us to better contain costs, in essence, enhancing the reliability of future earnings growth. There are multiple factors that we've put in place over the years to ensure sustained earnings growth and improvement in return on invested capital. For example, reducing our fuel exposure.
This year, our unit fuel consumption will be down nearly 4%, bringing the cumulative unit fuel reduction to 33% compared to our 2007 baseline. Our ongoing efforts to leverage our scale through global sourcing have taken over $350 million of non-fuel costs out of the business so far. A higher weighting of fixed-rate debt at historically low rates reduces interest rate exposure. Our consistently strong balance sheet and credit ratings ensure through our access to $11 billion of committed export credit facilities, that we will be able to comfortably meet future capital needs while further heightening our relentless focus on driving continuous improvement in health, environment, safety, and security. Of course, our ongoing new build program is integral to the growth in earnings and return on invested capital over time.
Not only are our new builds on average roughly 15%-25% more cost-efficient and approximately 25%-30% more fuel efficient, they also help to create further demand for cruising. We are introducing several exciting new ships this year. We just took delivery of Costa Venezia, purposely designed to offer our Chinese guests the best of Italy. The ship introduces Italian culture and lifestyle with interiors inspired by the city of Venice, including authentic gondolas, retail shops featuring iconic Italian brands, and of course, Italian cuisine. While at the same time offering many comforts of home, like Chinese-style karaoke and food options that are popular in China. The ship is currently on its maiden voyage along the Silk Route before beginning service in Shanghai from mid-May onward. Costa Venezia is just another step in the growth of a strong and sustainable cruise industry in China.
Late this year, we will welcome three more vessels to our portfolio of leading brands. Now throughout the year, we are ramping up ahead of these deliveries and expect to reap the benefits in 2020. In October, Sky Princess, the first new build activated with MedallionClass, blending many Princess hallmarks with new guest experience features like Sky Suites, the largest balconies at sea, as well as a brand-new jazz experience. Sky Princess is nearly sold out for the Med this fall and booked 40 percentage points ahead for the Winter Caribbean 2020, all at consistently higher rates. Costa Smeralda, also expected to enter service late this year, was designed to celebrate the Sardinian culture, serving continental Europe, including Italy, France, and Spain. Booking trends for Costa Smeralda are also reflecting strong demand and capturing a double-digit price premium.
Last but not least, in December, Carnival Cruise Line will launch its new flagship, Carnival Panorama, their first new ship homeported on the West Coast. Bookings are ahead more than double digits in both rate and occupancy in 2020 compared to the same itinerary in 2019. Our marketing efforts on the West Coast, including the Carnival AirShip and the Rose Parade, have generated over 1 billion media impressions and are attracting a broad audience, particularly those new to cruise. Bookings for Mardi Gras, to be delivered in August 2020 and the first in a new generation of ships for the Carnival brand, were opened this past quarter.
Mardi Gras generated record bookings for a new ship launch by the Carnival brand, with almost 10 times the number of bookings as the very strong Carnival Vista launch back in 2016, with more than 65,000 guests preregistering in advance of the inventory even opening. Overall, Carnival continues to outperform in the Caribbean, with bookings ahead in both occupancy and rate across all future quarters. In April, we will welcome the totally transformed Carnival Sunrise after undergoing nearly a $200 million dry dock, adding all the culinary and entertainment experiences Fun Ship 2.0 is known for, such as Guy's Pig & Anchor Bar-B-Que Smokehouse and outdoor fun with SportSquare, WaterWorks, and Serenity adult-only retreat. All of these new features are resonating well with the brand's guests, with bookings for Carnival Sunrise up double digits in both occupancy and price. Rollout continues on Ocean Medallion.
The MedallionClass experience is now full-ship active on two vessels, with a third ready to go, it's still early. There are many features available through Ocean that guests have not yet become familiar with to take full advantage. While we continue to garner innovation accolades, including IoT Wearables Innovation of the Year and finalists for the prestigious Edison Awards, clearly the most important impact is on our guests and on our bottom line. While it's still early to determine the impact on earnings, guest satisfaction scores for MedallionClass are consistently among the highest in the Princess fleet. Since the announcement of full activation on the two Princess ships late last year, we believe MedallionClass has garnered increased demand, which we expect will drive yield. Additional ships are expected to come online later this year as MedallionClass expands across the Princess fleet.
While all are early, indicators are very positive. Now there were many marketing and public relations efforts that kicked off during wave season to generate demand in excess of measured capacity growth and continue our momentum. In the U.S., Holland America captured over four billion media impressions around Oprah's Girls Getaway cruise and the naming ceremony for Nieuw Statendam, with Oprah serving as godmother. For Carnival Cruise Line, the new roller coaster experience on Mardi Gras alone generated over one billion media impressions. Our award-winning proprietary television programs have now reached more than 525 million views cumulatively. One of the programs, Ocean Treks with Jeff Corwin, has just been nominated for two Emmys. In Europe, Costa launched a new marketing program with Penélope Cruz, which has been well-received and is outperforming all previous brand campaigns.
All told, our brands captured 75% of the positive coverage for our industry so far this year, five times that of our closest peer. We also made meaningful progress this past quarter putting our industry-leading scale to work. As you know, YODA, our revenue management tool deployed on six of our brands, we believe will continue to drive incremental revenue, particularly in the second half of 2019 and beyond. On the cost side, we remain committed to delivering nearly a point of cost savings this year, helping to mitigate inflation and contributing to our cost guidance above just 50 basis points for the year. Our fleet replenishment efforts are purposely designed to achieve greater economies. We will welcome 17 larger, more efficient ships and continue to divest our less efficient ships, representing net capacity growth of approximately 5% compounded annually through 2022.
We've been consistent with our execution around measured capacity growth. Overall, we operate in an industry that is both under-penetrated and capacity-constrained, which bodes well for creating new demand in excess of capacity increases. That should allow us to continue to fill our ships at increasingly attractive rates while still providing a better value relative to the equivalent land-based alternatives. During the quarter, we also completed additional share repurchases of $266 million, bringing a cumulative total to nearly $5 billion since 2015. The share repurchase, of course, is in addition to our recurring dividend distributions. We remain on track to deliver our full-year guidance as we continue with sustained double-digit return on invested capital and continued growth in both earnings and returns over time. We actually don't need things to be very different in order to deliver sustained double-digit earnings growth.
Even with minimal yield increases, the capacity we have coming online and the inherent efficiencies and scale advantages we gain from that capacity will help to contain costs and enable us to achieve double-digit earnings growth and elevated return on invested capital. Having said that, of course, we will continue to work to create excess demand over our managed capacity growth to produce even stronger results. With that, I'd like to turn the call 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'll start today with a summary of our 2019 first quarter results. I'll provide an update on current booking trends for the remaining three quarters of 2019, finish up with some additional color on our 2019 March guidance. As Arnold indicated, our adjusted EPS for the first quarter was $0.49. This was $0.07 above the midpoint of our December guidance. The improvement was driven by two things: $0.02 of favorability in net cruise revenue and $0.06 of favorability in net cruise costs without fuel and other expense items, mainly due to timing between the quarters. Both favorable items were partially offset by a $0.01 unfavorable net impact from fuel price and currency.
Let's look at our first quarter operating results versus the prior year. Our capacity increased 4.1%. Our North America and Australia segment, more commonly known as our NAA brands, was up 5%, while our Europe and Asia segment, more commonly known as our EA brands, was up 2.5%. Our total net revenue yields were up a half a percent. Let's break apart the two components of net revenue yield. Net ticket yields were down 0.4%. Our NAA brands were flat, while our EA brands were down 0.7%. Both segments had tough prior year comparison. However, I did want to note that Caribbean yields turned positive in the first quarter on an 8% capacity increase, also against tough prior year comparisons. Net onboard and other yields increased 3.1%, with similar increases on both sides of the Atlantic.
In summary, our first quarter adjusted EPS was $0.03 lower than last year as a result of the net impact of fuel price and currency costing $0.03, with small operational pluses and minuses offsetting each other. Turning to 2019 booking trends. As Arnold indicated, wave season was consistent with the strength in demand we experienced going into the year. Booking volumes for the remaining 3 quarters of 2019 have been running ahead of the prior year at prices that are in line with last year. Let's not forget that this wave season activity is on top of 2 consecutive years of record wave season. While prices on overall bookings during wave season are in line with the prior year, prices for our NAA brands were higher but were offset by our EA brands, driven by their sourcing in Continental Europe.
At this point in time, cumulative advanced bookings for the remaining 3 quarters of 2019 are ahead of the prior year at prices that are in line with last year. Let's drill down into the cumulative book position for 2019. Cumulative advanced bookings for our NAA brands are ahead of the prior year on both occupancy and price, driven by nicely higher prices in the Caribbean and the seasonal European program, while prices in Alaska are lower than last year's record levels. Cumulative advanced bookings for our EA brands are well ahead of the prior year at lower prices. Again, driven by our EA brand sourcing in Continental Europe. During the last year, we have made revenue management decisions which we believe will optimize our net revenue yield growth for 2019.
In fact, even with an overall 4.6% capacity increase, we have less inventory remaining for sale than we had at this time last year. Finally, I want to provide you with some additional color on 2019. Our adjusted EPS guidance for 2019 is $4.35-$4.55 versus $4.26 for 2018. The midpoint of our March guidance is $0.20 less than the midpoint of our December guidance, driven by the net impact of fuel price and currency costing $0.22. We expect higher fuel prices will cost us an additional $0.28, while we are forecasting to benefit from currency movement by $0.06. In addition, we flow through the $0.02 revenue beat from the first quarter. All other operational changes were small and netted out. One final note for those of you who are trying to forecast the remaining quarters of 2019.
We expect most of the 2019 adjusted EPS improvement versus 2018 to occur in the third quarter, which has the easiest prior year yield comparison. Now I'll turn the call back over to Arnold.
Thank you, David. Operator, please open the line for questions.
Thank you. Ladies and gentlemen, if you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you're using a speakerphone, please lift your handset before entering your request. One moment please for the first question. Our first question comes from the line of Robin Farley with UBS. Please proceed.
Great. Thank you. Just had a question on the guidance. I think you had previously said that you expected Q2 yield growth would've been higher than Q1 yield growth. I know Q1 came in higher than flat. Q2 guidance seems to not be ahead of the prior guidance either for Q1. I wonder if you could talk a little bit about Because it sounded like the trends in wave season have been consistent and how you expected, but maybe it sounds like Q2 wasn't as strong as what you had thought three months ago. Thank you.
Hey, good morning, Robin. It's good to see you in the front of the queue again. Go ahead.
I know. I worked this time.
Robin, when we put together our December guidance, the numbers were relatively close. Some of it was driven in the first quarter, by the improvement that we saw, a 3.1% increase in onboard and other revenue. Those numbers are very difficult to pinpoint each quarter. Overall, we started out the year with about flat the first half of the year. We beat the first quarter. We didn't see anything changing significantly in the second quarter, so we just maintained the flat yield guidance for the second quarter. The difference between the quarters is small, and we're just not that good for a half a point between the first quarter and second quarter.
If the upside though, in Q1 mostly came from the onboard, and obviously you don't have the advanced visibility on that. Is there anything about the itinerary differences or anything or trends that Are you just assuming that the onboard upside won't happen in Q2 until you actually see it? Maybe is that how to think of it?
Yeah. You know that overall for the year, I think I said in December, we guide to approximately 2% in onboard overall. The number isn't exactly 2% by quarter, but the overall is approximately 2%. As I said before, it's very difficult to say exactly what comes in. The itineraries in the markets are very different. There are lots of other factors, new programs we can pick to roll out, and we continue to see a strong trend in onboard revenue. We hope we can continue to do better in future quarters as well.
I think Robin, just the overall guidance for the year just reinforces what we've seen so far. It just gives us confidence in the guidance we've given for the year, and we certainly don't see any weakening or anything like that, in terms of yield.
Okay, great. Thank you.
Thanks.
Our next question comes from Steve Wieczynski with Stifel. Please proceed.
Yeah. Hey, guys. Good morning. I guess the first question would be around Europe, and maybe if you could help us think about that market today versus where you were back in December. I guess, what I'm getting at is if things over there gotten better, have they stayed the same or have certain markets weakened? Maybe also if you could talk about the promotional environment over there as well.
Yeah. First of all, as you know, we've got double-digit capacity increase in Europe and kind of uneven economic environment. The reality is, the bookings are strong and we're doing some proactive management. Our yield management teams have decided to be way ahead on occupancy given the capacity increases. Hopefully we'll have an opportunity to deliver flattish yields or whatever for the course of the year. The most important thing is to grow our earnings. We are anticipating earnings growth in Europe with a combination of what's going on. Right now we feel solid in where we are. We feel confident and strong again with the guidance and with the fact we're going to grow earnings.
Yeah. I don't think anything materially changed from a viewpoint in December. If anything, it probably a tad better in Europe. We did split the world that I talked about. The NAA brands being at higher prices and the EA brands, that book position being at lower prices. If you look at our overall yield guidance for the year, it really is a tale of two different worlds. The NAA brands are probably looking at guidance for the year that's probably double our overall corporate guidance, whereas for our EA brands, you're looking at sort of flat-ish overall yields built in, and that's how you get to the combined 1%. Nothing has materially changed since December, like I said, probably a tad better than we anticipated.
Okay, got you. That kind of goes into my second question, David. I guess, one of the questions we've gotten a lot is, why would your yield guidance for the year be unchanged given the 50 basis point beat you had in the first quarter? It seems like the feedback we've gotten from your competitors and the trade relating to wave has been extremely strong. What's holding you back from pushing that yield guidance a little bit higher right now?
The higher yield guidance in the first quarter was worth $0.02. You're just talking about $0.02 in EPS overall. There's still a lot left to go, and the uncertainty in onboard and other. At this point in time, we're maintaining our guidance for the year operationally overall. There's a lot of other unknown factors, hurricane seasons, and lots of other things out there. We always provide for that, and hopefully we have a good hurricane season. We're in a good, well-booked position, as we had indicated. We're ahead of the prior year on 4.6% increased capacity, and we feel very good about our overall situation.
We have less volume to go now than we had this time last year, even with the overall capacity increase. That's, again, reinforcing what you just said, a very strong indicator of successful demand creation. We're really focused on earnings, and I understand people look at yields, and it's really difficult to do these comparisons because you got a basketball orange and a ping pong ball in terms of peers. The comparisons aren't that meaningful because we have such a different mix. We have nine brands with some are below the fleet average, some are above, and so on and so forth. Those are difficult things. We focus on the earnings, growing the earnings, and growing return on invested capital. Again, you're right, things have been strong, but we have a ways to go.
We're not all the way through it yet, we're just, as always, allowing for things to happen because there've been headwinds, there'll probably be future headwinds.
Okay, great color. Thanks, guys, appreciate it.
Good.
Our next question comes from Felicia Hendrix with Barclays. Please proceed.
Hi, good morning. David, when we look out to the rest of the year and we think through the second half, just by doing the math, the net yields need to be up a couple hundred basis points to get to your full year. At the same time, we're seeing the mix of Europe go up. I know some of it is your NAA type of seasonal Europe, but we're also seeing your European-centric capacity also mix up. I'm just wondering if you can help us think through the second half given the deployment and where Europe falls in that.
For the second half of the year, obviously, given the first quarter yield and the second quarter guidance, the second quarter clearly is going to be up over 1% in order to get to the first half-
Second half.
Sorry. Segment second half over 1% in order to get to the average for the year of 1%. That is a combination of onboard as well as ticket in the back half of the year. When we look at the overall booking trends, particularly in our NAA brands, which I said were ahead at higher prices, we are seeing that being reflected in the numbers, and we feel confident that we can achieve that. The EA brands are offsetting some of that as we had talked about over the last couple of quarters.
Okay. That's helpful. Thank you. Can you just talk about Alaska? It seems like there's been a bit of a change in what you're seeing there since the last quarter. I think on the last call, you said pricing was flat, and now you're saying that pricing is down in Alaska. Can you just walk us through what's unfolding there?
Yeah, we do have 17 ships in Alaska. We've got an 8% capacity increase. Overall, when you put it all together, the book position we did say was down versus pricing in line. Keep in mind, in December, it was very early for Alaska. As you get into wave season, you see a much more
substantial portion of Alaska being booked. Remember that 2018 was record pricing in Alaska. Overall, we feel very good about our pricing for the various brands we have up there.
Okay. Just last thing on just the base-loading strategy that you're employing in the EA region. Also you didn't really comment on the U.K. I was wondering, your competitors have talked about seeing some volatility there. I was hoping you could talk about the U.K. also. In the base-loading that you're seeing there, have you been able to see any kind of increase in pricing as you get closer to the cruises? In other words, to the actual specific cruises. In other words, has your base-loading strategy kind of been successful, and then if you could just comment on U.K.
Sure. The revenue management strategy we feel has been very successful, that we're optimizing the yield for 2019 in total. As I said in my prepared remarks, we did make some revenue management decisions over the last year. We were ahead, in some cases, we were considerably ahead, and we have been seeing good improvement close in and over time. As far as the U.K. is concerned, we had said, as Arnold said, there is uncertainty relating to Brexit. The U.K. is doing okay, but clearly had it not been for the uncertainty, we probably would have done perhaps a little bit better in the U.K. We'll never know for sure.
Okay. Thank you so much.
Our next question comes from Harry Curtis with Nomura Instinet. Please proceed.
Hey, good morning. I wish I could diversify the line of questioning here. My apologies.
It's okay. Go ahead.
I'm wondering about, do you have any evidence of improved pricing sequentially as we look ahead into Europe and Alaska this summer for the inventory that you haven't sold? Are you seeing some beginning trends in rising sequential pricing for any given week or any given itinerary?
I would say a couple of things. First of all, when you think about the comparisons to the prior year, we had tougher comparisons early, the second-half comparisons are not as difficult. When we start talking and comparing yields first half, second half, you've got a plus from that. In terms of pure pricing, our revenue yield scientists and deploying yield and all the tools we're using, they're constantly chasing what's going to create the optimal outcome. That varies by brand, by itinerary, and is built up itinerary by itinerary. The simple answer to your question is, of course, we're seeing pricing strengthening as you get close in. Of course you are. We also are saying we're going to have second half yield much stronger than the first half yield.
What we're really saying is we're going to drive earnings, and earnings are going to grow this year and in the future. They're going to grow double-digit on average. Earnings are going to grow this year, single-digits. We're working hard to make sure we do even better. We're going to elevate return on invested capital. That's the real message. The yield story for us is relatively complex. We've got luxury brands, premium brands. We have nine brands, different world markets, et cetera. Even when within a brand there can be yield improvement, it can weigh down the average for our corporation if that brand is below the fleet average. It's a complex thing, but overall, the simple answer to your question is, of course, we see strengthening as we close in. We've got less to book.
I guess it's the sort of the same question repackaged. I'm wondering what level of confidence do you have, particularly in the EA brands that as we get closer to the third quarter and that there's a low risk of you having to do some incremental promotion and pricing coming down?
No, we have less to sell, so I think we're in good shape now in Europe and have been all along. We are along our original guidance there. Nothing has weakened or worsened or anything like that.
Okay. Very good. Thank you.
Thank you. I hope I answered your question.
Our next question comes from David Beckel with Bernstein Research. Please proceed.
Thanks a lot for the question. If my math is correct, it looks like even ex fuel and FX, you're looking at sort of 6-ish% EPS growth this year. I guess in light of what you've done with your revenue management strategy this year, which is to emphasize, I guess, stability and confidence, how should we as investors expect EPS growth to improve going forward? Is it really just European structural weakness this year, or is this lower for longer something that we should expect going forward?
Okay. Let's just focus on earnings, because that's the good part. If you look at the 5%, 6%, that's directionally accurate with what you calculated. Obviously, this year we have some ships coming in late in the year. We've got anticipated increased levels of capacity coming for the next several years. We've obviously, from a cost standpoint, spent more this year in advance of actually having the capacity. What it'll take for us to do double digit, I think 1% of yield is equal to something like 25% of earnings per share increase, and 1% of cost is like 3%. Some combination of one more % in yield or less and 1% better cost performance, which we are directionally capable of doing or even better, and you're at double-digit earnings growth with the capacity we have. That's why we have the confidence we have.
We understand what's happening with the business. There's not structural weakness when you use those kinds of words. The fact is, we've got double-digit capacity increase in Europe, the ships are being filled, and they're actually ahead on the booking. We've got significant capacity increase in other markets. Without going in, we don't give guidance by market stuff, historically, what's happened so far and what we're anticipating, Caribbean is super strong, the NA brands are strong. There's no real structural weakness. It's just dynamics and artifacts of when you bring in capacity, how you spend in advance, prepare, all of that. Meanwhile, we're still growing earnings now.
Great. That's helpful. Just a side question attached to that then. If, say, Europe is sort of stable for the rest of the year, the expectation, I think, from your point would be to yield up as you go along. How much sort of upside could we expect from this sort of base loading strategy if that were to materialize throughout the year?
I think, again, the guidance we've given you for the year reflects what we think at this point in time, our best guess for the results would be. We factored all things into our guidance, including knowing there's going to be some headwinds that we haven't seen yet or whatever, as happens every year, and it's already happened this past quarter. We'll work hard to beat the guidance like we always do. I think the guidance is reflective of what we anticipate Europe, North America, and globally.
Got it. Just one quick follow-on. There's some concern about the Costa brand and MSC's introduction of new capacity this year and then going forward. Are you seeing a fairly competitive dynamic from MSC, particularly in Europe, as it affects Costa?
While we typically feel that the brands are pretty independent of each other and other cruise companies, we need them to fill their ships and fill them early because there is something that relates in the marketplace, which is the psychology of pricing. That can be a cap on what you can achieve based on what other companies are charging in the marketplace or whatever. Having said that, if there is a brand that has a competitive set because of the source market and the proximity, I would say MSC and Costa would probably be the closest to having some significant overlap in competitiveness versus, say, most of the other brands compared to any of the other brands. Having said that, we feel confident in Costa. We see opportunity from an operational standpoint to grow earnings this year.
We have some capacity increase in Costa that is not new build this year in Costa European part of the business. Next year, we've got Costa Smeralda coming in. She's booked great so far, very strong, almost double-digit kind of improvement opportunity there. We see Costa being strong and looking forward to the brand continuing to perform well and perform even better going forward.
Great. Thanks for the call. Appreciate it.
Thank you.
Our next question comes from James Hardiman with Wedbush Securities. Please proceed.
Good morning. I wanted to ask a little bit about some of the practical implications of Brexit. We're hearing from British consumers that currency and sort of passport issues are sort of their primary travel-related concerns. Can you maybe speak to those things? Correct me if I'm wrong, if I'm a British passenger, I don't need to worry about fluctuating currencies if I'm taking one of your ships from the U.K. Secondly, with passports, I know there's a lot of confusion, and I know that the British government is trying to get out in front of that. Are there any practical passport issues associated with the various potential outcomes of Brexit as we move forward?
Okay. More broadly, even though there's been the uncertainty around Brexit and so on and so forth, the U.K. brands are doing well and have withstood the headwind. We'll have to keep monitoring and see what kind of long-term effect. Specific to your two questions on currency and passport, on the currency side, with our P&O brand. It's British-based, it's in pound sterling, et cetera. Obviously, no impact there. It's 98% British guests sailing on P&O in the U.K. for us. There, that one's fine. Cunard is a British-based brand, but it is a global international brand. It has a number of British guests on it, but every sailing has guests from all around the world. It's not pound sterling based, there's some currency potential impacts there, depending fluctuations either way.
On the passport issue, I'm not familiar with the details there, I haven't heard anything from anyone indicate any extra complications or major problems or where it would be a discouragement to cruise or anything like that. I don't know the details, I have heard nothing that would suggest it's a problem at all for us.
Okay, that's helpful. I guess what I was just getting at there, it seems like maybe cruise is a more favorable way to travel given what's going on than going on your own with sort of-
Cruises are a more favorable way to travel in any circumstance.
I like it.
Certainly, I think your point that you're trying to make is if you compare to a land-based vacation, particularly in the U.K.
Yep
They're paying in GBP, and it's GBP on board, there's less uncertainty relative to the currency movement versus taking a land-based alternative.
Yep, that's exactly what I was getting at. Then the second question here, you've talked about the significant capacity increases in Europe as one of the reasons why you're booking ahead, but at lower prices. I guess if we peel that back a little bit between the new capacity coming online in Europe versus some of the older ships. Anecdotally, when you talk about the new ships, it seems like the pricing there is really good. What's happening there? Is it that the new ships are cannibalizing, I know that's a bad word, the older ships in Europe from a pricing perspective, or are they both maybe feeling the impacts of higher capacity and maybe economy concerns?
In this particular year, there are no new builds. What we don't have?
Aida.
Aida, yeah. Aida, we have significant new builds there, but it's not cannibalizing or anything. In terms of Costa, the new build's not coming until almost into this fiscal year. In Aida, we have a number of new ships, and Aida is a strong performer overall. We don't have any new ships in this year in Cunard or P&O.
Okay.
I think it's-
You go ahead.
Arnold said in his prepared remarks, the ongoing economic malaise in Continental Europe and all of the heightened political uncertainty in Germany and France is clearly affecting our overall market in Continental Europe.
Got it. Okay. Thank you, guys.
Thank you.
Our next question comes from Tim Conder with Wells Fargo Securities. Please proceed.
Thank you. Thank you for the color on Europe overall. Just to summarize that, it sounds like the U.K., a little bumpiness with Brexit, doing okay so far. Germany continues to do well, the Southern European economy is still ongoing, being the most relative drag. Is that a pretty fair characterization?
It fits reasonably, yeah, fair.
Direction.
Directionally.
Okay.
Well, the reason why that we don't give guidance by brands or markets and stuff, that's the only reason why you're hearing the directional kind of comments. Go ahead, please. Yeah.
Okay. No, thank you. Shifting further east, just Japan, it's not a large market, but important long term, and thrown in with your commentary was Asia. Just any additional color on China in particular, given the ongoing trade issues and just what you're seeing year-over-year is, or the last 90 days, has that trended better, worse, about the same? On Medallion, the success that you're having on the ships that it's on, is there a way that you can accelerate that, either via Medallion or other methods to further gain those benefits of the customer experience and higher onboard spending? Any additional color you could provide there?
Okay, thank you. First of all, in China, it's still a very small part of our business. We're excited about the Costa Venezia going over to join the Costa fleet in China. Overall, things are strengthening there. There's less capacity expansion than there's been in previous years. We've expanded our distribution approach and have had success with that. Things are strengthening. Our philosophy there remains the same, that we see it as accretive overall. As long as it's accretive, a ship will be there. If it's not accretive, we would move it. Generally speaking, China in particular is definitely strengthening from a yield standpoint, et cetera, all that. But we think this could be choppy for a while, we're always prepared to do whatever we need to do.
Right now, we think Venezia, in particular, is going to strengthen, cruise in China, period, and definitely be an enhancement to our fleet. Right now, things are going well. With regards to Ocean Medallion Class, we're very pleased with where we are. We have the Caribbean Princess, Regal Princess and Royal Princess are all now up and running. Caribbean Princess is probably the most fully activated with many of the features capable in Ocean being available to the guests. Regal is not quite as far along, Royal, which is out on the West Coast right now, is just beginning to ramp up. We see great results, as I mentioned, in terms of guest experience and attitude. We have several more ships that will be brought up to speed, those others will get more of the features the rest of the year.
It is new, we want to experience it, we want to make certain that, in the end, it is driving not just nice conversation, but also driving the improvements from both a revenue-generating standpoint and cost standpoint and our crew experience standpoint. It looks very positive, it's new. We're not in a race. Princess is doing fine. All the other brands have innovations on the way as well that are different. We're excited about it, we'll take our time, once we fully activate it, see where we are and ramp it up. One thing we are expanding is the fastest internet at sea, which is MedallionNet, which is part of the overall Ocean platform, but it's not dependent on the Ocean platform.
That's been a huge hit with guests and crew, that's something we are more rapidly expanding in the fleet.
Okay. One follow-up, if I may. Australia, I think, Arnold or David, you alluded to that, given the recent hurricanes, there was a little bit of disruption. Anything that was material, I guess, quantifiable there from that?
Yeah. We're just talking about a couple of million dollars. It was probably six cruises that were impacted, nothing material. Just your normal. Brisbane was impacted by the hurricane, some ships came in late and your normal occurrence.
Okay. Thank you, gentlemen.
Thank you.
Our next question comes from Brandt Montour with JP Morgan. Please proceed.
Good morning, everyone. Thanks for taking my questions. On the back of that question about China, I was just curious on the Venezia, which historically it's been difficult to get Chinese consumers to spend on board, at least at the same level as we do here in the West. Realizing it's just on its maiden voyage now, what have you done differently with that hardware with that in mind? And/or is it more of an evolution for you in China to mostly change the distribution side of things?
Well, a lot of things have to be developed in China because it's an embryonic market. In terms of the ship itself, we have some fabulous features on that ship. We've got some really customized gaming venues, which we think will be Chinese taste. We have a fabulous karaoke area, which we think is going to be a very nice revenue generator for the ship. We have a Mahjong area on the ship, which again, could be another good revenue generator. There are a number of things. In addition, some of the specialty restaurants. We have a hot pot restaurant on board for the comfort food that they would like. There is quite a number of revenue-generating features on the ship that we think will help drive on board.
There's also significantly more retail space and shops on board, which is a significant contributor to onboard revenue in that market. High-end shops in particular.
Got it. That's helpful. Thanks. Apologies in advance. One more Europe question, if I may. David, you mentioned Europe obviously sort of on pace, perhaps a tad better. Would it be possible to just break out that last part into ticket versus on board in what you're seeing?
When I said tad better, I was just referring to the overall booking situation of what I expected in Europe versus in December, versus what we've actually seen happen over the last three months. It's small movements, clearly it's been, like I said, a tad positive. Nothing that significantly impacts our guidance at this point.
Got it. Thanks a lot.
Our next question comes from Jared Shojaian with Wolfe Research. Please proceed.
Hey, good morning, everyone. Thanks for taking my question. As we look forward to next year, you're selling two lower-yielding Costa ships, and you have a lot of capacity coming on, particularly with higher-yielding Princess ships. Are you expecting hardware to be mix positive to yields in 2020? Is that your assumption?
For 2020, we haven't given out any particular guidance. I think we've said overall in the past that given the size of our company, any mix overall on a yield perspective for the overall corporation tends to be rather small in our overall numbers. We will analyze that as we go forward into 2020, and we prepare guidance. We'll let you know if anything changes.
Okay. I know you're talking about longer-term double-digit earnings growth, and I know you're not giving any guidance beyond 2019. Is there any reason why we shouldn't be thinking in terms of 2020 being double-digit earnings growth? I think just to make the math work, in order to get there, you're going to have to see better yields and better cost performance than what you're seeing this year. Maybe you can just talk to that a little bit. Is that your expectation? I guess really, how should we think about that?
Well, as I mentioned, we've had some pre-spend to prepare for the capacity coming not just in 2020, but beyond. That won't be repeating itself going forward, so there's clearly some opportunity with cost. Plus the fact that as you bring the new ships on, they're inherently more efficient, et cetera. With the scale, you're leveraging, you're amortizing across more scale. All of that bodes well for the cost picture. That's number one. Number two, we're still focused on creating demand. Again, we're not giving guidance for 2020 or anything. As you look at things like the brands that are bringing the ships in and the relative pricing and the itineraries and so on and so forth, along with the demand creation things we're doing, we see opportunity.
The really important thing here is we don't need a lot to be very different to generate. We are engineering and purposely intentionally on a path to double-digit earnings growth on average year in and year out, and elevated sustained double-digit return on invested capital. So, we don't need a lot to be very different. We don't need to dramatically change anything. If we just execute where we're headed, that's what we'll see. Whether it is or isn't in a given year, on average it will be, but can be influenced by fuel and currency and other things. Operationally, we definitely are on a path to deliver.
Great. Thank you. One more follow-up to that, if I may. Are you expecting to get a fuel expense benefit in 2020 just from lower IFO fuel prices from IMO 2020? Then, there's been some recent news just on closed loop versus open loop scrubbers and sort of how that debate's going to play out with just some of the regulatory pressure. Would love to get your take on that and just sort of understand how you could be potentially negatively affected by that closed loop versus open loop debate.
Yeah, I think I'll do the open loop, closed loop first. For us, we have now third-party data, including the government of Japan did their own studies and everything. We have plenty of information to provide to ports around the world and authorities around the world that show that open loop is a very effective way to have advanced air quality systems operate. We're confident with that. We know there have been some isolated ports that have made decisions, I think, with the information we have, and we can provide. We're optimistic. We're prepared either way, to be honest. Not so much we can go closed loop versus open loop, but in terms of a number of ports now have cold ironing, and we plug in anyway and so on. There's so many dynamics there.
We fact all possibilities into our modeling, and we are confident going forward. In terms of fuel prices, the oil companies cannot tell you what the fuel prices are going to be. I will let David, he might be able to. I do not know, David, go ahead.
I will not try to predict the price of HFO or bunker or MGO for 2020. We have said that in 2019, about 80% of our consumption is bunker and 20% is MGO. We have also indicated that as we move into 2020, we do expect to see about a third of our consumption be MGO. It is really hard to tell. Most people are expecting an increase in MGO and a reduction in HFO price as we move into 2020 for the demand. It depends on the direction of each movement and the balance. It is a close call at this point, whether it will be up or down. We do get the benefit on two-thirds if bunker goes down. We do have, at the end of this year, we expect to have 88 ships equipped with advanced air quality systems. We will continue to implement more across our fleet.
That third of the consumption being MGO, that will decrease over time back to 20 and even below 20% as we move forward.
All right. Thank you very much.
Thank you.
Operator, we'll take one more question.
Next question comes from Assia Georgieva with Infinity Research. Please proceed.
Good morning. I'm lucky that I sneaked in. Couple of questions. I do a lot of pricing work, and it seems over the years that for European source passengers, the timeframe sort of around May is key in terms of their bookings for European-based voyages. Is that something that you have seen, and is there possibly a little bit of caution at this point for the European source business because we haven't gone through that many European wave season?
We have had solid bookings for our European itineraries, both for our North American brands as well as our EA brands. I haven't noticed anything in particular in May over the last few years. I will ask around and see if I can get any more information on that for you.
Well, thank you, David. A second question. With the extensive dry dock for the Sunrise, which takes place during this Q2, does that have a net impact on yield either way?
No, because you're taking the ship out of service, and there's no ALBDs. It actually has an impact on cost because you do still continue to have some cost for crew and other things during the dry dock period. There are no ALBDs associated with it.
When she comes out, she will almost certainly command a yield premium, that'll be helpful.
Well, we certainly hope for that and expect that. Thank you so much for taking my question.
Thank you. All right, everyone. Thank you so much. We appreciate it. We are totally focused on delivering for the year and then beyond, the double-digit earnings growth on average and the increased return on invested capital. Look forward. Thank you guys for your interest, and talk to you next quarter.
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.