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Royal Caribbean Cruises Ltd  (NYSE:RCL)
Q1 2019 Earnings Call
May. 01, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, my name is Cheryl and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Cruises Ltd's First Quarter 2019 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to introduce, Chief Financial Officer, Mr. Jason Liberty. Mr. Liberty, the floor is yours.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Thank you, operator. Good morning and thank you for joining us today for our first quarter earnings call. Joining me here in Miami are Richard Fain, our Chairman and Chief Executive Officer; Michael Bayley, President and CEO of Royal Caribbean International and Carola Mengolini, our Vice President of Investor Relations.

During this call, we will be referring to a few slides, which have been posted on our Investor website www.rclinvestor.com.. Before we get started, I'd like to refer you to our notice about forward-looking statements, which is on our first slide. During this call, we will be making comments that are forward-looking. These statements do not guarantee future performance and do involve risks and uncertainties. Examples are described in our SEC filings and other disclosures. Please note that we do not undertake to update the information in our filings as circumstances change. Also, we will be discussing certain non-GAAP financial metrics, which are adjusted as defined and a reconciliation of all non-GAAP financial items can be found on our website. Unless we state otherwise, all metrics are on a constant currency adjusted basis.

Richard will begin by providing a strategic overview of the business. I will follow with a recap of our first quarter results, provide an update on the booking environment and then provide an update on our full-year and second quarter guidance for 2019. We will then open up the call for your questions. Richard?

Richard D. Fain -- Chairman and Chief Executive Officer

Thank you, Jason, and good morning everybody. It's been a great first quarter, and we're on our way to another great year. So I look forward to chatting about a little bit. As we stated in our press release, this quarter we were able to beat our earnings guidance, essentially due to higher revenues and our revenues for the full year are also looking better than what we expected with higher pricing in every quarter. I have to stress that we are both delighted and a little bit surprised with this very nice outlook as our initial guidance was already very strong. We think that this is a result of several elements, our superior new buildings, strategic revenue management decisions, our global footprint, very well-positioned brands and an enhanced destination offering.

Now, while our revenue outlook has only gotten better, our earnings forecast was negatively impacted by some things outside our control, namely currency, fuel and an incident that occurred at the beginning of April at the Grand Bahama shipyard. The accident impacted the yard's operation and therefore affected directly and indirectly the ships that were scheduled to be drydocked there. Luckily, there were no serious injuries but we did have to cancel three sailings on Oasis Of The Seas in order to have her repaired. This is a very unusual event and not only have we never experienced anything like it. I've never heard of anybody else ever experiencing it either. Now, as it pertains to our improved business outlook, I should first highlight the new buildings that our guests will be able to enjoy this year. First, we continue to enjoy delicious yields on our new ships from last year, Celebrity Edge and Symphony of the Seas. We continue to find that our guests appreciate the innovation and the focus that characterize our new ship and more importantly they're willing to pay for it.

In May, we will introduce the beautiful and relatively small Celebrity Flora, which will debut in the Galapagos targeting the expedition segment. The ship was especially designed for that very unique itinerary and is already making a huge statement in the market. Two weeks ago, we took delivery of Spectrum of the Seas and she is indeed beautiful. She's currently carrying happy guests en route to China and when she arrives in Shanghai in a few weeks, she will be the largest and the newest ship in Asia. This will help reinforce Royal Caribbean's existing leadership and our commitment to that market.

Many of you have heard me say that we have three new fundamental focuses to our strategy going forward. They are people, destinations and technology. I'll start with destinations, because we have a very dramatic new initiative coming online shortly. In the coming weeks, we will officially open Perfect Day at CocoCay, our private resort in the Bahamas. To say that she is a beauty is a massive understatement, and we believe that we have created a truly game changer for the cruise industry, in fact for the vacation industry. On this island, we will offer guests ample opportunity to thrill or chill. On the thrill side we have the appropriately named Thrill Waterpark that features more than 13 water slides. One of them is the tallest in North America. We have a massive wave pool, over the water ziplines, rock climbing walls and all sorts of adrenaline-amping features.

On the chill side, we have amazing beaches as well as the largest freshwater pool in the Caribbean with a swim-up bar that offers endless opportunities to relax and unwind. And for those of you looking for a more scenic view is the opportunity to climb 450 feet above the island in up, up and away a helium balloon that will provide some of the best views in the Bahamas. While the island will officially open to guests in a few weeks, we have been slowly opening individual venues, as they become ready and the feedback has been nothing short of exceptional. As you walk around the island or you scroll through videos on Instagram, you'll hear the familiar catch phrase, "I love this place".

I have to say that all that love from our guests is turning in a nice return for our shareholders too. Itineraries that include Perfect Day and precludes revenue for the island attractions are up double digits versus the same time last year. Now I have to warn you, if you give him even the slightest opportunity, I know that Michael will go on endlessly about this wonderful new extravaganza of his and he is rightly proud of. Now switching to the technology focus of our company, we have Excalibur, our own data and digital platform and here we are transforming the onboard experience. With one single app, our guests can now control so many more aspects of their cruise experience, and it frees them up to enjoy their vacation more instead of spending time organizing it.

I'm particularly excited, this has already been so broadly deployed that 60% of our guests can get it available and toward the end of the year, it will be virtually all our guests and the ratings that it's getting in the Apple App Store are 4.7. So a real success story for us. We're very pleased about it and we're working on leveraging these opportunities. Now besides our efforts in technology and destinations, I'll update you on the work we're doing regarding our human capital, you've heard me say many times that what makes us successful is the people, the people, the people. This success has enabled us to grow a lot, but we are growing fast at a time when the competition for talent is fierce, when skill sets are constantly evolving and where the way we work is rapidly changing. New technologies are shaping how we work, where we work and the skills we need to do that work. Because of all that, we are putting forward a number of initiatives to ensure that we're able to attract the best talent while helping our own people develop their critical skills and collaborate even better. We are investing in giving our employees the tools to do their job and we are also investing in upskilling and reskilling internally both for our employees onboard and onshore side. I can't stress enough, our success depends on the people, the people, the people.

One last topic I'd like to touch on is related to environmental stewardship. Back in 2016, we announced our partnership with the World Wildlife Fund to take our sustainability performance to the next level. This partnership pushed us to set ambitious sustainability goals in three key areas, greenhouse gas emissions, sustainable food supply and destination stewardship. We believe that what gets measured gets better, setting measurable goals and then publicly reporting on our performance against those goals, holds ourselves accountable and that's the best way to make progress. I am pretty proud of the fantastic work achieved by our global tour operator team in their efforts to bring our guests more sustainable tours. We now have reached 80% of our target of a 1,000 sustainable tours by 2020. This effort takes us beyond our own internal operations and supports sustainable travel and livelihoods at the destinations we partner with.

It's quite simple, without the places, tourism can't thrive. I'd like to take a moment to discuss some of the most recent announcements related to Cuba. As I'm sure most of you know, last month the US administration took a decision that is likely to prompt litigation related to companies that do business in Cuba. If such legislation does ensue, we believe that we possess solid defenses and we're not expecting to change our itineraries as a result. The administration also commented on possible changes to the regulations that apply to travel to Cuba. At this point, we don't know if there will be any changes, what those changes might be or to what extent they would impact us? Only 3% of our itineraries currently go to Cuba and any impact would depend on what the regulations say and how much advanced notice we and our guess would receive.

With that, I'm happy to turn the microphone back to Jason. Jason?

Jason Liberty -- Executive Vice President, Chief Financial Officer

Thank you, Richard. Before getting into the results, I'd like to discuss the impact of the unfortunate incident in the Grand Bahama Shipyard on our key metrics. As we stated in the release this morning, the early April incident resulted in several canceled sailings and higher repair costs, that will impact our full year earnings by approximately $0.25 per share. While the cruise cancellations negatively impacted our absolute revenue for the year, the shorter season sailings were essentially neutral to our overall yields. As you can see on Slide 2, an improvement in our business outlook has offset all the $0.25 impact from FX and fuel and even most of the $0.25 negative impact from the Grand Bahama incident. This improved outlook as a result of our strong top line results in the first quarter and an increase in the revenue performance for the balance of the year.

I will now walk you through our results for the first quarter of 2019. These results are summarized on Slide 3. For the quarter, we generated adjusted net income of $1.31 per share, which is approximately $0.21 higher than our guidance and approximately 20% higher than the same time last year. Net revenue yields were up 9.3% for the quarter, which is approximately 150 basis points higher than the midpoint of our previous guidance. The main drivers of the positive variance were continued strength in onboard revenue and better than anticipated close in demand. As I mentioned over the past couple of quarters, guest spend for onboard activities has continued to shift toward areas that involve experiences over buying things and this quarter was no different. Shore excursion and various types of packages were key contributors to the quarterly beat. In addition to be onboard revenue strength, our results also benefited from better than expected pricing on close in demand, especially for Caribbean and Asian sailings. Our results for the quarter included the benefits from Silversea and Terminal A, however yields were still up almost 6% when excluding those benefits.

This is particularly gratifying, when considering that this level of yield improvement was on top of a 4.9% yield increase in the first quarter of 2018. Net cruise costs, excluding fuel, were up 9.6% for the quarter, slightly lower than our guidance driven by timing. Additionally, better than anticipated performance below the line, driven mainly by our joint ventures helped contribute to the earnings beat in the first quarter.

Now I'd like to update you on what we're seeing in the demand environment. I noted on our last earnings call that WAVE got off to a very strong start and we experienced two record booking weeks early on. That booking strength continued contributing to a record-breaking WAVE season for the company. Bookings during WAVE were up nicely year-over-year and we are particularly pleased with the pricing power we have achieved so far this year. Since the beginning of the year, prices on new bookings have been up nicely. Our book per diem is now further ahead same time last year when compared to three months ago. As a result, we are booked at record levels in both rate and volume for the year despite the increased mix of short Caribbean capacity, which tends to book much closer in. It's rare that booking patterns are strong in all regions of the world and like most years, we are seeing some variation this year.

We are enjoying very strong demand from North America and from Asia-Pacific; whereas we believe uncertainty around Brexit has softened demand from the UK. Our yield management and deployment optimization tools combined with an established global footprint help ensure we source guests from regions with high quality demand. Therefore, this year we expect to source more guests from North America than we did last year. This is one of the advantages of the operating structure and capabilities that we have been building over these years.

Now I'd like to update you on what you're seeing in each of our core products, the Caribbean accounts for just over half of our capacity this year and the product has been trending very well. Our new and modernized ships Perfect Day and the overall strength of our brands have consistently been driving better than expected results for our Caribbean itineraries. Perfect Day at CocoCay hasn't officially opened yet, but it is clearly fueling additional and higher yielding demand for our Caribbean itineraries. Bookings and pricing have been exceeding our expectations overall for the Caribbean with sailings visiting Perfect Day up by more than other Caribbean itineraries.

Europe will account for 16% of our 2019 capacity, which is about flat year-over-year. Bookings from North America and Australia have been up nicely over the past three months, which have offset a slight decrease in bookings from other source markets like the UK. From a pricing standpoint, the product is receiving a nice boost to the significant premiums of Celebrity Edge in the Mediterranean. Asia-Pacific itineraries account for about 15% of our full year capacity this year and are trending very well. China itineraries will account for about 6% of our full year capacity. The continued expansion of our distribution channels and imminent arrival of our newer ship Spectrum of the Seas are contributing to another strong year for the product.

Australia and Southeast Asia itineraries account for 6% and 4% of our capacity respectively and remain core to our Q4 and Q1 deployment. Trends have been in line with our expectations for both of these products. Alaska only accounts for about 5% of our full year capacity, but is about 10% during the summer. Each of our brands has made hardware changes to their Alaska offering. And as a result, our capacity on its high yielding product is up year-over-year. These changes along with strong demand from North America are contributing to yield growth for the summer season.

If you turn to Slide 4, you will see our updated guidance for the full year 2019. We expect net revenue yield growth of 7.5% to 9%. This represents an approximate 75 basis point increase from the midpoint of our previous guidance. About half of the improvement was driven by the out performance in the first quarter with the remainder driven by better business outlook for the rest of the year. From a cost perspective, we are anticipating net cruise costs excluding fuel to be up approximately 10% for the year. The increase in this cost metric relative to our previous guidance was mainly driven by the reduction in capacity due to the canceled sailings and increases in repair costs related to the Grand Bahama Shipyard incident.

Since our last call, the dollar has strengthened versus our basket of currencies, and the combination of a stronger dollar and higher bunker prices has negatively impacted our earnings per share by approximately $0.25. We expect fuel expense of $707 million for the year and we are 58% hedged. Based on the current business outlook, along with current fuel prices, interest and currency exchange rates and the $0.25 negative impact of the incident at the Grand Bahama Shipyard, our adjusted earnings per share are expected to be in the range of $9.65 to $9.85 per share. Excluding the headwinds from fuel currency and the Grand Bahama incident versus our January guidance, adjusted EPS for the year would have been in the range of $10.15 to $10.35 per share.

Now I will turn to our guidance for the second quarter, which is on Slide 5. Net revenue yields for the second quarter are expected to be up approximately 9.5% and our net cruise costs excluding fuel are expected to be up approximately 10%. So in summary, based off the current fuel prices, interest and currency exchange rates and the outlook expressed in my earlier comments, our adjusted earnings per share for the second quarter are expected to be in the range of $2.45 to $2.50 per share. If you exclude the impact from the Grand Bahama Shipyard and the currency and fuel headwinds versus January guidance, our adjusted earnings per share for the second quarter would have been in the range of $2.65 to $2.70 per share.

With that, I will ask our operator to open up the call for a question-and-answer session.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Steven Wieczynski from Stifel. Your line is open.

Steven Moyer Wieczynski -- Stifel -- Analyst

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

Richard D. Fain -- Chairman and Chief Executive Officer

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

Michael Bayley -- President & Chief Executive Officer

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

Steven Moyer Wieczynski -- Stifel -- Analyst

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

Michael Bayley -- President & Chief Executive Officer

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

Steven Moyer Wieczynski -- Stifel -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

Steven Moyer Wieczynski -- Stifel -- Analyst

Okay, great. Thanks, guys. Appreciate it.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Sure.

Operator

Thank you. Our next question comes from Jared Shojaian from Wolfe Research. Your line is open.

Jared Shojaian -- Wolfe Research -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

Jared Shojaian -- Wolfe Research -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

Jared Shojaian -- Wolfe Research -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

Yes, it is.

Jared Shojaian -- Wolfe Research -- Analyst

Okay. Thank you very much.

Operator

Thank you. And our next question comes from Felicia Hendrix from Barclays. Your line is open.

Felicia Hendrix -- Barclays -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

Okay. In terms of the mix of the outlook, it's probably in that (ph) a little bit higher on the ticker side. But, I mean, the onboard is also a big driver of this. As we commented and Michael commented about our pre-cruise sales to our outlook into how people are planning to spend while they are on the ship is very good and we saw that take place in the first quarter.

So it is a combination of both onboard and ticket that we expect to drive the yield -- the 75 basis point uplift in our yield outlook for the 2019 period of time.

The comment in the release is really just leveraging what we have been saying on our calls for some time to just kind of to keep in mind that yes, we're in a very strong demand environment and our ability to identify and harvest that demand with the tools and techniques that we have we feel very good about. But we have said that we -- there is this kind of constant internal debate about are we taking too much on too soon? And that's sometimes leaving money on the table. And I think that's really what that statement is about is that your booked position is not just a reflection of the demand, it's also a reflection of your revenue management decisions to take those bookings at that point in time. And that was really more just kind of stressing that point again.

Felicia Hendrix -- Barclays -- Analyst

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

Richard D. Fain -- Chairman and Chief Executive Officer

Felicia, it's Richard. I'll make a stab at that and Michael and Jason can add in if they have others. It is hard. I'm not sure a couple of years ago, we ourselves would have predicted a strong market as we're seeing today. I think we look at it as an entire experience and it's hard to say, well, the technology is really helping. At the risk of the offending Michael, Perfect Day is making the change. And it's clear both are by the way and both have been very effective. And we've been pleased with the reaction to our new ships.

So Celebrity Edge has just been going gangbusters and Celebrity Flora, which is coming out -- is about to come out is going gangbusters as well. And the Island and the technology, the people, our ratings, and our ratings on our guest appreciation of our wonderful crew members is going up. And these things work together and I'm not sure I know how to separate them out. The other aspects of that is we all enjoy reaping the benefits of that and you're quite right, we do enjoy reaping the benefits of that. But these things take a long time in advance to orchestrate. And so we are incurring a lot of costs both capital cost and operating cost to put in place these things, which then don't pay off for a while into the future. And I also will admit that it's a little frustrating to have to invest now and reap the rewards later. But this is a long-term industry. We think our success is very much related to our ability to focus on what's happening not this year, but what's happening down the road. So I'm not sure I know how to separate those things, but I think we all worked together to accomplish the goal.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Yes and I just want to add one other thing. I think it's good to kind of break down a little bit of it. Of our core yield growth this year, about 1/3 of it is the new hardware and a little bit over 2/3 of it is improvement in our like-for-like business. So, I think it's a combination of all the things that Richard talked about as well as just stronger demand or for (ph) cruise, perception of cruise continues to rise, demographics are certainly falling into the favor of cruise, a lot of multi-generational travel. And so yes, I think the piece this year, which is -- if you heard us in the past we would typically say, half of our yield growth was coming from the new hardware and half was coming from just core like-for-like yield growth. This year we're seeing an elevated amount of yield growth on just a like-for-like.

Richard D. Fain -- Chairman and Chief Executive Officer

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

Felicia Hendrix -- Barclays -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

Felicia Hendrix -- Barclays -- Analyst

Okay, great. Perfect. Thank you so much.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Sure.

Operator

Thank you. Our next question comes from David Beckel from Bernstein. Your line is open.

David Beckel -- Bernstein -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

David Beckel -- Bernstein -- Analyst

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

Michael Bayley -- President & Chief Executive Officer

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

David Beckel -- Bernstein -- Analyst

Great. Thanks so much. Appreciate it.

Michael Bayley -- President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Harry Curtis from Instinet. Your line is open.

Harry Curtis -- Nomura Instinet -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

Harry Curtis -- Nomura Instinet -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

Harry Curtis -- Nomura Instinet -- Analyst

Okay. Well, I'll try a different one then.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Okay.

Harry Curtis -- Nomura Instinet -- Analyst

Didn't look like you used any cash to repurchase stock, you should generate some free cash flow this year. What's your thinking around that, these prices?

Jason Liberty -- Executive Vice President, Chief Financial Officer

Okay. It's a different approach, but it's -- so as we've said for some time, I mean, our North Star here is looking at more investment grade credit metrics. So it means maintaining between 3 and 3.5 times. We get closer to the lower end of those metrics as we get to the back half of this year. And as we've said for a long time that we very much believe in returning capital to our shareholders and improving shareholder returns. But as it relates to share repurchase, we do that opportunistically and we will certainly be looking at that in the back half of the year.

Harry Curtis -- Nomura Instinet -- Analyst

Okay. It's pretty good. Thank you.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Thanks, Harry.

Operator

And thank you very much. Our next question comes from James Hardiman from Wedbush Securities. Your line is open.

James Hardiman -- Wedbush Securities -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

James Hardiman -- Wedbush Securities -- Analyst

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

Michael Bayley -- President & Chief Executive Officer

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

James Hardiman -- Wedbush Securities -- Analyst

And then, lastly for me -- go ahead.

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

James Hardiman -- Wedbush Securities -- Analyst

Okay. That's helpful. And then just the last market, I want to touch on, Alaska. There's been a lot of hand-wringing about what's going on there given higher capacity this year. Sounds like, it's going pretty well for you guys specifically, but maybe talk about the health of pricing in the Alaska market. Are the ships that have been there a while able to absorb sort of the increased capacity without taking too much of a hit on the pricing front?

Michael Bayley -- President & Chief Executive Officer

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

James Hardiman -- Wedbush Securities -- Analyst

Okay. That's helpful. Thanks, guys.

Operator

Thank you. Our next question comes from Jaime Katz from Morningstar. Your line is open.

Jaime Katz -- Morningstar -- Analyst

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

Michael Bayley -- President & Chief Executive Officer

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

Jaime Katz -- Morningstar -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

Yeah. Hi. I think you are talking about the non-controlling interests?

Jaime Katz -- Morningstar -- Analyst

Right.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Yeah. So, it really just relates to the 1/3 interest that we don't have, because we consolidate Silversea. That flows through our P&L. It would be 100%, and then the non-controlling interest gets back down for the third (ph) . And so it is going to be difficult to model, I can see externally this year. But it should be a relatively small amount in each quarter that impacts us as we build this overseas business up.

Jaime Katz -- Morningstar -- Analyst

Perfect. Thank you.

Operator

Thank you. Our next question comes from Tim Conder from Wells Fargo Securities. Your line is open.

Tim Conder -- Wells Fargo Securities -- Analyst

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

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

Richard D. Fain -- Chairman and Chief Executive Officer

Tim, I think we should maybe reemphasize. The comment that we made about booking wasn't anything to do with the world as we're seeing it today. It's a point that we've made before which is we think that there may be too much focus on this statistics that we are ahead on bookings in both volume and price, because we actually drive some of that and also if we just change the way our itineraries work. So if we shifted in one year -- and I'm not saying we're doing that, but if we had one year where we had much more shorter cruises, you would expect to have less other books at lower prices and conversely, if we had a year where we had less -- more long-term bookings, you would expect that statistic to go up. And so I think our concern is that people may be putting too much emphasis on that. And I hate to put cold water on our ability to forecast, but a couple of years ago in one of our calls, I actually made the point that I thought that we had reached a peak and that we probably wouldn't want to increase the amount of early bookings that we took and, in fact, our revenue manager said, no actually given the circumstances we got to go even higher. So my prediction there wasn't very, very accurate. So I think we are really making a generic comment. And we really, I want to emphasize, are not trying to make any comment about 2020 or 2021.

Tim Conder -- Wells Fargo Securities -- Analyst

Okay. Okay. No, no, helpful. And then on the higher cost guide, Jason, you said the majority of that was Oasis. Was that virtually all of it? Or are you may be seeing some opportunities for the long-term and tweaking up some spending for other items?

Jason Liberty -- Executive Vice President, Chief Financial Officer

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

Tim Conder -- Wells Fargo Securities -- Analyst

Okay. And then lastly just a clarification on the UK, in particular. You mentioned that that's soft on a relative basis on the one hand, but I guess in an absolute basis, are UK yields up or down just to be direct with it?

Jason Liberty -- Executive Vice President, Chief Financial Officer

Yeah. We don't guide by market or provide yield by market. But what I would say is that, I think a better word is that the UK is softer than North America and North America is stronger than -- our systems and tools and how we do things means, we're going to source more guests out of North America. As Michael said, based on what we had been seeing for some time, we expected less sourcing to take place out of the UK because of the strengths we saw in the other markets. But I wouldn't read into it too deeply that there is a major issue in the UK. It's more that we've seen stronger demand trends from other markets.

Tim Conder -- Wells Fargo Securities -- Analyst

Helpful. Thank you very much, gentlemen.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Sure.

Operator

Thank you. Our next question comes from Stephen Grambling from Goldman Sachs. Your line is open.

Stephen Grambling -- Goldman Sachs -- Analyst

Hey, thanks for taking the question. One of the big changes over the past few years seems to have been your ability to hold on to pricing premiums on new ships passed kind of year one to two. Is that all coming from existing customers? Or are you also able to continue to drive new-to-cruise and new customers on those ships relative to the years passed?

Michael Bayley -- President & Chief Executive Officer

Hi, Stephen, this is Michael. I think we stated a few years ago, one of our key areas of focus was on new-to-cruise and particularly in market like the United States, we've been quite focused on growing our new-to-cruise segment. We've changed some of our strategy, so everything that we've done with the short product where we took the Voyager class ships and put them to Royal Amplified and then place them into the short product with Perfect Day, CocoCay has really stimulated that new-to-cruise segment. So that's part of it. Our loyalty customers continue to grow. They like the brands and they enjoy what we provide. I think the new ships, we've been very focused on not only the continuation of kind of on innovation and bringing new products and services to our guest. But we've done a lot more analytics on really trying to understand what's going to attract those customers and bring them back and also be able to maintain higher yields.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Just to add to it as well, I'd keep in mind, these ships are having much richer mix of inventory than newer ships. They also have many more onboard revenue venues. And I think it's also one of the things that's different about them maybe versus some of our ships or legacy ships is that they source very well globally. So there's a lot of new-to-cruise, but a lot of that is not just coming from a single market, it's coming from many different markets.

Stephen Grambling -- Goldman Sachs -- Analyst

Maybe a quick follow up. On the existing customer base, I guess, would you attribute some of the ongoing strength in that customer base not only to the new product that you have, but also it sounds like, I don't want to put words into your month, but the way that you engage with those customers going forward whether that's using technology or being more direct to the consumer?

Michael Bayley -- President & Chief Executive Officer

I think it's a combination. I mean, one of the key metrics that we look at, we're focused on and we drive toward, of course, is the net promoter score. And if you look at all of our brands, performance over the last few years, we've seen a steady increase in the satisfaction levels from our guests. And I think that comes through on all of the things that you've mentioned plus, plus, plus. I mean, I think across the entire organization, we are focused on delivering great vacations and we're seeing that coming through with demand. And that demand allows us to maintain pricing premiums.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Yes. I would just add, I think it's -- you had mentioned, Stephen, about direct. I don't think it's about direct. I mean, we really are a channel of choice. But I think that the technology that we're employing, I think the work we're doing around data and the consumer insights that come out of that are really yielding a better engagement with the consumer, a better understanding of what the consumer is looking for in the product, which has really led to a lot of our modernization of our ships and the basis of our new ships. And it's also why we're very focused on the destination experience. So I think it's a combination of all those things to make sure that we are providing a relevant product or products that our consumers are very attracted to and are willing to pay for.

Stephen Grambling -- Goldman Sachs -- Analyst

Thanks so much.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Okay, do we have time for one more question?

Operator

Thank you. Our last question comes from Brandt Montour from JPMorgan. Your line is open.

Brandt Antoine Montour -- JP Morgan Chase & Co -- Analyst

Great. Good morning. Thanks for taking my question. Just hoping for a little clarification on CocoCay. So the 350 basis points from the non-core, which includes -- that is unchanged since last quarter, so just wondering if you could help us understand what's changed in the guidance at this point for CocoCay since then? And kind of given what you guys have said about pre-cruise onboard sales continuing to come in so well?

Jason Liberty -- Executive Vice President, Chief Financial Officer

Yes, so as it relates to -- again, the items that we had kind of called out of the Perfect Day and Port of Miami and Silversea. On the Perfect Day side, that is really relating to the onboard or really the onshore dollars. So in our 75 basis point increase in our yields that we've provided, that's really -- included in that is yield improvement that we have seen -- or acceleration of yield improvement we have seen for the ships that are going to Perfect Day. But that's just a component of that. The pre-cruise sales we're seeing in general are accelerating, and the different experiential things on the ships are also very much a part of that as well as the great demand we're seeing from our other brands and other markets around the world.

Brandt Antoine Montour -- JP Morgan Chase & Co -- Analyst

Okay. That's helpful. Thank you. And then on the fuel, just given fuel prices there are even more topical. You hedged more next year at this point than you were at this time last year, but that number is essentially unchanged this last quarter. So just kind of, if you could give us an update on the strategy given what's happening to oil prices?

Jason Liberty -- Executive Vice President, Chief Financial Officer

Well, we have a very consistent hedging program. We're typically 40% to 60% hedged 12 to 24 months out. So it's not a reflection of how we maybe feel in the moment about fuel prices. The one thing I would say about -- if you look at our fuel hedging into the future, it is more -- it's indexed more toward MGO than it is to IFO and so I would give you those characteristics of the hedged profile going forward.

Brandt Antoine Montour -- JP Morgan Chase & Co -- Analyst

Got it. Thanks a lot guys. Great quarter.

Jason Liberty -- Executive Vice President, Chief Financial Officer

Great. Okay. Thank you for your assistance Cheryl today. And we thank you all for your participation and interest in the company. Carola will be available for any follow-ups you might have and we wish you all a very good day.

Operator

Thank you very much, ladies and gentlemen, for joining us today. This concludes our conference. You may now disconnect.

Duration: 60 minutes

Call participants:

Jason Liberty -- Executive Vice President, Chief Financial Officer

Richard D. Fain -- Chairman and Chief Executive Officer

Steven Moyer Wieczynski -- Stifel -- Analyst

Michael Bayley -- President & Chief Executive Officer

Jared Shojaian -- Wolfe Research -- Analyst

Felicia Hendrix -- Barclays -- Analyst

David Beckel -- Bernstein -- Analyst

Harry Curtis -- Nomura Instinet -- Analyst

James Hardiman -- Wedbush Securities -- Analyst

Jaime Katz -- Morningstar -- Analyst

Tim Conder -- Wells Fargo Securities -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Brandt Antoine Montour -- JP Morgan Chase & Co -- Analyst

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