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Royal Caribbean Cruises Ltd (NYSE:RCL)
Q2 2019 Earnings Call
Jul 25, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, my name is Nicole, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Cruises Limited Second Quarter 2019 Earnings Call. [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 and Chief Financial Officer

Thank you, operator. Good morning and thank you for joining us today for our second 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 measures, which are adjusted as defined and a reconciliation of all non-GAAP historical 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 second quarter results, provide an update on the booking environment and then provide an update on our full year and third 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 and thank you for joining us today. I'm going to take a slightly different tack than usual, because there's so much happening at Royal Caribbean. I'm going to use my time this morning to philosophize a bit on our strategic focus and positioning. Jason will then come back and provide more color on the near-term results. But I do have a spoiler [Phonetic] results. We are very pleased with these results. Last month, I had the pleasure of participating in the inauguration of our newest ship in the Galapagos Celebrity Flora. She is the first ship ever built specifically for sailing in the Galapagos and she is doing extremely well. A beautiful ship with the latest advances and sustainability, magnificent features for our guests and even research capabilities. I also observe one thing in the Galapagos, it's very relevant to how we manage our business. Ever since Darwin published his book origin of species, the Galapagos have been a symbol of the concept of evolution. What you notice there is that the species that thrive are not the strongest, not the smartest, not the fastest, the species that survive there, are those that are most able to adapt.

That's true for animal species. And we believe it's true for corporate species as well. We believe that to succeed in today's world, you need to adapt to an ever-changing environment. The ability to adapt is often called innovation, but innovation is really adapting to and [Phonetic] a leading change in a rapidly evolving world. I'm proud of the people in Royal Caribbean, who continue to innovate and to adapt to that fast changing world. We continue to do well, because we continue to adapt our product to the changing desires of our current and future guest and the changing environment in which we operate. Innovation has been and is a central tenant of our ability to drive change and to respond to change.

Itineraries are just one example. They remain one of the most important considerations for our guests. And this is both our duty and our opportunity to satisfy that demand in the best way possible. The most recent manifestation of that is Perfect Day at CocoCay. To describe Perfect Day as a home run wouldn't do a justice, it really resets the bar in the short cruise market, but it's important to note that perfect Day wasn't designed to steal customers from the cruise lines. It was designed to attract customers who otherwise wouldn't be taking a cruise and it's doing that beautifully. I think this makes an important point about our industry and why the industry has grown and why it continues to grow so nicely. I know that many of you on this call follow other industries and then many of them have a highly inelastic demand curve. If I have a property in Dallas, there's really very little I can do to attract more visitors to Dallas. And so, my focus is on getting a bigger share of those who are already there.

Since the demand facilities in Dallas is inelastic and in the short term, the supply is inelastic, the only short-term strategy is trying to get a bigger piece of that pie. In the cruise industry, the demand curve, even in the short term is highly elastic. We can and we do attract new visitors to travel to our ships from far-flung places. Furthermore, over the years the cruise industry has innovated i.e. adapted to better cater to what people want in their vacations. Simply put, the industry has created better mousetraps and the world is beating a path to our door. As a result, the demand for cruising is going faster than [Indecipherable] otherwise have been expected.

And it's not just the cruise lines are adapting, innovating, travel advisors are dominant distribution channel and while the industry has grown and adapted, so too have our travel partners. The role of the advisor of today is different from the travel agent of yesterday. As the cruise industry today is different from the cruise of yesterday. It is no accident that this year even with significant industry supply growth and even with significant company supply, we are enjoying one of the largest levels of price increases. As our industry continues to adapt the industry, the entire industry will continue to grow. Part of that adaptation is the changing desires of the vacation in public. I have long talked about how cruising has become more relevant to a public that now creates experiences over material goods. That message has now become so ubiquitous, that the other day I heard a ball bearing manufacturer, talk about the experiential aspects of his product, I can only imagine, but in the cruise industry, the phenomenon is very real, and the focus on experiences plays beautifully to our sweet spot. For as long as I can remember, people have worried about overcapacity in our industry .

More correctly, I think we should be talking about the balance between supply and demand, it's a balance, not a question of one or the other. And the distinction is mere semantics, talking about overcapacity, implies that there is a fixed amount of demand, but a changing amount of capacity. In fact, the situation is almost exactly the reverse with a relatively fixed amount of capacity and a highly variable amount of demand. Fortunately, our industry has been able to adapt to take advantage of this elastic demand curve. That is why it has continued to confound those who expect lower demand growth. One other issue that is often raised, especially recently is the [Indecipherable] recession. Our results have one [Indecipherable] by an amazingly robust and sustained economy. And we hear lots of pendants predicting the imminent and the strong economy. In fact, the only other time in my career when I can recall the predictions being more consistently negative was two years ago and we all know how that turned out. But a downturn will certainly occur at some point and we are very conscious of that. To my earlier point when circumstances change, we are prepared to adapt and while no one is recession proof, looking forward I think the industry has features that make it recession resistant, the growing appeal of our product, the relative price attractiveness, a fixed cost component, the portability of our assets, etc, all of these things make us better able to do well even in bad times.

A good example of that would be China with Spectrum of the Seas started operating just a few weeks ago. Conventional wisdom suggest the bringing a new ship into a market with economy is weakening and [Phonetic] such a good idea, but Spectrum and our other ships there are doing very well despite the softer economy. The reason again is that we're building the market not taking it as a given. Adaptability and innovation are helping us produce improved results with more capacity in a poor economy, again good supply demand balance by improving demand rather than by trying to limit supply. So this year is proving to be a very good year on many fronts. However, this month has also seen an important milestone in another related area that's important to us and that area is sustainability. As most of you know in 2016, we launched a partnership with the World Wildlife Fund to take our sustainability efforts to a new level. The Royal Caribbean, we believe that what gets measured gets better and we established specific goals in three areas of sustainability. We did this in conjunction with WWF, not only to be able to benefit from their expertise, but also because making specific measurable targets provides an accountability which is important to the success of a program like this.

The three areas where we established these quantifiable goals were the areas of carbon footprint, sustainable destinations and sustainable food production. Specifically we undertook a 35% reduction in carbon footprint from our 2005 base, offering 1,000 tours certified to the GSTC sustainability standard and responsibilities -- responsibly sourcing 90% wild caught seafood globally, and the 75% of farm seafood in North America and Europe.

We set a public goal to reach these objectives by the end of 2020. I'm happy to report that we are on schedule. We achieved our [Indecipherable] carbon footprint goal earlier this year. And just two weeks ago, we certified our 1,000 sustainable tour operation. We're not there yet on our sustainable food sourcing goal, but we are working diligently to do so and hope to reach that target soon. Looking forward, we have progressed rapidly on numerous fronts in this area. Our new ships will use clean LNG as fuel, we have installed advanced emission purification system on most of our fleet, our program to eliminate single use plastics keeps advancing, more and more of our ships are zero landfill capable, our efforts to reduce food waste is ramping up, our experimentation with zero mission fuel cells continues, etc, etc.

It's been a terrific year and it looks set to continue to do so. Each quarter we have been able to announce, not only that we are doing well, but what we're doing even better than we thought at the end of the prior quarter. We are also looking at 2020 with the early bookings are exceptionally strong and provide optimism for 2020 as well. We continue to be highly focused on controlling our costs. Obviously some of our aggressive strategic and innovative moves in areas such as technology and projects like Perfect Day, it puts pressure on these metrics. But so far we think the return on these -- these investments has been exceptional and we continue to focus on generating strong returns on our investments going forward.

In this update, I have focused more than usual on our strategic focus as I used to say on [Indecipherable] I love it when a plan comes together. We have a strong alignment throughout the organization on our strategic vision. We see adaptation, stroke innovation as a key driver of success. We see positive momentum paving a good supply-demand picture for our company and for our industry. We see sustainability as a sine qua non. We see cost discipline as core and we see a workforce that is passionate about delivering on all of the above. Adaptability, innovation is a complex challenge and as Charles Darwin observed, it's a never-ending one.

We are doing our very best and we'll continue to do so. And with that, I'll ask Jason to provide an overview of the results. Jason?

Jason Liberty -- Executive Vice President and Chief Financial Officer

Thank you, Richard. I will be talking about our results for the second quarter of 2019. These results are summarized on slide 2. For the quarter, we generated adjusted earnings of $2.54 per share. Which is $0.07 higher than the midpoint of our May guidance and 12% higher than the same time last year. Our net revenue yields were up 9.5% for the second quarter, which was in line with our May guidance despite the negative impact from the Cuba travel ban, 400 basis points of this year-over-year improvement was driven by the additions of Silversea, Perfect Day and Terminal A with the remaining 550 basis points being driven by our core business.

[Indecipherable] removal of calls to Cuba from June sailings on Majesty of the Seas and Empress of the Seas cost us 30 basis points in year-over-year yield for the quarter. While the Cuba policy change was financially and operationally painful, our underlying business remains very strong as we both outperformed on onboard revenue and saw a further closing demand for our core products. Net cruise costs excluding fuel were up 8.9% for the quarter, which was 110 basis points better than the May guidance driven by timing. As we often said, we manage our cost on an annual basis rather than a quarterly basis . Therefore the positive cost variance that occurred in the second quarter will simply reappear as an increase in our cost in the back half of the year.

This quarter we also outperformed below the line, driven mainly by lower interest cost and better performance from our joint ventures. As Richard mentioned this morning, our brands are executing beautifully and demand continues to accelerate, which is evident in our strong book position. We remain nicely ahead in rate and our load factors are in line with same time last year. At this point in the year, we don't expect to be booked ahead in volume given our increased mix of short Caribbean capacity and the impact from the abrupt Cuba itinerary changes. This consistently strong demand isn't a function of one thing, but many. The general economy continues to be strong. Consumer trends and demographics are very aligned with our business. Our global footprint allows us to be nimble and adapting to the market level trends and we continue to innovate the overall guest experience. Industry-leading hardware like Symphony of the Seas, Celebrity Edge and Celebrity Flora combined with new product innovations like Perfect Day, CocoCay and Excalibur as well as the modernization of our fleet is significantly contributing to our top line in earnings growth.

Demand trends from North American guests continue to be very strong and that strength is more than offsetting of modest volatility from our European consumers. As a result, all of our core itineraries are performing in line with or better than we expected when we gave guidance three months ago with Caribbean and China sailings contributing the most to our improved non Cuba revenue outlook. The strong performing Caribbean accounts for a smaller percent of our capacity for the rest of the year than it did in the first half of the year at just under 50% of our Q3 and Q4 inventory. We are always happy to see new bookings outpace our expectations, but what has been particularly impressive over the past few months is the pricing we are receiving for sailings, visiting perfect Day at CocoCay. Pricing on these failings has consistently been outpacing our lofty expectations and has been a major contributor to our improved non Cuba revenue outlook. European itineraries account for 16% of our full year capacity and about 20% of our capacity for the remainder of the year. These sailings have continued to book in line with our expectations with Celebrity Edge receiving significant pricing premiums and the overall fleet booked ahead of same time last year in pricing for both the Mediterranean and the Baltic's. Demand and pricing from North American gas have remained strong. And as a result, significantly more North Americans are sailing with us in Europe this year. On the last call, we discussed the volatility in demand we were seeing from the UK, given the ongoing Brexit uncertainty. Since then we have seen the improvements with bookings from the UK up double digits over the past three months. Europe remains our second highest yielding summer product and we are pleased with how this season is shaping up. Our highest yielding summer product is of course Alaska. Alaska sailings only account for 5% of our full year capacity, but are just over 10% in the third quarter. We've upped our gain from a hardware standpoint in Alaska this year, the Celebrity Eclipse, Oasis Of The Seas and Silver Muse are replacing older hardware, along with the first ever Alaska season for Azamara. These hardware changes combined with strong demand from North America are contributing to our overall yield growth this year.

And finally, our Asia-Pacific itineraries account for about 15% of our full year capacity and 14% of the rest of the year. Spectrum of the Seas arrived in Shanghai last month and is getting very strong demand for sailings from China, where [Phonetic] she will remain year round. The addition of Spectrum of the Seas combined with further expansion of distribution channels in China are driving yield growth for the product. Our Australia and Southeast products account for 6% and 4% of our capacity respectively and are performing in line with our expectations. It's still a little too early in the booking window to comment too specifically on trends for 2020. However, I will note that we are very pleased with performance thus far. Prior to the recent Cuba related to redeployments, our load factors were in line with last year's record high and rates were and still are up nicely in all 4 quarters. Now let's turn to Slide 3 to talk about our updated guidance for the full year 2019.

Overall, we are updating our guidance to $9.55 to $9.65 per share, which include a $0.15 improvement from our previous guidance due to better second quarter results and an improved revenue outlook for the second half of the year. As it relates to our key metrics, we expect our net revenue yields to increase in the range of 7.75% [Phonetic] to 8.25% for the year. This updated guidance includes the negative impact of approximately 70 basis points from compensation and itinerary changes related to the recent travel restrictions to Cuba. Excluding this impact, the midpoint of the company's net yield guidance has improved by approximately 40 basis points versus our May guidance. The improvement in our underlying business is split pretty evenly between Q2, Q3 and Q4. Overall, our net yield guidance on a core basis, [Incomprehensible] when normalizing for Silversea, Perfect Day, the new terminal in Cuba is now more than 5%.

This performance is already one of the strongest in our history and comes during a period of more than 6% of capacity growth in the industry. This revenue performance is really a testament to the strength, the demand for our brands and for cruising. From a cost perspective, we expect our net cruise costs excluding fuel to be up 10% to 10.5% and constant currency. This updated guidance reflects an increase in our cost mainly related to the travel restrictions to Cuba. We expect fuel expense of $703 million for the year and we are 59% hedged. In summary, based on the current business outlook, along with current fuel prices, interest and currency exchange rates, our adjusted earnings per share are expected to be in the range of $9.55 to $9.65 per share. Now, we can turn to our guidance for the third quarter, which is on Slide 4.

We expect net revenue yields to be up approximately 6.5% for the third quarter, including a benefit of approximately 340 basis points from the combination of Silversea, Perfect Day and Terminal A. Yields are also included a negative impact of 110 basis points associated with Cuba. The impact of Cuba and a lower mix of Caribbean deployment, combined with the timing of the Silversea consolidation, the launch of Terminal A and the delivery of new hardware are contributing to a smaller, although still significant yield increase in the second half of the year compared to the first half.

Net cruise costs excluding fuel for the quarter are expected to increase approximately 11%. So in summary, based on current fuel prices, interest and currency exchange rates and the outlook expressed above, our adjusted earnings per share for the quarter are expected to be approximately $4.35 per share. With that I will ask the operator to open up the call for questions and answers.

Questions and Answers:

 

Operator

[Operator Instructions] The first question comes from the line of Steve Wieczynski, Stifel.

Steve Wieczynski -- Stifel -- Analyst

Yeah, hey guys, good day -- good morning guys. And Richard well done on getting an 18 reference into your prepared remarks, I guess if we go back to January and we look at our original earnings guidance, which had a midpoint of 97, look at your midpoint now which is 960, is it fair to say if you didn't have some of these headwinds, you guys have faced, you would be on a pace for probably a mid-10s kind of year. And I guess what I'm getting at here, as you've absorbed $0.30 from Cuba, $0.25 from Oasis, if my math is right, I think about $0.25 in fuel and FX, is that the right way, we should be thinking about how 2019 could have shaped up.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Hey, Steve. First, thanks for the question and thanks for the A team, kudos for Richard.

Richard D. Fain -- Chairman and Chief Executive Officer

That's very important that we have cultural literacy as well.

Jason Liberty -- Executive Vice President and Chief Financial Officer

That's right, that's right. But, that's exactly right. I mean there has definitely been some real hits this year, as it relates to those three elements that you pointed out, which are also relatively accurate to what the impact has been for this year. So if we didn't have Cuba, if we didn't have the Grand Bahama incident and certainly FX and fuel, we would be talking to better number that would be in the low to mid $10 ranges.

Steve Wieczynski -- Stifel -- Analyst

Okay, guys. And then Jason, you also back in January, you laid out a 350 basis point positive impact from Silversea, CocoCay and Miami Parking [Phonetic] terminal, has anything changed there in terms of those impacts to yields?

Jason Liberty -- Executive Vice President and Chief Financial Officer

Those impact are pretty consistent on the yield side, as well as on the cost side. Now, of course, when we talk about Perfect Day, we're really specific about the on island activities. Clearly the strength that we're seeing on the ticket yield side is well ahead of what we could have even imagine it would be in terms of demand, which is also bolstering the strong commentary that we have as it relates to the strength for our business in the Caribbean.

Steve Wieczynski -- Stifel -- Analyst

Okay. And then last one for me and I understand, it's still early in terms of booking patterns and I don't think you're going to answer this question really. But when we look out to 2020, and the Caribbean bookings, can we get any color in terms of how they have trended since the Cuban news came out and I understand you just opened up the booking window for some of those ships. But I think the fear that's out there today in the marketplace is that Caribbean yields will materially rollover in the first half of 2020 given the lack of Cuban premiums.

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

Hi, Steve, it's Michael. I'll jump in here on the 2 ships that we had gone to Cuba, we've -- we, for 2020, we've just opened them up and of course, one of those ships is going to Perfect Day, so the demand is, as Jason had mentioned for Perfect Day has been really has exceeded our expectations and our expectations were pretty high. So we're kind of pleased with what we're seeing for '20 and Perfect Day is a key driver for the Caribbean performance and the ships that we dropped out of Cuba, we're feeling pretty good about how they're performing. I mean it's early days yet as we've said.

Jason Liberty -- Executive Vice President and Chief Financial Officer

And Steve, just to kind of add on to it, especially as it relates to Perfect Day, one, we launched Perfect Day, the middle of the second quarter and of course there is a ramp-up to that island and so, we also plan to take a lot more guests next year in Q2, and Q3 and Q4 to Perfect Day. And so I think just a general comments that we have around the back half of this year and also my comments on 2020 are generally saying that we continue to see very strong demand trends for the Caribbean.

Steve Wieczynski -- Stifel -- Analyst

Okay, great, thanks guys. Appreciate all the color.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Sure.

Operator

Your next question comes from the line of Felicia Hendrix with Barclays.

Felicia Hendrix -- Barclays -- Analyst

Hi, thank you so much. So, Jason you guys have raised your net yield by 40 basis points ex Cuba and then you've talked about the strong demand that you've seen in the core brands in the second half and because of that how you've raised your -- basically essentially raised your second half guidance. I think you've touched on some of this in your prepared remarks and in your answer to Steve's question, but just wondering if you could just kind of peel back the layers, give us some more granular cover -- color as to what's driving that increase for your second half, you've talked about Perfect Day, but how much of it is, is price, how much of it is, is on board, just general strength that sort of thing.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Yeah, sure. So just kind of focusing on the back half of the year, the strength that we're seeing is coming from two elements. So, about half of it is, it is being driven by better ticket and half of it's being driven by better than expected on board and on the onboard side is more of the experiential type of activities, which would also include Perfect Day, but on the ticket side, there is really all of our core products are seeing very strong demand. And so they're either in line with our expectations or they're doing better and the two areas that are doing better, which I had in my remarks, has been the Caribbean and has been China and those are two areas where we've seen an acceleration in demand.

Felicia Hendrix -- Barclays -- Analyst

Great. And that's a perfect segue to my follow-up, which is, is Europe and you talked about the softness there, and we all know that you source globally and you [Incomprehensible] the best customer for the best itinerary but just wondering for those who may have some concerns about Europe and kind of the European source demand if that could be an overhang going forward. Can you just talk about your perceived optimism or maybe I should say cautious optimism about Europe.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Yeah, sure. So, so also -- also what I had commented on was that over the past several or really over the past few months, we've seen much better trend and consistent trends from Europe and also for the UK, but of course because there was some volatility I'm [Phonetic] going through wave, and then going into early second quarter, we recognized much better or stronger demand trends coming from North America for European sailings and as you pointed out, we've got this global very diverse footprint that is -- that is supported by yield management tools and systems and people that manage this demand globally. And so when we see better demand trends from one market versus another, we shift our sourcing there and so Europe is in a very good shape as it relates to the product. And as I said, these demand trends from Europe have not only stabilized, but we've seen increases in there -- in there booking activity over the past couple of months.

Richard D. Fain -- Chairman and Chief Executive Officer

Felicia. It's Richard here and just to add on to that you asked for some color on how it's looking, going forward. And if you recall very well, first of all, we never give real guidance for the coming year this early in the process. So we're doing what we normally do, but if you recall back to 2016, we thought at the end of that year and the beginning of 2017 were unusually good and we might never see such a strong forward picture again and the year later, we were looking at an even stronger '17, then the even stronger '18 and the same thing happened last year. Now, when we are looking forward, we are, on the color point of view, we are feeling the strength of the market, the Caribbean and the ability to not only handle the situation Cuba, but essentially the rest of the Caribbean absorb that without -- without a lot of difficulty. It's really unusual that you continue to see such a positive forward perspective as we are seeing in the market is in terms of general tone and color.

Felicia Hendrix -- Barclays -- Analyst

Thank you so much.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Thanks Felicia.

Operator

The next question comes from the line of Robin Farley with UBS.

Robin Farley -- UBS. -- Analyst

Great, thanks. And I think you addressed a lot of my questions, which had to do with the fact that the Cuba impact you've called out that $0.30 what [Phonetic] kind of for half the year and then when we looked into 2020. I would think that a significant part of that would have been sort of compensating people that have booked already, which you don't necessarily have to do [Incomprehensible] things that weren't sold yet in 2020 and -- and discounting for things that are very close in, often not an issue in 2020 maybe the ship going to CocoCay even does better than it was going to Cuba. So is there, if you had to think about EPS impact from Cuba in 2020, is it fair to say, will be well less than half of the EPS impact that you had called out in '19, like another way I think people might just feel comfortable that there is not any kind of seriously drop from that in 2020.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Thanks, Rob. So on the Cuba front, as you pointed out, there is a few things that -- that come with abrupt change in an itinerary. So one, as you mentioned was compensation, the second is, is that of course you have guests that cancel and of course an itinerary like Cuba, it's not like just a change in the Caribbean itinerary. This is a itinerary that people specifically had signed up to go in -- to go and visit. So, certainly that -- that had its financial and operational impacts you for this year. As Michael commented, one of those ships is going to go to Perfect Day and of course demand for going to Perfect Day is exceptional and so I think we expect that, that ship to do well, and the other ship was also on -- on a -- on a very good deployment for next year.

So we certainly don't expect that $0.30 impact that we've experienced this year to kind of settle in, in the long-term. And I don't know if the answer is going to be half of it or better than half of it, but I know Michael and his team and Larry on the Azamara team, and the Silversea team that are having impacts from Cuba, I'm have -- have put action plans in to try to recover as much of that as possible.

Robin Farley -- UBS. -- Analyst

Okay. [Incomprehensible] great and then just kind of a housekeeping items, just looking at your capex schedule. It looks like it's got up by about $100 million a year for the next couple of years and that could just be rounding and not be anything, but I wondered if there was a particular initiative or something that -- that change that schedule a little bit. Thanks.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Yeah, sure. I know it is mainly rounding there is a little bit as we ordered icon 3 that -- that plays into that number and then of course your announcement on holistic items [Phonetic] so forth is some of our planning in terms of investments in the coming years.

Robin Farley -- UBS. -- Analyst

Okay Great, thank you very much.

Operator

The next question comes from Gregory Badishkanian of Citi.

Gregory Badishkanian -- Citi -- Analyst

Great, thank you. Yeah, I was just following up on Richard's comments about CocoCay not primarily competing with other cruise lines but -- but really trying to get from other passengers, some other travel segment, what percentage of that, of those passengers who may be new to crews and then also from a benefit perspective, are you seeing that primarily help you from a yield perspective or is it just the overall demand for cruising and that -- and that helps us [Phonetic] like you if you absorb some of the passengers as otherwise would have went to Cuba. So there is -- there [Incomprehensible] benefits and just increasing your -- your load from them.

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

Hi, Greg. It's Michael. In total in '19 and through into '20, 11 of the Royal Caribbean ships will be going to Perfect Day at CocoCay, so you can imagine the amount of the volume that we're taking to Perfect Day has gone up by a factor of about 4 and we were already taking a lot of gas to CocoCay before we underwent all of this work and change the whole experience. It's also a key component of short strategy that we introduced a couple of years ago, if you may recall we put [Incomprehensible] independence through Royal Amplified and we completely change the product offering in the short market and literally put the biggest best ships in that short market, which is about 20 something percent of the entire American cruise market. So we already started to see demand increasing for those products because they've truly great products. When you combine that with Perfect Day, we've seen a real uptick. Since we opened Perfect Day and people have begun to experience it, I think to date, we've taken maybe 350,000 people to perfect ` Day since we opened, it's now rated the number one resort globally for Royal Caribbean, it's knocking it out of the park in terms of truly delivering a phenomenal day, the guest satisfaction is extremely high. And so the demand that we're seeing is coming from all segments. It competes very well with Orlando, it's got a truly wonderful day both thrill and chill and it is also driving new to cruise, because approximately 40% of the short market is new to cruise. So it's really ticked the box across all of these different dimensions. And in terms of the demand that we're seeing since we've opened and people are beginning to understand what kind of experience this is, we're seeing both significant increase in volume and of course, that's driving rate.

Jason Liberty -- Executive Vice President and Chief Financial Officer

And Greg just, just to add, really over the past several years, and you've heard us talk about this, we talked about this also in our Investor Day. But as a consumer trend and demographic trends point more towards experience and travel and multi-generational and really kind of spans the products that we offer. If you combine that with the innovations that we've talked about, whether it's, whether it's Perfect Day at CocoCay or the modernization or the new ships, and then you have just perception of cruising, has really accelerated and all of these things are leading to a real change in mix, where there is much more new to cruise, as a percent of our mix and we have experienced really in decades, and that is, and that is, because of all these different things in which we're doing and the industry is doing to attract new and fresh demand.

Richard D. Fain -- Chairman and Chief Executive Officer

And just to add to that Greg, I think [Indecipherable] is trying to organize an investor trip in November to Perfect Day. Hopefully you will get an opportunity to come and sleep [Phonetic]. Because when you've seen it and experienced it, you're going to truly understand what a game changer this product and experience is.

Gregory Badishkanian -- Citi -- Analyst

Yeah, that's good -- good Investor Day. Thank you. Great color. Appreciate it.

Operator

Your next question comes from the line of Jaime Katz with Morningstar.

Jaime Katz -- Morningstar -- Analyst

Hi, good morning. What you guys have talked about in the past is Excalibur quite a bit, which wasn't really mentioned very much on this call. And I'm curious how the rollout has really help facilitate the outperformance, any insight maybe of that could help us quantify that or what you guys expect going forward would be helpful. Thanks.

Richard D. Fain -- Chairman and Chief Executive Officer

So, it's Richard , and the Excalibur rollout has been excellent. It's now our objective was to get at/or close to, across the almost all of our fleet before the end of this year and that continues to be on track. The -- it's really worked out very well for doing 2 things, it improves the experience to our guest, it makes it easier to board, it makes it easier to do what you want, most importantly it really simplifies the process, when we started this kind of technology, process, Lisa talked about giving people back the first day of their vacation, because they didn't have to spend that time to orchestrate themselves, and with the app, with the photo recognition, you're going from lengthy process to essentially no process, that helps improve the experience and then -- and that of course helps us with our, our ticket sales. But it also helps our onboard revenue, because it makes it easier for people to get to the kinds of experiences, to do the kinds of activities, that they wanted to do, it makes it easier for them to do so in advance and people, who book in advance tend to spend more onboard when they get there. So it's been a home run for us. The Excalibur team has been exceptional and really put together, something that people really like and we're building on it. So what you see so far is really a platform that you can build on.

And so we didn't talk about, let's say we, we have so much to talk about. So we always have to make choices.

Jaime Katz -- Morningstar -- Analyst

Of course. And then regarding Spectrum, it sounds like the launch has been slightly more successful than some of the prior launches into the China market, has on board, spend have been trending any differently for passengers on the ship relative to ships in the past, if you guys have been able to generate more revenue, maybe than previous?

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

Yeah, hi, Jamie, it's Michael. The Spectrum's launch was really good. It was a great event and we got massive coverage ,demand for the product has been very strong. We've made great progress with the evolution of the distribution channels and we're feeling pretty good about where we currently are and the journey that we're on, the product has been exceptionally well received. We've got a very, I'd say fairly significant price gap between competitors in the market. And we've seen a real uptick in the onboard revenue, I think we've got the right product and we're attracting the right demographics and we're seeing that with the onboard spend. So I would say we certainly seeing a recovery from a couple of years ago. We're feeling good about Spectrum. We're feeling good about China.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Operator, next caller?

Operator

The next question comes from the line of Jared Shojaian with Wolfe Research.

Jared Shojaian -- Wolfe Research -- Analyst

Hey, good morning everyone and thanks for taking my question. So I want to drill down a little bit more on the 2020 booking commentary, which you referred to as exceptionally strong, but can you also provide a little bit more of a quantitative context, because I think you said prior to the Cuba, the load factors were in line and rates were up in all 4 quarters, so is the implication that since the Cuba travel ban here in the last month and a half call it, that the load factors are now down in 2020, and I guess it help me just kind of reconcile that with some of the positive tone you have here on the booking commentary. And then any differences in brands or regions that you would call out as well.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Yeah, sure Jared and I tried to address that in my remarks, but I'll try to be a little bit more specific about it. So our load factors for next year are I mean very slightly down year-over-year, which is really kind of what you would expect and what we do expect, because of 2 things, one of which is, we have more short product on next year and that short product is a closer end booking product, so that would be one thing and second is we just redeployed the Cuba ships and so you're, you're kind of -- somewhat kind of starting over again on those ships and so that had a little bit of an impact on our load factor, but when [Phonetic] I also said was that our pricing was nicely up and that includes no longer having a high yield in Cuba as part of that mix. And so we are quite encouraged about the booking environment for 2020, whether it's the booking volumes, whether it's the pricing that we're seeing and the load factor change is what we very much expect it would be. And of course as we've talked about in the past, if we would like to, we could have that load factor be higher, but we are always trying to optimize, maximize our revenue.

Jared Shojaian -- Wolfe Research -- Analyst

Okay, thank you. And then just 2 quick housekeeping questions from me, I mean you've absorbed a lot of capex in the last few quarters and obviously haven't repurchased stock, are you still expecting to repurchase stock in the back half of this year, when capex decelerates here a little bit and then separately for next year, as you think about fuel expense, your hedged dollar value goes up from this year to next year, but I think some of that might just be you're now hedging the higher dollar MGO instead of IFO, so correct me if I'm wrong on that and any color you can provide on how we should be thinking about fuel expense next year just with all of the puts and takes on the hedges, I think, make it a little bit difficult to try to forecast that for us.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Yeah, sure . So I'll take the fuel first and then I'll talk about stock repo second. On the fuel side, what you said was exactly right. If you look at our fuel mix, as it relates to our hedging program, we are indexed higher to MGO, relative to our historical mix and now we've also talked about in the past that our expectations is generally the mix of fuel, that we burn today IFO versus MGO, should remain more or less the same, because of our investments and great execution of implementing our AEP systems on the ships, which will allow us to continue to burn the higher sulfur IFO fuel and so I would --I think that -- that's how we kind of set our hedge portfolio for next year. As it relates to on the stock repo side, as we said, we're going to do it opportunistically. And also to kind of make sure that we're in line with our credit metrics of 3 times to 3.5 times and we certainly get to that location, here in the back half of the year and so we will be looking at that, as we always have opportunistically.

Jared Shojaian -- Wolfe Research -- Analyst

Okay, thank you.

Jason Liberty -- Executive Vice President and Chief Financial Officer

You got it [Phonetic].

Operator

The next question comes from the line of Tim Conder with Wells Fargo Securities.

Tim Conder -- Wells Fargo Securities -- Analyst

Thank you and congrats to the team on the continued strong execution. Just a couple, gentleman here, if looking to 2020 just -- is it fair to say you're not really seeing any change in the trends that have been exhibited so far in '19, as far as regional demand and sourcing, in particular also you haven't really commented that much on Germany, so if you could just remind us the percentage source out of Germany of your global and then, and specifically what you're seeing out of TUI, just an update there and the trends that we're seeing, given softening economic outlook and of course, what's been out there in the market from other competitors?

Jason Liberty -- Executive Vice President and Chief Financial Officer

Yeah, sure. So first as it relates to 2020, I'm not going to start kind of breaking this down by region or by market in anyway, but I think as Richard pointed out, which I think is really -- which is really the case is, you know, each year we talk about how strong the demand environment is, as we look into the future year and it ends up being that or better and as we look at 2019, which is another very strong year. As I talked about in my remarks, if you kind of strip out, the Perfect Day in Port of Miami and Silverseas in Cuba, 5 plus percent yield improvement on a pretty large capacity growth here. Those trends that we've seen this year are very much of what we're seeing as we're going into 2020 and so I'll kind of leave it there versus -- I'm not going to get into the different markets and the products at this time, because it is too early for us to provide specific commentary there.

Germany is a very small percentage of our overall capacity for our consolidating brands, obviously most of our sourcing for TUI -- is for TUI Cruises. TUI Cruises is having another very strong year. Demand for that product, even though there has been, I know some reports about concerns around Germany in terms of demand, that is not really hitting TUI Cruises, at least to date, it's not.

Tim Conder -- Wells Fargo Securities -- Analyst

Okay. Thank you. And then secondly, just wanted to ask on the destination development, there's been a lot of talk about CocoCay and how exceptionally well that's performing, how are you -- just any update that you can give us Jason or Richard or Michael, whoever wants to take this, how you're thinking and potential timeframe for, maybe something else, elsewhere in the world, similar to owned and operated and then anything else and when we should maybe start hearing something out of the Holistica JV of some additional projects there. Thank you.

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

Hi, Tim. I think as Richard had previously stated, you know obviously destination and destination development is really at the center of forward-looking strategy and we've really started to mobilize behind that both with Holistica, which of course we announced a month or so ago and we are now deeply engaged in multiple possible opportunities and particularly the one in Freeport, that we're -- the team is working on currently. With regards to Perfect Day, I think we've been genuinely delighted with the demand that we're seeing for Perfect Day and the experience that we're delivering is at really at a high level. So I think it's fair to say that we're seeking further opportunities in this space and when we're ready to make announcements, we will be happy to let you know.

Richard D. Fain -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Harry Curtis with Instinet.

Harry Curtis -- Instinet -- Analyst

Hey, just as a quick follow-up on that question, maybe if you can think of put this into perspective at CocoCay, what inning are you in, in terms of it's ability to drive your long-term growth in the Caribbean and are the returns on invested capital, such that it really does make sense, particularly to either add capacity there or to seek just an entirely new opportunity that will drive five year growth in the Caribbean?

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

Harry, it's really difficult to answer those questions in a detailed way, I think it's pretty obvious that and I think we've got, we've stated this now several times, we are genuinely delighted with the performance of Perfect Day and the response has been outstanding. We feel as if it's going to be a key driver of our future growth. It's certainly demonstrating that to date with demand from all markets. I think we will pursue opportunities and when we're ready to make announcements, we we'll be happy to make those announcements, but we're really pleased. I think this idea of -- really created [Phonetic] outstanding destination experiences, that can manage volume for Royal Caribbean is the direction that we're heading in .

Jason Liberty -- Executive Vice President and Chief Financial Officer

And Harry, just to kind of add to Michael's comments, you obviously enhancing the guest experience is a kind of key tenet for us, but also obviously is improving shareholder returns. I mean in going into these investments, obviously our goal here is to be investing in ways that are improving our return on invested capital, and from that improving our shareholder returns. So these are pretty high bar projects. And as we've talked about, Perfect Day is doing exceptionally well and exceeding, I think those lofty profiles for returns.

Harry Curtis -- Instinet -- Analyst

Thanks, Jason. And my second question is, in talking with the kind of potential non-investors if you will. The issue is always concern over, not necessarily this year, but the next year and so, maybe it's pretty good idea to give folks a sense of, even though you're booked at roughly the same level so far for next year. Give folks a sense of historically at this point in time, how well booked is Royal Caribbean for the first quarter, how well booked is it for the second quarter, because there is enough business on the books in the first and the second quarters, that should allay that fear.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Yeah, well, I'm not going to start breaking down a book status by each quarter, but the commentary, I would say the bullishness that we have about the booking environment certainly relates to Q1 and Q2 of next year, which we have a much better visibility into and I think it's, if -- for those that are always concerned on the capacity side, I would just -- I would remind everybody that next year, our capacity is up only about 4%, versus this year, our capacity was 8% and if you normalize for Silversea with little bit over 6% and so we feel very good about the book position and we feel very good about over the next 4 quarters, look like, we look -- we feel very good about the next 6 quarters, look like at this point.

Harry Curtis -- Instinet -- Analyst

I guess my -- maybe if I can just add a -- ask a more general way of presenting that. If you look at the first half, is it reasonable to think, I mean go back 5 years or 7 years, is it, can you say to investors who are skeptical that you've got 40% of the business in the first half booked already or 50%, I mean is it -- is there a chunky enough business, amount of business on the books to say look, we are doing really well, this is not a business that comes in last minute, as evidenced by the business, that we have in the first half 2020 already on the book.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Yeah, well, I haven't memorized. I've lost the data points from 5 to 7 years ago. But what I do know for a fact is that, we are in a much stronger book position on a volume or as a percent of our future revenue than we were 5 to 7 years ago. Each year, we've talked about being booked ahead and at higher load factors and rates. And so as a book percentage, especially over the next 12 to 18 months, we are in a very strong book position.

Richard D. Fain -- Chairman and Chief Executive Officer

Harry, I also have to remind you and the others, as we've said a number of times on number of times on the call, we decide how much we want to be booked and there are times when we say for various reasons, it ought to be more or less, that's to some extent, we can drive that number and I think that the focus on it is 0.5% more or less than last year is -- is actually could lead you down the wrong path, because that is something we choose what it should be. The fact is that over the last number of years in, by the way, I recall on one of these calls several years ago saying we're more booked now than we have been before. And I don't think it will raise. I think next year, you will see it to go down, because I think next year, we will want it to be less. And in fact, I was wrong and our revenue management people decided that we could absorb the taking more in the beginning, so I just wanted to give you a caution that being booked more isn't per se automatically say the market is stronger. It's much -- it's often times, it's just our revenue management people think, given the kinds of Cruises we offer and the kind of booking patterns that we are seeing, that as a choice we make.

Harry Curtis -- Instinet -- Analyst

Okay. And I appreciate all that and that -- the point I was trying to make is somewhat different, which is that you do have a significant amount of the first half of next year booked and that should give investors kind of confidence, but you know, I appreciate --

Jason Liberty -- Executive Vice President and Chief Financial Officer

That is accurate [Speech Overlap]. Your statement is accurate.

Harry Curtis -- Instinet -- Analyst

Okay, that's all I was trying to get out. Thank you.

Operator

And we do have time for one more question today. The question will come from the line of Sharon Zackfia with William Blair.

Sharon Zackfia -- William Blair -- Analyst

Hi, good morning. I guess, I think Richard mentioned the R-word. So I'm sure as you all sit around and think about various economic situations. You do have plans for how you would address any kind of pervasive economic slowdown, understanding you're not seeing that in your business yet. I mean how would you characterize the differences today and how you would think about operating Royal Caribbean through some sort of slowdown versus in 2008-2009 when you curtailed the ship orders and all of that, I mean what's different today and how you would go to market.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Yeah, sure. So I'll start off by saying, as it relates to be R-word or recession, obviously a lot of our plans and we have many scenarios that we would consider depending on what type of situation that we were in, but of course, I think we should all remind everybody, and this was somewhat in our remarks and Richard remarks, is we now operate a very kind of global and diverse business, that sources guests obviously from different parts of the world, but also different segments. We also have itineraries that go-to-a thousand different places. So what's available to our guests is much more diverse and I would say, it's unfortunate that we're still quite a value relative to the land based vacations that we of course keep trying to close. We also have a much stronger balance sheet, much stronger liquidity position and I think we would evaluate our sets of plans, in case there was a change in the winds, but as you had pointed out and as we've talked about here on the call, we are not seeing any of those changes, whether it's in our bookings -- our daily bookings or whether it's the onboard trading activities, as guests are spending with us each and every day.

Sharon Zackfia -- William Blair -- Analyst

Okay, can I just ask a follow-up, if you had a [Speech Overlap], would you have grown throughout the last recession, would you have canceled or not canceled, but curtailed ship orders as much as you did?

Jason Liberty -- Executive Vice President and Chief Financial Officer

Yeah, there is definitely regret that we have in terms of our pullback on our growth, we would all be talking about higher earnings numbers today, better return profile today, if we hadn't slowed down our growth or our investment efforts in expanding our global footprint, investing in different projects, that would have put us an even stronger position than we are today.

Sharon Zackfia -- William Blair -- Analyst

Helpful. Thank you.

Jason Liberty -- Executive Vice President and Chief Financial Officer

Great. Well, with that, I'll ask the operator. I'm sorry, I thank you for your assistance today in the call and we thank you all for participating and the interest you have in the company and we will be available all day for follow-ups that you might have, actually more specifically, to ask Carola, if you have any follow-ups today, and we wish you all a very great day.

Operator

[Operator Closing Remarks].

Duration: 63 minutes

Call participants:

Jason Liberty -- Executive Vice President and Chief Financial Officer

Richard D. Fain -- Chairman and Chief Executive Officer

Steve Wieczynski -- Stifel -- Analyst

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

Felicia Hendrix -- Barclays -- Analyst

Robin Farley -- UBS -- Analyst

Gregory Badishkanian -- Citi -- Analyst

Jaime Katz -- Morningstar -- Analyst

Jared Shojaian -- Wolfe Research -- Analyst

Tim Conder -- Wells Fargo Securities -- Analyst

Harry Curtis -- Instinet -- Analyst

Sharon Zackfia -- William Blair -- Analyst

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