Norwegian Cruise Line Holdings (NCLH) Q2 2019 Earnings Call Transcript

Norwegian Cruise Line Holdings (NCLH 5.58%)
Q2 2019 Earnings Call
Aug 08, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Norwegian Cruise Line Holdings second-quarter 2019 earnings conference call. My name is Catherine, and I'll be your operator. [Operator instructions] As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Ms.

Andrea DeMarco, vice president of investor relations and corporate communications. Ms. DeMarco, please go ahead.

Andrea DeMarco -- Vice President of Investor Relations and Corporate Communications

Thank you, Catherine, and good morning, everyone. Thank you for joining us for our second-quarter 2019 earnings call. I'm joined today by Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings; Mark Kempa, executive vice president and chief financial officer; and Andy Stuart, president and chief executive officer of Norwegian Cruise Line. Frank will begin the call with opening commentary, after which, Mark will follow to discuss results for the quarter, as well as provide updated guidance for 2019 before handing the call back to Frank for closing remarks.

We will then open the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's investor relations website at www.nclhlcdinvestor.com. We will also make references to a slide presentation during this call which may also be found on our investor relations website. Both the conference call presentation will be available for replay for 30 days following today's call.

Before we discuss our results, I would like to cover just a few items. Our press release with second-quarter 2019 results was issued this morning and is available on our investor relations website. This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements. These statements should be considered in conjunction with the cautionary statement contained in our earnings release.

Our comments may also reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. And with that, I'd like to turn the call over to Frank Del Rio. Frank?

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Thank you, Andrea, and good morning, everyone. For those that have followed our company and the industry over the years, the second quarter of 2019 was certainly one that will be long remembered. In the case of Norwegian Cruise Line Holdings, the quarter will be remembered for our strategic itinerary optimization initiative, which included our entry into the new European home ports and the launch of our largest Alaska deployment to date, with Norwegian Joy making her North American debut and joining her incredibly successful sister ship, Norwegian Bliss, in sailing to the last frontier. The North American launch of Norwegian Joy was a runaway success generating over 2.5 billion media impression and further elevating Norwegian Cruise Line's already preeminent position in the all-important growing and high-yielding Alaska market.

But in the long run, the quarter will be primarily remembered with the challenges brought on by the closure of a popular destination that became inaccessible to us and to the industry literally overnight. What the ebbs and flows of the quarter this clearly demonstrate is the resilience of our industry and particularly of our company and that of our three award-winning brands and our ability to react quickly and effectively to a fast-changing sea space. Among the goal for today's call is to provide you with a clear and precise view of our post-Cuba business and highlight the many reasons why our core business fundamentals remains strong or stronger than ever. We'll start with the change in the regulation that resulted in the end of cruises to Cuba.

If you recall in 2017, our company became the first cruise operator to have all of its brand approved to sail for the island. And in 2019, Norwegian Sky was the penultimate to depart from Havana as revised federal regulation from the Department of Treasury and Commerce effectively put an end to voyages to Cuba from U.S. ports. And while only 4% of our full-year 2019 deployment included calls to Cuba, the impact of losing this destination was outsized given the makeup of the voyages that we offer there.

These voyages range from single-day calls to Havana typically by the Norwegian brand to more Cuba-intensive itineraries, which visited up to three Cuban ports on our Oceania and Regent brands. Based on these later voyages in which our brands had an outsized share that resulted in the cruise ban having a disproportionately larger impact in our company versus other industry participants. While all Cuba-inclusive voyages enjoyed very strong demand and pricing premiums of at least 25% more than that of a similar but non-Cuba-inclusive voyages, the sailings that featured Cuba-intensive itineraries had a much longer booking curve, meaning that guests booked on average nine to 12 months in advance of the sail date, resulting in the effect of sailings being sold out at very high prices well into Q1 of 2020. In addition, the discounts we offered as an inducement for guests to remain on the revised voyages and not cancel were generous.

Lastly, and in spite of the 50% refund that constituted the generous offer, these sailings experienced a significantly higher level of cancellation, oftentimes reaching an excess of 80% of booking, as the star attraction of this itinerary, which were multiple calls to Cuban ports, many of which included overnight stays simply could not be replicated by going elsewhere. And while we were ready for a possible cruise ban to Cuba, we were not, quite frankly, ready for the ban to take effect with only 12 hours advance notice. Nevertheless, teams across our three brands did an incredible job in reacting quickly to comply with the new regulations while making guests and travel agent partners whole, so to speak, for the loss of this highly sought-after destination, providing itinerary alternatives both in the near and long term and creating new itineraries and even completely new deployments for affected vessels. For the two new Norwegian vessels sailings to Cuba, 2019 itineraries were modified to now include Freeport and/or Nassau in place of Havana while continuing to call on Great Stirrup Cay, our private island destination in the Bahamas and our highest rated port of call.

In summer of 2020, Norwegian Sun will instead deploy to Alaska, offering destination-intensive seven- to 15-day itineraries from Seattle, giving us a smaller vessel with longer, more immersive itinerary in this high-yielding market and leaving summer Bahamas short cruises to the newly refurbished Norwegian Sky. We believe the Norwegian Sun Alaska deployment will generate yields that will approach, if not be equal to, what she was commanding in her Cuba deployment, led by strong onboard spending. Oceania Cruises, which was operating the majority of the Cuban-intensive sailing, converted its fourth-quarter 2019 and first-quarter 2020 Cuba program into Eastern and Western Caribbean voyages. For the second half of 2020, the brand extended its strong yielding fall Mediterranean season and complemented it with the creation of a new and exotic collection of sailing to the Eastern Med, including calls to Turkey and the Holy Land, the Arabian Peninsula and into Southeast Asia.

Lastly, Regent, which had the least exposure to Cuba of our three brands, converted its View 2020 Cuba program with additional sailings to South America, the Panama Canal and Bermuda. Now there has been some concern and much speculation about a weakening of general Caribbean demand and capacity oversupply to the region as a result of the Cuba cruise ban. I want to stress here today that we have not seen and quite frankly do not expect to see in the coming quarter any deterioration in the overall demand dynamic for the Greater Caribbean Basin resulting from ship redeployment stemming from the Cuba cruise ban nor are we seeing, nor expect to see deteriorating pricing. As mentioned earlier, Cuba was first and foremost a very small percentage of our company and of the industry's deployments.

The substitute itineraries have, for the most part, remained within the Bahamas sphere of operation with Nassau and Freeport substituting Havana, or as just explained, deployed to a totally new area. In fact, demand for our core 2019 Caribbean sailings remains strong with low in-pricing ahead of the same time last year across our three brands and extending well into 2020. And while the regulations that brought an end to cruises to Cuba have indeed had a negative impact on our financial results, the fundamentals of our business remain as solid as they have ever been. This is first demonstrated by our strong second-quarter results, which, excluding the impact to Cuba, exceeded our already high expectations driven by strong pricing growth and a consumer hell-bent on breaking all previous onboard spend records and the continuing trend to purchase their next cruise while still onboard.

Looking forward, our company has a suite of attributes from which meaningful long-term benefits are being derived. For example, we continue to benefit from our proven and established business model, the cornerstone of which was a strict focus on flawlessly operating competitive global brand and with well-designed product propositions that we continue to enhance and strengthen with investment in our ship assets, people and technology. We also continue to benefit from our go-to-market strategy of focusing our marketing messages and consumer contact points on value rather than price and our marketing-to-fill versus discounting-to-fill strategy. We continue to support our sale, marketing and revenue management teams with state-of-the-art resources to help drive our industry leading net yields and which foster a corporate culture that encourages our team to work in tandem and across our brands to consistently fine tune our customer-centric offering to maximize our top and bottom line results.

We continue to benefit from a customer sourcing strategy that, with the help of a value proposition that is now consistent around the globe, allows us to source the best guests; in other words, the most profitable guests from anywhere in the world and across our three brands. We continue to benefit from what I believe is a collection of the most skilled, most experienced, most dedicated and most agile management team, crew and staff in the industry who have demonstrated their character by overcoming challenges and delivering bottom line results time and time again that punch way above our weight with incredible grace, passion and effectiveness. We are also benefiting from our position in the industry in terms of capacity growth. The overblown and nagging concern by some industry observers regarding industry capacity coming online over the next few years should have already been allayed.

But to drive the point further, I'll refer you to Slide 4, where we had laid out at the mix of industry capacity additions for the next two years. In each year, the amount of relevant, competitive capacity, in other words, new capacity or cruise line with whom our brands directly compete, is significantly less than the total capacity entering the industry in any given year. Expedition vessels, as well as vessels deployed in China or country-specific brand make up a considerable amount of new capacity coming online, capacity with which our brands simply do not compete with head on as our product offering, guest sourcing strategy and our itinerary deployments are fundamentally different from theirs. We are also benefiting from a global consumer demand environment that has remained healthy and may be getting healthier even as we enter the second decade of economic expansion in the United States as indicated by the record demand for our cruise vacation.

Looking at our fleet of operations in 2019, Europe, which has been one of the stars in the last couple of years, is continuing its run of impressive pricing growth with year-over-year pricing up mid-single digits after two consecutive years of double-digit pricing growth. This is even more impressive given that first, this growth comes despite our 14% increase in capacity to the region, part of which stems from the pre-deployments of Norwegian Pearl from Alaska as part of our strategic itinerary optimization plan. And second, the timing of the redeployment was such that the sales and revenue management teams overcame the challenges of a nine-month booking window versus the traditional 18 to 24 months for these European voyages. As for the Europe source consumer, perhaps the best way to describe their mettle is with an example.

At the beginning of this year's second quarter, the Norwegian brand harmonized its go-to-market offering in the U.K. and in Continental Europe by replacing the Premium All Inclusive market strategy I'd introduced 15 months prior with the Free at Sea proposition that has proven popular in all other parts of the globe. Since this switch to Free at Sea, European source revenue for the brand has grown over 50% compared to the same four-month period last year. This impressive growth demonstrates once again that authentic value propositions do drive consumer behavior, and we have what I strongly believe are the top rated consumer facing value propositions at each of our brands.

At this time, Alaska continues to be one of our best performing markets. Similar to Europe, she is performing extremely well despite our 30% increase in capacity, which included for the first the Norwegian brand's two newest and largest ships. The redeployment of Norwegian Joy to Alaska resulted in a profound improvement to her profitability especially in the top line, driven by more than doubling of her onboard revenue generation. We are extremely pleased to not only see her garnering the high pricing she rightfully deserves but also to see her deliver a customer experience that ranks her first in guest satisfaction for the Norwegian brand, driven by the high tech and industry-first innovations found onboard.

Looking ahead to 2020, the picture only gets better as demand, load factor and pricing continue to outpace 2019 record levels. Our two upcoming newbuilds are being extremely well received. Norwegian Encore remains the best booked Caribbean-introduced ship in the Norwegian brand's history and by a very wide margin, I may add. At the same time, Seven Seas Splendor is helping to push record pricing per region in 2020 despite her arrival causing a 26% increase in brand capacity.

Along with Regent, strong demand is also benefiting sister brand Oceania Cruises with both the Oceania and Regent brands reaching the 50% load factor threshold for coming year sailing faster than ever before and at higher prices. These are strong statistics and a bullish indicator that the 10-year-old U.S. economic expansion is alive and well, at least in our three brands. Now I'd like to remind everyone of a comment I made on last quarter's call, and that is that record booked positions do not extend indefinitely, nor would we want them to.

Our main goal is not to extend the booking curve to see as far as it will go, but instead to stay on our highly efficient and predictive booking curve to guide our ability to maximize ticket price to be the highest in the industry and which helps us attract the best customer who consistently contributes the most to onboard revenue through each and every voyage's sales cycle. And we will continue to hone our revenue management capabilities with further investments in advanced analytics that will further drive optimal pricing for every voyage. While I have covered quite a bit regarding the quarter and our future outlook at a high level, I'd like to now turn the call over to Mark to go over our results and guidance in more detail. Mark, please.

Mark Kempa -- Executive Vice President and Chief Financial Officer

Thank you, Frank. Unless otherwise noted, my commentary compares 2019 and 2018 net yield and adjusted net cruise cost, excluding fuel per capacity day metrics on a constant-currency basis. My prepared remarks will also delineate the impact from certain headwinds, including the change in Cuba regulations and a technical issue on Norwegian Pearl early in the third quarter. I'm pleased to report yet another record quarter, one where the company generated the highest second-quarter revenue and earnings in its history.

As you can see on Slide 5, adjusted EPS grew 7.4% over prior year to $1.30, primarily as a result of our revenue outperformance in the quarter, which was driven by exceptionally strong onboard revenue and strong well priced close-in bookings. If not for the $0.06 impact from the Cuba regulation change, adjusted EPS would have exceeded our prior guidance by $0.03 or a 12.4% growth over prior year. Turning to Slide 6. Net yield increased 5.8% or 5% on an as-reported basis versus prior year, outperforming guidance expectations despite 50 basis points of headwind from canceled Cuba sailings.

This growth includes 100 basis points of corporate net yield dilution from Norwegian Bliss while she primary sailed in the lower-yielding Mexican Riviera region, all of which was consistent with our expectations. If not for the Cuba impact, net yield would have increased 6.3% or an 80 basis points beat versus our guidance. This strong growth comes on top of prior year's solid net yield growth of 4%. Turning to costs.

Adjusted net cruise cost, excluding fuel, increased 6.1% versus prior year and 5.1% on an as-reported basis. Costs exceeded guidance for approximately 85 basis points, which was entirely due to certain onetime charges in connection with the Cuba regulation change. Excluding these, costs would have been slightly favorable versus guidance as a result of timing in the quarter. Total fuel expense was in line with expectations as fuel consumption savings offset an increase in our fuel price per metric ton net of hedges, which came in at $493.

Turning to Q3, I'll direct you to Slide 7 to review deployment highlights. In the third quarter, our Europe mix is approximately 42%, an increase from prior year due to the addition of Norwegian Pearl. Alaska mix increased to approximately 21% as a result of the repositioning of Norwegian Joy while Caribbean is approximately 18%. Looking at expectations for the third quarter, core business fundamentals are strong despite headwinds in the quarter.

In addition to the impact from Cuba, we experienced a technical issue on Norwegian Pearl in early July, which affected approximately one month of a premium priced peak summer sailing in the Mediterranean. This issue impacted earnings by approximately $0.07 per share, primarily in the top line. To demonstrate the strong underlying core performance of the business, I'll direct you to Slide 8, which contains our third-quarter guidance, together with the impact from the aforementioned headwinds in the quarter. Net yield is expected to increase approximately 1.75% or 1.5% on an as-reported basis and is net of an approximate 300-basis-point impact from both Cuba and the Pearl voyage disruption.

This comes on top of strong prior-year growth of 4%, which included the benefit of premium priced Cuba sailings compared to the current year, which now includes lower priced Bahamas cruises that will have to be filled in a very condensed sales cycle. Turning to costs. Adjusted net cruise cost, excluding fuel, is expected to be up approximately 8.25% or 7.75% on an as-reported basis. This is the highest growth quarter of the year, primarily due to incremental marketing expenses associated with Cuba and operating expenses associated with Pearl's voyage disruption, which combined are expected to account for approximately 300 basis points of the increase.

In addition, we have the scheduled 18-day dry dock of Oceania's Regatta as part of OceaniaNEXT reinspiration program versus no dry dock days in the prior year. Looking at fuel expense. We anticipate our fuel price per metric ton net of hedges to be $492 with expected consumption of approximately 195,000 metric tons. Taking all of this into account, adjusted EPS for the third quarter is expected to be approximately $2.15, which is inclusive of an expected $0.29 impact from both Cuba and Pearl.

Exclusive of these headwinds, adjusted EPS guidance would have been $2.44 or a 7.5% increase over prior year, all on flat capacity growth. Turning to the full year, I'll walk you through the components of the revised adjusted EPS outlook on Slide 9. Top line outperformance in the second quarter, combined with a stronger revenue outlook for the back half of the year, resulted in an $0.08 benefit to the full year. Fuel, interest and other savings accounted for approximately $0.04, and these benefits were offset by a $0.45 impact from the Cuba change and a $0.07 impact from the Pearl technical issue.

As a result, we now expect adjusted EPS to be in the range of $5 to $5.10. If not for the $0.52 combined headwinds from both Cuba and Pearl, our guidance would have been in the range of $5.52 to $5.62 or a 13% increase over prior year and would have exceeded the high-end of our guidance range provided in May. Looking at expectations for other key operating metrics on Slide 10. Net yield for the year is expected to increase 2.6% or 2.1% on an as-reported basis despite an expected impact of 180 basis points from Cuba and Pearl.

If not for those headwinds, net yield growth would have been 4.4% and implies an increase to the back half of the year of almost 50 basis points versus the prior implied guidance for the same period. Adjusted net cruise cost, excluding fuel, is expected to be up approximately 4.5% or 4% on an as-reported basis. The 100-basis-point increase versus prior guidance is primarily due to the impacts from Cuba and Pearl. Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $487 with expected consumption of approximately 840,000 metric tons.

Looking ahead to Q4, our implied net yield guidance is flat to prior year, which is inclusive of an approximately 330-basis-point Cuba impact. It is important to keep in mind that we are rolling over Norwegian Bliss' successful inaugural Caribbean season out of Miami in 2018. This year, she sailed a mix of Mexican Riviera and New York-based winter Caribbean sailings, while Norwegian Encore will take her place in Miami with a partial quarter of sailings. As such, the combined yield performance of Bliss and Encore resulted in an expected dilutive impact to our corporate net yield of approximately 125 basis points.

Focusing on the fuel environment. We continue to strengthen our hedge program, and during the quarter, increased our overall portfolio and also entered into our first swaps for 2022. While there is still a small amount of uncertainty in connection with a new IMO regulations coming online in 2020, we continue to expect our 2020 total fuel expense net of hedges to be on the higher end of our typical range of 6% to 7% of gross revenue. This is consistent with our expectations and is driven by an increase in volume from capacity growth, as well as higher pricing.

In addition, we continue to take advantage of the interest rate environment, and we recently executed a two-year $450 million costless collar to further minimize potential volatility in that line. This increases our fixed debt ratio from 75% to approximately 82%. Looking ahead to the broader outlook for 2020. While it is too early to provide guidance, we do want to provide an estimate on the flow-through of the Cuba regulation change to 2020 earnings.

Based on our best estimates today, we believe the impact to be approximately $0.20 to $0.25, which primarily represents the loss of the premium pricing on the top line that our Cuba sailings garnered versus similar Bahamian or other itineraries. That said, despite the impact from regulation changes, we continue to be on a strong path toward achieving our full speed targets that we laid out at investor day in May of last year. Focusing on shareholder returns. We had previously communicative that we would take a balanced approach in returning to shareholders $1 billion to $1.5 billion of capital through year-end 2020 via share repurchases and/or potential initiation of quarterly dividends.

Despite our continued outperformance, the earnings multiple for our company has contracted to record or near-record lows, which we believe reflects a significant disconnect between our share price and our long-term value and future growth profiles. Hopefully, Frank's earlier commentary regarding the strength and consistency of our business fundaments alleviates the concerns that are weighing our valuation. In the meantime, with our stock trading at a more than 50% discount to the S&P 500 average, we continue to use opportunistic share repurchases as the primary vehicle to return to shareholders. We continue to look forward to a time when our stock price reflects the strong fundamentals of our business.

But given today's valuation, our board of directors believes that the most efficient way to return capital is through the opportunistic share repurchases while still maintaining focus on our desired leverage targets. With that, I'll hand the call back over to Frank to provide closing commentaries.

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Thank you, Mark. As I previously mentioned, Norwegian Encore remains the best booked Caribbean-introduced ship in the Norwegian brand's history, handily outperforming sister ship Norwegian Escape's debut back in November of 2015 in both the number of cabins sold and in pricing. On Slide 11, you can see some of the highlights of that have helped stoke demand for Encore sailings. From the exciting thrills at the Aqua Park, the Encore Speedway, the high-tech Galaxy Pavilion and laser tag course, the new culinary introductions such as Onda by Scarpetta.

By the time of our next call, we will have welcomed Norwegian Encore to the fleet, and she will be making her way to New York City to make a two-week introduction tour that will include a variety of special events, capped off by her inauguration in Miami on November 21st. Encore's debut, along with that of Seven Seas Splendor in February of 2020, the record booked positions at higher prices in all three of our brands, the full-year benefit of Norwegian Joy's sailing itineraries in the West and the expected acceleration of cash generation and capital returns to shareholders as part of our full speed ahead target, lay the foundation for 2020 to be more than just another milestone year. Before handing the call over to Q&A, I'd like to leave everyone with a trio of key takeaways from today's commentary, which appear on Slide 12. First and foremost, we delivered record results in the second quarter despite the external headwinds discussed.

Second, our core business fundamentals are stronger than ever, with 2019 on track for a record year-end 2020 following in her footsteps. Lastly, we are well positioned to achieve our 2020 full speed ahead targets. And with that, I'd like to open up the call to Q&A. Operator?

Questions & Answers:

Operator

Thank you, Mr. Del Rio. [Operator instructions] And our first question comes from Felicia Hendrix from Barclays. Your line is open.

Felicia Hendrix -- Barclays -- Analyst

Hi. Thank you. And thank you for all those colors. Very helpful and a confusing quarter and good quarter.

Either Frank or Mark, I just wanted to kind of circle back to the $0.45 impact from Cuba, which was at of the high end of your previously disclosed range. I just was wondering if you could maybe talk about the different parts, moving parts in that number? And how come you came in the -- what drove you toward the high end versus maybe being able to mitigate some of the impact given how strong your business is? And while we are on the topic of mitigation, just wondering, Mark, with the $0.20 to $0.25 impact next year just from the redeployment of the Cuba cruises, wondering how you would characterize that outlook? Do you think that there would be ways to further offset that number? And if not on the top line, maybe for some of the things you might be seeing on the fuel side? Thanks.

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Sure. Thanks, Felicia. So Cuba happened, what, June 4, June 5. We put out a guidance range of our best estimates, I think three days later, maybe on the fourth day.

And obviously, it was a very fluid situation. We had estimated $0.35 to $0.45. And I think the important note -- item to keep of note is that roughly a third of our Cuba sailings were our high-ends brands, combined with Oceania and Regent, and the remaining were Norwegian. So not only did we issue significant refunds through voyages, I believe, that were through September, we also canceled the remaining voyages for the year.

So we -- number one, first and foremost, we wanted to make sure that we were taking care of the customer. And as we move forward, Cuba can be thought about in two parts. There's premium that Cuba gets over a similar itinerary, which I think we have said traditionally is in the zone of 25% plus. But then there's a short-term impact, which is really the dilutive nature of having to redeploy that capacity in another short market and starting from a zero-passenger base.

So while we're leaning on the high end right now, it is a short cruise market. We are seeing positive signs. We're not concerned and we're gonna do everything in our power to improve that number. As we roll over to 2020, again, I think it's very important to keep in mind that over 30% of that capacity was Cuba-intensive, high-end brand impact.

So while we estimate right now that the impact is $0.20 to $0.25, it's early. We are going to strike hard to beat that. And of course, we're always looking at our cost line to figure out is there ways where we can mitigate. That's something we never stop doing.

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yes. I just may add, Felicia, that as we look to mitigate the impact of Cuba in 2020, there are two items that we're hopeful can be better than what we are estimating today, and that is the redeployment of the Oceania vessels to the Mediterranean, Eastern Mediterranean, Southeast Asia in the back half of '20 and how well Norwegian Sun performs in Alaska. It'll be our third consecutive year of double-digit growth in the Alaska market. On the one hand, it shows you how bullish we are in the Alaska market.

We think that we've got the best product mix there and believe that this introduction is slightly different type of product, smaller vessel, more itinerary intensive that'll do well. And if any itinerary has the potential to match Cuba yields, it's Alaska.

Felicia Hendrix -- Barclays -- Analyst

And Mark, just to understand one thing that you said, with the $0.45 impact that you're forecasting this year from Cuba, that actually, as we cycle through the year, could end up being better if things work out better than expected?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yes. I think the point is that again, a lot of the -- this is a short cruise market. We have some visibility, but it's a close-in booking window. We are not something right now, but we are seeing positive signs that hopefully we can beat that.

Felicia Hendrix -- Barclays -- Analyst

Great. Thanks so much.

Operator

Thank you. And our next question comes from Harry Curtis with Instinet. Your line is open.

Harry Curtis -- Nomura Instinet -- Analyst

Hey, good morning everyone. Frank and Mark, I'm trying to just make sure that our numbers are right on what the earnings power in 2019 would have been had Cuba and the mechanical issue not occurred. And you were sailing your more traditional routes. So the $0.07 for the pod malfunction has been called out.

And am I right in thinking that between the pod and Cuba, that your normalized earnings would have been closer to roughly $5.40 a share?

Mark Kempa -- Executive Vice President and Chief Financial Officer

I think, Harry, you're probably a little bit light there. I think if you refer to Slide 9 on our deck, if Cuba and the Pearl, which is a combined impacts of $0.52, have not happened, we would have guided in the zone of $5.52 to $5.62 or a $5.57 midpoint. That would have been around a 13% year-over-year growth on roughly 2.5% capacity growth for us this year.

Harry Curtis -- Nomura Instinet -- Analyst

Right. So that's assuming that you would have -- that, say, the Oceania ship and the Regent ships were sailing in the Caribbean and you still would have been able to achieve the $5.55, $5.60 level?

Mark Kempa -- Executive Vice President and Chief Financial Officer

No, no. I -- no. We -- look, Cuba is an impact and we really took it on the chin hard with the upper brand. So the fact that they're either sailing in the Caribbean or they're doing some other exotic itineraries, we can't absorb all of that.

But again, had Cuba in itself had not changed, we would have been looking at a 13% year-over-year EPS growth.

Harry Curtis -- Nomura Instinet -- Analyst

OK. So but what I'm trying to do is get to the middle ground, assuming that your ships were on their more normal Caribbean sailings and our numbers are coming to roughly $5.40.

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yes. I think I see what you're saying. So we said we're saying $0.45 impact from Cuba. I think if you parse that out, there's roughly $0.10 to $0.12 of that is really onetime operating costs and the nature of port obligations that we had to expend some incremental marketing expense.

So if you take that out and that gets you into the $0.35 zone, that's all your revenue impact. And then the way to think about that is that's combining the true premium of the Cuba itinerary versus an alternative itinerary, but in that, there's also the piece that is the dilution where -- because you had to put sailings on starting from a base of zero in a very short sales cycle. So I think when you roll out over to -- into a true annualized basis, that's where you get to our $0.20 to $0.25 impact.

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Yes, Harry. The other I would add is on a normal basis, we wouldn't have had the Oceania and Regent ships in the Caribbean sphere of operation to begin with. So it's a little bit not apples-to-apples to say, well, if you had always had those ships in the Caribbean without Cuba, what would it have been. They would never have been in the Caribbean.

You don't put high-end vessels in the Caribbean Basin in the peak summer months. It's just not where the best and highest use of ships are.

Harry Curtis -- Nomura Instinet -- Analyst

OK. And then the related question is for 2020, you're still confident in double-digit earnings growth. And do you have any sense of what the increment could be if you deployed maybe $1 billion plus to share repurchase to your earnings growth? And that's all for me. Thanks.

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yes. Look, we're still targeting -- we're still comfortable with double-digit earnings growth. And I can't comment on potential share repurchases in the future. That's purely up to our board, but it's certainly something we're looking at.

Harry Curtis -- Nomura Instinet -- Analyst

OK, very good. Thanks, fellows.

Operator

Thank you. Our next question comes from Steve Wieczynski from Stifel. Your line is open.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

Hey, guys, good morning. So I think if we simplify all this, all the noise that's out there around Cuba and the Pearl and if we go look back and look at your original yield guidance back in February, I think your yield guidance was 3% to 4%. And I think now if we exclude all that, you're basically at about 4.5% if my math is correct. For the most part, your cost assumptions are only up slightly.

So I guess my question is what's been the biggest delta around that original yield guidance and where we sit today? Has it been a specific market? Is it onboard or just a combination of a lot of different factors?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Well, yes. Thanks, Steve. I think first of all, yes, you are right, we're targeting about 4.5% if we excluded those items. And that actually represents, I think, just half a point of increase for the full year, but more importantly, it also represents almost a half a point increase in the back half of the year.

So I wouldn't say that there's really been any big delta. We've been continuing to see strength in all of our core markets, and we're seeing it's a strong robust demand environment. In terms of onboard revenue, I think we delivered on the face of our financial statements roughly a 5.5%. And as I say every quarter, if you take away the GAAP allocation due to our transfer pricing, that number is really closer to about 10% to 11% on a normalized basis.

Now a good significant portion is driven from the Joy, and that accounts for about half of that. So if you strip that out, we're still looking at the zone of 5% to 6% of solid onboard growth. So the consumer is alive and well, they're spending money, they're spending significant amounts onboard. Our ATF continues to be up double digits, I thank were up over 11% or 12% on 6% capacity growth in the same period, and we're selling tons of future cruise certificates onboard, as I always say.

So we see a very healthy consumers who are willing to spend money.

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Yes. And the way they're spending money has evolved over time. We see greater spending on experiential activities such as shore excursions, spa treatments, specialty restaurants, and all those are high margin venues, if you will. And that's helping generate the kind of year-over-year onboard revenue growth that Mark was talking about.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

And then my second question, Frank, your commentary around Alaska, which I think is a market that is concerning for a lot of folks, not only investors, but I think some of your competitors as well. I guess why is your commentary so much different around Alaska in terms of how well you guys are doing there? Is it really just a hardware issue at this point? Or is there something else you can maybe point to?

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

It's never one thing. The incredible hardware we have in Alaska certainly helps for the Norwegian brand. The fact that we have an improved terminal in Seattle, I think the itineraries that we deliver with Glacier Bay, which is the No. 1-rated destination in Alaska, as you might know, we put a press release out, the U.S.

Park Department just issued us the largest number of permits for the next 10 years for our ships to visit Glacier Bay. All that contributes to a buzz in the marketplace. Travel agents understand that the Norwegian brand, with the observation lounge that we have on Joy and Bliss, which is perfect for Alaska cruising; all the high-tech gear that we have onboard that the kids love; and as you know, the Alaska season coincides with summer vacations for children. There are cruises onboard Joy and Bliss that have over 1,400 children onboard, and they're driving all this.

And so there's a great buzz out there about, you want to go to Alaska, you go on Norwegian Cruise Line.

Operator

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

Jared Shojaian -- Wolfe Research -- Analyst

Hi. Good morning, everyone. So I want to drill a little deeper on your fuel comments for 2020. Are you assuming spot IFO and spot MGO prices in that number, that 6% to 7% of gross revenue and so that you're not assuming any downward pressure to the price of IFO from IMO 2020 policies? And is there anything more specific you can tell us for next year other than the high end of 6% to 7% of gross revenues? Because ultimately we don't know your revenue forecast, and I think even a 10-basis-point change in revenue is a pretty meaningful amount to the high end, being 7% or 6.9%, which can really move the needle.

So any additional color you can flush out there would be helpful.

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yes. Thanks, Jared. First on the pricing, no, we do not use the spot rate. We consistently use the forward curves for both U.S.

Gulf Coast 3% for our heavy fuel oil, and we use the gas oil curve as a proxy for MGO. So again, we are taking into account at any given time what the future slopes of the curves look like at that point in time of the market. In terms of more guidance in 2020, yes, we have said it's roughly 6% to 7%. I -- translating that into dollars, you're probably looking somewhere in the zone of, I would say 18% to 20% in terms of dollars over this year.

Somewhere in that zone think would be a good guide for you to think about.

Jared Shojaian -- Wolfe Research -- Analyst

Great. Thank you. That's really helpful. And then just one quick follow-up for me.

On the 2020 thinking in terms of potential double-digit growth, your 12% ROIC target would seem to imply double-digit growth of something more meaningful than just 10% EPS growth. So correct me if I'm wrong on that, but is that how you're thinking about the 12% ROIC as being double-digit earnings growth more than just 10%?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Well, we've always said double-digit earnings growth. I'm not going to elaborate on what that specific number means. But obviously, yes, you're correct, you can calculate back into what ROIC has to do and we have some work cut out for us. With the Cuba issue, that comes right off the top and we have to find offsets to that.

So we have to work a bit harder, but as I said in my commentary, we're still on a strong path toward meeting those targets and we're marching to that end.

Jared Shojaian -- Wolfe Research -- Analyst

OK. Very helpful. Thank you very much.

Operator

Our next question comes from Thomas Allen with Morgan Stanley. Your line is open.

Thomas Allen -- Morgan Stanley -- Analyst

Hey, good morning. So there are some articles out this week about Venice closing the center of the city to cruise ships. Is that something that you're concerned about?

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Not overly concerned. Issues regarding Venice and big ships have been thrown around for the last decade or so. This year, the issue has risen or the volume has risen a bit because of one incident in Venice this spring in one-year incident. And so there are factions within the broad Italian bureaucracy that we want to see some controls over big, big ships going to Venice, or going down the main canal rather versus others who will understand clearly the economic impact that any kind of restriction of cruise customers would have on the broad Venetian economy.

We have 70 calls in 2019 and about the same number scheduled for 2020 that call on Venice. Half of them are from our Oceania and Regent brands who operate small vessels who are not at all impacted by the rhetoric that you're hearing. And there are several alternative berths in and around Venice that should it come down to the bigger ships not being able to embark and disembark guests in the same places they do today, that are alternatives that can work for the industry. We don't, quite frankly, expect to see any major changes in the near term.

But this is government, and governments can do anything they want to do.

Thomas Allen -- Morgan Stanley -- Analyst

Helpful. Thank you. And then just I was looking at your deployment schedule for 2020, and I know it's small, but looks like you're leaving the Canary Islands and putting more capacity into the Baltics. Can you just talk about the rationale there?

Andy Stuart -- President and Chief Executive Officer, Norwegian Cruise Line

Yes. We're always optimizing itineraries and that was an opportunity for us to redeploy a vessel out of one of our lower yielding itineraries into a higher-yielding itinerary. It's something the team are always focused on. The winter Canaries itinerary was one that we've been operating, and it's simply been the lowest yielding itinerary we have.

And you'll continue to see us do that, try to find the lowest yielding itinerary and replace it with a higher-yielding alternative. That's how we're generating value of the same-store fleet. It's an ongoing process.

Thomas Allen -- Morgan Stanley -- Analyst

Any way to quantify the benefit?

Andy Stuart -- President and Chief Executive Officer, Norwegian Cruise Line

Yes, I don't have the specific numbers of that here but it's definitely positive.

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Definitely a positive move. If you've ever been to winter Canaries.

Operator

Thank you. Our next question comes from a Brandt Montour with JP Morgan. Your line is open.

Brandt Montour -- J.P. Morgan -- Analyst

Good morning, everyone. Thanks for taking my question. So another kind of question on 2020. So I know it's still early to talk about net yield growth, but maybe you could just help us by reminding us the broader puts and takes with regards to sort of differences in hardware year-over-year comparison-wise?

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Well, unlike 2019 where we took delivery of no new ships, 2020, we have in essence a full-year benefit of Encore, our newest, biggest vessel in the Norwegian fleet. And we have 10 months of Regent Splendor, which will be by far the highest yielding ship in our fleet and possibly in the industry. That's a 26% % decrease in the capacity for the Regent fleet. And as I said earlier, she's ahead -- not only is the ship ahead of newbuild that Regent has ever introduced, but the brand itself is ahead in load considerably versus this time last year and in pricing.

So those two should be good drivers of yield in their individual brands. Remember the yield conundrum that we have at the H level with big ships coming from the Norwegian brand that generate incredible EBITDA, incredible cash flow, incredible net income but oftentimes is dilutive to the corporate yield. So this is where we stress to the analyst community, the investor community that you ought to look at our bottom line growth and our top line growth, but don't get hung up on yield growth necessarily because sometimes, it gives you a false indication of what the strength of the business is.

Brandt Montour -- J.P. Morgan -- Analyst

OK, Great. Thanks. And then shifting gears. So the commentary in Norwegian on the script about share repurchases and sort of capital allocation preferences there, does that -- how does that change the equation if at all when thinking about the bullish intention to eventually implement a dividend?

Mark Kempa -- Executive Vice President and Chief Financial Officer

I didn't -- can you repeat your last part? The intentions of what?

Brandt Montour -- J.P. Morgan -- Analyst

The intention to eventually implement a dividend.

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yeah. Look, we're refocusing our allocation strategy. We've said we always wanted to have a balanced approach. But look, we're trading at record lows, we're trading at eight times forward earnings, which is just a tremendous buying opportunity.

So we are not taking dividends off the table. I want to make that very clear. But when you look at the best way to deploy your capital today at today's share prices, it just makes more sense. So we will continue to evaluate that with our board at each quarter and we'll advise you accordingly.

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Nothing will please us more to initiate a dividend when the price of the stock, the multiple, more than the price of the stock, the multiple reflects what it should reflects what it should reflect; the fundamentals of this business, of this industry, all the benefits that this industry has that I don't believe the broader investment community is taking into account. Because if it did, the multiple of our industry and of our company specifically would be significantly greater than it is today.

Brandt Montour -- J.P. Morgan -- Analyst

Excellent. Thanks, everyone.

Operator

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

Your line is open.

Jaime Katz -- Morningstar -- Analyst

Hi. Good morning. Thanks for taking my questions. So piggy-backing on one of the last questions, I guess the implication for 2020 is really that we go back to this normalized spread where yields start to grow faster again than costs.

Is there anything in the cost side that we should be made aware of like higher dry dock days next year that could maybe prevent that from happening?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yes. I think we've always talked about 2020 that we should be able to achieve some cost leverage just from our scale benefit. When you look at dry docks, I think our dry dock days are slightly up at next year. I don't have the exact number in front of me.

We do have a lengthy dry dock for the Norwegian Spirit in Q1. So I think we've said consistently we're going to have about eight to 10 dry docks per year as our fleet, some of the bigger ships get into their five-plus years of age. But in terms of costs, we are leveraging. We are going to continually -- it's not something we do when there's pressure on the business.

Every day, we are looking at where we can find efficiencies and where we can leverage our scale. And we do that in the name of not impacting the brand, not impacting the customer and not impacting the quality of the product we're delivering. So we're certainly focused on that and we're going to work hard to continually push on that front.

Jaime Katz -- Morningstar -- Analyst

OK. And then just on a housekeeping basis, it looks like the capacity growth next year is expected to be 8.8%. That was up from last quarter, where it was 8.2%, but I think there was some changes with Pearl in the second quarter. Is that the only delta? Or is there anything else that has changed for capacity growth next year?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yes, it's really just a function of some of the Pearl that happened this year and then you have some shifting in optimization of dry docks in next year. So it's just fine tuning of our deployment.

Operator

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

Stephen Grambling -- Goldman Sachs -- Analyst

Thanks for sneaking me in. Two quick follow-ups. First on Encore, so you did mention that was the best booked in Caribbean history. At this point, is the net yield trajectory approaching the company average? Or should we still assume a drag from that asset? And then second, Slide 4 is pretty interesting.

Do you have the mix between relevant and irrelevant supply for 2019?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yes, so first on Encore, so Encore this year, if you keep in mind, I think she's sailing for about -- she has about five sailings this year. Two of those sailings are holiday sailing, the other three are really what we call shoulder holiday period sailings which, frankly speaking, don't do that well. But as you look forward into Encore and her Caribbean season, she is pricing well. She is doing -- again, our best Caribbean booked ship.

And at this stage, I think what we see right now in the first quarter or so, she's going to be somewhere in line with our corporate average yields. If you recall, Bliss in Q4 of '18 exceeded our corporate average yield, so we're very hopeful that -- and we have good visibility that I think Encore can do the same. Now she rotates out of the Caribbean into Bermuda for the summer sailing season, so that'll be a little bit of a shift in dynamic. But again, very powerful earnings engine.

And in terms of the relevant capacity, are we pulling that number? I'm sorry, for 2019, relevant capacity, we look at about 35% and the remaining is not relevant. There's a lot -- and in that relevant capacity, there's quite a bit of ships that are in Asia/China that we believe we don't compete with.

Stephen Grambling -- Goldman Sachs -- Analyst

Great. Thank you so much. Helpful.

Andrea DeMarco -- Vice President of Investor Relations and Corporate Communications

Operator, we have time for one more question.

Operator

OK. Our next question comes from James Hardiman with Wedbush Securities. Your line is open.

James Hardiman -- Longbow Securities

Hey good morning. Thanks for sneaking me in here. A couple of clarifications. I guess first on Steve's question about Alaska.

Obviously, mix is playing a pretty big role in Alaska with some new ships there which, given the higher priced itineraries, is certainly beneficial. But is there any way, despite all the moving parts in Alaska, to look at like-for-like pricing in Alaska? Is that up this year? And I guess the reason it's a particularly important question is if we fast-forward to 2020, it seems like Alaskan capacity is going to be pretty stable. I guess the question would be do we still think Alaska is going to be accretive to yields in 2020 just given sort of what's going on in that market?

Andy Stuart -- President and Chief Executive Officer, Norwegian Cruise Line

Yes, I'll give you a little bit of color on that. I'll start with Bliss because, obviously, same ship year over year. The difference is we're lapping an inaugural season. But what's happened in '19 in the peak of the season, the pricing's roughly flat with her inaugural season, which is really unusual.

So we're very, very pleased with how Bliss has performed year over year, like for like. In the shoulder season, she's in line with our expectations, and as one would expect for a ship lapping their inaugural season. So Bliss has done well. Joy sort of meets the criteria you mentioned in your question, which is a different ship, but we're very pleased with Joy's introduction.

She's well ahead in pricing of the ship she replaced in Alaska, so pleased with Joy. And Jewel, based in Vancouver, or the mid-sized ship based in Alaska is doing very well. Again in the peak of the season, she's beating pricing year over year and in line with expectations outside of the peak. So pretty happy with that.

If we look out to 2020, we're -- Alaska's really meeting expectations with high pricing again. So we're really encouraged with Alaska. I echo Frank's comments that new ships in Alaska, it was time for new ships in Alaska. And these ships in particular have been very, very well received.

So pleased with this season, optimistic for the outlook. And really see the Norwegian brand with these new ships as leading that market.

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Yes. And if I may add that we won't to have the challenges of filling Joy, a very large ship and in very abbreviated eight-, nine-month booking cycle like we did this year when we announced her departure from China. We have a regular 18-, 24-month booking cycle in front of us. So that's certainly going to help Joy in particular, but also whatever bleeds through the rest of the fleet to have a more normal booking cycle for Alaska.

So thanks, everyone, for your call, your -- did you have a follow-up, I'm sorry?

James Hardiman -- Longbow Securities

I did, if I could fit one in here real quick, Frank. So Slide 4, I thought was really interesting way to look at the whole capacity conundrum, the relevant versus the non-relevant. Maybe speak to how that's trended in terms of the relevant because it's less about the absolute number in terms of capacity and more about how it's trending. If we look back to previous years and then the next handful of years, is relevant capacity accelerating meaningfully or is it pretty stable in terms of year-to-year growth?

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Well, I think if you go backwards to '17, '18 and '19, there'd be more blue than black because in prior years, there were less ships going to China, less ships going into the national brands that we discussed and the expedition market almost didn't exist. Going forward, I would expect if I had 22, 23, 27 in there, my guess is, is that pie would be roughly 50-50, no worse than 45-55 going the other way. So it's going to stay relatively flat, I believe. Again, capacity growth is an overblown metric that at this point in everyone's involvement in the industry, I can't believe it's still out there.

This is a grossly under penetrated industry. Less than 4% of the world has cruised, less than 2% of the world spend on hospitality is spent on cruises. There are more hotel rooms in Orlando and Las Vegas combined than there are cabins in the world. Cruise fleet, I don't know how many more examples I have to give you.

We take on 26% growth in one particular brand and it's a full at higher prices. So find some other excuse because this one is just not a good one to focus on.

James Hardiman -- Longbow Securities

Perfect. Thanks, Mark.

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

All right. Thanks, everyone. This concludes today's call. And always very thankful for your time and your support.

I'll see you next quarter.

Operator

[Operator signoff]

Duration: 66 minutes

Call participants:

Andrea DeMarco -- Vice President of Investor Relations and Corporate Communications

Frank Del Rio -- President and Chief Executive Officer, Norwegian Cruise Line Holdings

Mark Kempa -- Executive Vice President and Chief Financial Officer

Felicia Hendrix -- Barclays -- Analyst

Harry Curtis -- Nomura Instinet -- Analyst

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

Jared Shojaian -- Wolfe Research -- Analyst

Thomas Allen -- Morgan Stanley -- Analyst

Andy Stuart -- President and Chief Executive Officer, Norwegian Cruise Line

Brandt Montour -- J.P. Morgan -- Analyst

Jaime Katz -- Morningstar -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

James Hardiman -- Longbow Securities

More NCLH analysis

All earnings call transcripts