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Royal Caribbean Cruises Ltd (NYSE:RCL)
Q4 2019 Earnings Call
Feb 4, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Mariama, and I will be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Cruises Limited Fourth Quarter 2019 Earnings Call. [Operator Instructions] I would now like to introduce Chief Financial Officer, Mr. Jason Liberty. Mr. Liberty, the floor is yours.

Jason liberty -- Executive vice president, chief financial officer

Thank you, operator. Good morning, and thank you for joining us today for our fourth 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 this 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 in 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 up with a recap of our fourth quarter and full year results for 2019. I will then provide an update on the current booking environment and then provide guidance for the full year and fourth quarter of 2020. Richard?

Richard D. Fain -- Chairman and chief executive officer

Thank you, Jason, and good morning, everyone. Obviously, the biggest issue of the day is the Wuhan coronavirus. And as you all know, this virus has infected over 20,000 people in China, and they have taken unprecedented steps to contain it. They've essentially locked down the country and they're acting quickly and aggressively to combat the spread, so have other countries. Unfortunately, no one knows how this outbreak will play out, and we don't know how it will ultimately impact us. So far, we've canceled some sailings, and we've modified some itineraries that extend through March 4. These actions will cost us approximately $0.25 per share. But it seems likely that we will have to cancel more, but we don't yet know how many.

We also expect that there will be an impact on future bookings in China especially in the immediate aftermath of the illness. But again we just don't know. One important bright spot is that looking beyond the current outbreak we aren't seeing a big impact on overall bookings elsewhere. But again and here I'm sounding like a broken record, we just don't know. To put things in context, China was expected to account for about 6% of our full year capacity and 4% of the capacity in the first quarter. Spectrum of the Seas is currently our only ship in China with two other ships scheduled to enter the market in May and July, respectively. Spectrum was doing very well before this outbreak. So this is all very disappointing to us. So far we had to cancel eight China sailings and modified several itineraries to go through March 4. Unfortunately there are still too many variables and uncertainties regarding the situation to calculate the overall impact on the business will give you a good estimate of what the ultimate impact will be.

That said, we continue to feel positive about and committed to the long-term growth potential in China, a market that we've been in for more than 10 years. In conjunction with CLIA, our industry trade group, we have initiated strong safeguards to help contain the spread of the disease and to protect our guests and crew. These include regardless of nationality, the company will deny boarding to any individual who's traveled from, to or through Mainland China or Hong Kong in the past 15 days. These guests will receive full refunds.

There will be mandatory specialized health screenings performed on guests who have been in contact with individuals who have traveled from, to or through Mainland China or Hong Kong in the past 15 days; all holders of China or Hong Kong passports, regardless of when they were last in China or Hong Kong; guests who report feeling unwell or demonstrate any flu-like symptoms. And these standards also apply to employees, crew members and contractors. All these steps that we are taking and others are taking are expected to ultimately contain the virus, but we don't know how long that will take. Now returning to 2019, I'd start out by saying that it was another incredibly busy and successful year. Our teams achieved all-time record financial results, delivering an adjusted EPS of $9.54 while introducing three new vessels, launching the very successful Perfect Day destination, consolidating Silversea, modernizing six ships and implementing a Excalibur on most of the fleet.

Our guest satisfaction scores are at an all-time high, and so are our employee engagement scores. I'm gratified to note that our teams achieved these record results while also having more than their fair share of unique incidents like the Oasis dry dock, Cuba, Hurricane Dorian,etc. I believe that this is a testament to a strategy that works, a product that's great and a group of people that is the best at what they do. Now this particular earnings call is special as we are once again announcing a new set of long-term goals. Our management team is very goal oriented, and we have found that establishing clear, simple and ambitious targets motivates our people and drives superior results. This worked successfully with projects as diverse as Double-Double, Perfect Day and Project EDGE. Our people are amazing and when we get all of them pulling in the same direction, nothing stops us.

In this case, our idea is to focus on what we're calling the three Ps: People, Profit and Planet. We strongly believe that if we attend to these three elements we can achieve even greater heights. We're calling the program 20>25 by 2025. The program consists of five goals. The first two of which are reflected in the title. slide one shows the logo we're using internally for this program. The first goal is to reach adjusted earnings per share of $20 per share by 2025. We think that's a worthy goal on its own. But I remind all of you on this call that our real objective is not to reach these goals but to exceed them. It's a bit like tennis where they always say you not to hit -- not to hit the ball, but to hit through the ball. Our goal is not just to improve 2025 results, it is to use that as a stepping stone to a new base that will take us to new and better highs.

The second goal is to reduce our carbon footprint by an additional 25%. That's on top of what we've already achieved with our WWF commitment today. Now this goal that we're announcing today is 10% greater and will be achieved five years earlier than the International Maritime Organization's goal. It's a big deal. The third and fourth goals are to increase our employee engagement from the record levels we're currently enjoying. We always emphasize that our success is based on the awesome work of our employees, and we want to ensure that we are taking the steps necessary to generate their continued commitment. We are also proud of the level of guest satisfaction that this commitment produces.

Our fourth goal, therefore, is to continue to raise those satisfaction metrics. Lastly, we need to accomplish all this while ensuring that we keep our focus on the returns we generate on invested capital. This involves maintaining a high level of discipline on capital spending and on operating leverage. We believe that we will do well even without such a program. Nevertheless, adopting the clear and simple 20>25 by '25 goals will help guide our decision-making every day. That will focus our attention on Peoples, Profits and Planet. These 2025 goals really motivate and drive performance, which, in turn, not only make these goals -- makes achieving these goals more likely, it makes exceeding these goals more likely too. We do intend to provide greater detail on the specifics of the 20>25 by 2025 program in our 10-K, which will be out in a few weeks. Now I'd like to update you on the booking environment for the year.

Jason will give a little more, but I want to focus on it. And given the uncertainties around the virus, all of my comments will exclude the impact of that. We're always eager to start the year and see what WAVE season brings. It's an important part of our volume, but it also serves as a harbinger for the rest of the year. And I'm happy to say that this year's wave makes us very optimistic about 2020. I'm always amazed by how accurate our revenue management teams have been in the past. And this year, they expect yields to increase broadly in the range of 2.25% to 4.25%. As always, there are some areas that do better than others in some special circumstances; for example, the bushfires in Australia. But overall, our forecast was for a nice bump to our already excellent 2019 yields.

Now it's also important to look at the cost side of the equation, and we estimate that our net cruise cost, excluding fuel, will be up 1.75% to 2.25%. Our cost outlook reflects our culture of continuous improvement and innovation. Nevertheless, as I've mentioned in the past, costs are not always perfectly aligned with the benefits they carry. For example, we continue to invest in our people, in new technology and our sustainability efforts as well as digital. In all these cases, we have spent money in the past two years, and we will continue to spend money in 2020. Something similar can be said regarding the employment of our capital. These decisions are focused on the long term of our business, and I believe they are very much in our investors' best interest. Lastly, I will brag a little bit about our stunning new ships in 2020.

Among them is the first full year of operation of Spectrum of the Seas, Celebrity Flora in the Galapagos and new Mein Schiff two in the German market. All these ships had a phenomenal inaugural season in their respective markets, and we're very happy with their performance. However, during 2020, we'll deliver four additional new ships: Celebrity Apex for the celebrity brand, Silversea Moon and Silver Origin for Silversea Cruises and Odyssey of the Seas for Royal Caribbean International. All these new vessels attract significant premiums and will help position 2020 for another year of strong yield growth and success.

With that, I will now turn the microphone back to Jason. Jason?

Jason liberty -- Executive vice president, chief financial officer

Thank you, Richard. I will now take you through our results for the fourth quarter of 2019. These results are summarized on slide three. For the quarter, we generated adjusted net income of $1.42 per share, which is slightly higher than the midpoint of our guidance. In summary, revenue came in as planned and better-than-expected performance from our joint ventures and below the line activities more than offset the increased costs. On the revenue side, net yields were up 6.8% for the quarter, in line with our guidance. Approximately, 300 basis points of the yield growth was driven by the benefits of Silversea, Perfect Day and Terminal A. New hardware and like-for-like yield improvement drove the other 380 basis points of yield growth for the quarter.

On the cost side, net cruise costs, excluding fuel, per APCD were up 15.9%, which was higher than guidance, driven mainly by marine-related costs and employee-related expenses. In addition, during this quarter, we repurchased $100 million in shares. I will now discuss our full year results, which we have summarized on slide four. By all accounts, 2019 was another year of very strong performance. We generated over $2 billion in adjusted net income, resulting in earnings per share of $9.54, making 2019 another record year. This record result was achieved despite the unfavorable impact from the incident in the Grand Bahama Shipyard, the abrupt cancellation of voyages to Cuba and the operational disruption generated by Hurricane Dorian.

Our leading brands and world-class workforce delivered the strong financial performance while also driving record Net Promoter Scores and record employee engagement metrics. To summarize the revenue performance for the year, yields were up 8%, crowning a decade of uninterrupted revenue growth. This result was almost 50 basis points higher than our initial January guidance despite an 80 basis point headwind from the combination of Cuba policy change, Hurricane Dorian and the Grand Bahama incident. Strong demand from our core products for our key markets and higher pricing related to our private destinations in the Bahamas drove the overall outperformance for the year. Now the main driver of the year-over-year improvement were strong like-for-like yield growth, our incredible new hardware, the launching of Perfect Day and the consolidation of Silversea.

On the cost side, net cruise costs, excluding fuel, were up 11.4%. The main driver behind the year-over-year increase were the consolidation of Silversea's operations, the new operations of Perfect Day and our terminal in Miami. Lost APCDs due to the Grand Bahama Shipyard incident and investments in technology and digital capabilities drove the balance. Now I'll update you on what we are seeing in the demand environment. Over the last three months, bookings have been consistently outpacing same time last year, and WAVE is off to an excellent start with 2020 booking trends ahead for each of our four brands. In fact, the second full week of January was a record booking week for the company. Pricing has also been strong, and as a result, 2020 is booked ahead of same time last year and both APD and load factor on a like-for-like basis. We've been highlighting ongoing strength in demand from North America for at least two years, and I'm happy to say that there are no signs of a slowdown.

In fact, we are seeing better overall pricing and demand from North America than ever before, with Perfect Day and our ship modernization program providing a clear boost. We are sensitive to the fact that this is an election year in the U.S. Consequently, we have modified our booking curves to reflect the short-lived slowdown that we typically see during the second or third week surrounding the election. Now I'll give you a brief overview of our capacity and deployment changes for 2020. Our overall capacity will increase 4.8% year-over-year. Itineraries in North America account for close to 60% of our capacity and are trending very well. We've slightly increased our capacity in the Caribbean, driven by inaugural winter season for Celebrity Apex and Odyssey of the Seas, and therefore, the product will represent just over half of our overall deployment. Other key itinerary changes include a year-round short Caribbean program on independent Odysseys visiting Perfect Day and a summer program for the modernized Oasis of the Seas in the Northeast.

Bookings for the Caribbean have been nicely higher than last year, and all signs point to this year as being our best Caribbean season yet. Alaska sailings account for about 5% of our capacity and are booked nicely ahead of same time last year. We've said we increased our 2020 capacity with an incremental ship for world Caribbean, more than offsetting the redeployment of an Azamara ship. As it pertains to Bermuda, this product only accounts for a small portion of our overall capacity and is also booked well ahead of same time last year. Now the robust booking environment trends from North American guests are also benefiting itineraries in Europe. We also expect trends in the U.K. to be more predictable this year, given the recent Brexit withdrawal agreement. That being said, we have made some changes to our European itineraries to reduce dependence on European markets and provide even more global appeal. Overall, European sailings will account for 17% of our capacity this year, with dry dock timing and inaugural seasons for Celebrity Apex and Silver Moon driving capacity up year-over-year.

Bookings were similar to same time last year over the past three months and have been up nicely during WAVE. Now moving to Asia Pacific. These itineraries account for 17% of our full year capacity and account for 21% in the first quarter. China, in particular, represents 6% of our capacity for the full year and 4% in the first quarter with one ship Spectrum of the Seas that homeports in Shanghai. China sailings were trending particularly well prior to the outbreak of the coronavirus with APDs up nicely year-over-year and load factors in line with our expectations. As I've noted, it's clear that the virus will impact revenue in China, at least in the short term. But nevertheless, our plan to continue to growing in this profitable market remains unchanged. Australia sailings account for 7% of our capacity and are booked slightly behind for the year. However, recent trends in Q1 and Q2 have been better with particular strong close-in demand from the Australian market during WAVE.

Taking all this into account, if you turn to slide five, you will see our guidance for 2020. As a reminder, and as Richard mentioned, there remains too many variables and uncertainties to reasonably estimate the overall financial impact relating to the Wuhan coronavirus outbreak. As such, our guidance and key metrics for the full year and the first quarter do not include any financial impact that relates to this very fluid situation. Our yield outlook for 2020 is very strong. We expect net revenue yield growth of 2.25% to 4.25% for the full year, which makes 2020 our 11th consecutive year of yield growth. The underlying yield improvement is driven by new hardware, strong demand for our core products and continued growth from our onboard revenue areas. As I previously mentioned, we are very excited about the introduction of our four new ships during 2020 as they will be important contributors to the overall net yield growth.

Now the timing of the new ship deliveries will result in more significant yield growth in the second half of the year than in the first half. Net cruise costs, excluding fuel, are expected to be up 1.75% to 2.25% for the full year. Cost control continues to be a focus. However, this metric will have an uneven cadence throughout the year, mainly driven by the dry dock schedule, the new ship deliveries and year-over-year comparables. This will result in a more significant cost increase in the first half of the year than in the second half. Our depreciation for the year will be in the range of $1.376 billion and $1.392 billion. As a result, our investment in technology and digital projects are becoming a larger mix of our capital program and generally have a shorter useful life than our typical capital investments. Also, this year, we'll deliver two new Silversea ships. As I mentioned in the past, being in the luxury expedition segment, Silversea's depreciation per berth is significantly higher than our corporate average.

We have included $744 million of fuel expense for the year, and we are 54% hedged. Based on current fuel price, currency exchange and interest rates and excluding the impact from the coronavirus, we expect another record-breaking year with earnings per share between $10.40 and $10.70. Now I'd like to walk you through our first quarter guidance on slide six. Net revenue yields are expected to be down approximately 0.5%. Demand for the core products is very strong, and our core Caribbean yields are up nicely for the quarter despite a difficult comparable. Now while WAVE bookings trends have been strong for itineraries based in North America and Europe, recent events around the globe have impacted demand for some of our international itineraries. Specifically, the unprecedented bushfires in Australia and recent activities in Hong Kong and the Middle East are each having an outsized impact on revenue for the first quarter.

Moreover, it is important to highlight that first quarter is also being negatively impacted by other structural elements such as the discontinuation of Cuba sailings, which equals a headwind of approximately 120 basis points; the lack of new ship deliveries and a tough year-over-year comparable as we are lapping the inaugural season of two new ships during the first quarter of 2019. Notably, both Symphony of the Seas and Celebrity Edge had very successful inaugural seasons in the Caribbean last year. Additionally, FX and fuel are negatively impacting the quarter year-over-year by approximately $0.15. All these issues make for a tough first quarter in terms of revenue growth. Net cruise costs, excluding fuel, are expected to be up approximately 3% for the quarter. Taking all this into account, and excluding any impacts from coronavirus, we expect adjusted earnings to be in the range of $0.80 to $0.85 per share.

Before we open up the session for the Q&A, I will highlight that we are very excited about the introduction of our 20>25 By 2025 goals that will further support our focus on our people, driving profit and taking care of our planet. We have stressed before that our strong financial performance is driven by modestly growing our yields, effectively managing our costs and moderately growing our business. With that formula in mind, we have now set a goal of $20 in earnings per share by 2025, which equates to a compound annual growth rate of almost 14% while delivering strong returns on invested capital.

This is a meaningful growth trajectory, but we believe that we have the right formula and the right people to get this done. At the same time, we are pairing these ambitious financial goals with environmental targets, specifically with reducing our carbon emission by 25%. This does not happen overnight. We have been working on this for some time already with our world-class design, engineering and operation teams, developing new and different products and processes to meaningfully and positively affect our environmental impact.

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

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Steve Wieczynski with Stifel. Your line is open.

Steve Wieczynski -- Stifel -- Analyst

Hey, guys. Good morning. So I know you're going to get a bunch of questions about China and I know this virus noise is a total unknown. But have you guys thought about any contingency plans in case this virus impact lasts longer than expected? And I guess, what I mean by that is what options do you have for those ships that are in affected markets? Can you move those? Would you try to move those? Or could you actually take them out of service for a period of time?

Michael bayley -- President and chief executive officer

Hi, Steve, it's Michael. Yes, I mean, obviously, we have contingency plans for all of our ships deployed globally and it's part of our overall planning process. So in the case of -- at the moment, it's really Spectrum that's being removed from the China market and that's safely sailing with our crew. We have plans, obviously. But I think, as we've all said, it's really difficult to understand what is going to happen. I think we're all waiting to see. But we do have alternative plans in place, and we can either redeploy regionally or outside of the region, but we do have plans in place.

Steve Wieczynski -- Stifel -- Analyst

Okay, got you. And then, Richard or Jason, you gave a lot of good details about your new 2025 program. But can you help us think a little bit about -- think about what some of your underlying assumptions are that go into that? Now I guess, what I mean is you're basically assuming around kind of 14%-ish earnings growth per year, which is obviously very, very strong. Our yield assumptions for the next couple of years kind of still inside that normal, what you guys would call a normal 2% to 4% yield range?

Richard D. Fain -- Chairman and chief executive officer

Steve, we set up these programs really to motivate our management, and I emphasize that these aren't -- we're not making predictions here. We're setting goals. And our focus is to try and not only get people to focus on doing their job more effectively, but also to use innovation to find new and different ways to do it. So I don't think the -- I'm in a position to say, well, we're going to do this by yields and this by cost and this by new investments,etc. We're looking at the whole panoply. And again, I would also emphasize, we're looking at five goals, and we think these are all very much interrelated. We're not going to get the earnings we want if we don't get good returns on our invested capital. We're not going to get good growth in our yields if our guests aren't happy and our crew members aren't engaged and our people aren't focused. So all these things work together, and we think, together, that's the way to achieve our best outcome. But we haven't broken it out in terms of this much from yield and this much from something else.

Steve Wieczynski -- Stifel -- Analyst

Okay, got you. And then, Jason, one quick housekeeping question, if I could. Your capacity growth for the first quarter is 4.5%. Any idea what that would look like once you remove the eight sailings that have been canceled right now? Is that material to that number?

Jason liberty -- Executive vice president, chief financial officer

It will certainly decrease. I think it will decrease it by about 100 basis points for those eight canceled sailings based on what goes through the March four date.

Steve Wieczynski -- Stifel -- Analyst

Okay. Great. Thanks guys. Appreciate it.

Operator

Your next question comes from Harry Curtis with Instinet. Your line is open.

Harry Curtis -- Instinet -- Analyst

Hi. Good morning, everybody. My first question has to do with the first quarter. You have given us a great deal of detail, but there seems to be a fair difference in the equity pickup line item in 2020 versus last year. Can you speak to what the extent of that is and to what degree the Grand Bahama JV contributed last year? And your expectations that have been built in for 2020?

Jason liberty -- Executive vice president, chief financial officer

Good morning. Harry, actually, you really hit on the main driver below the line is the Grand Bahama shipyard and the loss of the dock for that yard. And so we do not expect that dock to be back online in 2020, likely in 2021. So the income that we were receiving, which, of course, is a joint venture and is an equity pickup, that's where we had expected it to be and that's what's affecting us.

Harry Curtis -- Instinet -- Analyst

Okay. And the second question, going -- looking out to 2025. How much cash do you think you should be able to generate after all capex over the next five years? And are you in this goal, not necessarily guidance, are you assuming any share repurchase in this?

Jason liberty -- Executive vice president, chief financial officer

Yes. So we're not going to get into the ebbs and flows of what's there. I mean, I think, our formula for success, which is moderate yield growth, good cost control while investing in our business and growing our business. And, I think, at least for the next three or four years there's a very good understanding on how our capacity is going to grow is part of that. I think when you look at -- if you run that 14% CAGR and you keep in mind that our goal is to maintain our leverage between 3x and 3.5x, that, that will leave you with a substantial amount of cash that will be available to shareholders.

Harry Curtis -- Instinet -- Analyst

Okay. But you should -- just directionally, you should be also generating some operating cash -- reasonable amount of operating cash net of capex?

Jason liberty -- Executive vice president, chief financial officer

With that growth rate, yes.

Harry Curtis -- Instinet -- Analyst

Okay. Very good. Appreciate it. Thank you very much.

Jason liberty -- Executive vice president, chief financial officer

Yeah. Thanks, Harry.

Operator

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

Jared Shojaian -- Wolfe Research -- Analyst

Hi, good morning everyone. Thanks for taking my question. So in the prepared remarks, you noted that you're not really seeing a big impact on the non-China bookings since the virus. Can you maybe elaborate a little bit on that in terms of what you've seen with bookings or cancellations in the last week? And then can you also just update us on what percentage of your deposits today are nonrefundable versus what that was maybe five years ago and how that could be helping in this environment?

Michael bayley -- President and chief executive officer

Jared, this is Michael. Yes, I think we're kind of pleased with what we're seeing in all of our markets around the world with, of course, the exception of what's occurring in China. When you look at the call center inbound activity as it relates to questions, concerns that both our trade partners and our customers are asking us, any issue related to the virus is relatively small. There are inquiries asking what our policies and practices are,etc. But it's really a tiny percentage. It's under 1.5% of the calls coming in.

And we feel good about the booking activity for Caribbean, Alaska and Europe and generally international. With regards to the second question on the nonrefundables, we didn't have them in place five years ago. I think, if I recall, we introduced them about three -- two, three years ago. Very pleased with the results that we have. I don't think we've ever given an actual percentage number of nonrefundables, but they're very attractive to the customers. And of course, they're very sticky bookings. So we're pleased. Year-over-year, we've seen improvement in the number of customers who choose that option.

Jason liberty -- Executive vice president, chief financial officer

Yes. Just to add on to it, I think last week, just remember that it was a Chinese New Year. So our expectations on booking activity was actually pretty low. Our commentary -- or my commentary around the booking environment is really what we're seeing to date. So when we think about being in a strong reposition, load factor position, our commentary is strength around North America's demand for North American products and European products, on the positive commentary about Europe is all kind of incorporating what we've been seeing. If you actually look at our 2020 bookings since our last call, our booking activity is up 6% versus the percent at that point in time. So if you take out the coronavirus just here for a moment, what you're seeing is really kind of continued strength in demand for our brands and for our products.

Jared Shojaian -- Wolfe Research -- Analyst

Okay. That's helpful. And then just as a follow-up. Last year, you were talking about double-digit premiums for itineraries that had CocoCay. Are you still seeing that right now? Or is there some degree of -- when you bring a new ship on, there's inaugural pricing and then you start lapping that? Are you still getting those same type of premiums today? And then in your yield guide of 2.25% to 4.25%, how much of that is because of CocoCay, both the ticket and the non-ticket assumptions?

Michael bayley -- President and chief executive officer

Jared, it's Michael. I'll let Jason respond to the question on the yield guide, but with regards to Perfect Day and the demand that we're seeing coming through, we're very pleased with both demand and rate. And I think the volume that we're expecting out of Perfect Day this year is close to 2.4 million guests. We've deployed more ships into Perfect Day. And we've been really pleased with both the demand and the pricing for the product.

Jason liberty -- Executive vice president, chief financial officer

Taking the midpoint of our guide, about 100 basis points is going to be driven by the new hardware that's coming on and the balance of that, which also includes Perfect Day, is coming from like-for-like improvement. So we're -- as we said, we're very, very kind of encouraging -- and we're not going to break out the five months of Perfect Day in terms of our yield guidance.

Michael bayley -- President and chief executive officer

Just to add to that, on Friday, we opened up the Coco Beach Club in Perfect Day, and that is another new element of the experience and the overwater cabanas is selling for $1,500 a day and they're pretty much booked at.

Jared Shojaian -- Wolfe Research -- Analyst

Great. Thank you very much.

Operator

[Operator Instructions] Your next question comes from Felicia Hendrix with Barclays. Your line is open.

Felicia Hendrix -- Barclays -- Analyst

Hi, good morning. Thank you. Jason, I was just wondering if you could dissect for us the $0.25 impact or the anticipated, I should say, $0.25 EPS impact from the canceled eight cruises? Just wanted to clarify or ask if that's mostly cost? I know that when you cancel cruises, there's usually not -- there's usually not a corresponding yield impact since you're removing the APCDs, but in this case, especially the Chinese New Year cruises were some of those yield -- I'm wondering if some of those yield is higher than your corporate average, and if so, if there was any yield impact or if you're anticipating any yield impact from the cancellations?

Jason liberty -- Executive vice president, chief financial officer

Yes. So on that $0.25, the vast majority of it -- so maybe a couple of pennies of it is cost related. The balance of it really is going to be top line driven. As you pointed out, Felicia, yes, we did lose two sailings that were during that very high-yielding New Year's week. So we do expect it to play a little bit on the yield, especially in the first quarter and less so on the balance of the year as those APCDs get taken out. And obviously, in the absolute revenue side, the vast majority of that $0.25 will come out of our top line.

Felicia Hendrix -- Barclays -- Analyst

Right. But so for -- is there any way to kind of help us understand in your guidance, how you -- or, I guess, it's not in your guidance, but how to maybe think about the higher yielding -- the loss of the higher yield increases, because like if they were lower yielding, then your corporate average there would not have an impact on the yield, right?

Jason liberty -- Executive vice president, chief financial officer

Right. But in the first quarter, they are slightly higher than our quarter average. But as it is for the full year, it's pretty close to the overall average.

Felicia Hendrix -- Barclays -- Analyst

Yes. Okay. So -- but there's no way to help us figure out if we wanted to layer it in our estimates what's it...

Jason liberty -- Executive vice president, chief financial officer

No, we're not going to be guiding for the first quarter or the full year as it relates to this.

Felicia Hendrix -- Barclays -- Analyst

All right. And then just regarding your commentary on Australia, just wondering if you could help us understand what your deployment to Australia is specifically on a quarterly basis and for the full year? And maybe help us know what are you doing to mitigate the lower demand you're seeing for the region or any alterations you're making to accommodate for the situation there? And then also, just hoping you can reconcile the comment that close-in bookings were strong for Australia with the impact you're seeing in Australia?

Jason liberty -- Executive vice president, chief financial officer

Sure. So Australia for the year, Q1 and Q4 are the heavy periods. There's a little bit that happens in Q2. So in the first quarter, Australia is about 12% of our capacity. In the fourth quarter, it's about 11% of our capacity. In the second quarter, it's about 4% of our capacity. So really, the commentary was, during those bushfires, what we saw was, obviously, the consumer -- the local consumer was very focused on what was happening there in their country. So we saw a little bit of pullback in terms of activity for close-in. What we did see as things kind of settled down there is an acceleration of demand and so we were able to fill the ships. We were able to fill the ships but at a slightly lower pricing just due to the timing of all of it.

Felicia Hendrix -- Barclays -- Analyst

Are you seeing more normalized behavior now?

Jason liberty -- Executive vice president, chief financial officer

Yes.

Felicia Hendrix -- Barclays -- Analyst

Okay. Great. Thanks.

Operator

Your next question comes from Jaime Katz with Morningstar. Your line is open.

Jaime Katz -- Morningstar -- Analyst

Hi, good morning. You guys had made some commentary that you were reducing dependence on European markets. I think that's not surprising given some of the commentary we've heard in recent quarters. But do you have any additional insight on the implied weakness that, that would, for us, maybe what you're seeing on a more country or regional specific basis?

Jason liberty -- Executive vice president, chief financial officer

I'll just make a few comments and Michael can jump in. It's not a question of us shifting our sourcing based on what we're seeing today. Based off of what we were seeing last year, our brands made changes to their deployment that really may be the global appeal greater, meaning that you can source from more markets versus maybe having a ship that was significantly dependent on the U.K. market, as an example. So our sourcing is a little bit different for Europe this year, but a lot of that's just driven by us globalizing the sourcing markets for our brands and our products that are based in Europe.

Jaime Katz -- Morningstar -- Analyst

Okay. And then can I just get a clarification on Alaska. I think you had said that it was ahead in bookings, but I don't know that there was a commentary on pricing and I know for Carnival that was sort of a dodgy area last year. So if you have any insight on the pricing in the region, that would be helpful.

Jason liberty -- Executive vice president, chief financial officer

Yes. I would just comment, in general. If you take out Azamara, because Azamara won't be in Alaska this year, it's one of our higher-yielding brands, we expect yield improvement in that product this year.

Operator

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

James Hardiman -- Wedbush Securities -- Analyst

Good morning. Thanks for taking my call. So obviously, pretty encouraging to hear that the coronavirus issue hasn't impacted any of -- or it doesn't seem to have impacted the western bookings. So I was hoping you could talk a little bit about the Fly Cruise market coming out of China. How big is that? And is there any impact in that $0.25 number from the potential passengers flying out of China getting on ships elsewhere?

Michael bayley -- President and chief executive officer

James, it's Michael. Yes, I mean, we've actually been quite active in developing the outbound market and, of course, this kind of really hit during the spring festival week. So we had some outbound business going to ships around the world. But of course, a lot of that ended up canceling. That number is built into the $0.25 that we've already spoken about. And now, obviously, there are no -- there's really no outbound business, but it peaked during the spring week and it dropped down significantly after that. So there's really minimal impact at the moment.

Jason liberty -- Executive vice president, chief financial officer

And James, just to add into it, the benefits -- obviously, the ships like Spectrum of the Seas which is really dedicated to the Chinese market has a greater impact to us because 99.5% of those guests are Chinese. With the outbound space, we have the opportunity to be able to source guests from other markets, which will help abate some of that risk.

James Hardiman -- Wedbush Securities -- Analyst

That's helpful. And then just as a follow-up, and this might be difficult at this point, obviously. But are there any rules of thumb as we think about modeling your earnings power, not just as of today, but as news develops? Is there any sort of rule of thumb, every time a voyage gets canceled, the $0.25, eight voyages would get us to about $0.03 per ship? Is it that simple? I'm assuming that it's not, but how do we think about that? And have you thought about your communication strategy as we move forward? And you learn more, are we going to be getting sort of updates, press releases or are we likely not going to hear from you for the next sort of three months as news develops?

Jason liberty -- Executive vice president, chief financial officer

Yes. So it's not that linear or you can just take a certain number per voyage. There is variations depending on the timing of those sailings inside the months that are out there. And obviously, we don't have a second ship coming in now for several months. I think in terms of our communication strategy, I don't think we have a set time line to it, but I think that we kind of pride ourselves with being transparent to the investment community. And as we learn more, I think we would try to take the opportunity to share that impact.

James Hardiman -- Wedbush Securities -- Analyst

Got it. good luck. Thanks guys.

Jason liberty -- Executive vice president, chief financial officer

Thank you.

Operator

Your next question comes from Tim Conder with Wells Fargo Securities. Your line is open.

Tim Conder -- Wells Fargo Securities -- Analyst

Thank you. And thank you for the color gentlemen. Just a couple more. Jason, you had said that, obviously, as you continue to ramp up the technology component of your capex, that does have a shorter depreciable life and then that's where some of the additional spending is occurring along with some employee cost in 2020. But is there anything you're doing maybe amping up a little bit of marketing, just given everything that's gone on here year-to-date and maybe the increased uncertainty as to how that could or could not impact other areas. Thankfully, it hasn't so far. Is there any component of that in your spending? And then also related to the cost, can you quantify for us the Grand Bahama impact to the equity income or just some ballpark area as well as the wildfires and the other geopolitical items?

Jason liberty -- Executive vice president, chief financial officer

Sure. So on the marketing side, there's certainly more marketing costs in the first half of the year. Most of that is just driven due to the election coming up. So we are trying to get ahead of that cycle. As it relates to Grand Bahama, as I said, in the first quarter, there's about $0.12 or $0.13 -- I'm sorry, $12 million to $13 million of equity pickup loss due to that dry dock being closed.

Tim Conder -- Wells Fargo Securities -- Analyst

Okay. And then any quantification on the Australian wildfire impact or Hong Kong and Middle East impacts?

Jason liberty -- Executive vice president, chief financial officer

No. But certainly, Dubai due to the Middle East, Australia and Hong Kong have -- are weighing on our yields in the first quarter.

Tim Conder -- Wells Fargo Securities -- Analyst

Okay. And if I may throw one other. TUI Cruise, how is that looking at this point, the demand from that JV on a year-over-year basis?

Jason liberty -- Executive vice president, chief financial officer

Yes. So 2019 was a more challenging top line year for the German market. But as we look into 2020, we're seeing a lot of strength in booking on both a rate and volume basis.

Tim Conder -- Wells Fargo Securities -- Analyst

Thank you.

Jason liberty -- Executive vice president, chief financial officer

Got it.

Operator

Your next question comes from Robin Farley with UBS. Your line is open.

Robin Farley -- UBS -- Anlyst

Thanks, two questions. I think someone sort of credit and when we look at your [Technical Issues] 2% to 3% being is been coming in ahead of that?

Richard D. Fain -- Chairman and chief executive officer

Robin, we're having trouble hearing you. It's very -- it's very in and out. So I didn't even hear the question.

Robin Farley -- UBS -- Anlyst

Your that longer-term guidance. I know you're not specific to the yield range and that is that you guys historically talked about 2% to 3% growth. And I'm just wondering, given that you've been coming in ahead of that the last couple of years, even outside of the added drivers, is it fair to think that if you came in at the range where you've been growing yield for last three years, that there would be upside to that 2025 number?

Jason liberty -- Executive vice president, chief financial officer

Sure, sure. So first, as Richard says, we're -- we're not just trying to hit the ball, we're trying to swing through the ball. And if you look at -- or in my commentary, I think what we're looking for here is to leverage the investments we're making, to have moderate yield growth and continue to have good cost to someone.

Robin Farley -- UBS -- Anlyst

Other question was on time [Technical Issues]

Jason liberty -- Executive vice president, chief financial officer

So the only word I heard there was China, Robin. So why don't -- I'll follow up with you after to answer the question, but it was -- it was very difficult to hear you. So I'll follow up with you.

Operator

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

Stephen Grambling -- Goldman Sachs -- Analyst

Thanks. Two follow-ups. So first on TUI, how do you think about the value or opportunity in Continental Europe brands, whether organically through TUI or via M&A longer term? And then second, on the near-term first quarter targets, can you just talk to what is embedded in the net cruise costs kind of across dry dock, puts and takes, marketing costs,etc?

Jason liberty -- Executive vice president, chief financial officer

Well, as it relates to -- TUI Cruise is, obviously, I mean, the performance of that brand has been exceptional, and we really believe that in the German market and TUI Cruise's position in that market, how it's trading, how it's growing in its demand, we're very happy and which makes us very excited about the German market and the overall European market. As it relates to -- on the cost, I think you were talking about the first quarter, your cost piece. The main drivers in that first quarter are really just driven by investments in marketing, in technology and in G&A. Certainly, Perfect Day plays into that a little bit. It's about 60 basis points of the first quarter cost increase.

Stephen Grambling -- Goldman Sachs -- Analyst

So I guess, a quick follow-up on that. So can you -- is there any way you can help quantify the dry dock puts and takes as we think about the ships that are in and out and maybe the cost of each?

Jason liberty -- Executive vice president, chief financial officer

Well, the dry docks for the first quarter in itself, it's lighter in the first half of the year than it is -- I'm sorry, there's more dry docks in the first half of the year than there is in the first. So probably about one point of that cost increase, more or less about one point of the cost increase is driven by a month having more dry dock days in the first half of the year -- or in the first quarter.

Stephen Grambling -- Goldman Sachs -- Analyst

Great. Thanks. I'll jump back in the queue. Thanks

Operator

Your next question comes from Brandt Montour with JPMorgan. Your line is open.

Brandt Montour -- JPMorgan -- Analyst

Great. Thanks for taking my questions. So you noted the contingency plans that you have in place in China. I was just wondering if the present situation continues on like it is, and the Greater China industry also looks to move ships elsewhere, which markets do you think will most likely be the most popular targets? And how does that play into your strategy?

Michael bayley -- President and chief executive officer

So Brandt, obviously, we're monitoring events and we're looking at competitors. We have our plans in place. We have alternatives. We filled it through. I really don't actually want to go into detail on this call about what those plans are because we are in a very competitive environment. So we don't want to start talking about where we're planning on deploying if this really does play out to a much longer time spend.

Stephen Grambling -- Goldman Sachs -- Analyst

Fair enough. Okay. And then on fuel, just given the mix shift and the way that your hedge book has probably changed now versus 12 months ago, could you either give us sort of sensitivity between the two fuel grades or a fuel grade mix on the -- at the pump portion of your exposure?

Jason liberty -- Executive vice president, chief financial officer

Well, our goal is to mainly have a similar mix of our fuel to the balance of 2020 as we had in 2019. We are more hedged on the MGO side, and those schedules will get published in our later in the day for you to be able to have the mix of fuel and those hedge positions? And then from there, you should be able to look at the flex in MGO and IFO fuels.

Brandt Montour -- JPMorgan -- Analyst

Great. Okay. Thanks everyone.

Operator

Your next question comes from Assia Georgieva with Infinity Research. Your line is open.

Assia Georgieva -- Infinity Research -- Analyst

Good morning. A couple of questions. The first one, in terms of China and enforcement of people who have traveled to China in the past, within the past 15 days, that seems to be somewhat easy, looking at their passports. But it seems that a couple of the other items that you intend to enforce seem to be on honor system, whether they've been in contact with individuals or report feeling unwell. That would be enough to prevent a negative event where you have even, let's say, one passenger reported with the virus because we saw what happened with Costa, and that was a significant hit.

Michael bayley -- President and chief executive officer

Yes, it's Michael. Obviously, it's a very dynamic and moving situation. We're monitoring this on a daily basis. We have a medical team as part of our company and we're very connected to the World Health Organization and CDC. I think you'll see that as each day passes, different countries enforce different rules, protocols and regulations. We implemented protocols early last week, about -- almost up to two weeks ago. And we're monitoring all of these different protocols. So I think with regards to people who from, to or transited through Mainland China or Hong Kong, nearly all countries now are adopting the same kind of protocols, generally.

We also have, as you say, part of it is an honor system, but we have a secondary screening system in place on a fleet that's been in place now for quite some time, which monitors activity in passports and, of course, the passport holder themselves, and we are taking temperatures, etc,etc. So yes, you're right. I mean, I think, it's, of course, a possibility but not only are countries, but our company itself are taking a series of what we believe to be very prudent and sensible actions that will not entirely eliminate the risk but massively minimize this risk.

Assia Georgieva -- Infinity Research -- Analyst

Michael, and I definitely will not be allowed on the ship because I'm wondering whether -- as you might be able to hear from my voice, but it's good to know that you're monitoring temperatures,etc. And as a follow-up, airlift that has been limited, could that affect voyages that sail out of Japan or other destinations in the Pacific, including to Australia?

Michael bayley -- President and chief executive officer

Yes. I mean, I think, again, to my previous comment, it's really a dynamic, moving situation. There are various changes that are being put into place by different countries, etc. We've seen change with airlift from the -- for example, the West, American Airlines, where they did suspend flights in and out of China until the end of March. We're not really seeing a lot of regional disruption in terms of flights, etc. What we are seeing is different countries adopting these various protocols, which seem to be moving to a similar protocol. I think the World Health Organization made a point last week when they spoke about the smaller countries that obviously have less resources to deal with this, and they tend to still be making different decisions as it relates to their individual protocols. But that's more of an impact on individual itineraries. And of course, we always have alternative ports of call to visit. So again, it's difficult to answer specifically. I think it's just a dynamic, moving situation. The good thing is that there is a really universal effort to work together to contain and minimize the impact of this situation.

Assia Georgieva -- Infinity Research -- Analyst

Fair enough. And if I can sneak one last one in. And here's my wishful thinking possibly, with IMO 2020 now in place, do you think -- and maybe, Jason, you might be able to answer this best, do you think that we might see a decline in IFO prices, which would offset the increased demand for MGO to a point where we're not going to see quite as much of a pickup in fuel prices post hedge?

Jason liberty -- Executive vice president, chief financial officer

Yes. Well, I think that is a working theory. It's also why if you look at our hedge position, we're hedged more in MGO than we are in IFO is that it is rational that as time goes on here, demand for IFO is going to drop -- continue to drop and, of course, demand for MGO is going to continue to rise.

Assia Georgieva -- Infinity Research -- Analyst

Thank you so much.

Jason liberty -- Executive vice president, chief financial officer

Yeah.

Operator

Thank you. Your last question comes from Vince Ciepiel with Cleveland Research. Your line is open.

Vince Ciepiel -- Cleveland Research -- Analyst

Great. Thanks. Just big picture. Just curious how you feel today versus back in November? Setting aside the impact of coronavirus, kind of across your core North American or European markets, how do you feel about the trajectory of bookings and pricing growth? And maybe specifically, I think it was in November that you noted pricing was tracking ahead for all quarters. I'm just trying to reconcile that with 1Q, which, I guess, it's kind of guided flat. But has anything changed in the last 90 days with 1Q specifically?

Richard D. Fain -- Chairman and chief executive officer

No, this is Richard. I think we were feeling quite good then, and we have been reassured by seeing the call volume and the response on bookings in the WAVE period. As we said, there are some exceptions, and we've pointed out a couple in the Gulf and in Australia. But the strength of the bookings, frankly, we have found -- outside of the Coronavirus, we have found really very reassuring. So I think just from an overall point of view, we feel quite good about the year.

Jason liberty -- Executive vice president, chief financial officer

And Vince, just to add, in our last call, when we talked about the cadence of our yield growth, we did point that we expected Q1 to be lighter because our yields last year were up over 9%. And then, of course, we had Cuba we were going to have to deal with which is impacting us by 120 basis points. So we knew that Q1 was going to be a more challenging quarter, which is why we said it at that point in time. But if you look into our -- just to our -- when we say since our last call our bookings have trended up by 6% for 2020, that would just show that our sentiment broadly is very, very good.

Richard D. Fain -- Chairman and chief executive officer

We've made this point in previous calls. Most industries, when you look to the calendarization, it is the -- cycle is time to define and so you expect a certain sequence between the quarters. Our quarters within the year tend to be more defined by specific events, the delivery of a new ship, when the dry docks take place. So ours is more episodic, and we have known and tried to telegraph for a while that the first quarter of this year episodically is low, but that doesn't impact our overall position for the year.

Jason liberty -- Executive vice president, chief financial officer

Okay. Thank you for your assistance, Mariama, with the call today, and we thank you all for your participation and interest in the company. Carola will be available for any follow-ups you might have, and we really wish you all a great day.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Jason liberty -- Executive vice president, chief financial officer

Richard D. Fain -- Chairman and chief executive officer

Michael bayley -- President and chief executive officer

Steve Wieczynski -- Stifel -- Analyst

Harry Curtis -- Instinet -- Analyst

Jared Shojaian -- Wolfe Research -- Analyst

Felicia Hendrix -- Barclays -- Analyst

Jaime Katz -- Morningstar -- Analyst

James Hardiman -- Wedbush Securities -- Analyst

Tim Conder -- Wells Fargo Securities -- Analyst

Robin Farley -- UBS -- Anlyst

Stephen Grambling -- Goldman Sachs -- Analyst

Brandt Montour -- JPMorgan -- Analyst

Assia Georgieva -- Infinity Research -- Analyst

Vince Ciepiel -- Cleveland Research -- Analyst

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