Mar 28, 2017
Executives
Arnold Donald - President & CEO David Bernstein - CFO Beth Roberts - SVP, IR
Analysts
Robin Farley - UBS Steve Wieczynski - Stifel Nicolaus Capital Markets Felicia Hendrix - Barclays Capital Greg Badishkanian - Citigroup Jaime Katz - Morningstar, Inc. James Hardiman - Wedbush Securities Harry Curtis - Nomura Securities International Stephen Grambling - Goldman Sachs Tim Conder - Wells Fargo Securities
Arnold Donald
Good morning, everyone, and welcome to our First Quarter 2017 Earnings Conference Call. I am Arnold Donald, President and CEO of Carnival Corporation & Plc.
Thank you all for joining us this morning. Today, I am joined by our Chairman, Micky Arison via phone from Europe; as well as David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President of Investor Relations with me here in Miami.
Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today's press release.
Our company is off to a good start, again this year with adjusted earnings of $0.38 per share exceeding the midpoint of our guidance by $0.05. Our first quarter results combined with our strong book positions and able to increase the midpoint of our previous guidance range by $0.15 and raise our full year earnings expectations leaving us well positioned to deliver for the year.
Year-over-year for the first quarter despite our thirteen set rig from fuel and currency both moving against us, strong operational improvements contributed $0.10 per share to the bottom-line which when combined with $0.02 of accretion from our share repurchase program enabled us to exceed the high-end of our guidance range for the quarter. Our business, any business is all about the people.
Our consistently strong financial performance is only possible because of the extraordinary efforts of our employees worldwide to exceed our growth expectations and to deliver memorable vacation experience; as well as our travel agent partners who support our brands around the globe. It was reinforcing to see constant currency revenue yield growth this quarter of roughly 3.8% and that's on top of the 4.7% improvement achieved in the first quarter last year.
We continue to drive revenue yield growth by increasing demand in excess of our measured capacity growth through our ongoing guest experience and public relations efforts. In fact we have many efforts on the way already this year to keep the momentum going throughout 2017 and beyond.
We kicked off the year by unveiling our latest guest experience innovation at the Consumer Electronics Show in Las Vegas on January 7. We were privileged to be the first travel company ever to deliver the opening keynote address at CES, the world's largest trade show.
There we unveiled our leading edge guest experience innovation, the Ocean platform featuring our Ocean Medallion. This is the first interactive guest experience platform designed to transform vacation travel into a highly personalized and elevated level of customized service for millions of guests.
The Ocean platform will be launched on Regal Princess beginning in the fall of this year and rolled out to three additional Princess ships early next year. Ocean has already gone to global recognition receiving $14 billion media impressions to-date across the broad spectrum of business, travel, technology and innovation forums; and has also enabled Carnival Corporation to be named as one of [indiscernible] company Top 10 Most Innovative Companies in 2017.
Now we surprise many by being selected to give the keynote at the World's Leading Technology Conference and this kind of global expose is part of our continuous efforts to keep cruising at the forefront of consumers' vacation considerations. Building on those efforts, we just added a fourth show to our increasingly popular roster of U.S.
original content television programs. Our Ocean network television shows are yet another innovative approach to expand the market for cruise vacations by creating experiential content designed to engage viewers through showcasing exciting adventures, exotic cultures, and popular global destinations.
We have taken great care to develop TV shows that we believe family, then people of our ages will truly enjoy watching, to capture a broader audience in a highly engaging way and demonstrate why cruising in such a great vacation at an exceptional value. Our newest PG show good spirit premiered February 16 on AAV; well-timed as the height of wait season.
Good where it joins our other three Ocean programs airing every Saturday morning; Ocean Treks with Jeff Corwin on ABC, The Voyager with Josh Garcia on NBC and Vacation Creation with Tommy Davidson and Andrea Feczko on the CW Network. And Jeff, their first season, the TV programs are already going to need attention based on their popularity and ratings, even receiving the influential Parents Choice Award, combined these original TV programs representing nearly 100 hours of television programming have already reached an audience of over 75 million viewers and have led to a measurable increase in cruise consideration and even more favorable perceptions of our brands.
Additional opportunities are in the pipeline for this year. Holland America, Jeff signed an exclusive agreement with O 'The Oprah Magazine' to feature a series of adventure cruises beginning with Oprah's on-voyage to Alaska on year down [ph] in July.
Again, these efforts combined with our creative programming around the world like the reality television show, The Cruise, featuring Princess Cruise and Battleships featuring P&O, both in the UK; are our [indiscernible] ships and are engaging new marketing campaign for Costa featuring Shakira, both a little, all into air to reach audiences multiple times in multiple ways, to help drive demand for our brands, ultimately leading to higher yields. Our new ships combined with highly publicized and inaugural events around the world or another way that we drive demand.
On January 7, we marked the new era in ultra-luxury cruising at a vested evening ceremony in Singapore, the world's best-selling Soprano, Sarah Brightman presided over than a naming ceremony of Godmother of the new Seabourn Encore. The crowned jewel of Seabourn fleet is setting new standards for ultra-luxury cruising.
Our strategic fleet enhancement plan is also an important part of our measured capacity growth strategy which includes replacing less efficient ships with newer, larger and more efficient vessels. During the quarter, we signed an agreement with Vacantari [ph] to build two new cruise ships designated for our Holland America and Princess brands for delivery in 2021 and 2022.
We expect that capacity growth to be around 4.5% compound annually through 2021 as news ships replace existing capacity. We also further our efforts to build on our leading presence in China through our cruise joint venture with CSSV, China's State Shipbuilding Corporation, China's largest ship builder at an official signing ceremony held at the Great Hall Of The People in Beijing attended by Chinese President, Xi, and Italian President, Mattarella; our joint venture for the Chinese market are the first ever cruise ships to be built in China supporting China's larger efforts which prioritize cruise industry growth and it's five-year economic development plan.
The first shift is planned to be delivered in 2023. We've already established a strong foundation and a leading presence in China through both our Costa and Princess brands.
Despite the recent itinerary changes for Korea, our development strategy is progressing this year. The first, purpose build ships for China delivered to our Princess brand later this week; meanwhile Costa will expand its home force in China with filling some [indiscernible] next month.
And then there is Q1; after our historic buildings to Cuba with our Fathom brand, we have recently received approval for cargo group lines to feature Cuban ports. We are very excited, Cargo Paradise will be sailing from Tampa beginning this summer.
And we have requests already submitted for a number of our other brands. During the quarter we further our efforts to leverage our industry leading scale, we continue to contain costs and we remain on-track to deliver more than $75 million in savings this year.
So in summary, the combination of our strong fourth quarter results and our ongoing efforts to create demand and contain costs enabled us to increase the guidance range for the year reflecting a continued delivery of strong operational improvement. Looking forward, growth is the result of a combination of well executed business plans and innovations that make a difference.
Our fleet enhancement program, our guests experienced innovations including the Ocean platform, our aggressive public relations and it's kind of funny how they positive impact. Our Ocean network programming, our yield management events, our ongoing efforts to contain costs, our new sourced markets including China, our new destinations including Cuba.
Our efforts in area of sustainability and having positive social impact in the communities we trust. All, all are building blocks leading us well-positioned to a multi-year period of earnings growth and sustain double digit returns on investment capital.
With that, I'll turn the call over to David.
David Bernstein
Thank you, Arnold. Before I begin, please note all of my references to revenue, ticket prices, and cost metrics will be in constant currency unless otherwise stated.
I'll start today with a summary of our 2017 first quarter results, then I'll provide some insight on booking trends and finish up with an update on our full year 2017 guidance. Our adjusted EPS for the first quarter was $0.38; this was $0.05 above the midpoint of our December guidance.
The improvement was all operational driven by increased net ticket revenue yields which benefited from stronger pricing on closing bookings on both sides of the Atlantic, while higher than guidance net cruise cost excluding fuel due to the timing of certain expenses between the quarters was offset by favorability in a variety of other areas. Now let's look at our first quarter operating results versus the prior year.
Our capacity increased almost 4%, the North American brands were up over 5% while the European, Australia and Asian brands, also known as EAA brands were up almost 2%. Our total net revenue yields were up 3.8%.
Now let's break apart the two components of net revenue yields; net ticket yields were up 4.1%, this increase was driven by our North American brands deployment in the Caribbean, as well as our EAA brands deployment in both, Europe and the Caribbean. Net onboard another yields increased 2.9% with increases on both sides of the Atlantic.
Net cruise costs per ALBD excluding fuel were up 3.2% driven by the timing of harnem [ph], dry dock and G&A expense. As I've previously indicated, the best measure of the net cruise costs per ALBD excluding fuel is on a full year basis as the timing of expenses between the quarters often varies from year to year.
In summary, our first quarter adjusted EPS was in-line with the prior year, which as Arnold indicated strong operational improvements of $0.10 and the $0.02 accretive impact of the stock repurchase program, both being offset by the impact of higher fuel prices across the $0.08 and the unfavorable impact of currency were $0.05. Now let's turn to 2017 booking trends.
Since December both booking volumes and prices for the remainder of 2017 had been running ahead of the prior year. At this point in time for the remainder of 2017 cumulative advance bookings are well ahead and considerably higher prices.
Now let's drill down into the cumulative booked position. First for our North American brands; the Caribbean and the seasonal European programs are both well ahead in the prior year on both price and occupancy.
For Alaska occupancy is ahead at nicely higher prices. Secondly, for our EAA brands, for European deployments which represents 62% of the remainder of 2017's capacity, both price and occupancy are well ahead in the prior year.
Finally, I want to provide you with an update on our full year 2017 guidance. As Arnold's indicated, our first quarter results combined with our strong booked physician enabled us to raise our full year earnings guidance, the increase was driven by two things compared towards December guidance.
First, raising our net revenue yield guidance to 3%, a half point increase and second, a benefit of $0.08 from lower fuel prices and the favorable impact of currency while net cruise cost without fuel per ALBD are still expected to be up approximately 1% for 2017. Putting all these factors together our increased adjusted EPS guidance for 2017 is $3.50 to $3.70 versus $3.45 cents for 2016.
And now, I'll turn the call back over to Arnold.
Arnold Donald
Thank you, David. Operator, please open the call for questions.
Operator
[Operator Instructions] Our first question comes from the line of Robin Farley with UBS. [Operator Instructions].
[Technical Difficulty].
Robin Farley
Great, hopefully you can hear me okay. I couldn't help but notice that the failure year raise for earnings and yield is basically just the amount that you see your first quarter guidance by; and so I was wondering if given the strength that you're seeing with bookings here through the quarter what's on the books, what would continue through the quarter, it seems like there would potentially be upside to your -- to the rest of your full year guidance, maybe you could just give us a little bit of color on that and I don't know if you have any thoughts on sort of demand from European passengers versus North American as we get later into the year?
Thanks.
Arnold Donald
Okay, thank you Robin. You know what, we're always giving you our best estimate at a given point in time, we're certainly doing that now and we've got a long way to go to the year and obviously we're going to do our best to beat the guidances as we always do.
We have plus up a little bit above what you see in terms of current fuel and currency and the gains in the first quarter but we're also factoring in some contingencies for every impact we might see yet in the year. Go ahead, Robin.
Robin Farley
Okay, that's actually always going to clarify if you just -- if you had any thoughts about sort of demand by geography, just -- given -- I know a lot of the strength in Q1 was driven by Caribbean demand and that will be left in Q3. So just -- if you had any thoughts on the other pieces?
And maybe including -- it sounds like obviously your guidance always factors in that things may not be perfect through the year and so wondering if -- if you've built-in a lot because there were some of the political situation in China so that's causing me to be more conservative; that kind of thing. Thanks.
David Bernstein
Sure. Well, you know, in all of the remaining quarters of the year we are expecting yield increases and we are expecting good yield increases on both sides of the Atlantic.
So we do see good demand for both, the Europe passengers, as well as the North American passengers. And as far as the China and Korea situation is concerned, we're doing our best, it's early -- this just happened, it's unfortunate as Arnold indicated the itinerary disruptions but keep in mind that we've got itinerary -- we've had itinerary disruptions before.
We've made some changes and we've done our best to include what we believe the potential impact is in our guidance.
Robin Farley
Okay, great. Thank you very much.
Operator
Thank you. Our next question comes from the line of Steve Wieczynski with Stifel.
Please proceed.
Steve Wieczynski
Good morning, guys. So can I have the -- how you are Arnold?
Arnold Donald
Good.
Steve Wieczynski
So can I ask the question a little bit differently in terms of what Robin just asked but I guess when you look at the yield guidance; I mean I can't remember the last time you guys raised your yield guidance so early in the year. So I guess the question is when you look back to December what markets really have changed so much in such a short period of time to give you the comfort to raise that range so quickly?
Arnold Donald
Well, I think first of all, just keep in mind we're now into wave season, and through wave season and before we weren't, so you really have to see how things are going to play out. So we've got a lot more information now but we still have a long way to go but based on what we see, you know, we have the confidence that we share with you.
By March, I know a lot of people were concerned about the Caribbean and relative capacity changes and all that and once again, we kind of demonstrated that we feel we're creating enough demand for the capacity that we add and are able to continue to see relative outperformance in the Caribbean. Alaska is also strong and David may have a comment.
Europe is -- the North American brands for Europe are ahead on book and ahead on pricing, so they are doing well, as well as the EAA brands are doing well.
David Bernstein
Yes, and I would just probably would reiterate everything Arnold said. I mean, it was an excellent wave season and so we felt confident with the additional information to raise the guidance by half a point at this point in time.
Steve Wieczynski
Okay, got you. And then second question, I don't know if you will answer this or not but in early [ph], she talked about your book position being very strong at this point relative to last year; can you maybe help us think about that a little bit more now from a quantitative perspective meaning -- you know, how much inventory is actually left to sell at this year versus last year?
Can you put numbers around that at all?
David Bernstein
Yes, there is a little bit less left to sell for the remainder of the year than there was at this time last year. You know, and we had indicated that we are well ahead on occupancy and the booking curve has continued to move further out and we feel very good about the overall book position at this point.
Steve Wieczynski
Okay, great. Thanks guys, I appreciate it.
Operator
Thank you. Our next question comes from the line of Felicia Hendrix with Barclays.
Please proceed.
Felicia Hendrix
Good morning, thank you. If you can just stay on the -- if we could just stay on the booking current topic for one second, can you help us understand given the length of the booking curve perhaps -- how booked you are for 2018 versus this time, last year?
David Bernstein
We're in -- we're ahead of the prior year for 2018 but keep in mind that it is very early, and so I would not read too much into that in terms of 2018 but we are ahead.
Felicia Hendrix
Okay, that's good to hear. And then Arnold in your prepared remarks unless I missed something, you didn't really talk about the new CRM net yield system that you've implemented?
And I'm just wondering, what are the most important aspects of that that will be evident to us as investment community that analyzes your financials? And is there any way to quantify what that can do to your net yields?
I know the impact is more in '18 and '19 in this year but is there any way that that could be quantified for us?
Arnold Donald
You know, what I quantify at this time but what I can tell you directionally is about 30% of the inventory on the six brands and on that new revenue management too would be impacted in '17, more in 85%, 90% in '18, their inventory will be impacted. There is hope they have been really good.
Evidence of work for that is when the two suggest a different approach than the revenue size; guys would have taken without to. And so early on they are seeing things which make us go back to double and triple check too and we keep controls on what not but it's really been helpful and we have absolutely seen increased yield from the teams who rely on the two.
One of most powerful things about the two though, it doesn't -- when I used an adjustments of -- the two says this will do it, it's because the right questions and enquiry in the right conversations and our revenue management teams across the brands are in real-time collaboration, knocked off and that alone -- even without tool enhancement would be beneficial but with the two has been really powerful. So I think we'll maybe try to quantify some stuff they wanted to run its course while as small amount of inventory right now, I want to get in different environments with the different conditions and different points of the booking curve rolled up here at a time and continue to refine it.
But it's is no question that's helping us on yield right now.
Felicia Hendrix
That's great and helpful and we look forward to some more information on that. And just that housekeeping -- can you give us the second quarter and full year G&A and interest expense guidance?
And then just review the capacity increases for the remaining quarters of the year and the full year? Thanks.
Beth Roberts
Sure. Depreciation in the quarter is $460 million through the second quarter.
Full year depreciation should be at $1.850 billion, interest expense is running $50 million in a quarter, total interest expense is $200 million. It hasn't really changed that much.
And in terms of capacity growth by quarter, we have 3.6% in the second quarter, 2% in the third, 2.1% in the fourth.
Arnold Donald
And overall for the year I think 2.9%.
Felicia Hendrix
That's it. Thank you so much.
Operator
Thank you. Our next question comes from line of Greg Badishkanian with Citigroup.
Please proceed.
Greg Badishkanian
Great, thank you. So two questions, the first one for 2018, you mentioned booking through well ahead or ahead; how about ATVs or pricing, the other side of that equation?
I'm assuming those are ahead too, right?
Arnold Donald
Yes, correct.
Greg Badishkanian
And just on China, so how are the Chinese consumers really reacting to the South Korean travel ban, whether it's -- you're hearing from your travel agents that bookings are impacted or you're seeing increase in cancellation? Is there any reaction that maybe adding an extra [indiscernible] versus an extra court in Japan, you know a little bit of color on how the consumer is reacting?
Arnold Donald
Sure. Keep in mind that China today is still more of a B2B business.
And so a lot of the movement happens at the distribution level in terms of where they take groups of vacationers. So in any event, it's early.
We have disruptions as David mentioned, often around the world. So we're placing with C-day or a second port in Japan; in some cases that can be advantageous to us and sometimes in other case advantageous to the guest.
We went out in a ferry, a lot of times people wanted to go to Korea to shop and so I'm sure they're in the business that'd be disappointed that they can't go to JJU [ph] to shop like that as intended to do. But if we place that with other ports or a great experience on board, you know, we're hopeful that we can manage the guest satisfaction.
The issue still becomes in terms of the distribution; can we effectively persuade them in the same groups of people or will they switch, who they send and what's the impact of that.
Greg Badishkanian
And is it still first -- you know, when you look at the first half being down, second half being up in terms of net yields; is that -- could we still expect second half being up in net yields in China?
Arnold Donald
You know, it's still too early to be sure but we're hopeful that yields will be positive in the back of the year and we're monitoring the situation our team is absolutely working hard to make sure that we deliver.
Greg Badishkanian
Perfect, thanks guys.
Operator
Thank you. Our next question comes from the line of Jaime Katz with Morningstar.
Please proceed.
Jaime Katz
Hi, good morning, thanks for taking my questions. So I'm curious one of your competitors last quarter said they were comfortable with where the length of the booking window was and it sounded like there was maybe some concern that there would be revenues that were left on the table that we continue to lengthen any further.
Can you talk about maybe where you feel you guys are with the length of the booking curve and whether you would prefer to sort of stay where it is to optimize your revenue capture or continue to sort of lengthen from current ranks?
Arnold Donald
Yes, hi, Jaime. Our competitors are land-based vacation but I'm assuming some of the other cruise company.
But in any event the issue on the adjustment in the booking curve look, we are always trying to maximize the revenue and to do that where you want to be at a different point in the booking curve will vary all the time and has a lot to do with a bunch of names from itinerary mix to source mark in mix, etcetera, etcetera. So we're always trying to optimize that but we can maximize revenue.
At this point, we wouldn't arbitrarily try to further lengthen the booking curve but we wouldn't necessarily try to shorten it either; we're just monitoring and using our revenue management two for the six brands and existing two for the other brands to help us sort that out but our goal is to maximize revenue, not to have the longest booking curve.
Jaime Katz
Okay. And then as far as the new itinerary is going to Cuba, has there been any progress on sort of port infrastructure build outs to get some of the newer ships there?
Any movement just recently with the government and the changes that have happened in the government here as well?
Arnold Donald
No, not that I'm aware but at this point in time obviously there are number of ships going for the first time, including Paradise which we're excited about as I mentioned in my opening comments. So we are sending larger ships, Paradise probably the largest ship from the U.S.
to Cuba going. And so you know, it will happen overtime, they've got pace and take their time but again there is a lot of change already occurring there, additional cruise companies are not going to Cuba after RE initial foray with the [indiscernible] Fathom brand and so things are increasing and we'll just have to continue to work with them and go at the pace they want to go.
Jaime Katz
And then can I just clarify; I think there were some commentary saying that the CAGR of capacity growth was 4.5% through 2021; was that for the specific brands or for the fleet?
Arnold Donald
That's our overall fleet wide capacity growth. And of course that number could vary a bit because we're focused obviously on a yield environment; you know, for us to grow we have to be able to increase yield, we're not going to be able to grow just through capacity because of the large base we have.
And so we'll do what we need to do right now; we're in front of the curve creating demand, if we're able to maintain that and sustain that, then that capacity growth will be certainly capacity that will allow continue with yield improvements. If at some reason the world changes and that changed and you know, we looked at potential accelerating retirements because we're committed to measure capacity growth in our brands that allow us to increase yield and increase financial performance.
You know, though the aspect about us, that's a little different to some of the other folks in the industry is that we are -- we have a lot of geography to spread our capacity over including new geographies; potential like China and Cuba. And then we have many brands, so we have ten different brands and so the -- that growth for us is really modest.
Jaime Katz
Thank you.
Operator
Thank you. Our next question comes from the line of James Hardiman with Wedbush Securities.
Please proceed.
James Hardiman
Hi, good morning. I suppose we could drilldown geographically, a bit here.
I guess first with the Caribbean, obviously the concern there was that after a couple years of flattish capacity, 2017 we're seeing more moderate capacity growth. I guess from what you've seen so far and obviously so far so good with respect to the first quarter, but maybe some of those capacity increases haven't necessarily been reflected in your numbers yet.
But overall, how are you seeing the industry digest that incremental capacity as you look out over your bookings at the remainder of the year? And then with respect to Europe, it seems like things are getting better, you know how much of that is just lapping some of the geopolitical events from last year and how much of it is ultimately sustainable?
Maybe some of these economies finally getting a little bit better, seeing better demand.
Arnold Donald
You know, one of the things that is interesting about the cruise business is, we have never been able to show a strong correlation between the performance of the business and economies. So we do well in recession periods and we do well in growth periods, obviously stronger economies, undoubtedly our tailwinds but we haven't really been able to correlate performance directly to economies.
Having said that, back to original comment about the Caribbean; as you mentioned you know the capacity growth is higher than it should have has been in the past few years; we have to get through the year but right now we're well ahead on bookings, we're well ahead on pricing. Obviously the results through the first quarter were very strong and you know, those interinaries have been completed.
So we're doing very well in the Caribbean and we expect to continue to do well. In terms of Europe, I would say overall, again it's a combination of creating demand as we capacity growth for our brands in the European arena and just strong brand marketing on the broader of the North America brands for their European itineraries and so we're doing well.
We've got well ahead on pricing, we're ahead on bookings.
David Bernstein
And the only thing I get is, you have -- about the capacity growth, it is a little -- it is bigger in the second and third quarter than the full year for the Caribbean but when we take a look at this in our book position, in our expectations by quarter, we do anticipate good solid pricing yield growth in the Caribbean in all four quarters.
James Hardiman
Great. And then a couple quick questions on the new administration and how that might impact your business or not.
It sounds like you're full steam ahead with respect to Cuba, they've been grumbling that the Trump Administration may want to roll some of the progress under the Obama Administration with Cuba back a little bit. How do you think about that?
Do you suppose that as a legitimate risk? And -- I don't know, I wonder how Trump Administration is the actual lifting of the embargo significantly less likely and does that impact sort of investment there that you're going to need to really grow that as a viable market?
And then this travel ban; I mean we've been hearing from other parts of the travel industry that the international visitation to the U.S. had taken a hit.
I don't think that would impact your business or the broader cruise industry, best I can tell; but speak to that to whatever extent that's relevant.
Arnold Donald
Sure. I think on your first point around Cuba, what's regulating Cuba right know is Cuba.
So they are determining how many ships are coming and which ships and what timing and all of that. Should the Trump Administration take a different position and exist today then we'll have to deal with that.
Today, to be honest with you Cuba -- you can't find it in our numbers, there is -- the one ship but don't you know we'll have Paradise going which would be a little bit bigger ship but still it's one ship, not sailing every week even for Cuba. So it's going to be hard to find the numbers, given the scale of our business.
So it's really building for the future and we'll see what happens during the long time ago and never try to predict regulation and legislation of what an administration would do or won't do it and we'll just have to fail the time. We obviously believe that people having the ability to travel is a good thing and we hope that steps would be taken to encourage travel rather than to restraint it.
So we'll see how it plays out but at this point in time we're sailing ahead. In terms of the travel brand more broadly, a similar kind of comment, first of all, we haven't really been able to measure any impact from the noise around the travel ban, sort of the actual bans themselves at this point in time.
The only thing that can really directly impact us is severe restriction of travel as we are discretionary to travel and if people can't travel that will impact us. But we haven't seen anything today, we are anticipating anything but obviously we would adapt then react, our apps are mobile, that's one of the beauties of our business, you know, you can have disruptions like China; them advising their citizens not to go to Korea and impacting travel to Korea.
And we just redeploy and manage around.
James Hardiman
Great, thank you.
Operator
Thank you. Our next question comes from the line of Harry Curtis with Nomura.
Please proceed.
Harry Curtis
Yes, quick question for David on nomenclature; what's better, well ahead or considerably higher?
David Bernstein
You know, considerably higher is better than well ahead but we're just trying to give you directionally some color on the overall technique [ph].
Harry Curtis
And I guess you're throwing us a curve. So my first question is related to a comment that you made in the press release talking about reaching consumers through multiple touch points.
I don't know what -- to what degree there is any interaction there between that and the CRM system but can you talk about the expanded channels that you're pursuing and whether or not it has in it more of an impact on revenue or on the cost side?
Arnold Donald
Okay, thank you. When we talk about multiple touch points, the goal is -- like as with any advertising is just to keep your brain; in this case we want to keep cruise at a positive way out in front of people all the time so that when they're thinking about a vacation, they have to have unique ideas; hey what about a cruise.
Okay, so that's the object. But then how do we do that?
We do it through all the traditional marketing and approaches with the brands taken and non-traditional ones, they take digital marketing, traditional advertising, media, etcetera; we do it through events, with new ships, ships are a big promotional opportunity and every time we have a new shipment in inaugural event, where we get the noise out there; we do it through things like going to the consumer electronics store being the keynote there; that's a whole bunch of different media audiences that cruise now gets highlighted in a positive way. So someone who was reading in New York Times now goes to their technical publication, they are talking about cruise.
They were talking to New York Times now a cruise. So it's just region frequency, you know, most fundamental advertising concept there is but doing it in a way that's powerful, that's positive, that adds to understanding and hopefully entices people to consider.
Costs versus revenue; our marketing costs are up a bit over the last three years, some of the savings we've been harnessing, we've reinvested to drive yield, to create demand to drive yield. But basically a lot of this reallocating, the dollars we were spending from one type of approach to another, and then we heavily leveraged public relations as you can tell from everything that's gone on, so it's not just a matter of producing the TV shows for example or producing an ad like the school boy ad we did but it's all the public relations efforts surround that so leverage the impact of those executions.
Harry Curtis
Very good and I just wanted to shift gears really quickly. To discuss free cash flow; 2017 would be another strong year of free cash flow after all of your CapEx.
You've got a low -- you've got a very strong leverage ratio. Do you think that '17 yield -- once again it balanced the share repurchase with dividends, the way you did last year or do you see a better return buying more stock this year given your attractive multiple relative to any other consumer stock out there?
Arnold Donald
You know, that would be a board decision obviously at the time but you know, the jets philosophically we try to stay in a certain ratio of dividend payout turning to -- because you know, dividends you are going to do those forever and hopefully, so you want to make certain that you're in a decent ratio there. And so we target a ratio on dividend payout and the balance we like to give back to the shareholders.
Harry Curtis
Go ahead.
David Bernstein
I was going to say the target ratio that we have targeted historically and we reiterated is about a 40% to 50% payout ratio, and so we're constantly looking at that and we will be talking to the board about the dividends. And the remainder, it's not just a free cash flow but we've sent a number of times.
Now with this strong balance sheet we can return free cash flow and more to shareholders and our expectation is will do that overtime.
Harry Curtis
Okay, very good, that answers it. Thank you.
Operator
Thank you. Our next question comes from line of David Deckell [ph] with Bernstein Research.
Please proceed.
Unidentified Analyst
Hi, good morning. Last quarter you had indicated that you were less than 50% booked for China at that period of time; can you give us an update on 2017 China bookings?
David Bernstein
The bookings in China at the moment they are still ahead of the prior year but you know it's all -- everything that just happened as we indicated with Korea and the itinerary disruptions; you know, As Arnold indicated, it creates some caution and we try to include that in our guidance and in The Philippines full year guidance as we had indicated. So this is an evolving market and it's a B3B marketed, as Arnold had walked you through and so the next month or two will be -- more than a lot more than we'll be able to provide more incarnation as move forward.
Unidentified Analyst
Got it. And it might be a little unfair given how recent the travel ban is but I was wondering have you guys thought about what steps you would take if this ban were to persist through the end of this year for example?
Are there any contingency plans, for example, moving your home ports further south or anything like that that you'd be willing to share with us?
Arnold Donald
You mean the advice that the Chinese government has given; so they're…
Unidentified Analyst
Yes, if Korea is not an option for the remainder of the year.
Arnold Donald
You know, technically it's not a travel ban, right. But anyway based on what they've said, look, we think China is still going to be the largest cruise market in the world, cruise is in their five year plan, we're excited about our partnership in China with CSFC, yet another big signing; I mentioned with President Xi and Mattarella from Italy.
So we're very positive on China, we continue to make good money there. It's still holistically accretive to our sources alternative deployment of the shifts, so all those are positive indicators.
I don't like trying to forecast the regulatory stuff and all that but in our guidance we assume this is going to persist through the end of this year. All indications are it would be temporary, again, you know it's just a matter of changing deployment so you don't go to JJU [ph], you add an extra port in Japan or you have an extra C-day.
And in overtime, we would be looking at other itinerary changes potentially, maybe tap more in the fly cruise and that type of things.
Unidentified Analyst
Got it, very helpful, thanks.
Operator
Thank you. Our next question comes from line of Steven Grambling with Goldman Sachs.
Please proceed.
Stephen Grambling
Good morning, thanks for taking my questions. You alluded to this in response to Harry's question but could you quantify trends you're seeing in new cruise passengers and how that looks across regions?
Arnold Donald
I'll give you the old ball and David has some qualitative comments by regions. But overall, what's happening if you leave China out of it is, it's just an artifact of the construct.
New recruits has decreased as a percent of the total and the reason it is because the base of those of cruise before growth and the industry is limited on capacity growth with the number of shipyards. So you actually see -- if you leave China out of it, you actually see a decline in the percent of new cruise in a given year, okay, so that's the trend.
Obviously for us, we're more assured then yield, you know, our ships sail full, we have great occupancy but we're focused on yield and so we're trying to drive demand like crazy in terms of the oldest economic rule there is which is supply and demand; and so the more demand and more we can get yield and that's what it's about when in terms of actually physically sailing a lot more people where capacity constraint is an issue with the place to be.
David Bernstein
I don't have all the data of the new cruise by brand, by region; but I will say that when you look at it globally those regions or those brands that are growing faster tend to have a little bit higher new cruise percentage as you would imagine, as you're growing the brand overall or the region overall, you have more first timers or new to cruise who are sailing on your ships during that period of time.
Stephen Grambling
That's helpful color and then I guess changing gears a little bit on that 4% capacity growth through 2021; I guess how are you planning returns -- return on invested capital on those ships in your pipeline, relative to the overall portfolio? And could the impact of these new ships drive you to push ships into retirement sooner if it makes sense?
Thanks.
Arnold Donald
Yes, sure. First of all, the new ships inherently give you a higher return on invested capital in general because of the mix, the scale, the density, the efficiency, just a combination of everything.
So you know you're going to build new ships because they are inherently more efficient and position for stronger return on invested capital in all kinds of environments. So new ships are coming.
Your question about doesn't encourage you or maybe cause acceleration of retirement. That's more a market demand question, because as long as the shift is giving you the economic return, of course return on invested capital you wanted if it fits.
The guests are happy with it obviously that got to be relative to the guest. But the guests are happy with it and you're getting economic return, you're going to keep selling.
And so when you get to the point where the capital you have to put into it is so great you can't get a return to maintain that -- at the guest standards in, the regulatory standards have you that you were tired or if you could get to the point where you just aren't creating sufficient demand for the capacity you have you want to retire the ship. So that economic decision and we always looking at each ship to see what the return is and what the alternative is to drive the return and the ship is unable in any environment what we look forward to get the kind of returns we need which is return to capital then that ship will be either sold off or scrapped.
Stephen Grambling
I guess one quick follow up on that and clarification. So are the new ships, I guess what I was asking is are the new ships relative to other new ships in the past getting a bigger contribution than they have historically for any reason based on planning technology et cetera?
Thanks.
Arnold Donald
Yeah. I would say the newer says that they're getting even better return, obviously the industry is getting a better return.
So in the past the industry was mid-single digits or lower industry is now creeping up. And in our case for our ships absolutely we're seeing higher return on new ships then we would have historically seen in the past on new ships.
But we're driving our overall returns higher than we had in the past as well.
Stephen Grambling
That's great. Thanks so much.
Arnold Donald
Thank you.
Operator
Thank you. Our next question comes from the line of Tim Conder with Wells Fargo Securities.
Please proceed.
Tim Conder
Thank you and again Arnold that's early and David and everyone but our congratulations.
Arnold Donald
Hi, thanks.
Tim Conder
A couple of things here, just a clarification the 4% to 5% that you threw out there, just to clarify that's net or gross number that you say?
David Bernstein
You're talking about the capacity growth through 2021?
Tim Conder
Yes, I'm sorry yes.
Arnold Donald
It's 4.5%.
David Bernstein
It's 4.5%. You know Arnold that assumes some retirement.
It's 5% overall growth capacity growth and just as we've always indicated, we've sold like 19 ships in the last decade and we do have one leaving our fleet next month and so we do anticipate that we will see a couple of ships leave the fleet over time and we factored that in.
Tim Conder
So about 4.5% midpoint is a net number is what you are saying.
David Bernstein
Correct. You know, the economy isn't great everywhere in the world, all economies are not great but yet we still see good improvement in cruise in those areas where the economy is not great.
And so I would say the macro has an effect but on the weighted basis versus the main dimension so far, it would probably be reduced. In our case in some of our brands, I think our capacity management in Europe with Costa brand in particular has had a positive impact with that brand.
We've moved some ships into China and particularly that brand which has kind of reduced capacity at some point in time has benefited from managing capacity, quietly managing capacity. And when they get the newer ships, that come in on even higher return on invested capital basis; you know that brand will continue to perform where they are doing well, they are growing earnings, they are growing yield and the way to do that even in a bigger fashion when new ships are coming in a couple of years.
So that would be how we parcel that out. Did that answer your question?
Tim Conder
Yes, thank you, that's helpful. I guess the other side of the new to cruise equation are the repeat guests, so how did your recapture rate of first time cruisers compared today versus historically?
So in other words, are you finding that a greater percentage of people cruising for the first time want to cruise again? Do you have any data or anything you can share on that?
Arnold Donald
What I can tell you is that the base obviously of those who cruise for the first time have expanded and therefore an aggregate number is going to look like -- you've got a higher percentage of repeat cruises today than you had in the past. And in terms of the capture rate, it's strong.
Is it much stronger than it was in the past, that I don't know -- I don't think so but it's just the artifact of the numbers that the number of repeat cruisers to the higher percentage today than it was in the past. The trick was always to work with the travel professionals, to help people get on the right cruise for them, okay.
If they get on the right cruise, their promoter scores a super high and the repeat is given. If they get on the wrong cruise with them obviously, that's a double whole problem.
Number one, they may not repeat every themselves but also they're not going back to telling their friends and family, colleagues, how wonderful cruise is and that hurts us even more. So the trick is to get them on the right cruise and we're working hard to do that and we've improved that for sure.
Tim Conder
Okay, thank you very much.
David Bernstein
Operator, we past 11, so we have time for one more question.
Operator
Thank you. Our next question comes from the line of [indiscernible].
Please proceed.
Unidentified Analyst
Good morning, guys. Congratulations on the great quarter and I guess I got really lucky to sneak in two quick questions.
First of all, in terms of the South Korean ban which we're not going to call a ban, if it were listed, let's say in a month, aren't you very flexible in terms of adding those ports of call pretty much immediately? Is that fair?
Arnold Donald
Yes, we can make changes pretty quickly, the ones that have been redirected to a port of Japan maybe not -- the C-day one is almost certainly. So this is -- there is nothing we can reintroduce.
Unidentified Analyst
And it's a flipside to this; Majestic Princes obviously is purpose built for China but other ships, newbuilds could be rather redirected elsewhere if you see a decline in returns; is that fair as well?
Arnold Donald
It's absolutely fair. And also Majestic Princess, even though she was purpose-built for China, you know, with some modifications she'd be free to sail anywhere in the world.
I mean she would fit in the Princess brand, she still fits within the Princess brand and so we do have flexibility with the ship but we don't anticipate -- I mean we were excited about taking Majestic to China; having the first purpose built ship there. We think there is opportunity for five cruise as we move the ship around the Chinese to say fly somewhere in the cruise on Majestic which is purpose built for them.
So we think it's going to work really well, but the reality is that for some reason it didn't, she is a house-standing [ph] ship that fits in the Princess fleet and can move it anywhere.
Unidentified Analyst
Great, it's great to have that flexibility. And my second question is, is it fair to assume for the second half of the year that and I know it's still too early, especially in terms of Q4 but given comparisons and seasonality that Q3 -- the cadence of the quarters will probably show a Q3 that's better than Q2 and Q4?
David Bernstein
I think it's -- we're not at this point going to give guidance on Q3 and Q4. You've got the Q1 actuals, the Q2 guidance and the full year guidance.
And so overall, you can see what the differential is; it's not that great baked into our guidance but we're not going to give detailed guidance by quarter.
Unidentified Analyst
David, thank you for avoiding that. Again thank you for taking my questions.
Arnold Donald
What I can you tell you, the team will be working really hard to make what you say come true though.
Unidentified Analyst
I'm trying at my end here you know, tracking pricing all the time. So I'm with you.
Have a great day, and again, thank you for taking my questions. Thank you very much.
Arnold Donald
Thank you, everybody. We really appreciate everything and we look forward to talking to you next quarter.
Thank you.
Operator
Thank you. Ladies and gentlemen, that does conclude the conference call for today.
We thank you for your participation and ask that you please disconnect your lines.