Mar 22, 2018
Executives
Arnold Donald - President and CEO Micky Arison - Chairman David Bernstein - CFO Beth Roberts - SVP, IR
Analysts
-
Greg Badishkanian - Citi David Beckel - Bernstein Research Felicia Hendrix - Barclays Capital Robin Farley - UBS Harry Curtis - Nomura Instinet James Hardiman - Wedbush Securities Assia Georgieva - Infinity Research Jared Shojaian - Wolfe Research Tim Conder - Wells Fargo Securities Angus Tweedie - Bank of America/Merrill Lynch Tim Ramskill - Credit Suisse
Operator
Good morning everyone, and welcome to our First Quarter 2018 Earnings Conference Call I am Arnold Donald, President and CEO of Carnival Corporation & PLC. Today, I'm joined by our Chairman, Micky Arison; David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President, Investor Relations, here with me in Miami.
Thank you all for joining us this morning. 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. We are happy to report that our company is off to another strong start to the year, achieving record earnings on record revenues in our first quarter.
Adjusted earnings of $0.52 per share was 36% higher than last year, and $0.13 higher than the midpoint of our guidance, which was all due to strong operational execution by our team members worldwide to exceed our guests' expectations and by our travel agent partners who support us around the globe. Our strong first quarter result combined with favorable net movements in fuel and currency of $0.10 per share enabled us to increase the midpoint of our previous full-year guidance range by $0.15.
It was reinforcing to see constant currency revenue yield growth this quarter of roughly 4%. Now, that's on top of 4% improvement achievement 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. These efforts produced another very strong wave season, and that's on top of last year's record levels on both price and value.
That said, our booking trends are affected by items that make some clarification necessary when comparing to the prior year. We have been changing our distribution methods in China to move from a high concentration of full ship charters last year to an increased number of cruise sales this year.
This change result in a much close end booking curve which affects comparisons to the prior year, but we believe it reduces risk and optimizes yields. In fact, our first quarter, we had positive yields in China, and that's on top of 20% industry-wide capacity increases, and a comparison third quarter last year that was pre-Korea [ph] impact.
So absent the shift in China from full ship charters to more group sales, our global cumulative advanced bookings are ahead at higher prices for the remainder of 2018. Our booking trends demonstrate our business fundamentals are strong and we have sustaining momentum as we continue to generate demand for cruise.
Of course, we're working hard and have many efforts on the way already this year to increase demand and expand the market for cruising. Here in the U.S., our Ocean Original travel series continue to attract record viewership, remaining the most popular travel shows on TV.
Our newest series, La Gran Sorpresa, on Univision, which provides programming in Spanish featuring the Hispanic community, performed above expectations. In its first six episodes the hour-long primetime Sunday night program reached nearly seven million viewers.
Now that's a nice compliment to our existing lineup featuring The Voyager with Josh Garcia, on NBC, which recently achieved its highest rated episode ever, drawing an audience of nearly 2.5 million viewers. While Ocean Treks with Jeff Corwin, on ABC, consistently attracts two million viewers each week, and Vacation Creation with Tommy Davidson and Andrea Feczko, also on ABC, reached an audience of more than one million each week.
In our second season our major network viewership has increased 25% year-over-year, and in just two short years has reached a cumulative audience of over 300 million viewers. This past wave season we also launched multiple new marketing programs around the globe which have been generating buzz for our brands.
Here in North America, our highly successful Olympics campaign featuring Carnival Cruise Lines, Holland America, and Princess achieved nearly 400 million media impressions. Of course you may have heard, we appointed a new CFO, Chief Fun Officer that is, Shaquille O'Neal, joins Carnival Cruise Lines inspiring others to choose fun.
The Shaq campaign generated 2.7 billion impressions so far. In the U.K., our P&O brand launched its fourth marketing campaign with well-known British comedic actor, Rob Brydon, which generated 200 million views during the part wave season.
While in Italy, France, and Spain Costa launched its third marketing campaign featuring Shakira on TV and social media, reaching 3.2 billion views with 13 million viewers on Facebook alone. We also furthered our guest experience efforts during the quarter.
Progress continued on our Ocean experience platform. Regal Princess is about to begin her European itineraries and will continue her ramp up with Ocean abroad.
And we are now introducing our Ocean platform on Caribbean Princess as she begins her summer Caribbean season sailing out of Port Everglades. On February 25th, a new precedent was set where we achieved a bandwidth of 2.25 gigabytes per second on Regal Princess, which represents 40 times the connectivity capability of a typical ship and 400% of the maximum capability ever reported in the cruise industry.
In fact, this was recognized as the most bandwidth capacity ever delivered to any mobile platform. MedallionNet is our on-ship connectivity for our Ocean platform and is a major breakthrough for guest connectivity experience at sea, and is an outcome of our Ocean experience platform.
There were a number of other technology-driven milestones achieved this quarter in keeping with our ongoing efforts to further enhance the guest experience. Carnival Cruise Line completed the fleet-wise rollout of its new application, Hub App, which is among the highest rated apps for Cruise.
Hub App achieved so many downloads it actually trended and has crossed three million downloads and counting, given its consistently high take-up rate onboard. More importantly, Hub App facilitates onboard revenue purchases like shore excursions and communications.
This, combined with Carnival Cruise Lines' newly launched CRM technology, which enables targeted marketing for onboard purchases, has driven a notable uptick in onboard revenues across multiple categories for the brand. Similarly, this past quarter Costa rolled out its app, My Costa for it's first ship, Costa Diadema, enabling our European guests to book shore excursions, dining, and chat with others onboard.
My Costa will be rolled out fleet-wise by the end of 2018. And at AIDA in Germany, we recently completed the fleet-wide rollout of seamless check-in enabling an embarkation process of just 30 seconds per guest, and driving net promoter scores even higher.
AIDA will complete the rollout of its onboard app, MyAIDA this coming quarter with additional functionality to be rolled out throughout 2018. These innovations are not only driving guest satisfaction scores higher, they are leading to a measurable increase in onboard spending for the organization overall.
As you know, we also have a nice tailwind in ticked prices over the next few year with the rollout of our new state-of-the-are revenue management system, YODA, which is progressing as planned. As previously indicated, the revenue management system will be deployed across six of our brands, so approximately 90% of those brands' inventory in the next few months to further facilitate yield uplift.
We also remain on track to deliver $80 million of cost savings in 2018 as we continue efforts to leverage our industry-leading scales to contain cost. With $6 billion of cash from operations expected in 2018, we remain committed to distributing cash to shareholders as evidenced by our recent share repurchases exceeding $250 million year-to-date, brining the total over $3.4 billion in just two-and-a-half years, as well as our growing dividend of $1.3 billion per annum.
All told, the strong execution in the quarter, the fundamental strength and demand captured during wave season combined with many achievements realized already this year to continue the momentum all bolster our conviction in delivering double-digit return on invested capital in 2018 and beyond. Going forward, we remain focused on creating demand in excess of measured capacity growth and returning cash to shareholders.
With that, I will 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 an explanation of our change in reporting segment. Then I'll provide a summary of our 2018 first quarter results, followed by an update on current booking trends for 2018, and finish up with some additional color on our 2018 March guidance.
This quarter, we changed our operating segment to align with our new internal reporting. We still have four reportable segments, and this change does not affect our consolidated results.
We simply realigned two of our reporting segments. Our North America cruise segment is now North America and Australia, or commonly known as our NAA segment.
And our Europe, Australia, and Asia cruise segment is now just Europe and Asia or commonly known as our EA segment. While seven of our nine cruise brands have ships deployed in Australia, substantially all of our capacity in Australia is from our North American brands and P&O Cruises Australia.
As a result, we realigned our internal reporting to consolidate substantially all of the Australian deployment into one cruise segment. In order to provide comparative historical information, this morning shortly after our earnings release was distributed, we issued on 8-K with re-casted financial information for the segment for the last three years.
Now let's turn to our financial results. As Arnold indicated, our adjusted EPS for the first quarter was $0.52.
This was $0.13 above the midpoint of our December guidance. The improvement was driven by three things.
$0.06 was from increased net ticket yields which benefited from stronger pricing on closing bookings on both sides of the Atlantic; $0.02 was from improved onboard and other yields which continue to benefit from a variety of ongoing efforts as Arnold highlighted in his comments, and $0.05 was from lower net cruise cost excluding fuel simply due to the seasonalization of cost between the quarters. Now let's look at our first quarter operating results versus the prior year.
Our capacity increased 2.2%. The NAA brands were up 1.14% while the EA brands were 3.5%.
Our total net revenue yields were up 3.9%. Now let's break apart the two components of net revenue yield.
Net ticket yields were up 4%. This increase was driven by our NAA brand's deployment in the Caribbean and Australia as well as our EA brand's deployment in Europe and various other programs including world cruises.
Net onboard and other yields increased 3.9% with increases on both sides of the Atlantic. In summary, our first quarter adjusted EPS was $0.14 higher than last year with strong 3.9% revenue yield improvement or $0.17, being slightly offset by 1% higher net cruise cost excluding fuel costing $0.03.
Turning to 2018 booking trend, this year's wave season was strong and that's on top of the record wave season we had last year. Booking volumes for all future periods have been running ahead of last year and higher prices.
At this point in time, cumulative bookings for the remaining three quarters of 2018 are online with the prior year at higher prices. Now let's drill down into the cumulative booking position; first for our NAA brand, the Caribbean program is slightly behind the prior year on occupancy at lower prices.
This is driven by the Eastern Caribbean itineraries and San Juan. The Western Caribbean itineraries are ahead of the prior year on occupancy at slightly higher prices.
For the Eastern Caribbean and San Juan itineraries, we expect to optimize our revenue yields by holding price and being patient. While the current perceptions of these regions are still somewhat impacted from last year's hurricane, our guests are having a great time and coming home very happy.
So, it's just a matter of time before we are successful in getting the word out and improving things even further. The seasonal European program is well ahead of the prior year on occupancy at significantly higher prices.
Alaska is ahead of the prior year on occupancy albeit at lower prices. However, as I indicated on the last conference call, Alaska yields are impacted by mix.
In the end we expect individual ticket pricing in Alaska to exceed last year's record levels. Second, for our EAA brand, for their European deployment, occupancy is ahead at nicely higher prices.
Finally, I want to provide you with some color on our 2018 March guidance. As Arnold said, our first quarter results combined with a favorable net impact of fuel prices and currency enabled us to raise our full-year earnings guidance.
The increase was driven by three things compared to our December guidance. First, we benefit by $0.07 from the favorable impact of currency, second, we benefit by $0.03 from the change in fuel prices including the impact of fuel derivatives.
And third, we flow through $0.05 of the first quarter benefit from higher revenues. Putting all these factors together our adjusted EPS for 2018 is $4.20 to $4.40 versus $3.82 for 2017.
And now I'll turn the call back over to Arnold.
Arnold Donald
Thank you, David. Operator, please open the line for questions.
Operator
Certainly. [Operator Instructions] Our first question comes from the line of Steve Wieczynskifrom Stifel.
Your line is open. Please go ahead.
Steven Wieczynski
%.
Arnold Donald
Good morning, Steve. Yes, so as David pointed out, the $0.13 beat and quarter one a nickel was just the kind of expenses between the quarters.
And then the $0.05 was the revenue improvement in the first quarter, which we passed through to the year. And then the balance in the ForEx [ph] is just rounding.
So we always give you our best guidance. We simply rolled up the guidance and round it to the nearest nickel.
In terms of the environment, we're always anticipating that they are -- it's a volatile world, there are things that can go on. We maintain our guidance around yield for the balance of the year, and so that's how it came up.
David Bernstein
Steve, the nickel we wrote through is a quarter of a point, it takes $0.20 to increase our yield guidance by a full point. So a quarter a point is just rounding.
In fact our yield guidance did go up, but it's still rounded to the same 2.5%, but embedded it was an increase.
Steven Wieczynski
Okay, got you. Thanks for that color and then second question, I guess, would be going to the Caribbean.
And David in your comments you talked about how the Eastern Caribbean's a little bit softer while the western Caribbean seems like it's pretty strong and I guess, there seems to be this panic right now out there in the investment community that the summer Caribbean pricing is deteriorating. And I guess, can you guys give us some additional color on what you talked about David in terms of what you're seeing there and are there any competitors out there right now that are somewhat overly promotional and maybe how you guys were countering that?
Arnold Donald
Well, I'll start first and I'll let David add on them. Globally, we're ahead on price and occupancy and in fact as David mentioned the Western Caribbean, we're actually ahead on price and occupancy even with double-digit capacity increase.
There was concern last year around the Caribbean and again we had strong yield improvement with double-digit capacity increases in the third quarter last year. But Eastern Caribbean is heavily influenced by San Juan and we're very confident that it's related to some hurricane malaise hangover.
We're being patient, and our guests, as David mentioned, are having a tremendous experience. In fact I would tell if anybody's waiting to see a better pricing before they book, they're probably just going to miss out, the guests are having a great experience and we're on the job of making sure people know that and understand that.
David?
David Bernstein
Yes, this is just one of many -- over time each year we seem to face an issue. One year, it's Turkey, another year it's Zika, there's always something, but these are small issues in the grand scheme of a global company and despite the hurricane hangover that we're experiencing a little bit in the Eastern Caribbean, the overall business is doing great.
And as Arnold said, the Western Caribbean which is seeing double-digit capacity increases in the back of the year, half of the year, we are seeing higher prices and we are ahead on occupancy. So we're very confident that the Caribbean will do very well and that's on top of a record year in the Caribbean last year.
So we feel very good about the overall state of the business.
Arnold Donald
Yes, the Caribbean is strong.
Steven Wieczynski
That's perfect. Thanks for summing it up that way.
And real quick can I get a housekeeping question with Beth, can we grab your updated 2Q through 4Q capacity increase expectations?
Beth Roberts
Yes, why don't you…
David Bernstein
Why don't we go on to the next question and when Beth gets the quarterly numbers she'll give them?
Steven Wieczynski
Okay, thanks guys.
Operator
Our next question comes from the line of Greg Badishkanian with Citi. Your line is open.
Please go ahead.
Greg Badishkanian
Great, yes, first question, in the fourth quarter, you mentioned that bookings for the full-year 2018 were ahead of the prior year at higher prices. So with cumulative bookings now in line for 2018, pricing is much higher, could you talk about why that work has -- sounds like the environment's been very healthy in terms of booking since January.
Is there some sort of mix issue or what's leading to that change?
David Bernstein
So you're comparing two different periods. First of all, at the end of the year, what we were talking about was the full-year 2018, now, we're talking about the balance of 2018 on a cumulative basis, but if you actually included 2019, we would be ahead at higher prices overall, so we were just trying to give a cumulative book position as it related to 2017.
The other thing that you also have to keep in mind is the goal isn't about being ahead, the goal is about optimizing revenue yield. So we're constantly taking action to do that and I think I've said this before, if the booking curve keeps moving ahead then at some point we'll be sold out for the rest of the year and you guys would say to us "Guys, you sold too quickly, and you didn't optimize revenue yield."
So we're making those decisions every day. And we feel very good about our position at the moment.
Beth Roberts
And quarterly…
Greg Badishkanian
And -- yes, go ahead.
Beth Roberts
No, go ahead, Greg, I'll finish when you're done.
Greg Badishkanian
Okay, all right. Yes, just the closing bookings, a little bit more color, I mean, it was just a lot stronger in terms of the net yield and when you think about what drove that if you could just give us a little bit more detail on why you think it did so much better from the net yield perspective?
David Bernstein
You talking about the first quarter?
Greg Badishkanian
Yes.
David Bernstein
Listen, we always give you our best guess, I mean, we saw some strength in the Caribbean, we saw some strength in Australia. There were a number of markets where we did better than we had anticipated and onboard too.
I mean, it was, both ticket and onboard were up. So it was across the board in every category.
Sometimes you'll have a few things go one way and a few things go the other way and they may net out. In this particular case, just about everything went in a favorable direction for us.
Greg Badishkanian
Perfect, thanks.
Beth Roberts
Okay, to the quarterly capacity, the first quarter closed up 2.2, the second quarter will be at 1.5, third quarter 1.7, fourth quarter up 2.6 for a total of 2% on the year.
Operator
Our next question comes from the line of David Beckel with Bernstein Research. Your line is open.
Please go ahead.
David Beckel
Hey, thanks for the question, just had a follow-up on the Eastern Caribbean comments. So you mentioned that San Juan is the hub of perceived weakness or maybe the hurricane overhang, are you also seeing weakness in Eastern Caribbean itineraries that don't directly touch on Puerto Rico, or is Puerto Rico so pervasive that it pretty much touches everything?
Arnold Donald
I would say there's a general -- now you got to call us in context, right, because we had a really strong year last year. And so this is all on top of that, and we're also trying to optimize revenue and yield, as David mentioned.
But generally speaking, San Juan is much more of a drag than the rest of the Eastern Caribbean in terms of where we are. But overall I have to emphasize to you that things are strong, and we feel really good about it.
So it is a little bit of a hurricane malaise overhang. We had most of first part of '18 booked, although we did account last year for -- in the fourth quarter of last year when we had the call we accounted -- a little bit of impact from hurricane on future bookings, but the first part was pretty much booked.
So we're starting to experience some of that now. But frankly, we're doing really well.
We see a lot of strength there. The guests are having a great time.
And there is a lot of media noise around San Juan in particular as people to continue to focus on the infrastructural wall in Puerto Rico, which I think is a bit of a holding [ph] for us.
David Bernstein
And the only reason we really called San Juan out individually was because we do have -- San Juan is a home port for us. And also it is a source market for that home port.
And that did have -- the hurricane did have an impact on that source market, albeit small, but it did have an impact.
Arnold Donald
But our revenue management -- we're well positioned to finish strong overall in the Caribbean and in the Eastern Caribbean.
Beth Roberts
Just to mention, the booking volumes during wave period have been strong. The issue dates back to the multi-week period when the hurricane occurred itself, and the recovery period in the back-half of last year.
As Arnold indicated, we were far along to the first quarter when that occurred, and that's why we're seeing the experience in the later part of the year.
David Beckel
Great, that's helpful, thanks. And as a follow-up question, I want to ask a little bit about Ocean Medallion, the platform, the technology behind that.
It seems like things are taking a little bit longer than you would've thought for the Princess rollout, but it sounds like you're also well along on apps for other brands. Are these apps based on some of the learnings from the Ocean Medallion, are they in any way connected or are they completely separate?
Arnold Donald
No, they would be separate, but they're all around the same principle, which is to enhance the guest experience. Ocean Medallion is a holistic change; it's not an app, right.
It changes every system on the ship; it redefines the roles of the crew, et cetera. We have Regal; it's installed in the Caribbean Princess that's coming next.
We have eight ships in total now in the Princess fleet that are Ocean-ready. But we're doing a slow ramp up on purpose.
We want to make sure it's a holistic change. Want to make sure that the platform is stable, that we repeat it a lot and we scale so we can discover whatever issues there may be.
And we're having a lot of fun watching guests' reactions as we, you know, introduce it without any pressure or rush. We're not fixing a problem that existed before.
Our guests are very happy with the Princess experience, and this is all guest-centric stuff. So we've had some tremendous gains from it already in terms of the experience with Medallion that, as articulated in the opening comments.
So we feel very good about it. We are going to ramp it up slowly.
We're excited to get it on another ship and get guests the experience. And they have the Regal continue its ramp up as she goes over for our European itineraries, so that where we're on that.
The other asset -- we have nine brands, they're all innovative, looking at a number of different things, different demands around the world. Each brand has a different psychographic segment it's catering to.
And so a lot of the apps in the tooth are all on the same principle, how do we enhance the guest experience so we consistently exceed our guests' expectations. And it's becoming a positive tailwind.
We've got nice lift overall from a number of things in areas like communications and other onboard areas as we do more targeted marketing, et cetera, which is driven by some of the capability the technologies give the crew.
David Beckel
Great. Thank you.
Arnold Donald
Thank you.
Operator
Our next question comes from the line of Felicia Hendrix with Barclays. Your line is open.
Please go ahead.
Felicia Hendrix
Hi, good morning, and thank you. So we'll just keep drilling down on the Caribbean but, so you guys have made it pretty clear that it seems like just San Juan and the home-ported ships there, that's the main issue.
So just wondering if you could help us understand, you said it was small, but exactly how much of your deployment are these home-ported San Juan ships? And perhaps can you quantify how much of a headwind San Juan is to your yield outlook?
David Bernstein
Okay. Well, I can't quantify about the headwind, but San Juan is just one Carnival ship that's home-ported there.
But the whole Eastern Caribbean, like I was looking at the back-half of the year, the Eastern -- the whole Caribbean was 28%. And I think the Eastern Caribbean represented 11% of the company's capacity for the back-half.
Arnold Donald
I'd say Eastern and San Juan is 16%, is where we are now, say versus '13 for what's occurred.
Felicia Hendrix
Okay. So I guess I'm just trying to figure out what the Eastern Caribbean would've looked like without this San Juan issue.
Arnold Donald
That level of detail we would…
David Bernstein
It would've been better, but other than that it's really hard to say what the impact is. Remember, it's one out of a hundred ships, and it's one 2,000-passenger ship.
It's very tiny.
Arnold Donald
Yes, I think the most important part, Felicia, is that we're doing really well in the Caribbean. We're coming off a record year.
We are doing overall very well. We are very confident about where we're sitting, even with the Eastern Caribbean, but on balance in the Caribbean overall.
And occasionally you're going to have an area or a few itineraries. I mean, that happens every year, as David already mentioned, somewhere in the world.
And those are just things we normally manage through. But the underlying fundamental is very strong.
And it's clear, in this case, it's not at all capacity driven, it's other issues than -- we have successfully increased yield last year with significant capacity increases in the Caribbean, and we're doing it again this year.
Felicia Hendrix
And with the perception issue, like on a scale from one to 10, I'm sure it's improved because we keep getting further and further away. I mean, where would you say we are?
David Bernstein
It's really hard to say exactly where we are. It continues to improve every day.
We've got the Caribbean, is open program going, it's industry-wide. And overall this is just an ongoing change that hopefully, like everything else, is temporary.
Felicia Hendrix
Okay, so I was batting a thousand with those, so I'm going to move on to something else. And you guys had talked about briefly before 2019, and we've all heard about the elongated booking curve.
So I was just wondering, when you think about 2019, how do your booking volumes for '19 compare, say like, to this time last year for 2018, both in terms of booking and pricing?
David Bernstein
Yes, with the first-half of 2019 we are headed higher prices, and so we're very encouraged by the overall future booking trends. But keep in mind it is very early.
Felicia Hendrix
Yes. Okay, thank you.
And then Beth, just housekeeping, if you could just give us your interest expense and G&A guidance for the second quarter and for the full-year that would be great.
Beth Roberts
Sure. Second quarter interest expense is $50 million, roughly $190 million to $200 million for the year.
G&A is $515 million for 2Q, $2.06 billion to $2.07 billion for the year.
Felicia Hendrix
Thank you.
Arnold Donald
Thanks, Felicia.
Operator
Our next question comes from the line of Robin Farley with UBS. Your line is open, please go ahead.
Robin Farley
Great, thanks. And I know you addressed out earlier the idea that your guidance actually does have a yields guidance raise in there, but it was only a quarter a point, and so kind of rounded to be unchanged.
I actually calculate slightly more than that, but maybe you're rounding conservatively, and that's fine. But I guess I just -- you talked a little about the San Juan cruises, but is it fair to say that you could meet or exceed your yield guidance even if pricing didn't grown in San Juan year-over-year, I mean, given that you have strength in markets like European itineraries and Alaskan itineraries that have a much higher average price point that growth there would more than offset -- and so that on a combined basis you could still meet or exceed your existing guidance just from what you have on the book today elsewhere.
Is that a reasonable…
Arnold Donald
Yes, we always work hard to beat our guidance. And absolutely, even within the Caribbean we can -- we got a ways to go here, and so we can outperform there even more than we already are.
But certainly with everything else in the world we are ahead overall globally, so.
Robin Farley
That's great. That's…
David Bernstein
And keep in mind when we put our guidance together we also provide for the unknown, and that of course is included in the remainder of the year.
Robin Farley
Okay, great. So it's a…
Arnold Donald
We have another hurricane season coming, so maybe it'll be quite, maybe it won't. But we'll always have to factor in that things can go upside-down.
Robin Farley
Okay, great. Now, that's helpful, thanks.
And then just -- you've talked about you're ahead in volume and price at record levels, and that maybe that optimizing means that you actually don't want to continue to sort of always be ahead, right, that that's not the end goal. So just interesting because you mentioned for 2019, that you're ahead overall and yet your volume -- your booking volumes have still been up year-over-year on top of last year's record wave season.
I guess, when would we see the point where you're putting more into price and so we would see a period where maybe your volumes are not higher year-over-year. Like is that something that you think we'll see in 2018 or maybe more when you get to next year booking for the year ahead?
Arnold Donald
We don't know. We got a lot of itineraries, a lot of brands, and a lot of world markets, and things change every year, right.
So I wouldn't try to predict when we would see that. What I will tell you this year, as I said in the opening of the call; if you exclude China overall we are ahead on both.
And the China mix shift between full ship charters and group sales is the only reason why we're not reporting it overall being ahead on both. So that's for this year.
And we're head, as David mentioned really early, as he said for '19. But so far we're ahead on both for the first-half of '19 as well.
But we're not giving guidance for '19 yet obviously. So things are strong.
Our job is to just create the demand in excess of the measured capacity growth to make certain our brands are consistently exceeding guests' expectations. We are in markets everywhere in the world that are underpenetrated, including here in North America, still including in the Caribbean.
And so we have great fundamentals, as long as we continue to drive demand, debunk the myths about cruising and make it easier for people to book a cruise and then make sure -- certain they have a fantastic time once they're onboard we're going to continue to do well.
David Bernstein
And we're always chasing that optimal place. And the reason we don't know is the world around us continues to change, and so we'll continue to adapt to that, and face the optimal.
Arnold Donald
And practically speaking, we'll never truly get to the optimal. I mean, it's always a moving target, and what is optimal patterns this year wouldn't necessarily be the same one for the next year, so we'll always be chasing it.
But as long as we're continuously getting better then we're moving in the right direction.
Robin Farley
Okay, great. Thank you very much.
Arnold Donald
Thank you.
Operator
Our next question comes from the line of Harry Curtis with Nomura Instinet. Your line is open, please go ahead.
Harry Curtis
Good morning, everyone. My question is related to the incremental capacity growth globally coming next year.
And I think you've done a pretty good job getting in front of that with your perception and marketing spend. To what degree do you think you can go back to markets you used to cruise to either in the Easter Med or the Holy Land that might absorb some of that incremental capacity coming next year?
Arnold Donald
Again, it's tough to predict those things. It's easy to say at some point it's almost certain that we will be cruising back with a large sum of itineraries in places that previously were very high-yielding itineraries, and that includes the Black Sea as well as what you're referencing now.
But when that's going to happen exactly, the world is a strange and mysterious place, and we'll have to see. But we're prepared to take guests where they want to go, which is usually they only want to go places that is safe to go and is comfortable to go.
But we'll take guests where they want to go as long as we're allowed to do that. But to predict when that would happen, the reality is there's always going to be -- there's always been, can't say what always will be, there have always been pockets where it was great, then you couldn't go, then you went back, and that's just the -- notwithstanding that we are underpenetrated in every market in the world.
Not just us, but the industry is. Just keep in mind we only represent -- all the cabins represent up to 2% of the hotel rooms.
And the vast majority of travelers are not cruising every year by a long shot, many have never cruised. So we have great opportunity for us -- our planning as you know.
We're very comfortable with our capacity growth in the coming years. We've been consistent with our execution around measure capacity growth.
And we're spreading that growth over a number of brands, and increase number of geographic regions, and we're very careful where and when we add capacity. We're going to strive to drive unit increases at rates that we recently achieved or even higher.
In the end that may or may not happen, but we do have a bit of a cushion in the future, and future is of capacity itself is a driver for earnings growth, and for cost containment. So we can achieve similar earnings growth rates at lower rates of increases in yield, but of course we're going to strive for even greater earnings growth by driving both the occupancy and the yields.
Harry Curtis
And specifically, have you been inching back into any of the markets where you had a higher presence three or four years ago, or are you preparing to?
Arnold Donald
In terms of inching back, no. The brand's primary itineraries is two years or in some cases even more.
And so again, as we read the tea leaves, we will go where guests want to go. I'm cautiously optimistic some of those high-yielding itineraries will be coming back in the next three to five years.
Of course there's in markets like Cuba. And Cuba is still small relatively, but it's expanding now.
We were the first, as you know, very proud and happy about that. But the industry is going there and we're expanding our itineraries in Cuba.
And that's a growth area. And then of course, over the near-term there's still China.
Harry Curtis
And just shifting gears, going to capital returns, it would appear that given your capital commitments for new ships in combination with your dividend that most of your free cash is spoken for. But to the extent that your EBITDA goes up, and you've got an under-levered balance sheet, do you use your balance sheet or that capacity that you have to repurchase stock more aggressively?
Arnold Donald
Again, we'll continue to repurchase. We have an authorization from the Board now, and we'll continue to repurchase shares on an opportunistic basis, as we have in the past.
We continue to grow our dividend, as you know. Our debt-equity ratio is very strong.
There's no reason for us to make it a lot stronger. So yes, we can look at leveraging up while maintain a very healthy debt-equity ratio to look for ways to return cash to shareholders, even through increasing dividends and/or through share repurchases.
David Bernstein
So, and you know, we -- if you take our March guidance, if we don't buy back shares for the rest of the year we'd wind up with a debt-to-EBITDA ratio of less than two times. So we will see an increasing absolute level of debt as we repurchase shares throughout the year, and maintain at least the two times ratio.
I mean, it's a target; it's not an exact number. We'll never be at exactly two times.
Our overall goal is to be somewhere between two and two-and-a-half, and to maintain the current leverage that we have from that perspective.
Harry Curtis
Okay, thanks guys.
Arnold Donald
Thank you.
Operator
Our next question comes from the line of James Hardiman with Wedbush Securities. Your line is open.
Please go ahead.
James Hardiman
Hi, good morning. Thanks for taking my call.
So I wanted to clarify a couple of points. This is probably going to be nitpicking here at bit, but I guess that's what we do.
So the first quarter yield beat was about $0.08 between ticked and onboard. And you're flowing through $0.05 to the rest of the year.
Is that just conservatism or you are actually bringing down something during the balance of the year? And I guess, maybe related question, I mean because you talked about the Eastern Caribbean, I think the point that Beth made is it seems like the majority of the weakness there was -- stems from the immediate aftermath of the hurricane.
Is that actually any worse than you thought it would be three months ago? Or, is it just similarly challenged?
David Bernstein
Hey, you know so when we looked at our guidance, we got our forecast, we rolled it up. In our mind, nothing changed in the remaining part of the year from what we were thinking in December.
So, in the end the difference between is $0.03. I mean $0.03 is 0.15% of our overall yield guidance.
And so, we are just not that good to call it that close. And so, we rolled it up.
We gave you our best guess and that's where we are at. And like I said we raised the guidance by a quarter a point and rolled the $0.05 through.
It was as simple as that.
Arnold Donald
Yes, and concerning the second part of your question, was it worse than we anticipated or anything like that. Absolutely not.
Again, I don't want to a leave a color on the Eastern Caribbean like it's bad, I mean it's really not. I mean we have great roll last year.
We are still booking and so on and so forth. And we'll see it through to the end.
But it's a strong market on top of our record year. And the Western Caribbean is even stronger.
And so the Caribbean overall is very strong. The guests are having a fantastic time; got a couple of little pockets that we have to address in terms of perceptions and stuff.
But, we are doing that. And I wouldn't want you guys walk away from this call thinking there is weakness in the Caribbean because it is just not true.
James Hardiman
Okay, I thought so, but I figured it's worth asking. And then, in terms of China I wanted to revisit the change in distribution.
Help me understand that a little better. It sounds like it's just a timing thing, is that right?
Closing versus further up bookings, and I guess is the point there that you are just diversifying your distribution? I mean generally I would think further up bookings are good thing, but is the idea that you are looking for diversification there?
And then maybe just speak to the health of Chinese market exclusive of some of these changes in distribution methods?
Arnold Donald
Sure. China as you know is a B2B market much more than a true consumer market.
And so, the full ship charters the way it's done that one imagine it is January full ship charter would get booked at a 100% even though the cruise wouldn't happen until June. Now when they book that full ship charter with us, there may have been no guest booked at all.
And so you are recording a 100% in January for June sales. With group sales, so you're buffing that up now.
With group sales, you may have 10% of people that have actually booked, okay? So, you could be actually ahead on bookings.
But, still have recording 100%, you are only recording 10% at that point in time because the rest is going to come when the group sales are actually activated. And so, that's the dynamic that causes the shift.
In terms of why do that? We are doing two things.
We are expanding distribution. And in doing so, we are also as part of that trying to go more to the group sales.
We think overall it gives us greater clarity. It lowers the risk, the concentration of risk.
And that full ship charter may have booked at a 100%. But then later in the year, they may have come back and said, "Hey, we were only able to book it full because we had to drop the price, which was different than the price we agreed to you with.
We like our credit. Can you help you us out?"
So and so forth. So even through you recorded it, then there's claims and credits on the backend.
So, with the group sales and the distribution across more distributors, we are cautiously optimistic that will be reduced and we will end up in better shape. And so far for the first quarter, keep in mind as I said, the first quarter this year compared to last year's first quarter in China that was pre-Korea impact last year.
And capacity is actually up significantly in the first quarter this year in China versus last year's first quarter. And we have done well.
So, we are cautiously optimistic. China is still China.
We are going to have to let it play out. But again, we are well prepared with our guidance to handle whatever we need to handle.
James Hardiman
And just so I understand when you say you've done well, is that sort of done well despite all the challenges. So, down less than you maybe anticipated or you are actually up in China?
David Bernstein
In his comments, he indicated that we were up in China in the first quarter.
Arnold Donald
Yes, we are up.
David Bernstein
Yes.
James Hardiman
Okay, that's helpful. I didn't know if that was a comment for last year talking about the comparison.
David Bernstein
Oh, no.
Arnold Donald
For this quarter, yes.
James Hardiman
Okay, that's really helpful. Thanks guys.
Arnold Donald
Thank you.
Operator
Our next question comes from the line of Assia Georgieva with Infinity Research. Your line is open.
Please go ahead.
Assia Georgieva
Good morning, guys. Congratulations on a great quarter.
Arnold Donald
Thank you.
Assia Georgieva
I thought I was going to be the only one to ask China question because usually I am the only one that doesn't ask a China question. But, James here beat me to it.
So, given that one of your competitors has unwound their JV, how does that affect you?
Arnold Donald
Frankly, not at all. I think I am not fully up to speed.
I understand the JV was unwound, that could be for a lot of different reasons. There's demand for ships all over right now the world, but anyway having said that, it doesn't affect us at all.
I think it's just -- China is such an embryonic market. We have such a small relative amount of capacity against the lean pent up demand that's there, what's important is getting a distribution system to connect with that demand.
And then long-term, we remain very optimistic. We are very excited about the progress we made with our joint venture with the CSSC the ship building entity.
And we feel good about the performance of Majestic Princess our purpose built ship for China in our princess brand and the ongoing performance of Costa Group which was of course the first international brand to be in China.
Assia Georgieva
Yes. Arnold, thank you for that.
And switching gears a little bit, in Alaska, again we're having competitor with a ship built before that market because you mentioned Majestic Princess for China and Norwegian Bliss for Alaska; does that affect Princess in Holland America?
Arnold Donald
That is all I think I am sorry it's just a concept of a ship purposefully built for Alaska as well. We have a lot of ships that are purposefully built for Alaska and many other places.
But anyway, no, Alaska is a very strong market. We're enjoying continued success there.
Obviously, we are far in a way the largest especially with all the land properties we have in Alaska as well which also adds to our ability to drive yield in our businesses. So, there are always people coming and going.
And it doesn't really affect us.
Assia Georgieva
No, I understand. And I appreciate your tickle in terms of purpose built but it is new built, it's a new ship.
We haven't seen Alaska, you know?
Arnold Donald
Yes, new ship. Well, it won't be sailing year around in Alaska.
That's for sure.
Assia Georgieva
Well, that will be difficult to do.
Arnold Donald
You bet.
Assia Georgieva
All right. Well, thank you very much.
And again congratulations, you did great, really happy to see those results out of you guys. Great job.
Arnold Donald
Thank you.
David Bernstein
Thank you.
Operator
Our next question comes from the line of Jared Shojaian with Wolfe Research. Your line is open.
Please go ahead.
Jared Shojaian
Hey, everybody. Thanks for taking my question.
Can you just tell me, did you guys get any benefit from the new RM system in the first quarter? And have you baked in any improvement in 2Q or full-year in your guidance from the RM system?
Arnold Donald
YODA, our revenue management system, has been a definitely a boon us. As I mentioned several times on pervious calls, one of the biggest advantage is just getting of all revenue science folks to work together because when you have that different perspectives and that much talent and you get them to work together, they ideate and generate things that they would never do on their own.
And so, the whole process of developing that tool has been beneficial and then the tool itself has been. And as I said, there will be six brands that will have about 90% of inventory going through it that -- some of that inventory of course is for 2019.
So, you won't see all the benefit in 2018. But it's definitely been a lift, has added discipline, has added creativity and has added yield.
Jared Shojaian
Can you tell us how much of the 3.9% growth in the first quarter was because the RM system?
Arnold Donald
I am sure our revenue science folks would love to give you a number. But, the reality is they are so many variables.
There is no way to do that. It's clear that the cumulative effect of everything we've done has contributed to the positive results.
There is no question. I can give you lots of anecdotal examples of where we have specific yield from actions driven by YODA and the team.
But to quantify it proportionately, it's a task that they like to try to do. But, there is way too many variables.
Jared Shojaian
Got it. Okay, and just to confirm to clarify on China.
When you say yields were up in the first quarter, are you saying constant currency yields were up or is that a function of just RMB being a lot stronger year-over-year?
Arnold Donald
No, constant currency yields are up for the first quarter.
Jared Shojaian
Okay. So, maybe if yields are up in the first quarter, I guess we are going to see supply drop off pretty considerably.
You are going to start to lap the Korea impact. Is there any reason why China yield shouldn't start to materially improve from the first quarter?
Arnold Donald
I would say that I mean your thought process is obviously solid. We would expect that, but again China is China.
So, we'll just have to wait and see. What we have done is given you our best expectations and guidance we have given which is obviously an increase over in guidance.
Jared Shojaian
Got it. Okay, thank you very much.
Arnold Donald
Thank you. Thank you.
Operator
Our next question comes from the line of Tim Conder with Wells Fargo Securities. Your line is open.
Please go ahead.
Tim Conder
Thank you and congratulations also. Wanted to maybe circle back to the broader capacity question, and seems like yourself and other two -- number two and three players have been very disciplined in how you provide many different disciplines to achieve the overall objectives here.
How do you view maybe another player who is going to past the year bad probably over the next several years and their applications of disciplines given past history and how do you view that going forward and thinking about managing the capacity and yields and everything?
Arnold Donald
Yes, I think the first comment I would like to make is a cruise is not a cruise, it's not a cruise. I mean the brands are all very differentiated.
And they offer very distinct experiences. So, we've learnt given the fact that there is large addressable markets everywhere that are seriously underpenetrated that we have to focus on capacity growth.
And we are totally focused on achieving double digit return on invested capital in 2018 and sustaining that. And for some reason, the demand isn't there, we are fully prepare to accelerate retirements and with our scale that matters as we are focused on growing earnings and not the number of ships.
And so, the fact other people do different things or do whatever they are doing, obviously can't impact us. But, that's just part of overall business condition we have to manage.
The advantages we have is that the brands are highly differentiated. And if we are doing our job of creating the excess of demand, then we should be able to continue to not only grow our earning through capacity addition but also through yield improvement.
And to the extent, we are falling short in any way than we would manage our capacity which is what will have way more impact on what we can do with yield and earnings and so on than what somebody else is doing.
Tim Conder
Okay. Arnold, very helpful.
Along that line, have you seen any evidence of those trying to build their brands in markets being more aggressive here so far year-to-date or not?
Arnold Donald
In terms of -- probably you should talk to them. But you hear anecdotal stuff, but at the same time you never know how much volume is tied into that.
You also hear positive comments that some of that's more severely in previous years or just coming in less. So there is noise out there.
But the reality is where we see it whether it's the Mediterranean, whether it's the Baltic, Alaska, the Caribbean, we are seeing strength. And we feel good and we continue to try to generate demand?
Tim Conder
Great, congratulations again, and thank you for the color.
Arnold Donald
Thank you. Thank you.
Operator
Our next question comes from the line of Angus Tweedie with Bank of America/Merrill Lynch. Your line is open.
Please go ahead.
Angus Tweedie
Thanks for taking my question. I just wanted to ask on IMO regulation and exhaust gas cleaning systems, could you give us an update, one, on your position in terms of the fleet and then secondly, given the move we've seen in fuel oil in the last couple of weeks and the futures on that, has your approach to how you're implementing this technology changed at all, thanks.
Arnold Donald
Got it, hey, thank you. We've installed exhaust gas cleaning systems on the majority of our ships.
And in addition as you know we've ordered nine LNG ships. We think that these and other mitigating actions will allow us to be prepared for the pending requirements for the 2020 eco on the low sulphur regulation zone.
in
Angus Tweedie
Great. Thank you very much.
Arnold Donald
Thank you.
David Bernstein
And Operator, it's past 11:00, so we'll take one more question.
Operator
Certainly. The next question comes from the line of Tim Ramskill with Credit Suisse.
Your line is open. Please go ahead.
Tim Ramskill
Thanks, good afternoon or good morning to you. Just two from me, please; the first is, at the Q1 stage, well, so your guidance for Q1 was for 1.5% to 2.5% on yield and your guidance now for Q2, is that a little bit more positive?
So just wondered if you could tell us what's changed now versus three months ago thinking about the most approximate [technical difficulty] that you're about to move into. And then my second question was on the new yield management system, obviously, you were asked about it a moment ago.
Just some sense as to how far through the full process of rollout you are, I guess, it learns from itself over time. My understanding is you're going to roll out across the entirety of the business as well.
So how much through the benefits of that year do you feel you are?
David Bernstein
Okay. So let me go through the quarters.
Each quarter we give you our best guess, I mean, we got 80% to 90% of the inventory booked on the books. But keep in mind there's also the onboard revenue, which is a little bit less predictable, because you don't have 80% to 90% of the onboard on the books.
We're looking at the second quarter, we see what we have and we give you our best guess. In addition, the prior year comparables are also very different.
As we said before, we're in a good strong position looking out for the second quarter in the remainder of the year and we feel pretty good about the guidance we've given for the second quarter. As far as the revenue management system is concerned, I think, Arnold commented in his notes that over the next couple of months we're going to roll it out to 90% plus of the inventory for the six brands that it's going on, which represent, I think, it's about 45% of our business overall.
So we are seeing, as we said before good improvement from the system. It's adding positively to our yields.
And we're very excited and expect it to continue to add to yields over the next few quarters and few years as well.
Tim Ramskill
Okay. So would you be as bold as to put a timeframe as to how far through that whole process you are?
David Bernstein
We got a long way to go, because even once we implement the system, we're going to continue to improve it and we're going to continue to learn from it. So this will be a number of years.
So we're still in the early innings, and we expect to see multiple year [technical difficulty] movement.
Tim Ramskill
Great, thank you.
Arnold Donald
Okay. Thank you everyone.
We really appreciate your interest and engagement. Hope you all have a fantastic day.
Thank you.