Carnival Corporation & Plc (CCL) Q4 2019 Results - Earnings Call
Carnival Corporation & Plc (NYSE:CCL) Q4 2019 Results Conference Call December 20, 2019 10:00 AM ET
Company Participants
Arnold Donald - President and Chief Executive Officer
Micky Arison - Chairman
David Bernstein - Chief Financial Officer
Beth Roberts - Senior Vice President, Investor Relations
Conference Call Participants
Felicia Hendrix - Barclays
Greg Badishkanian - Citigroup
Jared Shojaian - Wolfe Research
Robin Farley - UBS
Harry Curtis - Instinet
Steve Wieczynski - Stifel
Assia Georgieva - Infinity Research
Stephen Grambling - Goldman Sachs
Brandt Montour - JPMorgan
Arnold Donald
Good morning everyone. And welcome to our Fourth Quarter 2019 Earnings Conference Call. I'm Arnold Donald, President and CEO of Carnival Corporation & plc. Today, I'm joined by our Chairman, Micky Arison, as well as David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President, Investor Relations. Thank you all for joining us this morning.
Now 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. First, I sincerely thank the 150,000 members of the Carnival family who collectively work to offset numerous headwinds and still deliver memorable cruise experiences for our 13 million guests, as well as another year of records adjusted earnings per share for our shareholders.
We achieved fourth quarter adjusted earnings of $0.62 per share that's higher than the midpoint of our guidance by $0.14 per share. We ended the year with full year adjusted earnings per share of $4.40, which is a new record for adjusted EPS, 3% better than last year's historical high and broadly in line with our capacity growth, despite a plethora of negative events and circumstances.
With that said, we were disappointed not to deliver the level of earnings growth we do plan to achieve over time. We believe our business is inherently capable of and we are working hard to ensure we are in fact doing even better. After five years of very strong adjusted earnings growth for our company, 2019 brought with it more than our fair share of challenges, including the abrupt regulatory change preventing travel to Cuba, geopolitical events in Arabian Gulf, Hurricane Dorian, a costly unscheduled dry dock, and multiple shipyard delays. All of which necessitated the cancellation of cruises and in many instances, resulted in shorter booking windows negatively impacting yield.
Even though these unusual events were outside our direct control, as always, we go above and beyond to accommodate our guests who are in convenience, providing them with generous credits towards their next cruise purchase. In total, we estimated these unusual events to cost the company approximately $0.23 per share. Now these events do have a tail effect going into 2020. And of course, the impact from these events was compounded by an unanticipated decline in consumer attitudes affecting leisure travel broadly in our continental European source markets, especially Germany.
While quantifying the impact from macro conditions is always difficult, the decline in revenue yield for our Continental European brands was worth approximately $0.30 per share for fiscal 2019. Clearly without this downturn, we would have achieved double digit adjusted earnings per share growth even in the face of the higher number and scale of unusual events. Unfortunately, we do see a continuation of that environment in continental Europe into 2020.
As a global company with nearly 50% of our guest source are from outside the U.S., we're subject to uneven economies around the world. We have a large percentage of our portfolio weighted in regions that are currently challenged, and this will remain a headwind in 2020. In Germany, we carry more than half of all cruise guests, AIDA outperformed overall in that travel market with revenue up mid-teens last year compared to a decline for overall to the client overall revenue over the same period.
Looking forward, AIDA is entering a period of slower cruise industry supply growth in Germany beginning in the second quarter. We expect capacity growth for our AIDA brand of just 5% next year, and that's down from 20% in 2019. That said we expect yield challenge is similar to 2019 given ongoing headwinds, which are impacting the entire leisure travel category in Germany. Despite that difficult environment, AIDA remains among the highest return on invested capital brands in our portfolio and our team there has done an outstanding job, growing demand for cruise given the environment.
In Southern Europe, we have 13% capacity growth in the face of what is also a difficult travel environment. We've already taken actions to adapt to what is proving to be a persistent challenge there. These actions include changes to itineraries to optimize our performance by reducing exotic programs, replacing them with more convenient and affordable cruises closer to home, eliminating the costly air components.
As previously announced, we also implemented an action plan to accelerate demand and right size capacity sourced from Southern Europe by removing two ships from the Costa Europe fleet for fiscal 2020 followed by a third in 2021. The capacity of these three smaller ships will be somewhat offset by the delivery of the much more efficient Costa Smeralda. Smeralda is the first new ship delivered for Costa in Europe in five years, and has been well received by the market. By accelerating our long term strategy to replace existing capacity with larger and more efficient vessels, we can improve return on invested capital for Costa overtime.
In the UK, our brands have also outperformed the overall leisure travel market and have grown revenue yields and profits in 2019 despite the ongoing uncertainty around Brexit. And 2020 we are again experiencing strong demand particularly for Iona, the first new shift for our U.K brand in five years and the largest ever purpose-built ship for the U.K. Iona continues to book at a significant premium to our other U.K ships on a comparable cruises. Now this has been somewhat muted in our overall projected 2020 U.K performance by an increasing overhang from Brexit. The previously announced close-in deployment changes due to the tensions in the Arabian Gulf and a plan dry-dock for the high yielding Queen Mary 2.
Turning North America, we're seeing a continuation of positive trends in 2020. The Caribbean remains strong in occupancy and yield growth overall for our brands, and will be even stronger without the continuing yield drag from future cruise credits and the regulatory change in Cuba. In Alaska, where yields remain high relative to other trades, the industry is in the process of absorbing the 10% capacity increase in 2020 on top of last year's 15% increase. While growing and profitable with our scale, Alaska remains a year-to-year yield growth challenge that we are working hard to address.
We continue to focus on creating demand there, including some new approaches with our travel agent partners, as well as new consumer communications efforts, specifically targeted to Alaska concerning others trades. Our brands collectively are deploying the number of innovative guest offerings to further stimulate demand. We've conducted a deep dive analysis of our marketing activities and spin to drive demand in all the countries and brands we operate.
And while we're pleased with our overall combined, earned and purchased marketing share of voice, we found pockets of opportunity to increase marketing impressions to generate demand and support future yield growth. To that end, beginning of the fourth quarter of 2019, we've increased investments in media spin, leading into and including 2020 wave to support our brands and destinations around the world. And we've also been successful in increasing our analytical rigor in marketing and in media spend to drive demand generation and to better balance brand support activities with price and promotion efforts.
On the guest experience side, we continue to deliver. Both our guest experience scores and our net promoter scores are towards the top end of prior ranges, with many hitting new highs. We are stepping up investments and guest experience even further through the new build schedule, which peaks this year in 2020 with six new ships entering service across six distinct markets.
The aforementioned Costa Smeralda, Continental Europe and P&O Iona in the UK, as well as Carnival Panorama, the first new ship home for a year round for the Carnival brand on the West Coast in nearly 25 years and Enchanted Princess, the second new ship delivered with OceanMedallion. Toward the end of fiscal 2020, we will welcome Mardi Gras to Carnival Cruise Line on the east coast and Costa Firenze to Costa Asia.
We continue to roll out our most popular features on our existing fleet with significant reimaginations like the recently introduced Carnival Sunrise to be joined by Carnival Radiance in 2020. In the Princess fleet, the OceanMedallion rollout continues with five ships already completed and six more to be completed in 2020. And to facilitate onboard revenue growth, the expansion of app-based technology across our other brands continues, including pre-cruise purchases.
Concerning destination development, we have two major developments underway; on Grand Bahama Island and the second destination on Half Moon Cay, complementing the six destinations we had already developed and are operating in the Caribbean. And currently, we are elevating the guest experience without dramatically increasing operating costs. In fact, we achieved over $125 million of cost savings in 2019 through global sourcing, bringing the cumulative total to over $480 million. These efforts will continue in 2020. And of course, our highest responsibility and therefore, top priorities are excellence and safety, environmental protection, and compliance.
On the sustainability front, we achieved 4% reduction in per unit fuel consumption in 2019, and we expect another 4% in 2020, which will bring the cumulative reduction in fuel consumption per ALBD to 35%. We continue to lead the industry in the development of environmentally friendly fuel solutions. We joined the Getting to Zero Coalition and alliance of organizations across the maritime, energy, infrastructure and finance sectors, committed to accelerating the de-carbonization of international shipping industry.
Just this year, we delivered the first cruise ship to be solely powered by LNG, the most environmentally friendly fossil fuel and just this month, delivered the second of the 11 LNG ships we've ordered. We're also making significant investment in fuel cell technology in electrical energy storage capabilities. We announced the groundbreaking pilot on our AIDAperla, the first lithium-ion battery storage system to power, albeit for limited periods of time, a cruise ship's propulsion and operations. And as early as 2021, our AIDA Cruises will be the world's first cruise company to test the use of fuel cells on a large passenger ship. The fuel cell will be powered by hydrogen derived from ethanol.
Now these will complement our industry leading technologies we have already deployed to reduce emissions, including cold ironing at shore power, which we have the capability for on over 40% of our fleet and advanced air quality systems already deployed on nearly 80% of our fleets. The investments we've made in advanced air quality systems also helps to mitigate increased costs, and we get benefit from any increase in spread and fuel types in the wake of IMO 2020.
Beyond carbon, we are focused on other areas concerning environment with the rollout of additional advanced wastewater treatment systems and food bio- digesters. In addition, we're making considerable progress on our goal to significantly reduce single use plastics. Moreover, as part of our environmental efforts, we have also partnered with Jean-Michel Cousteau, an ocean future society. Of course, we have much more work to do and our sustainability efforts remain at the forefront of our strategic goals.
So in summary, we fully appreciate that the supply growth in Continental Europe is not well timed, given the macro environment that is unfolded. We build 30-year assets and we take decisions many years in advance fully aware that we can't time the economic cycle that we deliver them into. Accordingly, we assume every ship will see more than one recession in its 30-year life.
I'd like to again acknowledge the successful efforts of our dedicated team members. For our consumer company with a meaningful portion of this business exposed to significant macro headwinds to deliver record adjusted earnings is a strong accomplishment, and I'm very proud of our team members and the phenomenal guest experiences they deliver every day. Importantly, overtime, we are focused on measured capacity growth after peaking out 6.6% in 2020, capacity growth flows to just under 5% in 2021.
We've been accelerating ship sales with two more announced just this month, bringing the cumulative total to 30 ships in 14 years. In addition, we're working with the shipyard toward moderating the timing of newbuilds and at the same time, mitigate the risk of further delays in shipbuilding. We're continuing to work to improve our performance in fiscal 2020 and beyond, to make progress towards double-digit earnings growth. However, our adjusted earnings per share guidance of $4.30 to $4.60 today reflect that we'll likely take beyond 2020 to achieve that level of earnings growth, given the current environment in Europe and the relative weighting of European sourcing in our portfolio.
As we've shown in the past, we believe our cruise brands will continue to be recession resilient, given the low penetration levels of cruise, attractive value propositions and high satisfaction levels relative to land based vacation alternatives. Although, there are multiple external its impact outside of our control, we are relatively managing those levers we do control or at least can strongly influence; demand, supply and controlling costs.
We are investing in to stimulate demand through advertising, marketing and public relations efforts to maintain price discipline. For supply, we are working to moderate capacity additions and at the same time, accelerate less efficient capacity leaving the fleet. And we are leveraging our scale to achieve these efficiencies and to fund investments without a significant net increase in cost. In the best interest of long-term shareholders, we are making disciplined decisions to optimize our performance in the short-term, while leaving us best positioned to capture the full benefit of global travel and tourism growth over the long-term.
With that, I will turn the call over to David.
David Bernstein
Thanks 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 2019 fourth quarter and full year results. Then I will provide an update on our full year 2020 booking trends, and finish up with some color on our 2020 December guidance.
As Arnold indicated, our adjusted EPS for the fourth quarter was $0.62. This was $0.14 above the mid-point of our September guidance. The improvement was driven by three things. First, increased net ticket yields benefited from stronger pricing on closing bookings on both sides of the Atlantic were $0.03. Second, favorability in net cruise costs without fuel was worth $0.07, driven by cost improvements realized during the quarter and the timing of expenses between the quarters. And third, we benefited by $0.05 from the net impact of fuel price and currency. Lower fuel prices were worth $0.04, while favorable currency movements were worth a penny.
Now, let's look at our fourth quarter operating results versus the prior year. Our capacity increased 2.4%. Our North America and Australia segment, more commonly known as our NAA brands, were essentially flat. While our Europe and Asia segment, more commonly known as our EA brand, were up almost 7%. Our total net revenue yields were down 1.8%.
Now let's break apart the two components of net revenue yield. Net ticket yields were down 3.3%, normalized for a small accounting update. Our NAA brands were down 1.4%, also normalized, driven by yield declines in late season in Alaska and European programs, which were partially offset by improvements in the Caribbean, which were tempered by the redemption of future cruise credits, more commonly known as FCCs, which were issued earlier in the year. While our EA brands were down 4.4% as a result of the previously discussed economic challenges our Continental European brands are facing.
Net onboard and other yields increased almost 2%, also normalized for the same accounting update with increases on both sides of the Atlantic. Net cruise cost per ALBD, excluding fuel were up 2.6%, mainly due to higher advertising expense and higher dry dock days in the quarter. While the fourth was up, let's not forget the full year 2019 costs were down 0.3%.
In summary, our fourth quarter adjusted EPS was $0.08 less than last year as a result of lower net revenue yields, which cost us $0.10 and higher net cruise cost per ALBD excluding fuel, which cost us $0.08. Both of which were partially offset by the net benefit of fuel price currency were up 11%. Lower fuel prices were worth $0.14, while unfavorable currency movement cost us $0.03. Had it not been for the voyage disruptions due to weather, a ship delayed delivery and the previously announced U.S. government's policy change on travel to Cuba, which cost us approximately $0.08, our fourth quarter adjusted EPS would have been in line with last year.
Looking back at the full year 2019, we grow our earnings 3.3% with adjusted EPS rising to $4.40 versus $4.26 for the prior year; our capacity increased 4.2%, our NAA brands were up 1.8%, while our EA brands were up 8.6%; our total net revenue yields were down 0.2%. Again, let's break apart the two components of net revenue yield. Their ticker yields were down 1%. Our NAA brands were up 0.7%, driven by yield increases in the Caribbean, which were partially offset by declines in our Alaska program.
As we previously indicated, we had an 8% increase in our Alaska capacity during 2019, while the industry capacity increased 15%. Our EA brands were 2.7% as a result of the previously discussed economic challenges our Continental European brands are facing. As Arnold indicated, we did see yield increases at our UK brands despite the ongoing uncertainty around Brexit. Net onboard and other yields increased 2% with increases on both sides of the Atlantic.
During 2019, we have to navigate a long list of challenges and usually events that Arnold summarized. We estimate that the usual events in 2019 cost the company approximately $0.23. These events unfavorably impacted both net revenues yield and net cruise costs without fuel per ALBD by about four tenths of a point. During 2019, we also benefited from the gross accretive impact of the share repurchase program worth $0.12. Fuel prices and currency each had significant year-over-year individual impacts, however, the net impact only cost us a penny. Lower fuel prices contributed $0.17, while the stronger dollar cost us $0.18.
Turning to our cash flows for 2019. Cash provided by operations was $5.5 billion. As a result of our strong cash flows during the year, we were able to return almost $2 billion to our shareholders via the regularly quarterly dividend and the share repurchases of almost $600 million.
Now turning to 2020 booking trends. We are entering fiscal year 2020 with a record book occupancy position. At this point in time, our cumulative advanced bookings for the full year 2020 are slightly ahead of the prior year on occupancy with a 6.6% capacity increase at prices that are slightly lower than last year on a comparable basis, which does not include the net revenue yield mix headwinds of approximately a half of point for the full year 2020.
Now let's drill down into the cumulative book position. Cumulative advanced bookings for our NAA brands are higher than the prior year on occupancy and in line on price. Higher prices in the Caribbean, which are tempered by the redemption of FCCs issue during 2019, are offset by lower pricing in Alaska. While for our EA brands, cumulative advance bookings are in line with the prior year on occupancy at lower prices.
Finally, I want to provide you with some color on 2020. Based on current booking trends, we expect 2020 net cruise revenues to be up approximately 5% with capacity growth of 6.6%, while net revenue yields are expected to decline approximately 1.5%. Similar to 2019, the 2020 net revenue yield decline is driven by the challenging economic environment facing or Continental European brands.
The forecasted capacity increase of 6.6% is broken down by quarter as follows; first quarter is 6%, second quarter is also 6%, while the third quarter is 5.7% and the fourth quarter is 8.9%. Given the 2020 capacity increase by brand, we will have a mixed headwind, which will impact our reported net revenue yields by approximately a half of point for the full year.
Now turning to cost. Net cruise cost without fuel per ALBD is expected to be flat for 2020 versus 2019. Broadly speaking, there are three main drivers of the cost change. First, our forecast is for an average 2 points of inflation across all cost categories globally. Second, we are able to more than offset this inflation from the economies of scale we achieve by taking delivery of larger more efficient ships, while disposing of less efficient ships, as well as the cost savings from further leveraging or global sourcing scale. The third and final point relates to investments we will make in our 2020 deployment, advertising, our recently formed FX and compliance department, as well as other small investments in IT and other areas of the business.
For full year 2020, earnings is estimated to include $0.12 to $0.17 incremental impact from prior year events and previously announced 2020 voyage disruptions, including ship delivery delays. These events are expected to unfavorably impact net revenue yield by almost half of point. On the cost side, these events plus an accounting difference are expected to unfavorably impact net cruise cost without fuel per ALBD by seven tenths of a point. Net cruise cost without fuel per ALBD guidance would have been down seven tenths of a point instead of flat.
We currently expect depreciation to be around $2.41 billion for 2020 versus $2.16 billion for 2019. For net interest expense, our current expectation for 2020 is around $220 million versus $183 million for 2019. The net impact of fuel price, currency and fuel mix, is expected to favorably impact 2020 by $0.17 to $0.24. Fuel expense for 2020 is now forecasted to be $1.42 billion for the full year versus $1.56 billion for 2019. Putting all these factors together, our adjusted EPS guidance for 2020 is $4.30 to $4.60 versus $4.40 for 2019.
And now, I'll turn the call back over to Arnold.
Arnold Donald
Thank you, David. Operator, please open the line for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first comes from the line of Felicia Hendrix with Barclays. Please proceed.
Felicia Hendrix
So you guys gave us a lot of really good color, which is always very helpful. And it sounds like while issues are continuing in Europe and Alaska, you are starting program to mitigate those challenges. And Arnold, you touched on this a bit in your prepared remarks, but besides moving ships out of the region in Europe. What else can you do to stimulate demand there? So basically, what I'm trying to get to is that some investors have been concerned that you would use price discounting to stimulate demand versus tactical marketing and promotions. So I'm just hoping that you could remind us of your corporate philosophy in terms of your management and what your typical strategic response could be if demand doesn't change after some of the structural changes you are making start to set in place?
Arnold Donald
Definitely, we have bias towards discipline the pricing. And in Europe, again I can't emphasize enough, what a great job our team has done in Germany given the environment that they have and how cost is responding as well, so the persistence challenges they have. So with all of the moves we have made with regards to itinerary planning and capacity movement, obviously, the teams are also doing quite a bit with the trade and with marketing and using digital marketing and other things more effectively. And refining our model with Yoda, which is the revenue management tool. We have AIDA is adapting Yoda and particular to that cost as we put additional revenue management talent and format. And so from the combination of the things, again, they fill the ships, it's robust given the nature of the market there in terms of actual demand. We do have record bookings at peak capacity and so in that regard it's strong.
Felicia Hendrix
And in Alaska what sort of strategic things could you do there just to stimulate demands, given all the supply?
Arnold Donald
Yes, as we said on the call, there is what some people would probably call the temporary overconcentration of supply in Alaska. But Alaska's premium price to Caribbean is very profitable for us and obviously for others, which is why they're there. And we have also a little bit of a mix challenge, because as we grow capacity we can grow the land portion as well, which naturally gives us kind of a yield drag, because obviously the excursion portion and also our yield performance in Alaska.
But we've got very good initiatives and the key brands that are serving Alaska. We'll have to see how they play out, we're right before wave. But they have some tools and some great marketing techniques. We revisit the digital aspect of our marketing and enhance that already dramatically, and we've since early results from that. So those are the things we're doing. But I don't want to make it sound like Alaska is a bad market, it's a great market. We make really good money there. The reason why capacity is going in is because it is a strong market with a lot of demand from guests. And we're doing everything to put us in a position over time grow yield there along with growing the capacity.
Felicia Hendrix
And then for David or Beth, I was just wondering if you could help us understand the yield in NCC ex-fuel cadence for the quarters. I mean obviously you've given us the first quarter and the full year, but maybe if you could help us understand better how those would kind of just the cadence and then also D&A and interest for guidance for the first quarter and the full year? Thanks.
David Bernstein
So on costs, we did say that net cruise costs would be flat for the full year, and the first quarter is down 2% to 3%. So obviously, the remaining three quarters have to average up each quarter is something close to 1% just to get back to flat. I'm reluctant to give guidance by quarter, because of all the seasonalization and it's very difficult. But I will say that in terms of dry-dock days which does, to some extent drive, some of the net cruise costs. I had mentioned dry-dock days were down in the first quarter, and that's why it was driving the cost down. You will see higher dry-dock days in the second and lower dry-dock days in the fall which will, to some extent, impact that average 1%. But that's not guidance, I'm just giving you the math to get to the flat.
Felicia Hendrix
Just on the yield side. So in the first quarter, if you're down 1% to 2% and the full year, you're down 1.5%, I mean just cadence, but I'm not asking for guidance. But just would kind of be even through the year? Do you think the first half will be worse than the second half, that kind of color?
David Bernstein
You know it's very early. You know, wave hasn't started there is a lot left to go. We're doing a lot of marketing and advertising activities that Arnold mentioned to shape the number in the end. And so I'd be reluctant to give you quarterly guidance, but obviously the full year is similar to the first quarter. So on average included in that is something similar for all three quarters.
Felicia Hendrix
And then the D&A interest?
David Bernstein
Let me get back to you on that. I just don't have…
Beth Roberts
D&A for the quarter is $580 million to $590 million and interest for the quarter is $55 million to $60 million.
Felicia Hendrix
And then for the year?
Beth Roberts
$2.41 billion for the year and $2.20 billion for interest…
Operator
The next question comes the line of Greg Badishkanian with Citigroup. Please proceed.
Greg Badishkanian
In first quarter of '20 and full year 2020, net yield guidance is roughly the same. It's around 0.5 percent if you look at the mid-term, at that midpoint of the guidance. What's the cumulative booked position in pricing for Q1? You had talked about slightly higher bookings, slightly higher pricing for the full year. is it pretty similar for Q1?
Arnold Donald
So we just gave the book position but we always talk about the fact that our book position for the first quarter is typically aided in 90% booked and we're at the higher end of the range. We've been at the higher end of the range all year, for the last couple of quarters and that at this point in time that's is bound is might be for competitive reasons that's about as much information is want to disclose.
Greg Badishkanian
And just looking at, if you look at the U.K, you mentioned that you're seeing an increasing overhang from Brexit. Can you talk about what's just driving that, I would think that with greater certainty around Brexit happening maybe that you'd see an improvement in trends over the coming months, maybe nothing is concluded. It does look like it's more likely to happen with the traditional actions.
Arnold Donald
Anything we would say now would be pure speculation it just happened and we'll just have to monitor consumer attitudes, what we do know historically is uncertainty definitely creates cautiousness, the greater the certainly the less -- cautious there'll be but having said that, it would be too early for us to make any additional comments.
Operator
The next question comes from line of Jared Shojaian with Wolfe Research. Please proceed.
Jared Shojaian
Going back to your yield guidance for 2020 the minus 1.5%, have you tried to account for any negative effect from the election or maybe any positive contribution from some of the additional marketing spend that you have for this year going into next year. And then you called out some booking improvement in the last eight weeks. Can you just talk about what's changed in the environment over that time period? Is that comment of improved bookings more specific to the Caribbean and Bahamas post Dorian, or more broad-based? Thank you.
Arnold Donald
And concerning just, it is [pre-wave], we have a number of initiatives in our guidance. We have not factored in dramatic shifts in consumer attitude positive or negative and that release also to election time. We do know historically, elections can create uncertainty. And so, in our guidance right now we've just taken our approach that things will trend, the way they are. But hopefully, with the investments we've made, perhaps we're obviously made intending to drive some change, but it's too early.
David Bernstein
Again is concerning bookings, just keep in mind we pointed out the last date, because we also mentioned that the beginning of the quarter booking trends were impacted by the hurricane. And so as a result of that I think we've said many times, we do see a little bit of a blip when something like that happens and then it bounces write back. And that's basically what happened during the fourth quarter.
Jared Shojaian
So is that primarily Caribbean Bahamas that's driving that improved bookings or would you…
David Bernstein
In terms of volumes we did see volumes during that week period up in a number of areas, but the big driver was the Caribbean.
Jared Shojaian
And then just, as I look at your guidance for next year you're implying minimal earnings growth into next year with a fairly sizable amount of CapEx. I think the implication would be that ROIC is going to contract in 2020, that would seem to be driven by the older hardware. I think obviously the newer hardware is getting better returns that's coming online presumably, so my question is, are all the ships in your fleet particularly older ones are they earning your cost of capital right now and what do you view your cost of capital to be?
Arnold Donald
I would say we have all the ships that we have in the fleet our earning and those that are not are either about to be exited their plans. And so the bulk of the fleet earns well.
David Bernstein
Generally speaking, if you do a mathematical calculation our weighted average cost of capital is probably about 8.5%. But we look at it very differently because our expectation is for double-digit return on invested capital over time and elevated ROIC. So when we look at investments, we're looking at hurdle rates significantly higher than our weighted average cost of cap.
Beth Roberts
I think with regard to return on invested capital, the primary driver is the source market; so the brand itself in the source market; secondarily would probably be itinerary; and third might be age, if I had to weight them
Arnold Donald
Yes, age is a big driver.
Jared Shojaian
What date did you mark your fuel guidance?
David Bernstein
As we indicated in the press release, it was December 6th.
Operator
The next question comes from the line of Robin Farley with UBS. Please proceed.
Robin Farley
You guys have been very clear about you know the challenge really coming from Continental Europe, and I know that you historically don't give guidance for yields by brand or by region, but I wonder if just to make it easier for investors to compare sort of across the industry. Can you give us a little bit more insight into what your North American yield expectations are, just because I think you know we probably see some positive underlying yield performance there that maybe we can see the Continental European drag and just might be helpful if you can put some color around that? Thanks.
Arnold Donald
As you know, we don't give yield guidance going forward at this time and they we're pre-wave, et ceta and we just don't do it.
David Bernstein
I mean it's fair to say that we do expect the NAA brands to do better than the EA brands. For 2019 the actuals, as you could see -- it was 0.8% increase, NAA and EA was down 1.7%.
Robin Farley
And I guess maybe just, I mean mathematically -- missed the color that you gave on the last eight weeks with volume being higher and price flat, unless there is some change in the environment from the last eight weeks that would suggest that things are trending positively in terms of how bookings are coming in now last eight weeks and sort of where we are now that directionally, if your volume is up and your price is in line. It seems like there would be positive yield following that, tempered by the fact that you obviously had bookings on there from before the last few weeks and the future cruise credits that you talked about and the Carnival issues that were in what's on the books already. But I mean, directionally, last eight weeks and forward, sounds like what's coming in positive territory. Is that mathematically fair to conclude?
David Bernstein
That's mathematically fair, but I will say is 52 weeks in a year, that's eight weeks. And there's a lot left to go and wave season hasn't even started. So I just caution you will take every positive, but I just caution you, we got a lot left to go, and we're working very hard with all the initiatives that Arnold mentioned to impact the results positive.
Operator
The next question comes from line of Harry Curtis with Instinet. Please proceed.
Harry Curtis
So for the year, in 2019, your SG&A was up 1.2%. How do you see that trending for next year? It sounds like that focus on marketing is going to lift that percentage increase somewhat. And I'm trying to get a sense of, a better sense of what that might look like?
Arnold Donald
I'll have David give you the actual percentage how they look at up real quickly. What we've done is we have the sourcing savings that we generate, and we choose the pass some to the bottom line and invest others. And we just, as I mentioned in my call notes, we've been very rigorous and getting more efficient, whether it's media spend, whether is the digital buyers, etc. So we've actually been able to increase our share of voice and without a direct correlated increase and cost. But yes, we are spending more.
David Bernstein
And I know you're probably looking at the has reported P&L when you give that percentage is, remember, those are in current dollars, not constant currency. But to answer your question on advertising from '18 to '19 advertising was up double digits in constant currency.
Harry Curtis
And you would expect that as well in 2020?
David Bernstein
We're not giving detailed guidance on advertising alone just that the net cruise cost per ALBD is flat. Harry Curtis - Instinet Thank you. And then moving on to your CapEx, I just wanted to check, are you still for 2020 and '21 looking at about $5.5 billion each year?
Beth Roberts
Well, there is a shift in the timing of the delivery schedule. David Bernstein - Carnival Corp So as a result of that we had originally talked about CapEx in 2019 being over $6 billion but that came down to $5.4 billion because -- the late delivery of the Costa Smeralda. So now what we're looking at for 2020 is $7 billion and for 2021 $5.7 billion in 2020 to $5.2 billion.
Harry Curtis
And can you give us a sense of how much of that is renovation CapEx and maintenance CapEx?
David Bernstein
So it's all of the non-new build CapEx is roughly 2 billion, give or take that includes renovation shore side ports destination development in everything.
Harry Curtis
And that will be fairly constant looking ahead to '20 and '21?
David Bernstein
Yes.
Operator
The next question comes from line of Steve Wieczynski with Stifel. Please proceed.
Steve Wieczynski
Good morning guys, and happy holidays to all of you guys. So if we strip out the 0.5% impacts that you guys are talking about for hardware mix and then delays with some of your shift as well. Obviously, that's kind of -- on a like-for-like basis you're kind of guiding down about 0.5%. Am I thinking about and maybe I'm going crazy here, but I think you guys have talked about that you've been embedded typically at the start of each year, something in your guidance for other things to go wrong. Is that fair for this year as well? Meaning if that like-for-like down 5% yield guidance, do you have some cushion there for other potential events?
Arnold Donald
I would call it cushion but yes, we do include in our guidance for things that go wrong. And as you can see already this year we're like barely a month into it and a number of things have. So we always include in our guidance and expectations for unusual events. In '19, we haven't included as well. And as you can see from all the results in '19 with the extraordinary number of unusual events and the heavy hit from Europe, which was unexpected, we missed original guidance net of fuel and currency volume since -- both we do factor in because things happen.
Steve Wieczynski
And then I want to ask about your fuel guidance for this year. And it looks like there is around $300 million delta in your fuel guidance today versus when you gave kind of soft guidance back in September. I just want to understand what changed so much there over the last three months.
David Bernstein
So back in September, we used the current prices for HFO and as well as MGO and everything else. But as we talked back in September, a lot of people were pointing out that the forward curve for HFO was a lot lower than the current price and we did not at that time speculate that that would happen, but it has in fact happened HFO has come down considerably. And that is now reflected in our current fuel guidance, and that represents 50% to 55% of our consumption.
Steve Wieczynski
And then one other thing, we get a lot of questions about or gotten a lot of questions about recently is just as we kind of go into 2020 with the scrubber technology and stuff like that. And I just want to make sure you guys feel like you're in a pretty good spot at this point as we head into next year and I think one of the concerns out there is obviously around kind of this open versus closed loop type of technology. Just want to make sure you guys feel pretty comfortable that you're open-loop technology at some point won't be a headwind moving forward?
Arnold Donald
First of all, I'll just with open-loop to put things in context that's in port you're talking 10% of what we use and even with that only a few courts have taken a hard position against open-loop, so at this point those positions are immaterial in terms of our earnings results. But more importantly than that, we feel strongly open-loop is a real plus from an environmental standpoint as an advanced air quality system technology and so we're doing the work to ensure that we educate ports around the world. So the look is available for use, even if it wasn't which is not going to happen. But even if it wasn't, you're talking about 10% of the fuel use and there are many ports that already have bought into the fact that open-loop is excellent advanced air quality approach.
Operator
The next question comes from line of James Hardiman with Wedbush Securities. Please proceed.
James Hardiman
So wanted to circle back to this idea that you had about 100 basis points of headwinds between the brand mix in some of the ship delays, so if I think about that underlying 50 basis points. Can you maybe walk me through how to think about that over the course of the year? I would assume that the Mardi Gras impact is a late year sort of an impact to yields. I'm guessing that would also be the case with respect to brand. I guess what I'm trying to get at is, if I think about that underlying growth number with respect to yields, does that actually accelerating over the course of the year based on the way you're guiding?
David Bernstein
So it varies by quarter. So for the first quarter which I happen to have the numbers in detail, because we gave guidance, the impact of the unusual events is probably a little bit less than a half, but the mix impact the brand mix impact is a little bit greater than a half and it still turns out to be in total about 1% for the first quarter as it is 1% for the full year. I don't happen to have that 2Q, 4Q numbers handy, but if you get back to Beth she can give you more detail.
James Hardiman
And then the commentary on working with shipyards to moderate some of the ships you have planned, maybe I was hoping you could get into a little bit more depth there what can realistically be done and how quickly can be done?
Arnold Donald
So we're obviously in conversations with the When you have prototypes like we have with Smeralda, the situation is that it historically we've had occasional delays with prototypes. But we're with the yard, working with the yard and are in the process of negotiating what we need to do to ensure that future delivery is on time.
James Hardiman
No, I guess I was speaking more towards the slowing of ships being built. Is that not sort of what you're aiming to do just given the environment or did I read that wrong?
Arnold Donald
Not so much, the slowing of ships being built. We do have capacity plans over time that going to be less capacity.
David Bernstein
But we are currently in a lot of discussions with the shipyard so let us continue those discussions and let us get back to you when we have more announcements we should get this. We'll get it done by the end of January.
James Hardiman
And then just lastly for me, I think as we think about the European consumer being the primary headwind here. Can you quantify your exposure to that consumer? I think you talked about a 30% number-ish for 2019, obviously there are a lot of moving parts for 2020, is that number is still about 30%? Or is the movement of cost, does that bring that down a little bit?
David Bernstein
I don't actually, for '19 have the numbers handy.
Arnold Donald
I think sourcing was in terms of sourcing guess across all of our brands. I think it's about 50% source from outside the U.S.
David Bernstein
Europe is about low '30s, yes…
James Hardiman
And that hasn't changed 2020 versus 2019?
David Bernstein
Yes, correct. But I'm actually talking, when I say 30%, it's more revenue wise revenue and guests. But the revenue is what the exposure is the revenue wise.
Operator
The next question comes from line of Assia Georgieva with Infinity Research. Please proceed.
Assia Georgieva
I wondered whether if we look towards Q3 and Q4, having the seasonal markets and hopefully Europe Continental Europe coming better than it has in 2019. Should we see again the cadence of yield slightly increase relative to what we are looking at in Q1?
David Bernstein
So I guess your big assumption there is that Continental Europe coming back and doing better, we're not necessarily assuming. We're just still assuming a continuation of the current trends in Continental Europe and Arnold talked about the overconcentration of supply in Alaska and the capacity increase in the third quarter and for us in the industry and as a result of that…
Assia Georgieva
And David that is why I didn't mentioned Alaska…
David Bernstein
Yes, we just, as you could see as I said before, our yield guidance for the rest of the year is similar to the first quarter and the full year in total for the three quarters. Now with that said, we're working hard. We have a lot of programs in place. And remember that fourth quarter is also hurricane season.
Assia Georgieva
I do know that, given that we experience it every two years. In terms of Q4 this was a perfect segue. Mardi Gras being delayed and now being 2021 new-build, the capacity addition and Arnold I kind suspect you for having something to do with the name of the ship, wouldn't the shipyards provide compensation both for Smeralda in the Mardi Gras delay where they can offset some of the lost revenue in additional cost that you have incurred?
Arnold Donald
Generally speaking, there is some settlements with the yard unfortunately those go into our balance sheet wherever they are, and so they don't show up in the income statement. So, from a shareholder standpoint we're often able to balance the operating income hit through the overall value of the firm, but it doesn't show up in the income statement.
Operator
The next question comes from line of Stephen Grambling with Goldman Sachs. Please proceed.
Stephen Grambling
One quick follow-up, what are the expected proceeds from the two asset sales do you expect to gain on these and where they cash flow positive?
David Bernstein
When you say you talked about the two ships we just announced the sale in 2020?
Stephen Grambling
Yes…
David Bernstein
Yes, I mean, those will be announced over time. But you're talking -- I mean you're not talking about. But with a company that's got $5.5 billion to $6 billion of cash flow, that's not going to significantly move the needle if we sell two ships.
Stephen Grambling
And will those effectively go into non-competing markets so they going out of service, we sold them to another cruise company. But generally speaking when we sell ships, they go to tour operators and other operators that don't have our brands and/or selling to different source markets and different types of products. So our belief is hopefully, they continue to expand and grow the market with their capacity as we do with our newbuilds.
Operator
The next question comes from line of Tim Conder with Wells Fargo. Please proceed.
Tim Conder
I wanted to circle back Arnold. I know, again the capacity, the rate of capacity growth that you all had in Germany and then the rate of capacity growth that some other competitors are doing, predominantly in the mid that has been a challenge to, but you can still grow earnings yet the pricing headwinds, I know it's a difficult question to answer, but when do you see the ability to maybe stabilized pricing in Europe? Then I guess, kind of taking a little derivative that in Alaska, it appeared that you all ceded price, your competitors largely gained price, and yet you have, as you mentioned and you and David has mentioned before also, you have a very great asset on the land side. What kind of should we anticipate over the next couple of years, the ability to grow that as that would help your yield mix and that's kind of I guess been a little bit of a headwind, both in '18 and '19?
Arnold Donald
Yes, I'll give you answer directly your question then I think we want to just talk you through the capacity plans going forward for the next few years. I'll let David do that. But in general, we focus on earnings growth and return on invested capital. And so generally speaking for us collectively as a corporation to get that ultimately we'll need a little yield growth given the capital we're employing to build these new ships. And so we don't actually need a lot of yield growth, but we do need yield growth to get to the level of earnings growth we like to have and to get the elevated return on invested capital that we know is inherently capable in our business model.
So with that in mind, if you look at Europe, again, what we've done in the guidance is simply projected the trends to continue. Now we're doing everything we can from a marketing standpoint, from a management standpoint, to try to deliver against that kind of an environment; if that environment changes, then clearly it's a tailwind; if the environment worsens, obviously, it would be headwind, to state the obvious. But I think over-time it's going to be a combination of -- there are cycles as you know that's going to be combination of the macro environment and our continued $1 billion, for example, in the case of Costa to replace the less efficient capacity, which is what we're in the process of doing and we have now accelerated that with much more efficient capacity, which in the case of Costa Smeralda for example. And so that's the plan.
We're accelerating our process for Costa and we believe that's going to give us elevated over-time return on invested capital and earnings growth. In the case of our AIDA, which is in a very strong market is already one of the highest return brands we have and have been able to absorb a substantial amount of capacity and what otherwise would be a down overall travel market. We feel very confident about AIDA's ability to perform in terms of growing earnings and also a growing return on invested capital, although they're very high return on invested capital now. Dave, you might want to give the color to that performance.
David Bernstein
So just looking at our total capacity increase next year is 6.6%. If you break that out by segment, the EA segment is up 8.4% and the NAA segment is up 5.5%. If you look at it by program; the Caribbean is kind of flattish, it's only up by like 1%; Europe is up double digits; Alaska is up almost 9% and all of the other markets are up double digits. And that gets back to the 6.6%.
Arnold Donald
Again with Alaska, also, I just want to point out that over time we've had periods in other markets where we had overconcentration of supply. We think against the wall, we'll settle out there. And as I said, we're growing profitably there and we expect that to continue and eventually you'll probably see little yield lift over-time.
Tim Conder
On the Alaska side, should we and also anticipate, again, you maybe bulking up a little on the land tour side, given your dominance there and how that should help the mix?
Arnold Donald
We continue to invest in our properties there with limit in total expansion, just because of the nature of Alaska. But we are very happy we have a joint venture with Skagway, for example with the railroads. So we look for ways to expand our offerings that, that would overall help drive yield and additional profits, but it won't be able to grow at the rate that we've grown overall capacity .
Tim Conder
And then on fuel -- two last questions here on fuel, on the third quarter call, you mentioned that that mix of MGO would gravitate up from the anticipated 33, 35 area to 40 in 2020 given IMO. And then today, you're saying 40 to 45. What's driving those changes, is it maybe some delays in getting scrubbers on, the timing in delivery of some of the LNG ships, is that the -- those 10% of ports that are focused only on the closed loop, just a little more color on that?
Arnold Donald
Yes, itinerary plan is definitely not the 10% of ports or whatever, it's definitely not that. it is simply replaying itinerary plan.
Tim Conder
And then lastly David on leverage just maybe any changes or just remind us of your targeted comfort leverage range?
David Bernstein
So we finished the year at 2.11% in the debt-to-EBITDA ratio, but that's a bit lower than I probably quoted on in earlier conference call, but that had a lot to do with the delayed delivery of the Costa Smeralda. So with the ship delay, you also had the debt fall into the being drawn in the first quarter and at the end and given the midpoint of our guidance, we would be at 2.34% debt-to-EBITDA leverage in the range of what our target is 2 times to 2.5 times.
Operator
The next question comes from line of Brandt Montour with JPMorgan. Please proceed.
Brandt Montour
So just one more on Europe and I just want to dig into how we should kind of think about or how you guys kind of think about the demand side of the local European economies? And a lot of people are looking for reasons. We've seen some of these to be more positive on those economies into 2020 and later in 2020. And I guess from your experience just looking back at history when we see sort of a troughing and a rebound in those particular economies. How long do you think it usually takes to start seeing some of that impact in your bookings?
Arnold Donald
I wouldn't speculate, because every situation is different. But what I would tell you is that all over-time obviously we're in the travel business and we expect travel over-time to continue to grow. At any point in time, there could be pockets of consumer confidence, crisis or decline in travel, et cetera, and that happens periodically. And as I said on the notes, we plan ahead, in this particular case we planned ahead and we walk right into a sudden turn in the market that have been robust for many, many years and is still a robust travel market.
It is just that in a decline versus continue to grow as an overall travel market. It will pass through at some point, meanwhile we have to adapt. And I again, I just can't say enough about our people in terms of their ability to continue to produce results in that environment, and so we wouldn't speculate on when it will turn in our guidance. We just assume the trends will continue.
David Bernstein
And I just want to point out the obvious. When it does start turning in the booking trends because of the -- we're booked well ahead, there is that delayed impact in the actual revenue in the P&L.
Arnold Donald
On the other hand when it does turn, we're well positioned to take advantage of it.
Brandt Montour
And then just -- we haven't talked about China at all. I was curious, your game plan for 2020, if it's going to change at all next year and maybe just an update on the charter model and sort of from your distribution standpoint there would be helpful.
Arnold Donald
Once again, for us China is a very small percent of our capacity today. We're really focused on our joint venture. We are very pleased with our partners there and the progress with that and are looking forward to for us newbuild in China in 2023. But in terms of the market itself, we had a good year in China this year, teams done a great job. The Costa Venezia is performing very well as are the other ships there. And so we're looking for a good year in China this year. In terms of a charter model and all that, we continue to get more and more, so called kind of direct business but we are very pleased also with our charter partners in China.
Thank you. Thank you, everyone. Happy holidays. Very much appreciate your continued interest in the company. And be assured that we are looking forward to working hard to continuously elevate our performance. Thank you.
Operator
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.
