Arnold Donald - President and Chief Executive Officer Micky Arison - Chairman of the Board David Bernstein - Chief Financial Officer Beth Roberts - Vice President, Investor Relations

Steven Kent - Goldman Sachs Robin Farley - UBS Harry Curtis - Nomura James Hardiman - Wedbush Securities Felicia Hendrix - Barclays Jaime Katz - Morningstar Greg Badishkanian - Citigroup Tim Conder - Wells Fargo Securities Kevin Milota - JPMorgan Ian Rennardson - Jefferies Stuart Gordon - Berenberg Jared Shojaian - Wolfe Research Dan McKenzie - Buckingham Research

Good morning, everyone, and welcome to our first quarter 2016 earnings conference call. This is Arnold Donald, President and CEO of Carnival Corporation & plc. Thank you all for joining us this morning. Today I am joined by our Chairman, Micky Arison, via phone from Italy; as well as David Bernstein, our Chief Financial Officer; and Beth Roberts, who heads up our Investor Relations, here with me in Miami. Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today's press release. Our company is off to a strong start this year, with first quarter adjusted earnings nearly double the prior year and well above the high-end of our December guidance range. The first quarter results combined with our strong book position has enabled us to increase the midpoint of our previous guidance range by $0.05 and raise the floor on our full year earnings expectations. I am proud to acknowledge all of our employees globally for the industry-leading guest experience efforts that are essential to our sustained earnings improvement. I especially thank our travel agent partners for the critical role they play in connecting guests with our great brand experiences. It was reinforcing to see revenue yield growth of 5.7% in constant currency, marking the fourth consecutive quarter of mid single-digit yield improvement. We enjoyed ticket price improvements for both our North American and our EAA brands, with particularly robust ticket price improvements in our core Caribbean itinerary, which represent 47% of our first quarter deployment. We drove revenue yield growth at Costa by creating relative scarcity through our brand team success and increasing demand via ongoing guest experience efforts, coupled with new impactful creative featuring Shakira. While at the same time we reduced supplies in more challenging trading environment in Southern Europe by transferring Costa capacity to China. As you'll recall, our Costa brand was the first global cruise lines to homeport in China back in 2006. Today we are the largest in China and the first global cruise company with six ships based there across two of our brands, Costa and Princess, representing nearly half of the Chinese cruise industry. While it represents less than 5% of our global capacity, for us China continues to be a promising unit growth opportunity. China has quickly become the world's largest outbound travel market at an estimated 135 million strong, yet just over 1 million cruise today. We expect to continue to grow over time, and have further plans for AIDA and Carnival Cruise Line to enter China in the near future. China contributed to our strong quarterly results. We absorbed over 60% more capacity there and enjoyed strong profit improvements and return on invested capital accretion. At the same time, the capacity shift to China help create relative scarcity in our other markets, supporting global revenue yield growth. Beyond China, during the quarter, we made further progress globally in creating demand for all our brands in excess of measured capacity growth. Part of that demand creation is the excitement around the much anticipated deliveries of AIDAprima, and I can tell you, she is well worth the wait. The ship is absolutely fantastic. The first of a next-generation platform for AIDA that combines leading-edge environmental attributes and well designed features that foster an exceptional guest experience. All of her features, whether racing waterslides, a lazy river, multiple climbing wall, an expansive German spa, an ice rink for skating for hockey, for curling, and even a traditional Christmas market, together create an experience that truly resonates with AIDA's nearly exclusively German guests. And we have additional opportunity for demand creation in just a few short days with the delivery of Holland America's new flagship, Koningsdam. Koningsdam was designed with our Holland America guest in mind, and to reintroduce Holland America to those who have yet to experience our award-winning service, our five-star dining, our expensive enrichment programs and compelling worldwide itineraries. Our new flagship will offer fine dining in several alternative restaurants, including a new French seafood brasserie and a new immersive farm-to-table dinner experience in the Culinary Arts Center. Part of enhancing an already great Holland America guest experience, includes taking onboard entertainment to a whole new level. We have carefully engineered a Music Walk area, which showcases different genres by offering chamber music in Lincoln Center Stage, rocking the crowd with chart-topping instant Billboard Onboard and bringing the best of Memphis music to sea and our popular B.B. King's Blues Club. Responding to our guest, our new flagship will feature Holland America Lines first ever purpose-built staterooms for families as well as single staterooms. Newbuilds will also provide additional demand creation opportunities later this year as well, with the delivery of Carnival Vista followed by Seabourn Encore. When it comes to ships, newbuilds are not the only way to stimulate demand creation. We continue to invest in our existing fleet to further enhance guest experiences, including the recent recreation of Holland America's Eurodam, incorporating many of the same experiences onboard as Koningsdam. In addition, we are undergoing an expensive remastering of Cunard's Queen Mary 2 later this year. Destinations are often a powerful tool for demand creation as well, especially when combined with effective public relation. Last week, we made history, when we became the first U.S. cruise operator in over 50 years to receive Cuban approval to bring U.S. cruise guest directly from the U.S. to Cuba. We made worldwide news, showcasing cruise in a very positive light, with nearly 5 billion media impressions and still counting. We very much look forward to launching our historic Cuba inaugural season in May with Fathom, initially with itineraries including Havana, Cienfuegos and Santiago de Cuba. We believe there is no better way to experience so much of Cuba in seven days than with the enriching guest experience on our premium Fathom brand. As the Adonia carries just 700 guests per sailing, if you have any interest in seeing Cuba, do an extraordinary travel experience, I sincerely recommend you book now. Concerning the future of cruises in Cuba, we have already begun the process for approval for other brands to sail for Cuba in the months and years ahead. Now, beyond ships and destinations, our ongoing marketing and promotional efforts are also a part of demand creation. As part of our effort to keep cruise in the forefront of vacationers' minds, Princess is airing a new reality based show on primetime U.K. television entitled, The Cruise. The documentary follow the lives of our amazing crew and guest onboard, Regal Princess, through a six-week series. In fact, we've already seen a 40% increase in web traffic for Princess in the U.K. since the show began airing. Also airing in the U.K., P&O cruise's Battlechefs, a new cookery contest set at sea onboard Britannia, featuring five celebrities testing their culinary skills and judged by celebrity chef Marco Pierre White. In Italy, Costa Fortuna was to set up a major motion picture, Vacanze ai Caraibi, holidays in the Caribbean, launched early in the quarter, partially cast with Costa crew members. More recently an episode on Italian reality TV I colori dell'amore, the colors of love, was based on the love story between two young Costa crew members, who met onboard. In North America, just last week, Carnival Cruise Line was featured nightly on the ever-popular television show, Wheel of Fortune. While early in the quarter, Carnival announced an exceptional partnership with Grammy Award winning country music superstar Carrie Underwood and Operation Homefront, supporting now U.S. Military personnel. Media coverage from that announcement alone generated more than 1 billion media impressions and our Carnival brand continues to outperform. Also in North America, we partnered with AT&T and Samsung to create a virtual reality experience that showcased in nearly 1,200 AT&T stores, promoting consideration for cruise, while allowing new to cruise to virtually experience a cruise vacation. We estimate nearly 400,000 people have already had the virtual reality experience, showcasing our portfolio of leading brands. All of these efforts heighten global awareness and consideration for our [ph] world leading cruise line, as we continue to capture a greater share of the vacation suitcase. During the quarter, we continue to make progress on cross-brand efforts to leverage our scale. On the revenue side, work on our revenue yield optimizing system continues, and the summer of 2016 will be rolled out on 30% of our inventory. The prototype will cost the yield uplift as well as inspire improvements for final system development. So as most of this year's bookings will be behind us by the summer, we look forward to a greater contribution on this effort in 2017. And on the cost side, work in our procurement area continues. We have negotiations underway on 16 separate purchasing categories with 22 more RFPs outstanding. All of which will contribute to our stated $75 million of expected cost savings in 2016. Our ongoing operational improvement is a testament to the success of our combined efforts to create demand in excess of measured capacity growth and to leverage our scale. The strong first quarter we have enjoyed, affirms our conviction to deliver this year's earnings forecast and accelerates progress to our double-digit return on invested capital. We remain well on track for the delivery of over 8.5% return on invested capital this year and crossing the double-digit threshold in the next two to three years. At the same time, we have accelerated our return of capital to shareholders. Since resuming our stock repurchase program late last year, we have completed our first $1 billion share repurchase authorization and are well into our second billion, bringing the cumulative total of purchase to date to $1.3 billion and approximately 27 million shares. We plan to continue to return free cash flow to shareholders, with our strong balance sheet and leverage ratios now comfortably at the better end of our targeted range. And now, I will turn the call over to David.

Thank you, Arnold. Before I begin, please note, all of my references to revenue ticket prices and cost metrics will be in constant currency unless otherwise stated. I'll start today with a summary of our 2016 first quarter results. Then I'll provide some insights on booking trends and finish up with an update on our full year 2016 guidance. Our adjusted EPS for the first quarter was $0.39. This was $0.09 above the midpoint of our December guidance, despite $0.01 drag from fuel and currency. The improvement was essentially driven by two things; $0.07 from net ticket revenue yields, which benefited from stronger pricing on closing bookings on both sides of the Atlantic; and $0.03 from lower net cruise cost, excluding fuel, as a result of timing of certain expenses between the quarters. Now, let's turn to the first quarter operating results versus the prior year. Our capacity increased almost 4%. Our total net revenue yields were up 5.7%. Let's break apart the two components of net revenue yields. Net ticket yields were up almost 7%. As Arnold indicated, we enjoy ticket price improvements on both sides of the Atlantic. The increase was driven by the strength of pricing in the Caribbean, which represented 47% of our capacity in the quarter. In addition, our European, Australian and Asian brands, also known as our EAA brand, showed solid price improvements on the year round European program. Onboard and other yields increased almost 3%, in line with December guidance. The increase was mainly related to bar, casino and communications, as our efforts in these areas continue to pay dividend. Net cruise cost per ALBD, excluding fuel, were up about 1.5%, which was less than planned in our December guidance, again due to the timing of expenses between the quarters. In summary, first quarter adjusted EPS was $0.19 higher than the prior year, driven by operational improvements worth $0.15 and favorable net impact of lower fuel prices and currency worth $0.03. Now, let's turn to booking trends for 2016. Bookings during this year's wave season were strong. Volumes are ahead of last year's historically high level at higher prices. At this point in time, for the remaining three quarters of 2016, cumulative fleet-wide bookings are well ahead at slightly higher prices. The fact that we are well ahead on the book position with less inventory left to sell for the remainder of the year compared to last year, bodes well for pricing over the next few months. Now, let's drill down into the cumulative fleet-wide book position. First, for our North American brand. Caribbean occupancy is well ahead of the prior year at nicely higher prices. For Alaska, occupancy is in line with the prior year, also at nicely higher prices. 2015 was a great Alaskan season, and I'm happy to say 2016 is shaping up to be even better. For the seasonal European program, occupancy is nicely ahead of the prior year at lower prices, driven by the geopolitical risk impacting the Mediterranean trade as anticipated in our guidance. Secondly, for our EAA brand. For Europe, occupancy is ahead of the prior year at slightly higher prices. Australia and Asia are consistent with our prior guidance. While we are behind on pricing and not surprisingly behind on percentage occupancy, given our over 60% increase in China capacity and our significant increase in Australia capacity, remember, Asia and particularly China is the unit growth opportunity and we are achieving strong unit profits and returns that exceed our corporate average. Finally, I want to provide you with an update on our full year 2016 guidance. As Arnold indicated, our first quarter results combined with strong book position enables us to increase the midpoint of our previous guidance range by $0.05 and raise the floor on our earnings expectations for the year. Our 2016 March guidance is now $3.20 to $3.40. The $0.05 improvement was driven by improved net revenue yields worth $0.04 and the accretive impact from the additional shares we repurchased since our December call worth $0.05. These improvements were partially offset by $0.04 drag from fuel and currency. Net cruise cost without fuel per ALBD are still expected to be up approximately 2%. No change from our December guidance. While we were favorable to the guidance for the first quarter, as I previously indicated, the favorability was due to the timing of expenses between the quarters. Remember that while the year is expected to be up approximately 2%, there are differences between the quarters. The first quarter was up about 1.5%, while the guidance for the second quarter is expected to be up only 0.5% to 1.5%. However, for the third quarter, we expect net cruise cost without fuel per ALBD to be up 5% to 6%, driven by the remastering of Queen Mary 2 in dry dock and higher advertising expense. Offsetting that, however, is the expectation that cost will be down slightly in the fourth quarter. So far this fiscal year, we have repurchased over 21 million of our shares, and we still have almost 700 million left under the second $1 billion share repurchases authorization that was approved by the Board of Directors just two months ago. Our March guidance EPS calculations assume approximately 760 million shares outstanding on a weighted average basis. On a final note, for your planning purposes, I wanted to let you know that we expect our June conference call to be a little later in June than usual to allow some extra time for quarter-end reconciliation and analysis, given that we are currently in the process of implementing a significant upgrade to our Oracle enterprise reporting platform, which includes moving to a single instance of the general ledger as we further leverage our scale. And now, I'll turn the call back over to Arnold.

Thank you, David. Operator, please open it up for questions.

[Operator Instructions] Our first question comes from the line of Steven Kent with Goldman Sachs.

A couple of questions. One, first can you just -- I think it was David, you just made some comments on China and I want to understand them. Are you saying that pricing is still higher in China than the rest of the world? You're adding capacity in China and that this is a unit growth story? I wanted to understand those two things. So to me it sounds like almost like you're simply adding more capacity at a higher price relative to the rest of the fleet, but that the pricing maybe is not as high as it was maybe last year, is that what you're saying? And then, one other thing on this China opportunity, which I think it's outsize attention, because it really is a huge opportunity and is a big pricing opportunity too is, how were the travel agent doing in that market? Is there anything we can read from them and their reaction to the capacity that is coming in?

I'll answer the travel agent, or who we call the distributors in China, questions first. We don't have direct line of sight into their profitability, but what I can tell you is that our relationships are strong, they continue to book with us. Our actual occupancies on sailings are the same and we're seeing great results. And we see no easing of interest or demand or anything from the distributors. And the best line of sight we have is that the relationship is working for us and for them, and is definitely working for us. You had a question, I'll let David answer directly the question you asked of him.

Steve the yields are higher than the group average on the ticket prices, but that's not really our key metric. I mean, operating income per ALBD is really the key metric and there too deals are higher. So that is what we're looking at as a metric in terms of overall for China. But one other thing I will add, keep in mind, is since mid last year, the Renminbi is also devalued by 7%. So when you're looking at an apples-to-apples comparison on a current dollar basis, that does affect the overall ticket yield and the overall yields for our China business.

I think, Steve, the main point is China is a very positive story for us, it's strong, it's a contributor, it only represents 5% of our capacity today. So we were well-positioned from that regard as well. But it's definitely a nice add and we certainly have benefited from it and see continued strength.

And let's not forget the benefit that we see in the rest of the world, as a result of the growth in China and the more measured capacity growth in the established market, which is 95% of our business.

Our next question comes from the line of Robin Farley with UBS.

I have two questions, one is, I'm just curious, there is no change in your full year yield guidance, but Q1 obviously came in quite a bit stronger. That sort of implies that your next three quarters guidance is lower from where you thought it was, which I think is not the case, and you're probably just being conservative. So I wonder if you could -- if anything I would think, the strength of the close in bookings in Q1 would lead you to feel better about the next three quarters. So I wondered if you can just sort of address that.

Well, Robin, as I indicated in my comments, the first quarter our revenue yield was worth $0.07, it beat on the guidance. So $0.07, keep in mind, is 0.4 for us in total in terms of the full year yield. And when you take a look at it our yield guidance for the year was approximately 3%. So depending on where you are, if you're 2/10 of a percent below that, and now you're 2/10 a percent above that, so essentially it's still approximately 3%, and the rest of the year it didn't change.

And to the strength of the close in is not changing your view on the next three quarters?

Well, obviously, we're going to strive to do better, but what we experienced so far, it gives us conviction to maintain our guidance, and actually we've increase guidance by a nickel. And we feel very positive about our booking situation, so obviously we're going to strive to do even better. But at this point, with all the dynamics around the rest of the world, and the fact that the Caribbean, which has been very strong for us becomes a smaller percent of the total in the subsequent quarters, we think it's prudent to stick with the guidance we've given.

And then my other question was just on China, and you talked about the tremendous potential for unit growth there. Can you just put a little color around, the Carnival brand originally was going to send a ship there for the first time in '17, it sounds like that is now going to be '18. Is that just sort of taking time to market a new brand that you wanted to give a little more lead time to, or just given -- obviously, the volume growth in China?

The CCL decision, the Carnival brand decision in China, when they originally gave their estimate, it was a preliminary thing. As they got into the detailed deployment planning, we have a number of home ports here in the U.S. serviced by the brand. And as they looked at moving ships, ships fit in certain ports, not in other, so on and so forth, it just became prudent for them to look at launching in '18 rather than in '17, but it's strictly around deployment planning, they had nothing to do with the environment in China.

Our next question comes from the line of Harry Curtis with Nomura.

A follow up question on the booking and yield strength. Just turning to Europe for a second, can you give us a sense of the recent incident in Brussels and whether or not that's had any impact? And, David, I think that I didn't catch fully your outlook for Europe based on your current booking strength. I think you said, it was slightly higher, but I didn't catch the occupancy?

First of all, obviously our thoughts and prayers go out to the victims and their families in the Brussels situations. It's really too early for us to know the exact impact of that. Historically, there has been some temporary impact from events like this and the level of the impact depends on a lot of different factors. But historically, eventually people adapt. We don't know exactly where we're in the process at this point, but right now we see no reason to change guidance. And as you know, our philosophy is, things happen every year, and we anticipate that without knowing exactly where or what things will happen and we factor that in to an extent, so it's too early to see the full fallout of that, but at this point in time, we're comfortable with the guidance that we've given and see no reason to change it.

And far as the booking position, for our EAA brands, which really is the majority of our European program, we said that for Europe, occupancy is ahead of the prior year, at slightly higher prices. And for the seasonal programs for our North American brand, which is really just like 5% of our overall capacity for the company, we said that occupancy was nicely ahead, but the pricing was a little bit lower because of the geopolitical risk and the things that Arnold had indicated.

And then my follow-up question speaks to the share count assumption. David, you mentioned, but I'm not sure I caught this right that the guidance for the balance of the year assumed a fully diluted share count of 760 million shares. Is that correct?

That was for the whole year. And as I think I had indicated in the December call, the way we do our guidance is we include the shares that we purchased to date, because as we've always said, our share repurchase program is opportunistic, so built into our guidance, does not include any future share repurchases. And as I mentioned, we do have almost $700 million left on that second $1 billion, so we do have the opportunity to continue to repurchase.

You anticipated my last question, thanks very much, guys.

Our next question comes from the line of James Hardiman with Wedbush Securities.

So just a real quick clarification on some of what's been going on in Southern Mediterranean based on some of the terrorist attacks. Have you had to move any itineraries around at all? And if so, does not have any impact on your numbers?

There is always in every year some itinerary adjustments. And we go where people want to go. So if we see there is a heavy reaction from guests about going to particular itinerary we have previously planned, obliviously we will choose to alter that. So yes, there have been some changes in some of the ports in Turkey, for example, this year. We still have a number of brands going to Turkey. And we are in constant contact with every intelligence agency in the world and all the various security and enforcement agencies as well. Safety to our guests is number one. But frankly, right now, we see more just, it was driving our decision making is the desire of guests to go to locations, and that's where we are right now.

And then just maybe walk us through the changes in fuel and currency, since the last time you guys reported. The constant currency numbers for both yields and costs look to be unchanged, but the current currency numbers look to be slightly better for both. Now this might just be a rounding thing and these are all approximate estimates or maybe it's a function of the repositioning of ships. But normally sort of things get better for yields and worse for cost or vice versa. It seems like they got a little bit better with respect to FX. And then, with the fuel, certainly the crude oil prices that we look at have gotten a little bit worse, although your guidance for the year seems to have gotten a tad better. Just walk us through some of the puts and takes there.

I'll start with fuel. You probably noticed that overall, for the year, our guidance is $2 per metric ton better. At the moment in time that we did the December call versus our March guidance, I mean Brent was within $1. The crack spread was virtually the same. So the numbers moved very little on the fuel side. Of course, we have a little benefit there. We had offsetting that with some additional derivative losses. So the overall fuel number was negligible in terms of a change from our December guidance. Currency did move against us. And remember, we have a basket of currencies, so it depends on the movement. The one currency from December through March that moved the most was the British pound. And if you look back, we were using $1.51 as the rate for the British pound back in December. The rate now, I think in our press release in the second quarter was like $1.43, so there was like a 5% movement. So depending on what you're looking at because of the different basket in currencies and the movements, the British pound is the biggest impact. And that was a negative impact on our bottomline. And that's what drove the majority of the currency drag.

Our next question comes from the line of Felicia Hendrix with Barclays.

David, just I wanted to clarify some commentary that was in the release in the outlook section, please. When you were talking about the cumulative advance bookings for the first three quarters of 2016, in the release, it said that they're well ahead of the prior year at slightly higher constant currency prices. And then in the December release, you talked about 2016 in the context of slightly higher prices. So I was just wondering is there any difference in the two outlooks?

No, they're both constant currencies.

And then also, Arnold, on the last call you had talked about the high end of the guidance range, the net yield guidance range for the year is being 4%. I know you reiterated the 3%, but just wondering, if you are looking at the high end simply.

Yes, I think, Robin, the reason we had said --

Felicia.

Felicia, sorry, I apologize. The reason why we had said the high end of the range was 4%, it related to the $3.40. And when you start looking at the midpoint of our guidance, it was a $0.30 range and a point of yield is $0.15. So we had said, the $3.40 related to a 1% higher yield or 4%. So obviously, time has gone on and we narrowed the range down to a $0.20 range. But we're giving you the best estimate that we can. It's still relatively close to approximately 4% at the high end.

And then can you just refresh us in terms of how much of that is ticket and onboard? Has that changed?

It really hasn't change significantly from the December guidance, the ticket and onboard. The December guidance, we used about 2% for onboard. And it was a little over 3% for ticket, and it [ph] did round into approximately 3%.

Our next question comes from the line of Jaime Katz with Morningstar.

My first question is on this revenue management yield system that you guys are using across your brands. And I think the commentary you guys indicated that about 30% of the inventory would be up over the course of the year. And I am curious, first, when that might be completed if all the brands will eventually be on it? And there was a comment that there would be some yield uplift, so I guess I'm am curious what your expectations for benefit there are?

So on the revenue management tool, that we're implementing we have six of our brands that initially will be on the new tool. When it's implemented this summer, we'll only have about 30% of their collective inventory going through the tool. Obviously, that will ramp up over time and we'll have more inventory that goes through it. By the time is up and running, '16 will be pretty much booked, and so the real impact we won't see until '17. But I have to tell you, we are enjoying some benefits now just from the brands collaborating and working on the tool together, sharing lots of information. There is improved decision making going on, on revenue management all along the way, and is definitely contributing to some of the yield improvements that we have enjoyed the past few quarters, including us this past quarter. So overtime, when we go to the next phase of the tool, which will be implemented next year, pretty much all the brands will be using the tool. We have some brands that have already more sophisticated tools than others. And this to, both base flow that will be at one level of sophistication, we put the next layer on top, it will be at a whole another level of sophistication, so we'll have a build of impact over the next few years from having the tool. And it will make a difference.

And then I have sort of an esoteric question for you guys. How do you think about differentiating the brands that are going into the China market versus the competitors? Obviously, Costa has been there for some time, there is a lot more brand awareness than maybe some of the other brands. But I think the messaging going through the travel agents, the way that the distribution network there works might be a little skewed. So I am curious if there is an easy way to articulate how Carnival's brands in the region are different and maybe a better value to those consumers?

The easiest way to do it is to actually have the distributors experience the brands, because once they go on to ships and experience the brands, the difference is dramatic and very much get a very different feel from one brand to the next in terms of what type of cruise experience it is. And because those brands resonate around the world across different, what we call, psychographic segment, with 1.3 billion people, China is very capable absorbing lots of different brand. And so we see it, at this stage, as we just have a toe in the water. There is an 135 million estimated outbound Chinese tourist today already. And less than 1 million of them or maybe roughly 1 million of them are cruising today. So we haven't even begun to touch the surface hardly, so there's plenty of room and capacity. Our belief is that at the consuming level, at the guest level, that in the price ranges we're in, the guest today are relatively price inelastic, whether I'm in Australia -- I was in Cuba last week, Mainland Chinese filled the paladar that I was in the private restaurant in Havana, I was in. And so they have money, they're able to travel. They're not exactly shopping for price. They fill up the retail outlet and spend several levels higher than the typical tourist would from other places in the world. So we don't see any major barriers at this point except, as you just referred, good communication, execution, training the distribution system, giving them the exposure they need, so they can represent the various brands well. We think there is plenty of room for everybody, for several of our brands, and we're going to bring AIDA in, in '17, and the Carnival brand right now is scheduled to go in, in '18.

And then lastly, just a housekeeping question. With so much capacity coming on can you guys offer your outlook for D&A in the current year?

$1.716 billion to $1.780 is the range for the year.

Our next question comes from the line of Greg Badishkanian with Citigroup.

Just to put the Brussels impact in perspective, kind of comparing it to the Paris attacks, any change in behavior that you have seen that were different than the initial 10 days or so with North American sourced passengers versus European sourced, as well as cancellation rates?

That again, it's early. In Paris, there was impact on bookings, which faded pretty quickly. May have had some net minor impact on results, but again, it's one of many things affecting us in Europe, and we factor that into our guidance, but its still early for Brussels. We haven't seen anything dramatic yet. The question is how things build and so on. But frankly, again, we've kind of have it in our guidance, barring some major dramatic shift in reactions.

So nothing dramatic, that's [multiple speakers].

Nothing dramatic, no.

And then moving just to Cuba, and kind of thinking about the opportunity. And congratulations, by the way, in getting your ship there. How quickly before you think that you'll be able to ramp up capacity in Cuban? I know there is a regulatory perspective and then there is just a logistical perspective?

You nailed it, both. First of all regulatory first, so we already are talking to Cuba obviously about the other brands and when might they come, and which ports, and so on and so forth. We're looking forward to working with Cuba to help develop the cruise industry there. We think, again, it's is a different story than china, but it's similar and that there's room for everybody. And we're looking it as a refresher for the Caribbean. We think it's going to help us. It's going to help the industry. It's going to help the Caribbean. And it is certainly going to help Cuba. So we're excited. We're very honored and privileged to have been given the honor of being first for approval by Cuba. And we're really enjoying the working relationship and looking forward to working with them. In terms of timing of all this, the logistics do matter too, because our ships, we just talked about, the brands being booked by the summer for '16 pretty much. And so itineraries have been established, guests are planning on going places. As we get additional brands approved by Cuba, those will have to adapt to their current itinerary planning schedule. So practically speaking, while we may have some additional itineraries in 2016, you're probably looking at 2017 for any kind of significant impact.

Our next question comes from the line of Tim Conder with Wells Fargo Securities.

Just a couple clarification questions. One, on your yield guidance, the basically 1% difference due to the change in accounting that you called out in December, is that built into the guidance now or not? I just want to clarify that? And then secondly, David, I think you -- or Arnold, when you were commenting on China relative to one of the earlier questions, just to clarify, did you say at this point yields were up, down, as they are looking for the year?

First of all in China, again, it's a unit growth story. We want to keep emphasizing that. But to answer your question, yes, ticket yields are higher than the average for the fleet, and they're forecasted to be that for the year. So that's the truth. But we don't want you guys over focusing on yield, because the real story is the great accretion and earnings that we're getting from China and it is going to be a volume growth story for a while, because at the very beginning, we're nascent in that market, and there is just so much potential in that market. In terms of [multiple speakers].

The other question was about the counting reclassification, which yes, we built into the guidance in December and we built that into the guidance in March. There is no change in the methodology there. And it is about 1%.

And, Arnold, I apologize, it was just my question and clarification on China was just more -- I totally understand it's a unit growth story and that they're the highest in the world, and it's a positive mix as things continue to grow. But just more on a year-over-year comparison, flat, slightly down?

We've never given a range on yields in China, but yields are down on just a year-to-year basis, but we've never given a range and wouldn't do so now.

And then to stay kind of on that versus the rest of the world, any color for the industry that you could comment on as to how maybe the tiny yields combined are different relative to say North America or Europe?

No, I don't have color for you on that.

And then two other things on yield and that will be it. The implied net yields in your guidance for the year, just by major geographic region, Europe, Asia, North America? And then specifically related to the Brits and onboard spending, anything that you're seeing given the pound depreciation that you have seen here since the beginning of the year or over the last six months in onboard spending trends by Brits in particular?

Just onboard in general, onboard revenues for us has increased increase ever year over the last, I don't know, 10 to 12 years, except one. And so onboard revenues tend to increase every year and your question is how much. Last year, we had a large percentage increase on onboard revenues overall. And this year, we've seen again a increase on top of that, not necessarily at the same level as last year, but a nice increase. And so the correlation to economies and all that tend not to -- we have difficulty tracking that and correlating in any specific way even the degree of increase in onboard revenue isn't always correlated to particular economic conditions in a given destination market or given source market. And so there's just so many variables that come into that, not the least of which is us constantly giving guests more of what they want. And if you do that, the guests onboard will spend more. And that's really, the issue for us is always tweaking that and figuring out exactly what do guests want, so we give it to them in the way they want it, what they want in the way they want it. And we continue to grow. So to be honest with you, we haven't seen -- we've tried it every which way and we just haven't seen tight correlations to general economic trends.

And also keep in mind, that the overwhelming majority of our British guests sail on P&O Cruises, which is the British pound onboard, so as far as they're concerned, there really is no change. Of course, it does affect on a translation basis, those onboard revenues into U.S. dollars, but it doesn't change their spending patterns onboard. And as far as the overall cruise revenue yields are concerned, we have talked in December, between our North America brands and our EAA brands. We were expecting increases in both segments of our business. The increases were slightly better in the North American brands than the EAA brands. Once you net out the accounting reclassification, which I had mentioned, affected the EAA brands in December.

Our next question comes from the line of Kevin Milota with JPMorgan.

Just have two quick ones here. First, obviously, China fairly small right now in terms of total capacity at 5%. With your capacity introductions in '17 and '18, could you give us a sense for where your total -- where those capacity stats will be in those years? And then secondly, I guess, for David on fuel. At current fuel levels could you give us a sense for what's baked into the $3.20 to $3.40 guidance as it relates to the unrealized losses from your derivatives?

First of all on China, as you know the industry, believe it or not, is capacity constrained because of the limited number of shipyards to build ships. And obviously, we've got partnerships with both, Fincantieri, and with Meyer in Germany, in terms of securing slots to enhance our fleet. Having said that, in China, we can't grow too fast, because just the limited availability of ships, so we'll probably be by 2020 somewhere in the 8% to 9% range of our fleet, which means, most of the growth in capacity we have will actually be going to China. And that means, that we'll be growing at a much slower rate in the rest of the world markets, 1% to 2% there, while big percentage increases in China, but in terms of absolute number of ships still relatively small compared to the latent demand that exists in the country. So to answer your question by 2020, depending on how things go, and that's the beauty of this, we have flexibility. Depending on how things go we could be 8% and 9% of our capacity in China. And that means, therefore, that we didn't grow a lot in the rest of the world, but that fits with our measured capacity growth overall plan to help create relative scarcity. We can change the drive demand to create excess demand relative to that measured capacity, which obviously allows us to capture or the value gap that currently exists between land-based vacations and cruise. We're still a much better value than land-based vacations and we have lots of room to move. David?

And as far as the derivatives, you said unrealized, but I think what you meant is how much was in our guidance in terms of realized losses on the fuel derivatives for the year and the number is about $330 million of realized losses.

Our next question comes from the line of Ian Rennardson with Jefferies.

Just a couple of questions for you. How much more are you sold than this time last year? Is it 5%, is it 10%, is it 20%? Could you give us a sort of numerical answer, please? And moving on to yield expectations, Q2, 1.5% to 2.5% growth at constant currency after a very strong end to Q1, you mentioned close in pricing, why this sort of slight disconnect, please?

So we are ahead on bookings, but we don't give the details for competitive reasons about exactly what percentage points we are ahead. So we just rather leave it more general. And as far as the comparisons on the quarterly basis, the second quarter is lower than the first quarter, but you got to remember, you got to look back against the prior year, the second quarter last year was much stronger than the first quarter. We were up 2% more in the second quarter. So it has a tougher comparison in the prior year. As well as the fact that, in the first quarter this year, we had indicated, we were 47% in the Caribbean versus 30% in the second quarter. The Caribbean was a very strong market for us. And so you are seeing some differences between the first and second quarter in terms of yield increases.

But that yield improvement in the second quarter, obviously, is consistent with the overall guidance. And it's going to lead us to 20% or better at the midpoint of our current guidance earnings improvement year-over-year.

Our next question comes from the line of Stuart Gordon with Berenberg.

Just a quick question on the close in bookings, have obviously been very strong and held beat on the yield. Could you give an indication as to whether this has been helped by less sort of onboard concessions that's helped drive up that ticket price rather than driving up onboard spend?

When we package -- what you're talking about is some value-added packages. And when we provide those value-added packages, we do segregate a portion of the revenue and record it in onboard. So you wouldn't see an artificial drive-up in ticket prices from a value-added package.

But did you have to give away less value added packages in the close in of this quarter, which than perhaps has been the case in previous quarters?

Well, certainly, compared to the prior quarter, the yields are up significantly. So overall pricing at total was stronger, whichever way you want to look at it. And so that means, I don't know whether they gave more packages out or not, but again, that would have been reflected on our onboard versus ticket. But the practical reality across the fleet, we have so many different brands, but across the fleet overall close in was much stronger this year than last period. So that means that they reduced pricing less.

Our next question comes from the line of Jared Shojaian with Wolfe Research.

Have you guys stopped hedging fuel? It looks like you haven't put on anything new for a while. Can you just give us an update on your current policy here?

Well, we had collars that went out a number of years. And right now, we continue to live with those, as you can see from the derivative losses. So at this point in time, we evaluated constantly to see what we should do. In the past, we did it to avoid a significant spike in fuel pricing that could have created any kind of short-term cash issues. And we don't see, at this point in time, a need to do anything. We are collared on all the way into 2018 at various levels. I think next year is -- David?

Next year, we've got 8.1 million barrels collard.

Which is what percent?

A little over 50%, and 5.4 million barrels in 2018, which is less than 50%. But as Arnold said, we're collared out almost three years. So we're comfortable with our current position. We constantly talk about it and analyze it and think about it. But as you said, we haven't done any fuel derivatives since it was October of '14. And we'll give it more consideration as we go forward.

And then should we expect the pace of your buybacks year-to-date to continue throughout the balance of the year? And if so, are you comfortable financing CapEx in order to do that? And if not, can you just help us understand why you wouldn't take on some incremental debt right now, while still being able to maintain the investment-grade credit rating?

Well, yes, you bet. First of all, we do have an authorization. We will do as we've done in the past, which is opportunistically use that authorization. Beyond that, that's a Board decision. The Board is constantly looking at it. In terms of our debt position, we're, as you can tell by our balance sheet, in a pretty good shape. I'll let David add any additional color you would like. Go ahead, David.

We have said many times that we would return all our excess free cash flow to the shareholders. We have done that. We did get the second $1 billion authorization from the Board of Directors. We'll be opportunistic, as we purchase throughout the rest of this year. And when we get completed with that we'll take a look and we'll talk to the Board about what's next. But you've to keep in mind, this is a Board decision, so we don't want to preempt the Board. But when we get done with the $700 million, we'll look at potentially what's next in the program.

One last question please, operator?

Our next question comes from the line of Dan McKenzie with Buckingham Research.

With respect to the revenue beat, I'm just wondering how much of it was tied to investments and advertising spend over the past year? And then with respect to the uptick in advertising in the third quarter, I am wondering why then, and how you have been measuring the link between the campaigns and the revenue production?

Well, as you know, we have 10 brands. They all have segments that they are catering to. And they all have their independent marketing plans. We do look at it collectively. We are leveraging our scale in terms of looking at common media buy and those types of things to be even more efficient as paying dividends for us. But the reality is, we are expecting a return on any investment we make and that includes advertising and whether it's mass media advertising, product placement advertising, digital, all the various forms of it, and PR, public relations efforts. So our belief is that we have to keep cruise out in the public space in a positive way on a constant basis, so that when people are considering vacation, there has been enough noise about cruise that, they say, well, I have an idea, let's look at a cruise. And so, the idea is to just keep it out there and that's utilizing all the various forms. There is no question we have created incremental demand. We also know there is no question that an incremental demand has been in part created by the fantastic work of our team members across our 10 brands who literally exceed guest expectations every day when they come onboard. And that word of mouth and that personal experience of having your expectations exceeded is the most powerful marketing tool we have by far. And that is by the work of our people in engineering, the experiences on board and then delivering against it. So to your question, yes, we have increased advertising overall. We will continue to look at it. We don't do it willy-nilly. We do a lot of measuring and tracking to see what kind of impact we get both in attitude and in bookings and so on. And we're constantly monitoring that and tweaking it. But the third-quarter rationale is a peak communication time to prepare for the coming year. And that's why you often see an increase in that period.

The next question gets at the competition for the upper scale traveler, and specifically, your key competitors have products within their core brand to chip away at that market share in that segment. And so you have got the Norwegian Haven, the Royal suite products, looking ahead Virgin seems poised to also chip away at the upper scale traveler. So I'm wondering if you can help us put some brackets around the revenue that this market segment represents. How you are thinking about these moves by key competitors and how Carnival is responding?

You bet. Our primary competitor is land-based vacations. One of every two people who cruise in the world cruise with us and we have tremendous respect for the other companies that operate. And we want them to be successful. That helps us a lot. The stronger they are the better it is for us. So having said that we have 10 brands, we have ultra-luxury in Seabourn, we have luxury in Cunard both our Queens Grill and Princess Grill, we have Holland America on Neptune. We have premium brands in Fathom, our newest premium brand, but obviously our long-established premium brands of Princess and Holland America and AIDA. And we have mass contemporary brands like Costa and Carnival. So we look at that, but again, the really important thing about cruise is this, we've had Steve Wozniak, who we pay to lecture on Seabourn, but he pays to go on Carnival, okay, because it's not a demographic choice per se, we have taxi drivers who will save for five years to go on a Seabourn Cruise and we have billionaires who want to sail on Carnival. And the reality is the experience that you're looking for. And each brand is a different experience, caters to a different psychographic market. So we have ultra-luxury brands, luxury brands, premium brands, et cetera, each with their own experience and that's what drives it for us. But for us, we are definitely looking at penetrating more land-based vacations, because all the cabins in the world added up together in the industry represent less than 2% of the hotel rooms in the world. So that means there is 98% of the market to chase as opposed to 1% because of that 2%, 1% is ours already. So that's kind of our approach. End of Q&A

Thank you very much. I really appreciate the questions. Thanks for your support. We look forward to talking to you guys next quarter and in between. And as always, feel free to call Beth with any additional questions or insights you might want to offer us. So, thank you.

Thank you, ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.