Norwegian Cruise Line's CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 8.13 | About: Norwegian Cruise (NCLH)

Norwegian Cruise Line Holdings Ltd. (NASDAQ:NCLH)

Q1 2013 Earnings Call

May 7, 2013 11:00 am ET

Executives

Andrea DeMarco – Director of Investor Relations

Kevin Sheehan – President and Chief Executive Officer

Wendy A. Beck – Chief Financial Officer and Executive Vice President

Analysts

Felicia Hendrix – Barclays Capital

Robin Farley – UBS

Steven Kent – Goldman Sachs

Timothy Conder – Wells Fargo Securities

Kelly Knybel – Deutsche Bank

Althea Jojiba – Infiniti Research

Operator

Good morning and welcome to the Norwegian Cruise Line First Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). This conference is being recorded.

I would like to now turn the conference over to your host, Ms. Andrea DeMarco Director of Investor Relations. Ms DeMarco. Please proceed.

Andrea DeMarco

Thank you, Tyrone. Good morning and thank you all for joining us for our first quarter earnings call. I am joined today by Kevin Sheehan, Our President and Chief Executive Officer and Wendy Beck our Executive Vice President and Chief Financial Officer. Kevin will begin the call with opening commentary and Wendy will follow with more detail regarding the quarter. We will then open the call for you questions.

As a reminder this conference call is being simultaneously webcast on our Investor Relations website at www.investor.ncl.com and will be available for replay for 30 days following today's call. Before we discuss our results, I would like to cover a few items. First, our press release for our first quarter 2013 results was issued yesterday and is available on our Investor Relations website.

Second, I would like to review information about forward-looking statements and the use of non-GAAP information as a part of this call. Some of our comments today may include forward-looking statements about our expectations for the future. Those expectations are subject to known and unknown risks, uncertainties and other factors that may cause the company’s actual results and performance in future periods to be materially different from any future results or performance suggested by these expectations. We cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any forward-looking statements during the quarter.

If you would like more information on the risks involved in forward-looking statements, please see our SEC filings. In addition, some of our comments may reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in our earnings release and on our website.

With that I'd like to turn the call over to Kevin Sheehan. Kevin?

Kevin Sheehan

Thanks, Andrea, and good morning, everyone. 2013 has already been, to say the least, an exciting year at Norwegian and we're not even halfway through. We kicked off the year with a successful IPO followed by a notes offering. We reported great results for 2012 and we come to you today to report the same for the first quarter of 2013. But while strong results are always a great story in and of themselves, today is a little different and it's very special to us. Not only are we reporting results for our first quarter as a publicly traded company, we've also gone to remote with this earnings call.

Today, instead of coming to you from our headquarters in Miami, we're here in New York City welcoming our newest ship, Norwegian Breakaway, to her hometown. I know there are many New Yorkers on the call today and hopefully those of you that got to work bright and early witnessed the terrific sight of the Norwegian Breakaway sailing up the Hudson for the first time. In fact, many of you can probably look out your window and see her dock at the Manhattan Cruise Terminal.

As the largest cruise ship to home port year-round in New York City, and with the distinctive hull art by Peter Max, she should be pretty easy to spot. She'll be sailing from New York to Bermuda throughout the summer and then switching to the Bahamas and the Caribbean itineraries in the winter. Norwegian Breakaway’s arrival in New York is a moment every team member at Norwegian has been looking forward to since October of 2010 when we announced the order for the Breakaway, and her sister ship, Norwegian Getaway.

I have to say it's been an incredible experience to see the evolution of these ships, from concept, to design, to construction, and finally to operation. My thanks go out to everyone involved from the team at Norwegian and especially our dedicated site team to, of course, our travel partners who were, and continue to be, instrumental in educating guests to the unique elements and experiences on board. But most importantly, my thanks go out to our officers and our crew of Norwegian Breakaway. While the ship may house the state-of-the-art accommodations and entertainment venues, it is our team members on board that give this ship her personality.

I couldn’t think of a better group to represent Norwegian year-round in my home town, but I’ll talk a little bit more about Norwegian Breakaway and Getaway later in the call. Today, we're here to discuss a strong first quarter, one that marks our 19th consecutive quarter of adjusted EBITDA growth, which is made even more impressive given this quarter was driven by organic growth and included a partial dry dock and elevated fuel costs.

As in 2012, demand coming into 2013’s wave season was robust, with strong pricing on the majority of the itineraries, which along with improved on-board spend resulted in a healthy increase in our net yield. Caribbean itineraries performed well in the quarter, as did our unique inter-island Hawaii product. Our European deployment for the first of 2013 increased from one to two ships adding sailings from Rome in addition to Barcelona, giving both Europeans and other guest options to sail western and eastern itineraries during the winter months.

Regarding costs, excluding those costs related to our IPO and notes offering our razor focus on optimizing every process, executing on every initiative, and managing every controllable expense resulted in improved performance and exceeded our guidance.

Now with that, let me turn the call over to Wendy.

Wendy A. Beck

Thanks, Kevin, and good morning, everyone. Like Kevin, I'm very excited to welcome Norwegian Breakaway to New York. When I joined the company in 2010, we were right on the cusp of ordering our Breakaway-class specials, and the excitement of everyone working on the project was contagious.

It was an ideal time to join Norwegian as the company prepared to make a giant leap in our journey from good to great. The years of planning, dedication, and hard work by literally thousands of team members are embodied in this incredible vessel, and I'm proud to have been able to be part of the team that has brought this vision to fruition.

Before going into our results, I would like to take a moment to go over the noteworthy transactions in the first quarter. In January, we completed our successful initial public offering, raising net proceeds of $477.6 million. We followed February with a notes offering, issuing $300 million in senior unsecured notes.

The aggregated net proceeds of the IPO and notes offering were used to pre-pay certain credit facilities, repay amounts pursuant to the Norwegian Sky purchase agreement, fully redeem our $450 million 11.75% senior secured notes due 2016 and partially redeem our $350 million or 9.5% senior notes due in 2018.

These prepayments and redemptions triggered redemption premium, the write-off of deferred financing fees, and other expenses totaling $90.5 million, which ran through the interest expense line items. These transactions also resulted in certain non-cash compensation expense and tax expense items which, when added to the aforementioned fees from debt prepayments of redemptions totaled $110.4 million in the period.

Excluding the one-time expense impact of these resulted in adjusted net income for first quarter of 2013 of $12.9 million with adjusted earnings per share of $0.06 compared to $3.3 million and $0.02 in the first quarter of 2012 and above our first quarter guidance of $0.02 to $0.05.

Now, looking at the top line, higher net yield in the quarter drove a 2.4% increase in revenue to $527.6 million despite a slight decrease in capacity dates, which included the planned dry dock of Pride of America. Coming in at the higher end of our guidance, the 3.3% increase in net yield can be attributed to improvement in both passenger tickets and on-board revenue.

Net yield from passenger ticket revenue increased 3.4% from improved overall pricing, that was a result of strong demand going into wave season. Net yield from on-board and other revenue grew 3.2% from improved on-board spend, particularly in the bar and short excursion areas.

Switching over to expenses, adjusted net cruise costs excluding fuel per capacity day decreased 1.5%. This compares to our first quarter guidance of flat to up 1%, with the difference attributable to the timing of certain expenses between quarters. Timing has a meaningful impact on the expense side of the business and is thus best viewed on an annual basis. As anticipated in our guidance, fuel expense in the period increased from a 13% rise in the price of fuel, net of hedges to $673 per metric ton from $598 in 2012.

As mentioned earlier, the quarter included the first days of a Dry-dock for Pride of America, our U.S. flagged vessel based in Honolulu, that sails exclusive seven-day inter-island itineraries in Hawaii. She is truly a unique ship and her itinerary is one of a kind in the industry. As we do with all of our ships when planning for a Dry-dock, we took a detailed look from top to bottom and considered what we could do to enhance our offerings, enrich the guest experience, and increased return.

During her two-week Dry-dock, we commenced a project which converted the space previously housing an underutilized conference center into 32 state rooms, including 24 luxury suites, and four studio state rooms, allowing more families, and now solo travelers, to experience this unique product. Completion of this project is expected to be in early September, if not sooner.

Behind the scenes, we undertook an even more ambitious project. As mentioned Pride of America runs seven-day voyages in the Hawaiian Islands, which puts her entire itinerary wholly within the North American Emission Control Area or ECA, with ECA’s own fuel standards at more stringent levels than those outside the zone, it was imperative that we look at ways to comply with the regulation in a cost-effective manner that would not affect the product offering. After much research and exploration, we opted to invest in the installation of exhaust gas scrubber technology which, in essence, allows vessels to burn lower grade fuel and filters the emissions to a level that complies with ECA requirement. Installation of the four scrubbers began during Dry-dock and should be operational by year-end. These projects demonstrate our focus on maximizing returns on our vessels, while at the same time maintaining or even enhancing the guest experience.

In this instance, both projects, the addition of the new suites and the installation of scrubbers, each have a payback of approximately two years or less. Lastly, we continued our initiative bringing back successful learnings and concepts from Norwegian Epic and our other ships to the rest of the fleet. In the case of Pride of America, we brought over the successful studio state rooms, as well as one of our most popular signature dining venues (inaudible).

Looking below the line, interest expense net in the quarter increased due to the aforementioned premiums, write-off of deferred financing fees, and other expenses related to pre-payment of certain facilities and the redemption of certain senior notes. Excluding these costs, interest expense was lower than prior year mainly due to reduced overall interest rates in the period. As Kevin mentioned earlier, the quarter marks our 19th consecutive quarter year-over-year growth in adjusted EBITDA. In the quarter, adjusted EBITDA rose 7% to $99.8 million from $93.5 million in 2012. The growth is even more impressive when taking into account the increase in fuel prices and the foregone revenue generating days due to our scheduled Dry-dock.

So to summarize our results in the quarter, top line revenue was strong on both the passenger ticket and on-board revenue fronts. Net cruise costs, excluding fuel and one-time charges related to our IPO were better than expected partially due to the timing of certain expense item, while below the line expenses excluding expenses related to debt prepayment and note redemptions, were lower than prior year. The ultimate result was strong improvements in adjusted EBITDA, adjusted net income and adjusted EPS.

Looking ahead, we have provided guidance along with associated sensitivity for both the second quarter and full-year 2013 and our earnings release. Of note, in the second quarter, is the addition of Norwegian Breakaway to the fleet, whose benefit in the quarter is partially offset by the completion of the dry dock for Pride of America, as well as a planned dry dock for Norwegian Pearl, both occurring in April.

The following guidance metrics are both on an as-reported and constant currency basis. For the second quarter, we anticipate net yields of 3% to 4% adjusted net cruise costs, excluding fuel per capacity day is expected to increase by the 6%, namely due to inaugural activities for Norwegian Breakaway and the timing of certain expenses including dry dock expenses.

Overall, we expect adjusted EPS to be in the range of $0.24 to $0.28. For the full-year, we are reiterating our adjusted EPS guidance of $1.20 to $1.40. Net yield was expected to increase 3.5% to 5.5% and adjusted net cruise costs, excluding fuel per capacity day is expected to increase 4% to 6%.

Lastly, regarding deployment, itineraries for the second quarter are as follows; 26% in the Caribbean, 23% in the Mediterranean, and 7% in Baltic and Canary Island itineraries, 7% in Hawaii, and approximately 12% each for Alaska, Bermuda, and other itineraries including repositioning cruises.

With that, I will turn the call over to Kevin for closing comments. Kevin?

Kevin M. Sheehan

Thanks, Wendy. So while the first quarter was significant for Norwegian with a successful IPO and notes offerings, these are the things you can't really see in touch. The second quarter, however, we have a very large and very tangible expression of our evolution. On our last call, we went over many initiatives that we have undertaken since my arrival here five years ago to get Norwegian back on the path to success, everything from rationalizing our capacity in Hawaii to implementing a continuous improvement mindset across the company. I want to highlight one of these initiatives because today we reached a very important chapter.

As part of our disciplined new-build program, we took delivery of the groundbreaking Norwegian Epic in mid-2010. She was the most innovative ship Norwegians had ever designed and like every innovation, there were successes and learnings. The successes were many, including Moderno Churrascaria, a Brazilian steakhouse concept, which proved so popular. We have quickly taken it across the fleet. But the grand slam on the Norwegian Epic was her design where we took the freedom and flexibility of free-style cruising to the next level.

We expanded our entertainment offerings from one or two venues to a number of smaller, more intimate ones and spread them throughout the ship. Whether they were specialized venues like Fat Cats, Jazz & Blues Club to nightclubs like Bliss and Spice H20 to shows like Cirque Dreams and Dinner, Epic’s design encouraged the guest to stay out later and to get the most evident case and experience. On the heals of the Norwegian epic success, we took a incredible design and used it as a blue print for our break away class.

The first of those vessels, the Norwegian break away is everything we matches it more. A proven successful design was elevated and enhanced to include new and exiting features and elements. One feature that makes Norwegian break away unique was our decision to dedicate first in the New York market. Our commitment to New York is longstanding and the only theme natural has creatorship whose persona was an extension of the big apple. From dinning to entertainment, break away will offer the best of New York while selling to destinations like Bermuda and the Caribbean. As the name of the city, I personally know how demand in New York can be, so it was critical that break away deliver a premium experience.

After inaugural activities in Europe and taking across the Atlantic, I can personally attest that Norwegian Breakaway is ready to compete head on against any premium ship in the market. No other vessel offers elements like the Waterfront, a quarter-mile long promenade with restaurants and lounges that allow guests to feel an even greater connection with the ocean. No other ship has offerings by New York's owned iron (inaudible) and a branch of Buddy Valastro’s world famous Carlo's Bake Shop and no other ship can count three Broadway shows Rock of Ages, Burn the Floor, and Cirque Dreams Jungle Fantasy, performing on every cruise.

Norwegian Breakaway's mix of innovative public areas world class dining and Broadway-caliber Entertainment immediately places are at top of the premium cruise line category. Add to that The Haven, an all-suites enclave with private keycard access, dedicated concierge private blue lounges and Norwegian Breakaway becomes a luxury cruise experience for guests seeking an intimate ship feel combined with the amenities and activities only a large ship can deliver. So with nothing more I’d like to do than to get back to the ship let’s – and greet the Radio City Rockettes we’ll open the call up for some questions. Operator?

Question-and-Answer Session

Operator

Thank you, Mr. Sheehan. (Operator Instructions) Our first question from Felicia Hendrix of Barclays Capital.

Felicia Hendrix – Barclays Capital

Good morning. And congratulations on the delivery of the Breakaway. Can you guys hear me?

Kevin Sheehan

Yeah, thanks a lot Felicia.

Felicia Hendrix – Barclays Capital

Okay

Kevin Sheehan

We really excited, I can’t tell you how successful it was sailing across the Atlantic.

Felicia Hendrix – Barclays Capital

Fantastic. I'm just remote so I didn't hear anything. I got nervous for a moment. So, Kevin, actually just wondering, could you just discuss if at all, you saw any surprises in the quarter or if anything in particular has changed since you gave your last guidance in February? I know you reiterated your prior guidance, but there has been some incidents in the industry which might have affecting your business on the margin. So specifically asking about any aftereffects of the Carnival Triumph, perhaps in the quarter or as you're thinking about the remainder of the year? And then also just how your ships in Europe have been fairing? Thank you.

Unidentified Company Representative

Sure, of course it would be unrealistic to say that it was no impact from all of the news that came out in the last couple of months. I would say that it was on the margin though. And it just made us work a little bit harder. As you see, we came out with a solid quarter for quarter one, we are confident with our guidance for the second quarter and the full year. So I think the affirmation of that tells you that we as a company and I believe as an industry we’ve been able to work through that and hopefully get people more focused on the wonderful vacation experience that we offer in the in the cruise industry and what a value that is. What was the other part of the question, it was...

Felicia Hendrix – Barclays Capital

How your itineraries in Europe have been fairing?

Unidentified Company Representative

As you could imagine, the events from last year impacted the European as well as the economic situation as well as the high air fares in 2012. And that seeped over a little bit in the beginning of 2013. As we look at it today, we’re starting to see some real momentum going with our booking activity in Europe through the

season so we’re pretty happy about that. The pricing has come back to be more moderate to where we were hoping it would be. So that’s a check the box on that one. So I would say we’re confident with the itineraries that we have around the globe and I guess confirmation to that is seeing our guidance for the rest of the year being right in the same sweet spot.

Felicia Hendrix – Barclays Capital

Great, thank you.

Operator

Thank you. The next question is from Robin Farley of UBS. Your line is open.

Robin Farley – UBS

Great, thanks, two questions on the booking outlook. First is, I wonder if you could talk about one of the other cruise operators talked about March Caribbean bookings being a little bit soft and then April, sort of seeing a pick up. Did you see a similar pattern and what have you seen? That was sort of a comment, I think, after the first two weeks of April. So did you see that as well? And what have you seen since then? And then also when you look out to the rest of the year, can you give us some color on kind of your booking volume and price versus the same time same last year? And I wonder if you would kind of need to sort of look at it without breakaway kind of on a same-ship basis?

Unidentified Company Representative

Sure. Yeah so, on the margin the Caribbean, adjust a short period – it wasn’t as strong as we would have liked it. It’s impacting booking well. I would say that over the last 10 weeks as an example, we’ve had very strong booking other than one week where we’re still almost double-digit bookings levels – the price that’s too much to have. But as well the booking period has extended as well. So we’re happy about all of those indications we think now with the breakaway and all the excitement around the ship, which by the way is phenomenal. We expect to get a lot of bias of looking at the Norwegian product and we expect to see, hopefully further acceleration from here.

And then as far as the bookings year-over-year, we’re pretty much where we are hoping to be from a booking volume with excluding the Breakaway, the Breakaway is booking very well. I would say for the most part the ships have booked a little bit different according to the time of the year. But right now, we’re right in the zone of where we were hoping to be, again which is why we have the confidence that with out guidance to the rest of the year. And to be honest I’m doing a lot of work right now to make sure that we roll into 2014 very strong and kind of, let’s get through each of these quarters in 2013 and make sure we’re positioned really well for 2014.

Robin Farley – UBS

When you said you are kind of your – where you were hoping to be, and you also mentioned people booking closer in, does that mean you're maybe behind, in terms of volume of bookings, but you're comfortable with that, because pricing is up? I'm just trying to get a sense of.

Kevin M. Sheehan

No, I would say that we’re very comfortable with the level of bookings right now. And I think if you want – the way I look at it is, I look at fourth quarters being an important part of the equation here. And when I go back two years, we had a fourth quarter that was pretty solidly booked at this particular point and then as you know, there was the Hurricane and then last year, we – again we are solidly booked for the fourth quarter and then we had to try affect our Hurricane. So we’re in very solid position for the fourth quarter vis-à-vis the history of the company, so I’m confident about that. The third quarter is looking well. So I don’t see anything in our way to worry us about any of the quarters throughout this year.

Robin Farley – UBS

Okay. Thank you.

Operator

Thank you. Our next question is from Steven Kent from Goldman Sachs. Your line is open.

Steven Kent – Goldman Sachs

Hi, good morning. A couple of things. Kevin, when you said you had to work harder, given the Carnival incidents, could you give us a little bit of specifically what you're able to do, how you're able to market more effectively, or price more effectively, or whatever it was you were referring to. And then, I just want to understand it. You came in better on Q1 on net yield, but you kept the estimates essentially the same for net yield. So does that imply a slowdown in the second half from what you were expecting, just because of the math?

Kevin M. Sheehan

Yeah, let me take the second part first. Yeah, I got to tell you the Breakaway just landed New York, so I would like to see, as far as the yield that where we feel we are for the rest of the year let’s see how that performs. We are very, very confident based on the Transatlantic were exceeding the level we expected on-board. And I think when we get into New York, it will be a very interesting situation. Given the way I see the pulse of the ship where we’ve got this three levels of public space. On the Epic as an examples, that kind of acquired on through the decks towards the latter part of the evening.

And the way we’ve designed to shift the activity just stays really intense throughout the evening. So we’re expecting this to be a much more enriching on-board experience. As far as the – so let me make sure and I think after we get through the second quarter, we will be able to provide a little bit more color on the guidance. I got to tell you, I would rather be comfortable and not misleading anybody. And as we get further into the year, we will be clear with everybody as we possibly can. But where just, first quarter is the public company and we want to be careful here.

As far as the working harder, yeah, with a little bit of rallying the truth and getting everybody to think about the opportunities at which shifts we need to put additional focus on. I would say we added a week of sale that we didn’t intend to do to kind of just keep the momentum going. But I would say it was quick, it was a couple of weeks and then we went right back to the levels that we were hoping for. And I’d suggest that the less number of weeks we’ve actually exceeded the booking levels of what we were expecting. So I’d say we were on a very healthy pace right now and as I said with the break way in all of the publicity around that ship I think that’s going to boost us a little bit better as we get further into the second quarter.

Steven Kent – Goldman Sachs

Okay, thanks.

Kevin M. Sheehan

Thanks.

Operator

Thank you (Operator Instructions) Our next question is Tim Conder of Wells Fargo. Your line is open.

Timothy Conder – Wells Fargo Securities

Thank you. Kevin just to stay on that vein of a question, could you give us anything at this point and I know what’s out there and there is not a lot on the books at this point. But early in 2014 and especially we’ll get away here. Any color that you can give us there. And then at this point, just and I apologize it if I missed it, but could you give us where you are as a percent of your available capacity? What you have booked now versus last year on a year-to-basis?

Kevin M. Sheehan

Yeah I don’t know, we’ll get into that level of detail but I can’t tell you that when we look at the booking volume for 2014, the first quarter is booked is – we have a higher booked decision and at a higher price. And some of that is the benefit of the six month transaction, one of the things that we were I think very smart at that is the – at apparel we’ll be operating in Miami and a good chunk of that first quarter will be a charters. So that will take inventory away from the market as we bring in and launch the get away into the first quarter. So I think it’s performing exactly how we were hoping. It would perform when we acquired it. And it’s accelerated from what it had done in the first quarter of 2013. So that’s helping us as well. So we are looking, we actually have some pretty decent visibility on 2014 and we’re feeling very confident with it right now.

Timothy Conder – Wells Fargo Securities

Okay. And then percent both the available capacity now year-to-date versus last year, anything you can give us there?

Unidentified Company Representative

It’s mid single digits.

Unidentified Company Representative

Yes, it’s up mid-to-high single digits, just as a percentage without catching specific.

Timothy Conder – Wells Fargo Securities

Okay. And then lastly, any color you can give us. You said in the prior question or so about you had to work a little bit harder and then you commented that the bookings have picked up and you feel pretty good about it. But was that predominantly for what itineraries, would you say, was that due to the Triumph fallout, or what itineraries or source market? A little more expand on that color, where you had to run a little bit harder to get things caught up.

Unidentified Company Representative

Yeah, I think it was coal volume throughout North America was predominantly where it was. Then they said it was a hiccup and just heightened our visibility to just really jump into make sure we were continuing the pace well and it didn’t lost for long period.

Timothy Conder – Wells Fargo Securities

Okay. Great. We'll see you tomorrow, sir.

Unidentified Company Representative

Okay, I will see up on the walking the plank.

Timothy Conder – Wells Fargo Securities

Thank you.

Operator

And next question is from Kelly Knybel of Deutsche Bank. Your line is open.

Kelly Knybel – Deutsche Bank

Hi, guys, thanks for taking my call. I'll probably focus on a line item here. Great job on the expenses this is quarter. I know you guys talked about some shifting of the expenses between the quarters maybe. Could you give a little bit more color on that? Was that related to some of the dry-dock expenses, or are there other things moving around there?

Kevin Sheehan

Yeah, was substantially the dry-dock and then [Tom] you never know exactly how that the work is going to get done. So it actually, we don't normally have dry-dock that go in between quarters, so it’s something that we learned a little bit about when we closed the docks, but it was two weeks it was last week of March and in first week of April, and when we accumulated the cost, it maybe depending to have

Kelly Knybel – Deutsche Bank

Yeah

Kevin Sheehan

Costs that will swing into the second quarter. But when you look at the net cruise cost for the remainder year, I think it’s important what Wendy had said earlier that in 2012, we did not have any dry-docks, so accelerated one into 11 and just because of the timing, we didn’t have any in 2012. So now in 2013, you got three, the one that we had at the first week with Pride of America. And then the second week in the first week of April, and then we have the later on year we have to start.

So when you take those three dry-docks and you kind of lay those into the cost structure, and then you add in the inaugural costs that we are is having this quarter and with those – the successful launch of the Breakway, that kind of gets into zone guidance and then important point though is that when you get past ’13 and you go into ’14 or ’15, we have a very consistent number of dry-docks each year so this is a one time kind of thing which makes it looks like a costs are going when you pull out those incremental cost, we continue to do a fantansic job of process improvement and as the interesting thing to and you could see these people all over shift, we have the entire Six Sigma team on the ship, on the Breakaway.

They were working with the crew and in the dinning benches in the restaurants making sure we come out of the box with this engineering the way that makes so efficient to enable us the claims complement that we have but also enable our crew to interact with the guest and which is the reason why we have 38 straight months of record guest satisfaction. And you know just one side bar, I got because all the guests on the ship wanted to hear from these.

So they set up a meeting in the theater, which I thought it was going to be a couple of people going into the theater to listen to Kevin (inaudible). And I walk into the theater and it’s completely packed and there was 300 or 400 people on older the steps going down to the front and in the back that we spend an hour. And I can’t tell you how nice the people were and how impressed they were with the ship and they noticed all of the nuances of this ship versus some of our older ships. And so it was very encouraging to me and I’m very excited to you guys come on the ship and see it, it’s just spectacular.

Kelly Knybel – Deutsche Bank

Great, great. And then maybe one last follow-up, maybe could you gives us a little bit of color of how are the booking trends on kind of the same store existing fleet trending versus kind of what your expectations were with the new breakaway coming onboard?

Unidentified Company Representative

Of course that’s why our guidance is unchanged because we also don’t have the breakaway out through a couple of sailings. So I would say everything is pretty much on the target of what we expect and when you look at individual ships there is always things that someone looking in a microscope and say, oh, this one is a little bit different but it’s kind of consistent with what the way we built our budget and I think we talked about we added a ship up in Alaska and that booking is a little bit different than the other two ships that had been there and we did that with the understanding that sometimes it takes a little bit longer for the travel agents to understand that you do have that ship up there but it’s all going according to plan and you know we’re happy with the first quarter, we really think, we got through a quarter very solidly.

And we’re well-positioned for the second quarter and excited about the prospects for the year. And as I said, I’m really focused on 2014. I want to make sure that I’m always at least a year out to make sure we continue to build the blocks for the great success that we're going to have with expending.

Kelly Knybel – Deutsche Bank

Great, good that’s good information. Thanks a lot guys.

Operator

Thank you, next question is from Althea Jojiba of Infiniti Research. Althea line is open.

Althea Jojiba – Infiniti Research

Good morning and congratulations as well on the quarter and the Breakaway. I had a couple of questions, more on Q3, where you have a lot of capacity in Europe. And again, we are experiencing still some macro headwinds there. In addition to that, Kevin, you just briefly touched on this, but could you discuss Alaska pricing, given the almost 50% capacity addition there? It seems to have come down a little bit. Is it just the capacity coming in or are we going through the seasonality, where some years Alaska is not as strong? And we have had a couple of good years in the last two years, so maybe that's part of the reason?

Unidentified Company Representative

Right, I think the Alaska market is very, very strong and you’re right, it’s absorbing a lot of new capacities for the industry. And but we understood what was happening when we went into it such pretty much operating the way we had expected it in our budget. The Europe market is interesting because the booking volume has really accelerated in the last number of week. So we’re encouraged about where we are with the Europe, vis-à-vis our budget away for the rest of the season.

Althea Jojiba – Infiniti Research

Okay. So Europe is probably a little bit of a highlight more recently? And I would think that over the course of the next six weeks, you may have more visibility, given that the booking curve, especially for European-sourced passengers, is typically shorter.

Unidentified Company Representative

Yeah, you’re spot on, on that and the other point I would say is that and I saw this in our numbers figures actually, when we went through the Rotterdam inaugural, which we did first once we took delivery of the ship, we had a big travel agent event in Rotterdam and took them on a two-night sailing. And then we had another event in Southampton and you could watch and it’s interesting because you are sitting just to help Breakaway is going to take off from the inaugurals.

But the reality was for the European market it just reminded everybody of how great that success the Norwegian Epic is and as you guys know that that’s won the Travel Weekly, Best Ship in the Industry for two years in a row. And it just reminded people so the booking activity on the Epic has really started to take off for the last couple, as we’ve gotten through these inaugurals. And I would suggest that now with over the focus on the Breakaway over here in New York, you won’t see the same take off for the Breakaway and we are pretty confident with that.

Felicia Hendrix - Barclays Capital

Great. Thank you, Kevin .

Kevin Sheehan

Operator, we have time for one more question.

Operator

The final question is from Robin Farley of UBS. Your line is open.

Robin Farley – UBS

Great. Thanks, just a follow-up. Kevin, if I understood your comment from earlier in the Q&A, it sounded like you were saying that booking volume’s up kind of mid-single digits or mid to high single digits, in terms of volume for the kind of remainder of 2013. Can you give any color on sort of where pricing is and if you can kind of excluding Breakaway, just thinking about the same-ship basis? So volume up mid to single digits, but kind of where pricing is? And then also just to clarify, you made a comment about how you'd know more after few more Breakaway sailings, are you just sort of specifically talking about the on-board levels?

Kevin Sheehan

Yeah, as far as to Breakaway we just want to make sure that the on-board place – well, we’re expecting to be way ahead of what we were – I shouldn't say this probably. I'm getting a dirty look. But we're expecting to see the on-board experience and I'm the guy that's confident about that. The financial team is looking at me like I shouldn't say said.

But let’s go through a few sailings. You guys are going to see this when you come on the ship. I had to roll into that morning and everybody was out. And this is a Transatlantic. And this is actually would know it’s typically [crowd] so I just can’t wait to get into a couple of sailings in Bermuda.

As far as the organic side, as you know we have extremely strong pricing on the part of America. So we’re very satisfied with that and I would say on the other itineraries, we’re holding our own, Europe is starting to come back in the right direction. So I would say it’s still an environment where we want keep driving for the load factor because we want to make sure we’re in a great position, and then we can as we navigate through this important second and third quarter, you start to tweak the pricing.

So we have the way we’re doing it and we’re pretty confident last year, about this time we started to reduce our prices as we – I think, I had mentioned on the earlier course, we had held pricing very long after the incident in early last year and probably a little bit too long, which heard a little bit towards the end of the year. And we’re feeling pretty confident in that – with the book position that we have that is going to an interesting scenario because we’re strengthening price as the prior year structure to tweaking of it.

Robin Farley – UBS

Okay, great. Thank you.

Kevin Sheehan

So hope we answered everybody’s question perfectly and if we didn’t, we’re all around certainly Andrea and Wendy are available for your questions and I will see you guys in the ship, if you're around. And remember, we'll be preparing for the inaugural activities for Breakaway to your patience it will be appreciated. We've got CNBC coming over in about an hour and then CNN and a bunch of other things and in fact tomorrow we’ll be ringing the opening bell at NASDAQ at 9:30 to celebrate the Homecoming of (inaudible) Breakaway and so you can visit the NASDAQ website or Investor Relations website for details to look forward to seeing everyone to it in, thanks for your participation and support. And we look forward to talking with you guys or even on the inaugural or next quarter. Thanks.

Operator

Ladies and gentlemen this concludes today’s conference call. You may now disconnect. Have a wonderful day.

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