Good morning, everyone, and welcome to our third quarter 2019 earnings conference call. I'm Arnold Donald, President and CEO of Carnival Corporation & Plc. Today, I'm joined by our Chairman, Micky Arison as well as David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President, Investor Relations. Thank you all for joining us this morning. 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. As you know, our company has been closely tied to the Bahamas for many decades and I'd like to extend our deepest concern for those affected by Hurricane Dorian, some of whom are our own employees and business partners. As a native of New Orleans, my family and I lived through a number of hurricanes and I can only imagine the hardships in the wake of this type of storm. Now we've already made meaningful contributions to the rebuilding efforts in the Bahamas, which were matched by the generosity of the Micky and Madeleine Arison Family Foundation. Our ships provided critically important supplies directly to the region very quickly as did our partnership with Tropical Shipping to collect and deliver needed supplies to the National Emergency Management Agency in the Bahamas. In fact, our entire industry has risen up at this time of need for our friends and partners in the Bahamas. Two of our private destinations in the region, Half Moon Cay and Princess Cays, both very popular destinations for our guests, thankfully sustained minimal damage and were up and running very quickly. Our joint venture, Grand Bahama Shipyard, although in the direct path, is also up and running with Bahamian residents back at work and providing much-needed economic contribution to the recovery…

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 2019 third quarter results, then I'll provide an update on our full year 2019 guidance and finish up with some insight on 2020 booking trends and a few other things to consider for 2020. As Arnold indicated, our adjusted EPS for the third quarter was $2.63. This was $0.11 above the midpoint of our June guidance. The improvement was driven by favorability in net cruise costs without fuel, the majority of which was due to the timing of expenses between the quarters, while the remainder was due to cost improvements, which we'll realize during the quarter. Now let's look at our third quarter operating results versus the prior year. Our capacity increased 5.8%. Our North America and Australia segment, more commonly known as our NAA brands, was up 1.7%, while our Europe and Asia segment, more commonly known as our EA brands, was up 13%. Our total net revenue yields were down 0.5%. Now let's break apart the 2 components of net revenue yields. Net ticket yields were down 1.3%. Our NAA brands were up almost 1% driven by yield improvements in the Caribbean, while our EA brands were down 3.5%. Net onboard and other yields increased over 2% with increases on both sides of the Atlantic. In summary, our third quarter adjusted EPS was $0.27 higher than last year, driven by the benefit from 5.8% capacity growth, 3.2% lower net cruise cost per ALBD excluding fuel and finally, $0.06 from the accretive impact of the stock buyback program. So now let me provide you an update on our full year 2019 September guidance. Our…

Thank you, David. Operator, please open the line for questions.

[Operator Instructions] And our first question is from the line of Greg Badishkanian with Citi. Okay, we'll move on to the next question. Our next question is from the line of Jared Shojaian with Wolfe Research.

So the guidance for this year suggests EPS could potentially contract for using the low end. And just based on what you've told us so far with our booking commentary, your fourth quarter yields exiting this year, the fuel headwind, do you think it's reasonable that earnings could contract in 2020 as well? And then, how are you thinking about the dividend in that context? Is there a max leverage that you're willing to entertain to continue to fund the current rate?

Thank you. It's way too early to give guidance for 2020. There's a lot of noise out there and we'll be well prepared to give guidance on the next call. So that would be my answer concerning the guidance. And we're going to work hard, obviously, to deliver in the fourth quarter with all the things that happened, all the noise out there. We're within striking distance of previous guidance for the full year.

And as far as the dividend's concerned, we've said this many times that our dividend payout ratio, we target 40% to 50%. So in the past, we have seen situations where when earnings went down, the payout ratio went up. But we believe that 40% to 50% target is sustainable in the long run and that's why we chose that. And with the strong balance sheet, we believe that the dividend is sustainable at that level. Of course, we wouldn't raise the dividend until we saw earnings go back up.

Got it. Okay. And then as we look at CapEx for this year, this is a record year and next year is similar to this year in terms of elevated CapEx. But right now, obviously, you don't have any earnings growth. Next year, I think could potentially look kind of similar. I know you're not -- you don't want to give guidance on 2020 right now, but then your ROIC is also now declining. I know these are 2 important metrics for you. So at what point do you start to meaningfully reduce capacity? I know you mentioned some tweaks here and there with Costa, but those don't necessarily appear to be needle movers to your overall capacity. I mean, correct me if I'm wrong on that, but at what point do you start to get a little bit more aggressive on reducing some of the capacity here?

We'll look at it brand by brand, trade by trade, which is what we always do. I think, again, we haven't given guidance for the next year. We've had a lot of strength where we have had capacity increase, for example, in Germany with our AIDA brand where we had substantial capacity increase there. And obviously, with all the things going on, there's some pressure on yields in different places, but we'll monitor for overtime. We introduce, we plan ahead on capacity, the ships we have were planned some years ago. We can't always time them perfectly with economic cycles within a given country or even trade, but the assets are mobile and we build 30-year assets. We know that those 30-year assets have individually faced various recessions over that 30-year period of time. But overall, we're building capacity and managing capacity to produce results over time.

And in terms of the capacity growth, as we look at 2022, it -- sorry, 2021, it looks to be 5.3%, which is well below the over 6% increase we had expected just 3 months ago.

And the capacity moves we make are material for within the trade and the brands that we make.

Our next question is from the line of Steve Wieczynski with Stifel.

So you gave a lot of commentary around 2020 at this point. I know it's still early. I know you're not going to give guidance. But the commentary you had in the release about booking volumes and pricing since June coming down, I guess, is really causing some concern. And I guess, can you help us break down maybe,, which markets or geographies have weakened in terms of bookings since we heard from you back in June?

So the hard part about looking at the booking volumes and pricing since June is all the noise that is out there in the bookings. Remember, we had the Cuba situation, we had the Carnival Vista, Hurricane Dorian, tensions in the Arabian Gulf. We had to change the itineraries for Oceana. So with all that noise, it is very difficult to read through. And it's one of the reasons why there's a little bit greater degree of uncertainty and why we feel uncomfortable trying to give guidance for 2020 at this point.

Just to reemphasize what David is saying, we did have Dorian the hurricane, we had the Arabian Gulf, we had ship delays Smeralda now, that's going to impact us on the top line with liquidated damages. Cash flow wise, we're going to be good with that, but there is other ramifications of that in terms of future cruise credits and short-term impacts. You've got the no-deal Brexit situation, obviously. The environment in the U.K. for tourists not as positive as it was. There's a clear change in Germany where the travel market is down. We've outperformed in Germany versus -- the travel market, land versus cruise, but nonetheless, this is a constrained environment. Persistent economic malaise in the rest of the Continental Europe, just had a fuel price spike and then future cruise credits from Cuba and Vista so all of those things and then on top of that a tougher comparison in the fourth quarter versus Cuba although the Caribbean is very strong. Cuba pricing last year in the fourth quarter is not available to us in this fourth quarter. So all those things paint a picture with a lot of noise in it. And with all of that, the results had us within striking distance of the guidance we gave in June on our earnings basis, and we're preparing to take on the headwinds next year and be positioned well.

But I guess, if we -- if I add on to your European business, I guess, the question would be, the pressures that you're seeing over in Europe, will that be more related to macro issues or is that more related to overcapacity? Or is that basically an equal balance of both of the issues?

I think there's no question the macro environment constrains the ability to grow capacity and grow yields at the same time, there's a constraint on that. And then you've got the geopolitical things where again, we had -- it's not just a matter of planning, it's a matter of these sudden changes. So when you have Oriana having to suddenly change an itinerary that was well booked and then change to a different itinerary that you now have to book with a much shorter booking window and the similar kind of situation would happen in some instances with Cuba and with the hurricanes, those dynamics create a lot of noise. Now, we always plan for some things to go wrong. This year, we've had kind of a plethora of things that has overwhelmed even our planning and it's just that we're dancing with. But longer-term, Europe is a strong market, it's true. In the short term, we over index. I guess we have 3x the number of guests, say, that Royal would have. Ex-U.S., we have 10x normally that NCL will have ex-U.S. So anything that's not going well there, we get more impacted. But the reality is, on the longer-term, it served us well. And we have the strongest balance sheet with the largest of scale and we have great returns overall.

And maybe if I could ask one more quick one for David. David, can you expand a little bit more in terms of what you were referring to in the fourth quarter in terms of higher, I don't know if you said marketing or advertising costs? And I guess, what I'm getting at here is, can you maybe help us also think about the promotional environment that's out there today and that doesn't mean you're going to get promotional on price, I assume?

No, no. That -- first of all, the only comment is, we're investing to create the demand given the fact, we have a 7% capacity increase coming in next year. And we're going to pre-invest, of course, in wave season to make sure we're doing everything we can to create the demand environment we need to be successful in that. That's the overarching term and it's not promotional like discounting and so on. But -- go ahead, David.

Yes. I guess, in hindsight, I should have used the word advertising. It was relating -- my comment was relating to net cruise cost being higher in the fourth quarter and that being driven to some extent by the higher advertising on a year-over-year basis.

Our next question is from the line of Harry Curtis with Instinet.

I wanted to follow up on the capacity that's shifting out of your markets. I mean, first of all, that's -- it's not a huge amount of capacity, but where is it going?

The shifts that we were talking about in the Costa, I'm assuming that's what you're referring to, different places, some are being sent to China, some are being sent to other markets where we have strength and...

And some are leaving the fleet.

And some are leaving the fleet, some are being sold.

Okay. So as a -- going back to Jared's question, does it make sense to not just sell these ships, but to actually retire some of the old capacity because that would theoretically give you an opportunity to lift pricing on the next tier up and improve brand image, for example? Is that being considered?

First of all, our brands do not have tarnished images. The brands are strong and they're doing really well. We don't sail people on old, tired ships. The ships have to resonate with the guests. And so any ship we have, you could say they're maybe 100-year old hotel, but it could still be a pristine hotel with great service and so on and so forth. So that's the first thing. Second thing is in terms of disposing our ships, when we sell them, we don't sell them into competing markets. So we're not selling ships into markets where we're going to be competing directly with it. So that capacity is not only leaving our fleet, it's, generally speaking, leaving the market that we're operating in. And when I say market, I mean the type of cruise that we do and the type of travel experience that we're marketing. So those will be the 2 comments. But again, if we get to the point where we feel there's a need to, we're not afraid to scrap a ship or if there's not a market that's outside of our market to sell it to. At this point, again, we feel pretty confident that we are on the right path. We obviously are examining very closely every segment and every trade to see if there is additional moves we need to make. We saw a persistence of economic malaise in Continental Europe, especially southern Europe and persistence over time. Costa has been improving its performance over time and kudos to our team there because they've done a very good job this past year and with all the other dynamics going on right now, we felt it was smart to replace some of the capacity we currently have with much more efficient capacity, which is Costa Smeralda and so as opposed to adding net capacity, we'll be replacing capacity with much more efficient capacity and that will give us some help both from an operating expense standpoint, but also moderating capacity for the next period of time here so we can continue to improve the performance of Costa.

Very good. And just my last question is related to kind of renovation and maintenance CapEx expense this year and maybe -- and looking out to 2020 and 2021, I believe you're spending between maintenance and renovation CapEx about $2 billion. How is that likely to trend in 2020 and 2021? And what are you trying to achieve, particularly with your renovation CapEx? What inning are you in with respect to upgrading some of the existing fleet?

So the number should be pretty consistent in '20 and '21 as we move out. Some of that in addition to CapEx for the fleet will go towards port development. Yesterday, we put out the press release about our port facilities in Grand Bahama. And as far as the -- what inning we're in, you got to take a look at every brand. There's a little bit different, has different average age. I mean, some of the brands have, as Arnold tried to indicate in his comments, have continually maintained their ship and continually retrofitted them to keep consistency across the fleet. So there's always more to do as time goes on, but we feel that we're in good shape and good consistency across each one of our brands at this point, but we'll never be done. It's an ongoing process.

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

David, can you just give us some more color on your NAA brands for the remainder of 2019? It just sounds like that segment got incrementally worse since the last time you updated us, and I was just wondering what was driving that.

So the NAA brands, there's a lot of things going on there between Cuba and Vista and Hurricane Dorian, a lot of noise and a lot of challenges in North America. We saw challenges in late season Alaska as well. And so overall, as we have said in our prepared remarks, we had taken the guidance down $0.06. That was attributed both to North America and the EA brands.

Overall -- oh, I'm sorry, go ahead.

Yes. No, no.

Yes, I was just going to say, overall, again, the Caribbean is very strong. And overall, we have increase in yields for the year in NAA brands. It's, I guess, in the forecast is down slightly from what it was, but we have increase in yields in NAA brands overall for the year.

Okay. Because my -- the crux of my -- okay, so Cuba and -- so for Cuba and Vista, those were issues that you knew about last quarter. So like if I could bucket things out or segment things out, it sounds like just maybe some of the noise there is lingering a little bit more than you thought. Is that...

It's a combination of things. So yes, we knew about them. But you have future cruise credits and when those get claimed or not claimed, et cetera. And then just because of the suddenness of them, it changes rebooking and booking curves and it creates noise. And so, there is a lot of noise there. But again, since you're talking Cuba and you're talking Vista, I do want to point out that the Caribbean is very strong.

Thank you for that because I think one of the other items that you threw in there was Hurricane Dorian and I just think that there's been a concern out there that post Hurricane Dorian, there's been a booking lull and that might not -- that might have an extended impact into 2020. So that might be a segue into 2020 also because some of your language changed there, too. So if we could maybe just focus on that one driver how you're seeing things.

Yes. We're not giving guidance. We've talked about the booking trends already for the first half of 2020, but I would say it relates more to the comments about the last 6 months of booking trends where you have all this noise in there that -- and we're sorting all that out to see exactly where we are, but the booking trends we shared for the first half of next year, we're ahead and in line on prices.

Okay. But -- I know you're not giving guidance for 2020, but for 2020, the language changed a little bit too because the bookings are now ahead versus well ahead and is that just mainly from EA or is it noise that you're -- continued noise you're seeing in the Caribbean?

That was more the North America -- the NAA brands, but it has to do with the booking activity during the third quarter. But both the booking activity during the third quarter was down in both the North America and the EA brand, but we're still ahead.

Right. Okay. And just on Alaska, just look, I know the industry is going to grow supplying Alaska high single digits next year, but it is significantly less than the industry grew this year. So is there an opportunity for you in Alaska to do better year-over-year? I know it's really early.

It's early, but clearly, less capacity growth creates additional opportunity, but mainly for us, we're investing, as I mentioned in my comments, to make certain that the true advantage we have in Alaska with our strong brands is effectively communicated and recognized. But our brands are doing really well. It's a high return market for us. It's a high-yielding market. Back at the -- 5 years ago, there was temporary overconcentration of supply in the Caribbean, similar kind of capacity increased and things went south on yield for a bit, but today, the Caribbean is very strong, well above the peak pricing, previous peak, well above that base 5 years ago with substantially more capacity in it. And we think over time, Alaska will probably play out the same way.

Okay. And final -- just final clarification on something. I thought you guys had previously said that your IMO, MGO mix was 70-30. So now it's 60-40. What changed?

No, we had said about 35% approximately. Remember, we always round these numbers. It did move up a couple of percentage points. We took -- we refined the number by taking into account usage in port as well as the commissioning time for some of the installations of advanced air quality systems that are yet to come.

And is there a chance that the pricing, the IFO pricing improves from what you're seeing now because, I guess, those gets lower such as you anticipated.

Yes, if we knew a week of forecast, fuel prices would be in pretty good shape. But the reality is that it can improve, it can get worse.

If you look at the forward curve, the forward curve will tell you that it will be significantly lower in the January-ish time frame. However, I won't say the forward curve is always a good predictor. So I'm not here to forecast, but I can't give you that fact. And the other thing that I do want to point out on the fuel mix with MGO, we have said this before that as we continue the installation of the advanced air quality systems, we'll see that 40% decline over time back towards the 20%.

Okay. But -- so you're not using the forward curve to put your -- in your forecast today?

No, I was very specific. We used the current spot prices that we used for fourth quarter guidance.

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

I wanted to ask a little bit about your comments about the early 2020 commentary and how bookings have been in the last 3 months. I guess, I'm thinking about maybe what that rate of decline has been. And I wonder if you could give us a little color on North America, which may be disrupted in the last month by a lot of storms and flooding and things that would maybe be more temporary versus maybe some of the things in Continental Europe that you've talked about that maybe you would expect to continue. Just to try and get a feel for how that rate have changed from here forward assuming that volumes for -- from North American passengers recover to normal levels kind of after hurricane disruption and then also, the German market, just thinking about the fact that there's less supply -- much lower rate of supply growth next year in Germany, do you have a kind of an early take on -- is that shaping up to be better even though I know your general commentary in the last 3 months hasn't been?

Okay. So I'll start and then David and Beth may have some comments as well. First of all, let's start with your last one first, which is Germany. Again, I want to give our team kudos because they've totally outperformed the travel industry in Germany and they've outperformed the rest of the cruise industry in Germany. But clearly, there's been a change in consumer sentiment and overall the travel market has declined in the face of substantial capacity increase that we have this year. Looking forward to next year, there's less capacity growth for us and for the industry. So that bodes well. Germany was able to grow their earnings this year even with the noise and the background and so on. And so I think our team is well positioned to try to drive results next year and we have to see how deep and extensive, whatever the malaise is in Germany, but we'll persist to see how it would affect us, but there's definitely opportunity in Germany. The rest of Europe is, as we said, we made the modifications that will impact later in '20 for the Costa brand, but the U.K. has -- did have some short-term disruptions recently with the Arabian Gulf situation. The geopolitical tension caused us to change itineraries and shorten the list of ships, I've already talked about, that has an impact on these reported numbers that we're summarizing in bookings over the last 3 months and so on and so forth. And there's also future cruise credits involved and what have you. But overall, the U.K. market is strong and as I mentioned on the call, the U.K. consumer tends to still have a good healthy appetite for holiday and vacation and cruise even when things go not as well there from an economy standpoint as you might like. Also we do have the benefit with P&O and that's one of the advantageous of having a national brands, that it is pound-sterling based. And so it can avoid a lot of the currency fluctuation things that can impact choice of travel that other offerings might have. And if you move into North America, again, the Caribbean is very strong. Carnival brand continues to perform really well, but they've performed even better without the noise, absolutely, but the reality is strong. And North America is going into next year. We're going to study very closely to see what's happening overall. You see some general softness from a lot of this noise and geopolitical noise and other things are even happening today, but it's far too early to predict and give guidance on that.

Yes, and I think we should stop there because by giving more specificity relating to all these booking trends will provide information to -- far more information than I really want to give to our competitors at this point in time.

Okay, that's fine. And then just -- I don't know if you have any comments on Thomas Cook and whether that taking that supply out of the -- the sort of broader vacation market and tour operator market in the U.K. Will -- is that ultimately do you think give an opportunity in terms of picking up share of the vacation market when you think about previous times the tour operators have come out of the market? I know it's been a couple of years, but I don't know if you have any thoughts around that?

We don't have any predictions around the ramifications. It's kind of a sad day because obviously a lot of employees have been impacted and a number of travelers are being impacted as we said in my comments, that we're protecting all of those that were booked on P&O or Cunard and people will still travel in U.K. and they'll find a way to do that, and does it -- in the end bode even better for cruise versus not or for us versus others that at this point, I don't have a comment on.

Maybe just a last question on that point is when you just -- when you think about your distribution in the U.K., are you able to replace what you have been distributing through them through other channels and through direct channels? Or do you expect any kind of change in your distribution?

I think from ability to book, yes, we're in a healthy situation and we'll be able to adapt to the change and be able to continue to perform, and our U.K. brands are performing.

Our next question comes from the line of Brandt Montour with JPMorgan.

So just a quick question on the commentary around fourth quarter net yield growth. I think you mentioned, David, that you're penciling in lower onboard growth. Just kind of remind us sort of what's the onboard growth range you guys generally put one quarter out? And is there something you're seeing with your onboard passengers kind of in the near term that is causing you to be a little more cautious there?

Yes. Real quick about that. I'd like to just point out that onboard both NAA and EA, both segments once again is up this year over last year. And I think there's only been 1 year in the 47, 48 years we've existed that onboard revenues haven't increased and they're up again. So that's the overarching comment on onboard revenues, but I'll let David answer your specific question about the modifier and the guidance.

So typically, in our guidance, we provide something around 2-ish, plus or minus depending on the quarter, itineraries and other things. So in this particular case, we're just -- they're still up in the fourth quarter. We were just saying that they wouldn't be up quite as much as we had in the June guidance in the fourth quarter and some of that had to do with onboard credits relating to Cuba, which were given to people onboard the ship. I think we got the total Cuba impact correct. The split between onboard and ticket may have been off a little bit. There may have been some other noise in the numbers, but we're talking about small movements here and just trying to give people some direction.

And to be candid with you, we can't really forecast on our revenues. So we'll see what happens in the [ TAM ] so working to drive onboard revenue.

So what is impacting onboard revenue has been in part occupancy led given all of the near-term inventory that's been put into the market and the pricing discipline that the brands are trying to maintain, we are a little bit marginally lower on the occupancy in our forecast versus the last one, which has a knock-on impact on onboard revenue.

That's very helpful. And then just quickly to circle back on the advertising commentary. Just where sort of regionally or brand-specific, where do you think that those dollars will be focused the most? And then can you give us a sense or maybe the cost benefit announced around stepping up that marketing spend and what that really can do for you when you've done this in the past?

Providing that level of detail we'll probably be going past the line we don't want to go in terms of revealing versus competitive stuff. But bottom line is, we use the word term advertising broadly. It's a combination of efforts to create demand. And there's obviously some obvious markets that you would anticipate that going into. So I'll let you just anticipate those.

We'll take 1 or 2 more questions because we will go over.

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

I just want to circle back on the North America. I mean, did you lump Dorian in with several other items, is there a way to break out the Dorian impact on -- from the consumer side to fiscal '19 here? And then, any comment you can give or anything related to your impact at the Grand Bahama Shipyard for your ownership position? And then, how that may disrupt your dry dock schedules from that?

Yes, I'll talk about the shipyard real quickly, our joint venture there. The shipyard, we're finalizing reviews of exactly what we want to do in terms of the dock that was damaged. That decision will be made relatively shortly. That decision is being made in mind with all of the partners desirous to ensure that we have the most cost-effective dry dock available for those that are coming up to be scheduled. So we're in the middle of finalizing all that with the partners. Hasn't yet been finalized, but it's being finalized in the context of making certain that we are cost-effective in the repair or new build, whichever way we go in and then ultimately, servicing the needs of the various partners in the yard.

So -- and it's fair to say, the shipyard is up and running as we speak today, servicing ships, there are ships there. I believe they did put out a press release indicating that. So people are back to work, contributing to the economic viability of the island. And as far as Hurricane Dorian is concerned, I mean, it had an impact on our business. We had a couple of canceled cruises and a couple of cruises where we had to change itineraries and change the embarkation day. We haven't seen anything that is different about this particular hurricane than any other in terms of booking trends or anything else. We always see some noise in the booking trends as a result of each and every hurricane.

Okay. And David, on that specifically, could you -- is there any specific number you can put on the impact for canceled cruises, cruise credits, whatever related to Dorian in '19? I guess, that would help give color on some of the prior questions that have been -- that I think everyone's trying to focus on North America? And then, one other thing I'd like to ask, if you wouldn't mind, thank you for the color on Europe. You did mention Asia in your press release. Can you talk about any weakening that you're seeing there? How much of that is due to higher capacity from the industry, yourselves, putting some older Costa ships there? Or are you seeing maybe a reduction in Chinese outbound travel for cruising in Asia, Australia or U.K. guests who would go to Asia? Just any additional color on Asia in general there?

I think the press release refers to the segment and it's the way we define the segment, we say Europe and Asia. And if you look at the business in Asia, it's been very strong this year. We're up overall. And so we've had a very good year in Asia both in China and in Japan. And so Asia for us has been a good business this year. So we have not seen weakness in Asia this year.

And we did say that the combined Dorian, the delay delivery of Costa Smeralda and the tensions in the Arabian Gulf cost us $0.04 to $0.06 in the fourth quarter. What was interesting is, remember, the Arabian Gulf itineraries just changed in late October. So Dorian and Smeralda were a bigger part of that $0.04 to $0.06.

One last question.

And our final question is from the line of Stephen Grambling with Goldman Sachs.

Given all the headwinds you're talking to in 2020, I guess, what are the levers you have to more aggressively cut cost and protect profitability, such as what you saw a little bit in this quarter? Maybe, I'll ask another way. What's the range of net cruise cost to think about should the environment remain weak or even deteriorate further?

Again, we won't give guidance on cost. What I can tell you is, historically, we've set the target $75 million to $80 million just from sourcing improvements. And this year I think as I've reported will be well north of $100 million, like it's $115 million of savings this year. How much of that we put to the bottom line and how much we choose to reinvest to create demand, that's part of our internal planning process, which we'll be wrapping up here in a few weeks. And so, as we look ahead, we see continued opportunity for sourcing savings across multiple fronts and we'll be advising what that will be as we look ahead. But obviously, as you saw that happen this past quarter, we do have flexibility outside of things that are demand-specific to make changes we need to. Part of what we're doing also though is in the case of Costa with Costa Smeralda is putting just much more efficient hardware in, so now maybe you moderate the capacity by taking out the other ships. But we're actually improving the operating base because this is just a lower in effect net cruise cost operating vessel. So those are the things we're doing and we'll continue across the base. I'll have David make a comment.

Yes. So let me repeat what I think I've said a couple of times before. In 2020, given the 7% capacity increase that we have coming, we get tremendous economies of scale both the onboard those new ships because they're larger as well as shoreside. And as a result of that, we believe that the cost guidance for 2020 will be better than the cost guidance for 2019. But we'll stop there. We'll go through our planning process and we'll give you more detail in December.

Okay. Thank you, everyone. We really appreciate it, and look forward to following up with you guys in the coming weeks. Thank you very much.

Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.