Good morning, everyone, and welcome to our Third Quarter 2016 Earnings Conference Call. I am 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; by David Bernstein, our Chief Financial Officer; and by Beth Roberts, Senior Vice President, Investor Relations. 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. Despite a series of geopolitical events that unfolded as the year progressed, including Turkey, Paris, and Brussels, despite heightened concerns around Zika, around Brexit and around China, despite fuel and currency both working against us resulting in an $0.18 drag from our initial 2016 guidance, we have exceeded the high end of our quarterly guidance and we are raising our expectations for the year. This quarter, we delivered the highest quality earnings in Carnival Corporation’s history, with record net income of over $1.4 billion, $0.17 per share higher than the prior year exceeding the high end of our guidance and $0.07 above the midpoint. Despite the numerous headwinds, we are well on track to achieve our new guidance midpoint for full year adjusted earnings per share of $3.35, more than doubling our 2013 earnings of $1.55 per share. More importantly, our return on invested capital will also nearly double from 4.6% to 8.8% over that same time period. These strong results could not happen without the hard work of our 120,000 passionate employees and without the strong support of our travel agent partners. Looking forward, our booking trends are strong heading into 2017 with higher occupancy levels at higher prices, building momentum for continued earnings growth. Our record results and favorable booking trends…

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 third quarter results. Then I’ll provide an update on our full year 2016 guidance, and then I'll finish up with some insights on 2017 booking trends and a few other items to note for 2017. Our record adjusted EPS for the third quarter was $1.92. This was $0.07 above the midpoint of our June guidance. The improvement was driven by a number of factors. First, $0.02 from net revenue yields, which benefited from stronger pricing on closing bookings at our North American brands. Second, $0.02 from lower net cruise costs excluding fuel, as a result of timing of certain expenses between the quarters. Third, a penny from the favorable net impact of fuel prices in currency versus our June guidance rates. And fourth, a penny from the accretive impact of the shares we repurchased since the last earnings call. Now let's turn to the third quarter operating results versus the prior year. Our capacity increased almost 4%. The North American brands were up over 2%, while our European, Australia, and Asian brands, also known as our EAA brands, were up over 6%. Our total net revenue yields were up 2.7%. Now let’s break apart the two components of net revenue yields. Net ticket yields were up 3.1%. This increase was driven by our North American brands deployment in the Caribbean, Alaska and Europe, as well as our EAA brands deployment in Europe. These net ticket yield increases were partially offset by yield reductions in Australia, driven by large industry capacity increases in a highly penetrated market, as well as yield reductions in Asia, where…

Thank you very much. [Operator Instructions] And our first question comes from the line of Robin Farley with UBS. Please go ahead.

Great, thank you. I know your first half commentary, you're looking very strong. I wonder if you could clarify on maybe two areas where investors may be kind of most concerned, and it's really I guess given demand or concerns about North American demand into Europe. That would really be more of a Q3 issue. I wonder -- I know it's still early, but can you give us any sort of early read on that? And then the other area, China of course, and I realize China is in your first half guidance as well, but I wonder if you could just sort of give any color on you know how chartered -- how much you’re chartered for next year at this point already. Thanks.

Good morning, Robin. First of all, with regards -- let’s take the second one first on China charters. We’re just in the process now and that was part of our consideration for making adjustments we’ve made that we've included in the guidance going forward on this year's activity. So no real guidance yet for 2017 on that except what David shared in his comment about where the bookings were for Asia overall. In terms of the North America brands in Europe, again our booking curves look strong, and look good as do our pricings, but you're asking about third quarter 2017, obviously that’s ways off.

Okay, maybe just one clarifying comment. David, you mentioned occupancy for Asia overall in line so far in the first half, so that would -- and that commentary would include China -- in other words any charters for the first half for China suggesting in line with last year at this time.

Yes. Right now, our charter activity is strong in China. Our occupancies this year were very good. We anticipated as we said in the opening comments that we would see yield decline, but China is profitable, occupancy levels are high, which means the increased capacity was absorbed in terms of having guests on the ships. The ships are sailing full. And chartering for next year at this point is in process, but solid. We don’t see any consternation around occupancy for next year.

Okay. Great. Thank you.

And Robin just one last comment, I’m sorry. Real quickly, the guest satisfaction levels are very high as well. So China is a great market, still small part of our overall base, but it’s a very strong market.

Great. Thank you very much.

And our next question comes from the line of Felicia Hendrix with Barclays. Please go ahead.

Hi. Thanks for the time and good morning. Just sticking on your outlook for 2017, David, it appears that the commentary that you had for the first half this quarter has improved since the color you gave last quarter. You guys did give us some nice color on the call, but I was just wondering specifically what is driving that improvement.

It’s a variety of things. We’ve talked all along essentially about the strength of our booking. Our booking position as well ahead. We talked that pricing at this point is considerably higher. We’ve been working all along, all year long on our yield management systems. Best practices across the brands have been very helpful. As Arnold mentioned, we just rolled out for the 6 brands the prototype and the new revenue management system and that will be helping in addition for 2017 and beyond. So there’s a lot of good positive deployment optimization across the brands have contributed. So there’s a lot of very good things going in our favor and we feel very good about the overall book position for 2017.

That's helpful. Thank you. And so your fourth quarter outlook is basically in line with what was implied when you reported last and also in line with consensus. There have been some travel agent reports about pockets of inventory in the Caribbean for the remainder of the year. I'm assuming that's being contemplated in your guidance. But is there anything that you can see today that might cause some risk or concern about the guidance for the rest of the year?

No, we don’t see anything in terms of the guidance for the rest of the year. Our bookings are very strong in the Caribbean. We’re well ahead with higher pricing. We don’t see softness. Our brands continue to outperform in the Caribbean.

Thank you for that. And then just finally Arnold, you touched upon this earlier in your prepared remarks. Could you just talk a little bit more about the decision to move AIDA from -- it was originally -- one of your AIDA ships originally anticipated to be in China next year. Now it's going to be in the Med and then earlier in the year you moved that China decision for Carnival brand to be in China. You took that out. So I was just wondering if you could talk about those decisions, and would we perhaps see those brands in China in 2018?

Again deployments are kind of a holistic decision, so a lot of things go into consideration. Obviously, the market you’re considering deploying it in, but also in the case of AIDA, the AIDAperla, our new ship, we’ve gotten confirmation of when she’s going to come in. So we now know the capacity situation we’ll have so that was the relative strength of the market in Germany for AIDA. So all of those things factor in as well as the dynamics in China itself. Similarly with the Carnival, as I mentioned on a previous call on that one, it was a combination of things for how well the Carnival was doing in the Caribbean at a time capacity coming in, with the Vista coming in, and other things. And the fact that we have distributed ports, home ports here in the US, and getting the right ship in the right home port, all of those things factor in ultimately for an optimized deployment decision. And that’s the beauty of our inventory is that it’s mobile. We kind of adjust and adapt and we’re constantly seeking to optimize.

Great. Very helpful. Thank you.

And our next question comes from the line of Steve Wieczynski with Stifel. Please go ahead.

Good morning, guys. Arnold, can I follow up on China? Let me ask another question. I know you'll probably get sick of them. But I know you were just over there, I guess it was last week at a pretty major cruise conference.

Yes.

Can you give us maybe the two or three main takeaways that you came back with?

The takeaways were the ones I went over with frankly which is, number one, cruise is in the 5 year plan for China. So that means the government has committed to developing the Cruise industry. The reason for that is pretty self-evident. We’ll employ, overall with port development and infrastructure, and supply chain, and training as well as ship building that will employ millions, and millions, and millions of Chinese. So the government is very interested and they see cruise as an economic engine going forward. So you’ve got the support of the central government and the various provincial municipal governments, so that’s very important. The second thing is there’s a growth market. The third thing is that growth is constrained. I know that percentage is not large and everything, but as I’ve tried to point out in my opening comments, we’re talking onesies, twosies, and ships. And the reason the growth is constrained is because we have large addressable markets that are underpenetrated everywhere in the world. And so we have lots of places to put ships these days, and so we are not going to just take all the ships in the existing markets and move them unity to China. And then there’s constraint on the number of ships that can be built in China -- for the China market in the near term here. So all of those things put additional constraints. Beyond that clearly as we anticipated, as you guys have identified through your assessments and stuff that yields declined, we see China as a unit volume, a unit growth story as ultimately accretive to earnings, which it has been for us and overall helping us optimize yields across the global fleet and it’s working really well. Having said that, there is a gap with distribution.…

So if I can follow up on that real quick, so is the biggest hurdle that you guys see still the distribution network, or is it the infrastructure is still not really in place at this point?

The short time opportunity of course is with the distribution system that benefit fully from the pent up demand there is for cruising by connecting it to the capacity there. So that’s the immediate opportunity. The near term opportunity of course is to further develop the markets from a port and destination standpoint, and that’s a near time opportunity and there’s lots of work going on with that. So that’s the next opportunity and the near time opportunity and we are working on and of course, the Chinese government is working on it. We are working on it in other places, the places the Chinese want to go to. So there’s additional itinerary planning that needs to evolve in ports capable of taking the large number of Chinese guests that will be frequenting it.

Okay, great. Last question, very simple. Your Caribbean bookings are, in terms of your commentary, are probably much better I think than folks would expect at this point. So is it fair to say the Zika impact is basically zero at this point?

Yes. We’ve seen no material impact from Zika. We didn't get any cancelations or they’re not enough to mention. We didn't see any impact on booking volume or timing or anything. So we have not seen an impact from Zika. Having said that, you know, could there be a little bit of noise? That is just overwhelmed by the great demand that there is for the Caribbean would have been even greater and hypothetically you can say that, but we have seen nothing to suggest there was impact from Zika.

Okay, great. Thanks Arnold.

And our next question comes from the line of Jamie Katz with Morningstar. Please go ahead.

Good morning. Thanks for taking my questions. I'm curious on the new ship builds that you guys are doing with CSSC, if there's any infrastructure spend that maybe needs to happen to facilitate that or whether that sort of goes under the China government spend plan and won't require very much investment on your part.

No, there will be no investment on our part. First of all, just to explain the construct. CSSC and Fincantieri have a shipbuilding joint venture. Ourselves, CSSC and CIC have a joint venture on a ship-owning joint venture that’s still being finalized, as well as a ship operating joint venture that is being operationalized -- is being finalized. So we are investing in the ship building infrastructure and I need to tell you that that’s on the part of CSSC. I’m not sure if Fincantieri is contributing to that or not. You’d have to ask them. But that partnering with CSSC and ourselves, we're looking -- we will be at this point a minority participant in the joint venture, open to manage, the marketing and manage the fleet. But CSSC and CIC, these are the majority owners of the joint venture for the domestic Chinese effort.

Okay. And then your selling and administrative expenses came in quite a bit lower than we had modeled. Can you talk about maybe where you guys have made the most gains there and where you still see the best opportunity to gain on some of the expense structure you currently have in place?

We've had success across a number of fronts. We’ll highlight more where we -- definitely we’ll achieve our $75 million target this year and we'll have more detail on that in the next earnings call. But we continue to see opportunities across the board. Some highlights this year were freight and marketing as well as food provisioning. Going forward, we see additional opportunities in all those areas. Plus we're beginning to get to stores, our technical stores, which is a big area of expense for us, inventories on the ships et cetera. That takes a little more time to get things coded properly so you can monitor and measure, but we’re starting to make progress there. David?

Okay, and then --

Excuse. I think David had a comment. Go ahead.

Yeah. On the SG&A expenses, of course I don't know exactly what’s your model. We did give guidance for the whole year for net cruise cost without fuel being up 1.5%. We did beat our third quarter cost guidance because of the timing of certain expenses. And I mentioned that one of them was advertising. So we may have spent a little bit less in the third quarter in advertising than we previously anticipated, which could have affected your comparison.

Okay. Thank you so much.

And our next question comes from the line of Greg Badishkanian with Citigroup. Please go ahead.

Great. Thanks. Just to follow up from Steve's question before on Zika, that you're not seeing a noticeable impact. Why do you think that you're performing better than some of your competitors in the Caribbean in the fourth quarter where we've been hearing about some aggressive discounts and promotions coming from some of those competitors lately?

We’ll not make any comments obviously on the competitors, but just for ourselves, it runs the gamut from first and foremost. Our people and our brands have done a great job developing the guest experience and the guests are having just tremendous experiences and we are exceeding their expectations across the brands, as they go into the Caribbean, especially with the Carnival brand. So that's number one. Number two, in the case of the Carnival brand in particular again, we have a very large base of previous cruise-goers that are loyal to the brand and that obviously helps us because those people have experienced the brand and love it and want to do it again and again. And then thirdly, we're better in our revenue management skills. And so we have shared best practices across the brands on revenue management and our people are getting increasingly sophisticated and doing very, very well. Also, we've anticipated a bit of an election slowdown, as historically there's always been a little fall off in booking volumes around election time. And so there could be some of that, but in our case again, right now we're doing so well, and we're so far ahead and the pricing is strong. We’ve got great close-in pricing right now and so it's been very good. But relative to what the other companies, other cruise lines, I wouldn't have a comment, but other than to say I'm sure it's a combination of the relative moves they made in deployments and stuff, but I have no idea.

The only other thing I wanted to add is that in the Caribbean, keep in mind that our capacity is distributed across multiple home ports, which I think we benefit from as well.

Okay. That's helpful. Moving to China and if you think about 2017 and how your negotiated pricing ultimately will end up, I know you're not going to give us a specific number right now, but maybe just some thoughts of how you think that that will proceed and also is the right way to think about it. If you're growing the capacity there by 26%, would you expect the profitability of your China business to grow equal or greater to that in 2017, so that's what you're managing to, that profitability growth.

Real quickly, I think the important thing for us in China is to ensure that we are developing sustainable business there. Sustainable for our distributor partners, sustainable in terms of the government's desire to have the cruise industry be established there and obviously sustainable for us from a profit standpoint. So it has to be a win-win-win. So that begins the constraint around how much we will negotiate, because we're not going to negotiate to a point where it's not economical for us and that just won't happen. And so having said that, the other comment is if you take the impact this quarter, given even the additional consideration we've reflected in the guidance going forward, the impact for the full year yields for us is -- across our fleet is a rounding error. So we believe that we can effect a sustainable business in China over time. We're going to make practical economic decisions. Our assets are mobile. And because of such a small percentage, even in the future when we start looking at adding additional ships above our overall capacity, we can move a few ships around and manage things effectively through smart deployment. Having said that, for next year, right now we see good relationships with our distributor partners and an ability to attract value. Hopefully it will be proportionate to the capacity increase or greater, but at this point we haven't finalized those conversations and it's too early to give real guidance.

And also the capacity increase is driven to a great extent by the introduction of Majestic Princess and that's the first purpose built ship for the China market and we really do believe that that will generate a lot of great excitement and further stimulate demand in the market, which should be very helpful on the pricing side.

Good. All right. That's helpful. Thank you.

And the next question comes from the line of James Hardiman with Wedbush Securities. Please go ahead.

Good morning. Thanks for taking my call. So a couple questions here. Obviously since the last time you guys reported, there were a number of geopolitical events. Could you maybe walk us through what happened during and following that time? It doesn't seem to have really hurt your numbers for the quarter or in terms of the outlook. Was it that you didn't see any impact on demand? Was it that you're maybe a little bit more insulated because you don't have a whole lot of exposure to US customers going to Europe? Or did it in fact impact your business and your yields would have been all the better for the third quarter and in terms of the outlook if it hadn't been for those geopolitical events?

Real quickly, in terms of that many US going to Europe, we do have in our Holland America brands, Princess brand, and even in our Cunard, we have a number of Americans who go to Europe across our brands, Seabourn, et cetera. So it is important to us. So the impact was this. In the cases when things got a little dicey in Istanbul, in Turkey, we obviously had to make deployment itinerary changes. So again, generally speaking, we go where guests want to go and we go obviously where all the information we have says it's okay to go, it's safe to go because safety is number one, obviously. So how it affects us is we make itinerary deployment changes, either because guests don’t want to go or because we’ve gotten intelligence in the world community that it's wiser not to go. It affects us that way. Initially we can see booking impacts right after an incident. Those tend to fade away. As you know, if you go back over years, this is not a year where this is the only time this has happened. It happens to some extent almost in recent times, almost every year for the last several years, as does a Zika or MERS or Asian flu, whatever these things, Ebola even. And so every year there's geopolitical tensions. There’s some kind of disease consternation. There’s macroeconomic malaise. There’s isolated or concentrated over-capacity in the cruise industry. Every year in some markets around the world, those things happen and it's part of our business. So we manage that. We anticipate it. We change deployments. We do good revenue management practices, manage around it and that's basically it. So to us it's normal business. I wish it wasn't that way. Every now and then hopefully we'll get lucky and there won't be those incidents because we think we would do better. Some of those itineraries we had to redirect, our high yielding shore excursion items, which could have added additional revenue and earnings to the bottom line. We used to be in the Black Sea. We haven't been there in quite a while. The Black Sea was one of the highest yielding both from a ticket standpoint and on-board revenue standpoint, are itineraries we could have had. And so hopefully sometimes those things will work in our favor and we’ll do even better. But right now we expect that stuff to happen every year and we have to manage it and we have to deliver double-digit return on invested capital in those environments.

One of the things that we've said previously is that, as Arnold indicated, there's always something going on out there and people to some extent have gotten used to that and they go on with their lives and they continue to travel and continue to book cruises. And so we did very well in the third quarter and as we had indicated, we raised our guidance for the year.

That's very helpful. And then my second question may or may not be related to the first, but can you talk a little about the slowdown in on-board. I know you mentioned that the comps are just fundamentally tougher. I guess A, was maybe some of that the results of some of the itinerary changes that you just spoke to or maybe sourcing changes as you try to bring in more Europeans to those European destinations versus North Americans, which typically spend more while on board? And then I guess just going forward, should we expect on-board to be a drag on overall yields going forward or does that revert back to where it’s been the last year and half?

So first of all we’ve had almost eight quarters of very strong on-board revenue growth. So the comparisons obviously are getting more difficult. On the other hand, we are still growing on-board revenue and it’s still a growth story. So we would not characterize it as a drag. We would definitely characterize it as still accretive to the bottom line, because it is still growing and we think there is opportunity to grow beyond where we are today obviously.

I guess some of it, if you look at the detail relative to the categories of on-boarding and what drove some of the change in the increase, we did see some really nice increases in both beverage and casino, which make up about half of the on-board revenue. And the areas where we saw some lower on-board revenue relating to shore excursions, which we talked about, relating to itinerary changes and itinerary optimization across the brands, as well as shops where last year benefited from some strong guarantee arrangements in 2015 and prior periods.

Got it. Very helpful. Thanks guys.

And the next question comes from the line of Harry Curtis with Nomura. Please go ahead.

Good morning everybody. There seems to be some skepticism today about the outlook for your comments about next year, that it's still too early to tell much. Maybe you can give us a sense of how well booked you are overall fleet-wide this year versus the same time last year. And do you really think that it is too early to, with this data, to make any initial conclusions that you're off to a good start?

I think the conclusion is we’re definitely off to a good start, but we’re not prepared to give guidance yet in full for 2017.

We’ll give guidance on the revenue side in December when we get closer, because it is far out at this point. Harry, we had said that we are ahead of the prior year and we're ahead at considerably higher prices. So we're feeling very good about that overall position. We had talked about how we were moving the booking curve further and further out, and we have continued to move it out for the early half of 2017. All the markets, I went through the details, both for the North American market and our EAA brands and everybody was pretty much ahead on pricing, except EAA for the Caribbean and Australia, which was in line. And I even said in those areas the booking activity for the last quarter was well ahead of the prior year. So those areas were, even though they were in line or slightly lower, they were improving. So we feel very good about the overall trend for the first half of 2017.

So following up then on your comments about the yield management roll out, to what degree do you think the yield management, the new system is or maybe having or playing a factor in these higher prices? And perhaps you could just educate us on what's changing.

Well, first of all in terms of the impact of the new system, you're not seeing much direct impact on the new system right now. You’ll see on maybe 30% of inventory going into ’17 some impact and then the full impact for the current state of the system, and it will take it to a higher level next year, but the full impact for the current state of the system will probably be more in 2018. What you are seeing though is the fact -- just the fact by working on it, we're sharing best practices across our 10 world leading cruise line brands, and that sharing and them working together on the two and so on clearly has been advantageous and has boosted our yields. Beyond that, again as I mentioned, is a combination of creating demand of clever deployment, and of exceeding guest expectations once on board so that when they leave, they help us create demand themselves not only for them to come back, for others that they share with. The brands are differentiated. That helps as well and we've done some smart things in terms of -- within the brands of our various home porting decisions and distributing the home ports to access various destination markets. So it's a combination of things. We have good momentum. That has to be maintained. Of course what will help us in the end is, if the other cruise companies also fill and fill at high prices, that ultimately is helpful to us. If they don't, that's a drag for us because it sets a psychological tone in the marketplace. But right now we are doing very well and the first half of next year looks very strong.

The only thing I want to add to that, the one of the thing that’s been very helpful is the brands have been working collectively together comparing pricing, making decisions and as a result of that, given the fact that the size of our company, I think that has benefited us tremendously over the last couple of years as well.

Thank you. And just a quick shifting of gears here. Carnival is rapidly becoming an impressive free cash flow generator, and in it seems the market is valuing higher dividends today more than it has in the last decade. Have you given consideration to even getting more aggressive with dividend payout versus share repurchases? How do you prioritize at this point one versus another?

First of all, clearly that’s the board decision right off the bat, but having said that, historically you’ve seen what we've done where we've done a combination of dividend increases and share buyback. I'm sure that trend will continue in the future, but we evaluate it constantly and we’ll see where the board wants to go. Our current dividend yield is strong, but we’ll be evaluating that each quarter.

One of the things we've said in the past is that we are targeting a 40% to 50% dividend payout ratio. So one of the things you do want to be careful of, we want to make sure that our dividend is sustainable through all cycles. And so we feel like staying within that range, it would be sustainable. So you can take that as guidance. That's what we discussed with the board, and we continue to target that.

Thanks very much guys.

And our next question comes from the line of David Beckel with Bernstein Research. Please go ahead.

Thanks a lot for the question, and thanks particularly for all your Chinese commentary. Really appreciate that, but I’ll lobe another one in there just for good measure. You talk a lot about net revenue yields in the region. I was wondering, what I haven't heard as much is any color on the trajectory of net cruise cost, specifically as it relates to China, inclusive of things like office expansion, incremental marketing and the like. Could you potentially provide us any color or context around how to think about that for that region?

I'll make the comment, but I think it’s very important that David comments since his last name is the namesake for your firm it seems like. But in any event, look, it's an embryonic market. We think there are opportunities over time to actually improve our net cruise cost position on ALBD basis, as we expand and get greater scale and so on. And we think there's opportunity to actually improve that part of the equation as well. Right now it’s not the driver for anything, but as we get more capacity there and we begin to expand our supply chains, training centers and so on and so forth, we think we'll be able to actually over time improve on that cruise cost.

As Arnold indicated, I mean in 2015 we had eight offices in China. We went to 16 offices in 2016, and we're going to open up four more and in 2017. So clearly we are making an investment, but we believe the investment is for the long term. Keep in mind that we've got an $8 billion cost base. So a 1 percentage change, a 1.0 change on net cruise cost without fuel is $80 million. So an investment in China is really just fractions of a percent and a very small change in the overall picture for a company our size.

That's really helpful. Thanks. And as a follow up, I just wanted to ask a question about the distribution system in China. I was curious, we've heard some color about various selling practices on the ground in China. I was curious what level of control you have with respect to pricing discipline from the travel agent community. Thanks.

You bet. First of all, basically for us right now it’s a B2B business. We charter with some Asia distributors. They then sell through their network, but they often in turn expand their network through sub-agents or sub-distributors. And that's a negotiation between them and those sub-distributors on pricing and so on. So how we control the pricing, which we don't really per se control, we control what price we're getting and then it’s up to them to manage to see how much profit they’re going to take and so on and so forth. But all the control we have is in the end, if they come back and say hey, I didn’t do as well as I thought, why don’t you help me out, et cetera? That’s a negotiation that’s afoot and it happens every year. But that’s the level of control we have by our degree of willingness to negotiate. Some cases they may have had legitimate challenges. In some cases they’re just negotiating to get a better deal and you’ve got to do your best to sort all that out when you don’t have total transparency to the ultimate price that the Chinese guest that was on the ship paid. We try to get at that various ways, but of course others try to make certain we can’t get to that information, and that’s a just business, normal in business. You can think of other constructs in other places where a manufacturer sells to a distributor and may not know exactly what that distributor priced that and so on in any other market, any other industry. So that’s the nature of the business today. Over time, that will probably evolve to a different model, but that’s what it is today.

Great. Thanks a lot.

And the next question comes from the line of Jamie Rollo with Morgan Stanley. Please go ahead.

Yes. Thank you. First of all, on the supply growth in the industry, you said that Carnival's only growing at 3% to 4% out to 2020, but obviously the industry order book is much bigger than that. So, I'm just wondering what your thoughts are on the size of that order book. It's clearly much, much bigger than it was at the last peak. Particularly if China's been able to absorb those new ships, are you worried about the capacity in the developed markets a few years hence?

I think that obviously China is growing rapidly and is able to absorb a lot of capacity that makes everything easier. But on the other hand, as I tried to point out earlier on the call and some of the questions, China is going to be limited in how many ships are going to be available for it to take because people are building ships for other markets as well. I think what you have to think about is net capacity growth. So we’re always going to build new ships and so will others and the reason is because the ships are more efficient and they give you the opportunity for enhanced revenue opportunity, versus the existing ships. And so new ships are always going to be coming. The question is, how many ships leave? How many ships go to secondary markets and so on? And in the opening comments, I referenced the fact that the number of berths that are getting to retirement, the amount of capacity that’s going to retirement age is going to double in 2020 and going to double again in 2024. And so there will be a need for some of that capacity just to replace. And then the rest will get regulated by the market place. If there’s scarce supply relative to demand, some of the less efficient ships will continue to sail. If there’s not that relative scarcity, then some of those ships will exit. They’ll either go into secondary markets or they’ll leave the fleet and be scrapped. And so that’s the real dynamic. We know what we’re going to do. We are committed to measure capacity growth and we know how to manage within our brands and across the various destinations. And so based on that, we have great confidence that we’ll be able to manage to the sustained double digit return on invested capital that we have promised within the next two years.

Thanks. And a couple of housekeeping ones, please. You mentioned fuel and FX $0.28 headwind for next year. Depreciation I get to $0.12 from the $1.9 billion. Did you give us figures for dry dock?

For dry dock, I didn’t give a figure, but the dry dock has increased. It’s probably worth a little bit less than a half a point on a year over year basis for net cruise costs, excluding fuel.

0.5% headwind to net cruise cost ex fuel? Okay.

Less than half a point. A little bit less.

Got it. And then could you -- the 100 basis point yield benefit from the accounting change, was that evenly spread through this year? Did that help every quarter, including Q3?

Yes. The accounting replay was pretty much evenly spread through the year.

Okay. And final one, the weakness in on-boards, that's nothing to do with onboard credits or given the way you account for those -- do those come through the ticket line or the on-board line?

If somebody gets an on-board credit associated with a value package where they are purchasing it ahead of time, then that is a reduction in the ticket price and we get the full benefit of the onboard. So we didn’t have anything to do with that, the items I had mentioned.

But onboard is not -- I may have misheard what you said at the beginning, but we’re not weakening in onboard. We’re still growing onboard. It’s just not at the rapid rate that we had in some of the previous quarters. And then I just want to add one comment too concerning the new builds and that is, for us, because we have 10 brands, 3% to 4% is not the same as 3% to 4% for a single brand type of cruise company. So we’re speeding out these new builds across a number of brands, which gives that brand base an opportunity to absorb the capacity while they’re creating the excess demand required to get relative scarcity that we’re chasing. So we are overall managing to measure capacity growth in total, but we’re also doing it by brand and that allows us to more effectively manage against a committed base of loyal cruisers to that brand and reduce the number of new to cruise at any point in time we have to generate for any given brand.

Great. Thank you very much.

And the next question comes from the line of Jared Shojaian with Wolfe Research. Please go ahead.

Good morning. Thanks for taking my question. I know you don't want to give formal guidance for 2017, so I'm going to try to ask this a bit differently. But if I look at your booking commentary for 2017 now, it seems better than your commentary for 2016 at this time last year. And now you're doing 2.5% yield growth ex the accounting reclassification in a year where you've had unexpected headwinds. So I guess the question is, just directionally, is there any reason why the yield growth in 2016 can't be replicated again in 2017? Thanks.

That’s a clever way of asking for guidance on that, Jared, but I will say this, that you’re absolutely accurate, that this time last year, while we were ahead of bookings, we were not ahead on pricing and this year we’re ahead on bookings and pricing. So that’s obviously strong momentum going forward. It’s still early though and I think we have to just continue to work hard and let things play out, but I’d rather be displaced and give you guys guidance at the appropriate time.

And you said we had headwinds this. As Arnold indicated, we’re going to have some sort of headwinds every year. There’s always some political event or something that goes on around the world. So just keep that in mind as well.

Okay. Thanks. I figured I'd try.

That was very good.

And then just a follow-up question. I haven't heard anything on Cuba on the call today. I know earlier this year you said you expected to have more deployments by year end. Is that still your expectation? Curious anything you can share on that. Thanks.

At the risk of you playing a tape back, I think we said we were hopeful we have additional by year end, and I’d say at this point in time, while that’s a possibility, we might know something before this year is out about additional brands going next year into Cuba. Again we are hopeful. I wouldn’t say we expect it, but we are working on it and hopeful. As you know, to date, we are the only ones that have received approval by Cuba to sail to and from Cuba from the US. So we’re the only ones so far. I’m sure that will change. Exactly when it will change and how many other brands we can get in there beyond our Fathom brand that we have now remains to be seen, but we’re in constant conversation with the various authorities in Cuba. It’s been an exciting year in that regard for us. It’s helped us across our fleet in a number of ways with the positive media and so on and so forth, but beyond all that, while it hasn’t been find with a single ship of 700 guests, obviously financially it’s not usually material. But it has been important in establishing the relationships and the dialog and the partnerships to prepare the foundation for what will be a destination that will help refresh the Caribbean and ultimately contribute to that relative scarcity that I like to talk about, excess demand relative to supply and be a source of strength for yields and returns in the years to come.

Okay. Thank you very much.

Operator, we are over our allotted time, but we will take one more question, if there’s one out there.

Of course. Thank you very much. Our next question comes from the line of Tim Conder with Wells Fargo Securities. Please go ahead.

Thank you for squeezing me in here. Just a couple of maybe housekeeping. Arnold, you talked about that I think maybe the investment community's focused excessively on the gross capacity growth and ignored the net capacity growth. So, a couple related to that. One, could you maybe give us industry expected net capacity growth by major regions for 2017? And then, two, just maybe a range of top line here looking out through that 2020 on that industry net capacity growth as you see it at this time. And I guess maybe another way to ask that latter part is, should we anticipate a -- what type of range of retirements each year on a go-forward basis to go from gross to net, I guess is another way to ask that.

I understand you guys have modeled that you kind of need to populate with data and some of the variables, but the practical reality is beyond 2017, as we go into the future, that’s a flex thing and in our case, we’re going to manage it as we read the markets in terms of what relative scarcity exists, what’s the demand that’s been created relative to the supply and what we see, and basically we can do that relatively easily financially because we look at the ships and see what kind of returns we’re getting on them and what the probability as well for increased performance or better performance in the coming year. So for us, that will be a flex thing. Historically, I think we’ve averaged a little more than a ship a year …

It’s one or two ships a year we sold.

For us.

Yeah. 18 ships since 2006 and so we’ve said a number of times that we could expect to see something along that pace, or as Arnold indicated, to be more or less. It’s very hard to tell.

I wouldn’t try to make an assumption for the industry again in terms of net, but again what we’re looking at is how do we manage in various environments and how do we ensure that we’re going to deliver sustained double digit return on invested capital and improve earnings growth in various environments and we’re confident we’ve got multiple pathways to do that and some of those, if proves to be necessary includes accelerating retirements.

Okay. And then the capacity by region for 2017 for the industry as you see it at this point, say Europe and whether you want to break that into Med, ex-Med, North America and just Asia in general.

The way we see it right now is that for the year, the Caribbean and again, this is the industry, is up 6%. Europe is down approximately 4%. Actually the Med is down 11%, but northern Europe is expected to be up about 9%. We’re looking at Alaska, up close to 7% and overall the industry, all other programs. So overall the industry is going to be up about 4% from a capacity perspective.

For the global industry, up 4% on a net basis?

Yes.

Correct.

Okay. And then is China, still mix accretive to your global capacity, mix accretive on an EBITDA basis?

Yes. It’s relative overall.

As Arnold indicated, by having the ships in China, each of our brands, both Costa and Princess are optimizing their operating income and net profits.

Okay. And then very last, China, is that the reason you said some contracts rolled off on onboard? Was it China or was it elsewhere?

No.

No, no. this had nothing to do with China. I said there was some guarantee arrangements for onboard on the shop side with certain of our brands which we benefited from in 2015 and prior years that didn’t repeat itself in 2016.

Hey guys, thank you for your interest. We really appreciate the questions and the attention. We’re committed to, as we’ve always said, to exceed our guests’ expectations, leverage our scale and to deliver sustainable double digit return on invested capital. We’re enjoying a great quarter, a very strong year, happy to raise the guidance and looking forward to delivering in the years to come as well. Thank you very much.