Good morning and welcome to the Norwegian Cruise Line Holdings, Third Quarter 2015 Earnings Conference Call. My name is Nicholas, and I will be your operator. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions for that session will follow at that time. As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Andrea DeMarco, Head of Investor Relations. Ms. DeMarco, please proceed.

Thank you, Nicholas. Good morning, everyone, and thank you for joining us for our third quarter earnings call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings and Wendy Beck, Executive Vice President and Chief Financial Officer. Frank will begin the call with opening commentary, after which Wendy will follow with commentary on the results for the quarter, as well as provided updated guidance for 2015, before turning the call back to Frank for closing words. We will then open up the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website at www.nclhltdinvestor.com, and will be available for replay for 30 days following today's call. Before we discuss our results I would like to cover just a few items. Our press release with third quarter 2015 results was issued this morning and is available on our Investor Relations website. I would also like to review information about forward-looking statements and the use of non-GAAP information as a part of this call. The company's commentary today may include statements about 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. The company cannot guarantee the accuracy of any forecast or estimates, and we undertake no obligation to update any forward-looking statements. If you would like more information on the risks involved in forward-looking statements, please see the company's SEC filings. In addition, some of the comments may refer to non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the company's earnings release. With that, I'd like to turn the call over to Frank Del Rio. Frank?

Thank you, Andrea. And welcome, everyone. Appreciate everyone joining us today. As you saw from our press release this morning, Norwegian posted impressive record results for the third quarter, particularly the top line where our industry-leading net yields continued its quarter-over-quarter acceleration, exceeded our guidance range and drove strong earnings growth of 22%, with adjusted earnings per share coming in at the top end of our guidance. These results demonstrate how our various strategic initiatives that we began implementing earlier this year are driving outsized earnings growth. From our go-to-market strategy of marketing to fill versus discounting to fill, to our consistent consumer communication of emphasizing value over price, these strategies resulted in strong yield performance that is more commensurate with a quarter that has the benefit of a new build introduction as opposed to the actual case this quarter where yield and revenue growth were purely organic and came solely from same-store operations. This quarter marks our third consecutive quarter of net yield growth with yield essentially flat in the first quarter coming off very strong prior year performance, yields up 3% in the second quarter and now up 4.7% in the third quarter. This strong booking momentum continues into 2016 where we are entering the year at record loads, well ahead of last year, and significantly exceeding our 11% increase in capacity with higher pricing across all brands, and an extended bookings curve that is now 12% longer than same time last year, allowing us to optimize pricing for 2016 and beyond. Wendy will delve more deeply into current financial results along with color on 2016 later in the call. But for now, while traditionally my commentary has focused on discussing key events and strategic initiatives, I'd be remiss if I did not take this opportunity to discuss…

Thanks, Frank. I'd like to begin by noting that unless otherwise stated, the following commentary compares third quarter 2015 and 2014 on an as reported basis. In order to provide a better comparison of our company's current performance versus last year prior to the combination of Norwegian and Prestige, we provided guidance for adjusted net yield and adjusted net cruise costs, excluding fuel, per capacity day, which compares third quarter 2015 results for NCLH against third quarter of 2014, which includes the results of Prestige. We refer to this guidance as combined company, which we have provided on both an as reported and constant currency basis. For the third quarter of 2015, the company generated adjusted earnings per share of $1.35 compared to $1.11 in the prior year, and at the top end of our guidance range of $1.30 to $1.35. Strong earnings were driven by solid net yield performance, mainly due to strength in the Caribbean, Bermuda and Alaska markets which more than offset softness in certain European itineraries. Adjusted net yield outperformed expectations, increasing 19.8% on an as reported basis as a result of a full quarter of the consolidation of Prestige, as well as strong pricing. On a combined company basis, adjusted net yield increased 2.2% coming in above guidance of up 0.5% to 1.5% and was up 4.7% on a constant currency basis versus guidance of 2.75% to 3.75%. Our go-to-market strategy and other initiatives have led to a strong base of bookings which has lengthened the booking curve versus prior year, allowing us the opportunity to optimize pricing. Turning to cost, adjusted net cruise cost, excluding fuel per capacity day, increased 30.5% on an as reported basis, mainly due to the addition of Prestige, while on a combined company basis increased 6.4%. This increase in…

Thank you, Wendy. Now in a few weeks we will mark the first anniversary of the combination of Norwegian and Prestige. And I have to tell you that I'm extremely pleased with the seamless and smooth integration of the two companies. When you walk the halls of Norwegian, you would find it hard to believe that a year ago we were operating as separate entities. Today our operations are completely interwoven with vessel operations, revenue management, supply chain, logistic and support services all under one corporate umbrella. And while the synergy harvesting program officially came to an end last quarter, these areas continue to share best practices and uncover further efficiencies. It's part of the DNA that we have fostered in this combined company. 2015 has been an eventful year. And while not yet over, but as I stated earlier, we are in a very strong book position, in fact, the best in the company's history, which sets up a robust 2016. A year ago, or excuse me, a year where the convergence of our revenue enhancement strategies combined with international expansion and planning fleet additions will result in increase to our already industry-leading net yields. We also look forward to reaching notable milestones such as $5 billion in revenue, $12 billion in assets, posting record EBITDA margins, and continuing our series of consecutive quarters of EBITDA growth. All on our march towards our targeted adjusted earnings per share of at least $5 in 2017 and the doubling of our return on invested capital to 14% in 2018. Thank you all for your continued interest and support. We'd like to go ahead and open up the call for questions.

Thank you, Mr. Del Rio. Our first question comes from the line of Felicia Hendrix with Barclays. Your line is now open. Please proceed with your question.

Hi. Good morning. Thanks for taking my question. Wendy, thanks a lot for the color on the cadence of the quarters. That was helpful. And, Frank, you kind of wrapped up by saying that Norwegian's in the best book position in the company's history. But if I could just drill down a little further and maybe just get kind of obvious, are you booked higher on a load and APCDs for 2016? And then, taking the cadence that you discussed, Wendy, in the prepared remarks, are you seeing that for every quarter of 2016?

The answer to your first question is yes. More booked – more passengers booked, more revenue booked, significantly outstripping our capacity increases, as I said it earlier. And we see stronger pricing across all three brands.

And, Wendy how does that fall across the quarters? You said first quarter would be a little tougher.

We still are positive, Felicia, but it is definitely skewed with Q1 having several hurdles, as I mentioned, with the Epic deployment in Europe. And as you all know, we've now moved the Epic for the following year. So we're overlapping that, as well as taking our highest Norwegian yielding ship out of the fleet for 24 days in Q1. So Q1 is the most skewed on the pricing.

Okay. Thanks. And then, Frank just moving to China, you gave us a lot of color there earlier. I was just wondering how should we think about your MS&A expenses as you build up infrastructure in China. And do you expect the ship to generate a profit on a fully allocated per PPCD (28:03) basis as early as 2017?

Not sure it'll turn a profit in the full first year given that we only have six months of operation and a full year of expense. A lot will depend on just the kind of yield premiums we'll be able to achieve. But clearly all the potential that we see in China, the alternative itineraries that you would deploy, that or any vessel, China is clearly the winner. The expense so far in 2015 has been minimal. We will ramp up in 2016. We're finalizing the budgets now. But it will impact the result in 2016. But it's an investment. You have to think of entering China almost as a startup where you have upfront expenses and you have to wait at least a year, in our case up to 18 months, before you start generating revenue. But we think that's the way to do it. We don't want to rush into the market. But we think it will pay dividends once we do with this brand new ship, as I described, the biggest ship that we'll be operating in China. So we're very bullish on the opportunities there.

Okay. But despite that you're still confirming or reiterating the at least $5 goal and the 14% ROI goal.

Absolutely.

Okay. Great. Thanks.

Our next question comes from the line of Harry Curtis with Nomura. Your line is now open. Please proceed with your question.

Hi, good morning. Just going back to one of Felicia's questions, can you give us a sense of how well booked, what percentage of bookings you are in 2016 so far? And I'm guessing that the – as of today, the pricing that you're seeing across your three brands is now ahead of where it was at this point last year.

Hi, Harry. Yes, we are ahead versus where we were last year. A bit early to give you specific guidance on – and of course, we never give guidance on a per brand basis. But our target is to be about 55% booked or so for the three companies combined, three brands combined, by the end of the year.

And we're on target for that.

Yeah.

Okay. Just along the same lines, is it – it is early, but can you venture to say kind of what your worse case yield outlook ought to be next year?

No. I think that's not the right question to ask. We believe that the yields next year will be better than they were this year, but that's as far as we'll go at this time.

The only other color I would add to that, Harry, is if you know our long-range model, we say 3% to 4% in years that we bring in a new ship, which you know is significant with the yield that we report in this quarter. As we pointed out it's an organic quarter. Historically we've said our yield will be 2% to 3% on comp fleets. Our goal this year has been to drive the yield strength on our organic fleet in addition to getting the bump with bringing in new ships. So in a year where we bring in the new ship, like next year, our long-range model is 3% to 4%. Obviously we're looking to beat that and that's the path that we're on.

Okay. And my last question, just related to some of the costs in the third quarter, it was interesting that year-over-year, both your other ship operating and your SG&A they were definitely higher than we were looking for. And if you could talk about what in the quarter you view as recurring versus non-recurring, that would be helpful. Thanks.

Yeah. So the first thing is in Q2 we said that we were deferring a number of our marketing expenses. As you know, we mentioned that we hired a new marketing agency and we are in the process of launching a new marketing campaign. So part of it is ramp up with marketing. Also as we go into international, we've been layering in some marketing. On the intentional investments that we've made into the – primarily it is the Norwegian fleet – it's a number of soft items: carpets, linens, plates, cutlery. It's standards that Frank has brought in that these are minimum standards that we have to be operating at. There is a lot of soap and water going into that. That is fortunately not stuff we have to expense because we've got the labor. But it's the soft side that we've had to go out and expense. Anything you want to add, Frank?

Look, I think that we're focused on growing the top line, growing the yields, both in ticket pricing and in onboard. And you have to spend a little money on some areas to be able to facilitate that – the onboard experience. I will tell you that I think that perhaps there was some under spending in prior years that we're playing a little catch-up on. I think we've done that for the most part in the quarter. The good news is that eight vessels will undergo dry-dock in 2016. I believe another six in 2017, so we have an opportunity when these ships do go into dry-dock to bring them up to the highest level they can be, given the space that they're in across the fleet, whether it's the Norwegian brand or the Regent brand. It will have two dry-docks next year. But we have the youngest fleet in the industry. But some of the vessels are a little bit more seasoned than others and this is the time when – it's an opportune time for us, I should say, because these dry-docks are coming at the right time where we can go in and bring them back up to as-new condition. But not all vessels are being dry-docked next year. Some are waiting until 2017. So some of these steps that we took in the third quarter, as Wendy mentioned, were – we spent the money to bring these up in anticipation of the dry-dock occurring in the next 12 months to 24 months.

Okay. That does it for me. Thanks.

Our next question comes from the line of Robin Farley with UBS Securities. Your line is now open. Please proceed with your question.

Great. Thanks. I wanted to just clarify, Wendy, from the color that you gave on the cadence of the quarters. That was helpful. Thank you. Were you suggesting that Q1 – I know there are some things that will make it a more difficult comparison, but it would still be a positive yield quarter year-over-year in Q1? Is that right?

Absolutely. Yes, it will be positive. It's just it's a harder – it's harder with the number of things that we called out as to the rest of the quarters. So when we give our full year guidance, Q1 will be lower than the other quarters.

Okay. No, that's helpful. Thank you. And then, just to understand the expense timing and – I understand that the Q3 expense timing, marketing shifting between quarters, but with the full year expenses going up for 2015, is that expenses – is that like the new offices in China opening earlier? Or I guess, what's the – it seems like there's a shift of expense between 2016 and 2015?

Yeah. It's still – there is some additional infrastructure, but primarily it's marketing, as I laid out and then it's also the additional investments into the Norwegian fleet. Specifically, we have the Epic and the Gem dry-dock, so although a portion of that is capitalized, there is more OpEx expense, and those were in addition to what we had originally planned at the beginning of the year. This has definitely been a year of transition. At the time that we planned those dry-docks, it was actually before Frank even came in as the CEO. So as we've gotten into the year and there's been ship inspections by Frank and the management team, they've made intentional investments and decisions as to how can we garner the highest return on those ships and how do we continue to drive pricing, how do we drive guest satisfaction, and so there is additional investments being made into the Norwegian fleet.

So with the timing of the – the dry-docks didn't shift, it's just that you're putting more investment in the dry-docks in Q4 that otherwise would have taken place at some point in 2016 is kind of the idea?

That's correct. And as far as the international infrastructure, it's fairly minimal in Q4. We'll see that start ramping up into 2016.

Okay. Great. And then just my last question, with the commitment to send capacity to China, because in many ways as a smaller fleet than some of the others out there, you could have also benefited just by staying in the Caribbean while kind of others went to China. And I know you're taking obviously a longer term view than just sort of that first year or so, but I guess since you're not sourcing passengers from China for Chinese-based cruises right now, I know when you looked into it, you had outside consultants. Can you give us a view on kind of what you're hearing about pricing in China as supply is moving there and kind of what your consultants are telling you, what's taking place with kind of price and the markups with travel sellers in China?

Yeah. By all accounts, China will become the second-largest cruise market in the next five years. Within the next 10 years, that could exceed the United States. So waiting much longer was just not an option and given that we had the opportunity to come into the market with a brand-new vessel that really resonates in the marketplace that we're going to customize. We think today there isn't a product in China that is perfectly geared for the Chinese. All the vessels that are in China today were built to go elsewhere, were built for the Western market, and depending on what ship and what brand you're talking about, there was some level of customization made, but not a whole lot. So we believe that although we're coming to China a little bit later than others, we will enter with the best hardware that anybody else has. It will be the biggest ship, it'll be the newest vessel, and it will be customized to a level that no one else has done yet. All the intelligence that we hear from our sources in China is that the bookings remain strong, perhaps not at the strongest level ever as more capacity has come in and has to be digested, but still significantly higher than an alternative western itinerary, whether it's the Caribbean or Alaska or Europe. The Chinese itineraries are outperforming the others. And so, we're very bullish that even though we may not have first move or advantage, we have other advantages. We're learning where others perhaps might have made certain mistakes, would wish they had done things differently. We have the benefit of those, of that history. We have the benefit of introducing a brand new ship. We have the benefit of 18 months of runway until our ship gets there. And so we believe that on par, it's the perfect time to enter the Chinese market with this incredible vessel. And everything we hear is no question the right decision. It's literally a no-brainer.

Okay. That's great. Thank you very much.

Our next question comes from the line of Steve Wieczynski with Stifel. Your line is now open. Please proceed with your question.

Hey, good morning, guys. So, first question will be on Escape. And I think, Frank, you talked about Escape right now is still seeing double-digit yields at this point. But could you maybe compare Escape at this point versus how Getaway was booking at this same point? And maybe also how Escape bookings have trended over the last three to five months, would be helpful as well.

Yeah, Escape without question, is the most successful introduction in the company's history. She is booked three times deeper than Getaway was at the same time with about the same pricing, so very happy to see that performance. And she has been building strong all along, not just in the last three or four months, but ever since we introduced her, she's been a strong, strong performer. And when can you see her? Hopefully you can come down now over the weekend and see her for yourself. She is truly breathtaking, an amazing vessel. For a ship that size, you would not expect to see the kind of finishes, the kind of upscaleness that you see in this vessel. So we have high hopes that she can continue generating double-digit growth well on to the future.

Okay. Great. And then second question will be on the booking curve, I think you talked about how it's 12% longer at this point. But when you look at the industry in general, it seems like all you guys have essentially – have gotten consumers to book a little bit further out. I guess, I'm just wondering how much – what else can you do at this point to get people to book even further out? And how much more do you think you can get that booking window to expand at this point?

Well, I don't think necessarily you want to extend the booking window to infinity. I'd rather raise prices to infinity. And so, I'm very comfortable with the booking window the way it is now. Much more than that you'd probably be leaving yield on the table. So you're never sure what the perfect balance of bookings are, but we'll finish the year, as I said earlier, occupancy in the mid-50s for next year. That's very, very strong, up significantly from where we were this time last year where we will be – at year-end versus 2014 year-end. So I think that the emphasis will continue to be push prices up, not just ticket pricing, but take advantage of the on board revenue. We've seen very, very strong on board revenue, especially at the Norwegian brand, over the last quarter. And we hope and believe that will continue. It's part of what we learn in the integration and synergy review that we put into place, and we think that's got sustainability.

Thanks, guys. I appreciate it.

Our next question comes from the line of Steven Kent with Goldman Sachs. Your line is now open. Please proceed with your question.

Hi. Good morning. Couple questions, I guess fundamentally it's going to be very hard to understand the earnings momentum of your operations, given all of these moving parts. And just wondered if you had reconsidered showing the performance of Prestige and Norwegian brands separately, because between the dry-docks and the product roll-out, it's going to be almost impossible to get a quarterly progression to assess the power of your brands and fleets from the outside, especially because you have a relatively small base. And then just one other issue, in terms of weakness in Europe, what's underlying that? I mean you mentioned it a couple of times, is it too much supply in the region? Is it that North American consumers are preferring to buy hotel rooms in depreciated euro more than a cruise ticket in U.S. dollar?

Steve, the answer to your first question is, no. We have not considered that suggestion. In terms of Europe bookings, look there's been some issues in Europe, right? The Eastern Mediterranean has been impacted and has been impacted now for the last several years, so it's a little bit of the cumulative effect. We've got the Black Sea situation. It's still not back to normal with the Crimea situation. We've had several disruptions in Istanbul. The Greek financial crisis did not help the Greek Isles itineraries. There is always tension or there has been more tension than usual in the Israel space, because of the Syrian situation. We've got the refugees spreading across some of the Eastern Mediterranean areas. And then, the strong dollar, as you mentioned earlier, would tend to cause if anything a move away from cruising. Cruising is very, very good when the dollar is weaker, because all your expenses are paid upfront and you don't have to pay for lodging and food. So, I imagine on the margins that the strong dollar has favored land programs versus cruises in Europe this past year. And look, ships have to go somewhere, so there has been a reduction, a slight reduction in capacity out of the Caribbean. The Caribbean is now strong. The weakness might be Europe. There may be more capacity in Europe than there has been in prior years. But on the other hand the Northern Europe remains strong. Western Europe remains strong. Hopefully the Eastern Mediterranean will shape up in the next few months, next years.

Okay. See you next week.

Can't wait.

Our next question comes from the line of Tim Conder with Wells Fargo Securities. Your line is now open. Please proceed with your question.

Thank you. Frank, again just maybe to recap here, if I heard you correctly the catch-up investments that you had here, as far as getting the Norwegian ships up to your standard – when you want the customer to step on, they want to be – to perceive the ship as being new continually. For the Jade and so forth that are being dry-docked now, that will effectively be completed? And then as you dry-dock the others, will that affectively complete that raising the standard up to the FDR standards?

I think you need to look at it over a two-year program. We dry-docked Epic and Gem, and those were extensive dry-docks in Q3, Q4 this year. As Wendy mentioned, we have eight dry-docks next year, two with the Regent brand, one at the Oceania brand, five at the Norwegian brand. And I think – I know that it will – that kind of dry-dock heavy schedule will now continue into 2017. I believe that by 2017 every one of Norwegian's ships except the brand new ones will have been dry-docked except for one vessel. So that gives us a very unique opportunity to upgrade the fleet over a short, concentrated time so that the whole brand gets elevated in terms of product delivery and allows us to continue to raise prices more so than if you hadn't done these thing. At the end of the day the consumer is not stupid, the consumer has choices and we think that the ROIC on these kinds of investments is – outpaces, if you will, the ROIC and the pay back of new vessels. And so, our goal is we've got billions of dollars invested in these ships. You have to maintain them at the highest standards if you expect to achieve these higher yields. And so far we're very pleased with our ability to raise prices, our ability to generate incremental on board revenue and we believe that if the fleet were to be in tip-top condition that will continue.

Okay. Totally agree. Totally agree. How should we I guess then think about the portion that will flow through to the P&L over this period versus what we'll call a normal run rate? And then, of course, layering in your – I think China, your investments, those will probably be ongoing just given the long term and near-term even potential. But if we could maybe break those components out going forward here incrementally and then, of course, they start to fall off in 2017 on the reinvestments. Any color you can give us there? And then, as it relates to – you talked a little bit about sourcing passengers from China, the reason you opened the three offices for markets outside, itineraries outside of China. How do you see that ramping the Prestige brands versus the Norwegian brands and other global markets for Chinese sourced passengers?

Well, the Oceania and Regent brands have been sourcing customers out of China. As I mentioned earlier, it's been the largest percentage gainer – still small numbers, but largest percentage gainers. And we've been doing that sort of as absentee marketers because we did not have a strong presence in China. We've been doing it through general sales agents, et cetera. So now that we have three offices in the major cities in China and Hong Kong, we expect that business to continue to accelerate. The Chinese consumer is sophisticated, has got the wherewithal and if you've been to the major capitals of Europe lately, you see upscale Chinese travelers everywhere. And so, we believe that a natural evolution of the Chinese consumers wanting to travel and seeing the world is to do so on a ship. And so, we're focusing those two brands on that type of consumer. Because the type of Chinese consumer that does travel outside the country on these long haul trips tends to be the more upscale consumer in China, which we believe that the Oceania and Regent brand fit well. But also with The Haven on board, the Norwegian ships, we also believe that that type of consumer will also consider the Norwegian brand. So we're very enthusiastic about entering the Chinese markets, not just for the new vessel that's going into China, but China as a new source for our existing vessels.

And then regarding the expense on upgrading, if you will, the Norwegian fleet, typically we have guided to $7 million to $8 million on the dry-dock expense per Norwegian ship and that would be a good run rate also for our entire fleet. The Pride of America, however, is going to be a more expensive dry-dock. As you know, that that ship is out in Hawaii. We were not able to get into the U.S. Naval Yard there, so we're actually bringing the ship over to San Francisco, which you know five days transit each way plus 14 days gives you the 24 day dry-dock. So that is a little bit more expensive. We will have all of this. We'll give clarity when we give our guidance for 2016. I think the walk away here is that we've said today that we are very comfortable, we're on target to exceed the $5 EPS target for 2017. And everything that we've talked about, the incremental spend on the Norwegian fleet, the offices opening internationally, as we continue to grow all three of the brands, as we move into China, that's baked into our targets that are out there. So as far as giving everyone clarity on that, we will give you clarity. It will be when we rollout – our next quarter, when we rollout our guidance for 2016. And then it's the same thing with CapEx. We've been running with a run rate of approximately $175 million on a combined basis; this is excluding our new builds. So to the extent that that number is higher as we complete these dry-docks, again we will give you clarity on that, but again that's still baked into our targets, including our 14% ROIC in 2018.

Okay. Thank you, Wendy. Thank you, Frank.

Our next question comes from the line of Kevin Milota with JPMorgan. Your line is now open. Please proceed with your question.

Hey, good morning. Thank you. Most of my questions have been answered, but just to beat a dead horse a little bit more here on the net cruise cost. New ship introductions, could you give us the offset – kind of the offsetting factor for how much more fuel efficient, energy efficient, cost efficient those ships are? And how that might be helpful to net cruise costs next year, just to offset the China investment and the dry-dock spend? Thank you very much.

New vessels are more efficient on fuel, but net cruise costs are ex-fuel, so I don't see a new ship adding a whole lot of efficiency, if you will, to net cruise costs. They're primarily – they deliver double-digit yield growth. That's what new vessels bring to the table more so than cost savings. You do get to the spread, your overhead over a broader base of beds and of course that tends to decrease costs overall, but the main driver why you bring new ships on line is the ability to drive double-digit yield growth.

Okay.

And I would just reiterate, Kevin, that, we are right on path with holding our G&A as tight as we possibly can as we continue to bring in new builds. Just as we talked about in the past, we will continue to add sales force. We will add direct agents, res agents, but you're still spreading it over the rest of the corporate office, as Frank said.

And just captured in your $5 EPS number, the underlying net cruise cost increase has not changed is what you're trying to message to all of us?

Correct. We've been messaging 1% to 2%. That's what we're trying to stay in line with. However, we have said there's puts and takes in that $5 target. We already know that there's upside to it, and yet we know that there's incremental investment into China, so we haven't actually quantified yet what is the investment into China and these international offices. But the underlying into the $5 plan is the 1% to 2% net cruise cost.

Okay. Thank you.

Our next question comes from the line of Jamie Katz with Morningstar. Your line is now open. Please proceed with your question.

Good morning. Thanks for taking my question. So I'm curious how you guys are thinking about capital allocation now that shares have increased pretty significantly over the last year, and whether or not you've made any changes to your assessment on whether it would be more strategic to pay down debt rather than buy back shares? I mean, how that plays into your $5 price target in 2017? I'm sorry, your $5 earnings target in 2017?

Okay. Great question. So when we originally put the target out there, as you'll recall, it's roughly $100 million of free cash flow that we had assumed at the time of Investor Day that we would actually pay down debt. We've been messaging that towards the back half of this year, we would like to get back out there and repurchase some shares. You'll see in our filings that we actually have embarked upon it in a small way in Q3. As we've said to everyone, we will be opportunistic and we did pick it up at a very nice price, although it's a small amount. We're still on path for that right now. You may see us do a little bit on the debt pay down and you may see us out there also with share repurchases. We will continue to be opportunistic and look at that.

Okay. And then, as far as the lengthening by brand of the booking curve, has there been any bifurcation you guys have seen across the different brands that you're willing to comment on? I'm just curious if any of the different demographics that you cater to are responding differently?

No. All three brands are showing an extended booking curve. All three are contributing to that 12% overall extension on the booking curve.

And then lastly, can you just update us on any changes to capacity growth and either the fourth quarter ahead as the timing of the ship to come on?

Sure. So for fourth quarter, Norwegian Escape is actually contributing to capacity growth of 2.2%. And then, do you need capacity for the outer years, Jamie?

If you have it.

So, 2016, we're going to be up 11%, that's Escape, Sirena, and Explorer. 2017 up 8%, 2018 9%, and 2019 is 4%.

Excellent. Thank you so much.

You're welcome.

Our next question comes...

Hey, Nicholas, we have time for one more question.

Certainly. Our last question will come from the line of James Hardiman with Wedbush. Your line is now open. Please proceed.

Hi. This is Sean Wagner on for James Hardiman. With respect to China, the urgency with which you wanted to enter that market has changed since your Analyst Day. Can you walk through how your decision making on China has evolved over the past year? Was it just that you couldn't afford to wait anymore like you had mentioned?

I don't think it changed. We said that we're going to take a close look, a measured look. We've been working on it all year, but at the end of that study which was very thorough, we concluded that the Chinese market was still the highest yielding market for the introduction of a new vessel, and the one that's growing the fastest. So if it's the highest yielding and the fastest growing, where would you put a new ship?

All right. Fair enough. Along those lines with several new incremental ships going into that market, at the same time the economy has kind of sputtered there. I understand the short-term demand is outpacing supply, but when do you think the two even out? And has that point moved up considering the ongoing capacity growth in the region?

There'll be 14 ships in China next year. There'll be 19 in 2017. Not all are year round. We will be there year round. Some of these are seasonal. Even though the general wisdom of the consensus is that the Chinese economy is slowing and may be slowing from the unsustainable pace of double-digit growth that we might have seen 10 years ago, but it's still 7% or so. And it's three times the United States, several times more that of Western Europe. So it's still the safest bet that the Chinese market will continue to grow on an outsized manner and again it has the highest pricing. Chinese consumers got money in their pocket and they want to spend it and we're seeing that in the way that they – not only buy cruises, but their spending habits on board. The retail spend from everything that we can gather is substantially higher than that from the Western markets. The gaming revenues are substantially higher in the Western market. And so, we believe that all told it is still the best place to enter a new vessel. We think we will have a competitive advantage given the tonnage that we were bringing into the market, being the newest, the largest, the most customized and so we can't wait for 2017 to get here.

Okay. Great. Thank you very much.

Okay.

Well, thanks everyone for your time and support today and as always, we will be available to answer your questions. Have a great day.

This concludes today's conference call. You may now disconnect.