Ladies and gentlemen, thank you for standing by, and welcome to the Royal Caribbean Cruises Limited First Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Jason Liberty, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, operator. Good morning and thank you for joining us today for our first quarter earnings call. Joining me here in Miami are Richard Fain, our Chairman and Chief Executive Officer; Adam Goldstein, our President and Chief operating Officer; Michael Bayley, President and CEO of Royal Caribbean International; and Carol Cabezas, our Vice President of Investor Relations. During this call, we will be referring to a few slides, which have been posted on our Investor website, www.rclinvestor.com. Before we get started, I would like to refer you to our notice about forward-looking statements which is on our first slide. During this call, we will be making comments that are forward-looking. These statements do not guarantee future performance and do involve risks and uncertainties. Examples are described in our SEC filing and other disclosures. Also, before we will be discussing certain non-GAAP financial measures, which are adjusted as defined and a reconciliation of these items can be found on our website. Unless we state otherwise all metrics are in a constant currency adjusted basis. Richard will begin by providing a strategic overview of the business. I will follow with a recap of our first quarter results, provide an update on the booking environment and then provide an update on our full year and second quarter guidance for 2017. We will then open the call up for your questions. Richard?

Thank you, Jason, and good morning everybody. It's been another exciting quarter here at Royal Caribbean, and I am pleased to be able to talk to you all about it. Actually the best news today is no news. We set aggressive goals for ourselves and we're executing nicely against them. I'll start with the Double-Double Program which has proven so successful in routing a massive organization across both land and sea. We have used it to inculcate a focus on effectuating step change in our profitability and it's done just that. This quarter, again, illustrates our team's focused on maximizing revenue opportunities while maintaining cost discipline. Growing yields by 6% this quarter which follows a 7% growth rate last year, it's remarkable and it supports the increase in our guidance for the year. Our first quarter results were up 74% from last year which also shows that our focus on improving specifically the winter season is working. Looking ahead to the year, we see the business progressing pretty much as we expected. We keep emphasizing that we manage our year on an annual basis and the variations between quarters on the norm rather than the exception. I know some of our investors attempt to draw inferences from fluctuations within the year, but we just haven’t found these quarterly variations to be terribly helpful indicators of the year as a whole. That’s not because we can foresee all the events that invariably takes place rather it's because during the year we often have opportunities to adjust our business in ways that allow us to manage the variations throughout the year. Now, these actions call to my mind the image of a duck gliding calmly through the water. As we look at the scene from the shore, all we see is an…

Well, thank you, Richard. And as always, thank you for trying to make my job easier. I will begin by talking about our result of the first quarter. Unless, I state differently, all metrics are on a constant currency basis. Our first quarter results are summarized on Slide 2. For the quarter, we generated adjusted earnings per share of $0.99, which is approximately $0.09 higher than our guidance and 74% higher than the same time last year. Net revenue yields are up 6% for the quarter, which is noteworthy considering this followed a 7% improvement last year. This past quarter results were driven by continued strength in both ticket and onboard revenue. On the ticket side, we received stronger closing bookings for the Caribbean, which resulted in better than expected occupancy and pricing for the quarter. Onboard revenue yield was up 8.9% for the quarter. The strong year-over-year growth was driven by a combination of our new hardware, shore excursions and utilization of VOOM and Xcelerate, our high-speed Internet offerings. As I mentioned over the past couple of quarters, guest spend has been continuing to shift towards areas that involve experiences over buying things. Our costs for the quarter were in line with guidance, ending down 4.4%. Now I'd like to update you on what we're seeing in the demand of environment. On our last earnings call, we noted that WAVE was off to a very strong start. These WAVE trends continued in both sides of the Atlantic with bookings exceeding last use levels on both the volume and rate basis. As a result, we are booked ahead of same time last year in both occupancy and pricing in each remaining quarter and have approximately 15% fewer guests left to book that at this point last year. Demand for European…

[Operator Instructions] Your first question comes from the line of Steven Wieczynski with Stifel.

So first the two part question around you updated guidance. First, I would assume that are updated guidance does not include any incremental buybacks from today's announcement?

Steve, obviously, we said in the release also in my remarks that we're going to be doing this opportunistically. But we're not going to specifically parse out the guidance, but if we did, it's not going to be a material change to our earnings for the year or EPS ratings for the year.

Okay and then second part around that, the updated guidance, I guess. When we look at your updated earnings range now with the midpoint of $7.10, I guess the right way to say this and I know you'll probably cringe when I say this, but can we put some closure now to the Double-Double? I mean that was supposed to be originally about 6.70 I think and now you're low on your guidance is $7, which again doesn’t include any material buyback support. So, what am I not thinking about right there?

Well, I'd say that you're not thinking about it correct, but I think in terms of Double-Double, it's -- everyday we're in the trenches making sure that we achieve those targets. So, I wouldn't say we're at a point yet where we're running a victory lap here or very focused on achieving that and making those targets.

Yes, Steve. I think I would also add besides, yes, as Jason said it something that we really have to keep focusing on every day. The program was really more than just those two numbers. The two numbers are an important part of it, but what's really an approach in trying to galvanize everybody working towards it. So in an ideal world, we would do as much better as we can and of course you know it's not our intention to stop with 2017 anyhow.

And then one more quick question just around China, if I could. Can you just give a little more color around the net of consumers, the Chinese consumers' behavior after you've started changing around those Korean itineraries? That might be pretty helpful.

Steve, it's Michael. Yes, I think when this initially happened which was towards the middle of March. Obviously, there was a slowdown and there was a little bit of confusion in the market because everything had to be adjusted and itineraries have to be changed and whatnot. The fortunate thing is of course the Japan is very popular with the Chinese consumers. So, we actually started to see some demand coming in because of the changes that have been made with many of the itineraries. So, initially, it was a little bit -- there was a bit of turmoil and uncertainty. And as Jason had already commented, we started to see the demand return back to its previous levels.

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

A couple things or just to stay on Steve's question on China and South Korea here. You talked a little bit about the consumer there, Michael, can you talk about how your distribution partners have reacted? And then also, Jason just to reconfirm, china as a whole is still tracking above on a year-over-year. I thought that's what you said in your preamble, but just wanted to reconfirm that?

Before the Korean situation, we were in a pretty good position so we had a lot of inventory already add and we're in a good place. I think the same thing happened with our distribution has happened with the customers. Initially obviously there's just confusion in the marketplace as to what exactly is going to happen and it took a couple of weeks, I think, for everything to get sorted out and straightened out. So, I think obviously with the change, the drop of the Korean itineraries, it changes the dynamics in terms of the distribution and the product that have gone into the market. And then to a certain extent, with the new itineraries that were put into place by ourselves and competing brands, then it's is just a different product offering in the market and that's a different kind of relationship with the distribution. So, I think we've kind of been through the period where we've had that initial turmoil and things are starting to settle down more now.

Tim, and in terms of kind of what I commented in my remarks, yes, we don't guide by market. What I did say is that, as we said on our last call, we were in a very strong book position. We continue to be in a very good book position for China.

Okay. And then Jason also just another clarification, I think when you're talking about the last three months of booking and pricing above last year's levels and Harmony. That was all in context with the Caribbean, correct?

For Harmony, yes. But overall, the booking levels we've seen I think I commented it was on both sides of the Atlantic that we've seen strong demand from European consumers as well as North American consumers. And obviously, those core products for them would be North American products with the Caribbean, Alaska, Bermuda, and also would be Europe.

Okay, and you've given some of the -- you've talked about the cadence of the quarter and now the first half, you've got higher yields, lower costs, and I think in the prior call, you commented that that reverses somewhat in the back half of the year here with the yields having more difficult comparison. The hardware doesn't benefit as much, the deconsolidation of Pullmantur does not, yet the underlying core fundamentals seem to be good -- any color or just update on the cadence between Q3, Q4 here?

First, allow me to say that it's pretty remarkable that, how our forecast has been for the quarters is actually very much in line with how we expected the year to play out when we gave guidance in late January. So the high yield improvement in the second quarter, which is really mainly driven by strong demand for our North American products and European products, was very much in line with what we thought it was going to be for the second quarter. And as you pointed out, Tim, as you begin to lap the new hardware and lap the Pullmantur deconsolidation, you really kind of move into a more kind of normalized second half of the year without those structural changes.

Your next question comes from the line of David Beckel with Bernstein Research.

I was wondering if you could help us better understand the extent to which of the Korean restrictions is reflected in the adjustment to your guidance, which was of course offset by Europe. Can you help us towards dimensionalize the overall impact? And also how long do you expect this disruption to last?

Yes, well, I can -- I've been talking how long do we thing the disruption is going to last, that requires a crystal ball that we don't own. But there's obviously been times in the past, I think it was in '14 when there was a dispute over a set of rocks between Japan and China and that was resolved in a reasonable period of time. In terms of the impact, I'm not going to give you a specific number, but I will tell you that it's not a very -- it's not a very material change to our forecast. And as we said, strength in other products, which is why we benefit from this kind of global portfolio of products and markets are offsetting what we expect the impact will be in China due to the change in the Korean sailings.

Got it. And the second question, yesterday, you've announced your public deployment plans for Asia, 2018, 2019. A few things stuck out to us. First thing that the new Quantum ship will be sent out by region, but it seemed like there's no specific mention of China rather just Asia Pacific and you also announced that Mariner was moving to the U.S. Is there anything we should be reading into these moves about tempering of expectations as it relates to the Chinese market?

No, I mean I think I believe that we had stated that Quantum Ultra would be going out to Asia Pacific and it would be going to China along with Singapore and Australia, which is quite normal for us to do that. So, we're quite excited about that in 2019. And then with Mariner moving back into the states, that was really about timing. Mariner was coming out anyway when Quantum Plus came into the market. And we had an opportunity because we've got some revitalization and dry dock work that's quite extensive that we're planning for Mariner.

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

So, I have a big picture question that I wanted to start with and on some of the conversations that we have with investors. They're kind of concern that this is as good as it gets. So, I was just wondering, how you would respond to that and what are you seeing today that makes you confident that these trends can continue?

Hi, Felicia, it's Richard. Not quite sure how to answer that. I understand the question and I guess I've heard it in different ways before. It is a good time and I think one of the points we try to make is, it's an overall tone that we've seen in the number of markets. And frankly, we've been a little bit surprised at just how strong this year has developed. I think we're also feeling pretty good about the execution our teams have done. When you look at the introduction, as you know, of the Celebrity Edge, Harmony is blowing it out of the ballpark. The new ships, the upgrades to the ships that are different brands have done. Symphony of the Seas which comes out in April next year, the forward bookings are terrific. I think we both also know that nothing lasts forever and things do go up and down and, coming back to an earlier question, that's something you always have to worry about is we do see volatility in things like foreign-exchange rates, we do see things happening in the world. But overall, I think I would just say more and more people are understanding the wonderful value of cruising and so as that message gets out, we're really seeing people learning and moving forward. And I think the other thing from my perspective which is very good is just to see how well our teams are doing in terms of the product delivery, in terms of the marketing of that, in terms of using social media. I know I'm going on in a number of things, but there's so many things happening. To answer questions, I think I have to, Felicia. The other thing coming back to something Jason mentioned. A few years ago, if you talk to somebody, what is it you want? I want a flatscreen TV. I want a big TV. I want a better car. And now people really are seeming to say, this is the time I can spend with my family, this is the time I can develop memories that will last me. And I do think that somewhat of a cultural shift and I think we're benefiting from that. And we're working to supply the ships and the people and everything else that makes that happen. So, I don't think we're seeing a sudden spike that makes this as good as it gets and we certainly will continue to do our best to take advantage of that what appears to be a cultural shift for us.

And I would assume -- and I know you talked last quarter about how the booking curve -- you're not trying to keep elongating that for various reasons. But I'm assuming the length of the booking curve and the visibility that you have today also gives you some comfort in what you're seeing in the future, more so than you were able to in the past.

Yes, it's a good point. So it's given us a little more comfort. Again, many of these things do change, but it's pretty far out there and so it does -- I think you're exactly right, it does give us some comfort. Particularly, it gives us more visibility.

Great. And then Jason, just a question. So on the second quarter net yield guidance, the 10% to 10.5%, I was just wondering how much of that is in a same-store basis? So before Pullmantur, the Easter shift, the addition of Harmony, Ovation, so before all of those things, what's the underlying apples-to-apples net yields change? And then also on your full-year guidance, okay, so we know it benefited from the past through of the quarter, and you didn't really change our second half net yield outlook, but it does seem that your cost outlook increased a bit. So, I'm just wondering, it seems to me like there might be something incrementally a bit better in the second half? Can you also address that?

Okay, so in terms of the second quarter, on the same-store sales side, a little over 1/2 of the yield improvement just comes from like-for-like improvement in the fleet, while the other half, it's a combination of new hardware and the Pullmantur deconsolidation. On the cost side, we very marginally increased our cost for the year. There's not one specific thing, but it's a very immaterial change.

Okay, so it's so immaterial that you're upside is just -- it's simply the past-through of the quarter?

Yes, that's right.

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

I'm wondering, if you can talk about 2018. It seems like you opened up sailings for next year earlier than you would have at the same time last year. So, I don't know if you have any initial -- is it fair to assume that your fair pricing volume for 2018 as well?

I would say good try, Robin, for us to begin to comment on 2018. It's a little bit early for us to start the kind of give stats around it. There are some additional sailings that have been opened up for '18, but it's really has more to do around the launch of new ships like Edge and Symphony that come out next year and that's really kind of what's driving some more recent announcements in terms of deployments for our 2018.

Okay, that's fair enough. And also just to circle back to the topic. I know you've made a couple of comments on it already, but just some about the impact of Korea on China itineraries. Can you give us just kind of a rough sense as how you expect China yields to be with the impact of the disruption in Korea now? Does that leave you for the year with yields maybe flattish in the market or maybe slightly down given the Korea situation or actually some positives?

Well, again, I'm not going to give specific guidance on the yield side, but obviously, making a decision to put Quantum Plus and a brand-new shipment talks about our confidence in China.

Robin, as you well know, China will have its ups and downs. Something like this is very frustrating. You probably recall how the emotion in our voice when we complained about the problem a few years ago between China and Japan. It's very frustrating. But it's such an upward-trending market. It's such a large and growing market. And when you see just the thing I'd like to quote, which is that there will be more middleclass Chinese than the population Asian of either the United States or all of Europe. You simply say, yes, we will have bumps in the road and sometimes those bumps will be big bumps, but it's still part of on an onward and upward trajectory. So that's the way I think we're looking at this.

Your next question comes from the line of Harry Cutis with Nomura.

Two quick questions. How much capacity have you got left to sell for the balance of this year in Europe? I'm trying to get a sense of how much leverage you've got to -- or incremental leverage from here that you have to -- the strength in Europe whether it's U.S. to Europe or Europe to Europe passengers?

Hi, Harry, just to kind of give you kind of more of a framing, we certainly have a lot less capacity to sell for Europe than we did same time last year. And as I commented on my remarks, there's also greater mix shift of North American versus European this year, which would also help you understand that most North Americans book much further out than Europeans do for their summer holidays. So we have a lot less inventory we have to sell for Europe for the balance of this year.

For the balance of this year, can we assume it's 20%, 25% left to sell?

Well, I said that -- in my remarks that overall, we have 15% less inventory to sell than we did the same time last year and you combine that with the strength of what we have said about demand for European sailings from North Americans, that would tell you that would probably be above that one.

Okay, that's a good effort anyway.

Points for trying on there.

Capacity growth, I'm trying to get a sense of what European -- your biggest markets, European and the Caribbean, your net capacity growth outlooks for 2018 and '19. Some of the folks that we talked to just looking at the bulge and capacity growth and just overall in the cruise industry, a little bit lowered about capacity getting a bit ahead of itself in Europe and the Caribbean over that timeframe and I wonder if you can comment on that?

I think the only thing that I would -- it is really talking about '18 capacity because things are still in flux. The thing I'd keep in mind is, for example when Symphony comes out, Symphony will be spending the summer in Europe and the other new capacity that we have, which is in the very latter part of the year Edge, that will have a very mild effect on our Caribbean capacity for 2018. So, there's some shifts, but I don't think there's any materials swings within the products.

And then do you have -- I guess, my last question is, from a global perspective inclusive your competitors. Are you getting a sense of how much incremental capacity there's likely to be in '18 and '19 overall?

Well, I think on the '18 side, I think we explain -- I'll at least talk to that I think we expect capacity to grow in mid single digits. It can be more elevated in '19 on the gross basis.

And is that both in Europe and the Caribbean or is it lower in Europe than in the Caribbean?

Well, I don't know exactly where they're going to deploy those ships. I know that obviously, in '19, when we deliver Quantum Plus, that ship will be heading to Asia as Michael referred.

You're next question comes from the line of Jared Shojaian with Wolfe Research.

Just on the buyback, so you're know within your range of 3 to 3.5 times debt-to-EBITDA. If I just run higher EBITDA through, then at year end you'll be close to 3 times. So I guess, what I'm getting at is the 500 million buyback seems a little bit light. So can you just give us a sense for how quickly plan to execute that and is it possible that you can announce another buyback before year end?

Hi, Jared, I don't think I would ever use the word 500 million and light in the same sentence. But one, I think what we said is that we're going to be looking to purchase $500 million of shares opportunistically, and we'll see how we evolve on that program. There is always the opportunity to lever or use additional free cash flow, but that's a Board decision that will be taken at the time as we start to migrate towards those metrics.

Right, okay. I mean, I'm just looking at my model and I've got over 1 billion in free cash for the balance of the year. So light relative to that perspective, obviously not light relative to your historical standards, but I guess, just as a follow-up on a separate topic, can help instead the joint venture income was down quite a bit in the quarter? Why was that? And how should we think about that growing as the year goes forward?

Well, we don't really guide on the borderline, but the driver of that is as we deconsolidated Pullmantur, 49% of their earnings gets recorded into our below the line, where before, obviously, there were above the line. And Pullmantur is a business that has a peak to it with the summer months and has a deeper valleys in the winter period of time and that's really what you're seeing affecting that equity pickup line.

Your next question comes from the line of Vince Ciepiel with Cleveland Research.

My first question was related on onboard spend that looked especially strong. Just kind of curious, your expectations for onboard for the year? And also if you can comment on what you're seeing with VOOM? I think completed the rollout around this time last year?

Yes, we've been very pleased with the onboard revenue. If you look back at the past quarters we've seen good growth overtime and it continues. One of that Jason has pointed out, what we are saying is a switch to more experience-related revenue streams and obviously we're trying to leverage that. So things like shore excursions obviously beverage, beverage packages, that kind of thing. VOOM is doing well. We've spent a lot of time with pricing model and also with our pre-cruise sales of VOOM and Xcelerate for Celebrity. And in with both cases, we've seen a good pickup, so using the words penetration, how many people we're actually selling the product to we've managed to increase the volume of sales, and we've managed to use different pricing models to reach out and get the revenue up, and that's been quite successful.

Great. Separate topic, I want to focus more on Europe. It's is like a lot of happenings within North American source demand right now. But also keeping in mind that I think capacity is down year-over-year there. So, how much of the strength that we're seeing in Europe is related to demand versus the capacity set up? And how do you think that evolves over the next 12 months to 18 months in Europe?

Well, I think in terms of what we're seeing in terms of demand is we're seeing demand actually quite healthy, not just from North Americans but also the European consumers. But the North American consumers, because they book further out, have got what up more of the inventory over the past four or five months, which of course puts us in a leverage position with the consumer to be able to charge more, not only to North America, but also locally on the Europe side. Now, how much of that is driven by less capacity? That's obviously very difficult question to answer, but I think it also shows -- I think one of the things as I commented on my remarks, it's also a difficult comparable for us in Europe because Harmony spent the summer there last year and is not spending the summer there this year. And so I think that really encourages in terms of the yield improvements we're seeing in the market.

Your next question comes from the line of Stephen Grambling with Goldman Sachs.

Just have a few follow-ups. I guess, one clarification on the comment about mid single digit capacity growth in the industry. Is that gross or net? And do you see a tipping point anywhere on the future where retirements should start to accelerate?

Well the comment I made was is on the gross basis. I'm not sure if there's a tipping point, but certainly, you start to see acceleration of ships at the age of 30 years as you get more 5 years to 10 years out and you can kind of pick your point in time where you think there'd be a higher velocity of netting that will take place.

Okay. And then onboard very-very strong numbers, I think it was probably the best since 2013 on your preoccupied birth date. Can you just talk about any unique drivers in that line of M&A item or any categories and regions that led to that acceleration?

Steven, I think really what we're seeing is we're seeing a really good pickup other pre-cruise sales, that's driving a lot of these revenue. There's really a theories on how impactful pre-cruise sales are and one of the theories is if you sell $1 pre-cruise, you'll probably see anywhere from 20% to 50% uptick in the onboard spend by the very same guest. So pre-cruise sales has been a focus for us and we've seen that for the increase quite nicely, I mean, literally over the past couple of years but it's really accelerated over the past quarter.

And just add to it, Stephen, also keep in mind, in terms of how we go to market, there's been more packaging, there's a mix shift that happens between ticketing onboard depending on how were selling that specific raise. And so for packaging, as an example, beverage, we break out that beverage revenue. We put that onto onboard. So there's a little bit of a mix because we're doing more packaging it's showing onboard yields higher than our ticket yields.

That's helpful. And one last very quick one. I don't know if I caught this, but can you talk new to cruise trends and as we look at the strength recently, what has new to cruise look like?

Obviously speaking about Royal, we've been quite focused about a new to cruise, particularly in the American market and we're quite pleased with the progress that we've been making last year, it was a really positive your for us in terms of the overall increase in new to cruise, and this year, looks like it's on track to be last year's performance in terms new to cruise. And the way we've got the market and how we go to market has changed quite a lot over the past couple of years and where we're seeing that resonate with the new to cruise potential, so we're feeling quite good about that directionally what we're going with that, even when we do brand awareness research in terms of new to cruise, we feel like we're hitting us but in terms of our marketing and move to digital.

Any qualification there on the growth on new to cruise passengers?

No. It's -- we feel pretty good about it at the moment. There is no quantification.

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

Yes, two quick ones on China. You mentioned that it was similar about Japan-China dispute. But what about the 2015 merge issue? And also you mentioned that demand was coming back to normalized levels? How do you expect demand to play out in the high season were demand obviously increases in the summer and we also have a little bit more supply coming into the market to take advantage of that as well?

As Jason had pointed out, I think, we're already were in a good position for every quarter in China. And obviously, that's got a relationship to the capacity that's in the market. We don't know for sure how the Q3 is going to play out in terms of the China demand in it is peak season. There's also a possibility of course that things will turn around with the situation in Korea and China. I mean, there's some theories that will occur, but of course, as Jason pointed out, we don't have a crystal ball. The elections in South Korea occur in May, some believe that in June, the situation will resolve itself and that of course great news, if that happened. But we don't know for sure how that will play out in the peak summer.

Just comparing it to 2015 issues, how does it compare?

You know, it's difficult. I think as Richard had pointed out, this market is a huge opportunity. It's a very much a long-term play, it's developmental. We've been in the market for 10 years. We've been over that decade, we've been through some ups and downs, and I think every year or every other year, we've had something thrown at us whether it's murderous, typhoons, Japan, Korea, tsunamis. And thus, I think we just have to adapt and I believe that we're kind of getting used to these curveballs when they come at us and we're quite flexible and rapid in terms of how we respond to them. But I think it's something that we just have to get used to that is the story of his developing market for us, and we're become a quite adept at dealing with this. So, the comparisons between year-over-year, is very difficult to say but they follow very similar pattern, obviously. Event occurs and we go to a little bit of a minor turmoil and then there's some uncertainty and then these things start to sort themselves out, we typically see the demand coming back.

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

I did want to ask Felicia's question from earlier in the call in a slightly different way about this being as good as it gets. Obviously, yields are difficult, if not impossible, to predict. I wanted to ask about cost though. The cost performance has been really exceptional, probably unprecedented versus historical standards. You've been able to keep costs at pretty flattish for -- assuming your guidance holds 4 years here. And I think every year, we model whatever you guide us to for the year, but we assume in the out year, the cost is going to go up because historically that's what costs do. I guess, any thoughts about your ability to continue to find things to cut and offset whatever inflation that you have?

First off, it is incredibly difficult to kind of manage all these new cost inflation's that have been around the world and make an impact our business. What I would tell you is that there is a -- we would just effort to make sure that we are effectively managing our costs. And as we're progressing inflationary type of items, we do keep in mind that as we grow and as our capacity gross, there's opportunity or further opportunity to realize economies to scale in the business. And that's kind of where we're kind of focused. I don't think or I don't think we believe that there are areas where there are large cost opportunities but there's always opportunities on the margin for us to be more cost-effective.

James, let me just add to that, because I think the question does put its finger on a couple of things that are important. First of all, I really am impressed. The team has just terrific in focusing on this and then in executing against that. But you're also right, you can't do this forever. I do want to emphasize though, our real future continues to be on the revenue side and performing on that and maintaining and expanding the preference for our brands. So one of the things you said was you can keep finding things to cut. And I don't mean to nitpick words I don't think it's so much a question of finding things to cut. It's finding ways to do things better and that may or may not mean a continuation of this -- the flattish trajectory that we've been on because you can't fight inflation forever. But it really is impressive. They keep looking for ways to do things better and still, I would emphasize that our guest satisfaction is higher today than it was last year and last year was a record. Our employee engagement is higher than it was last year and last year was a record. And so I think our objective is to continue to build to maintain our product, our brand preferences and to hold the costs, but I think we will not -- we can't do it forever, but I certainly like to take the opportunity to say thanks to the team for doing as well as they have to get here.

Agreed. My second question, the bear case coming into the year, with respect to the Caribbean was just a notion that capacity was going to be accelerating thereafter flat to down years. The last couple of -- obviously the first quarter would seem to find the phase of that, but it occurs to be that the majority of the growth in the Caribbean is sort of yet to come. I guess, as you look out to your future bookings, is that capacity wretches up, are you seeing any impact on Caribbean pricing as a result of the increased capacity?

Yes, I would say overall, I mean the demand for the Caribbean on both the volume and rate perspective has been very pleasing to us and while there is a bit amount of capacity coming in Q2, Q3 and Q4, what we're seeing in terms of your volume as a general demand has been quite positive and it's not just all for Harmony, it's really for the broader portfolio of product and equipment.

Great. And then last quick question for me. For the Caribbean versus Europe, obviously you don't guide or give results by region, but so much of last year, probably going back even further was this notion that in quarters where he had more Caribbean since the Caribbean was outperforming your yield was going to benefit from that. It doesn't seem like that's necessarily the case as we look to 2Q. Are we finally at the point where Europe -- European bookings are a drag on your overall yield numbers as they sort of catch up with the Caribbean?

I think we're experiencing in Europe, first of all, there's a little more stability, there's been less activities that have disrupted the environment and obviously, this year, we've made a lot of deployment changes that have created kind of a more stable environment in Europe. And so first, I mean, Europe has always been a contributor to our yields. Last year, the Eastern Mediterranean kind of weighted on European yields, but I mean, overall, the demand we're seeing, the pricing we're seeing has been a very good place this year and very similar to what it was in the '14 timeframe.

Your next question comes from the line of Sharon Zackfia with William Blair.

I should probably warn you that my parents are getting on one of your ships today, so you might want to watch out for the Zackfias. But in terms of question --

I hope they bought their wallet, Sharon.

You might want to cut off the alcohol for them.

We'll notify security.

Most of my questions were answered, but I guess, I'm just curious in terms of passengers under 35. How do you feel the appetite is for cruising in that generation and kind of what you're learning might be different or similar to prior cruisers at that kind of same age group?

Sharon, which ship are your parents sailing on?

They're on Navigator. They're going across the Atlantic.

That's good. We'll make sure we take good care of them. Under 35, I mean one of -- in the millennial market, one of the things that we believe in is when a millennial has a child, they really come into our sweet spot for Royal Caribbean certainly and as soon as those millennials get kids then they really want to have a great time with their family and we work very well for them. The one obvious thing that's quite meaningful is digital technology and access through whom the world around them. So of course, that's something that we put into place a couple of years ago and I think that's really proven to be successful. The other kind of component is the whole idea of multigenerational vacations and that's something that we really do focus on, this idea that we can offer a multigenerational experience to our customers and of course the Oasis-class ships really are the great expression of that. So, we see some differences, but then we also see a great deal of similarities. Our customers are looking for great quality, great vacation, attentive service, innovation and creating great memories, and I think we really put a lot of energy into creating these a very special moments. So, with the new ones of digital technology and then dining is becoming something that's slightly different with the millennial market and that something that we're obviously focused on both for our current fleet and also as we look at our new builds coming online.

We have time for one more question.

You're next question comes from the line of Jamie Katz from MorningStar.

I have just one quick question on pricing integrity. You guys haven't really specifically discussed it in recent quarters, but I'm curious whether you've thought about maybe expanding it to new source markets or if you have thought about changing the duration of it at all?

Not really. It's been very successful for us. We think it was well designed for the markets it's in. Actually, I was a little taken aback by the question because we really haven't talked about it. We think it's working, but we haven't for a while talked about extending it in any which way. We gradually put it in a little bit of time. I suspect now that you raised the question, we'll take another look at it. But it covers the bulk of our markets anyhow and we haven't talked about it, but I suspect we will.

Okay. Well, thank you all for your interest and thank you, Victoria for assistance on the call today. Carol will be available for any follow-up questions you might have and we wish you all a great day.

Again, thank you for your participation. This concludes today's call. You may now disconnect.