Andrea DeMarco – Director, IR Kevin Sheehan – CEO Wendy Beck – CFO and EVP.

Harry Curtis – Nomura Group Felicia Hendrix – Barclays Steve Wieczynski – Stifel Robin Farley – UBS Tim Conder – Wells Fargo Steven Kent – Goldman Sachs.

Good morning, and welcome to the Norwegian Cruise Line Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). This conference call is being recorded.

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

Thank you, Shannon. Good morning and thank you for joining us for our second quarter earnings call. I am joined today by Kevin Sheehan, our President and Chief Executive Officer and Wendy Beck, our Executive Vice President and Chief Financial Officer.

Kevin will begin the call with opening commentary and Wendy will follow with more detail regarding the quarter. The call will return to Kevin for some final comments after which we will open up the call for your questions.

As a remainder, this conference call is being simultaneously webcast on our Investor Relations website at www.investor.ncl.com and will be available for replay for 30 days following today’s call. Before we discuss our results, I would like to cover a few items.

Our press release with second quarter 2014 results was issued last night 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. Our comments today may include statements about our expectations for the future.

Those expectations are subject to known and unknown risks, uncertainties and other factors that may cause the company’s actual results and performance in future periods to be materially different from any future results or performance suggested by these expectations.

We cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any forward-looking statements during the quarter. If you would like more information on the risks involved in forward-looking statements, please see our SEC filings. In addition, some of our comments may reference non-GAAP financial measures.

A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in our earnings release and on our website. With that, I’d like to turn the call over to Kevin Sheehan.

Kevin?.

Thanks, Andrea. Hi, good morning everyone. The results for the quarter demonstrate once again our commitment to delivering disciplined, measured, orderly growth as we navigate through an environment that has remained highly promotional most notably in the Caribbean.

But we’ve proven time and again, we work our way through these temporary market adjustments, finding new and creative ways to attract customers to our products through brand-building and adding to our ever growing community of loyal Norwegians.

We’ve done this by focusing our offerings on value-add promotions and leveraging our travel partner relationships to attract new guests to our brand. Our momentum continues reporting strong net yield growth and earnings over the prior year.

The second quarter of 2013 garnered higher than usual price and premiums for the first sailings surrounding the introduction of a first-in-class vessel in this case, the Norwegian Breakaway which as you remembered debuted in April of last year.

While the second quarter includes the redeployment of ships to premium itineraries, we are pleased with the ‘13, ‘14 winter season that included Norwegian Breakaway’s first sailings to the Bahamas from New York and Norwegian getaways to notable sailings to the Eastern Caribbean from Miami.

While our new builds attract much of the intention, our core fleet has performed well in this environment. As I stated before, with promotions attracting guests to our product is critical that we seize the opportunity to cultivate loyalty to our brand.

We do that by offering an exceptional and differentiated three star cruising experience across our fleet which no other brand can duplicate.

To that end in May, we announced a comprehensive $250 million investment program, with the aims of enhancing the guest experience and rolling out the latest offerings and technological advances to vessels throughout our fleet. We’ve named the program Norwegian NEXT with NEXT signifying New Enhancements Experience and Transformations.

The purpose of Norwegian NEXT is a distinguished project that bid a set of criteria with the ultimate goal of portraying stronger ties with our guests and strengthening brand loyalty. In other words, the projects under Norwegian NEXT umbrella are not incremental to the short and long term guidance that we have provided.

They are projects that we either currently or soon to be in process will have a direct impact on what guest value in Norwegian. We remain on the cutting edge of innovation that not only provides our guests with an unmatched vacation experience but enables us to keep our fleet the most modern at sea.

Norwegian NEXT crystallizes that focus with projects that were new experiences specifically tied to NEXT or by bringing best offerings from our game-changing new builds. Dining is one of the mainstays of a cruise vacation and Norwegian’s Freestyle Cruising proposition offers the most choice in dining in the industry.

All of our ships offer a series of complimentary dining venues along with restaurants that offer a more specially dining experience for a nominal charge. With up to 29 dining options running the gambit from All-American diners to authentic, Brazilian steakhouses to fine French restaurants and all with flexible dining times.

Norwegian offers the most varied dining choices at sea. With Norwegian NEXT we are enhancing the dining experience with a comprehensive program that augments our already varied culinary offerings.

As an example, we recently introduced new rotating menus to our complimentary dining venues with a greater selection of traditional and contemporary offerings that meet the discerning palates of today’s discerning guests. The menus also have a strong regional focus and differ depending on itinerary.

In addition, as has always been a picture of our three-star cruising proposition, exceeding in both our complimentary and specialty dining venues is only with whom you choose and never with strangers chosen by the cruise line and of course at your schedule.

Not only are we extending the options to our current complimentary dining venues but we are also expanding the choice of venues by rolling out O’Sheehan’s Neighborhood Bar & Grill concept originally introduced on the Norwegian Epic, to the rest of the fleet. O’Sheehan gives guests the option of an informal casual meal in a relaxed atmosphere.

In addition as part of NEXT, we are expanding O’Sheehan offering to include namely special such as the widely popular Prime Rib Night and to bring something special to the typical Bar & Grill experience.

In addition the rollout of O’Sheehan, we are taking other proven concepts and expanding them to balance off as the Moderno Churrascaria or Brazilian Steakhouse, which has been a hit since it was introduced on the Norwegian Epic.

Lastly, our cafés across the fleet will become instantly more popular now that they will carry treat from the popular Carlo’s Bake Shop. Norwegian’s bars and lounges are also unrivaled from the Bar City concept found on the Jewel-class vessels to the ice-bars of our more recent ships.

As part of Norwegian NEXT we have elevated our beverage program with the help of our partners such as the Michael Mondavi family, who helped with the creation of our new fleet-wide wine menu and James Beard-nominated mixologist at Bar Lab who created our seasonal destination based cocktail menu.

We’re also escalating the training of bartenders, wine-stewards and restaurant managers to be better serve our increasingly educated and guests.

Entertainment has always been a Norwegian hallmark highlighted by first-at-sea productions of Blue Man Group, Rock of Ages, Legally Blonde and Burn the Floor, complementing these Broadway Show will be productions from Norwegian Creative Studios, our 45,000 square-foot facility which allows us to custom tailor ever revolving collection of productions for individual ships and itineraries.

We will also be expanding our Nickelodeon branded activities with new experiences for kids and Splash Academy, as well as additional opportunities for the whole family to share. Technology wise, we are expanding the reach and features of our mobile applications and rolling out innovations to make the pre-cruise and cruise experience even better.

First, there is the fleet-wide rollout of iConcierge, the first app of its kind, which allows guests to preview and book shore excursions, view information on dining menus, and make reservations, review their folios and much more while onboard all from their smartphones.

Second, is our cruise Norwegian app, which not only allows guests to research ships and destinations but with upcoming enhancements allows for more in-depth and robust pre cruise planning. Pre-cruise planning is also a focus of cruise coach, our newly developed booking engine that helps guests plan the right vacation.

Additionally to assist guests while onboard we are expanding our digital signage throughout the ship.

These touch-screens give much more than give guests information regarding the day’s activities and events, they are interactive stations which allow guests to order specialty items, get directions, book reservations for dining, for entertainment and short excursions. Lastly, it’s the extension of the Norwegian experience from sea to land.

Norwegian was the first cruise-line to develop Private Island and to provide a private beach experience to its guests.

Great Stirrup Cay has been a picture of the Norwegian cruises in the Caribbean for four decades and a recently $30 million investment and enhancement such as beach extensions, additional cabanas, the in-bars, sponsored by Bacardi and Patron not only make the beach experience that much more enjoyable for our guests.

Work has also continued on Harvest Caye, our port destination in the Western Caribbean.

While it’s premature to reveal the island’s features and offerings just yet, I can say that we are one of the most eco-friendly destinations in the cruise destination, one where guests would be encouraged to learn about the unique ecosystem of the island and its surrounding areas.

In keeping with our commitment to minimize the impact on the environment, we’re installing exhaust gas scrubbers on ships with heavy itineraries in the each zone as well as on all four of our new builds.

In addition, all ships entering dry-docks are being treated with high performance friction reducing hull coating which lowers fuel usage and turns – and in turn cuts down emissions, one of the many fuel initiatives that we have continued to talk about and innovate with.

We’re excited about the expected results from the investment that comprise Norwegian NEXT and we’ll be periodically keeping you apprise of our progress.

We strongly believe these investments in our crew, our guest offerings and our other areas along with leveraging, learning from our most recent ships particularly Norwegian Getaway which leads our fleet and guest satisfaction, we draw our strong results into the future. Now, to go over the results for the quarter, I’ll turn the call over to Wendy.

Wendy?.

Thanks Kevin, and good morning everyone. The following commentary, unless otherwise noted, compares second quarter 2014 and 2013 on an as reported basis. A 19.6% increase in capacity days coupled with 3.3% improvement in net yield resulted in an increase in revenue to $765.9 million from $644.4 million in 2013.

The capacity increase was the result of a full quarter of the Norwegian Getaway along with a partial quarter of Norwegian Breakaway which entered the fleet in April 2013, partially offset by a planned drydock of Norwegian Jewel.

Net yield increased 3.3% or 3% on a constant currency basis, resulting from improvements in onboard and other revenues, higher occupancy of 110.4% versus 107.5% in 2013.

Fundamental changes in our cost of sales structure, so we have been working very hard to leverage our growing scale by expanding our casino partnership, renegotiating certain agreements such as our port agreements and credit card processing fees, lowering our air subsidies along with other initiatives, the benefits of which carry-forward the future period.

Keep in mind that we rolled over strong comps from the second quarter of 2013 which included 3.7% increase in net tickets per diem as a result of strong pricing on the initial sailings of Norwegian Breakaway which were spurred by the strong demand surrounding the launch of a first-in-class ship.

In addition, in 2013, we strategically held pricing post industry incidents. These tougher comps will start to yield in the fourth quarter. Turning to cost, adjusted net cruise cost excluding fuel per capacity a day decreased 2.3% or 2.7% on a constant currency basis.

The decline in cost was a result of a few factors fewer drydocks in the period compared to prior year, 1 versus 1.5 in the second quarter of 2013.

The absence of inaugural expenses in the quarter whereas the second quarter of 2013 contained inaugural expenses for Norwegian Breakaway and efficiencies as a result of having both Norwegian Breakaway and Norwegian Getaway in our fleet coupled with continued efforts in our lean management program.

Fuel expense for the quarter benefited from both lower prices and consumptions. Fuel prices per metric ton net of hedges in the quarter decreased to $622 versus $686 in 2013 whilst more consumption on a per capacity day basis decreased approximately 5% in the period.

Interest expense net in the quarter was $31.9 million compared to $33.6 million in 2013 after adjusting for $70.1 million in charges related to the refinancing of certain credit facilities and the redemption of the remaining balance of certain senior unsecured notes that occurred last year.

The decrease in interest expense net was a result of lower average interest rates and balances in the period due to the capital structure optimization. This decreases also particularly impressive given it includes the impact of debt associated with both the Norwegian Breakaway and the Getaway.

Adjusted EBITDA increased 44% to $219.4 million from $152.3 million in 2013 while LTM adjusted EBITDA margin expanded to 26.7% from 24.6% in 2013.

Overall we’re pleased with the bottom line results for the quarter, which includes the doubling of earnings with adjusted EPS of $0.58 up from $0.29 in 2013 as a result of increased capacity days growth in net-yield, lower net cruise cost excluding fuel per capacity days, lower fuel prices and lower interest expense.

Looking at the full year, the promotional environment has continued and we anticipate the trend to carry-forward. The Caribbean remains the most promotional market while Europe, notably the Mediterranean continues to perform very well.

Looking at the remainder of 2014, we have provided guidance along with associated sensitivities for the third quarter and full year 2014 in our earnings release. Unless otherwise noted, the following guidance metrics are on an as reported basis. It is important to keep in mind the following while reviewing guidance for the third quarter.

First, third quarter provides tougher comps on a year-over-year basis as we strategically held pricing last year post industry incidents to give you an indication that ticket yield growth in Q3 2013 was 5%.

Second, we anniversaried the addition of Norwegian Breakaway through our fleet with a strong pricing of her first summer season as a first-in-class ship. Going forward, the growth rate for net yields for Breakaway are expected to grow in-line with the core fleet. Lastly, our largest increase in Caribbean capacity is in third quarter.

Our Caribbean capacity will account for 23% of our deployment mix up from 13% in 2013 from the addition of Norwegian Getaway sailing year-round from Miami.

As a result of this, year-over-year differences coupled with the continuation of the strong promotional environment in the Caribbean, we expect an increase in net yields growth in third quarter in the range of $225 million to $275 million which is included in our full-year net yields guidance of 3% to 3.5%.

Now turning to costs, we are taking advantage of the benefit of lower fuel prices to make the strategic investments which Kevin touched on earlier for the remainder of the year, an initiative that increased brand awareness and enhance the guest experience.

These investments which include incremental marketing spend to help bolster demand in future quarters as well as initiatives under Norwegian NEXT result in an increase in adjusted net cruise costs excluding fuel of 2% to 3%.

Our adjusted EPS guidance for the quarter is $105 million to $110 million, which is approximately 25% higher than the prior year. Now, looking at the full year, as a result of the afore mentioned investments, we expect adjusted net cruise cost excluding fuel to be flat to slightly up.

With the benefits of these investments along with the easing of comps and lower capacity growth in the Caribbean in the fourth quarter, we are reiterating our net yield and full-year earnings guidance with net yields expected to grow in the range of 3% to 3.5% and adjusted EPS between $2.20 and $2.35.

Overall, load for the remainder of the year is ahead of prior year. Our new ships continue to have a powerful impact on our earnings with both Norwegian Breakaway and Norwegian Getaway garnering premiums versus our core ships in the same itineraries which is best viewed on a full-year basis.

Looking at deployment for the third quarter, 23% of our capacity is in the Caribbean, 32% in Europe, 17% in Bermuda and 18% in Alaska. The balance of our deployment is in other itineraries including Hawaii.

Looking to 2015, while the promotional environment has continued and we anticipate that trend to carry-forward into early 2015, we are cautiously optimistic as industry capacity growth in the Caribbean moderates to flat to slightly down for the year. Before turning the call back to Kevin, I would like to recap.

Net yield growth in the quarter was up 3.3% versus prior year despite significantly tougher year-over-year comps and the continuation of the strong promotional environment.

Adjusted net cruise costs excluding fuel per capacity day were down due to the impact of both new ships in our fleets as well as the timing of year-over-year expenses such as drydocks and inaugural expenses. And both fuel pricing and consumption improved, and interest expense benefited from the optimization of our capital structure.

Bottom line results for the year, we are reiterating our net yield and adjusted EPS guidance. We remain focused on executing on our strategies and delivering consistent orderly earnings growth. With that, I’ll turn over the call to Kevin for some closing comments..

Thanks Wendy. Before moving on, I just wanted to put some context around our perspective with respect to our net yield guidance for the coming quarters. In addition to Wendy’s commentary, please keep in mind that our strategy to bring a year-round trip to Miami has always been based on a 12-month return.

This includes the third quarter in which the most of last year, the majority of our fleet is in premium markets outside of the Caribbean. The new piece of the puzzle this year is the addition of Norwegian Getaway in the Caribbean. Her addition to the fleet resulted in the doubling of our Caribbean capacity for us to absorb in the third quarter.

And her yields while strong, naturally dilutes the overall yield landscape giving the pricing in the peak season for our premium markets.

The result is too strong, projected in the third quarter net yield increase which was always factored into a full-year outlook which would have been absent her introduction just to give you a little perspective, a little over 200 basis points higher for the third quarter.

Our strategy though for bringing Norwegian Getaway to Miami has always been to demonstrate our commitment to our guests and our travel partners and is an investment in our brand and our future with the ship that has a five-year payback. Please keep that in mind.

And as we move into the fourth quarter our capacity growth in the Caribbean has easier year-over-year comps and the benefits of our marketing initiatives positions us for yield growth in the fourth quarter that we have articulated here with a higher yield Norwegian Getaway in the bets.

Our strategy to grow and strengthen our community of loyal Norwegians as evidenced in the investments being made onto to Norwegian NEXT program. In addition, we are making smart disciplined investments to grow our fleet. Norwegian Breakaway and Getaway have been two of the most well received vessels in Norwegian’s history.

They are mix of innovative public areas including the collection of restaurants and lounges that line the revolutionary open-air waterfront and the hub of activity that is 678 Ocean Place, along with an unparalleled line-up of entertainment options and activities, is a winning combination that not only makes these vessels excel in terms of guest satisfaction but in earnings power as well.

We have naturally expanded these successful concepts in the design of our upcoming ships which includes the two ships announced earlier this month. The combined contract price for the 164,000 gross-ton 4,200 berth vessels is €1.6 billion with export credit financing in-place at attractive rates.

Deliveries are scheduled to the spring of 2018 and the fall of 2019, 18 months apart. This latest order brings the total number of new builds on the contract with Meyer to four, with the first ship in this series, Norwegian Escape, scheduled for delivery in October of ‘15.

The cost of these two new vessels is somewhat higher versus our previous orders for a variety of reasons. First, it’s a simple story of supply and demand as shipyards currently have more business on the books than at the time of our previous orders which had allowed us to negotiate extremely attractive pricing, best-in-class at that time.

Second, is the value of the Euro which is approximately $1.32 at the time of the prior order and as it appears to where we are today. And most importantly, the new features and enhancements of these ships which we will announce in the future also contributed to the higher costs.

We believe these enhancements will continue to improve our brand positioning and expect to pay back on the 18 and 19 deliveries to be 5.5 years, modestly higher than the five years of the other new builds.

Every team member at Norwegian is working hard for their respective stakeholders, be it our guests, travel agents or our shareholders to reach our ultimate goal of being the cruise line of choice with a growth rate that is unmatched in this industry.

This is demonstrated in our industry-leading return on invested capital which is our IPO, we have communicated to double by the end of 2017 to 14% in addition to our previously communicated doubling of earnings per share in that same period. I thank you for your continued support.

And we look forward to continue to bring you the results you have come to expect from us at Norwegian. With that, we’d like to turn the call over for questions.

Operator?.

Thank you, Mr. Sheehan. Our first question is from Harry Curtis of Nomura Group. You may begin..

Hello and good morning. I just have a couple quick questions.

First, a little clarification on ticket pricing in the second quarter, by our calculation it was down roughly 4% to 5% and my question is, is that a level that is baked into your third-quarter assumptions and if you would give us your sense of what the promotional environment looks like, vis-à-vis ticket pricing through the first quarter of ‘15?.

Yes, it’s a great question. And the excitement to me is that while we’ve started to see some real traction on booking levels. And I would say for the last at least 12-weeks, we’ve had substantial growth year-over-year in our booking activity, probably close to 20% or more.

And what that initiative has enabled us to do as you can imagine the revenue management tools that we have, having a better loaded position and we go into the remainder of the third quarter and the fourth quarter solidly loaded above the prior year, which enables us to be more capable of moving the pricing and protecting the pricing as we get closer to the sailing.

So I think we have more confidence than I’ve had for a while as I look into the outlook. I think you guys know that we’ve had a very unusual environment for the beginning of this year. I feel like we are, it’s cautiously optimistic we’re starting to feel better.

We still have more to see before we can say, we’ve won the whole things, the Caribbean environment, still a little bit promotional. But a little bit less in my view than what it has been, but we’ll probably continue it for a while as we regurgitate the market size as been the case in other market over the years.

And what happens is the consumer sees the market, the travel agents points more to the market, marketing campaigns move to the market and all of a sudden the market is right-sized. And then we have to watch-out for what’s the next market that we have.

This is a certainly more than what I have experienced since I came to the company as a concentration particularly with the ship that came out of nowhere from MSC, a brand new ship. But we feel now that we have a better position and we’re selling our ships out consistently. So it’s a good feeling. And we too feel better about our pricing.

And I think the touching on the pricing and the cost of sale and we’ve done some phenomenal work throughout the last, well, actually we’ve always been doing it but it’s more evident now when we have the two big ships and we have the other orders that we can walk into a room and negotiate some pretty solid deals.

So, the run rates that you see are the run rates that we expect prospectively, it’s not like it’s a one-time wonder. So, we feel pretty confident with that as well..

A quick follow-up question then on the cost side. It was down per berth in the second quarter, it goes back up in the third. It looks like, based on the implied guidance for the second quarter, it actually comes down, I’m sorry, for the fourth quarter, it comes down for the fourth quarter.

Rarely do you see such volatility in cost per berth and what are the primary drivers behind that and how long you expect this volatility to last?.

Yes. I mean, this is a Kevin Sheehan thing, and I store the opportunity with this, when we launched the Breakaway it was a solid ship, solid results and good guest satisfaction. But when we took and suddenly changed a few things on Getaway, we launched a ship that’s got phenomenal guest satisfaction.

You cannot walk on that ship and not get everybody to grab you and say, I can’t believe this ship and this experience. So, given some of the stuff that happened as you see the fuel is coming in, we’d certainly in a different place, in the industry on our fuel cost.

So it enables us to say, let’s step back, we have this opportunity, let’s invest in making sure that all of the learning from Getaway are pushed out to the other ships. And I got to tell you, I’m very excited about it.

We have a team of people that are pushing these out in every ship across the itineraries and I expect to see a nice bump in our guest satisfaction. And it’s really a third quarter, it moderates quite a bit in the fourth quarter but we figured let’s make sure we take advantage now or the iron is hot to get over this stuff out into the fleet.

And that’s kind of what you’ve been hearing in our script in the earlier part of the call..

Okay. So that really relates to the food offerings.

Is there anything else that you might share with us that we as consumers would understand how it would impact our guest experience?.

Yes, it’s not only the food offerings it’s how we interact with the guests. We’ve invested a little bit more in what we have on the ships from a human resource person that is dedicated on this ship. We’ve added some trainers, we want to make sure that we are continuously reinvesting in our teams and giving them relevant timely training.

And we’ve just finished our survey. And one of the things that we learnt and we are in the top 25% of connects of leading companies. So that was great news.

But the one area that we felt that it shows that we could learn from it is some of the over side of the crew and how do we develop them, how do we show them their career paths, how do we embrace them so some of that is training that we are undertaking right now.

And also, we’re putting some incremental dollars into investing in some smart marketing that we believe will be different. And you’ll see some of the initiatives we’ll be announcing in coming days.

So, we’re excited about all the prospects and the learnings and believe that this will position us, the pain inflicted on this industry over the last couple of years including what we’ve seen before this year.

I believe it’s going to be the huge opportunity for the industry if we continue to keep our heads down, run the business smartly, the value proposition is incredibly important. And as the consumers come back and they will, you’re going to see that the ability to start to navigate from a pricing standpoint..

Okay. That’s it for me. Thanks..

Thank you. Our next question is from Felicia Hendrix of Barclays. You may begin..

Hi, good morning, thanks. Wendy, you gave some very brief color on 2015 which was helpful. Thank you. I was just wondering how much visibility do have or what is the booking curve look like? I was just wondering if you could give us any more details beyond what you said in your prepared remarks..

Do you want me to take it?.

Go ahead..

So, we get a weekly – I look at pricing and I look at the booking three times a day, just so you know that in a model for everybody every single day. But as we lookout into 2015, we are better loaded at this point than we were last year and the year before. So I think that’s a good situation so early in the year where we’ve got another five months.

And the pricing also looks encouraging. Although it’s early so you hate to say, oh my god, pricing looks good. But so far, it’s starting to look like we could be on the beginning of a fundamental shift.

And Wendy, do you want to add anything to that or?.

Yes, I think we’re feeling good overall about ‘15, most of the pressure we’re looking at is in Q1 as we talk about with the Caribbean capacity still..

Yes, the Caribbean capacity and you had phenomenal lease successful charter in the first quarter in the Bud Light Hotel. So, we are lapping a few of those things. So we just need to really carefully articulate the 15 quarter-by-quarter so that you guys understand how the pricing power will be in 2015, which we believe for the year would be solid..

It’s looking good..

That’s really helpful.

Just to be clear, because I wasn’t specific when you talked about being better loaded last year and the year before, we’re talking about the Caribbean, right?.

That actually is across the board. So that is the comforting thing. I don’t know if we took on too much with the two new ships so close together and we kind of miss – I think a little bit of what has happened is a little and I blame me, a little bit of the miss, understatement of what we needed to do.

But we’ve got it now, we’ve got the business, we’ve got the marketing and the sales, the entire organization is rallied around this bigger company. And the good comforting thing now is that as we grow in the future, we had 18 months between Getaway and the Escape. And we were 18 months between Escape and the ship after that.

So, we’ve allowed ourselves so much extra time to make sure we navigate through these things very carefully and having learned a little bit from taking two ships within 7 months kind of thing.

And that’s my fault, we had a May of 2014 delivery and then I started to get anxious about wanting to get the spring vacation and then it was President’s week and then we had the opportunity to do the Bud Light Hotel. So you can understand how we pushed it up a bit.

But at the end of the day that’s behind us and now we’ve got those learnings to help us lookout into the future..

Great.

But with the Caribbean capacity kind of flattish next year for the industry and notwithstanding the challenges you have in the first quarter, would you expect the rest of the year, are you seeing improved business for the next rest of year specifically immigrating?.

Yes, I hate to say too much about it because it’s a little early. But we are feeling better about the Caribbean. And the first quarter is a little bit complicated. But once you get past that the pricing looks very good for us in all of our itineraries including Caribbean..

Okay, thanks.

And then I just wanted to circle back to a question that Harry was trying to get to, because, when you look at the cost savings that you guys had in the transportation onboard and other cost lines, you had done a great job, some of the cost that you have there put the company at competitive disadvantage, specifically your port fees, which you are not passing through those to the consumer so that the positive.

And then, but if you adjusted those costs and you normalize them then it would have looked like your net yield were down, which I think everybody gets. But going forward I would’ve thought there would’ve been a bit of a tailwind to your net yield and you reiterated. So I was just wondering mathematically if you could help me through that..

Yes, I think you have to just step back and it would be what is, the yield guidance for the next quarter is take that number and the, as what we talked about for the third quarter which is 200 basis points.

So, we would have been about 4.5% had it not been, you have to look at the fleet and then add in the new ship that happens to be something as we’ve said from the beginning you have to look at it on a 12-month basis. But the summer season is not the premium time for that ship in Miami to the Caribbean but over the 12 months it make upward.

But in that third quarter, it pulls down our pricing in the premium itineraries because of its weight coming into the fleet. So, I would say look at it that way because you’re still showing for and changed pricing in the third quarter so, if it wasn’t for that entry into the market..

Okay. Okay, thank you..

Thank you. Our next question is from Steve Wieczynski of Stifel. You may begin..

Yes, good morning guys. If I could add on to Felicia’s question a little bit. So when you look at that yield in the second quarter, you have what really drove it was a little bit higher occupancy and that commission line was a good bit lower.

I guess the question is going to be, it doesn’t some like that was commissioned driven, it was other things and can you maybe touch on what those were and then is? With this kind of level that we saw this second quarter pretty sustainable going forward?.

Yes, that’s a great question. And it is, we touched on hopefully is that this is sustainable things that we’ve gone this is not a one off that you see as revert back in the following quarter. And the big macro thing, so some of the opportunities we’ve got, because of we are gaining scale.

And using that leverage and these four ships and say, you want us to be part of it. And you could have seen that with some of the stuff that we had done in the past. Without all these big new ships, Wendy, maybe take him through a little bit more specifically..

Sure. We have very aggressively gone after all of our port agreements and looks at it with more of a worldwide land. And combining all of the services in the port and looking at how can, we lower those costs. And then, in turn pass those on to our consumers..

By the way, we hired the guys that we’re in the Port of New York, and he’s an excellent hire. He was offered positions with several other companies but wanted to come work with us. But he’s been a very big plus for us because he knows the nuances. He knows all the relationships throughout the entire court. And he’s been a very, very good hire for us..

I also would add that we’ve continued to expand our casino players by expanding different channels. Those are typically lower cost channels for us but it gives the customer the opportunity to upgrade their cabins which, puts more revenue up in the top line with little to know cost of sale. So we benefited from that and expanded relationships.

The other thing that I had touched on in my commentary was the fact that we did a lot of air packages in the prior year. And we have moved away from doing the air packages in 2014.

And credit card processing that’s the other one is we aggressively went and renegotiated our credit card agreement which was way overdue which also benefits our costs of sales line..

So, if you go back in time, when we first came in here, our credit card agreement was very expensive and it was naturally expensive because of the size of the business and the history of the business. And they also had financial holds on our cash because of the situation of the company.

So, we’ve evolved from that case to a case where we now can drive to the best pricing by going to other players who say, this is a first class organization, do you want our business. So, we’ve been able to take advantage of that as well.

I hate to get into too much of this detail, because as you know, it becomes fodder for everybody else in the industry..

Okay, got you. And then, second question, Kevin, and I’m not sure what you can say or can’t say, but you bought back from some stock in the quarter and that was a little bit unexpected.

I guess, so early but you still have these two largest shareholders still own 35% or 40% of the company and there really hasn’t been much of an update in terms of what they potentially will do over time and I think that’s something continues to lean on your stock.

Is there anything that you can help us maybe try to put a little bit more clarity on that at this point?.

Yes, sure. And remember when we announced the program we did say was we had two pronged approach, one was to take out inventory in the market, when we thought it was opportunistic. And the other was if there was a selling event that we could piggyback on that so that we weren’t leading it and we were giving them ability.

But if they were doing it, we could just kind of comment last minute and piggyback. So hopefully that’s still the case.

Now the thing is, the stock performance these guys are, they know where the business is going and so they’re saying we’re not going to sell at these levels, which is unfortunate in one respect because that keeps that consequence of not knowing when they’re selling out there. But there are proponents of the business in the future of our organization.

So there, I can’t get a clear answer from anybody of course. But each player, you saw it even with TPG, they didn’t even sell in the last time that we did have an offering because they weren’t happy with the stock price.

So, I think what you will see is, over time when the stock will take care of itself over time because of the power of our earnings and our management team, of course we’re frustrated with the stock price but we’re in this for the long-term, I’ve never even thought about selling the share at these levels personally ominous to drive the value that I know it’s coming in, in the out years.

So, it’s a frustration to the stock prices the way that we can’t control that. We’re doing our best to deliver on our results. We hope that people will, as they’re public now is almost 50% of the shareholder base. But that at some point, three different players become just big holders in everybody’s view.

And I wish I could tell you more and you never are going to get a clear answer from any of them, which is of course logical..

Right. Okay. Thanks a lot for the color. I appreciate it..

Thank you. Our next question is from Robin Farley of UBS. You may begin..

Great. I wonder if you could give us the rough air-sea mix in Q2 versus the prior year..

Yes, no, we’re not going to provide that detail. That would be very proprietary..

Okay. And then I think your opening comments you mentioned….

We could give you some, maybe what we could do is give you some dollar change or something, I mean, I don’t want to not be responsive but we don’t want to get too clear since we only are one brand as you know. So, after the call we can give you a little bit of color..

I mean, is not something that’s been, a lot of things in the company there hasn’t been a huge fluctuation air-sea mix.

I remember a couple of years ago it used to actually be talked about pretty openly because since it’s really more of a pass through for the operators it’s not something you normally try to yield manage, I guess, but?.

But at certain times, in Hawaii as an example when air cost and we can go and negotiate air cost that we may try to do a bigger percentage of our business through that program. So this nuance is that it happens depending on the outlook..

Okay.

And then just you commented on the volume in the last 12 weeks being up 20% and I wonder if you can comment at all on what pricing has been in this period in the last two weeks? In other words, you mentioned that the Caribbean has been promotional so perhaps the volume is been driven by that but I don’t know if there’s any color on pricing?.

Yes, I mean, one thing I could tell you is, the guys have been moving the pricing, especially wherever the sailings look like they are being sold at a reasonable pace. The one thing I could do is mandate and we’ll see how this works. We of course, if we have to we’ll roll it back.

But I two weeks ago mandated a 3% price increase on every sale and on every ship on meadow. And so it’s been rolling for a couple of weeks. We’re still seeing good volumes. So I’m hopeful that we’ll be able to keep that into the market and then continue to navigate. We just need to start to take conviction in our product and move our pricing.

And I can fight with the revenue management guys forever but at some point you have to say guys, let’s do it and let’s believe in ourselves and let’s see what happens. And that’s where we are right now..

Great. And then lastly if you could comment, sort of characterize a little bit Europe and Alaska in Q3? I know some others have said Europe, European yields are up double digits in Q3 but not everybody is saying that so I don’t know where you come out on that. Thanks..

So, for Alaska this year, our most robust market obviously has been Europe and that’s the one that I touched on. But Alaska is doing well. This is the second year that we had the three ships in there the Sun being the newest one, looks significantly better than it did, it’s first year noble year last year and to Alaska.

But overall we’re pleased with how Alaska has shaped up this year..

And can you put any kind of quantification around Europe in terms of the increase, just like a ballpark?.

Yes, I think in the second quarter it’s double-digit I think. When you look across the four ships that we have in Europe in the third quarter the pricing is up above 10%. And remember I know everybody is talking about this like its Nirvana but this is also a horrible 2013 for the industry as everybody knows.

So it’s a recovery, to me it’s a big opportunity and ‘15 if the world starts to get a little bit more normalized..

Yes, the thing that I would add there is that we’re one of the cruise lines that actually has two ships year round. So we also benefit from that in Q4 with significant pricing and load increases on rigorous selling..

Great. Thank you..

Thank you. Our next question is from Tim Conder of Wells Fargo Securities. You may begin..

Thank you, just a couple here. Regarding, it’s been talked about before and in the past the premiums that you’re getting the degree thereof on Breakaway and Getaway versus the rest of the fleet in the Caribbean.

This is backward looking, obviously, but could we anticipate some of that narrowing that we’ve seen of late be due to base loading and now, Kevin, as you just alluded to you’re trying to be a little bit more proactive in trying to take the price that you believe you deserve.

Should we interpret part of that in that direction looking into the first, in first quarter?.

I’m not sure I followed the question. But as far as the premiums on the two new ships as well as Epic, when you look at them across the 12 months and do the 12 months of pricing and compare it to another ship in that itinerary it drives a double-digit premium.

The only caveat I would have on that is the couple of the sailings we’re – worst of the time in the second quarter where you had to put on people with a little bit less price then you had a little bit less of a comprise on your onboard experience because as you could imagine, if it’s a bigger ticket item to a family they’re not going to spend as much onboard.

So I think the check the box we got through the onboard the second quarter fine but I could see a little bit of that.

And that’s why it’s important for us to make sure we’re bringing in the right guests on the right ships at the right time to ensure that the other part of the proposition is onboard revenue continues to drive the double-digit premium as well as across the 12 months..

Okay. And then in relation to your statement there, is, and we’ve got a positive convergence coming up here with the Caribbean capacity for yourselves in the industry, the increase is lessening and actually declining as we get into the third quarter of next year. So that’s all good and has positive implications for price.

But could the recovery here for yourselves, Carnival, other folks, who are having to do with that little bit more challenged customer, could that be elongated? Because if you attracted a consumer who came and then maybe was not able to spend onboard, that consumer probably doesn’t repeat next year or maybe even two years out.

Does that leave a little bit of a hole that you have to fill that you may be filled in the industry, filled on a 1 to 3 year basis in ‘14 here with the aggressive pricing?.

No, I think it is, it’s a whole litany of things that happened between now and as you get out to the second half of next year, with economic indicators and people are completely forgotten all of this noise in the industry back to looking at this is a phenomenal vacation experience.

And the useful statistics about April who were reluctant to take a cruise because of all the noise, and that – the consumer’s memory is very short and we are very hopeful that as we get out into next year and we continue to showcase the proposition that we have in the other grants as well that we as a unified – not sure unified but as a complete industry, I believe we have the opportunity to start to move back into the pricing categories that we should be at.

And we didn’t have this year because of this shock to the system in the Caribbean..

Okay, okay.

And then if I may, lastly, regarding a little bit longer-term outlook with the order of the two additional Breakaway plus ships, any thoughts on how you’re thinking about Asia over the next couple of years given what some competitors have done and the opportunity in that market over the next couple of years with your capacity coming and then maybe does it have any implications for some of your older ships also?.

Yes. So, we’re going to continue to watch that very carefully to be honest.

And it gets back to the same thing with the number of ships we have and we compete with brands that have so many ships than us that we still are able to stay in itineraries that we feel comfortable with and have a better control over the outcome and knowing with certainty that we can drive the measured orderly growth.

Having said that, we are looking at a ship at some point that’s going to go over say, maybe period of time in Australia, New Zealand kind of thing. But will then it continue to navigate that and when we announce it, it’s probably not going to come with the next itinerary announcement but they are after.

We probably want to be sure that when we look at that we know what the right asset is because I think that is an important point is the old days you would put an older asset over there is that going to make it work, that’s as market gets more interesting they may be looking for more interesting ships.

So, we’ll continue to monitor that very carefully and as we always said, when we go over to that market we have a lot of bandwidth already with the sailing efforts that we have in place today with the training centers that we have in Asia and all the rest of it. So, we know we can walk in and be pretty comfortable with our success.

But it still looks like the opportunities that we have here are more certain. So, I guess that’s what I would say about that..

That’s fair. Thank you, sir..

Thank you. And we have time for one more question operator..

Thank you. Our next question is from Steven Kent of Goldman Sachs. You may begin..

Hi, good morning. Just a question on how the board is thinking about capital allocation. You answered it a little bit on share buyback and also the potential for an offering. But the reason I ask is, Kevin, you just said yourself that the shares were undervalued. They look very cheap et cetera.

And then you also said earlier that ships are turning out to be a little bit more expensive, although you did decide to build them. I’m trying to decide or understand how the board is balancing all of this.

And if I could throw one more in which is selling a ship or two, here or there, how does the board and you think about all those different factors at this time?.

Sure. Steven, we long enough to know that we’re always thinking about capital allocation and how do we optimize what we can do for our shareholders. And we are constantly looking to make sure we’ve got the right balance in each of the buckets. As far as selling an older ship, we don’t have any old ships.

So we’re different than the other companies in that. Our average age is so much less than the other guys.

And when you look at the ships that are the oldest in our fleet, which are 12 or 13 years old, they work perfectly in the itinerary that we have them if you take as an example, our three and four-day Miami ship, it’s the youngest ship by far in the market. It competes very effectively. To people who take that experience love it.

It’s a typical, people get on a Friday, you have a party weekend, get off on Monday morning and then we expose families that are in many cases first time cruisers to our products. So that ship works really well there. So, and that’s our oldest ship. So you get into the thing of saying okay, what would you sell.

And then, there are brokers that have been talking to us as you would expect saying, hey, what about this ship. So, we have attractive ships for people and then the question is, do you want to – do you want to dispose that ship as we are so much older than the other guys.

And then what happens, as you do the mathematics, and you look at the returns that we drive are no ships then the sky is the perfect example. The ticking yield is a little lower. But it is so much more efficient because of the fuel, it’s almost like you go out away from people being able to see where land is.

And you kind of stick around in that area, and you don’t have a big shovel on the ship, so you don’t have that big entertainment expense. It’s just behaves as a party kind of vacation experience and people are running around on those short cruises and they don’t want to spend their evening in the theater.

So, there are many reasons why on a return basis as the ships sound smart. So, that’s kind of what have been the push-back for me as these guys come to us and look at our ships and want to think about us selling them. So, we will keep it on the in our view but we want to be smart too because we want to drive EPS..

Thanks..

And I really thank everyone for your time and support. We really look forward to next quarter give you another chance to see how we operate through this environment. We’re always available if anybody has any questions, feel free to call Andrea, Wendy or myself. And thanks for your time this morning. Take care..

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