Operator:

Greetings and welcome to the Carnival Corporation & plc's Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Beth Roberts, Senior Vice President, Investor Relations. Thank you, Beth. You may begin.

Josh Weinstein:

Thanks, Beth. Inside of two years, we've made incredible strides in improving our commercial operations, strategically reallocating our portfolio composition, formulating growth plans and strengthening even further our global team Ship and Shore, the best in the business. Off the back of these efforts, we've closed yet another quarter delivering records. This time across revenues, operating income, customer deposits and booking levels, exceeding our guidance on every measure. Yields increased over 12% in Q2 over 1.5 points more than March guidance as we continue to drive strong per diem growth, up over 6%. And this is on over 10% more passenger cruise days, which is a combination of capacity growth and sailing at historical occupancy levels. Our European brand experienced extraordinary yield improvement again this quarter, up over 20%, while North America continued to improve on last year's highs up a healthy 7%. We hit record second quarter adjusted EBITDA, roughly $150 million more than guidance. Encouragingly on a per ALBD basis to highlight operational improvement and even with significantly higher fuel prices, adjusted EBITDA not only surpassed the second quarter of 2019, it was also our highest second quarter mark in over 15 years. Coupled with flat cruise costs excluding fuel on a unit basis, which David will elaborate on, we delivered $500 million more to the bottom line year-over-year and outperformed our earnings guidance by $170 million. Based on continued strong demand trends, we are also taking up our expectations for the full year by $275 million driven by double-digit yield growth. Now this would get us to double-digit ROIC this year. And while that will be a strong outcome for 2024, it is nowhere near what our business is capable of delivering. Our current booking trends are a testament to that. We are hitting records on top of previous records, which clearly tells us the strength and demand we have been building is continuing into next year and beyond. In the near-term, pricing on bookings taken in the second quarter has continued to run considerably higher for each of the third and fourth quarters. And again that's on top of record per diems last year. This strength has enabled us to take up yield guidance for the year by another 75 basis points. We expect to deliver consistent mid-single-digit per diem growth through the balance of the year, which would mark eighth consecutive quarters that we are achieving mid-single-digit or higher per diem improvements. Our continued focus on optimizing our yield curve is not just a near-term benefit. We entered the second quarter with much less 2024 inventory to sell and have been able to lean even more into future periods. Accordingly, in the last three months not only did we take more bookings for post-2024 sailing than we did for in-year sailings, we set yet another record for the most future bookings ever taken during the second quarter. The unprecedented level of demand for 2025 sailings coupled with flat capacity growth next year translates into meaningful pricing power. And while it is still early for 2025 both price and occupancy are already ahead of where we were last year, leaving us in a position of strength with less inventory remaining for 2025. It also shows in our more than $8 billion of customer deposits, which shattered last year's record by $1.1 billion. You have heard me say this before, this is not pent-up demand. It is the compounding effect of building increased consideration in our cruise brands over time and improvement in our yield management techniques to translate that demand into higher ticket prices. And it is further evidence of the strength of our consumer. Encouragingly, we're enjoying consistent growth in both repeat guests and new guests with each segment up 10% this quarter over last year. We also continue to actively manage our portfolio to further accelerate our underlying execution improvements. As previously announced, early next year we will sunset the P&0 Cruises Australia brand, selling the 28 year old Pacific Explorer and transferring P&0 Australia's two remaining vessels to Carnival Cruise Line. Of course, we will still retain our leading presence in the Australian market, carrying over 60% of all Aussie Cruisers. It is a great market for us, especially since the Australian summer coincides with the Northern Hemisphere winter, enabling our seasonal ships to capitalize on two summer periods. And now we get to optimize our presence in this market by consolidating into Carnival Cruise Line. Not only will we gain operational, administrative and back office scale, we will ultimately have greater deployment flexibility compared to a dedicated Australian brand. At the same time, this move will further boost capacity for our highest returning brand, bringing the total to nine new ships joining Carnival Cruise Lines fleet since 2019, including the successful ship of three vessels from Costa Cruises. These actions combined with the 2 Excel-class ships scheduled for delivery in 2027 and 2028 will grow Carnival Cruise Line's capacity by about 50% over 2019. By 2028, the Carnival brand will represent 37% of our portfolio, up from 29% as we continue to reshape our portfolio to maximize ROIC. Of course, our amazing destination experience, Celebration Key, purpose built for Carnival Cruise Line will soon support that growth and bolster returns through incremental revenue uplift coupled with improved fuel efficiency given its strategic location. We're introducing voyages to Celebration Key beginning in the second half of 2025 and ramp up to 18 ships calling Celebration Key in 2026. This quarter, we also delivered Queen Anne, Cunard's fourth Queen with an amazing naming celebration in Liverpool, England, Cunard's birthplace. The streets of Liverpool were walled with tens of thousands of people joining the festivities as the City of Liverpool became the ship's official godparent. It was a historic moment and the first time an entire city ever christened a ship. The event generated overwhelming coverage and as intended broke booking records on the back of it. The new Queen is a step forward in every way for Cunard, while still retaining the DNA of British elegance and refinery that the brand is known for. We enjoyed another high profile naming event for Sun Princess in Barcelona with Godmother Hannah Waddington of Ted Lasso fame. Sun Princess has had great media coverage leading up to and following the naming ceremony with particular focus on its expansive specialty dining and beverage offerings and one of a kind Magic Castle experience. Sun Princess, the first of its class has also been a big hit with guests as evidenced by outsized yield and high guest satisfaction scores. Last but not least, we held a naming event for Carnival Firenze in Long Beach, California, home for Carnival second ship featuring Fun Italian Style with Godfather Jonathan Bennett fresh off his Broadway stint starring in Spamalot. Welcoming Fun Italian Style to the West Coast generated nearly 2.5 billion media impressions to date and of course triggered a step-up in bookings. While these amazing new ships all contributed to the strong yield improvement we generated in the second quarter, even excluding them, yields on our existing fleet were up double-digits demonstrating fundamental strength on a same ship basis. In addition, we completed the rollout of Starlink this quarter, another revenue uplift opportunity and a real game changer for our onboard connectivity experience, enabling us to deliver the same high speed WiFi service available on land throughout our fleet. Not only does this technology provide our guests with more flexibility to stay connected, it enables our crew to stay in touch with friends and loved ones and it enhances our onboard operational systems a win-win-win. Also, our consistent track record, our book position, our focus on commercial activity improvement, our portfolio management and the yet to be realized future benefits we'll receive from our Celebration Key destination development builds increased confidence in achieving the low to mid-single-digit yield growth set out in our long-term targets. In fact, based on our upwardly revised guidance, we will be on average two-thirds of the way to achieving our three 2026 SEA Change targets. EBITDA for ALBD of $69, 12% ROIC and a 20% reduction in carbon intensity after just one year. With two years remaining, it gives us even greater confidence in achieving our target. At the same time, we continue to aggressively manage down debt and interest expense, while reducing the complexity of our capital structure, which David will elaborate on. The number of actions we've taken to improve our balance sheet this quarter puts us further down the path on our return to investment grade credit ratings over time. It's hard to believe in just over a month it will have been two years since I had the privilege of stepping into the role of CEO. I am very proud of all we've accomplished in such a short time. Credit for our achievements go to our global team, 160,000 strong. Everyone has worked very hard to deliver yet another strong quarter, solidifying an amazing 2024 and setting us up well to top it in 2025. Equally important, they've all had a hand in delivering amazing vacation experiences and unforgettable happiness to 3 million guests yet again this quarter. So, to our amazing team, thank you. And of course, we couldn't do it without the support from our amazing travel agent partners and so many other stakeholders. Thanks to all of you. With that, I'll turn the call over to David.

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Matthew Boss with JPMorgan. Please go ahead with your question.

Josh Weinstein:

Thanks very much, Matt.

Josh Weinstein:

Sure. So global momentum, I think that's probably the key term. It is global momentum. And so we're seeing strength from our North American brands, from our European brands. As you started hearing me say probably about six quarters ago, diversity sometimes it helps and sometimes you got to wait a little bit, because different places come out of different situations and different times, and this is the strength that we're seeing right now in this portfolio, and we're really hitting it on all cylinders, which is really gratifying. North America, the booking curve is higher than it's ever been and Europe, it's highest in the last 15 years. So the teams are doing a really good job of speaking to the consumer, pricing things right and getting people on our ships and happy. As far as 2025 goes, this is the first year that where we currently are where we've been able to stop firefighting in the short-term while figuring out how to also extend the booking curve and trying to do both of those things at once which is not an easy balance for revenue managers to have to do and the brands to do. So I do feel like we are firmly positioned and although it is early days as you heard us say on the call being ahead in bookings and ahead in pricing is a good place to be, and our team can really focus on optimizing that longer-term period, which is exactly what they're doing.

Josh Weinstein:

Thank you.

Steven Wieczynski:

Hey, guys. Good morning. So Josh, look, I know it's still early on, but your commentary around 2025 bookings is really encouraging at this point. And to add on to the last question there, I mean, could you elaborate a little bit more about where you're seeing that strength in 2025? Is the strong demand pretty much across the board? Or are there certain brands or itineraries that are showing more strength versus others?

Steven Wieczynski:

Okay. And then yeah, sorry, David, go ahead.

Steven Wieczynski:

Okay. Thanks for that, David. And then second question, a bigger picture question around capital allocation. So based on how strong early demand is for next year bookings, it just doesn't seem like there's any slowdown at this point taking place. So I guess the question is, if we look out a year from now and bookings continue to look solid, your SEA Change targets are essentially in sight and you're even closer to an investment grade rating. I mean, is it fair to think you guys could be in a position to bring the dividend back to this story? I mean, just think it's another important milestone and something that investors are becoming more focused on. Thanks.

Steven Wieczynski:

Okay. Thanks guys. Appreciate it.

Operator:

Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Josh Weinstein:

Good morning, Patrick.

Josh Weinstein:

Yes. What we've talked about is you could almost look at this like a newbuild investment. And so from a newbuild perspective, we're looking for at least mid to high teens and we'd expect no less from our land based investments as well. And obviously, the beauty of Celebration Key is it will benefit across dozens of ships over time not one newbuild.

Josh Weinstein:

We've looked at river cruising in the past, and I wouldn't say we'll never look at it again. It's just, it's a niche, and it's rather small. And for something like us to move the needle, it'd have to be pretty grand. And as you've heard me say before, Patrick, I think if we focus on our brands and we focus on doing all the things that we do in the normal course better, we'll make much more of an impact on this business.

Josh Weinstein:

Thanks, Patrick.

Benjamin Chaiken:

Hey, good morning. You're two-thirds of the way to your 2026 targets with two years remaining. As you think about the remaining bridge to your targets in the toggle between costs and yields, do you feel tied to a specific yield requirement or threshold or is there enough opportunity in the cost side to generate the operating leverage necessary to reach your goals? And then related costs were better in the quarter. Can you maybe provide a little more greater specifics around what you're seeing or where you're getting more operating leverage than expected? And then I have one quick follow-up. Thanks.

David Bernstein:

Yes. As far as cost is concerned, in the second quarter, remember, we did identify cost savings, but the majority of the favorability was timing between the quarters. But if you look broadly at the year, we are seeing a number of opportunities in the sourcing area, other efficiencies as well. So it is broad based. There isn't one any one particular item. Our teams are working hard all across the board and there are hundreds of cost savings items that flowed into that full year savings.

Josh Weinstein:

Yes. P&O Cruises in Australia is a bit unique. It's a dedicated brand to a tremendous market, but it's a small market. And so the ability to really grow a single source market brand of that size is not very feasible. And so we're going to get a lot of operational synergy out of the moves that we made with P&O Australia. We've been looking at our portfolio management for the last couple of years as you know moving ships from one brand to another retiring ships formulating our growth plans. We'll continue to do that. There's nothing on the horizon, but it's something we do on a very frequent basis to try to figure out how to optimize over time.

Operator:

Thank you. Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.

Josh Weinstein:

Sure. So, obviously, we have a great relationship with Greece and its local communities and it's our job to make sure we're doing things sustainably. In fact, a lot of the news that's come up lately, these islands have had caps in place for many years and we work with them and we have worked with them. We'll continue to work with them as we can really figure out how to coincide with their needs as well. I mean, that's our job. So I don't expect anything incredibly disruptive. We unfortunately for us this is just par for the course, right? We do this all the time in lots of places and you've seen it work successfully in places like Dubrovnik. And we'll continue to partner with local communities who want our economic benefit and move on. It's a relatively, I mean, if you want context, just so you know, it's a relatively small part of our overall mix. You're talking low-single-digit percentages, but it's important to us and we want to show up and we want to show up well.

Josh Weinstein:

Sure. New-to-cruise was up 10%, new-to-brand was up a little bit less about 6%. So we're pretty much moving forward with all components and as you heard brand repeaters is also up 10%.

Josh Weinstein:

No problem.

James Hardiman:

Hey, good morning. Thanks for taking my question. So just a point of clarification, you talked about same ship yields being up double-digits. Can you help us with how much of that is pricing? Obviously, you're getting some occupancy benefit there. And then sort of I guess the bigger picture question there is you've had mid-single-digit per diem growth for eight quarters. You don't think it's pent-up demand. It sounds like you made that point a couple of times, Josh. When and why do you think that ultimately decelerates? Thanks.

David Bernstein:

And let me add to that, because we are still in tremendous value compared to land based alternatives. And so as we continue to close that value gap, and raise the price, we should be able to continue the progression over time. And on top of that, keep in mind that, as Josh, I think, mentioned on his last call, the service levels on land based resorts have deteriorated. And on our ships, we're doing a great job keeping our guest satisfaction levels up. And people it's a hassle free vacation, and people love to cruise. And so we are expect to keep demand generation's efforts high. And hopefully, we can continue to see price improvements. And as Josh said, prices are up in 2025 in our book position, and we expect to see that continue.

Josh Weinstein:

Sure. I wouldn't peg it in any one particular quarter, given that there's always noise in the thing that you're comparing. But I'd say that we expect both North America and EU to show up on pricing over time in the normal course. I think it's particularly gratifying frankly that the EU brands not only were able to actually catch up on the occupancy, but to do so at significantly higher per diems means it's working. And so and I'd say the same thing for North America. I mean, yes, the per diems are a little bit lower, but at the end of the day, they've recovered quicker and they're still maintaining mid-single-digit pricing. So I think that bodes very well for the future.

Josh Weinstein:

Thanks, James.

Brandt Montour:

Hey, good morning, everybody. Thanks for taking my question and congratulations on the quarter. Josh, I was wondering maybe you could elaborate a little bit on the revenue management strategy for '25. I know you have already. My question is more on the booking curve length, the optional booking curve length. You're ahead again on next year's booking curve. But is there a certain point where you feel like you don't want to go any further than that and it's not necessarily optimal? How do you think about that?

Brandt Montour:

That's super helpful. My follow-up is on three brands, Costa, Princess and Holland America. Those are three that we've been watching you guys talk about in your -- in sort of improving ROICs across those three brands. I know that you've been focused on them. How would you describe the success or versus your own benchmarks on those three brands improvement And are any three of them outperforming the others at this point along those guidelines?

Brandt Montour:

Excellent. Thanks so much.

Conor Cunningham:

Hi, everyone. Thank you. Just on the, I think, you said 10% new-to-cruise. I was curious if you could talk a little bit about just the changing demographics of your customers in general. How much is the younger demographic engaging with the project or product? Is there anything that they're doing different than prior generations? Thank you.

Conor Cunningham:

Okay. Appreciate it. And then on the P&O Australia brand being sunsetting, just as you consolidate that into Carnival, is there any impact on the P&O or any investment needed to like during that transition time? Just curious like as it goes away is there potentially cost headwind associated with it? Thank you.

David Bernstein:

And on the flip side, there'll be some operational efficiencies, which will also save costs on the P&O as well.

Conor Cunningham:

Thank you.

Assia Georgieva:

Good morning, guys. Excellent quarter, really happy excuse me for what you have accomplished. I had two quick questions. The first one is more on the external or competitive environment. As David and Beth, you guys know, we do this really extensive pricing surveys, which are quantitative and we follow about 95% of the private and public companies. So we're seeing some discounting out of one of your competitors into Q4 and possibly into Q1 2025. And also seeing sort of encroaching on your territory by another brand that may be a private one. Would you, Josh, David, the best be willing to comment as to how these external pressures may carry a potential risk towards the winter season?

Assia Georgieva:

Thank you, Josh. And a quick follow-up question. You described both ticket price and occupancy being tailwinds in Q2. And I think, again, with Europe being somewhat slower on the uptake in 2023, should we expect a continued benefit from higher occupancies, especially out of the European sourced passenger in Q3? Or do we believe that going into Q4, Q1 and possibly next year, that benefit will start to subside a little bit just because of the catch up that's been going on?

Assia Georgieva:

And Josh that makes total sense, especially on the occupancy guidance. I understand and appreciate it. So good luck. We're expecting great things in September.

Operator:

Thank you. Our next question comes from the line of Jaime Katz with Morningstar. Please proceed with your question.

Josh Weinstein:

Listen, we got through 2020, and I got three kids, so not much keeps me up at night. When it comes to this, I mean, anything within our control, I feel very comfortable that the team we can manage it all, frankly. And so I don't worry much about Black Swan because you really can't spend your life worried about Black Swan or you'll have a miserable life. So our attitude is we got to keep performing. We'll take what people throw at us and the world throws at us and we'll adapt and modify what we need to do as needed and move on. And the greatest part about this business from that perspective is we're mobile. And when you have that mobility, it gives you a lot of flexibility to figure things out.

Josh Weinstein:

Thank you.

Daniel Politzer:

Hey, good morning, everyone. Thanks for taking my question. First one on Celebration Key, Josh, you mentioned you're ramping up there 18 ships calling on port there in 2026. Can you maybe talk about the uplift that you're expecting, whether it's in the form of ticket prices, onboard spend? I know you mentioned fuel. And then to what extent is this built into those SEA Change targets, which you're already tracking well ahead of at this point? Thanks.

Daniel Politzer:

Got it. And then just for my follow-up, in terms of cost for next year and acknowledging it's still very early, but as you think about that marketing and advertising component, on the one hand, you don't have a ton of capacity growth, but with Celebration Key starting to opening in the back end of the year, how should we kind of think about that line item relative to 2024?

Josh Weinstein:

And ultimately though, we're doing that for the right reasons as we I think I can't remember if we talked about this on the last call or not. I think we did. AIDA is one of our highest returning brands and we've gushed about them for a long time and this is going to make significant enhancements to their existing fleet, which is a great investment for us because we can get outsized returns on those investments. And then to your I think you were asking a question about advertising specifically as well. You're right, we might have flat capacity growth, but remember we're selling cruises that go beyond the current year. We're thinking well into the future as our brands do try to optimize whatever that booking curve is for that particular brand. I do not have a mandate or a cap or a floor on our spending for advertising, right? The key is what are we spending it on? How is it going to be effective? Is it going to generate incremental and outsized revenue for whatever that initiative might be in the marketing space? And we go through those plans with our brands not only every year as part of the planning process, but throughout the year I'm talking to my President to make sure we're being thoughtful. And so there's no -- there truly is no predetermined outcome. I think as you've seen we have significantly stepped up where we were before the pandemic to where we are now. It's been working. It's been helping to support the results that we've talked about today and the momentum that we've got and we'll continue to look at it critically.

David Bernstein:

No changes. We can control the metrics. We can't control the decisions of the rating agencies.

Josh Weinstein:

Thank you.

David Katz:

Good morning, everyone. Thanks for taking my question. I wanted to follow on to that. Well, number one, congrats on the quarter. I wanted to just follow on, on the last question with respect to the balance sheet. And look, I think we probably all progressed through a period where we're expecting maybe a rate cut. Nonetheless, you're making some very good progress with respect to that balance sheet. Can you help us maybe shed a little light beyond just the obvious easy math around what a rate cut could or would do for you in progressing that balance sheet?

David Katz:

Appreciate that. And if I may follow-up quickly, just going back, Josh, to one of the things you talked about that's a bit more specific, performance marketing, which was, I believe, a relatively new initiative. Could you give us an update on where that is, how it's done, what's next, etcetera, please?

David Katz:

Okay. Thank you.

Operator:

Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Josh Weinstein:

Yes, sure. So as you heard, so we want to continue to be the cost leader. I think they're not --they don't have to be mutually exclusive though. And so we have been bringing more cost into reinvesting in the business. And it's not just our marketing, it has been our marketing. I think it's what 18% per ALBD versus pre 17% to 18% per ALBD since before the pandemic. So certainly we see the value of that. But if you think about our onboard experience and making sure we're providing amazing food alternatives and services, we're reinvesting in bandwidth. We're spending more on bandwidth than we ever have and it's generating outsized returns because people love the service. It's land like and it's something people are willing to pay for. So there's examples up and down the P&O where we're very happy to reinvest to drive the right behaviors to get the revenue that we're looking for. I don't have a metric. I don't have a metric that says this is how much we're going to do in any particular quarter or any particular year. I mean clearly our operating margin, we still got work to do. Our EBITDA margins, if we get to June guidance, it WILL be about a five point bump from last year and it leaves us a few points short of where we were in 2019. So we got more work to do and so the team is very focused on it. And that will come from both sides though to your point. It won't just be cutting costs. We got to make sure we're doing the right things to drive that revenue.

Josh Weinstein:

Okay. Well, thanks everybody for joining the call today and look forward to talking to you again in September. Thank you.

Beth Roberts:

Good morning. This is Beth Roberts, SVP, Investor Relations, Carnival Corporation & plc. Welcome to our First Quarter 2024 Earnings Conference Call. I'm joined today by our CEO, Josh Weinstein; our Chief Financial Officer, David Bernstein; and our Chair, Micky Arison. Before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to the forward-looking statement in today's press release. All references to ticket prices, net per diem, net yields and adjusted cruise costs without fuel will be in constant currency unless otherwise stated. References to per diems and yields will be on a net basis. Our comments may also reference cruise costs without fuel, EBITDA, net income, net loss, earnings per share, free cash flow, and ROIC, all of which will be on an adjusted basis unless otherwise stated. All these references are non-GAAP financial measures defined in our earnings press release. A reconciliation to the most directly comparable US GAAP financial measures and other associated disclosures are also contained in our earnings press release and on our investor presentation. Please visit our corporate website where our earnings press release and investor presentation can be found. With that, I'd like to turn the call over to Josh.

David Bernstein:

Thank you, Josh. I'll start today with a summary of our 2024 first-quarter results. Next, I will provide a couple of highlights about our second quarter and some color on our improved full-year March guidance. Then I'll finish up with an update on our refinancing and deleveraging efforts. Let's turn to the summary of our first quarter results. Our bottom line exceeded December guidance by $100 million as we outperformed once again. The improvement was essentially driven by two things, favorability in revenue from higher ticket prices as yields were up over 17%, nearly three-quarters of a point better than December guidance worth almost $30 million, while cruise costs without fuel per available lower berth day or ALBD came in over two points better than December guidance due to the timing of expenses between the quarters, which was worth over $50 million. Per diems improved 5% with improvements on both sides of the Atlantic driven by considerably higher ticket prices. At the same time, we saw outsized growth in occupancy of nearly 20 percentage points at our European brands on their path back to historical occupancy. Our North American brands of occupancy grew strong mid-single digits. The difference in occupancy growth on the two sides of the Atlantic resulted in a sizable mix impact on our consolidated onboard revenue per diems since as we have discussed in the past, our North American brand customers naturally spend more on board than their European counterparts. However, the underlying fact is that we saw an increase in onboard revenue per diems on both sides of the Atlantic, driven in part by the acceleration of strong pre-cruise sales growth. In fact, we saw a continuation of strong consumer behavior by guests onboarders trips, much like our booking trends this past quarter. As Josh indicated, first quarter was fantastic across the board with strong demand for our brands delivering record revenues, record yields and record per diems. Before I discuss our second quarter and full year guidance, I would like to add that given the timing of yesterday's events in Baltimore that Josh mentioned, our guidance does not include the current estimated impact of up to $10 million for the full year 2024 from the temporary change in homeport. Now a couple of things to highlight about our second quarter March guidance. The positive trends we saw in the first quarter are expected to continue in the second. Yield guidance for the second quarter is set at a strong 10.5%. The difference between the yield guidance for the second quarter and the first quarter yield improvement of over 17% is simply the result of the greater opportunity we had in occupancy in the first quarter 2024. With the improving trends we experienced during the first half of last year, 2023 second quarter occupancy was already seven percentage points higher than the first quarter. In addition, I did want to point out that nearly three-quarters of the full-year impact from the Red Sea rerouting is expected to occur in the second quarter with the remainder expected in the fourth quarter. Turning to our improved full-year March guidance. We are now forecasting a capacity increase of 4.5% compared to 2023. March guidance for net income of $1.28 billion is an $80 million improvement over our December guidance. The improvement was driven by two things, more than a point increase in yields to approximately 9.5% based on the considerably higher prices we have seen in booking trends so far this year and the continued strength in demand we anticipate going forward worth about $200 million. In addition, we are forecasting a collective improvement in all our cost lines, excluding fuel of over $50 million, including an improvement in cruise costs without fuel. This improvement of over $250 million is partially offset by the Red Sea rerouting impact of $130 million and the net impact from higher fuel price and currency of almost $45 million. The strong 9.5% improvement in 2024 yields is a result of an increase in all the component parts, higher ticket prices, higher onboard spending and higher occupancy at historical levels with all component parts improving on both sides of the Atlantic. I did want to point out that cruise costs, excluding fuel is expected to be better than December guidance due in part to cost savings related to Red Sea rerouting as certain ships reposition without guest as well as other efficiencies we identified that are included in our March guidance. While absolute costs are lower, the change in cruise costs without fuel per available lower berth day of 0.5 point from December to March guidance is simply the math of spreading all costs over the lower ALBDs resulting from the Red Sea rerouting as certain ships reposition without guests. We recognize that even within our industry-leading cost structure, there are opportunities which we can focus on and harvest over time. A great example is our Maritime Asset Strategy Transformation system, or what we refer to internally as MAST. As previously mentioned, MAST is a centralized system developed to optimize the management of equipment and machinery across all brands and all our ships. As we continue to roll-out MAST, it will allow us to leverage spare parts more effectively across the entire fleet and optimize our maintenance schedules and practices, all of which will strengthen our efficiency and reduce costs from unplanned maintenance over time. I will finish up with a summary of our refinancing and deleveraging efforts. During the first quarter, we generated cash from operations of $1.8 billion and free cash flow of $1.4 billion. We took delivery of two spectacular new ships and utilized two export credit facilities, continuing our strategy to finance our new build program at preferential interest rates. Also during the quarter, we successfully extended the maturity of our forward starting revolving credit facility by two years to August 2027 and upsized the borrowing capacity by $400 million, bringing the total commitment to $2.5 billion. We will continue to look for opportunities to upsize the facility through its accordion feature that allows us to add new banks and grow the commitment. Our efforts to proactively manage our debt profile continue throughout the quarter between open market repurchases early in the quarter and then our call of the remaining 9.9% second priority secured notes, we redeemed over $600 million of debt, removing the secured second lien layer from our capital structure. In addition to our second lien notes, we were able to repurchase almost $400 million of debt at a discount, adding power to our deleveraging efforts. We expect to continue our open market repurchase program on an opportunistic basis. We will continue to call some of our existing debt. In fact, yesterday we prepaid our $837 million euro term loan due in 2025 removing higher-than-average interest rate debt and another secured instrument from our capital structure. This further demonstrates our commitment to an investment-grade balance sheet. Our leverage metrics will continue to improve throughout 2024 as our EBITDA continues to grow and our debt levels improve. Using our March guidance EBITDA of $5.63 billion, we expect a two-turn improvement in net debt to EBITDA leverage positioning us more than halfway down the path to investment grade metrics. In summary, continued execution coupled with strengthening demand for our brands is driving increased confidence in our ongoing performance. We are pleased this has been recognized by S&P and Moody's with their recent upgrades as well as by our banking partners with their recent upsizing and two-year extension of our revolving credit facility. Looking forward, over the next several years, substantial free cash flow will significantly reduce our leverage, moving us further down the road to rebuilding our financial fortress, while continuing the process of transferring value from debt holders back to shareholders. Now, operator, let's open the call for questions.

Robin Farley:

Great. Thanks very much. I wanted to ask about your commentary about considerably higher for the remainder of the year. Just looking at the math of that, is it fair to say that it looks like your per diem growth in the rest of the year is accelerating to maybe 6% or higher compared to the 5% in Q1? I just wanted to get it if that sounds right in terms of what your -- what you think considerably may mean. And then just if I could ask as a follow-up, in terms of ship orders, obviously saw your second ship order yesterday since the pandemic, and there was a line in it that said you continue to review fleet plans or there was some wording that I thought maybe suggested you might have another ship order later this year for 2028, which would be completely in line with what you've said long-term, but is that kind of what the language is suggesting? Thanks.

Robin Farley:

Okay, great. Thanks very much.

Operator:

Our next question comes from David Katz with Jefferies. Please proceed.

David Bernstein:

No, not at all. We are working down our road to investment grade. We are prioritizing the repayment of debt and the repurchase of debt. And we look -- as we did in the first quarter, as Josh indicated, and I gave the details, we prepaid $1.8 billion of debt so far this year. And with improved EBITDA, we expect to get to investment-grade metrics in 2026. And remember, Josh, we're only talking one ship to two ships a year and with the cash generation, we expect to continue to see improved debt, net debt to EBITDA in 2027 and '28 as well with -- even with the new orders on our path to investment grade.

David Katz:

Understood, Josh. And if I can just follow up quickly, and I know I asked this repeatedly, I'd love to just get your sense for sort of what's at or near the top of the list in terms of just the business in general and other change in execution or how things are done or other improvements that you're working on. Thanks.

David Katz:

Thank you. Appreciate it.

Brandt Montour:

Hey, everybody. Good morning. Thanks for taking my question. Josh, when we look at your per diem growth for '24 guidance and we think about what went into that and we rewind the clock six, nine, 12 months, we remember that you guys were what we call -- what you call base building for '24 throughout last year, and it was a pricing environment that arguably isn't as good as it is now. And so I guess the question is, when you think about where you were last year and where you are this year, is the strategy going to -- do you feel better and is the strategy any different when you're thinking about base loading '25 and where we could be in 12 months from now thinking about pricing growth?

Brandt Montour:

Okay, that's helpful. And then you guys did touch on the EA brands and the European brands and how they're doing. I was wondering if we could just sort of double-click on that and talk about -- and maybe you could tell us those brands' recovery versus '19 and how they're tracking versus your North American brands and just sort of split it out between occupancy, ticket and onboard and sort of what inning those brands are in across those three metrics. That would be helpful.

Brandt Montour:

Okay.

Brandt Montour:

Great. Thanks, guys.

James Hardiman:

Hi. Good morning. So maybe just to belabor that last point about occupancy, it seems like at least part of the first quarter success was occupancy was better than you thought. I'm assuming we're at a place now where it's not just about filling rooms, it's about filling rooms with more people to get to higher occupancy. So what drove that outperformance? And is there a way to think about the full year and/or the second quarter occupancy number? Obviously, there's a wide range to what could be considered historical. But I don't know, versus 2019, how should we think about occupancy this year? Thanks.

James Hardiman:

Got it. And then, yeah, go ahead, David.

Josh Weinstein:

And our brands, I don't want you to take this the wrong way. Our brands are being quite thoughtful about opportunities to introduce more families than they maybe had in the past, looking at their cabin configuration. So there's always opportunities and we encourage our brands to certainly lean into that.

Josh Weinstein:

Sure. So I'll -- I think I'll speak for the industry. Jason, Harry, hope you don't mind. But I would say that there is more and more of a realization of the value and experience gap that cruising has to other alternatives. And since the pandemic, both of those things have effectively gapped out because it's a greater value because of the price jacking that the land-based operations have been able to do and they've done it without providing a comparable guest experience. And when you compare that to us, even with our outsized per diem growth, it's still a value gap. People are not stupid. Consumers are not stupid. They are looking for value and they're looking for experiences that are worth paying for. And when you line that up, it is boating very well for the cruise industry. We now speak on behalf of the corporation, we are also leaning more into advertising, getting our messaging out, doing it more effectively, which is additional tailwinds. We -- our new to cruise is up over 30% versus last year first quarter. It's not pent-up demand. It is truly casting the wide net, having a great experience and delivering. And so I do not see an ending point. We have room to close the gap to land when it comes to the value and still be able to champion the value while leaning into the experience. So I think that backdrop is incredibly encouraging for the industry.

Josh Weinstein:

Yeah, thanks, James.

Steven Wieczynski:

Yeah. Hey, guys. Good morning. So, Josh or David, if we go back to the yield guidance for the year or the revised yield guidance, I should say, moving it up 100 basis points, I mean, I think that makes total sense, given you have a lot more visibility into the way that the year is going to look, and you're not -- you're probably in an extremely, extremely well-booked position. I guess my question is going to be more on the onboard side. And as you kind of think about the rest of the year, I would assume you guys are probably taking somewhat of a conservative view around the onboard metrics. And I guess saying that even differently is if onboard kind of stays where it is today, I would assume there's probably then upside to the -- to your guidance. That -- can I ask that that way, hopefully?

Josh Weinstein:

Yeah, I'd say, Steve, as always, we try to give our best understanding of how the world looks today while continuing to push and press internally with our brands to optimize and maximize both on the ticket and on the onboard spending, which is more important as we move forward to look at on a combined basis, given bundling and how we package things for our guests. And it just hasn't slowed down, which is really the message that people should take. And I know there was some commentary that came out that caused some noise about are there -- is there anything that we need to be worried about for Q4 slowing down? And for us at least, it's the opposite. The acceleration has included Q4 both on the volume and the price. So long may it last.

Josh Weinstein:

So the -- as to the first part, the good news is it really is across the board. It's not just more people on world cruises, which we are seeing. So not to discount that, but what we are seeing is an improvement in the revenue management and booking curve across the board. So I think that bodes well for 2025. I think it's probably too early to talk about composition of guests, other than to say, our profile as we have been going quarter by quarter, has been improving that casting of the net to go beyond brand repeaters and going into new-to-cruise, which I think is probably the greatest litmus test that things are working, that the message is getting through. Now, we also have -- we also do have Celebration key, which as we get closer and closer to 2025 and closer and closer to its opening, which isn't until the second half of '25, I think we'll be able to see and talk more and more about the halo impact of that in our arsenal.

Josh Weinstein:

Thanks.

Jaime Katz:

Hi. Good morning. I want to piggyback onto that value proposition question we had earlier from James. And I guess, can you talk a little bit about what is motivating consumers to actually convert the booking? Is it bundling? Is it traditional marketing like advertising? Is there something else or has there been sort of any change in the pattern to what is motivating people to make that decision? Thanks.

Jaime Katz:

Okay, that's helpful. And then I think there was a comment that there was some benefit to a timing of expenses in the first quarter. Is there any shift in the timing of expenses over the back three quarters that would be helpful to be aware about. Thanks.

Jaime Katz:

Excellent. Thank you.

Matthew Boss:

Great, thanks, and congrats on another nice quarter.

Matthew Boss:

So, Josh --

Matthew Boss:

So near term and maybe relative to the phenomenal wave season and the strength that you cited across brands, I was hoping maybe, could you elaborate on trends that you're seeing today at the Carnival and AIDA brands, maybe relative to the direction of improvement that you're seeing across your other seven brands as we think about maybe just the remaining opportunity across the portfolio in 2025 and beyond?

Matthew Boss:

And then maybe just a follow-up. So if we think about the booking curve at record levels and obviously providing some increased forward visibility. When we think about pricing power in '25 or multi-year, and I'm just thinking back to the baseline of low-to-mid single-digits, historically, the incremental seems like the experiences and the investments that you've made as we think about opening of Celebration Key in the second half of '25. So just thinking about pricing power moving forward, maybe relative to the historical baseline, what the opportunities may be?

Matthew Boss:

Great. Best of luck.

Operator:

Our next question comes from Patrick Scholes with Truist Securities. Please proceed.

Josh Weinstein:

Hey, Patrick. So we're not giving guidance for '25 yet. And since we're not sailing there until 25, I'm going to be careful about how I answer this. I would say, first of all, we are expecting -- we are, as I said in my notes, we're expecting an uplift both on the ticket side and the import spending, which effectively will come across as onboard revenue. It's too early to give you specifics. When we did our investment for Celebration Key, and then we effectively just doubled down to get a peer for two more berths. We did that with a very healthy ROIC. And that ROIC is coming from three main components. One is the incremental ticket, two is incremental import spending, and three is the benefit we get from creating something so close to so many home ports in the United States that it cuts our fuel consumption considerably. So those three components are what's driving that decision-making, and it's going to be a great guest experience and be an incredible asset for us.

Josh Weinstein:

Sure. So it'll be a combination of things. We have a private beach club as part of the bigger development of Celebration Key, which isn't an island. It is part of Grand Bahama, which is a phenomenal home for us. We're going to also have a huge capacity of cabanas, overwater cabanas, different sized cabanas that people will be able to rent for the day, which you'd be surprised at how much people are willing to pay to rent cabanas for the day. There's going to be F&B opportunities. There are retail opportunities. And that's just the start of phase one, because we have only built on or we will have built on about a quarter of the property that we got our -- that we own. And so phase one is that. And phase two will be incremental guest experiences and spaces and revenue opportunities.

Josh Weinstein:

Thanks, Patrick.

Ben Chaiken:

Hey, good morning. Thanks for taking my question. Just to dig in on the cost cadence a little bit more. 1Q better than guide sounds like some timing, I guess to clarify, does that mean it slipped into 2Q a little bit and then 2Q also includes 1.3 points from Red Sea? I guess with this -- with that in mind, the full-year cost guide is 5% constant currency which I think suggests something around mid-single digit in the back half in the context of the year-over-year occupancy is getting easier relative to the one-half. I guess, one, do I have those moving parts correct? And then two, could you help us better understand the variables that you're considering in the second half? Thanks.

Ben Chaiken:

That makes sense. Just maybe a little bit more detail on the dry dock. Could you maybe clarify the quarters? I believe originally it was 1Q and 4Q were the heavy dry dock quarters. Is that still the right way to think about it or how would you?

Ben Chaiken:

Thank you. I appreciate it.

Operator:

We have a question from Lizzie Dove with Goldman Sachs. Please proceed.

Josh Weinstein:

Yeah, so, good morning, Lizzie. Welcome to the first -- I think your first call or the first call since you've been covering us. So the new ships get a premium. There is no doubt that the new ships get a premium. The way we manage brand by brand, how much of that premium to get. It also depends on where we're putting that ship because we're not going to necessarily want to put the best ship on the best itinerary because that's not the good thing for the overall brand. So there is a -- obviously a bunch of different components to get into. What I will tell you though, I mean, just to take a step back, because remember, we've got nine brands, most of which have not had a new build and will not have a new build for some time. And the pricing improvements that we're getting are not focused solely on the brands that get the new ships. Brands that have not gotten new ships are seeing nice improvements as well in pricing. And so while I do love them, it's three this year out of 95 ships. And so the 92 ships, having them deliver outsized demand and pricing is going to move us more so than a premium on one or two of the ships. So I'm not disagreeing with the question, but I think to put it into perspective, it's much more important for us to get the per diems up on the rest of the fleet, which is what we've been very, very focused on.

Josh Weinstein:

Yeah, well, our brand repeaters were up 9% year-over-year. So it's -- it is -- it does translate into incremental overall demand for the long term. Now, cruisers don't generally go every year. We're looking for every three years to four years would be ideal for those of them that have decided they like what we do and want to come back. So that's part of the growth plan. It's casting our net wide and getting a good portion of them to sail with us again in the next three to four years.

Josh Weinstein:

Okay. Well, thank you, everybody. I appreciate the questions and look forward to seeing you all soon.

Josh Weinstein:

Thank you, Beth. It's safe to say we ended the year on a high note and closed another quarter with record revenues, record booking levels and record customer deposits. In fact, we consistently set records in all four quarters this past year. We also achieved per diem EBITDA and net income for the fourth quarter that all exceeded the high end of our September guidance range with cruise cost ex fuel in line with expectations. Fourth quarter yields continued on a positive trajectory, significantly higher than a very strong 2019 and even higher than we had anticipated and enabled us to overcome four years of high cost inflation to deliver per unit EBITDA that eclipsed 2019, holding fuel and currency constant. It was encouraged to see both North American and European brand occupancy levels exceed 101% in the fourth quarter with per diems for our North American brands up double-digits over 2019 and our European brands just shy of a double-digit increase. We delivered per diem improvements of more than 7-points for the full year with even stronger acceleration in Q4 while closing the double-digit occupancy gap at the start of the year to reach historical levels for the second half of 2023. An absolute spending on board was consistent across all four quarters as we drove improvement in ticket prices. We delivered $85 million more to the bottom line in the fourth quarter than forecasted, which pushed us through to positive adjusted income for the year. Strong EBITDA and cash from operations also propelled us on our journey to reduce the debt load necessitated during the pause in operations. We made debt payments of $6 billion this year ago, and we still have well over $5 billion of liquidity on top of strong and improving cash flow, which will contribute to further debt reduction over time. All of this leaves us firmly placed on our path back to achieve investment grade leverage metrics by 2026. And most importantly, our brands delivered happiness to over 12 million guests this year, laying the foundation upon which all of our SEA Change targets are built. Turning to bookings. We reached an all-time high in booking volumes for the two weeks around Black Friday, Cyber Monday and ended the year in the best booked position we have ever seen on both price and occupancy setting 2024 off to an amazing start. We now have nearly two-thirds of the business on the books for 2024 and that considerably higher prices. And during the fourth quarter, we essentially maintained the significant occupancy advantage we have built for 2024 going into the quarter, while improving year-over-year price position of our booked business even further. At this point, much of the first half is already behind us. With approximately 85% of the business on the books, we've essentially closed the double-digit occupancy gap to historical levels on higher capacity and at higher prices. For our peak summer period, all major products are better booked at higher prices benefiting from improving trends in both occupancy and price during the fourth quarter. Our yield management strategy, the baseload bookings has clearly set us up for another record year. And again, we have seen no sign of our business slowing. The book position for our North American brands remains as far out as we have ever seen and well ahead of last year, and pricing that is considerably higher. Our European brands just delivered record fourth quarter booking volume at considerably higher prices and with a booking window now fully back to historical norms. As expected, our European brands are poised to become an even greater contributor to our 2024 operating improvement. At the same time, we are continuing to pull forward onboard revenue through bundling and pre-crew sales. This strategy, coupled with even more features onboard our newer ships for our guests to enjoy positions us well for further onboard revenue growth next year. Also, we expect occupancy for the full year to return to historical levels on 5% higher capacity, while delivering nicely higher per diems dam building on this year's record results. In 2023, we captured over 3.5 million new to cruise guests and remain well-positioned to continue to take share from land-based alternatives. In other words, we are gaining momentum in our ability to close the unwarranted value gap to land-based alternatives. And to aid in that effort, we can further chance the fact that while many land-based alternatives have pulled back on service levels. We still deliver incredible service to our guests, thanks to our amazing crew. This pair is exceedingly well with the expansive amount of guest-pleasing amenities offered on board our newer fleet. In fact, while almost four years have passed since the pause in our operations, our fleet actually came out of the pause a year younger through our fleet optimization efforts. This past year alone, we benefited from three fantastic new ships, including Carnival celebration and P&O Cruises. Arvia, both of which are flagships for their respective brands yet leverage our scale as the seven and eight vessels in our popular and exceptionally efficient series of XL class ships, and we welcome Seabourn Pursuit, our second expedition ship. Seabourn Pursuit has truly raised the bar for expedition cruising in extreme luxury. And while not technically new, Carnival Cruise Line also welcomed Carnival Venezia into its fun Italian-style platform via the transfer from Costa and it has been going gangbusters. It's the biggest example yet of how we leverage our scale and we'll be doubling down when we bring over her sister ship Carnival Firenze in 2024. Looking forward, this year is set to match the excitement level with the introduction of Carnival Jubilee, a new icon for Carnival Cruise Line and which no doubt will be the pride of Texas as she has her inaugural home in Galveston The innovative Sun Princess, the first of its class and a real game changer for Princess and Queen Anne, a new flagship for Cunard and its first new ship in 14 years. With all of these additions roughly 30% of our capacity will be newly delivered ships. We also made meaningful headway on other strategic asset projects. We began construction on Celebration Key which will be the largest and closest exclusive destination in our destination portfolio and a real game changer for Carnival Cruise Line. We'll bring 18 Carnival ships departing from nine home ports to Celebration Key and while we are still about 1.5 years from Go-Live, we are already ramping up the awareness and excitement around the fantastic destination. We've also started the process for a significant upside in guest traffic at Half Moon Cay, our exclusive and beautiful pristine island destination in the Bahamas, with the creation of a pierside berth that can accommodate even our largest vessels. We've begun work with our Grand Bahamas shipyard partners on the construction of two floating dry docks, one of which will have the largest lifting capacity in the world. This will result in significant benefit in the future as we reduce travel time, preserve revenue days and, at the same time, reduce our fuel consumption. As you know, we've also been investing more in advertising over the last 18 months, and it has definitely paid off with elevated awareness and consideration for our brand and record booking levels and revenue results. In fiscal 2023, our web visits were up over 35%. Our paid search was up roughly 50% and our natural search was up almost 75%, all many, many multiples of our 5% capacity growth. In the fourth quarter, we carried more new to cruise, have more new-to-brand guests than we did in the fourth quarter of 2019. Given our success and generating demand at this point in time, we plan to maintain a similar level of advertising on a unit basis in 2024 compared to 2023, optimizing around each brand. This will help us continue to build demand and bookings well outside of the current year. We're working aggressively to keep our strong momentum going through waves and beyond. Just to list a few examples Costa recently launched spectacular new campaign in its core markets, focusing on moments where guests are left speechless. Holland America, launched a sequel to its highly successful Time of Your Life campaign and AIDA just kicked off its new campaign experience yourself differently in conjunction with the holiday Carnival will launch a new marketing campaign highlighting Celebration Key in time for P&O Cruises new campaign, Holiday Like Never Before, launches Christmas Day in the U.K. and Cunard has planned a welcome Fit For A Queen to introduce Queen Anne early next year, which is sure to capture huge fanfare. We've been talking about upping our game across the commercial space. And we've made good progress. Of course, we're not done. And as you'd expect, we never will as there is always room to improve. There's much more to come, as we rolled out advancements to our yield management tools and lead generation techniques, continue to invest in sales and sales support and build on already strong relationships with our trade partners. Tuning to cost, as we previously indicated, new-to-cruise costs ex-fuel for 2024 are expected to be higher than inflation due to the impact of closing the occupancy gap and the higher volume or dry-dock days. David will walk you through in more detail. But that said, we have been working aggressively to mitigate inflation through our cost optimization initiatives, including leveraging our scale. In some cases, we're investing today for future benefits. Just to cite a couple of examples of initiatives underway, we're essentially complete with the rollout of sterling across the globe. This will produce more than a 20% reduction in cost per ALBD in 2024 and significantly increase our bandwidth pipeline, resulting in both, better guest experience and higher onboard revenues, a clear win-win. And with our new Vendor-Neutral platform, we are positioned to quickly capture cost savings in future years. We've also launched our Maritime Asset Strategy Transformation, or what we refer to internally as MAS. MAS is a centralized system developed to optimize the management of equipment and machinery across all brands and all of our ships. MAS will allow us to leverage spare parts more effectively across the entire fleet and optimize our maintenance schedules and practices, all of which will strengthen our efficiency and reduce unplanned maintenance overtime. Well, we won't see the P&L benefits for MAS this year as we ramp up its implementations in 2024. We expect a multiyear benefit, well in excess of $100 million that really begin to ramp up in 2026. All the efforts we're making to drive revenue and manage cost are expected to lead to a four point margin improvement in 2024. We're going to record EBITDA of over $5.5 billion, which is 30% higher than 2023. Thanks to a strong second half of 2023. We're already tracking ahead of our plan to achieve the change our three year financial targets, calling for the highest ROIC and EBITDA per ALBD in nearly two decades. And our 2024 guidance delivers another step change toward these deliverables. EBITDA per ALBD is expected to be up by more than 25% over our target starting point and to more than halfway to the 50% increase expected, in our SEA Change targets. Today's guidance but also delivered 9% ROIC of four point increase from the starting point of our targets. This leaves just 1.5 point annual increases in 2025 and 2026 to hit our 12% target. Not surprisingly, our brand dedicated to a single market. Carnival, AIDA and P&O cruises in the U.K. are again leading the charge with the highest ROIC levels in the company. And with regard to our greenhouse gas target, included in our 2026 SEA Change Program, our GHG Intensity in 2024 is expected to be just shy of the 20% reduction from 2019 were targeted. It's worth noting, this was a 2030 goal. We had already pulled forward by four years. We have been and continue to work aggressively to reduce our environmental footprint and fuel costs at the same time. This deep commitment has not only resulted in industry-leading fuel efficiency but it has also resulted in lower absolute GHG emissions. Our absolute emissions are over 10% lower than the 2011 peak and that's despite capacity growth of 30% since then. Last year, we also exceeded our industry-leading shore power capability goals. We are ahead of the curve and now have twice as many ships capable of shore power than there are ports around the world available plug into. Again, I credit all of these important achievements to our people, ship and shore. Collectively, they continue to outperform, allowing us to make good headwind on our SEA Change targets. We're poised for another step change in operating improvement this year with nearly two-thirds of the business on the books at considerably higher prices, ongoing momentum from improvements across the commercial space, the amazing vacation experiences we deliver day-in, day-out at way too good over relative value to land-based alternatives and an even greater experienced staff, all while growing onboard revenues and managing costs. All of this combined sets us up well to deliver another year of record revenues and record EBITDA. Our cash flow strength, coupled with excess liquidity, the return of credit card reserves in a few weeks and the lowest order book in decades will allow us to continue to actively manage down debt and aggressively reduce interest expense over time. It will also propels us on our path to deleverage investment-grade credit rating and higher ROIC. I remain confident in our continued execution with an unparalleled portfolio of best-in-class brands and amazing fleet that just keeps getting better and better, and our greatest assets are people. This has been a truly remarkable year, and we've come a long way in an incredibly short amount of time. I would like to thank our team members, ship and shore, the best in all of traveling measure travel and leisure unforgettable happiness to over 12 million guests this year by providing them with extraordinary cruise vacations for honoring the integrity of every ocean we sail, place we visit and life we touch. And thank you for the strong support from our travel agent partners as well as our royal guests, destination partners, investors and many other stakeholders. With that, I'll turn the call over to David.

Operator:

[Operator Instructions] Our first question comes from Steve Wieczynski with Stifel. Please proceed.

Josh Weinstein:

Hi, Steve. Happy holidays to you too. So, I hope you're right. I look forward to the call in a year. Look, we've given our good faith estimate on how we're seeing the world right now. We come in with a good amount of visibility because of how well booked we are and as you said we have seen accelerating momentum in the volume and the price, so we're very, very pleased with the trajectory that we've been seeing. Obviously this is also before Wave. We do have a little bit of a disadvantage of doing this in December versus end of January, into February. So, all I can tell you is we've baked in what we what we see and we always want to outperform and obviously that's a given. So I think best thing I can tell you is we'll talk in March with Wave under our belt up. Having said that, Wave hasn't ended since last year, so we'll continue to ride it as long as we can.

Josh Weinstein:

Yes. We're coming off a great performance when it comes to onboard and we expect our onboard per diems to be increasing in 2024 versus 2023. Brands are doing a real good job of pulling forward more spend providing differentiated experiences, so we absolutely expect an increase in 2024 versus 2023.

David Bernstein:

Yes, no. So I was not trying to give individual guidance for each quarter. What I was trying to do is say that that three quarters collectively together would average 3%. We will see some, you know, year-over-year differences versus 2023. You know, a great example of that is that the dry dock days will be down in second quarter, but there'll be up in fourth. So there will be differences. There's also advertising seasonalization differences in other things. So I was not trying to say 3% every quarter - just 3% on average for the three.

David Bernstein:

Thank you very much. Take care, Steve.

Brandt Montour:

Great. Thanks, everyone, and congratulations on the results this morning. So Josh you gave us an update on the Sea Change long-term targets and the drastic improvement toward that target and that you've made so far in 2023 and then 2024 expected. And I guess you know, fuel has been a nice tailwind. If you take fuel out and maybe you just focus on your yield growth target within 24 guidance. Is that in line with your internal expectations for that that three year ramp or how do you think about it?

Brandt Montour:

Okay, great. Thanks for that. And then you said you were two-thirds books for 2024. That struck me as incredibly impressive. I mean, if you give us a sense of what that would have been in, in prior years, but also, the crux of the question is, did that base loading strategy, do you think that impacted your pricing meaningfully versus what it would have been if you had just kept the sort of historical booking curve? And then as you go into January and wave season, you ever been this book so it has that changed your strategy with pricing as you move through wave?

Brandt Montour:

Crystal clear. Thanks.

Operator:

Our next question comes from James Hardiman with Citi. Please proceed.

Josh Weinstein:

Yes. Well, we are effectively back to normal. This is what we used to do before the last few years, and I think it was quite important that we get back into this cadence. Now, good news, we are highest book we've ever been. So we do have more visibility than even we had before 2020. So I think that's setting us up well to be able to be in a pretty good position to give you this preliminary guidance for 2024. Obviously, we have - I have high expectations in my brands and what I expect them to achieve, including during Wave. And you got to remember, the whole focus of Wave this year, we have the benefit of being able to focus on different things. Last year in Wave, a lot of what we were trying to accomplish and our brands we're trying to accomplish was just filling the ships because we are in such a different position from an occupancy perspective. This time, we actually get to go through Wave and really be more strategic in how we are trying to advance the needle, not just on the short term, but on the longer term. So I think it sets us up well. And I keep asking David to change the fiscal year-end and like can we please start on January 1, like everybody else. But apparently, that's a lot of work. So we're not going to do that.

Josh Weinstein:

I think our brands are doing phenomenally and really understanding who that target audience is and how to speak to them with their creative marketing and then on the performance side, just making sure that, that consideration and awareness gets converted into bookings. So we gave - I said in my prepared remarks, we've got several campaigns that are either started or about to start. We've got a few examples you can click through on the prepared materials of slides that have been put up. They're doing a great job of captivating the market. And I think getting cut through not just with new-to-brand and new-to-cruise on the value that we have. And fortunately for us as much as we've improved on the pricing front in 2023, it's still a big gap versus land. So all of those things are winded our backs and I expect more of that over time.

Josh Weinstein:

Thank you.

Jaime Katz:

Good morning. Thank you. I'm hoping you can talk a little bit about changes to the sourcing strategy. I know it shifted back a little bit more to North American cruisers in the last couple of years. But given the strength in the European market or the fact that they might be closing the gap, should we expect that to move back to a normal mix?

Jaime Katz:

Okay. And then there was a lot of positive commentary obviously on this call. So, I'm curious if there's anything left out there that concerns you that you would like to share with the audience. Thanks.

Jaime Katz:

Okay. You're welcome. Thanks. Happy holidays.

Operator:

Our next question comes from Patrick Scholes with Truist. Please proceed.

Josh Weinstein:

Good morning, Patrick.

Josh Weinstein:

Yes. Thank you, Patrick.

Josh Weinstein:

Thank you. So candidly, I don't have - been literally for the period that you're referencing the Cyber Monday and Black Friday. I don't have a breakdown of new-to-cruise versus new-to-brand versus brand loyalists. I do have the fourth quarter obviously which includes some of that where our new-to-cruise is obviously up significantly year-over-year 51%. And so you know that is - that is part of the strategy, right, taking oh, that was sale for me. I'm sorry, that was sale. But taking a greater share of folks who have never cruised before is part of the strategy to increase overall demand get them in our pipeline and allow us to raise pricing over time for frankly, everybody. With respect to what's the most cost efficient. Obviously, coming direct on the web is always going to be the most cost effective. I wouldn't make a categorization though that new-to-cruise comes in a particular way because it really depends on the characteristic of the new-to-cruise guest themselves what brand it is, what's the itinerary length, et cetera. Now clearly a lot of new-to-cruise will over index on the shorter cruises because they're trying it out for the first time and that lends itself to maybe also a younger crowd which is more comfortable just playing around on the net and doing things direct. But I mean, frankly speaking, historically, and I expect this to continue, our trade partners are absolutely critical in driving new-to-cruise to us. And we've relied on them for decades to do that. And we will rely on them for decades more and they have done a great job of really catching up to where we've been in the curve and year-over-year they're showing great strength as well.

Josh Weinstein:

Thanks, Patrick.

Robin Farley:

Great, Thank you. I wanted to circle back to your yield guidance and just looking at the recovery and occupancy to normal - to previous levels being maybe 600 to 700 basis points kind of implies that your per diem guidance is maybe less than 2% growth. So I just - I don't know if I'm doing the math wrong there if there's anything to clarify. And then also, you've talked about the price on the books for next year being considerably higher, but your yield guidance for the year. It's just nicely higher, which I think the David Bernstein glossary is like a would be a deceleration - any help.

Robin Farley:

If I - if I remember if I'm interpreting the glossary correctly, I think that implies sort of a deceleration in the price there. So just - is that just because the onward growth rate while up is lower, and so that brings like considerably a higher price to just nicely higher yield, or maybe my glossary definition is wrong, but maybe you could help us with that and with the math on the per diems to begin with. Thanks.

David Bernstein:

Yes. So, keep in mind that 2019 was the high watermark for occupancy, and we look back to like 2005, and the historical occupancy levels were in the range of 104% to 107%. So what we're saying is we will be solidly back to historical occupancy levels, but we weren't saying we're going to be back to the high watermark of 2019. So keep that in mind. The other thing about considerably higher versus the nicely higher. Keep in mind that you know, last March when we gave guidance, you know, we had thought that our expectation for per diem increases was about 3.5%, and we round up to 7.5%. So we saw some very strong pricing in the back half of the year, and as a result of that on a year-over-year comparison basis, you know, a book position may be considerably higher, but what we're looking to see is at least nicely higher pricing on a per diem basis built into our guidance. So when you put those two factors together hopefully you can understand how we built our guidance.

Robin Farley:

Understood that occupancy right that you don't manage to a certain occupancy once you're in that range, but just the that the price comment that you're - what you're seeing on the books being considerably up versus the nicely up does seem to imply like a bit. You'd be expecting a deceleration from current levels. And so I mean, maybe the answer is you're just being conservative, but I just if that if that's correct, and interpreting considerably moving to nicely as being a lower rate of growth. So that's I guess that's what I'm trying to clarify?

Robin Farley:

That makes perfect sense. Thank you. Thank you. And then just one last clarification. On your SEA Change, on the expense side you've talked about the three year being up low single-digit in like 2024, 2025, 2026 each year, this year of - or 2024 guidance up 4.5%, you know, probably above low single-digit kind of implies very, very low expense growth in 2025 and 2026. Is that how we should think about in other words, there's not a change in your - the three year average would be up low single-digit, even though it's a bit more in 2024 than I would suggest. And again, possibly you're just being conservative, but I don't know if you had a thought on how we should think about how much better that would be in 2020 would have to be in 2025 and 2026 to keep your SEA Change expense target? Thank you.

Josh Weinstein:

I would say, Robin…

Josh Weinstein:

I didn't think we get end to the call without you trying to get ahead of 2024 guidance and looking at 2025.

Robin Farley:

Thank you, Robin. No problem.

Dan Politzer:

Hi, good morning, everyone. And thanks for taking my questions. It just actually wanted to touch on the fourth quarter a little bit more. The up-tick in revenues on pricing certainly was impressive. Can you maybe unpack that a little bit more? I mean, was that really just you know, the carnival centric line? Or was it Europe or North America more broadly? Or was this you know, alternatively, related to your strategy of more base loading and maybe benefiting from some of the compression we've seen?

David Bernstein:

Yes. No, I mean, you're right. It was all brands and we saw strength in bookings. And our brands did a great job. Yield managing the revenue and taking price up. And so as a result of that, you saw the end result.

Josh Weinstein:

Yes. Yes. Well, let me start with that we have it's tiny in the grand scheme of things still. I mean, we're because you're talking about Carnival Cruise Line, which doesn't have a lot of short programs et cetera with it. They don't really start booking. So it's a tiny amount now. We'll give color as we get 2024 in that respect. So we'll come back to that. With respect to your other points, we've said this is this is a big investment. This is half a billion dollar type of investment. And we can do that obviously, in 2025. We only have one ship. And we have none in 2026. So we think this is the right way to optimize our resources and really benefit the Carnival brand and you've heard us say 18 ships from day one. So we are very, very excited about that. I don't want to get ahead. I really want to do a good job of disciplining myself to not get ahead of Christine Duffy, who really wants to and should talk about what this experience is going to be like and more to come in 2024. And I can't wait for you to listen to Christine and hear all about it.

Josh Weinstein:

In the grand scheme of things, it's probably a couple of pennies …

Dan Politzer:

Got it. Thanks so much and happy holidays.

Operator:

We have a question from Assia Georgieva with Infinity Research. Please proceed.

David Bernstein:

Sure. So to start with, you saw our interest expense guidance in the press release. It was close to $100 million less than 2023. And keep in mind that while we did pay down quite a bit of debt, the average balance for the year is for 2024 is probably like $2.5 billion less than 2023. So that will lower interest expense by $200 million, but also keep in mind that we have less cash on the books and with declining interest income rates that probably is offsetting the savings by about $100 million. So, that's why it's a net decline of about $100 million in interest expense on a year-over-year basis. Looking at the debt level, I actually said this in my notes, in 2024, we are looking at about - I think it's $2.1 billion of scheduled maturities. But we will be replacing that debt with the $2.3 billion of export credits that we take on. So - but in addition to that, we have built in some prepayments of debt into our guidance. And as I said, we are evaluating that. So we do expect to see debt to go down in 2024. However, we do expect to see strong deleveraging from a metrics perspective because our EBITDA grows substantially. So our debt to EBITDA will also improve.

David Bernstein:

So we are looking at both. As far as we expect to continue to prepay debt and to continue the deleveraging. But on top of that, we also expect to look at some potential refinancing which really would drive the interest cost down. And so we'll see how - what opportunities are presented to us in 2024. And if it makes sense, we'll take advantage of them.

Josh Weinstein:

Obviously, our first priority is going to be safety and we have - that's already on our radar screen and we've got Middle East mitigation plan should we need it, but keep in mind this is months away. And so we'll do the right thing. But there's always something. I hate to say it that way, but there is always something, and our brand…

Josh Weinstein:

Yes. So, all right, I think with that we do have to end it, but I'd say Happy Holidays to everybody, and thank you very much. Have a good new year.

Josh Weinstein:

Good morning. This is Josh Weinstein. Welcome to our Third Quarter 2023 Earnings Call. I'm joined today by our Chair, Micky Arison; our Chief Financial Officer, David Bernstein; and our Senior Vice President of Investor Relations, Beth Roberts. Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I'll refer you to the cautionary statement in today's press release. Another quarter and another set of milestones and records. This quarter, we reached net income well in excess of $1 billion and EBITDA well over $2 billion. We also achieved revenue, adjusted EBITDA and adjusted net income that all exceeded the high-end of our June guidance range with constant currency adjusted cruise costs in line with expectations. Furthermore, customer deposits and booking volumes, both important forward indicators, hit record levels for the third quarter. Thanks to the efforts of our amazing team, ship and shore, we exceeded the midpoint of our adjusted net income guidance by $175 million this quarter. The outperformance was driven by strength in demand for our brands, with both our North American and European segments equally outperforming expectations. The result was yields that were higher than anticipated that exceeded 2019's strong levels and that reached an all-time high. On the European front, occupancy came in better than anticipated for Costa and AIDA, with both brands hitting 119% occupancy in August. Not to be outdone, P&O Cruises achieved its highest occupancy in over a decade, despite a 40% capacity increase from 2019. And as for pricing, our third quarter per diems were 5 points higher than 2019, also hitting record levels and more than overcoming the absence of St. Petersburg, which was among our highest-yielding itineraries and weighted to the third quarter. Normalizing for this impact, we estimate per diem growth would have been up about 7 points, which is consistent with each of the first two quarters and our upwardly revised fourth quarter guidance, which David will elaborate on. Essentially, we've consistently been delivering pricing well in excess of 2019 levels, while closing the occupancy gap by 11 points over the course of the year. Continued strength in demand has allowed us to take up our expectations for full-year per diems by a full point. This is a meaningful accomplishment given how much of fiscal 2023 was already behind us. At the same time, we are working to stay within our narrowed cost guidance range while managing down interest expense as we accelerate our deleveraging plans. The higher revenue alone more than offset the recent spike in fuel prices, which is currently forecasted to step up by 20% heading into our fourth quarter. I would note that while we've experienced volatility in fuel prices before, there's only been one other period in the last 15 years that our fuel price has reached this level. In this case, changes in fuel prices and FX rates combined are a $130 million drag compared to June guidance and masked much of our significant underlying business improvement that is delivering an additional $200 million plus to the bottom line for the second half of the year. As a result, we still expect our 2023 adjusted EBITDA to be $4.1 billion or more, which is well within our prior guidance range, and we are raising our net income expectations for the year. As I've done in the past, to give you a sense of how we are faring operationally without noise from fuel price or currency rates and without the benefit of increased capacity, I'll share our EBITDA per ALBD progress holding fuel price and currency constant to 2019 levels. We reached 59% of 2019 levels in the first quarter, 73% in the second quarter, 90% in the third quarter, which was better than the 85% we expected, and we are striving to hit 2019 levels in the fourth quarter. Of course, in reality, we are not ignoring the impact fuel is having on our business. In fact, it's been a focus for years. We continue to work aggressively to manage fuel costs the best way possible by consuming less. Heading into 2023, we already had the most fuel-efficient fleet of our public peers by a wide margin, and we are looking to widen that gap. We are on track to achieve a step change reduction in fuel usage and resulting carbon intensity in 2023 with fuel consumption per ALBD nearly 16% lower than 2019, even better than the 15% we had anticipated. I know this is stating the obvious, but not only is this effort benefiting our bottom line by hundreds of millions of dollars, it's also better for the environment and something we'll keep pushing on for 2024 and beyond. Speaking of 2024, I'm still pleased with our revenue trajectory heading into next year. Our brands have been working aggressively to build a strong base of business as we position for further revenue yield improvement next year. We are now significantly ahead of same time last year by about 10 points and well ahead of where we were in 2019. In fact, we already have less inventory remaining for sale at the same time last year, despite 5% more capacity and sailing with occupancy at historical levels. Our booked position is as far out as we've ever seen it. With our European brands booking curve now essentially back to 2019 levels and our North American brands exceeding historical highs. And importantly, we've been able to achieve this 10-point occupancy advantage at higher ticket prices for the same time last year. By all accounts, it's a great start to 2024. While we see no signs of demand slowing for our brands, at some point, booking volumes for 2024 will recede as we simply run out of inventory to sell. Now we appreciate there are heightened concerns around the state of the consumer as of late. But the fact is we just haven't seen it in our bookings or our results, and we believe consumers are continuing to prioritize spending on experiences over material goods. And the vacation value we offer will continue to resonate with those seeking more for their vacation dollar. As you know, we have been leaning into that message given the unprecedented and unwarranted value to land-based vacation alternatives. Further, our revenue base is recurring, with over half our guests being repeat cruisers, is visible with well over 50% of the next 12 months booked at any given time and is predictable with 40% of our onboard revenues now pulled forward by pre-cruise sales, which is an 11-point increase over 2019. How is all this trending by region? Well, North America consistently remains strong with Carnival Cruise Line, our highest returning brand, continuing to outperform. Accordingly, and due to our portfolio optimization efforts, two-thirds of our capacity growth next year is weighted to Carnival Cruise Line. And while our European brands were on a delayed trajectory for reasons we've discussed at length, they are world-class brands in fantastic markets that we are dedicated to for the long-term. So it is incredibly gratifying to see them impressing so nicely and now keeping pace with the improving trends we've seen for our North America brand. In fact, in Q3, each of our Continental European brands, AIDA and Costa delivered higher yields than 2019, again overcoming the outsized [indiscernible] they felt from the absence of [indiscernible] of St. Petersburg. And finally, there's Australia. I am pleased to say that with the recent lifting of protocols in Australia, like the U.S., they too saw a spike in bookings in response to the great news. Our demand generation efforts are clearly working across all regions. As you can see in our results, our forward guidance, our book position and our booking trends. We are also seeing other positive forward indicators that suggest we are continuing to generate healthy demand. First-time cruisers reached 170% of prior year levels in the third quarter. In fact, we've taken well over 2.5 million guests on their very first crews so far this year. Web visits are running at 135% of 2019 levels. Paid search is at 150%, and natural search is at 185%. Suffice it to say, all are consistently running at multiples of our capacity growth. The effects of our myriad of commercial enhancement activities will compound over time. And our ongoing investments in advertising and lead generation should keep that funnel of demand building. We are also creating excitement around our new ships and new destinations. This quarter, we welcomed our second ultra-luxury expedition ship Seabourn Pursuit. Pursuit marries the same yacht-like small ship experience Seabourn guests have come to expect with an unparalleled range of expedition activities and expert 24 person expedition team and unique features like custom-built submarines. We are looking forward to showing her off later today at her inaugural stop in Miami. And we are about to embark on a drumbeat of news around our new destination in Grand Bahama Celebration Key expected in the second half of 2025. Just yesterday, Carnival Cruise Line announced the opening of hundreds of sailings to Celebration Key ultimately across 18 different ships departing from eight different home ports. You'll have to stay tuned for more details on this amazing destination and the fantastic experiences our guests can expect. But what I can say today is that not only will Celebration Key deliver Carnival's patented brands of fund, its strategic location close to so many of our home ports is also designed to advance our fuel and carbon reduction efforts. It's truly a win-win-win for the environment, for our guests and for our great hosts, the people of the Bahamas. Turning to the balance sheet. We have been actively managing down our debt and reducing interest expense. With improving performance, positive cash flow and $5.7 billion of liquidity, we anticipate ending the year with debt just under $31 billion, already over $4 billion off the peak and counting. I'll take the opportunity to remind those naysayers that, as we stated six months ago, this debt reduction happened without issuing incremental equity. That said, we recognize we still have a ways to go to reach investment-grade leverage metric in 2026. The strong demand we are seeing certainly builds confidence in our return to meaningful free cash flow generation and our reduced newbuild pipeline should amplify that opportunity. Once again, I attribute the outperformance this quarter to our greatest asset, our people. Our shipboard team members who are consistently exceeding our guests' expectations, our shoreside team that supports the ships, generate strong demand and attract new-to-cruise guests along with our travel agent partners, and of course, support from all of you, our investors, our loyal guests and our many other stakeholders. I think I can speak on behalf of all 160,000 team members when I say that it is a privilege to work at a company whose purpose and mission is to deliver unforgettable happiness to our guests by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sail, place we visit and life we touch. It motivates us to do our jobs well and responsibly and will help us keep our strong momentum as we head into 2024. With that, I'll turn the call over to David.

Operator:

Thank you. [Operator Instructions] Our first question comes from Steve Wieczynski with Stifel. Please proceed.

Josh Weinstein:

Good morning, Steve. Thanks for the very first call being about 2024 and guidance that we haven't given. Let me start with what you said about onboard. I think the encouraging thing about onboard is, if you look at what the consumer has been spending with us over the last three quarters and what we projected in the fourth quarter, it hasn't gone down. So comps might go up and down percentage-wise a bit here and there because of what the world looked like back in 2019 as a percentage quarter-over-quarter. But literally, they're spending the same amount today that they were three quarters ago. And we haven't seen that slowdown. So that's very encouraging, and that's part of what gives us confidence when we say we're feeling pretty good about our business in light of whatever is going on in the macro economy. With respect to our booked business, being 10 points ahead at higher pricing, does give us a good amount of maneuver ability to really deliver on the yields next year, which is what we expect to do. We're not giving guidance yet, so we're not going to get into the nuts and bolts, but I'm comfortable that we're on the right path.

Josh Weinstein:

Yes. That's another good try. How about this. If we think about 2024, what are the tailwinds and what are the headwinds, right? So overall, as we look at 2024, we've got a good amount of momentum going, right? First of all, we're starting from that normalized or elongated booking curve, best book position in our history. The things that we have been doing to try to generate incremental demand and incremental pricing evidentiary says it's working with 7 points higher per diems pretty much consistently throughout this year as we close the occupancy gap. We expect to be back to full-year occupancy as you were pointing out. The power of our portfolio approach, I don't want to discount. We've been talking about this for many quarters. And what used to be a concern around Europe should now be some applause and congratulations for our European brands who are really coming on. To be able to say that our Continental European brands hit positive yields versus 2019 this summer is fantastic given where they were a year ago and despite all the concerns that have been raised about our European brands and our approach to being dedicated to particular markets that we feel very strongly about. We expect that will continue because, as you know, in the first half of next year, our European brands did have a lot of work to do to claw back and get to where they were. At the same time, we're doubling down on Carnival Fun Italian Style with the second Costa ship coming over to Carnival. The trade has been rebounding tremendously. Our first timers are really driving our growth, which is another testament to all the commercial work that our team is doing. So there's a lot of positivity on the table here. Now what's the minuses? Of course, we still don't have itineraries that were impacted by the Ukraine war. We don't expect that to come back in 2024. But I think we've proven we know how to move our assets around and put them where they are best positioned to serve as well. China is still a question mark. For the industry, we certainly hope that, that unfolds the way people are planning outside of Carnival Corporation. David mentioned inflation. It is decelerating. Absolutely, but it's still inflation that's decelerating. So we'll have to see how that plays out. We're obviously heads down with our brands planning through 2024 and figuring out exactly how we can mitigate cost increases, which we do all the time. And we're actually in the planning phases right now for 2024 where we're going through in detail all of the activities that are going to be beneficial for us. The occupancy will be a cost, the dry dock days will be a cost, and David tried to quantify those for you. And we'll have to see what happens with the macro environment and how we play. So there's a lot in both directions. I feel very good about the positives.

Steven Wieczynski:

Okay, guys. Thank you very much. I won't ask another question on 2024, and I'll stop there. Thank you very much.

Operator:

Our next question comes from Patrick Scholes with Truist. Please proceed.

Josh Weinstein:

Yes. Hi, Patrick.

Josh Weinstein:

Yes. It's certainly not off the table. We wouldn't take anything off of the table. It's not something we're planning to implement in the near-term, although that could certainly change. There are certainly considerations that have to be made about what's the norm in society with the expectations of our customer. Obviously, you don't go retroactively too. So you're talking about forward bookings. But I wouldn't take anything off the table. I would reiterate, though, even a fuel surcharge is temporary. And really, the one thing that we can do, no matter what compiler high water is used less and that's where our focus is. And we estimate it saved us about $375 million on the bottom line this year versus what our profile looks like in 2019 because of all those efforts.

Josh Weinstein:

Sure. Well, I'd start by saying the same thing as a surcharge, which is we don't take anything off the table, including hedging. We only get the question when fuel prices spike though. We never get the question when it's not – when it's going the other way. So I do think that there's a little bit of a – it's not a question of hedging. Are you putting wagers on that are either going to benefit you or not depending on the environment? I buy the volatility part. I mean we've done empirical studies like everybody else. The last time we did one, it only added about 1% to the share price because even though it might take away day-to-day volatility when you look at the long-term value of the firm, ultimately, it doesn't make a dent in the grand scheme of the cash flow generation discounted back, et cetera. So it is, a, consideration, the volatility as is the cost of any kind of hedging program. So we'll continue to look at it. But thus far, when we've laid out all the pros and the cons, we haven't been there. But I wouldn't say that, that has become our answer forever. That's just where we are now.

Josh Weinstein:

Thanks, Patrick.

Brandt Montour:

Hey everybody. Good morning. Thanks for the question. So first, I wanted to talk a little bit about the bookings commentary, Josh. You sounded very bullish on what you guys have gotten done so far for 2024. And I'm just – you used the term base loading, you gave us some great data points on where you sit now versus 2019 and the volume trajectory, et cetera. And I guess the question is just sort of qualitatively, do you think that you had to give up some price to do that? Do you feel good about what you had to give up on price to do that? Or just maybe open the hood a little bit and talk qualitatively about the revenue management strategy and success there?

Brandt Montour:

Okay. That's great. And then one more pricing question, but just more of a regional breakout. You mentioned that European per diems were now positive this summer. And I guess the question is the way I would ask it is, does that mean that sort of 40% – o r whatever your capacity in the continental brands, which is something like that, 40% of your capacity should see – or should be on its way to closing the gap versus what you think – what North America is currently doing index to 2019? That to me would be a material tailwind. Is that the way you see it?

Beth Roberts:

Specifically to the Continental European brand, which is…

David Bernstein:

All of our European brands, including the U.K., is 38% of our capacity this year. But the Continental European brands is less than that. I'll calculate that in a second. Go ahead.

Brandt Montour:

Okay. But the per diem recovery comment was about Continental or all of Europe?

David Bernstein:

Yes. And Continental European brands are 26% in 2023.

Josh Weinstein:

Sure.

Robin Farley:

Great. Thank you. Two questions. One is just going back to the comments about 2024 yield. And I think the comment was strong yield improvement. And I know there's a glossary of David Bernstein adjectives for slightly and strong and things in previous years. So I don't know if you could just remind us what strong is implied? And I mean, just the math of your occupancy recovering if you get back to your full occupancy being 6 to 7 points and then price on top of that, I mean, it seems like it has to be at least a high single-digit yield increase year-over-year. I don't want to put numbers in your mouth, but maybe you could help us think about David glossary there?

Robin Farley:

Okay. All right. And then also, I wonder if you could – I know you just sort of half launched part of the sort of Celebration Key. Can you talk about – since it sounds like you're not giving out what the cost and amenities will be at sort of the time frame for when we might hear about the cost and amenities. I think investors sort of well understand how some other private islands have been real drivers of onboard spend and ticket price. And so it would be great to sort of get more of those details for your new island? Thanks.

Robin Farley:

Okay. All right. Great. Thank you.

Josh Weinstein:

Hello, David, you there?

Josh Weinstein:

Yes. I'll give you an overall, which is I don't think that there's anything revolutionary here. It is simply continuing to do our jobs better brand by brand. And we've highlighted, for example, Carnival Cruise Line and just the amazing results that they've had quarter-over-quarter. Other brands are catching up. And they're doing that because they are focused on their revenue management techniques. They're focused on delivering the experience onboard. They're focused on their performance marketing and generating more leads to generate more bookings, positioning themselves appropriately in the market. So all of those things are incrementally helping piece by piece. And that's the kind of effort that we need from our brands and their teams to be focused on all aspects of that commercial business. And so we'll continue to focus on that so that they continue to focus on it as well. And so on the revenue side, I feel like we're making good momentum. On the cost side, there will always be opportunity for us to do better. David mentioned that we'll only maybe get a little bit of scale benefit from the newbuilds, and that's certainly true that are coming in. But there's always opportunity to look for efficiency and leverage scale on the existing fleet, right, in how we do our purchasing, how we benchmark against each other to find ways to do things more efficiently on the ships, source more efficiently. Scale will increase because frankly speaking, we're going to be carrying a lot more guests next year than we did this year and than we did in 2019, and that gives us more opportunity to leverage scale. So I'm pretty encouraged that up and down the P&L, there will be opportunities.

Josh Weinstein:

I think we're – I think it's fair to say that as technology advances and our teams are better able to utilize that, there's more and more opportunity to be very surgical about the guests that we're looking for and how to get them and their eyes looking at us and looking at our websites, pointing them to travel agents, whatever that might be. So I'd say that, that's pretty early days. And even though we've made some pretty marked improvement when it comes to some of the stats that we've shown you as some indicators, and we really don't talk about things like conversion rate or things like that. We're very encouraged by the progress, and there's certainly a lot more room to run.

Josh Weinstein:

Thank you.

Daniel Politzer:

Hey, good morning everyone. Thanks for all the detail thus far. First question, onboard spend. It looks like it declined a little bit in terms of the pacing relative to 2019. Is that a function of mix in terms of more European? Or is that more inside cabins? If you can just talk about the real-time trends there? And along with that, are there elements on your booking and in terms of pre-bookings that you can maybe accelerate that going forward?

Daniel Politzer:

Got it. That's helpful. And then just for my follow-up. In terms of the EU emissions, there's a new tax coming on in terms of metric tons that are emitted. Can you may – is there any way to quantify that as we think about it for 2024 or 2025, 2026, just given that, I think, it's a progressive tax?

Daniel Politzer:

Got it. And which – is that going to flow through in terms of the P&L, the fuel line? Or is it going to be grossed up just – and that's it for me. Thank you.

Daniel Politzer:

Got it. Thanks so much.

Jaime Katz:

Hey, good morning. I'm hoping we can stay on Europe. Under separate cover this morning, I think there was a press release on Costa and the new campaign that you guys are doing there, and there were some commentary around consumer behavior and the economic environment. And I'm wondering if you would just share any of the key takeaways maybe that you have extracted around the European consumer for us?

Jaime Katz:

Okay. And I think earlier, you had mentioned that there were a number of new consumers coming into the brand. And I'd be curious if you guys can break out maybe the demographics? Are there significantly more younger consumers? Does that provide a better lifetime value for the business? How should we think about that? Thanks.

Operator:

Our next question comes from Assia Georgieva with Infinity Research. Please proceed.

Josh Weinstein:

Sure. I think – so first of all, thank you for the comments. The – certainly, the onboard component of our increases over the past several quarters has been outpaced by the improvement that we're seeing in the ticket. And so I think to your point, whereas the onboard component was a larger piece of our outperformance overall on net per diems, really, what we've been able to see is the ticket price is really coming on, which is encouraging. The fact though that, again, in ultimate terms, the onboard spending has remained constant in absolute levels gives us a lot of confidence that we're doing the right things, and we're providing the right options for our guests to spend on experiences. And so I think it's actually a very good mix. And the ability for us to pull forward more onboard spending, as you mentioned, the 40% of our onboard spend pulled forward. While that's a huge increase of 11 points, it was below 30 points back in 2019. That means there's still an awful lot of room to continue to do that. And so I think those components set us up very nicely.

David Bernstein:

So we haven't given detail by year. But what we have talked about is by 2026, combination of the improving EBITDA and the debt reduction program, you're going to see investment-grade type metrics in 2026. Remember that in 2024, we do have three ships for delivery. And so that probably will be less debt reduction in 2024 than in 2025 and 2026, where is in 2025, we only have one ship. And in 2026, we don't have any ships on order. So just keep that in mind as you build through the math throughout the years.

David Bernstein:

Correct.

David Bernstein:

So let's keep in mind the 2023 numbers are being compared to 2019. So that is four years, not one. And so when we get to 2024, we're going to go back to the year-over-year comparisons, it's just one year. And so the expectation would be it's only one year of inflation as opposed to four years of inflation. So keep that in mind as you go through and think about 2024.

Josh Weinstein:

I think it's fair to say yes – the answer is yes. We don't expect anything year-over-year like we've had this year in the 11%, absolutely.

Operator:

Our next question comes from Matthew Boss with JPMorgan. Please proceed.

Josh Weinstein:

So I can't – I don't have any data about what the breakdown is for the bookings of September based on first timers or loyalists. But what I can tell you is that – I just – I think it's probably important to put into context. We've talked about wave, right? And we talked about how wave was the longest wave in history. And I'm not sure when we're ever going to call it, right, because we broke the record in Q1. We then broke that record in Q2, which never happens. We just hit a record in Q3. And when you look at the first four weeks of September, actually, we're up very nicely as well. And it's also being driven by the European brands. North American is positive. But the European brands are really coming on as we expected our portfolio to do. And so it hasn't slowed down in September. We attribute that to all the good work that our brands have been doing that we've been talking about and the inherent pent-up demand that we can still tap. And the encouraging thing is because of that trajectory with new to brand and indeed new to cruise, it means we're effectively back to normal from that perspective, and we can really focus on optimizing the revenue and the yields. So it hasn't stopped.

David Bernstein:

Inflation year-over-year. Just whatever inflation turns out to be for 2024 versus 2023.

Operator:

Our next question comes from Conor Cunningham with Melius Research. Please proceed.

Josh Weinstein:

Sure. No. We're trying to say it as plainly as we can. We just have not seen any sign of slowdown. The only slowdown we see is as we're running out of inventory, it has to slow down. That's it. So we feel quite good.

Josh Weinstein:

I think we've got time for one more, operator.

Christopher Stathoulopoulos:

Good morning everyone. Thanks for squeezing me in here. Josh, on the Costa Cruise and the new advertising strategy or campaign announced today, how do you see that evolving over time? And should we expect this enhanced messaging or advertising to extend to other brands as we work through SEA Change? Thank you.

Christopher Stathoulopoulos:

Thank you.

Operator:

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

Josh Weinstein:

Good morning. This is Josh Weinstein. Welcome to our Second Quarter 2023 Earnings Call. I'm joined today by our Chair, Micky Arison; our Chief Financial Officer, David Bernstein; and our Senior Vice President of Investor Relations, Beth Roberts. Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I’ll refer you to the cautionary statement in today's press release. There are many milestones we've hit over the last two years, and this past quarter is no exception. In fact, there was much to celebrate in the second quarter. We reached a meaningful inflection point for revenue with net yield surpassing 2019 strong levels. And on top of that, operating income, cash from operations, and adjusted free cash flow were all positive. Adding to those achievements, we just hit all-time highs for bookings and customer deposits. And remarkably, we are still experiencing a phenomenal wave season, which started early, gained strength, and is still going strong midway through the year. This strength in demand delivered outperformance in the second quarter for revenue, adjusted EBITDA, and the bottom line, a credit to the dedicated efforts of our 160,000 amazing team members ship and shore. Net yields in constant currency turned positive in the second quarter, compared to 2019 as we drove cruise ticket prices above 2019, while maintaining record onboard revenue growth and continuing to close the gap on occupancy. In fact net per diems in constant currency were up 7.5% over 2019 in the second quarter. This was 4.5 points better than the midpoint of guidance, which we were able to achieve while meeting our forecasted occupancy. Based on continued strength in pricing, we have also raised our expectation for net per diems in the second half by over 2.5 points while again maintaining our occupancy expectations, which is supporting our guidance of higher net yields in the second half of 2023 over 2019 in constant currency. This revenue growth will be significantly higher than the increase in our cost guidance which David will elaborate on. All told, we are bringing another $275 million to the bottom line for the year, thanks to the strength in revenue, as well as the interest expense benefit we are capturing from deleveraging. On a per ALBD basis and holding fuel price and currency constant to 2019 levels, we progressed from 59% of 2019 EBITDA in the first quarter to 73% back in our second quarter. We expect to hit about 85% for the third quarter and be all the way back for the fourth quarter. We are now expecting adjusted EBITDA of $4.10 billion to $4.25 billion above the high-end of our prior guidance range. As I mentioned, booking volumes reached an all-time high in our second quarter, exceeding the record levels we achieved in the first quarter, which would normally be our peak period. Booking volumes were 17% higher than 2019, which is multiple of our capacity growth. We experienced double-digit growth in booking volumes on both sides of the Atlantic. Demand for our European brands has continued to strengthen and is now outpacing 2019 booking volumes at a rate that's comparable to our North America brands. And the strength in demand has carried into June. In North America, the booking curve is as far out as we have ever seen it while our European brands are quickly catching up to 2019 levels. With over 90% of this year on the books, 2023 is now essentially behind us and we are strategically building a strong base of revenue for 2024. In fact, our booked position for 2024 also stands at record levels. Reflecting this performance, our customer deposits are also at an all-time high of $7.2 billion significantly higher than our prior peak of $6 billion. Customer deposits grew 26% over the prior quarter and are multiples of our measured capacity growth as we strategically push out our booking lead times and pull forward more onboard spend through bundled packages and pre-cruise sales. Onboard revenues were once again off the charts this quarter as the strategy delivers an added benefit of elevating spending once onboard, enabling us to capture more of our guests' vacation wallet. Our brands are laser focused on our strategy to pull forward both ticket and onboard spend, which only enhances the visibility and predictability of our recurring revenue base. We have over 50% of the next 12-month booked at any given time and over one-third of onboard revenues now on the books in advance of sailing. Our demand generation efforts are in full swing. Our cumulative number of new to cruise and new to brand guests who sailed with us in the second quarter have already exceeded 2019’s levels. Our natural search performance is up across the board with an 87% increase over 2019, which is up from a 63% increase last quarter, affirming the success of our new marketing campaigns in driving awareness and consideration. Our lead generation efforts are also working with a 60% increase in Paid Search Clicks over 2019, which is nearly double the 35% increase just last quarter. To accommodate this success and our increased demand profile, we've grown our sales and sales support staff by over 50% in recent months. At the same time, we can see the impact it is also having with the trade. As I've said before, in order for us to be successful, we need all of our sales channels to excel and that certainly includes our travel agent partners who are critical in helping us widen the pipeline for new to cruise guests. And I've got great news on that front. The trade is continuing to rebound significantly with sales volumes up 45% year-over-year as we increase training, engagement, and support activities. And of course, our advertising investments benefit not only us, but our trade partners as well. By any measure, our decision to increase our investment in advertising is paying off. The sequential improvement in these important KPIs suggest the strength we are seeing in demand will continue. All of this has built confidence not just in our 2023 outlook, but in our ability to launch SEA Change. Three year target that will demonstrate our progress towards delivering strong profitability and rebuilding our financial fortress. The acronym SEA stands for sustainability through carbon intensity reduction, EBITDA per ALBD, and adjusted ROIC. Three very important key performance indicators. And for each of these items, we expect to see significant improvements from current levels and well above 2019. In fact, the two financial measures will be the best we've seen in almost two decades and the carbon intensity rates will be unprecedented. For the S, or sustainability, we plan to reduce our carbon intensity by more than 20%, compared to 2019. Essentially, we plan to deliver on our 2030 decarbonization goal four years early, reducing our carbon intensity has been and continues to be a priority for our company. It is critical to improving our environmental impact and to improving our financial performance. We are widening the gap to peers on what is already the most [fuel efficient fleet] [ph] out there. For the E, we are targeting a 50% increase in adjusted EBITDA per ALBD, compared to our 2023 guidance. This would also represent a 25% increase over 2019 levels, holding fuel price and currency constant. EBITDA for ALBD best measures the increasing unit profitability of our business as we execute on our strategy to deliver revenue yield improvement on lower capacity growth. And finally, for the A, we expect adjusted ROIC to reach 12% on more than doubling from 2023 levels. We already have the lowest investment base in our industry and our strategy is designed to deliver outsized returns through high quality yield driven revenue growth, while maintaining our industry leading cost structure. These targets are all grounded on low capacity growth of under 2.5% compounded annually, which will allow us to use our cash flow generation to pay down debt and rebuild the balance sheet as we work towards investment grade leverage metrics. Essentially, we’ve pulled forward our most important sustainability goal and expect a step change in both profitability and return on invested capital in just three years. And importantly, these targets are not our angle, they are measurable markers of continuous improvement. To make this happen, we have a sense of urgency, to further our brand efforts, to drive net yield improvement, and while it's working, we recognize these efforts do build over time. As mentioned on previous calls, to help support this growth and drive overall revenue generation over time, I've actively been working with each brand on their strategies and roadmaps to ensure they will truly own their space in the vacation market. This means having clearly identified target markets, capacity that is appropriately sized to the market potential, demand generation, and marketing capability to hone in on the target market at the lowest possible acquisition cost, revenue management execution to generate optimized pricing across the booking curve, and amazing onboard guest experience delivery to drive Net Promoter Scores and resulting advocacy higher. This will allow us to continue building on our large base of loyal guests as we work to increase awareness and consideration among new to cruise guests. To make it happen, we also need to ensure we set our brands up for success [organizationally] [ph]. Accordingly, during the quarter, I completed the restructuring of our global executive leadership and company structure. By removing a layer of management between the corporate and brand levels, I now have the leads all six of our major brands, representing over 90% of our capacity reporting to me. This is up from one brand, and less than one-third of our capacity previously. This will facilitate more direct engagement between me and our brand [leads] [ph]. To provide me with more bandwidth to do this, I also consolidated several corporate functions under fewer leaders streamlining our organization. While this leaves me with the same number of direct reports overall, these changes make for a more nimble, and accountable organizational structure, better able to respond to market opportunities. And we are also positioned to work smarter. Excluding sales and sales support, our shoreside staff count is down 18% from 2019. And the team is executing across the board at a high level. I recognize that we need to make sure we are doing our part to make Carnival Corporation an amazing place to work and grow each team member's career. And so we are driving initiatives across the board ship and shore to meet our long-term goal of being travel and leisure's employer of choice, and it is really showing. The improvement we've seen in our internal metrics on employee satisfaction and culture improvement have been phenomenal. Turning from our most important assets, our best-in-class people to our hardware. We are actively managing our diverse portfolio of world-class brands, which are number 1 or number 2 in each of the largest markets for cruise travel. Following our portfolio and fleet optimization efforts, our capacity growth has been concentrated in our highest returning brands, Carnival Cruise Line, AIDA, and P&O Cruises UK. These efforts have also been driven by a purposeful reduction in our overall capacity growth, which combined with our strong and accelerating demand outlook, supports further yield improvement. And we still retained the excitement from 14 newly delivered ships representing nearly 25% of our capacity. Just this month, we completed the transfer of Costa’s Venezia to our highly successful Carnival Cruise Line brand launching fun Italian style with a spectacular naming ceremony featuring our very first ship godfather, comedic icon Jay Leno. I couldn't think of a better personification of Carnival Cruise Line than Jay Leno. With his unpretentious and gregarious personality, which aligns perfectly with the brand's target segment. He fits seamlessly with Carnival Cruise Lines brand ambassadors who help amplify Carnival's messaging and appeal, such as its Chief Culinary Officer, Emeril Lagasse, Chief Fun Officer, Shaquille O'Neal; and the Mayor of Flavortown himself, Guy Fieri. So far, fun Italian style has generated 1.5 billion earned media impressions. The instant success of Carnival's fun Italian style supports the entry of Firenze, the second Costa ship transferring over to Carnival Cruise Lines next year. These transfers are part of our portfolio management strategy, which is contributing to Carnival Cruise Lines capacity, growing 22% more than pre-pause expectations. And Costa’s capacity being reduced by 36%, compared to pre-pause expectations. The added capacity to Carnival Cruise Line will not only generate outsized returns for the company, but rightsizing the Costa brand is also having these desired effects of supporting its revenue profile confirmed by recent booking and pricing trends. We remain committed to our strategy of owning a portfolio of world-class brands, many of which are truly dedicated to specific markets and it's clear the strength of this portfolio is now shifting into high gear. In fact, with respect to our European brands, bookings taken in the second quarter for the European deployment for each of the third and fourth quarters achieved double-digit percentage increases in both volume and price compared to 2019. This is also supported by our home porting strategy that puts nearly 75% of our capacity where our brands' guests live. We are also working to further leverage and monetize our industry leading land based assets in the Caribbean and Alaska. We are leaning into our strategic advantage in the Caribbean with the expansion of Half Moon Cay, consistently voted among the best private islands and the development of our largest Caribbean destination yet, Grand Bahama port. It's being designed to deliver wow factors tailored to Carnival Cruise Line’s guests to drive higher revenue yields and margins. It's also strategically located to deliver a wide array of lower fuel consumption itineraries furthering our carbon reduction efforts. Our Caribbean destinations already serve about 5.5 million of our brand's guests each year. And upon completion, Grand port will push that to 7.5 million annually. We also own cruising in Alaska with an unmatched strategic footprint across hotels, rail, and motor coaches to deliver unique, land fee packages of a lifetime, as well as the most itineraries by far featuring the iconic Glacier Bay. We plan to lean even more into marketing the benefits of all of these assets. Turning to our capital structure. As we indicated on our last call, we have now begun deleveraging our balance sheet and are already 1.4 billion off the peak. During the quarter, while used excess liquidity to opportunistically prepay over a $1 billion of debt, while still retaining $7.3 billion of liquidity, which we expect to ratchet down as we rebuild our balance sheet over time. We remain disciplined in making capital allocation decisions and our lowest order book in decades provides a pathway for further deleveraging. We are clearly gaining momentum on an upward trajectory positioning us well to deliver strong profitability and rebuild our financial fortress. We are already executing on our strategy with a demonstrated ability to grow revenue by taking up ticket prices, even while maintaining record onboard spending levels, building occupancy, and growing capacity. We are implementing a range of initiatives to capture incremental demand for cruise vacations and working hard to close the outrageous and unwarranted 25% to 50% value GAAP to land based offerings over time. We are well-positioned to do so given our high satisfaction and low penetration levels. And we are working hard to mitigate four years of inflation, maintain our industry leading unit costs, all while reinvesting in advertising and sales support to build future demand. We are focused on the durable revenue growth and margin improvement that will deliver on our SEA Change Program propel us on the path to de-levering and investment grade leverage metrics and drive the continued shift of the enterprise value of our company from debt holders back to equity holders. I can't end without once again thanking our travel agent partners for their support and our best-in-class people, ship and shore, who deliver unforgettable happiness every day by providing extraordinary cruise vacations to our guests, while honoring the integrity of every ocean we sail, place we visit, and life we touch. With that, I'd like to turn the call over to David.

Operator:

Thank you. [Operator Instructions] Our first question comes from Robin Farley with UBS. Please proceed.

Josh Weinstein :

Hey, Robin. Robin, can you hear me?

Josh Weinstein :

It's a little hard to hear your question. You're coming in and out, sorry.

Josh Weinstein:

Yes, thanks.

Josh Weinstein :

Got it. So, with respect to 2024, the book position get record levels at strong price. What we're going to do is, we're going to give you some more color on that when we get into our next quarter and we'll talk more in-depth about 2024 overall in the first half. But suffice it to say, the brands are doing a very good job at getting ahead and doing it at pricing that we're happy with and still a long way to go for 2024, and a lot to play for. So, we're very pleased with the progress that we've been making while still ratcheting down on the occupancy as we've talked about over the course of every quarter this year. So, the trajectory is very, very good. With respect to the three year targets, it's probably on the low end of what you're talking about for occupancy and we expect to make up, you know it's probably sub-seven points at this point, but pretty close around there. We're probably going to make probably – I expect to make all of that up in 2024 as we get back to a normalized operations. On top of that, we're looking at low-to-mid single-digits with respect to price increases as we get from [2024, 2025, 2026] [ph], and that type of profile we've got experience with, as we look back over the period from 2015 to 2019, so we feel real good about our ability to be able to make those types of steps over time.

Josh Weinstein :

Sure. Thanks.

Steve Wieczynski:

Hey, guys. Good morning and congrats on the solid quarter and the change in the full-year outlook. So Josh, I want to go back to actually the last question there in the SEA Change Program. So, you’ve talked about that low-to-mid single-digit kind of bump in yields, but can you also maybe help us think about how you're thinking on the – from a cost perspective too? So, are we kind of thinking about a low to mid-single-digit kind of bump in yields? And then maybe like a 1 point to 2 point spread between net yield growth and NCCs, is that the right way to think about this?

Steve Wieczynski:

Okay. And then, since you already don't like me, I'm going to stay on costs a little bit, but you guys have now – you've raised your cost guidance two quarters in a row. And look, I understand the stock comp stuff, I understand the inflationary pressures, but first of all, I just want to make sure I hope that you guys now have a pretty good handle on costs for the remainder of the year, and more so around the advertising investments that you mentioned in your prepared remarks and how you expect those to pay-off over time? I guess I'm just a little bit confused about what we're seeing today from a demand perspective versus the fact that you guys need to market more aggressively? So, any color there would be helpful.

Steve Wieczynski:

Okay, got you. Thanks guys. Thanks, Josh. Appreciate it.

Operator:

Our next question comes from James Hardiman with Citi. Please proceed.

Josh Weinstein:

I'm in New York. That's all you need to know, right?

Josh Weinstein:

Yes, you got it, right on the head.

David Bernstein:

Yes. So James, the cash balance should start coming down over time. You're trying to get into a level of precision that goes beyond our forecasting. Remember, it's not just debt and cash. Remember, there's customer deposits, other balance sheet items, but putting it all together, our liquidity at the end of the second quarter was $7.3 billion and we do expect to see that decline over time. Pre-pause we were targeting 2% to 2.5%, and as we rebuild our financial fortress, we will bring our level of liquidity down to that level. Keeping in mind that most of the time, a good portion of our liquidity will wind up to be the undrawn revolver. So, even if we have 4 billion of liquidity, it may only be 2 billion of cash or something like that. So, we do see the cash balance coming down, but the level of precision by year, by quarter is very difficult to project. But your math in all the numbers are – is good, and we're continuing and confident that we can work through and achieve those.

Josh Weinstein:

Yes. We are pretty confident that will be ratcheting down nicely and we should get the majority of that back in – off of that line item and into our cash, the majority by the end of next year and the rest of it in the following year. So, we're making good progress.

Josh Weinstein:

Thank you.

Fred Wightman:

Hey, guys. Good morning. Do the 2026 targets assume that you return to China? And if so, what are you, sort of baking in there?

Fred Wightman:

Makes sense. And then the last quarter you guys talked about exiting the quarter some improving performance out of Europe. It sounds like based on everything that you've said today that that trend has continued and maybe even accelerated, but can you just frame, sort of where you see the European cruise recovery versus what you've seen in North America and how to think about that in the back half?

Fred Wightman:

Great. Thank you.

Jamie Katz:

Hey, good morning. Thanks for taking my questions. I want to talk a little bit about the booking curve. I know you guys are articulating that it's extending and there's always this contemplation on, if there is some optimal pricing being left on the table with the extension of the booking curve. So, can you talk about how you're thinking of managing that over the next few quarters? Thanks.

Jamie Katz:

Of course. And then, is there anything you'd like to add or elaborate on reorg and maybe where you think there were some opportunities to improve the structure of the business and how we might see that sort of come to play going forward? Thanks.

Jamie Katz:

Excellent. Thanks.

Matthew Boss:

Great, thanks and congrats on a nice quarter.

Matthew Boss:

So, maybe if we dig a little deeper on the SEA Change plan, could you speak to the annual EBITDA Glide Pass embedded in the three-year plan or maybe specifically help us to break down the 50% increased target as we think about the year-over-year opportunity in 2024, maybe just given the visibility that you have today, versus the level of improvement that you're embedding in the outer years within that three-year plan?

David Bernstein:

The only thing I'll add to what you indicated, Josh is the fact that going into the call, if you looked at consensus, it was similar to our annual step-up towards that 6.7 billion of EBITDA that James had calculated. So, just take a look at that and you can see, but that was going into the call.

Josh Weinstein :

For rank, I wouldn't even begin to try. Look, we set out our targets about what we hope to meet and frankly, as you'd expect the CEO to say, I will strive to exceed showing a 50% growth in unit EBITDA, which does not take into account capacity benefit in the EBITDA number. Getting to the highest points in ROIC and EBITDA in what will be just about 20 years, I think that that's a good trajectory. And we'll do our best like I said to go well beyond. I would expect, I expect our margins to get back in-line with historical norms. So that's certainly part of it. I'll let you take another crack at asking it in a different way, but that's probably the best I'll give it to you.

Josh Weinstein:

Thank you.

Patrick Scholes:

Hi. Good morning, everyone.

Patrick Scholes:

Shifting gears a bit here, looking at your balance sheet, last quarter you had about 1, if I'm wrong, correct me, 1.7 billion of reserve funds from credit card processors. Where does that stand right now? And how should we think about that balance going forward? Is that still accumulating? And when would realistically you might think that you'll be able to release cash. And I assume that would probably be used for debt reduction at that time? Thank you.

Patrick Scholes:

Okay. And what is that balance today specifically, the 1.7, which was at the end of 1Q? Where are you now?

Patrick Scholes:

Okay. Thank you. That's it.

Operator:

Our next question comes from Dan Politzer with Wells Fargo. Please proceed.

Josh Weinstein:

Okay. Well, so from a strategic perspective and a portfolio of brands, it assumes and we're marching forward with the same brands that are in our current portfolio. We have taken action to reallocate our assets within our portfolio and the makeup such that, I don't have it in front of me, but Carnival Cruise Line over this period will be about a third of our capacity. And in the timeline that I was talking about, if you look back in our pre-pause last four year period, they were closer to what was it 26%, 27% Beth? Yes, about 27%. Pardon me?

Josh Weinstein:

25%. So, you're looking at our highest returning brand being a third of our business up from a quarter, which is certainly part of our strategy. At the same time, our focus is generating incremental and accelerated demand for all of our brands. And I think you see that in the booking numbers that we've been talking about, the pace at which we've really been coming back, every single quarter and we expect performance to continue. So, from a strategic perspective, it's letting the brands focus on their commercial operations, ensure they got the capability and the capacity to do everything that we expect and fill their ships with folks who are very willing to pay for the amazing experiences that they give. And I think that's starting to really shine through. We do have some wind in our backs as well with respect to our land based portfolio because Grand port is not currently in our portfolio, even though we've got an amazing footprint in an unparalleled footprint in the Caribbean, that alone will take our annual number of guests that we carry from about 5.5 million this year to 7.5 million and we expect that will be a very nice pick-up in our business.

Josh Weinstein:

Sure. Well, obviously, based on what we've been telling you today, we don't see a slowdown, which is very good, especially because one of the benefits we have is, we are very well booked for the next 12 months and those bookings are sticky. So that is incredibly helpful to our outlook. Now, what I call it, I actually call it an outrageous and ridiculous value gap to land. And that is a double-edged sword in our favor, because if there is a slowdown and if hotels take their rates down a bit and airlines take their rates down a bit and resorts, whatever that might be, we are still outsized in our value. And as a result, if there is a recession, we stick out for the right reasons because of how far your holiday dollars can go. And on top of that, because of our home porting strategy with about 75% of our ship's position where our guests don't have to get on a flight should they choose not to, that sets us up very, very well for people who are trying to figure out how to stretch their vacation dollars. So, to be honest with you, our focus on base loading for 2024 and pulling ahead with all of those factors at our back, we feel quite good. And we probably said this in other calls. Every recession is different. This one happens to be one where there's record unemployment, people still wanting to purchase experiences, particularly travel, which bodes quite well for us. We've got time for one more question.

Josh Weinstein:

Sorry, thank you.

Josh Weinstein:

Yes. Operator, we've got time for one more question, or I could just end the call. So, I think we've lost our operator. So, I'll do that. Thank you everybody for joining us today. And for those that we'll see tomorrow, I look forward to seeing you for the Investor Day. Thank you very much.

Operator:

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

Josh Weinstein:

Good morning. This is Josh Weinstein. Welcome to our First Quarter 2023 Business Update Conference Call. I'm joined today by our Chair, Micky Arison; our Chief Financial Officer, David Bernstein; and our Senior Vice President of Investor Relations, Beth Roberts. Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today's press release. Consistent with our last business update, we remain on an upward trajectory as we further closed the gap to 2019. We are still experiencing a record wave season, which started early, gained strength and has extended later into the year. We expect these favorable trends to continue based on the traction we're making to our ongoing effort to drive demand globally. In the first quarter, we outperformed our guidance on all measures

Operator:

[Operator Instructions] Our first question comes from the line of Patrick Scholes with Truist Securities.

Josh Weinstein :

So this is Josh. No, nothing discernible. I mean the fact is the volumes in the business over the entire wave period were just wave after wave, pun intended, a strength. And so we didn't see anything noticeable. David, just to be clear, mentioned the fact that it's not only insides left. It's just -- that's the majority of what we've got left. And when you're getting down to less than 7 points in Q2 and then finally catching up to historical over the summer, we're talking about just filling things out on the ends. So we feel real good about the fact that we're over 70% booked for the remainder of the year. We're tracking well, and wave has continued.

Patrick Scholes :

Okay. I won't argue with that. My next question, can you talk about trends in book direct. Certainly, from my conversations with the trade, we hear that, especially on the shorter less expensive cruise, you're taking noticeable share in book direct. Can you comment on that at all?

Operator:

Next question from the line of Steve Wieczynski with Stifel.

Josh Weinstein :

Yes. Look, I mean, we set our guidance based on a lot of variables, right? Some of the things, like I mentioned already, we're already 70% booked. We get to pull forward a good amount of our onboard spend, which has been an active initiative, as you know. We give a range to some extent because there are some things that can move, little bits and pieces here and there. Overall, just like the first quarter, we are working incredibly hard to beat our own expectations. And so we'll continue to do that. We have not seen a decline in consumer activity, and that's with respect to both the booking pace and onboard spending level. So despite the fact that there's some volatility out there, it hasn't yet -- if it ever does, it has not shown up in our business, and we want to maintain that and hopefully can lead to even stronger EBITDA as we work our way through the year.

Josh Weinstein :

Our goal is certainly to get there. I'm a former treasurer, so that's quite important for all of us. The trajectory is going to be driven by significant free cash flow over time. We are working on longer-term views of the world. This is our first quarter. We just gave a full year outlook. So give me a little more time. And we'll certainly start talking about longer-term targets and initiatives going forward.

Operator:

Our next question from the line of James Hardiman with Citi.

Josh Weinstein :

Sure. So thanks for the question, James. Like-for-like, the pricing is up. So we're very happy. As David said, I wish I had said, it was a really good line, they're not undesirable cabins. They're very desirable up and down, our fleet and our portfolio based on what particular guests are looking for, and they are paying more for it and spending more onboard. And you got to remember -- and I've been here for a long time and I remember hearing this for the last 20 years, good times and bad, our business model holds up very well. And the reason why it holds up so well in a recession, if one comes, is because we are an incredible value to land. Anywhere from 25% to 50% lower than the land-based equivalent. And so when people are looking to figure out how do I make my dollar go further, we can provide better value for their money for their vacation, which is still incredibly important, even more so now than it used to be in the past that people will not give up. So we feel very good about our position.

Josh Weinstein :

Pretty much all of them.

James Hardiman :

Got it. Makes sense. And then maybe on the cost side. So I think costs were up roughly 6% in the first quarter. Constant currency, 10.5% to 11.5%. The second quarter, it seems like there was some moving around of costs within those numbers. But then 8.5% to 9.5% for the year. So presumably the back half of the year, those numbers are coming down. I guess I'm just trying to think about sort of an exit rate. You said you're still going to be spending on advertising later in the year. But ultimately, is there an opportunity for net cruise costs to come down in '24 versus '23? Or should I think about more of a normalized growth rate as we move beyond sort of the base level of 2023?

Josh Weinstein :

One thing I just want to clarify because we're still in a little bit of a bizarre comparison structure that we're operating under this year. So when you talk about this year and then exit rates, you got to remember, we're talking about 2023 versus 2019, which is a 4-year gap in the comparison. When we talk about what does '24 look like, which we're not talking about yet, remember, that's '24 versus '23. So that picture will look very, very different from the environment that we're describing to give a better sense of how we're doing versus the last normalized year of the industry, and which was 2019.

Fred Wightman :

I wanted to follow up on the European consumer specifically. I know you sort of talked broadly about the North American consumer. But if we just look at that booking curve, which is trailing North America, I think you guys also made some comments about bookings picking up there recently and then just piece that all together with the cost of fleet coming back into service a little bit sooner. Can you sort of help us bridge the gap for all that and maybe where the European consumer is specifically?

Fred Wightman :

Perfect. And then just on the ship pipeline, zero ships for '26, that's consistent with what you guys have talked about previously. But I think there was also in the past to comment about expecting one or two ship deliveries annually for several years beyond that. Is that still sort of the cadence and plan?

Operator:

Next question from the line of Robin Farley with UBS.

David Bernstein :

Yes. Well, we didn't give guidance for each and every quarter. I was trying to just indicate the fourth quarter for the specific reason that we talked about before in terms of with all of the mix issues we have, I wanted everybody to fully understand that pricing was up on a like-for-like basis. And I'd rather not sit here and give guidance for each quarter. But basically, we said what you had indicated, and we'll work hard to do better than that.

Josh Weinstein :

Yes. No problem, Robin. Just to be clear, we are projecting net per diems up 3% to 4% for the year, and that's inclusive of FCC drag. So without that drag, it would be even higher.

Robin Farley :

And is the FCC drag, is that right thinking that it would only be about 1% -- somewhere in the 1% range or...

Robin Farley :

Okay. Great. And then by next year, by '24, is it fair to assume that there wouldn't be any FCC use after '23?

Operator:

Next question from the line of Ben Chaiken with Credit Suisse.

David Bernstein :

Yes. So the net -- on a net cruise cost basis, it's about versus 2019, 1.5 points, of net cruise cost increase. And as far as the run rate is concerned, Josh?

Ben Chaiken :

Understood. And then on the last call, you provided a fuel FX impact for 1Q relative to '19. You said it was 150 million. I think subsequent to that, it kind of moved to 181 million. What does it look like for 2Q at the moment? And then any color on 3Q, 4Q…?

Ben Chaiken :

Yes. On the last call, you mentioned that -- you mentioned on the 4Q call, for 1Q, you said there'd be $150 million headwind relative to 1Q '19 for FX and fuel.

Ben Chaiken :

I'm saying what does that look like for 2Q at the moment? And then what -- any color on 3Q, 4Q would be very helpful as well.

Operator:

Our next question comes from the line of Brandt Montour.

Josh Weinstein:

So, the answer is yes, we do. And one of the difficulties of looking at a four-year period and trying to piece together everything that builds up to where we are, I mean there's a lot that's happened over a four-year period. You think about, when you just say exclude Asia and exclude Australia's restart and then exclude St. Petersburg, and which was 7.5% of our business in 2019 Q3, there's quite a lot that we have overcome in order to be able to deliver higher per diems as we get to close the gap. So, we can probably banter you and I, I see you enough Brandt, we can banter about all the bits and pieces that go in different directions, but I think we've tried to boil it down to what we think are the real drivers of the business.

Josh Weinstein :

Yes. You bet I do. So we're working hard. We outperformed in the first quarter. We're expecting 50 and we got to 60. We're about 2/3 forecasted for the second quarter on that basis. And we're just working -- everybody is working incredibly hard to make that come to fruition as quickly as we can.

Assia Georgieva :

Congratulations on the very good results for Q1. Josh, I had a question kind of longer term question again, in terms of new builds. Given the fact that it usually takes three to four years from the point when we put in the order, are you thinking of -- and again with the treasury background being more conservative, are you thinking of continuing to sort of reduce the rate of new build growth, the capacity growth, or can we see acceleration once we get to investment grade?

Assia Georgieva :

Okay, that makes perfect sense. I believe that in the past we were looking to maybe one or two ships per year per brand as opposed to per the corporate entity?

Operator:

Next question from the line of Stephen Grambling with Morgan Stanley.

Josh Weinstein :

Yes, we definitely pulled forward some ships that could have been done at a later time. So not anticipating anything of significance over the next couple of years, and then we'll probably pick back up the cadence that you're talking about over time, but nothing imminent.

Josh Weinstein :

Yes. Well, I mean, as a starting point, we have a phenomenal footprint in the Caribbean. I think I mentioned in my prepared remarks, Half Moon Cay being pretty much a jewel of the Caribbean in the Bahamas. With the ability for us to generate more differentiated experiences through Grand port, that will absolutely help the Carnival Cruise Line brand, not only on the yield side, but also on the cost side. We're talking about being able to put another incredibly attractive destination in a very short distance from South Florida, the East Coast of the United States, which helps us tremendously on the cost side, on the carbon footprint side. And with what we're doing on Half Moon Cay, by adding a pier, that will open up a lot more opportunity for us to bring bigger ships to that island, more guests, a better guest experience and more opportunity to generate not only enhanced ticket pricing because of that, but also onboard spend in the form of spending on board our destinations.

Chris Stathoulopoulos :

Josh, you spent a lot of time going through these various revenue and marketing initiatives in your prepared remarks. Could you help frame or give some color, as we think about the guide here for EBITDA for the full year, how we should perhaps we could put those in buckets, how we should think about incremental revenue for these initiatives here versus any cost and efficiency related efforts net of what's, as you said, likely to be elevated marketing costs for the midterm?

David Bernstein :

The only thing I want to add is that there are a lot of different efforts -- efficiency efforts going on all around the company. We did build all of that into our cost guidance. Remember, the cost numbers, as Josh pointed out, are over a four-year period. This is in comparison to 2019. So there has been a lot of inflation during that four years. But we have built a lot of efficiencies as well.

Chris Stathoulopoulos :

Okay. And to follow up, a little bit of a tougher or more direct question, if you will. So your capacity guide is up about 1.5 points from December. The cost guide is up and there's some confusion around here around your brand and cabin mix, if you will. And I think part of the reason, if we look at January into mid-February around some of the enthusiasm around the stock was at that time, that 3% or kind of sort of a typical capacity guide for Carnival and believe that, that would help sort of accelerate your unit margin recovery. So what would you say in response? And this is a question I've gone today that sort of Carnival -- liquidity, I would say, for the first half, at least risk here is off the table. But what would you say in response to that with the guidance update today that Carnival is not going to revert back to its sort of old playbook, if you will? And then what I mean by that is really just some of the numbers here where we have the 4.5 or mid-single-digit capacity growth and the higher cost guide and then concern around the pricing integrity here?

David Bernstein :

And I would like to add on the cost. The majority of the increase was associated with higher occupancy. And remember, we put together our forecast back last November. We give -- we have our earnings call in December, very early in the month. And so that was a forecast that we had put together prior to Black Friday, Cyber Monday and all of the record bookings that we saw throughout December, January and February. So when you've got extra occupancy on board the ship, your costs are going to go up on a unit basis a little bit because remember, the ALBDs don't change or the denominator doesn't change. So it's all very good news, driving adjusted EBITDA higher, driving liquidity -- improved liquidity. And so we are far more confident than we -- today than we were back in December, as Josh indicated before.

Operator:

Yes, sir.

Operator:

We'll take one more. The last question from the line of Paul Golding with Macquarie Capital.

David Bernstein :

Yes. So as far as dry dock is concerned, yes, there were a lot of ships that went into dry dock last year. But keep in mind, depending on the ship, depending on the age of the ship, either ships have to go into dry that once every five years or twice every five years. So it's -- there are lots of differences, and we're always going to have dry docks every year. They do vary, and we try to give an indication. 2022 was an unusually high year because of the restart, but we do expect that dry docks this year and every year thereafter on a regular basis as we go forward. And as far as the cadence on the restart is concerned?

David Bernstein :

And our plans might change, as Josh indicated before. So it's very hard to give that level of detailed guidance.

Operator:

That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.

Josh Weinstein:

Good morning. This is Josh Weinstein. Welcome to our Fourth Quarter 2022 Business Update Conference Call. I’m joined today by our Chair, Micky Arison; our Chief Financial Officer, David Bernstein; and our Senior Vice President of Investor Relations, Beth Roberts. Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today’s press release. Our business continues to accelerate on an upward trajectory as we rapidly close the gap to 2019. In fact, we are already exceeding 2019 revenue per diem, and we’re gaining momentum on our return to strong profitability. Taking a step back, this year, we’ve completed a monumental 18-month journey, and with our scale, what we believe to be the world’s largest start-up, returning 90 ships to service, re-boarding over 100,000 team members, and restarting our unmatched portfolio of 8 private islands and port destinations, plus our unrivaled land-based footprint in Alaska and the Yukon, all while welcoming back nearly 9 million guests. For that, I sincerely thank our global teams around the world for the ingenuity and sheer determination it took to see that through to completion. Throughout 2022, we have aggressively built occupancy from a 50-point gap in the first quarter to less than 20 points in the fourth quarter. We achieved this on growing capacity as we returned another 35% of our fleet to service in 2022, reaching 99% of our 2019 capacity levels during the fourth quarter. And on top of this, our constant dollar revenue per passenger cruise day was 2% higher than 2019’s record levels for the full year and 4% higher in the fourth quarter, overcoming the dilutive effect of future cruise credits. Without this impact, each would have been two points higher, and in the process we sustained record breaking onboard revenue per diem significantly higher than 2019. We’re also not losing sight of our cost base as we’ve worked through our restart and continue to absorb and mitigate the impacts of the high inflationary environment we’ve all been living in. We’ve reduced the increase in adjusted cruise costs, excluding fuel per ALBD in constant currency from up 25% in Q1 to up 11% in Q4. We’ve also significantly ramped up our advertising and sales support to drive future demand. Thanks to this, and the hard work of our amazing trade partners, our percentage of first time guests has continued to sequentially improve, closing the gap to 2019 levels. And we’ve been working smarter with our shoreside teams’ headcount already having been significantly reduced from 2019 levels for some time now. We delivered stunning new flagships for five of our brands, including Carnival Celebration, AIDAcosma, Costa Toscana, and Discovery Princess, as well as our first luxury expedition ship, the finest in the world, Seabourn Venture. All of these ships were purpose-built to generate higher returns. We broke ground on a new exclusive destination, Grand Bahama port, which will be a game changer for Carnival Cruise Line, while at the same time benefiting more than ever from our existing private islands and unique port destinations, which captured 6 million visits from our guests and all while working to minimize our environmental impact, with a 7% reduction in carbon intensity, a 30% reduction in food waste, and 290 million less single use items compared to our baseline. Most importantly, we are back to doing what we do best, delivering millions of unforgettable and much needed vacation experiences to our guests. And we are truly a global company with 45% of those guests who are outside of North America in 2019. In fact, we practically carried more people outside the U.S. than any of our peers carried in total. We believe that having the number one or two brands in each of the largest cruise markets such as North America, the UK, Germany, Australia, Italy, France, and Spain, is the foundation of our portfolio strategy and allows us to tailor our experiences and offerings to those specific source markets, enabling us to generate stronger brand loyalty and gain greater penetration and profit. In this current environment though, there are two factors that have had an outsized impact on our results

Operator:

[Operator Instructions] Our first question is from the line of Steve Wieczynski with Stifel. Please go ahead.

Josh Weinstein:

So with respect to the advertising in 2023, if you saw the materials that have been put on the website, we’ve been ratcheting up across -- across all of 2022. And we are very excited about the momentum that we’ve got. We’ve already started the wave season incredibly strong with our Black Friday, Cyber Monday and really just the whole book position that’s moved nicely in the month of November. And we think that advertising has a good amount to do with that to really reach first timers, generate awareness, generate consideration and doing so in a really meaningful way. And I think it’s -- we’ve got great brands. I mean we’ve got tremendous brands, but we need to do a better job getting the voice out. And this is a good way to do it. And it helps not just us, it helps our trade partners. It helps the bookings across the board. So, as far as how we’ll look at it across 2023, we’ve given you the guidance specifically for the first quarter. The great thing about advertising is we can dial up, dial down across the board where it’s working and where we don’t think it’s having as much of an impact. But right now, the activities that we’re doing, both in the mainstream media side and then the digital and performance marketing, it’s really starting to hit our stride. So, we’re pretty pleased with the results.

Steve Wieczynski:

And to follow up on that, I guess, as we kind of think a little bit further down the road, I mean if you guys kind of get back to those normalized load factors and demand still looks pretty solid through the majority of ‘23. Would you expect as we get to ‘24 that you would be able to pull back a good bit on that marketing spend?

Steve Wieczynski:

Okay, great. And then just one quick housekeeping, if possible. David, the 2 ships that are leaving Costa, were they sold, or are they just going to be scrapped?

Operator:

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

Josh Weinstein:

Hey Robin, how are you doing? That was a lot of questions. So, let me start backwards because I can remember the first -- the last one. So, with respect to EBITDA, what we tried to convey is on a performance basis, on a unit performing basis, when you strip out the noise of fuel and currency, what’s our trajectory and how are we looking at things? And so, we said on that basis, we’d get back to 50% of 2019 levels in Q1 and sequentially throughout the year, continue to close that gap to 2019. I am certainly hopeful in pushing that we’re going to exceed 2019 levels by the time we get to Q4, but we’ve got a lot of work to do to be able to do that. With respect to your question about yield guidance, just to make sure we’re not -- so do you want to do that?

Robin Farley:

That does. I have more, but I will get back in the queue. Thank you.

Operator:

Our next question is from the line of Fred Wightman with Wolfe Research. Please go ahead.

Josh Weinstein:

Sure. Sure, Fred. So one thing to think about when you think about our Q1 deployment profile, it is very different from what we typically have the rest of the year. We’ve got actually 9 ships in Q1 on World Cruises, another 4 ships on 70-plus night Grand Voyages and then a host of ships that are doing longer exotic voyages, 35-nighters, 28-nighters. And so, with that profile, those are longer lead time type of itineraries, some bucket list types of things. And so, it is progressing for Q1 exactly where we thought it would be with respect to closing the occupancy gap given the dynamic of that itinerary profile. And as we get into Q2, those have stopped or wind down and we get back to the cadence that we expect.

David Bernstein:

No. They’ve continued very strong, and they’ve continued well above the 2019 level. So, we’re very pleased with the overall position and the bookings that are coming in to date.

David Katz:

Two quick ones. I think in the past, you’ve referenced getting back to 10% ROIC. If you could just talk about the path there and the puts and takes on what has to happen for that to occur? And then second, with respect to the advertising, do you have any sort of measurements or metrics that you -- that are shareable that demonstrate or confirm some of the productivity around that? And that’s it for me. Thanks.

David Bernstein:

And one thing, David, I’d like to add on the advertising front. One thing we’ve been tracking is we take a look at our book position for 2023. And in the last 6 months, since we have increased the advertising, we have seen a shift and a lot more new to brands. In fact, it’s an 8-percentage-point improvement. So at this point in time, what we’re seeing for the 2023 book position is that it’s roughly half of the guests are repeat royal guests and the other half are new to brand. Unfortunately, these people have an old sail. So, I don’t know whether they’re new to cruise or they’re brand switchers, we’ll find that out shortly as they sail. But the fact is -- we’re getting a lot of great demand and we’re seeing it in the booking volumes.

Operator:

Our next question is from the line of Jaime Katz with Morningstar. Please go ahead.

David Bernstein:

So, there’s -- I think a lot of the stuff is timing. From a big perspective, if you look at the change in the CapEx, a lot of that had to do with the fact that 26 ships have left their fleet, they were smaller, less efficient ships. And therefore, we don’t necessarily need the overall CapEx number as high as we had previously. But when it comes time to prioritizing it, it’s also a timing issue and doing the things that are most important first. And that’s some of the reason why you saw the CapEx come down in 2022. The only noticeable thing that where really -- as far as our office space, clearly, with the new ways of working in today’s environment, we’re significantly reducing the amount of CapEx that we’ll probably need to expand our offices as we continue to grow.

Jaime Katz:

Okay. And then I know there’s been a lot of discussion on marketing spend. And I’m not sure if you guys have directionally elaborated on maybe the ROI of marketing spend, there seems to be a pretty decent push to sourcing more North American consumers across the cruise operator landscape. And so, I’m wondering if the marketing spend is as productive as it has been historically or if you expect that to be maybe temporarily depressed before you can prune that back? Thanks.

Operator:

Our next question is from the line of Brandt Montour with Barclays. Please go ahead.

Josh Weinstein:

I’d love to give you a straight answer, but I got to be honest. So I’m not sure that I could in a way that I feel comfortable will make sense in a short amount of time.

Josh Weinstein:

And I guess I could say looking backwards and you look at our trajectory from Q3 to Q4, we are pulling back, right, and that’s helping improve our per diems. And we’ll -- I mean, the great thing is it’s pretty easy to turn on and turn off. And so far, as we get into this wave season, the momentum is good. It gives us -- it gives us a lot of excitement about being able to pull that further as we get into 2023.

Josh Weinstein:

Yes. I mean, look, the great thing about our assets, they’re mobile and we’ve moved them to optimize our demand and our revenue generation. If and when China opens up again and opens up not just to domestic cruising, but really opens up, we’ll certainly look at that, but we’re not relying on it. We’re not counting on it. We have -- we are the number 1 or 2 brand in all the major cruise markets today, and we like that position, and we’re going to push hard on increasing our penetration there.

James Hardiman:

So, there was a comment in the prepared remarks about discounting through opaque booking channels. That seems like an important comment. I know criticism by at least one of your competitors is that you guys have been discounting in such a way that it’s going to be difficult to recover from that anytime soon. It seems like you disagree with that criticism. But also, it seems like, if I look at the big difference between 3Q and 4Q, it’s sort of the turnaround in those per diems, which is obviously a focus for you guys. So maybe speak to that strategy and your level of confidence that it’s ultimately going to pay off?

James Hardiman:

Got it. That’s helpful. And then my second question -- obviously, there’s been a lot in the news and if anybody has any kids in school right now, half the class has something, right? Flu, COVID, RSV, this whole idea of a tripledemic, which you got to hand it to the media for their ability to brand diseases at this point. But, I guess, I’m curious if you’re seeing anything in any of the metrics and booking statistics that you look at that would suggest that that’s having an impact on your business at this point? Or is the consumer largely over it as we think about how viruses and diseases are going to impact their willingness to book a cruise?

Operator:

Our next question is from the line of Patrick Scholes with Truist Securities. Please go ahead.

Josh Weinstein:

Well, I think you gave my answer, which is the language change, but it’s really not a significant change in our book position. Half one, we are really trying hard to close that occupancy gap. We are using the opaque channels where we think it makes sense and where we’re going to lean harder and we plan to keep pulling that back as we get through a great wave season. And regardless, we anticipate very strong onboard spending to supplement our ticket prices. So. for us, pun intended, it’s full steam ahead.

Josh Weinstein:

What we’ve been saying all along is that the direct business held up relatively well throughout the pandemic and the trade had to build itself back up, and we’ve been trying to support them to do just that. And the great thing is, as we’ve referenced in some of the other questions, the trade has been doing great lately. They’re as excited about our advertising as we are because it helps them, too, and they’ve really started to push on the volumes. And so, we couldn’t be happier with how they’re progressing.

David Bernstein:

Yes. So, the combination of the removal of the smaller, less efficient ships with the new ships that were delivered, make up 9% of the 15%, and then, the other 6% has to do with all of the itinerary optimization as well as the investment in fuel reduction technology, things like the Air Lubrication System, which I mentioned in my notes and was also in the press release.

Operator:

Certainly. Our final question will be from the line of Vince Ciepiel with Cleveland Research Company.

Josh Weinstein:

Well, because we’re not giving guidance, I think the best I can tell you is how we’re thinking about that EBITDA on a per unit basis. And when you get rid of the noise from currency and the fuel prices, operationally, what we’re really trying to do is exceeds 2019 levels by the time we get to the end of the year, and that’s where we’re focused. As far as the longer term, maybe we can have more of a conversation on that in March when we’re going to be talking more wholly about our full year guidance.

Josh Weinstein:

Thank you. So, to everybody on the call, thank you very much for joining us and happy holidays. And I’d encourage you to go to our website for our presentation materials and some supplemental schedules. Thank you all very much.

Josh Weinstein:

Good morning. This is Josh Weinstein. Welcome to our third quarter 2022 business update conference call, my first as CEO. I’m joined today telephonically by our Chair, Micky Arison. And with me here in our Miami offices are Chief Financial Officer, David Bernstein; and our Senior Vice President of Investor Relations, Beth Roberts. Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today’s press release. Our business continues on a positive trajectory. We’ve been closing the gap to 2019 as we put a stake in the ground internally and shifted from return to service to a relentless focus on return to strong profitability. The occupancy gap to 2019 has reduced from over 50 points in Q1 to less than 30 points in Q3. At the same time, our capacity in service has gone from approximately 60% in Q1 to over 90% in Q3. In fact, in the month of August, we achieved almost 90% occupancy at higher constant dollar revenue per diem despite the impact of future cruise credits. And the differential in adjusted cruise costs, excluding fuel per ALBD, has reduced from over $25 in Q1 down to $10 in Q3. As a result, we were able to generate over $300 million of adjusted EBITDA in the third quarter, overcoming a near doubling in fuel prices. We expect these favorable trends to continue as we finish up 2022 and head into 2023. And while we expect breakeven to slightly negative fourth quarter EBITDA given the seasonality of revenues and our increasing investment in advertising to drive revenue yield in 2023, we do expect second half EBITDA overall to be positive. We’ve also been making strategic changes to our fleet composition that will pay dividends over time. Our global fleet of 91 ships has never been better positioned, thanks to the exiting of 23 smaller, less efficient ships and taking delivery of 9 large and very efficient ships. While we’ll all be four years older than we were in 2019, next year, the average age of our fleet will actually be a year younger than in 2019 at 12 years. It also means our average berth count per ship is increasing nearly 20%, the largest amongst our public peers. We expect benefits of this profile to include a fleet with 10% higher fuel efficiency, 6% more efficiency in remaining operating costs, a richer cabin mix and larger overall platforms to deliver onboard experiences and generate associated revenues. We have also begun to address the brand portfolio to improve ROIC and drive durable top and bottom line growth. In light of the continued closure of cruise operations in China and our Costa brand’s significant presence there pre-COVID, we are reducing Costa’s capacity by 10% from 2019 levels, while bolstering our highly successful Carnival Cruise Line brand through the previously announced transfer of 3 ships, including 2 via our innovative Costa by Carnival initiative launching in 2023. All 3 ships will be placed on new itineraries, allowing Carnival to expand its drive to cruise offering. We will continue to evaluate opportunities to further optimize our brand portfolio over time. These fleet and portfolio decisions will provide strong tailwinds. And while during the pause in operations being nearly twice the size of the next closest cruise company was a distinct disadvantage for our cash burn, we will once again benefit from our industry-leading scale. And there are even greater opportunities ahead to drive revenue as we return to full occupancy and march towards strong profitability. Throughout the pause, we have benefited from the dedicated support of our loyal guests. Now, as we grow capacity in 2023 and beyond, we are redoubling efforts to attract new-to-cruise guests. About one-third of our guests have historically been new to cruise. And as you probably know, two of the most important drivers of new-to-cruise are word of mouth and advertising. With respect to word of mouth, after the pause, we have been building back our army of advocates that leave the ships, spreading the word about the unparalleled vacation experiences we deliver day in and day out. In the third quarter alone, we carried twice the number of guests we carried in all of 2021, and over 50% more than in just the prior quarter. On the advertising front, we’ve also been ramping up our efforts, having reached 2019 spend levels in just the last two quarters. In fact, until six months ago, we had spent less on advertising cumulatively over a two-year period than in all of 2019, and most of this was directed at more efficient channels like past guests. This was a conscious decision to reprioritize our resources to withstand the pause. As our brands have now been increasing their advertising investment, we will increase awareness and consideration and actively target those new-to-cruise. While we’re still carrying a higher proportion of repeat guests, we have seen an improving trend in new-to-cruise and are already two-thirds of the way back to 2019 levels. And newcomers will be absolutely thrilled once we get them on board. We are delivering a great all-inclusive vacation experience, convenient, great dining and entertainment choices, fantastic itineraries, beautiful and innovative ships and the most amazing onboard teams, providing a higher level of personalized service than you can find anywhere on land or sea. Our net promoter scores are telling us, we are delivering a phenomenal product. The issue is we are way too much of a value. We should not be priced at a significant discount to land, which is exactly the case today, anywhere from 25% to 50% based on itineraries. Bottom line, when it comes to generating demand and increasing our revenue profile, we can, should and will do better. I have begun traveling to meet with each brand president and his or her commercial team to understand their strengths, capabilities and areas for improvement. We are working through their strategies and roadmaps to seize opportunities, all while taking advantage of tactics to quickly capture price and bookings in the interim. This cuts across multiple areas of our commercial operations, driving further brand differentiation and clarity around each brand’s optimal target segment, ensuring that creative marketing speaks to each brand’s target audience, launching more effective digital performance marketing and lead generation approaches, a renewed focus on our trade relationships, another key driver of new-to-cruise demand to reduce friction points and allow our travel agent partners to more efficiently secure bookings, while continuing to support internal sales as we need all sales channels to perform at a high level to be successful. Improving revenue management execution as we continue to adapt to an evolving booking environment and using data, guests and target audience insights and cross-brand learnings to aid in all of the above. The engagement and transparency that characterize these brand sessions has been fantastic, and the sense of urgency these leaders have to drive their brands forward is real. And speaking of leaders, we actually have new leadership at the brand and throughout the organization. Since the pause began, 5 of our 9 brands have welcomed new energetic presidents, and these brand presidents have been actively bolstering the bench below them. Additionally, I have made a half dozen changes across corporate leadership in just the last few months. It’s worth noting that with the changes I’ve made to date, 6 of my 12 direct reports are now women. We are actively focused on diversity and inclusion, and we’ll continue to invest in talent and talent management. Now, diversity fits alongside our overall sustainability agenda, and we’ve been making significant progress across the board. There have probably been no greater strides than reducing our carbon intensity. Despite being over 25% larger, our carbon footprint peaked more than a decade ago. And we’ve set 2030 targets for carbon intensity to be 20% lower than 2019 levels. We will achieve this through technology upgrades currently being rolled out, investing in port and destination projects, even more focus on itinerary optimization and realizing the benefit of our fleet optimization efforts. While there is no silver bullet to decarbonization for our industry yet, we are committed to working towards a solution. To this end, I’m excited about three successful pilots we recently completed using biofuels in existing engines without modification. Turning now to the current tone of business. Pricing for our 2023 book business is currently at considerably higher levels than 2019, adjusting for FCCs. And it is very encouraging that since announcing our relaxation and protocols in mid-August, we have already seen a very meaningful improvement in booking volumes. We are now running considerably higher than 2019 levels. At the same time, we have seen a notable improvement in cancellation trends. We expect these favorable trends to accelerate as the impact of our current and planned efforts will continue to materialize as we move toward our important summer season where we make the bulk of our operating profit. When it comes to our capital structure, maintaining a strong balance sheet has always been a priority for our company. Pre-pandemic, we have been able to achieve this while investing significantly in our new build program, thanks to the substantial cash flow our company generated. Going forward, we are committed to using our cash flow strength to repair the balance sheet over time, and we’ll be disciplined and rigorous in making new build decisions accordingly. We have two ships on order in 2024 and one in 2025. We do not anticipate significant deviation annual levels for several years. This will significantly reduce our capital commitments and set us on the path to deleveraging. We have seized the opportunity to emerge as a company that is more efficient, more sustainable and more energized for the future. We have a transformed fleet, an unmatched portfolio of well-recognized brands, and unparalleled scale in an underpenetrated industry. We are strategically managing our portfolio to optimize our near- and long-term performance. We now have a tremendous opportunity to drive revenue growth by delivering measurable pricing improvements, while returning to historically high occupancy levels over time. That opportunity will drive significant free cash flow and accelerate our path to profitability, investment-grade credit ratings and higher ROIC. In the coming months, we’ll talk specifically about long-term goals and targets so that we can track progress and maintain accountability along our path. Our travel agent partners, port and destination communities, suppliers, investors, lenders and, of course, our guests are also important to our business. I plan to speak with more of our stakeholders in the coming months to gather their perspectives as we strive for continuous improvement. I would like to end by personally thanking all of our talented and dedicated team members globally, ship and shore for the heavy lifting it took to get us back to full operations. And now comes the exciting part. We get to take all of the creativity, agility and innovation that the team has built up in response to external factors throughout the pause and resumption of operations, and we now get to use that skill set to proactively drive our business forward, and to fulfill our mission are creating happiness by delivering unforgettable and much-needed vacations to our guests. And now, I’ll turn the call over to David.

Operator:

[Operator Instructions] Our first question is from the line of Steve Wieczynski with Stifel. Please go ahead.

Josh Weinstein:

Yes. Hey Steve, thanks for the welcome. So, I think you asked a couple of things. Let me see if I can hit them all. So first of all, I can’t speak to our peers. I won’t speak to our peers. I’ll speak to us. The momentum is continuing, which is really promising, as you heard from my prepared remarks, as well as David’s. Particularly over the last six weeks, things have ramped up incredibly strong, and the book of business is good. With respect to how we’re looking at the brands, obviously, Carnival in the Caribbean has done a great job. They are Americas’ cruise line, and it showed through loud and clear as we’ve been going through this past year. But I wouldn’t look at this as a North American versus European question. All of our brands are in varying points with respect to their pricing and their occupancy and how those play out, and they’re responding to their target audience in their source markets and trying to optimize as best as they can. As you heard in my prepared remarks, and I think what we’ve talked about already before, is we can do better. I have high expectations for all of our brands to make significant improvement on the revenue side. And some of it’s blocking and tackling. Some of it is really pushing the envelope in certain areas. And I actually feel pretty confident so far. I’ve managed to hit 3 brands in that type of setting. It’s been Costa, Holland America and Princess. And the activities that are underway are significant. And I really -- I don’t think it’s appropriate in this forum to get into any specifics, but we are tracking hundreds of things, some big, some small, that are going to ultimately lead to significant improvement.

Josh Weinstein:

Well, we’re certainly anticipating strong EBITDA in 2023. We’re not providing guidance, obviously. So I don’t want to get ahead of where we are in that process. Fuel and currency are obviously a big swing, and we’ll see how that plays out in 2023. I have no idea, but we’re working hard to generate as much as we can.

James Hardiman:

Josh, welcome aboard. So obviously, there’s a lot of discussion about the booking -- I don’t know if surge is the right word that you’ve seen since the relaxation of some of the COVID restrictions. I guess, I’m curious, what, if any, impact that is having on pricing, particularly in the context of we have this per diem decline. I think it’s about 4% versus 2019 for the third quarter. But then as we look to next year, the pricing seems like it’s up meaningfully. And so, I’m just trying to connect those two dots and maybe sort of the missing piece is a significant improvement coming off of these restriction relaxations. But maybe paint that picture for us.

David Bernstein:

And also, let me just add. When you’re looking at the fourth quarter, clearly, we were in a situation where our wave season was impacted. And remember, we didn’t start the increase in advertising expense until the third quarter. So that, too, impacted the revenue per diems that you mentioned in the third quarter. But as Josh talked about, we are addressing that clearly as we move forward.

Josh Weinstein:

Well, overall, I’d say, I think I can say on behalf of the industry, all of us are way too good of a value when it comes to stacking us up versus non-cruise alternatives. And so, I think the more we can break through as an industry with how good of a product we are, how inclusive it can be, that will serve dividends. That’s why I’m very committed to our travel agent partners because they are critical for us in that success in being able to communicate that story and convince first timers who don’t know cruising, could be daunting, could be confusing and help them get on board because once we get them, they want to come back. I don’t know, and so I can’t speak to our peers and what they do and how they do it behind closed doors. I do think the things that we’re seeing on the commercial side with all of our brands, and it varies brand-by-brand, but I think -- all I can tell you is the specific to our corporation, and I think they’re going to really pay dividends for us in a big way.

Robin Farley:

So just kind of looking at the language you’ve used over the years to describe forward bookings. When you say considerably higher, that’s more upbeat language than you typically use. It seems like considerably higher is probably more than 5%, but should we think of it as being more than 10% or would that be a different adjective for that range?

Robin Farley:

Great. No, that’s very helpful. And then also on the nonfuel expense, it seems like -- and we’re still digesting the release, but it seems like your guidance for second half nonfuel expense is quite a bit higher than previous. Is it just the advertising that you’ve mentioned? Are there other things? And I sort of have a follow-up about the advertising, but maybe just to even frame what’s happening with the nonfuel expense. Thanks.

Robin Farley:

Okay. And then, just on the advertising piece, it’s just -- you’ve talked about being ahead in price and volume in ‘23, and then you talked about this kind of sequentially how things are ramping up. So I guess, just thinking about -- so it seems like demand is growing naturally on its own. So, I guess, why the decision to do more advertising. And I don’t know if that’s targeted in certain -- I know it’s a European demand issue, or just kind of help us think about when you’re sort of naturally seeing such strong volume and price on how to think about that. Thanks.

Robin Farley:

Okay. That’s helpful. Thank you. So it sounds like the advertising, it’s up versus what you originally thought, but not higher than what you would typically do sort of pre-pandemic. Is that the right way to think about it?

David Bernstein:

But it’s fair to say that if you look at the four quarters, remember, we had talked about -- we weren’t doing much advertising in the first half of the year. And we did increase it in the back half. And I think I had said once before that we did expect advertising overall to be higher than it was in 2019. So, your -- what you’ll see is a big ramp-up in the back half of this year versus 2019, even higher than the normal level that we would see in the fourth quarter in anticipation of wave season.

Jaime Katz:

I’m hoping you guys can help us think through what the magnitude of FCC is left to work through might be, and when you think we may be sort of through digesting those.

Jaime Katz:

Excellent. And then, from a capital spending perspective, I think there were some shifts in expenses in the table in the press release. Is there anything noteworthy, worth mentioning on different spending programs that have shifted or anything like that? Thanks.

Operator:

Next question from the line of Ben Chaiken with Credit Suisse. Please go ahead.

David Bernstein:

Sure. So, keep in mind that what we’re talking about here in terms of an acceleration of the book position or the bookings that occurred in mid-August with the relaxed protocols. And the booking patterns, as we indicated, accelerated. In fact, our North American brands were up 30% over 2019 in the last few weeks. So, the booking patterns have been tremendous. But the book position, previously we had said was at the higher end of the historical range. And now, we’re saying it’s at the average. Earlier in the quarter, we were slightly below 2019 levels, but closing the gap and now we have exceeded 2019 levels. So, we feel very good about the overall book position, particularly with relaxed protocols and now exceeding 2019 levels. But from a pricing perspective, we are better priced than we were earlier in the year, and we feel very good about that as well.

David Bernstein:

Yes. I wouldn’t have called it a deceleration during that period. Remember that for most of the quarter, we still had the protocols in effect. And as a result of that, while we were getting bookings, the booking levels were slightly below 2019 and level for 2023. But since the relaxation of the protocols, we have seen things accelerate considerably. The other thing to keep in mind is that we have seen a much closer in booking curve than we had previously seen historically. And so that, too, has probably impacted 2023 as well. But with the relaxed protocols and putting us more in line, with the testing requirements gone, we’re in great shape. And as I said before, I mean, we’re now, in the last few weeks since the relaxation of the protocols, our North American brands were up 30% over 2019 levels, and we feel great about that. So, we’re looking forward to 2023.

Ben Chaiken:

Okay. And then, just one more on the costs. It sounds like we’re in this low double-digit range versus ‘19 exiting the year. Can you help us, just directionally, maybe how much of that is core underlying costs and how much of that are maybe like fleet ramp-up, COVID protocol related, et cetera? Just ballpark splits.

Ben Chaiken:

Not to belabor the point, but why just call up? Why is 4Q not -- I think you said 4Q is not a good kind of like period to use.

Operator:

Our next question from the line of David Katz with Jefferies. Please go ahead.

Josh Weinstein:

I mean, it’s a good question. There’s a lot of answers, right? I mean, it does start with being able to clearly communicate, who the brand is, and then from a marketing perspective, are they targeting the right folks? Are they speaking to them the right way? Do they have the right digital performance marketing agenda that they can generate leads that are effective and turn them into conversion? I mean, it’s just -- it’s that whole life cycle, right? And so, the discussions that we have been having with our commercial teams at the various brands so far has really been focused on all of it. And it’s revenue management, right? It’s how we choose to do our pricing curves, how we introduced promotions at the right time, how we use the opaque channels. Yes, I mean, it’s literally it’s the whole way we do things in the commercial space. And there are opportunities for us. I can’t speak to people outside our company. For us, we have a good amount of opportunity to drive significant improvement in our revenue profile by making improvements in varying aspects of that whole cycle.

David Bernstein:

So, from a capital perspective, we are always opportunistic. We did indicate back, I think it was in March, that we were looking to refinance the $3 billion of maturities in 2023. We’ve worked through $2.5 billion of that. But we always look at -- we remain opportunistic. We look at the capital market. We try to look longer term and to see what needs we have and what we should do rather than just looking at next quarter or the next six months. And we will evaluate opportunities, and we’ll look at all options as we always do to make sure that we are in a good, solid position. So, it’s the best answer I can give at this point in time.

Ali Naqvi:

Just on maybe some of your comments on the Q4 trends. Could you give us any sort of commentary on a like-for-like basis regarding volumes? And is any of your commentaries should suggest that there’s any consumer weakness demand or is it mainly due to, as you said, the future cruise credits and closer in bookings? Thank you.