Operator:

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Group Second Quarter 2024 Earnings Call. All participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.

Jason Liberty:

Thank you, Michael, and good morning, everyone. I am proud to share our outstanding second quarter results and the continued upward trajectory of our business. As you saw in the press release this morning, our momentum continues. Demand for the incredible experiences our leading brands deliver continue to be robust. As a result, we achieved Trifecta 18 months early. We are reinstating a dividend, and we are raising our full year guidance. Less than two years ago, announced Trifecta, a three-year financial performance program that created the pathway back to what we internally call base camp. We said we would deliver triple-digit adjusted EBITDA per APCD, double-digit adjusted earnings per share and return on invested capital in the teens. Today, I'm delighted to share that we have achieved all three Trifecta goals on a trailing 12-month basis, 18 months ahead of the schedule. In addition, our leverage is now below 3.5 times when excluding the impact of new ships that were delivered midyear. With Trifecta accomplished and our balance sheet in the strong position, we are excited to broaden our capital allocation by reinstating a quarterly dividend of $0.40 per share. Capital returns that include a competitive dividend have always been and will continue to be a key pillar of our strategy to supplement growth as we focus on delivering long-term shareholder value. I want to thank the entire Royal Caribbean Group team for their passion, dedication and commitment. Their efforts helped accelerate our path to reaching Trifecta and will continue to ensure us to deliver the best vacation experiences responsibly, while driving exceptional financial results. Trifecta is an important milestone, but we are just getting started as our ambitions go well beyond it. We are excited by the large opportunity in front of us as we seek to take a greater share from the rapidly growing $1.9 trillion vacation market. Our plan to capitalize on this opportunity is well grounded in a set of underlying strategies, the powerful foundation of our leading global brand and a proven formula for success; moderate capacity growth, moderate yield growth, and strong cost discipline and the best people in the world to execute on at all. Now, moving on to our results. The second quarter exceeded our already elevated expectations. We have seen an incredibly robust booking and pricing environment across all our key itineraries, which is not only setting us up for success in the future periods, but also contributed to the outperformance in the second quarter. This, coupled with continued strength in onboard spend, which is heavily influenced by our pre-cruise commercial engine, drove the revenue and earnings outperformance for the quarter. In the second quarter, we delivered approximately 2 million vacations at exceptional guest satisfaction scores. Yields grew 13.3% compared to the second quarter of last year, which was almost 300 basis points above our guidance. The revenue outperformance combined with approximately $0.15 in favorable timing of costs resulted an adjusted EPS that was considerably higher than our guidance. Naftali will elaborate more about second quarter details and results in a few minutes. The strong demand environment is also translating into higher revenue and earnings expectations for the balance of the year. We are increasing full year yield growth expectations by 115 basis points compared to our prior guidance, and we now expect adjusted earnings per share to grow 68% year-over-year. 2024 bookings have consistently outpaced last year throughout the entire second quarter and into July despite the fact that we have significantly fewer staterooms left to sell leading to higher pricing for all key products. The North American consumer who represents approximately 80% of our sourcing this year continues to be robust, driving strong yield growth across all key products. In addition to strength in the Caribbean, European and Alaska summer itineraries are performing exceptionally well, and we have experienced greater pricing power than expected since our last earnings call, leading to increased expectations for yield growth. Our nimble sourcing model, coupled with our brand's global appeal, and leading position in their respective segments, allows us to successfully capture quality demand across the segments, sourced from new and younger consumer bases, and attract the highest yielding guests. With such strong momentum, 2024 is on track to be another exceptional year with double-digit yield growth and significant earnings growth. We now expect full year net yield growth of 10.4% to 10.9%. Our yield outlook is driven by the performance of new and existing ships combined with our leading private destinations, a strong pricing environment, continued growth from onboard revenue, and our accelerating commercial apparatus. We increased our revenue expectations for the second half of 2024 and now expect to deliver mid-single-digit yield growth yield growth in the back half of the year, which continues to be above our typical moderate expectations. Just as a reminder that this is on top of approximately 17% yield increase versus 2019 in the back half of 2023. We also continue to expect higher margins and higher earnings with adjusted EPS expected to be between $11.35 and $11.45 and EBITDA margins that is over 300 basis points higher than last year. As we look ahead, we remain focused on executing our proven formula for success, moderate capacity growth, moderate yield growth, and strong cost controls, which lead to enhanced margins, profitability, and superior financial return. We continue to see a very positive sentiment from our customers bolstered by a resilient economy, low unemployment, stabilizing inflation and record high household net worth. Consumer preference continues to shift towards spend on experiences with particularly prioritizing towards travel. Consumers have 10% more vacation days compared to 2019 and they are using half of that increase to travel. In fact, our research suggests that consumers are spending more on travel than any other leisure category and that they intend to increase their travel spend in the next 12 months. Cruise remains an attractive value proposition and cruise purchase intent is high and continues to strengthen. Consumer financials remain healthy across demographics. The number of baby boomers reaching retirement age is expected to grow 30% to $73 million by 2030. Based on our research, retirees take 50% more vacation time than non retirees. The baby boomer generation also holds 50% of the $156 trillion of US wealth, and they are expected not only to spend more on travel, but also to transfer $72 trillion of their wealth to other generations over the next two decades, including traveling together. We are already benefiting from that active and real-time wealth transfer through multigenerational travel across our brands. Our research shows that younger generations, millennials and younger, are also benefiting from the 10% increase in leisure time compared to 2019 that they intend to allocate more of this time on travel than any other leisure category. This attractive traveler continues to gain share within our customer base at a faster pace than any other generation. And today, one of every two customers is a millennial or younger. Their travel needs and behaviors vary across trip length and type. So the differentiated experiences offered by our incredible brands resonate extremely well with these next generations of cruisers. Our addressable market is growing, and we are attracting more customers into our vacation ecosystem. New-to-cruise customers are up double-digits versus last year, and at the same time, we are seeing stronger repeat rates. Once booked, guests are quickly engaging with us and buying significantly more onboard experiences per booking than in the second quarter of last year. Both earlier and on meaningfully higher APDs translating into higher satisfaction rates and higher onboard spend. Putting customers at the center of our orbit has been critical to our success and allows us to meet guests for all of life's moments, transforming the vacation of a lifetime into a lifetime of vacations. A key differentiator for us on this journey is our hardware, where we are constantly innovating. This quarter, we took delivery of Utopia of the Seas, the ultimate weekend getaway, a shift positioned to be another game changer for our short Caribbean product. Our short Caribbean cruise product is an important entry point for new-to-cruise and new-to-brand with nearly seven and 10 guests following in these categories and always skewing more towards younger customers. Younger consumers find this product particularly appealing. In fact, approximately 40% of guests who follow in this demographic have indicated that they intend to book a short vacation in the next 12 months. Moreover, 90% of guests who sail on our short product in 10 crews again with roughly half planning to return for a longer crews. We also launched Silver Ray, which continues to redefine the ultra-luxury segment. Since introducing Nova class last year, Silver Nova and Silver Ray have attracted a higher mix of younger guests than the rest of the fleet. We have an exciting lineup of new ships on order, including Celebrity Cruises, Celebrity Excel, which launches in late 2025, and Royal Caribbean's Star of the Seas debuting in mid-2025. The third Icon class ship in 2026 and the seventh Oasis class ship in 2028. We also continue to lead the vacation industry with exciting new experiences on our ships and our portfolio of private destinations. Perfect Day at CocoCay continues to perform exceptionally well, and we are reaching important milestones on Royal Beach Club Paradise Island opening in 2025 and Royal Beach Club in Cozumel, Mexico opening in 2026. These new experiences uniquely position us to continue taking share from land-based alternatives. As we deepen our relationship with our guests, this quarter's launch of our enterprise loyalty status match program is an important step in integrating our brands, rewarding our guests for staying within our family of brands and making travel planning even more seamless. In just two months since the program launched, we have seen a significant increase in enrollment across all of our brands and positive feedback from our loyal fan base. Once customers book their dream vacation over 90% utilize new features and enhancement on our apps. Notably, more than 70% of guests are making pre-cruise purchases before they fail, and they spend more than double compared to those who only make purchases onboard. Finally, our sustainability ambitions help inform our strategic and financial decisions daily, supporting our mission to deliver the best vacation experiences responsibly. We remain committed to our see the future vision, sustaining the planet, energizing communities and accelerating innovation. Our recent Maritime Decarbonization Summit onboard Utopia of the Seas underscores our commitment to reaching net zero emissions by 2050 through industry-wide collaboration. More than 30 shipowners, shipbuilders and technology and energy providers convened to catalyze advancements in necessary technological solutions and alternative fuels. We are optimistic about this important step unifying our industry and fostering an environment for advancing quality and scalable, sustainable solutions. In summary, our business continues to perform exceptionally well, and we are very pleased with our performance, achieving Trifecta early and reinstating the dividend. This sets us up well as we seek to take share from the rapidly growing $1.9 trillion vacation market. With our strong platform, our proven strategies, we are creating a lifetime medication experiences for our customers while delivering long-term shareholder value and strong financial results. And with that, I will turn the call over to Naftali. Naf?

Operator:

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

Jason Liberty:

Yeah. Good morning, Steve, hope all is well. So I think maybe just first starting off on the back half of the year. Obviously, our yields have grown significantly since 2019. So the back half of the year, our yields are up 25% versus 2019. And so I think our commentary of strength and how we feel about the back half of the year, I think, is still very bullish. But as you mentioned, we have been ahead of the curve in terms of bringing our business back up. And so our load factors relative to last year, our load factors were pretty normalized in the back half of last year. So really, all the yield improvement that you're seeing in Q3 and Q4 is really being driven by price. And so I think it's a really strong indication that not only the willingness to pay more, but these prices continue to increase as we build and manage demand. When we think about 2025, first, the reason why -- it's July, so we typically don't talk a lot about 2025. So it is early. We mentioned in the release that we're now in a place where we're taking more bookings for 2025 than we are for 2024. So the strength in the commentary that we talk about on pricing and pricing increasing, it very much applies to 2025 and beyond. So we feel very good. We're in a very strong book position for 2025, pricing is up and increasing are the trends that we continue to see. But I think it's important to just note again that load factor recovery is done. We are operating at full factors. I think it needs to also take into account that the yields have improved by over 25% versus 2019. So it's not necessarily a like-for-like story in the industry, I think, to point to. So I think we feel really good about 2025. The pattern show pricing continues to accelerate. And I think that, what you're starting to see in the back half of the year is still elevated compared to like what we described as our formula of success of that moderate yield growth, which is typically around 3% to 5%, and we're pointing to a yield profile that is at the very top end of that in Q4 and above. And so I think we feel that for us, if we're growing our yields moderately controlling our cost, growing our business in a disciplined way, what you see is significant margin accretion, significant return profile and continued step change step change -- significant in our earnings profile.

Steven Wieczynski:

Thanks for the color guys. Second question, Jason, would be around your recent change in deployment with Ovation, essentially taking that ship out of the China, home porting it on the West Coast. We've gotten a bunch of questions about this move. And I think investors are concerned at this time the China market might not be as strong as what you would have previously thought? Or maybe it's just the domestic market is just way more profitable right now. But any thoughts there as to or any color around the move there would be helpful. Thanks.

Steven Wieczynski:

Great. Thanks, guys. Thanks for the color. Appreciate it.

Brandt Montour:

Hey, good morning, everybody. Thanks for taking my question and congratulations on the dividend announcement this morning. So first question is on the fourth quarter, just following up on Steven's question. The 5% implied yield guidance, which I know you have tougher comps, and that's all price. Can you help us understand what the sort of -- how to think about the like -- the embedded like-for-like is within that? And maybe it's easier to answer. How does that compare versus the like-for-like that you generally embed in your longer-term algo?

Brandt Montour:

Great. That's super helpful. And then just as a follow-up, and I apologize for sort of a shorter-term question, but this earnings season, we have heard from land-based -- some of land-based hotel operators made some softer comments on pricing sensitivity. I'm curious, when you look at your 2025 bookings data, what you're seeing coming in, are you starting to see any pricing sensitivity at all forming at the lower end itineraries, the older ships, your base -- your Royal Caribbean brand versus your other brands, anything that you're seeing?

Brandt Montour:

Okay. Thanks a lot. Great quarter.

Operator:

Our next question comes from the line of Vince Ciepiel with Cleveland Research. Please go ahead.

Michael Bayley:

Well, it's a great question, and you kind of answered a lot of the question in your question. For the Royal brand, we are very much a multigenerational family brands. We're fortunate that we've got the scale and the size. We've seen over the past couple of years that got growth in every single segment. And we know that the on-ramp for Cruise is the short product. We've known that for quite some time. We changed up our strategy some years ago with the development of Perfect Day, CocoCay and significant investment in many of our ships that we moved to the short cruise market. And we started to really aggregate that segment of our business. And the volume of new-to-cruise is significantly higher on short product than it is on longer for very logical reasons, which I think you touched on. It's just a much easier product to purchase. It's only a few days. It's less investment of time for new-to-cruise. And we found that when you get the product right, you can stimulate it a large amount of demand. And I think what we've seen with Utopia is it was a very strategic decision to take a brand new Oasis class that we started to work on some years ago in terms of the product vibe, the energy, what we're offering the customer and placing it into really, the Port Canaveral, Orlando market, drive to market, which is significant. It's a great product to put up against what we see in Orlando, and it's easy to package a trip on Utopia as well as maybe a trip to Orlando. But certainly, we've seen the demand has been outstanding for that product, and we're only in the second week of Utopia, and it is literally knocking it out of the park, exceptionally high customer satisfaction, Net Promoter Scores, the onboard revenues being just very strong. We're very pleased with the onboard revenue and guests are booking it. So, we know that if we get that product right and we can put our best foot forward, that then we'll see a significant upswing in repeat to brand because of what they've experienced with Utopia. And certainly, when you think of Icon in the seven-day market and soon to be Star of the Seas, which is also going to Port Canavera down into Perfect Day. We've got a really good, strong range of products that we can offer to the customer and they're booking it. Just as a side headline, Icon now is currently sailing at around 132% load factor, which is -- we're just delighted with very high customer satisfaction.

Vince Ciepiel:

Got it. That's helpful. So the Michael Bayleys and the millennials of the world, like Utopia, it sounds like. Question on 2025 yield setup. I think you got into this a little bit when asked for this on 4Q like-for-like. But when you think about next year, you have another half year of Utopia, you have Star coming, you've Xcel at the tail end, you've Royal Beach Club, like there seems to be a number of drivers incremental to the like-for-like that could be supportive of yield growth. And then you also mentioned the denominator is much larger now. So do you expect these other factors to be yield accretive next year an additional like-for-like or like-for-like is still the larger driver? How should we be thinking about that?

Vince Ciepiel:

Great. Thanks.

Operator:

Our next question comes from the line of Matt Boss with JPMorgan. Please go ahead.

Jason Liberty:

Thanks, Matt.

Jason Liberty:

Well, I think -- so the comment on the -- just getting started and you're all very familiar with this. But when we've talked about Trifecta, and even internally, we talked about it as base camp. So we've hit it. We've announced we're hitting it, but you won't see anybody here like doing victory laps. It's getting our business. We're now back to full strength, full financial health. And if you just take what we've talked about with our formula of moderate yield growth, cost discipline, discipline in the growth of our business, it drives significant margin and returns for the business. You combine that with the land-based things like the World Beach Club in the Bahamas and the Royal Beach Club in Mexico, you see the power of the earnings and the returns that are going to come forward here in the business. So I think when we look at like what's next. It's now setting ourselves on how do we make sure we execute on those significant margin drivers. And if you think about, just in 2024, a 1% change in our yields is $120 million. 1% change in our cost is about half of that. So if you're continuing to grow your yields faster than you're growing your costs or significantly faster than you're growing costs, that's going to deliver a lot of margin and return. The other point that I would add is that, when we -- like what are chasing like we're -- again, we're not chasing our cruise competitors. What we're chasing is how do we grab more and more share from that $1.9 trillion and growing vacation market. And I think with things like Icon and Utopia and Nova and Xcel, et cetera, and the private destinations, what we're doing is trying to further differentiate ourselves and real in more of those land-based consumers and to make sure that we are a clear consideration and a vacation choice. And if we do that really well, that's where we can further close the gap to land-based vacation and that will -- because there's so much operating leverage in this business, that's going to drive significant earnings power and returns to our shareholders.

Matt Boss:

Great. Best of luck.

Conor Cunningham:

Hi everyone. Thank you. And maybe just to stick on that return answer that you had. Obviously, it's great to see that the dividend is back. But as you think about additional -- as the Board thinks about additional avenues of shareholder returns, just curious like how you think about that and how that steps up from here? Is it just a function of time? Or are you targeting additional balance sheet optimization before you start to think about maybe share repurchases and so on? Thank you.

Naftali Holtz:

And I'll just add that our balance sheet is obviously in the zone where we -- this is within the target. There's always opportunities, right? So we, obviously, first and foremost, manage maturities. We want to reduce -- continue to reduce the cost of capital. We still are not done with unsecuring our balance sheet. So we have some work to do, but we're definitely in a very strong balance sheet position that allows us to reinstate the dividend and just continue to grow the business.

Jason Liberty:

Yes, sure. So I think that you could see that obviously in the guide we had in the beginning of the year to where we are today, right? We're about 400 plus basis points higher than we were in our expectations in the beginning of the year. So that's a reflection of an acceleration demand and really acceleration in price. So your takeaway from that is, clearly, we left some money on the table and we were too booked going into WAVE. Now how we decide to take on those revenues is we have a very sophisticated revenue management system, a very sophisticated management team, that is looking at historical trends, what's happening in the market, to inform price and how much we take on and when. And so I think for us, it's always a debate on -- and again, this is always probably plus or minus 5 percentage points in terms of where our book position should be as we lost different periods. And of course, our ultimate goal here is not tell you that we're in record this or record that. Our ultimate goal here is to optimize our revenue. And that's what our tools do each and every day, and it could very well be that we cross the year in the same type of book position or a little bit less, or a little bit more and that's just to make sure that we are, again, maximizing and optimizing our revenue.

Jason Liberty:

Sure.

Robin Farley:

Great. Thank you. So Utopia looks like a great new ship. But so don't mind that I'd like to ask about your next potential ship order. It's kind of a 2-part question. First is some other cruise have been ordering sort of further out than we had seen before the pandemic, some eight or nine years, some 12 years. Are you sort of having to think longer term about your order book than maybe you would have previously? Is that something you feel that you'll also to do or that we may see you do? And then secondly, it seems like there's kind of unofficially talk about a new ship class for me that would be smaller than the last two ship classes that you've had and that may allow you to go to some markets that can't handle some of the sort of newer larger ships today. And I wonder if you can help quantify for us what percent of the driving market now, right? Because there are clearly markets like Miami, New York, where you have a big driver market, but these other potential new port cities that you're not going to with some of your new hardware that would be new drive, kind of new source markets with better within drive. Can you quantify kind of what percent increase that could be in your drive market penetration? If thinking about what those smaller ships may reach, I realize this is a longer-term question, but. Thanks.

Robin Farley:

Great. Thanks very much.

Operator:

Our final question will come from the line of Ben Chaiken with Mizuho. Please go ahead.

Michael Bayley:

Hi Ben, it's Michael. Yes, it's positioned as another incredible experience. It's a Beach Club experience. It's exactly what our customers are looking for when they go to the Caribbean. They are seeking an experience on the beach. So, it's a Royal Caribbean Beach Club. It will fit very well into Perfect Day, particularly for the short product market. You can spend a day in Perfect Day. And then the next day, you can spend a day in the Beach Club. So, it's kind of like totally perfect. And we think we're going to see very strong demand for the product. We've deployed. We've got our itinerary set for the Beach Clubs as they come online. And it will be a combination of short product, including Perfect Day, longer product that may call into the Beach Club as it goes into Nashville and often -- more often than not including Perfect Day as well. So, it's really a very complementary product that fits extremely well with Perfect Day, and it also fits very well into short and long product. So, we think it's going to be really a huge success. And the demographics are exactly the same as the Perfect Day and the same for the brand.

Michael Bayley:

In terms of spend, we think it's going to be very similar. There are some differences because the Beach Club is a full purchase experience, whereas Perfect Day, there's huge amount of the experience is complementary and then there's many elements of the experience that you purchase. Because we -- when you go to Perfect Day, the entire ship goes there and it's the entire day for the guest. Whereas when you have the Beach Club experience, it's an experience that's available to the guest, but the guest can choose other experiences as well. So, there's literally a ticket price to enter into the Beach Club.

Naftali Holtz:

Okay.

Naftali Holtz:

Thank you. We thank everyone for your participation and interest. Michael will be available for any follow-up. We wish you all a great day.

Operator:

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Group First Quarter 2024 Earnings Call. [Operator Instructions]

Michael McCarthy:

Good morning, everyone, and thank you for joining us today for our First Quarter 2024 Earnings Call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bayley, President and CEO of Royal Caribbean International.

Operator:

[Operator Instructions] Our first question will come from the line of Steven Wieczynski with Stifel.

Jason Liberty:

Steve, thanks for the question. So one, I mean, all of our commentary around our bookings, the strength that we're seeing that not only relates to 2024, but also to 2025. And we're getting close to the point where we'll soon be taking more bookings for '25 than we are for 2024. And so when we look into the booking behavior, one, the booking window continues to extend. So guests are making their decisions much further out.

Steven Wieczynski:

Okay. Got you. And then second question, probably a bigger picture question. But look, if I remember correctly, before the pandemic, you guys are always targeting, I think it was $20 a share in earnings by 2025. And look, obviously, you weren't prepared to give another long-term set of financial targets today. But I mean, look, if we start to think about your capacity yield cost algorithm, are we crazy to think that getting back to $20 even with the dilution and the higher interest cost that you guys took on during COVID, I mean, it seems like that's probably back on the horizon again. Are we kind of crazy to think that way?

Benjamin Chaiken:

It sounds like demand is accelerating. It would be great to hear any color on demand for Paradise Island. And then I guess related, can you talk to about how you're differentiating the destinations from a marketing perspective of CocoCay, and then Paradise Island, Cozumel or maybe by ship class. Just any nuances you would call out? Like is this a CocoCay returning customer or a different person?

Jason Liberty:

Yes. And Ben, I just want to add -- I had it in my remarks. I think one of the incredible things that we're seeing out of destinations like Perfect Day, and we'll see this in the world of Beach Club in Nassau, is how it's drawing in new-to-cruise and millennials. So my comment that 1 and 2 of our guests -- 1 out of 2 of our guests are millennial or younger. To me, it's a very powerful statement.

Michael Bayley:

Ben, not to continue on this, but to add to Jason's comments, Utopia is not by accident, Utopia is sailing out of Port Canaveral. It will be going to Perfect Day, it really is another product that's squarely in this competitive space of land-based vacations, and we're seeing huge demand coming for this product. And you think about the combination of a 3-, 4-day product like Utopia going to Perfect Day, and then in '25, it will go to Perfect Day and the Beach Club that's really a phenomenal game changer, and it really is drawing in a huge amount of new-to-cruise and it's beautifully positioned in Canaveral right -- fundamentally in Orlando.

Jason Liberty:

No. No, it's primarily for the Royal Caribbean brand. Our other brands will be have access to it, but the broader cruise market would not have access to the Beach Club.

Operator:

Your next question comes from the line of Matthew Boss with JPMorgan.

Jason Liberty:

Thank you.

Jason Liberty:

Sure. Well, thanks for the question, Matt. First off, I think just -- I mean, WAVE was absolutely exceptional. It was -- it's kind of mid-teens better than what we saw in the previous year. Interesting enough, though, April was almost double that in terms of the level of demand that we were seeing. So that's why when I talk about demand is accelerating, it's not just what we saw when we last spoke to everybody in early February. It's not just when we updated at the end of February. But that acceleration has picked up the speed. And of course, at this point, we only have about 12% load factors left to build for the year. And so that will provide opportunity for us to a degree this year. But what that, I think, means in terms of the opportunity into 2025 and beyond is very appealing.

Jason Liberty:

Thank you.

Sharon Zackfia:

I think on the last call, you had talked about 80% of passengers being North American this year. I'm just wondering if there's any update on that, if there's any change. And then as we think about next year, kind of where would you expect North America to go? It's kind of been unusually large the last few years, and if we see kind of China or Europe ramp-up in the passenger base? How do we think about that impact on onboard revenue?

Sharon Zackfia:

Jason, can I ask a follow-up? The 1 out of 2 passengers being millennials at this point. Do you find that, that customer is more inclined to pre-book onboard versus kind of their elders like me? Or is it -- are you seeing pre-booking success kind of across the demographic gamut?

Brandt Montour:

So maybe for Michael, China restarted this month, I was wondering if you could give us maybe even qualitatively a sense of sort of initial load factors, initial pricing or initial expected onboard spend. Obviously, you can't give us that specifically, but just sort of better or worse than you were forecasting. And clearly, the follow-up is you decided to take Ovation there next year. That's obviously a good sign. But why Ovation, I think that comes out of Alaska and Australia, why that ship and why not a ship necessarily out of the Caribbean or somewhere else?

Brandt Montour:

Okay. That's really helpful. And then maybe one for Naf. The higher guidance for the year helps bring credit metrics, at least in our model, perhaps a little closer to IG, perhaps a little earlier than we had before. And so I guess, maybe it's worth you refreshing us on what you think the Board needs to see to reestablish capital returns? And if today's report maybe help that picture at all.

Jason Liberty:

No, I was just going to say, obviously, you're getting to base camp and getting to those metrics as an important line for us and as well as for our Board in terms of consideration of capital returns. But I would just point to that pre-COVID, we certainly -- that was very much part of our formula was having a competitive dividend and also buying back shares opportunistically.

Robin Farley:

One clarification on your really excellent guidance. It sounded like you were suggesting that there were some fall Red Sea cruises that are still on your schedule. But did I understand your comment to mean that if they were to change, that's already factored into your guidance. So if we see that -- see any changes in those, it wouldn't change your guidance? I just want to make sure I understood that part of your commentary, right?

Robin Farley:

Okay. Great. And then just my other question is on capacity and capacity growth. And you mentioned that moderate capacity growth has been your goal. Others out there -- some have been more aggressive lately with ordering ships out into the future. And I wonder if you could just give us your thoughts on whether you feel that, that changes anything with availability of slots at shipyards? Or if that changes in any way what you have been thinking about capacity or would think about needing to do in the future?

Jason Liberty:

Yes. I think it depends on the circumstances. We've ordered -- I mean, Icon was being designed and in terms of obviously, COVID delayed some of those orders. But somewhere typically in that kind of 5- to 6-year range is where you make those orders. But keep in mind, and that's what I think my comment is, is that doesn't mean you don't have options and you don't have slot reservations and so forth that you could also -- which is why we typically order in that kind of 5- to 6-year type of range. We don't announce things unless they are fully contracted, and we know the price and we have the financing in place.

Operator:

Our final question will come from the line of Vince Ciepiel with Cleveland Research.

Jason Liberty:

Yes. Well, first, just to kind of build off of what I had said earlier is we have been very thoughtful about having the right brands in the right segments. And we have done such an incredible job at delivering a vacation of a lifetime. And we're focused on making sure we're set up to deliver a lifetime of vacations. And our guests, there is overlap between Royal and Celebrity and Royal and Silversea and vice versa, because you could have a set of grandparents on Silversea that next month are going on a cruise with their kids and grandkids on the Royal Caribbean brand. That happens all the time.

Naftali Holtz:

Well, thank you all for your participation and interest. Michael will be available for any follow-up. We wish you all a great day.

Operator:

Good morning and welcome to the Royal Caribbean Group Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Michael McCarthy, Vice President, Investor Relations. Please go ahead.

Jason Liberty:

Thank you, Michael, and good morning everyone. Before getting into the details, I would like to take a moment to reflect on last week's monumental launch of our new ship Icon of the Seas. Every once in a while a revolutionary product comes along that resonates so strongly and makes such a widespread impact, that it forever changes the status quo. For the vacation industry, that product, Icon of the Seas, debuted last week to incredible fanfare. Our mission at the Royal Caribbean Group is to deliver the best vacation experiences responsibly and Icon is going to deliver the best family vacation on the planet with her incredible experiences and amazing crew. I am absolutely thrilled that after years of planning and anticipation, Icon finally welcomed her first revenue guests on board this past weekend. With a phenomenal guest engagement and word of mouth from this ship, along with our landmark sports partnership with Inter Miami and football GOAT, Lionel Messi, we look forward to making millions of vacation memories for our guests in the years ahead. A big thank you to our incredible team, who worked relentlessly over seven years dreaming, innovating and flawlessly delivering Icon of the Seas. So now let's talk about 2023 and 2024. 2023 was an exceptional year fueled by unmatched demand for our brands as you see on Slide 5. Net yields were up 13.5% compared to 2019, more than 3.5 times our January expectations, and we delivered margins that were back to record 2019 levels. Our net income exceeded our January expectations by about $1 billion, resulting in adjusted earnings per share more than double our January guidance. We continued our focus on reshaping the cost structure across the operating platform, leading the durable margin expansion, which is expected to continue to provide operating leverage as we grow the business. Innovation is core to our company's DNA, and in 2023 we continue to direct that innovative spirit not only to our new ships and destinations, but also to an amazing guest experience at all points in the vacation journey. We received exceptionally high guest satisfaction scores and attracted a record number of both new and loyal guests who are rebooking at twice the rate we were seeing in 2019. The robust performance in 2023 significantly accelerated our trajectory towards our Trifecta goals, with EBITDA per APCD and ROIC on the cusp of our targets. We also continued to invest in the future while making significant progress in strengthening the balance sheet towards our targets of investment grade metrics. The year ended on an incredible note, with revenue yields up nearly 18% in the fourth quarter, and 2024 is in the strongest book position in the company's history from both a pricing and volume standpoint. I am incredibly thankful and proud of everyone at the Royal Caribbean Group for executing so well and doing so while achieving strong financial results and propelling our future growth. Momentum continues in 2024 with a record breaking start to the Wave season. Bookings have consistently outpaced last year across all key products at much higher rates. In fact, the five highest booking weeks in our company's history all occurred since the last earnings call. As a result, our capacity is up 8.5% year-over-year. We have less inventory available to book in 2024 than we did a year ago for 2023 and half as many staterooms left in Q1. Our commercial apparatus is full speed ahead and all channels are delivering quality demand above 2023 levels. Our direct-to-consumer channels continue to perform exceptionally well as consumer preferences for digital engagement and our ongoing investment in enhanced capabilities is supporting record breaking bookings. Our travel partners are also delivering meaningfully more bookings than last year and beating our elevated expectations. We continue to see particularly healthy demand from North America where about 80% of our guests will be sourced this year. Our brand's global appeal and nimble sourcing model allows us to attract the highest yielding guests by positioning our ships in multiple markets across the world. Our brands lead in their respective segments and are very successful at capturing quality demand across sectors and sourcing from new consumer bases. As we think about consumer demand for 2024 and beyond, we look to both macro trends and data points for millions of daily interactions with our customers. We continue to see a very positive sentiment from our customers, bolstered by strong labor markets, high wages, surplus savings and elevated wealth levels. Year-over-year growth in spend on experiences is double that of spend on goods, and cruising remains an exceptional value proposition with lower penetration, higher consumer consideration and high purchase intent. We see an exceptionally engaged consumer base across markets, brands and products. People are looking to book their dream vacation with us and continue to spend at elevated levels. Consumers are engaging in booking their vacations earlier. 70% book at least one of their onboard activities, pre-cruise at higher APDs and onboard spend continues at record levels and at higher rates. This positions us very well to outperform the broader travel industry and narrow the pricing gap to land based vacations. We continue to attract new customers into our vacation ecosystem and deliver the best vacation experiences, so that our guests are highly satisfied and continue to rebook and return to our brands and our products. 2024 is shaping up to be a record breaking year with 40% earnings growth as our progress continues on an accelerated path towards achieving our Trifecta goals. As you can see in our release today, we expect to achieve several Trifecta targets in 2024, a full year earlier than previously anticipated. As I said in the past, Trifecta creates the pathway back to what we internally describe as base camp and while an important milestone, it is not our final destination as our ambitions go well beyond it. As highlighted on Slide 6, in 2024 we expect to grow capacity by 8.5% with the introduction of Utopia of the Seas and Silver Ray and the first full year of service of the three incredible ships that joined our fleet during 2023, Icon of the Seas, Celebrity Ascent and Silver Nova. New ships not only elevate our vacation experiences and draw new customers to our brands, but they also provide yield tailwinds and enhance overall profitability. In 2024, we expect yields to grow 5.25% to 7.25%, driven by the performance of our entire fleet, new and existing ships, combined with our leading private destinations and strong commercial apparatus. Load factors and rate growth, together with continued focus on margins and disciplined capital allocation, are expected to drive record earnings that grow 40% year-over-year, getting us very close to our Trifecta targets. Our proven formula for success remains unchanged. Moderate capacity growth, moderate yield growth and strong cost controls lead to enhanced margins, profitability and superior financial performance. Our operating platform is bigger and stronger than ever. We have the leading brands in their respective segments, the best people and the best and most innovative fleet and destinations. We remain intensely focused on delivering a lifetime of vacations for our guests and a long-term value for our shareholders. We are leading the vacation industry and creating exciting new products and experiences, which in 2024 include game-changing ships and the expansion of our highly rated destination, Perfect Day at CocoCay. Our new ships are performing exceptionally well and while we always expect to see strong trends when we introduce new ships, Icon of the Seas is definitely living up to her name and has taken things to a whole new level in every way. Demand and pricing for Icon has been incredibly strong. This year we are also thrilled to take delivery of the sixth Oasis class ship Utopia of the Seas, which will set the stage for the ultimate weekend getaway. Lastly, we will take delivery of Silver Ray, the second ship in the evolution class, redefining ultra-luxury cruising. Silver Ray will debut in the Mediterranean this summer before transitioning to winter season in South America. New ships and their incredible innovative experiences further accelerate our efforts to steal market share from land based vacations. We completed the expansion of Hideaway Beach at Perfect Day at CocoCay just in time to welcome Icon of the Seas, upsizing the benefit of this strategic asset. Hideaway Beach is our newest adult-only ultimate beachfront paradise at Perfect Day at CocoCay, which expands our capacity on the island to over 3 million guests annually. About two thirds of Royal Caribbean International Caribbean guests will visit Perfect Day at CocoCay this year, allowing us to deliver high satisfaction scores and higher margins across the fleet. Our journey to deepen the relationship with the customer continues this year. We will further enhance our commercial capabilities to optimize our distribution channels, build even more customer loyalty and lower our acquisition costs. The outsized increase in our onboard revenue over the past couple of years has been fueled by new capabilities introduced to make it easier for guests to pre book onboard experiences. We will continue to enhance those capabilities in 2024. About a third of onboard purchases are now coming through the mobile app and we already have about 40% more pre-cruise revenue booked in 2024 as compared to 2023. As a reminder, customers who purchase onboard experiences before their cruise, spend about two and a half times more than those who do not buy pre-cruise. We will remove friction by investing in a modern digital travel platform, making it easier than ever for guests to book their dream vacations while allowing us to expand wallet share. We will also continue driving business excellence to increase yields and capture efficiencies across our platform. Our teams are committed to controlling costs and enhancing profitability while focusing on delivering the best guest experiences and doing so in a responsible way. Our sustainability ambitions help inform our strategic and financial decisions daily, ensuring that we always act responsibly while achieving our long-term profitability goals. We are making progress on our "see the future commitment" to sustain the planet, energize communities and accelerate innovation. We wrapped the year on track to achieve our carbon intensity reduction targets and we are entering 2024 well beyond the halfway mark.

Naftali Holtz:

Thank you, Jason and good morning everyone. Let me start by reviewing the fourth quarter results. Our teams delivered yet another strong performance with adjusted earnings per share of $1.25 about 15% higher than the midpoint of our October guidance. All key products exceeded expectations, delivering double digit yield growth in the fourth quarter. Net yields were up almost 18% compared to 2019, and that would have been 20% if not for the 200 basis point drag from eliminating the reporting lag related to Silver Sea. Load factors were at 105% and rates were up approximately 19% with significant growth for both ticket and onboard revenue. Net cruise costs excluding fuel, increased 6.7% compared to the fourth quarter of 2019. Since our last earnings call, the stock price appreciated over 50% and added 250 basis points to stock based compensation expense versus our prior guidance. Excluding the increase in stock based compensation, our costs came in in line with expectations. Our focus on enhancing profitability allowed us to deliver 30% adjusted EBITDA margin in the fourth quarter ahead of 2019 levels. We also utilized excess cash flow to pay down debt and lower interest expense consistent with our Trifecta goals.

Operator:

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

Jason Liberty:

Well, thanks, Steve, and good morning, everybody. I think you pointed to a lot of things there. So first, obviously 2023 was an incredibly strong year on both a ticket and onboard standpoint. Q1 the strong yield, as Naf commented, is driven by having a kind of full period with the pricing that we saw in the ramp up starting in the middle of the first quarter of last year, and then the recovery of the load factor. There is nothing that we see in the booking environment or onboard spend that doesn't point towards acceleration. And so our formula for success, which is moderate yield growth and good cost control, is very much how we see Q2 forward. But when we look at things, whether it's the new hardware, whether it's like for like, whether it's onboard spend, all those things are pointing north on a positive basis in terms of what we're seeing in the booking environment. And I think there shouldn't be any concern at this point in terms of what we see that there's any slowdown occurring in our business Q2 forward.

Jason Liberty:

Well, I'll let Naf take the investment grade question. We are an organization I think that does really well with kind of two, three year targets. And we can see that, obviously here when we consider Trifecta, getting the hearts and minds of our organization, really focusing on delivering strong returns for our shareholders, and also an incredible guest experience, while also lightening our impact on the planet. All these things are so heavily into consideration of what we do each and every day. As we get closer to achieving Trifecta, we will evaluate what's the next program, financial performance program that we're going to put out there that we think is important, not just to make sure management is focused on what it is we're looking to achieve, but also to make sure everybody understands where we're navigating, too. But if you just run the math on moderate yield growth, good cost control, while we moderately grow our business, while continuing to invest in destinations and so forth, that math will tell you that we will be in a very strong financial performance on an earnings basis, ROIC basis, as well as a margin basis. And all those things, I think are really important as we consider how disciplined we have been on capital. And also we'll be in the consideration set as we think about returning capital to shareholders as we zero in on getting to investment grade metrics. But I'll hold here for Naf to talk about investment grades.

Operator:

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

Jason Liberty:

Yes, well, thanks for the Robin. And I think just as we talk about how we guide, our guidance does not plan for perfection. And so when we consider things like the Red Sea and there are things that come up from time to time within the course of the year, we very much kind of take those kind of things into account. And so I don't think, we think the handful of sailings that will sail through or expected to sail through the Suez is something that's going to impact our guidance at this point in time. And I think that's how we just generally set up our guidance to not plan for perfection.

Naftali Holtz:

Hey, Robin. So, yes, the global minimum tax is obviously out there, and it's been there for quite some time. If we -- so we continue to evaluate it, and if we do nothing, that doesn't really impact us until 2026, so I think that's important. And of course, we believe that we can do with some mitigations, mitigate majority of that impact, so that's kind of that.

Brandt Montour:

Can you hear me?

Jason Liberty:

Hey Brandt.

Jason Liberty:

Well, we're very happy that the demand for Europe came back and we saw this acceleration soon after our last call. I really don't think anybody should be reading into any concern around Q2 going forward in terms of any kind of slowdown. We're seeing acceleration in pricing and volumes from all of our key markets for all of our key deployments. And obviously the first quarter is higher because of what I talked about with load factor and the normalization of rate. So, I would just leave it at that. We expect Q2 forward to continue to be strong and our yields to grow across like-for-like new hardware onboard, et cetera. And of course, we are lapping, as you commented, Brandt, on some very high comps year-over-year, and I think that's an important line to appreciate.

Jason Liberty:

Well, I'll start off with the latter. I mean, I think on an optimal curve, the answer is, we always get it wrong. It’s -- there are always estimates, we do not give out the percent booked that we're in, but it is meaningfully higher, obviously, than last year, for sure and also versus our highs in 2019. We have installed very sophisticated yield management systems. Those yield management systems, we've obviously seen them perform exceptionally well in 2023 and what we're now seeing here in 2024 through Wave, and they continue to allow us to get more and more share of the wallet. And also taking those practices in which we also saw this last year, and feeding them into our onboard activities, our pre-cruise sales activities, is also something why, I think as we look at the 2023 results and what we're seeing in the 2024 estimates on the top-line is what's causing just, I think, continued outperformance.

Operator:

Your next question comes from the line of Matthew Boss with JPMorgan. Please go ahead.

Jason Liberty:

Thank you.

Jason Liberty:

Yes. Well, I'll start off, Matt, by I think it's important to understand what our orientation is. Our orientation is experiences, and we keep trying to advance experiences that our customers are not only do they desire, but they're also willing to pay for. And so when you have an experience, mind focus, obviously there are a lot of things that we're adding onto our ships. I think Icon is an incredible example of the dreaming and the delivery of endless experiences for multigenerational travel. But you also see those, for example, in Silver Nova and what that does for the ultra-luxury space in terms of the dreaming and innovating to deliver those experiences that our guests seek and are willing to pay for. You see that also extend into the destination and what we're doing in the private island space, whether it's with Hideaway that we just announced we have the Royal Beach Club into the Bahamas and we continue to think about and dream about other opportunities that are there. Our goal is to keep our customers in our ecosystem, and we're building, as I mentioned in my notes, a travel platform on a technology basis that makes sure that our guests, through loyalty as well as experiences, stay within that ecosystem. That all kind of comes into continuing to grow what we believe are the best brands in each of the segments and invest in those experiences for us to deliver each and every day.

Naftali Holtz:

Hi Matt. So, on your question on cost, so this year we gave the guidance of 3.75% to 4.25% cost growth and I think it's just important. Obviously, I mentioned it in my remarks that there's 300 basis points throughout the year impact from both increased drydock days and also the operations of Hideaway Beach, that while it is very accretive to margin, just does not have an APCD, so that's the reason. But I think if you put that into context of all the things that we have done over the last couple of years and our really relentless focus on enhancing margins and controlling cost is really coming into play as we continue to grow the business. For the cadence of the year, because we have most of our drydocks really in the last -- latter part of the first quarter and early in the second quarter and that will weigh on cost. Also, I mentioned in the first quarter, we have specifically for that quarter more impact from starting Icon as well as just catching up on the load factor, but obviously it normalizes throughout the year. And the second half will benefit from those lower drydock days and also the addition of Utopia, which will add APCDs to the half part of the year. But all in, we're very pleased with how we've really, in a durable way, enhancing margins that will help us as we continue to grow the business and create operating leverage. For the long-term, our formula really remains unchanged. Moderate capacity growth, moderate yield growth and strong cost control really leads to enhanced financial returns. And the formula is basically, we've got to grow yields faster than we grow our cost and double enhanced margins, more cash flow and more earnings.

Operator:

Your next question comes from the line of Conor Cunningham with Melius Research. Please go ahead.

Jason Liberty:

Yes. So obviously, last year we talked around having a 40% to 45% gap to land based vacation. Our yields in 2023 rose 13.5%. Our APDS were up, I think 16%. So we obviously made a dent into that. And this year we expect obviously, to make a further dent into that. We are obsessed about really, it's much less about what's happening in the cruise space. It's more about how do we close that gap, how do we compete with land based vacation and we can see in the consideration how much cruise has moved into the average consumer's consideration for travel. So our focus is on that. How do we close that gap? And really how do we make sure going back to the ecosystem, which I think land based does very well, is how do we make sure that, that focus on a vacation of a lifetime evolves into a lifetime of vacation. And I think the commentary about the return of what we're getting from our customers, that repeat rate has now doubled, shows that what we're doing in delivering the best vacations in the world, what we're doing to incentivize through loyalty, to keep our customers in our ecosystem, and really leveraging our house of brands that are the best in each one of their segments is really starting to create another Wave of demand. And we think land based does this really well. We're focused on doing this obviously exceptionally well. And when you think about what we're doing on the destination side with perfect day as an example, when you look at Icon, you can see in that how it's an extremely competitive product, we would probably argue even a better product to what's happening on land. And that’s by us continuing to dream and innovate and deliver on that, that's going to chip away further and further into that value gap to land based vacation.

Jason Liberty:

Yes, well, it's less about the shift from direct or through our travel partners. We are really channel agnostic. What we want to do is whether it's we want to show up on how our guests want to shop and book a cruise and we want to take as much friction out of that experience as we possibly can. Sometimes that leads them through our digital channels like the web or our app. Sometimes it has them call our call centers. And of course, that very much takes them to our travel partners who do an exceptional job helping guests identify and have the experiences that they want to do. So we're very agnostic about that. But we also recognize that the customer expects very little friction in their shopping experience. So we spent a lot of time figuring out not only how to be easier to do business with, but also how to use technology like AI and so forth, to curate and put those experiences in front of the guests in the way in which they want to consume them. I think we're getting better and better at that every day, but it's a journey. When I feel we're heading to the fourth or fifth inning, I find out we're back in the first inning as the consumer continues to evolve and just the technology that's available to do it, so thoughtfully is growing stronger and stronger every day.

Operator:

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

Jason Liberty:

Vince, thank you very much for that question. I've been waiting for about 20 minutes to talk about Icon. First of all, Icon is a product in terms of the design and the focus on multi-generational family and the evolution from Oasis-class. I think what we've created really is a game changing hit. I mean, it really is working with customer demographic and it's really working with our target market. And I think if you've got an exceptional product that people really are impressed with, then you're almost there and we feel like we've really achieved that with Icon. It's epic and you combine that with perfect day and the opening of Hideaway beach, we have a product and a vacation experience for a multigenerational family that truly is the best in the world. And we've made that statement. It's the best family vacation in the world. So you've got to have that foundation. But I would say that in comparison with previous first in class launches, Icon has knocked this just out of the park. We've never seen the response that we've seen with Icon. It's been genuinely unbelievable from every single metric that you would want to look at; the bookings have been phenomenally strong. The rate has been unbelievable. The appreciation of the product has been high, the interest from the trade partners, from the consumer, from destinations we've never seen. The kind of response that we've seen with Icon of the seas, the employee response, the crew response when we opened up and we had our first shakedown cruises has been unbelievable. We really feel as if this product is absolutely right on the mark and the response has been phenomenal. When we look at the metrics and we have all of these metrics where we compare first in class, Icon has doubled or tripled the response. So volume was X percent with the first in class with Oasis. With Icon, it's been three times better than Oasis was. Rate has been really high. But when you compare rate with Icon versus first in class in our previous launches, it's double or triple. It's been phenomenal in terms of the overall performance and the same seems to be true with the onboard product itself. We do feel that Icon with perfect day, stands shoulder to shoulder with Orlando and Las Vegas, except that we've got both. We've got the gaming and we've got everything that the kids would want to do to have a great vacation. So we feel like we've got it perfectly right. And I think when you look at the lineup that we have for Royal, particularly with the opening of the Royal Beach Club in Nassau in 2025, the introduction of Utopia in the three and four day market out of Port Canaveral to perfect day, we see exactly the same kind of response with Utopia in terms of volume and rate performance versus traditional first in class, three and four day products. We feel like we've going back to my earlier comments, we feel like we've started this transition from being a traditional cruise vacation to being a world class, multi generational family option that stands shoulder to shoulder with Orlando and Las Vegas and any land based destination experience that you could mention. We feel like we're right there with Icon, with Utopia, with Perfect Day. And of course, it's a journey that we're on in terms of introducing these new, exciting products year-over-year. And thank you for asking that question. It's very much appreciated.

Jason Liberty:

Well, I'm the brand guy, so I've got to tell you, yes, we live in a very optimistic world, and we are extremely excited with the product and the brand that Royal Caribbean International has now become. So, yeah, I see plenty of upside. Naf and Jason may have a slightly different perspective, but I can tell you we're very excited with the lineup that we've got coming, and we feel unbelievably proud of the performance of Icon to date. So, yes, I see a lot of upside.

Operator:

Our final question comes from the line of Jamie Rollo with Morgan Stanley. Please go ahead.

Michael Bailey:

Yes, we see the huge opportunity with the direction that we've taken in terms of this combination of phenomenal, land based, curated destination experiences, like Perfect Day, the Royal Beach Club in Nassau, and Icon class. So I think our direction, our mindset is very much focused on the future and further development of that kind of product experience that we know absolutely resonates with the customer.

Jamie Rollo:

I'm just surprised, given what you've seen, which sounds much better than expectations, you're not changing anything, even for the existing ships. Is there nothing you might be doing with some of the vision or radiance class ships or maybe putting some of the successful features of Icon on some of the sort of maybe Quantum or Oasis -class? Anything there?

Operator:

I'll now turn the call back to Naftali Holtz, CFO for any closing remarks.

Operator:

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator:

Good morning. My name is Regina, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Royal Caribbean Group Third Quarter 2023 and Business Update Earnings Call. [Operator Instructions] I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.

Jason Liberty:

Thank you, Michael, and good morning, everyone. Before we begin today, I would like to first acknowledge the devastating events taking place in the Middle East. The horrific terrorist attacks on Israel over 2 weeks ago have no place in a civilized society. The scale and the barbarity of those attacks should shock us all and brings the situation in the Middle East to a very dangerous low. We are heartbroken at the loss of so many innocent lives then and in the war that continues to this day. Our thoughts are with all who have been impacted, including many members of our own team. I would also like to recognize the incredible effort from our shoreside teams and crew, abroad Rhapsody of the Seas. We have been working tirelessly with the U.S Department of State to help safely evacuate Americans from Israel. My heartfelt gratitude goes out to all involved. As relates to the impact of these events on our business, about 1.5% of our capacity in the fourth quarter had planned to visit Israel. Most of the impacted deployment was quickly adjusted, including a few sailings that were home porting and Haifa. The evacuation services or Rhapsody of the Seas were provided pro bono to the U.S government and these costs are included in our financial forecasts. Combined with cancelled and adjusted itineraries in the region, for the remainder of the year, the impact amounts to about $0.05 in earnings per share. Now moving on to the business, our teams have done an outstanding job delivering on another strong quarter as we delivered a yield improvement of close to 17% and beat the midpoint of our EPS guidance by 12%. This beat is further solidifying 2023 as a banner year and positioning us extremely well for 2024 and beyond. I want to thank the entire Royal Caribbean Group team, whose enthusiasm and dedication enables us to deliver the very best vacation experiences responsibly while generating strong financial results. During the third quarter, all key itineraries exceeded our already elevated expectations as we delivered a record 2 million memorable vacations, and exceptional guest satisfaction scores. As you can see on Slide 3, we had record yields for the quarter driven by new hardware, record pricing in the Caribbean and Europe, as well as onboard revenue rates that were up about 30%. While the performance of our Caribbean itineraries has been excellent throughout the year, we were particularly pleased with a double-digit yield growth achieved on our European itineraries in the third quarter. As we look to the full year, the strong performance in the third quarter and continued acceleration in the booking environment is positioning us well to deliver over 13% yield growth for the year and earnings per share that is twice our original guidance for the year. The unprecedented acceleration in demand and pricing for our leading brands, combined with stronger demand for onboard experiences were certainly the main drivers of our outperformance. Adding to that, our strong focus on cost has been an important contributing factor to our elevated 2023 results. The healthy demand environment is very encouraging as we continue to build the business for 2024 and beyond. A year ago, we announced a 3-year financial performance program Trifecta, our teams have rallied around the Trifecta targets, focusing on generating strong quality demand, enhancing margins, building for the future, and most of all, delivering the best vacations in the world. As you can see from our results, we are well on our way to achieving Trifecta. Our proven formula for success remains unchanged. Moderate capacity growth, moderate yield growth, although I would not describe this year as moderate, and strong cost controls lead to enhanced margins, profitability and superior financial performance. As I've said in the past, Trifecta creates the pathway back to what we internally describe as base camp. However, base camp is not our final destination, and our ambitions go well beyond it. As we think about 2024 for the Royal Caribbean Group, from a consumer demand standpoint, we look to both macro trends and data points from the millions of daily customer interactions. On a macro level, some of the economic indicators continue to provide some conflicting signals. However, when we look closer at these trends, and indicators related to our customers, and their related behaviors and strong propensity to cruise, we see that many of these macro indicators are less relevant to our business. We have more than 130,000 guests sailing on our ships every day, and millions more who book or engage with us throughout our commercial platforms. What we continue to see across all markets, brands and products is an exceptionally engaged consumer that is looking to book their dream vacations with us. The positioning of our brands, attract guests across broad demographics, psychographics and at a median household income of at least $125,000. Our customers sentiment is bolstered by strong labor markets, high wages, surplus savings, and elevated wealth levels. Even better for us is the fact that overall spend on experiences continued to grow, and is currently up 25% compared to 2019 with twice the amount spent on goods. Cruising remains an exceptional value proposition with strong demographics, and secular tailwinds, allowing us to outperform the broader leisure travel industry. Our goal is to further narrow the gap to land based vacations, as we attract even more satisfied customers to our vacation ecosystem. I believe that is why when people are raising concerns and other industries, like hotel, airline, real estate. Our commercial apparatus is firing on all cylinders with visits to our websites in the third quarter, doubling that of 2019. Our travel partners are also delivering meaningfully more bookings in 2019 levels, and even beating our elevated expectations. Our brand's global appeal and nimble sourcing model allows us to attract the highest yielding guests and partially mitigate the impact from the stronger dollar. Now I'll focus on 2024, which is shaping up to be another incredible year for the Royal Caribbean Group. Our capacity is growing by 8%, and our deployment across markets is relatively consistent with 2023 with slightly more Caribbean, slightly less Europe, and a return to China for the first time in 4 years. Demand for 2024 has continued to accelerate, with bookings consistently outpacing 2019 levels by a wide margin. This has resulted in a book position that is ahead of all prior years at higher rates, further positioning us for another year of strong yield and earnings growth. While still early, we anticipate making significant progress towards our Trifecta goals in 2024. And based on current fuel FX and interest rates, we anticipate earnings that will start with at least a $9 handle. Our operating platform is larger and stronger than it has ever been. With the best brands, the most innovative fleet and destinations and the best people. Each of our brand is the leader within their category. Royal Caribbean International dominates the contemporary market. Celebrity Cruises has redefined the premium travel space, and no one delivers ultra luxury an expedition at sea like Silversea. By combining their unique strengths, we have created an attractive vacation ecosystem in which the sum is greater than the parts. Essentially, we are turning our delivery of a vacation of a lifetime into a lifetime of vacations. We will continue to ensure that each brand has what it needs to continue doing what it does best, while leveraging our enhanced commercial capabilities to capture and keep customers in our ecosystem. From young families to empty nesters, as they seek to return to us time and time again for the best vacation experiences. Our innovative new ships and onboard experiences allow us to continue to differentiate our offerings, as well as deliver superior yields and margins. In August, we welcomed Silver Nova, the first of the new evolution class for our Silversea brand. And the next few weeks, Celebrity Cruises will take delivery of Celebrity Assent, and Royal Caribbean International will take delivery of a game changing icon of the seas later this quarter. With revenue sailings beginning at the end of January. In 2024, we plan to take delivery of utopia of the seas for Royal Caribbean International and Silver Array for Silversea. With each new ship we raise the bar in the travel industry while enhancing what our guests already know and love. Also debuting in January 2024, just in time for the arrival of icon of the Seas is hideaway beach. hideaway Beach is our newest adult only ultimate beachfront paradise at perfect day at CocoCay. Pre-cruise sales for hideaway beach, and premium offerings are exceeding our expectations. We are further enhancing our commerce capabilities to optimize our distribution channels, build even more customer loyalty and lower our acquisition costs. We have seen a significant increase in new to brand and new to cruise customers this year. In fact, in the third quarter, approximately two-thirds of our guests were new to cruise or new to brand, all while also doubling the repeat booking rate, indicating strong loyalty and satisfaction. We've continued to remove friction and make it easier than ever for guest to pre-booked their activities with about a third of those purchases now coming through the mobile app. In the third quarter, about 70% of guests made pre-cruise purchases at much higher APDS than in prior years. In the third quarter, customers who purchase onboard experiences before their cruise spent 2.5x more than those who only bought once on board. As we look into 2024, we have booked over double the amount of pre-cruise revenue compared to this year with more guests engaging before their crews and at higher prices. We will continue to excel in the core and drive business excellence in order to increase yield and capture efficiencies across our platform. I said it before, but it's worth mentioning again. Our formula for success remains unchanged. Moderate capacity growth, moderate yield growth and strong cost controls will lead to enhance margins, profitability, and superior financial performance. Our sustainability ambitions help inform our strategic and financial decisions on a daily basis, ensuring that we always act responsibly while achieving our long-term profitability goals. We are making progress on our see the future commitments to sustain the planet, energize communities and accelerate innovation. We are also progressing toward a double-digit reduction in carbon intensity versus 2019 by 2025, and are exploring multiple options for low carbon based solutions for our existing fleet. While we design the Fleet of the Future with flexibility in mind. This past quarter we concluded a 12-week biofuel trial program in Europe, a first in the industry to cover multiple fuel types and multiple operating areas. The trials resulted in a 20% carbon reduction while also helping to better understand supply chain dynamics. The decision is that we are making now will help position us to deliver a net zero ship by 2035. In our achieve our climate strategy of destination net Zero. Our business is performing exceptionally well, and we are making significant progress towards achieving Trifecta goals. The future of the Royal Caribbean Group is bright with our strong platform and proven strategies. We are creating a lifetime of vacation experiences for our customers, while also delivering long-term shareholder value that allows us to reach new financial records. With that, I will turn it over to Naftali. Naft?

Operator:

[Operator Instructions] Our first question will come from the line of Steven Wieczynski with Stifel. Please go ahead.

Jason Liberty:

Good morning.

Jason Liberty:

Well, good morning, Steve. And thanks for the question. So, obviously, we are feeling very good about the business, the demand for our brands, the demand for our ships and in destinations. And we're seeing that, as I noted in my remarks, not only in terms of the daily interactions with our guests, but also just the high-level of booking activity. And the strength we're seeing in bookings where we have been booking at an accelerated pace, really, since earlier this year. And of course, as we've been booking, not just for 2023, but we've also been booking for 2024. And when we look at our book of business, you'll see a lot of strength and volume. And of course, with strength and volume allows us to continue to improve on the rate side. And you combine all that with incredible hardware coming into place next year, especially Icon of the Seas, as well as more volume onto places like perfect day because of HideAway, we feel very good about our yield projections for next year. Now it's still early. So we're not in a place where we're going to guide, but as our general internal ambition is always to make sure that our yields are meaningfully outpacing our costs. And of course, most of our costs as not pointed out growth next year on a per unit basis is really just driven by additional drydock days. And of course HideAway which delivers incredible margins, as in which will improve our yield profile, but also has cost with no APCDs. So all in all, we feel very good. And I think it's important to just stress that, my comment on the earning side was that we expected to at least start with a nine. And not only that, we also expect to continue to improve on an ROIC basis on the overall organization.

Naftali Holtz:

Well, next year, we'll have a little bit less capacity in Europe, about half of our guests for European sailings come from the U.S and the other half come from around the world. We've commented on the 1.5%, and we'll continue to look at that. I think we need to remember we have a pretty nimble sourcing platform. If we're worried about that risk. I do think it's a little bit too early in all of this to have any kind of outlook on what we're seeing, or our expectations for Europe next year. But our commentary around the strength and the acceleration in demand is not just about one market. It's really about all of our markets. It's not just about one product, it's really about all of our products. And, obviously as we -- if these horrific situation continues to occur, that could potentially weigh on a consumer psyche, but that's not something that we're seeing at this point in time. And historically when we see that we typically just see our guest shift in terms of where they want to go. And of course, the vast majority of our capacity in 2024 is going to be in North America.

Jason Liberty:

That's correct. That's right.

Jason Liberty:

Thanks, Steve.

Robin Farley:

Great. Thank you. My two questions are actually on the same two topics. One is just a circling back to changes with, I know you mentioned it's only that 1.5% that touches on. I think there are some other words a tiny bit, it's still obviously just single-digit for all the major companies. But are you seeing any ships were not necessarily your ships, but other ships moving into your markets? I know, if it's just a port of call getting dropped, you wouldn't have to redo an itinerary. But if there are ships moving in, where you have existing supply that you're seeing, any kind of impact, or would you say that you're still continuing to see demand for Europe next year at the same levels kind of regardless of what's going on with other shipments?

Robin Farley:

Okay, great. Thank you. And then just on the expense piece for next year, it was very helpful, thank you for sort of breaking out the -- I don't know if there's any further breakout of the dry dock. And what that pieces of the 300 basis points, just because in some ways, the timing of that is sort of a non-recurring kind of increase. So I don't know if there's any more breakdown on a 300 bps. And then if there's any way to sort of help quantify, I know you're not giving full year yield guidance. But to whatever degree, there's some bps there that have expense from HideAway. What you would expect the offsetting, I would think you would clearly be more than offsetting that. So just to sort of help investors think about what's really ongoing here, which is, I guess, probably closer to the 100 bps range so, thanks.

Robin Farley:

Okay, great. Thank you very much. Thanks.

Robin Farley:

Great, thank you.

Brandt Montour:

Hey, good morning, everybody. Thanks for taking my question and congratulations on the strong report. I think I'll take a shot at the second part of the 2024 cost comments from you Naft. I think when we think about very low single digits, that's pretty cut and dry, and we all know your history of what you were doing pre-COVID on the cost line. When we think about what is in there, though, right, there's China, and then there's Icon. I would think Icon is push it down, right? Because of all the APCDs that come along with Icon. But China, I would expect to have a rollout of more sort of cost base over there? How should we sort of think about those two factors when we try and model very low single digits?

Jason Liberty:

And Brandt, it's Jason. I just want to add in. Obviously, our capacity is growing at 8% next year. And so that's certainly helping making sure we're getting more and more efficient, which is a critical objective of the organization. We are also beginning very much to benefit from new disruptive technology and employing them in different parts of our business that can lower service calls and improve process efficiencies. And that's kind of an overall objective is how do we get better each and every year. And that's why we believe that excluding the dry docks and HideAway, which are structural, we were able to continue to produce low single digit costs -- sorry, very low single digits, yes, Naft just reminded me.

Jason Liberty:

Yes, so I think one of the things I would say, Brandt, is that we are saying it's going to start with -- that it will at least start with the $9. So I wouldn't necessarily peg it to $9, it's just that we're seeing at a 9 handle, which I think is just an important thing. And obviously, it's impossible to predict what the environment will look like 6 months from now or a year from now or 5 years from now. But we have a pretty nimble platform. There is a significant value proposition or value differential to land-based vacation. Pre-COVID, we were, call it, 10% or 15%. Today, we are somewhere around 35%, 40%. So there's a lot of value for the consumer to get if there are changes the operating theaters that we are in. I would also keep in mind that we are pretty well booked, and we will cross this year in a very strong booked position. And so we have -- we will have a lot of that already on our books, the consumer has already made those decisions. But I will say, which I think is an important thing when we look at the consumer, is as we're here on the call, we have thousands of people making bookings for experiences that are at least 6 to 8 months from today. They're making bookings into 2025, they're even making bookings into 2026. So our visibility in terms of how the consumer is looking at things going forward, at least on a vacation experience on our incredible brands, is pretty good based off of where the consumer is standing today.

Jason Liberty:

Sure.

Vince Ciepiel:

Great. Thanks. Big picture question. Curious your perspective on the supply/demand kind of dynamic in this industry over the next few years, what you're seeing in the order book, and then on the demand side, it seems like you and some peers as well are really seeing strong performance out of the new to cruise. So what that could mean for the trajectory of demand growth in years ahead as well.

Vince Ciepiel:

Great. Thanks. And then just digging a little bit deeper into this year on the yield side, I think you started around to 2% to 4% or something like that and now you're looking for yield up about 13%. So kind of two parts. What's been the biggest positive surprise that has led to that? And then how would you slice up that 13%-ish growth in terms of new hardware contribution, CocoCay and core price?

Vince Ciepiel:

Great. Thanks.

Dan Politzer:

Hey, good morning, everyone. I was wondering if you could talk maybe a little bit about pricing trends and maybe the difference between contemporary and luxury brands and what you're seeing? And similarly, as we think about Europe and next year, I know it's only 15% of your capacity but you're coming off a pretty strong year. Obviously, that skews a little bit more luxury. And then as we think about consumer willingness to book a European or Mediterranean cruise, any kind of thoughts as we should think about 2024 as it relates to those kind of two sub segments?

Dan Politzer:

Got it. And then …

Dan Politzer:

Got it. And then pivoting to China a bit. I know you don't have full capacity having a return that yet there relative to 2019, but as you think about the Baltic capacity coming off Eastern Med, is there a willingness or maybe incentive at this point to shift more of your capacity to China? And maybe can you just give an update on demand trends there?

Dan Politzer:

Got it. Thank you.

Matthew Boss:

Great. Thanks and congrats on another nice quarter. So, Jason, maybe on the accelerating demand, the book position and the pricing relative to prior years as you cited as we look to '24. I guess, maybe larger picture, how are you balancing pricing power relative to the multiyear market share opportunity relative to land-based alternatives? And then just in the strength in bookings that you cited, have you seen any near-term moderation to note related to the recent overseas conflicts?

Matthew Boss:

Great. And then maybe just a follow-up. Naftali, on the EBITDA margin profile as we think multiyear, and just looking back to prior peak levels, how would you size up where we stand today relative to the Trifecta plan, which I think calls for low 30s? Just maybe as we think about the puts and takes as you see it today.

Matthew Boss:

Great color. Best of luck.

Operator:

With that, I'll turn the conference back over to Naftali Holtz, CFO, for closing remarks.

Operator:

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator:

…gina, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Royal Caribbean Group Second Quarter 2023 and Business Update Earnings Call. [Operator Instructions] I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.

Jason Liberty:

Thank you, Michael, and good morning, everyone. I’m thrilled to share with you this morning our strong second quarter results and another step change in the trajectory of our business. You may recall that we doubled our revenue yield guidance and increased our earnings expectations by 40% in May on the heels of a record wave period that drove strong booking momentum for our brands. Well, as we shared in this morning’s press release, it got even better since then. The combination of strong preference for our leading brands, numerous consumer tailwinds and the attractive value proposition of cruise contributed to strong and accelerated demand for our vacation experiences. Our brands continue to excel, and we not only delivered another outstanding quarter that significantly exceeded expectations, but are also increasing our full year earnings guidance by another 33%. I’m thrilled to share that we are now expecting double-digit yield growth for the full year and low teens growth rate for the remaining quarters. I want to thank the entire Royal Caribbean Group team for delivering another outstanding quarter. Their passion, dedication and commitment allow us to deliver the very best vacation experiences responsibly while generating strong financial results. Last year, we laid out Trifecta, which set clear and ambitious targets. We have made tremendous progress towards those goals and now expect to achieve record EBITDA per APCD and record return on invested capital this year. We are well on our way to achieving Trifecta as we continue to execute on our strategies. As highlighted on Slide 3, we delivered another outstanding quarter that exceeded expectations. The robust demand environment we reported back in May continued throughout the second quarter and translated into strong booking volumes and meaningfully higher prices. During the second quarter, we delivered a record 1.9 million memorable vacations and exceptional guest satisfaction scores. We achieved record yields that were 12.9% higher in 2019, strong close-in demand, higher pricing and continued strength of onboard spend drove the revenue outperformance. While the Caribbean remains a standout performer this year, we were particularly pleased with the strength and quality of cruising [Ph] demand for European itineraries. This acceleration of demand for Europe contributed to the better-than-expected yield performance for the quarter. Our continued focus on enhancing margins and our disciplined capital allocation resulted in more than 100% of the revenue outperformance flowing to the bottom line. We had record adjusted EBITDA and cash flow in the quarter and achieved significantly better-than-expected earnings. Booking volume since our last earnings call have continued to accelerate, both for 2023 sailings and even more so for 2024 as the majority of the bookings we are currently taking are for next year’s sailings. The North American consumer remains incredibly strong, and volumes from European consumers looking to book their summer vacations accelerated. The strength of our brands and quality of our vacation experiences combined with the value proposition of cruise is translating into double-digit yield growth expectations versus 2019 for the year and low teens growth rate for the second half of 2023. Our load factors are now back to normal. So the incredible yield growth is driven by strength in pricing and onboard spend for both new and like-for-like hardware. While it’s still too early to provide any specific color for next year’s outlook, clearly, the very healthy demand environment we are seeing is quite encouraging. There has been a lot of talk about the state of the consumer, and I want to share what we are seeing for millions of daily interactions with our customers. Sentiment remains strong and is bolstered by strong labor markets, high wages and excess savings. Our customers remain engaged and eager to vacation and build memories with us as they continue to shift preferences towards experiences over goods. Over the last few months, experience spend was up 25% compared to 2019 and double that of spend on goods. Despite this increase, spend on experiences remains lower than the long-term trend line, implying a multiyear catch-up opportunity. Our vacation platform is appealing to a broad range of vacationers and our addressable market continues to expand as we benefit from favorable demographics and wealth trends. In the second quarter, the percent of guests were either new to brand or new to cruise surpassed 2019 levels by a wide margin, and we have seen post-cruise repeat booking rates nearly double 2019 levels. While we have made positive strides in narrowing the gap to land-based vacations over the last several months, cruising remains an exceptional value proposition, allowing us to outperform broader leisure travel as we seek to further close the gap to land-based vacations, drive better revenue and welcome even more happy customers. Future cruise consideration is near all-time highs and a contributing factor to a doubling in website visits compared to 2019. In addition, our travel partners are now fully back up and running and delivering more bookings than they did in 2019. Our improved commercial capabilities have allowed us to capture this quality demand and expand our share of the guest wallet. In the second quarter, about two thirds of our guests booked some of their onboard activities in advance of their cruise translating into incremental spend once on board. While we have made a significant leap, we are still in the early innings of our journey, and we continue to add new features and capabilities to our app in commercial engines. One thing is clear. Our guests continued to spend more on their vacation experience and our teams continue to deliver strong guest satisfaction and Net Promoter Scores. The robust demand we see for our products is bolstered by our industry-leading brands, innovative hardware, enhanced destination offerings, nimble global sourcing model and strong execution by our teams. New hardware has been a great differentiator for us, allowing us to drive quality demand and attract new customers into our vacation ecosystem. In 2023, we take delivery of 3 new ships that support our strategy and will deliver premium yields in 2024 and beyond. This month, Silversea welcomed Silver Nova, the first of the new Evolution class. Later this year, Celebrity Cruises will welcome Celebrity Ascent and Royal Caribbean International will take delivery of the game-changing Icon on the Seas late in Q4 with its revenue sailings beginning in the end of January. Looking ahead into 2024, Royal Caribbean International has recently revealed the ultimate weekend getaway, Utopia of the Seas, which will join our fleet mid next year. Utopia will be the first Oasis-class ship that will be entirely focused on short cruises in the Caribbean, supporting our strategy of competing with land-based vacation alternatives and driving new-to-cruise customers into our vacation ecosystem as we seek to close the value gap. Demand and pricing for Utopia has far exceeded our expectations. Also, in 2024, Silversea will welcome the second in the evolution class, Silver Ray, delivering the future of ultra-luxury cruising. Demand for Ray is very strong, and it is attracting the highest rates for the brand’s Classic fleet. We continue our efforts to deepen the relationship with the customer. We are further enhancing our commerce capabilities to optimize our distribution channels build even more customer loyalty and lower our acquisition costs. We continue to enhance our e-commerce and pre-cruise capabilities and are seeing increased guest repeat rates and spend as well as further elevation in the overall guest experience. We will continue to excel in the core and drive business excellence in order to increase yields and capture efficiencies across our platform. Our proven formula for success remains unchanged, moderate capacity growth, moderate yield growth and strong cost control will lead to enhanced margins, profitability and superior financial performance. In conclusion, our business and our amazing team on and off the water are firing on all cylinders as we exceeded expectations in the second quarter, and significantly increased our earnings and cash flow guidance for 2023. We are well on our way to achieving our Trifecta goals. Our differentiated platform that includes the best brands, fleet, destination, people and global sourcing platform is winning. And I’m very proud of our teams that go out every day to deliver the best vacations responsibly. And with that, I will turn it over to Naftali. Naf?

Operator:

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

Jason Liberty:

Well, thanks, Steve, and good morning, and good morning to everybody. I hope everybody is doing well. So first, I would say Steve, as we pointed with, out Trifecta, Trifecta was, as we described it as base camp. We think there’s a lot value to unlock here in the company as we -- as our people and our brands just continue to execute as we grow our business. And so as you pointed out, the current trends that we have been seeing, especially in the booking environment points to many of these metrics being able to be achieved earlier than we had anticipated them to be. And of course, we believe very much as we have in the past, that setting coordinates and pointing the organization to those core nits is very important to make sure that we execute on them and beyond. As we get closer to those metrics, we will certainly look to talk about what’s the next base camp or base camp two that will be pointing the organization to. But as you said, when we look at these the other trends, the booking environment on how we’re executing the preference for our brands and us, again, being able to further close the gap here to what we see as really the competitive set with land based vacation, the outlook looks really bright. And so I think we would say that it looks -- these trends would point to an earlier arrival at base camp, but we’re not in a position that it’s too early for us to say exactly what that timing is going to be.

Jason Liberty:

Well, I think what -- so obviously, in our commentary about how us being booked, how we’re booked ahead on rate volume in our booking environment, especially -- and most of these bookings are relating to 2024. We feel really strong or really good about the demand environment, and that very much points to 2024. What I would say is it is very possible that we’re in a more -- more book position than we have been in the past. But I would just -- we’ve said this in the past, our goal is to optimize revenue. And so you could be plus or minus 5% on a book position standpoint as we kind of cross periods because we’re looking to optimize revenue, not just optimize how much you have on the books at a certain point in time. And I think our teams have demonstrated even as you see as we cross the here, your ability to utilize what we would say are state of the art tools to manage and optimize our revenue, not just on ticket, but also on onboard is what’s helping us lead to optimizing our yield profile.

Jason Liberty:

Yes, thanks Steven.

Robin Farley:

Great, thanks. Obviously, really strong results. Just looking at your expense guidance outside of just the compensation that’s tied to your performance, it hasn’t really changed. It looks like despite a lot of higher expense out there in general. So I know it’s early to talk about 2024, but if your higher expense hasn’t sort of worsened over the last few quarters, does that give you the visibility that maybe 2024 expense could look kind of like a normal year in terms of the increase year-over-year, if the outlook hasn’t been worsening for you as it maybe has for some others. Thanks.

Jason Liberty:

Yes. And Robin, I just wanted to add into it because I do think it’s important to recognize, if you kind of string together the calls through the pandemic and all the actions that we took to position ourselves to really kind of outperform and to grow our margins. A lot of all that work really helped absorb the vast majority of -- a pretty significant inflation that we saw across a lot of the items that impact our product. And so we were able to really absorb that and still produce significant Net Promoter Score. So very, very thoughtful of not impacting the product or the experience, which could be easily done to help something in the short-term. But in the long-term, but it has really paid off for us as there is clear and very strong preference on a vacation standpoint to travel with the group and the great brands that are inside of it.

Michael Bayley:

Good morning Robin, it’s Michael. And I happen to be very fortunate today because I’m calling you from beautiful Allure of the Seas sitting in our conference room. Using our StarLink technology to video conference with my colleagues and participate in the call. We’re on the President’s cruise. We have over 3,500 of our loyal guests along with 2,500 other guests on this great voyage. So I’m actually sitting here in my swimwear, but you can’t see that. But I have to tell you that only to say that it’s just an amazing thing to be back with our loyal guests on the product and the brand, and it’s quite amazing when you kind of immerse yourself with the customer, the kind of incredible feedback they give you in the loyalty so many of our guests have Royal Caribbean. It’s really -- it’s a beautiful thing. On China, yes, we’ve open for sale. We had a kind of a thoughtful process as it relates to bringing back our employees over time. So as we move through 2023, we obviously take on more SG&A expense, and we have accommodated that in the forecast obviously, and we also mitigated some of that expense. And then as we look into 2024, it will be a full year of typical operations for a one-ship operation with a lot of shared services provided by our Singapore office. I can tell you that the -- it’s early days yet, but the signals look pretty positive. We feel good about what we’re seeing in terms of bookings. And we feel pretty comfortable with operations and how we scale back our teams to sell and market and operate our China operation.

Robin Farley:

Great. Thank you.

Brandt Montour:

Hey good morning everybody. An excellent quarter. So first on European consumer demand you mentioned it several times, and it was clearly one of the surprising positive takeaways here. Just maybe if you could give us a sense of how you measure the European consumers recovery versus how you measure the U.S. Consumers recovery in [Indiscernible]? Just trying to get a sense how far back the European consumer is so that we can kind of get a sense if there’s sort of further recovery from that source to go?

Brandt Montour:

Okay. That’s super helpful. And then on 24, you guys have an exciting docket here with the Icon and the CocoCay expansion in China reopening. How would you sort of stack up those 3 things in terms of a tailwind to yield in the year of 2024 if they’re all something meaningful, eventually quantifiable? And then is there anything dilutive to yields in 2024? I mean, China, I guess, could be dilutive because it’s sort of a restart year and then Utopia is a brand new ship, but it’s in a short market. So how do we think about that? Thank you.

Jason Liberty:

One other just quick comment on the yield side of things and this just goes into the booking commentary. Clearly, there is incredible demand for our new ships and Icon will certainly break and has broken, I think probably every record in the book. But I think it’s important when we look at the data inside of our bookings that it’s not just the new hardware -- the like-for-like is also very strong and growing. And that commentary as I said is some of it is 2023, what we have left to book. So most of that commentary really relates to 2024.

Jason Liberty:

Yes. And the elevation on the dry dock is just a reflection of ships that came out of COVID that had missed those windows. And so it will be a little bit more elevated in in 2024, but just a point.

Operator:

Your next question comes from the line of Vince Ciepiel with Cleveland Research Company. Please go ahead.

Jason Liberty:

Well, hey Vince good morning. I hope you’re doing well. As Naftali commented in his opening remarks, as we look at what kind of drove -- or one of the key drivers of the difference from the May guidance till today is really all price, right? So load factor for the back half of the year, we had expected to be normalized. And so I think what has been a surprise to us has just been our ability to continue to raise price and demand continuing to come in at higher levels, significantly higher levels than we have seen in previous periods. And so I think it just talks to, I think, one, just preference for our brands. I mean how well -- our commercial teams have been executing and also keeping our customers more and more in our ecosystem has been a huge tailwind for us. And I think that kind of just a broader combination of things when you add that to just the value gap to land based vacation is driving our ability to raise prices. And so as we said earlier, our APDs for the full year are up over double digits for the back half of the year, they’re going to be in the low to mid-teens in terms of rate increase relative to 2019. That is significantly better than we had anticipated when we gave guidance earlier this year. And it’s really a reflection of even as we take on the bookings and as we increase pricing, we’re not really seeing that point where price is impacting our demand. And then the other component of this is just onboard spend, which is obviously a combination of -- to a degree of price. But really, the main driver of that has been our ability to be much more effective to curate and take friction out of the process for our customers to book their activities on the ship. And of course, there’s a great commercial reasons of doing that. There’s also an incredible guest experience benefit of doing that as our ultimate goal here is to try to give a day back to our guests to come on our ships and instead of them having to spend a day booking their restaurants and booking their spa appointments and short surgeons [Ph], they’re able to do that ahead of time. And we are really in the early innings of that, especially curating -- there’s still a lot of friction points for us to resolve, but our teams have really just done an exceptional job of moving that forward, which can also see supporting an even more elevated customer deposit balance as we’re able to take on those onboard spend bookings.

Michael Bayley:

Well, Vince, thank you for the question. I mean 1 of the reasons we call -- Perfect Day. Perfect Day, is it it really is perfect. And it is driving a lot of the demand and people are booking the ships and the itineraries that sell to Perfect Day. It really is delivering an exceptional customer experience and people value that immensely. And we see the repeat rates going back to -- Perfect Day accelerating. As we look at the volume of guest, we’ve got a Perfect Day in 2023, 2024, 2025. Obviously, we’ve planned to open Hideaway Beach at the end of this year in time for Icon and Utopia that’s going to increase our ability to add more gas to Perfect Day by about 3,000 people, and that will come online literally in December of this year. So that allows us then to continue to increase our capacity into Perfect Day. We’ve also got the Royal Beach Club in Nassau, which is moving through its various approval processes, environmental and governmental permits and what have you. That’s looking as if it’s promising and we’re planning on opening the Royal Beach Club in summer of 25%. So when you add that experience, the Royal Beach Club, along with Perfect Day, we feel like we genuinely have the ultimate big weekend. And that’s, of course, why we’ve got Utopia coming online and going straight into the short market. So it’s a great product. It’s combined with incredible assets, the ships that we’re sailing to Perfect Day. I don’t think Perfect Day without these ships would be the complete perfect vacation, but we really do feel like we’ve got it right. And we continue to focus on delivering excellent guest experiences. It’s somewhat of an obsession within the team. And of course, more recently, Celebrity announced that they’re also sailing to Perfect Day, so that’s great for the celebrity brand as well. So we see it as a great success, and we continue to refine it and to develop it, and we continue to plan to bring our guest to Perfect Day.

Operator:

Your next question comes from the line of Matthew Boss with JPMorgan. Please go ahead.

Jason Liberty:

Well, thanks, Matt. Well, first, I would say that I think the acceleration that we’re seeing is on a few points. One I think we’re getting more share of the wallet because we’re helping better kind of curate and take friction out of the experience. And you can see that in just the volumes of guests that are that are willing to book directly with us online -- because we’re able to curate the actual cruise booking, also all the things that we’re doing pre-cruise to get them to book ahead of time. And so a lot of it -- some of it is price but a lot of it is just the friction that we’ve taken out of it and the commercial tools we put in place to make it easier for them to book those experiences. And so I think that’s a big kind of part of the acceleration. The other part I think of the acceleration is that we have. We really do feel that we have the best brands, the best ships, the best destinations kind of in play here which we think is really excelling -- or accelerating the preference for the vacation experiences that we’re offering to our guests. So I think that’s also a very important thing. But really in everything that we’ve talked about today and what we said in our release in the storyline, there are no indicators of softness there’s really only indicators of acceleration in what we’re seeing as we continue to have the ability to raise pricing. And when we -- of course, when we put out our guidance, it’s really based off of what we’re seeing today in the booking environment. And of course, we’ve seen a continued set of acceleration from period to period. So I think just -- I think a lot of what you’re seeing is execution -- and I think a lot of what you’re seeing is long-term strategies coming into play versus just kind of necessarily riding the market -- and so I think that’s important. But I just want to emphasize at this point, whether it’s in the booking environment, on the ticket side, whether it’s on the onboard side, we don’t see any indicator of weakness.

Matthew Boss:

Great. And then just on the bottom line as a follow-up. So as we think about EBITDA margins multiyear and just looking back at prior peak levels, is there any reason to consider that Trifecta plan as a ceiling? Or just any unlocks to consider, which would point to this model as accretive relative to pre-pandemic profitability levels?

Jason Liberty:

Yes. But I would just add, there is nothing structural that I’d say puts that at risk. I think what we need to focus on, and we know this about our business model is moderate yield growth which I would not, again, call this year moderate, but moderate yield growth, good cost control leads to expanded margins as we grow our business. Every 1% change in our yield is $110 million plus and a 1% change in our cost is about $50 million. So to grow your yields faster than you grow your costs and you’re going to continue to expand your margins.

Naftali Holtz:

Well thank you everyone for your participation and interest in the company. Michael will be available for any follow-ups. We wish you all a great day.

Operator:

Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Group First Quarter 2023 Earnings and Business Update Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Michael McCarthy, Vice President, Investor Relations. Please go ahead, sir.

Jason Liberty:

Thank you, Michael, and good morning, everyone. I'm thrilled to be here this morning to share our incredible first quarter results and the strong trajectory of our business. When we turn the page from 2022 into 2023 with the full strength of our operating platform deployed and numerous tailwinds related to the consumers' desire to travel and experience the world, we believe this would be a great year. We expect it to finally return to yield growth in the first quarter and accelerate even more through the rest of the year. Well, as you saw in the press release this morning, what transpired over the past four months was much better than we had anticipated. Our brands are stronger than ever and our yield in Q1 blew away previous records. Before getting into the detail, I want to thank the entire Royal Caribbean Group team, 100,000 plus strong for another outstanding quarter. Their dedication and commitment allow us to deliver the very best vacation experiences responsibly while generating strong financial results. As highlighted on Slide 4, it has been a tremendous first quarter that set us well on the path to a year that is significantly better than we expected just a few months back. We knew that demand for our business was strong. what has transpired was a record-breaking extended wave season that translated into robust bookings and meaningfully better prices. In the first quarter, we delivered a record 1.9 million memorable vacations, achieved 102% load factor at higher pricing than 2019, and earned exceptional guest satisfaction scores. Yields grew 5.8% compared to record 2019 levels, and were significantly above our guidance. Strong demand for Caribbean itineraries translated into higher load factors had better-than-expected pricing for both ticket and onboard. Our yields are now exceeding record highs, and we expect this trend to continue for the rest of the year and beyond. This is particularly significant because while we thought the first quarter would be a transition period, we always expected the rest of the year to be strong. The fact that demand for the coming nine months is so much stronger than our already robust expectations says a lot about the strength of the consumer and the strength of our brands. Adjusted EBITDA and adjusted EPS in the first quarter were both considerably higher than our guidance, and we generated $1.3 billion of operating cash flow. Strong revenues, our continued focus on increasing margins, and favorable timing of operating expenses contributed to the better-than-expected earnings performance. The acceleration of demand, coupled with our team's incredible execution is also translating into higher revenue and earnings expectations for the full year. As you can see on Page 5, we are more than doubling our full-year yield growth expectations to 6.75% to 7.25% on increased expectations for ticket and onboard revenues. We are also increasing earnings per share expectations by 40% to $4.40, to $4.80 as we continue to focus on expanding margins as revenue accelerates. Now I'll provide some insight into the robust demand environment and our incredible wave season. Bookings outpaced 2019 levels by a very wide margin throughout the entire first quarter and into April. Pricing was also significantly higher as our commercial apparatus across all channels has been driving quality demand into our vacation ecosystem. The strong wave season resulted in an acceleration of our book position in relation to prior years. The booking window is now completely back to normal, demonstrating consumers' desire to continue to plan their vacation travel with us well in advance. While demand has been strong across all products and markets, we continue to see exceptional strength from the North American consumer. This strength in combination with the incredible, Perfect Day at CocoCay has resulted in record yields for our Caribbean sailings. In addition, European bookings are nicely outpacing 2019 levels with peak summer sailings trending particularly well in recent weeks. The robust demand we see for our products as a result of our superior brands, hardware, enhanced destination offerings, a nimble and global sourcing model and strong execution by our teams. As you heard me say on prior earnings calls, we continue to see financially healthy and engaged consumers our eager to vacation and build memories with us. Our customer sentiment remains strong and is bolstered by strong labor markets, high wages and excess savings. Secular tailwinds continue to benefit us as consumers continue to shift preferences and spend from goods to experiences, resulting in strong entertainment and travel spend. This trend continued in the first quarter where spend on experience was 24% higher than 2019 and double the spend on goods. Further, our research shows that consumers plan to continue prioritizing leisure travel over other spend. Our addressable market is plentiful and continues to be meaningfully larger than it was in 2019. Our product appeals to a broad range of vacationers who are seeking everything from a short getaway to a Perfect Day to a luxury world cruise. Cruising remains an exceptional value proposition. I would actually say it's too attractive of a value proposition, which is allowing us to outperform broader leisure travel as we seek to close the gap to land-based vacations and drive better revenue and happy customers. Cruise search is up 15% versus 2019, significantly outpacing the growth in general vacation search and contributing to the doubling of visitors to our website when compared to 2019. Our vacations are popular among a broad range of consumers, which allows us to attract more and more new customers into our ecosystem. In the first quarter, the percentage of guests who are either new to brand or new to cruise, surpassed 2019 levels by a wide margin. The improvements we have made in our commercial capabilities have allowed us to capture quality demand and expand our share of guest wallet. In the first quarter, about 2/3 of our guests booked some of their onboard activities in advance of their cruise. The comparable figure in 2019 was 48%, so you can see we have used our time well to upgrade our systems. Every dollar of guest spends pre-cruise translates into approximately $0.70 of incremental spend once on board. While we have made a significant leap in our commercial capabilities, we are still in the early innings of our journey, and we'll continue to add features and capabilities to our app and commercial engines. Looking to the rest of 2023, we expect to deliver amazing vacation experiences to over 8 million guests a record yields as we deploy our best-in-class fleet across the best global itineraries. We expect to return to historical load factors in late spring and continue to benefit from a strong pricing environment. We expect to deliver record yields that are 6.75% to 7.75% higher than in 2019 with every one of our brands generating positive direct profit this year. Our strong yield growth outlook is driven by the performance of new hardware, a strong pricing environment, especially for Caribbean itineraries, and continued growth from onboard revenue areas. New hardware has been a great differentiator for us, and we are benefiting from the eight ships that joined our fleet since 2019. This year, each of our wholly owned brands will welcome a new vessel. These ships are sure to continue elevating vacation experiences for our guests and will continue to further drive the competitive advantage and deliver very attractive financial returns. Since all three of these ships will be delivered in the second half of this year, they will be a key yield driver next year. Silversea will welcome Silver Nova this summer, the first of the new evolution class. Celebrity cruises will welcome the fourth in the award-winning Edge series, and Royal Caribbean International will take delivery of the game-changing icon of the seas. Let me spend a minute talking about Icon of the Seas and the excitement she is generating with our customers. With Icon, we set out to create the ultimate vacation for thrill seekers, the chill enthusiasts and everyone in between without compromise. She is getting exceptional demand with bookings well surpassing previous records. Despite being on sale for only five months, Icon is significantly more booked for her inaugural season at materially higher rates than any other Royal Caribbean ship launch. Icon will join the fleet later this year and will debut in the Caribbean in January 2024, with itineraries that include Perfect Day at CocoCay and its new expansion, Hideaway Beach. Moving to costs. Our team have been working hard for several years to reshape our cost structure with the goal of enhancing margins. Our cost outlook for the year reflects our commitment to enhancing profitability while focusing on delivering the best vacation experiences. We continue to expect the business to deliver a record yield and adjusted EBITDA in 2023. Our proven formula for success remains unchanged. Moderate capacity growth, moderate yield growth, though I wouldn't define this year's growth as moderate and strong cost controls will lead to enhanced margins profitability and superior financial performance. We just published our 15th Annual Sustainability Report, providing an in-depth update on our strategy and performance of delivering the best vacation experiences responsibly. In this report, we outlined our progress towards reducing our carbon intensity by double digits by 2025 versus 2019. We expect to deliver on significant milestones of our decarbonization pathway this year including the introduction of advanced technologies on our new ships, such as LNG, fuel cells, and a first-of-its-kind onboard waste-to-energy system. To wrap up, the business continues to accelerate, and we are uniquely positioned to grow earnings and cash flow in 2023 on our way to achieving our trifecta goals. The strength of our brands and operating model continues to grow. We are committed to delivering the best vacation experiences responsibly, and I couldn't be more excited about what's ahead for the Royal Caribbean Group. With that, I will turn it to Naftali. Naf?

Operator:

[Operator Instructions] We'll go first to Stephen Wieczynski, Stifel.

Naftali Holtz:

Steve, good morning, it's Naftali. So, as you can see, we are very pleased with the results. And as we think about EBITDA and how this translates to the progression throughout the year. You can see that we are increasing yields, and we expect the EBITDA growth to be higher than our yield growth. And that's because a lot of the revenue is dropping to the bottom line because we are very much focused on costs and enhancing margins. So, if we look at what we kind of look at the guidance that we provided, we're going to -- we expect to be an eyelash away from our previous EBITDA per APCD record in 2019. And a lot of the things that we're doing and a lot of the strategies that we're employing should benefit to us as we continue to execute towards our Trifecta goal.

Steven Wieczynski:

That's great color. Thanks guys. And then second question, as we think about the back half of the year, obviously, we can back into your yield guidance. But if we kind of break down those yields a little bit, are you assuming your customer from an on board has obviously been extremely, extremely healthy? And are you assuming that your customer kind of stays in the same ballpark that they are now? Do you have them slowing a little bit in terms of spend levels? And then second part of this question, which is a little bit different, but we get a lot of questions from investors about demand and demand into 2024. And can the demand levels that are there right now persist into next year? Or is '23 being -- is '23 benefiting from just still kind of reopening and COVID bookings and stuff like that? So hopefully, all that makes sense.

Steven Wieczynski:

That's great color. Thanks, guys, appreciated. Congratulations.

Jason Liberty:

That probably won't be the first time you hear about Icon from Michael -- just to ...

Operator:

Your next question comes from Brandt Montour, Barclays.

Jason Liberty:

So, on an expectation standpoint, I mean, just mathematically, our load factor -- our normalized load factor will begin to rise. And that's really leading with Icon coming on, which will have a higher load factor profile. Now we're also taking on Nova, which has a lower load factor than the Royal Caribbean brand and the Celebrity brand, and we're also taking on Ascent, which has lower load factors than Royal. But with Icon coming on next year, Utopia coming on next year, you would expect our load factors to be up one point or two when we look into 2024 and beyond.

Michael Bayley:

Yes. It's Michael. Yes, outbound has always been a relatively small percentage of our China business. I think we're now more encouraged by all of the signals that we've had for our reopening in China in '24. And we still got some work to do, but we've now started to rebuild our sales organization in China, and we expect, hopefully, by late spring, early summer to be back operating out of China.

Michael Bayley:

'24.

Michael Bayley:

Right. Yes, that's correct. That's in actual capacity operating out of China in '24. As it relates to outbound started to return, but it's obviously coming now from a smaller base.

Operator:

Next, we'll hear from Robin Farley, UBS.

Naftali Holtz:

Yes. Robin, it's Naftali. These sales have been fantastic partners to us. We're obviously very committed to our new build program, and they provide us very attractive financing. There's always puts and takes, but we don't expect any material changes from our financing arrangements at this point.

Robin Farley:

I guess it was really more, I was thinking that it's the first time we've seen sort of like incremental ECA funding that wasn't tied to ships ordered before the pandemic, which -- and again, I know it's tied to a very big change order. So not your situation. And then just one other quick clarification on the expense side of things. When you look at your expenses for the full year. Obviously, some of it you mentioned structural because you have a full year of CocoCay and Galveston. But you said some of it's transitional. And I don't know if I heard you say, I'm just wondering what amount because, obviously, some of the structural that will be recurring next year. But some of the transition costs would, as they fall away, create an expense decline next year. So, I just, I don't know if you can quantify how many basis points of your full-year increase is one-time?

Robin Farley:

And I mean, for the transition costs, is there -- is it 100-basis points or 200-basis points of the full year expense this year that in the gearing will ...

Jason Liberty:

Yes. And in reality, on the cost side, if you take out the transition that of just talked about and you take out the structural, our costs for the year were basically up around 3%. So just to kind of give you the sense of the level of all the actions we took over through COVID to get our cost structure and operating model align has effectively absorbed a tremendous amount of inflation. So, our costs in the assets are really just up 2% to 3%.

Jason Liberty:

No. I mean it's definitely moderating. I mean it's -- all -- but it's still a pain and it's still coming at you in different ways. But we have -- I mean, our teams are really exceptional trying their very best to combat it and come up with great solutions -- sometimes it's around how do we get goods from point A to point B. And in some cases, how do we just leverage more of our buy across our brands, but it is painful.

Robin Farley:

Great. Thank you, very much.

Vince Ciepiel:

Great. Thanks. I wanted to dig a little bit more into pricing. Obviously, with the net yield guidance, it looks like net for the end of this year, to be up high singles, maybe even approaching 10% versus 19%? I'm curious kind of how you might break out or talk directionally about how much of that is like-for-like versus new hardware versus CocoCay lift? And then maybe just zeroing in on the like-for-like, your ability to continue to move that up in years ahead when you consider the value gap versus land?

Jason Liberty:

Yes. I just want to add, what's also just very encouraging when you see -- which is effectively a double-digit price increase for us. That also does not include -- I mean -- or the negative side of this is we don't have China, obviously, here in 2023, which had a substantial APCD differential to the average. We also sold Azamara, which was a higher-yielding versus the average. And so, to be at a double-digit price increase and which has been accelerating, I think, really just shows the strength of leisure, the strength of crews and the strength for our brands.

Jason Liberty:

Yes. Well, I think first off, we are, based off of this latest guide, we are now in double digits on an ROIC basis. And so, our focus here is to have a business model that during good times and bad times stays within the teens on an ROIC basis. The focus on margin and also the capital discipline that you're seeing us employ each and every day, we think very much gets us there with moderate yield growth and good cost control. So, we feel very good about our Trifecta goals. We talked about that as that's really us just getting to base camp, which is your kind of pre-COVID levels scaled up for the additional capacity on our business. And really, if you just think about 2023 in itself, if it wasn't for the crisis actions we had to take, we will be well north of our 2019 earnings and well north of our '19 ROIC. So that's how I think we think about the business and the organic growth we have with the ships coming online and react we have on the destination side is really well positioning us.

Benjamin Chaiken:

Just one for me. On CocoCay, are you still seeing the same pricing premiums to those itineraries as you did to the rest of the portfolio as you did in '19? And I asked that in the context of there just being much more capacity at the island today than a few years ago. And then part two, I think Hideaway Beach is a 4Q opening. Any color on demand or pricing there? Thanks.

Jason Liberty:

But just one point on Hideaway for modeling purposes. Just keep in mind that it's coming online at the very end of this year. But its ramp-up of operations and so forth, as Michael said, is kind of in line when Icon comes online, which will be towards the end of January. So just as you're thinking about yielding costs, just keep that in mind.

Michael Bayley:

Also, Benjamin, just to add a quick comment, not on Perfect Day, but we did receive the kind of the greenlight approval from the Bahamian government to proceed through the environmental and permitting and planning process now in the Bahamas. So, our intention is to have the Royal Beach Club open in -- towards the end of the spring-summer of '25. And that new addition to the portfolio is also going to really produce an incredible experience for -- certainly for the short product and the short product is doing exceptionally well at the moment. We continue to increase our short product and put really great ships into that market. So, the combination of Perfect Day on one day and the Beach Club on the second day really is a winning combination.

Michael Bayley:

Actually, from a capacity perspective, it's very similar to Hideaway. Remember, Hideaway is part of the Perfect Day experience. So, the Perfect Day experience capacity will be around 13,000 a day. But the Beach Club's capacity will be around 2,500 to 2,750 a day.

Conor Cunningham:

Just on the $5.3 billion in customer deposits that you have. I was curious if you could parse out what percentage of the bookings are people that are new to cruise versus historical levels. It just seems like that, you're gaining a lot of momentum there. Just curious on where that sits. Thanks.

Conor Cunningham:

Okay. That's helpful. And then just I was hoping if you could unpack a little bit just on this close-in pricing momentum that you saw in the quarter. What did you assume originally? And then first, how it played out? And just how you're thinking about that trend through the remainder of the year? I realize load factors are stepping up. So, there's probably less to fill. But just curious on how you're thinking about that going forward? Thank you.

Naftali Holtz:

Yes. And just as I think I said it in my prepared remarks, 2/3 of our yield outperformance in the quarter were just load factors. We built 200-basis points more, and the remaining was just higher pricing, both on ticket and exceptional strength on onboard revenue.

Matthew Boss:

Great. Thanks, and, congrats on a really nice print. Maybe to follow up on demand. As we think about the drivers and the magnitude of the top line upside relative to where we stood three months back, I guess maybe if you could help to maybe rank order the upside? And then could you elaborate on your most recent momentum that you cited in bookings that you've seen? And finally, maybe just relative to the Trifecta plan that you laid out in November '22. What's your confidence today? Or just help us to think about puts and takes to consider relative to when you initially laid this out?

Naftali Holtz:

Yes. Just to add, it's Naftali, I think first on the latest points around the demand, I think if you kind of zoom out a little bit, we did talk about and we've been talking about the valve proposition of cruise being very attractive, and you see that played out. So, our goal is to close the gap and we do that with the ships that we have, the experiences we deliver Perfect Day at CocoCay, some of the itineraries we designed. But those are things that if you the consumer are, obviously, it's very attractive. On the Trifecta, I just want to make one comment, which is, as we were designing it, we weren't designing it for a perfect environment, right? So as Jason said, there's puts and takes, there's headwinds, tailwinds. And as we were designing those coordinates, we're confident we can get there.

Matthew Boss:

It's great color. Congrats again and best of luck.

Daniel Politzer:

Hi, good morning, everyone. Congrats on the quarter. Just a quick one for me. The Caribbean itineraries, I mean it sounds like pricing is tracking -- pricing and demand is tracking well above your expectations. And you've talked about this shift to short-term product. Could you see a prolonged shift there? And how do you think about your capacity allocation over the next kind of year or two as it relates to Europe and some of the more premium itineraries relative to kind of the lift you're probably getting now from CocoCay?

Daniel Politzer:

Got it. Thanks. And just for my follow-up, I wanted a little bit more color on China and maybe that cruise customer, if you can maybe put a little bit more color around what looked like historically in terms of mix of pre-board spend versus onboard, the EBITDA relative to the rest of your portfolio per APCD yields, kind of any additional color as we think about the reopening and take that into account given the strong and robust demand from the travel and leisure customer there?

Daniel Politzer:

Got it. Thanks, so much.

Frederick Wightman:

Hi, guys. Good morning. I was hoping you could just talk a bit more about -- if you think about the really strong demand you're seeing for the Caribbean and sort of in-line European demand, what is driving sort of that divergence? Is it just that CocoCay is that attractive? Are you hearing pushback on European airfare? Like where is the biggest difference?

Frederick Wightman:

Makes sense. And then on the expense side, you guys called out some benefit from expense timing in the quarter. I think that was sized at 180-basis points. Is that all showing up in the 2Q guide to some of that get punted 3Q and 4Q? How should we think about that?

Frederick Wightman:

Perfect. Thank you.

Paul Golding:

Thanks so much and congrats on the quarter. Just one for me, longer-term question here. I know you are still building load factor. But as you think about Q1 and the strength and close in bookings, does this change the way you think about WAVE and how you manage the booking curve and inventory as you go into the next WAVE cycle, the next booking cycle? And just in the context of what we had through the pandemic, which was a bit protracted booking curve. Thanks so much.

Paul Golding:

Appreciate the context. Thanks.

Operator:

Go ahead.

Operator:

Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

Operator:

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's Fourth Quarter Full Year 2022 and Business Update Earnings Call. [Operator Instructions] I would now like to introduce Michael McCarthy, Vice President of Investor Relations Mr. McCarthy, the floor is yours.

Jason Liberty :

Thank you, Michael, and good morning, everyone. Before getting started, and on behalf of the entire Royal Caribbean Group organization, 100,000 proud, I want to express how happy we are that our business has returned to normal. In fact, as you saw in the release this morning, our business is accelerating. So let me get into the detail and start off by talking about the fourth quarter and the full year 2022. As highlighted on Slide 6, 2022 was a challenging but successful transitional year as we returned our business to full operations and delivered memorable vacations to 6 million guests. As you can see on Slide 7, during the fourth quarter, demand for our brands accelerated. We delivered a record 1.8 million vacations, achieved a 95% load factor and successfully returned to Australia for the first time in three years. Pricing for our vacation experiences was higher than record 2019 levels when we operated with normalized occupancy and guest satisfaction scores were exceptional. Adjusted EBITDA and adjusted loss per share were above our expectations and at the high end of our guidance. It is incredible to consider that just one year ago, we were in the midst of Omicron, we were still returning our ships to service, and we were sailing at load factors below 60%. Our fourth quarter results clearly demonstrate that we are back, back to usual occupancy, back to our full addressable market, back to EBITDA and cash flow profitability, back to providing full year guidance and most importantly, back to delivering a record number of incredible vacations on the most innovative fleet in the industry. We finished 2022 on a high note and are entering 2023 with the full strength of our operating and commercial platforms. Our strong book position along with the normalization of the booking window provides the visibility needed for us to resume annual guidance, which is in line with our Trifecta program. I am incredibly thankful and proud of everyone at the Royal Caribbean Group for executing so well on our mission of delivering the best vacation experiences responsibly and building the foundation for our future growth. There has been a lot of talk about the state of the consumer, so I want to share what we are seeing from daily interactions with consumers who are either booking their dream vacations or who are currently sailing on one of our amazing ships. Overall, we continue to see robust demand, financially healthy, highly engaged consumers that are excited to sail on our brands. Secular tailwinds continue to benefit us as consumer preferences shift from goods to experiences. Entertainment and travel spend remains strong and the job market continues to show resilience. Consumer sentiment has improved and banks have recently reported healthy savings and continued resilience in credit card spending. Our addressable market is larger than in 2019 and continues to grow. Our products appeal to a broad range of vacationers with everything from a short getaway to Perfect Day to a luxury world cruise. Cruising remains an exceptionally attractive value proposition. And as I have said in the past, it is too attractive, and we are working very hard every day to close that gap. Growth in cruise search has outpaced general vacation searches, resulting in double the number of visits to our websites compared to 2019. Our brands are attracting new customers into our vacation ecosystem with fourth quarter new-to-cruise and new-to-brand mix above 2019 levels. We are constantly enhancing our commercial capabilities so we can further capture quality demand. Approximately 60% of our guests book some of their onboard activities in advance of their cruise, representing double-digit growth in pre-cruise purchase penetration when compared to 2019 at significantly higher rates. As we have said before, every dollar a guest spends before the cruise translates into about $0.70 when they sail with us and over double the overall spending when compared to other guests. Our guests are now engaging with us to book onboard activities much earlier than in 2019. So far, guests booked on 2023 sailings purchased onboard experiences an average of more than two months earlier than in 2019. This translates into more revenue, stickier bookings and happy guests. Now I'll provide some insight into the demand environment and what can only be described as a record-breaking WAVE season. As you can see on Slide 8, bookings outpaced 2019 levels by a very wide margin throughout the fourth quarter with particularly strong trends during Cyber Weekend. We expected a strong WAVE season, but what we are currently experiencing has exceeded all expectations even when considering our capacity growth. As a result, and as highlighted on Slide 9, the seven biggest booking weeks in our company's history all occurred since our last earnings call. Our commercial apparatus is full speed ahead, and all channels are delivering quality demand above 2019 levels. Our direct-to-consumer channels continue to perform exceptionally well as a combination of consumer preference for digital engagement and our enhanced capabilities is supporting record level bookings. We are also encouraged that our strong base of loyal travel partners continues to recover and supporting our brands with bookings above 2019 levels. As always the case, trends vary by region. We are seeing particularly strong booking trends for North American-based sailings, which account for nearly 70% of our capacity this year. From a cumulative standpoint, these itineraries are now booked at the same load factor as they were in 2019 and at higher prices. Our 2023 European sailings are booked within historical ranges at better rates with recent bookings outpacing 2019 levels. We expect almost 80% of our guests to come from North America as we continue to see particularly healthy demand from that region. Our global brand's appeal and nimble sourcing models allow us to continuously shift sourcing to the highest-yielding guests. I will now comment on our outlook for 2023. In 2023, we expect to deliver amazing vacation experiences to over 8 million guests at record yields as we deploy our best-in-class fleet across the best global itineraries. The ramp-up of our load factors in 2022, coupled with a higher and improving pricing environment, is positioning us to fully recover our yields beyond 2019 levels in the first quarter, which is another important milestone, and then ramp up further to record levels as we return to historical load factors in late spring. Our strong yield growth outlook is driven by the performance of our new hardware, strong demand for our core products and continued growth from onboard revenue areas. This year, we expect to increase capacity by approximately 14% compared to 2019 with eight new ships already introduced since 2019 and three more set to be delivered this year. Each of our wholly owned brands will welcome a new vessel in 2023. Silversea will welcome Silver Nova, the first of the Evolution class. Celebrity Cruises, will welcome the fourth Edge series ship, Celebrity Ascent. And Royal Caribbean International will take delivery of Icon of the Seas, marking the first new ship class for the brand in nine years, which is sure to set a new standard for vacation experiences. In addition to our incredible new vessels, we plan to launch Hideaway Beach in the fourth quarter of 2023, an adult-only neighborhood, making Perfect Day at CocoCay more perfect and increasing capacity in the island to 13,000 visitors daily. Our journey to deepen the relationship with the customer will continue with 2023. We will further enhance our commerce capabilities to optimize our distribution channels, build a deeper connection with guests and lower customer acquisition costs. We will also further enhance our e-commerce and pre-cruise capabilities and focus on increasing our guest repeat rate and spend. We will continue to excel in the core and drive business excellence in order to increase yields and capture efficiencies across our platform. Our teams have been working hard for over two years to reshape our cost structure and abate what would have otherwise been at least a 25% increase in nonfuel cost per APCD when compared to 2019. Net cruise costs, excluding fuel, is expected to grow 4.75% to 5.75% versus 2019. That's versus a three-year benchmark that includes a period of significant global inflation. Our cost outlook for the year includes approximately 210 basis points from lingering transitional costs such as crew movement and additional structural costs such as full year operations of Perfect Day at CocoCay and our new Galveston terminal. Our teams have been committed to controlling costs and enhancing profitability while focusing on delivering the best guest experience. We continue to expect the business to accelerate and allow us to deliver record yield and adjusted EBITDA in 2023. Our proven formula for success remains unchanged

Operator:

[Operator Instructions] Our first question comes from the line of Steve Wieczynski with Stifel.

Jason Liberty:

Steve, thank you for your questions. I would first start off and say that on a book position standpoint, we're now an eyelash away from our historical load factors or book position. But we also expect our load factors as we guided to be a little bit lower until we get into the spring, and that's why on the Q1, our load factor. So when you adjust for our expectations on load factors, we're in a very strong book position and at rates that are considerably higher than what we saw in 2019. I think your teams have put together a forecast that we believe is achievable, and it is based off of what we believe is very strong visibility on the revenue side as well as our ability to manage our cost structure. We do expect to exceed handsomely our EBITDA that we generated in 2019. And clearly, we see patterns continuing to accelerate in the way that they are, there's certainly opportunity for us to have a better outcome for the year. But I think we're thoughtful in just how we've always been. We're very thoughtful on how we guide. We're thoughtful on how we're seeing these different products and markets operate. And so, we feel really strongly about 2023. And quite frankly, we feel very strongly when we consider the acceleration towards Trifecta.

Naftali Holtz:

Hey, Steve. Yes, that's exactly right. And you can see that we made progress every quarter, and we expect that to dissipate as we progress throughout the year.

Operator:

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

Naftali Holtz:

Yes. So Robin, so first, for the full year, obviously, many moving pieces as we are again comparing a three-year benchmark. And as Jason said, just a minute ago, we were obviously different. So we are good at some ships, some brands. We added Galveston. We have direct contribution now from Perfect Day at CocoCay. All of it is slightly negative to yield, but overall, obviously, very, very important to us. The majority of the benefit that you see on the yield side is from new hardware. We also put that hardware on the best itineraries. They have more onboard revenue opportunities. And the rest, the like-for-like, that is up despite the fact that, as you mentioned, the load factors are much lower than what we had in '19. For Q1, if we adjust for the load factor, the difference -- yield would have been around mid-single digits. So it's obviously more impact for Q1.

Jason Liberty:

Yes. And so, Robin, just -- we've -- obviously, we’ve moved now to start to guide back to what we were doing in 2019 to make sure we create comparability. We clearly believe that our EBITDA is going to be up and our EBITDA per berth is on its way getting back to those record levels, which is really just being impacted by fuel prices. But that's really where we're very focused because we believe one of our paths to getting to ROIC in the teens is obviously focusing on improving our margins across all of our brands. And so, that's how we've guided for 2023 and the focus is very heavy on -- internally on us improving those margins.

Vince Ciepiel:

Helpful commentary there with the onboard bookings in advance and especially strong results during 4Q despite you continuing to close that occupancy gap versus 2019. So curious how you're thinking about that on board for passenger cruise day throughout the course of this year as you fill out the interior shift, I imagine there's maybe a little bit of a mix headwind there. But can these onboard less remain elevated? And secondarily to that, the ticket component, how would you expect that to evolve through the course of this year?

Jason Liberty:

Yes. I just want to just add on a few things. Obviously, as we add more third and fourths, that can weigh a little bit on the average APD on the onboard side. But I think what's important to point out is that the strength in onboard and the spending, as Michael mentioned, one is obviously the consumer or our addressable consumer is healthy, is sitting on a lot of savings, is searching for experiences and creating memories with their friends and family. But our ability to get the consumer to book earlier is really the main force behind why we're seeing an increase in onboard activity. So a healthy consumer certainly helps. Their desires and interests certainly help. But also allowing them to effectively get at least a day back of their vacation by being -- allowing them to plan what they want to do on the ship as well as shore excursions is certainly creating a great tailwind for us. And on the ticket side, we expect our ticket yields to continue and APDs to increase. There's a little bit of always that how we package and how we do things can lead a little bit more into ticket or a little bit more on to onboard depending on how it is with the brand. And also one of the -- I think the other drivers on the ticket and onboard side is just whether it's through e-commerce and other things. We're taking more and more friction out of the acquisition experience or how the customer shops. And that's also allowing them to get the vacation of choice that they're looking for and on the platform or the channel of choice that they choose to go through.

Jason Liberty:

Well, it's -- I certainly don't know the plans of our competitors on a new building standpoint. As we had kind of noted in our release, how we expect our business to grow next year by about 10%, then about 5% and then about 6%, respectively. And I think the first thing to point out is, that's not just one brand in one market, in one destination. So this really reflects our three wholly owned brands and how they're going to grow in their different segments and also for these ships to be in different parts of the world. If you look at the order book, you do see, as you get into '27 and '28, a lighter order book. We believe that Royal Caribbean that the addressable market is underpenetrated, especially in all the different markets that we operate. We are -- we work very hard to create global brands that attract guests from all over the world, and of course, to build the revenue management systems to effectively harvest that quality demand. And we think that apparatus more than supports our expected supply growth over the coming years.

Jason Liberty:

We'll save you a cabin, Vince, don't worry.

Operator:

Your next question comes from the line of Brandt Montour with Barclays.

Jason Liberty:

Thanks, Brandt. First, I mean -- and it's -- I don't say this lightly, so it's wonderful to say, but we're really seeing these very strong WAVE trends across all of our brands. And you see an elevated amount of demand coming from North America. And we have been very happy to see over the past two or three weeks, that elevated demand now move into Europe as well. We have been very happily surprised by how strong we're seeing the consumer plan their vacation travel and to see that our booking window is now within a couple of weeks of what it has normally been. And that includes a lot of acceleration for short close-in products, especially as we've increased more of our 3, 4 and 5 night products is really encouraging overall. So I wish I could say it's different -- well, actually, I don't wish I could say, I should say that it's different from the family to ultra-luxury or to expedition. But we're really seeing this across all of our brands really strong. And we've seen markets like, for example, like Northern Europe now begin to move into a much stronger place. I also just add is demand, as you probably have seen in other travel products for North Americans to go to Europe has been exceptionally strong. And so, we're now seeing that take over here in the cruise space.

Michael Bayley:

Sorry. Sorry, just to add one comment on the demand from North America. We've also seen strong demand coming out of the Latin American markets for the European product, which has surprised us, but obviously, we're taking advantage of that. But it's pretty much across the board that we're seeing the strength in the consumer and it's across so many of our markets, which is really healthy to see.

Jason Liberty:

Yes, they are. And I think the other thing that has been -- that we've seen through the course of this WAVE is our ability to raise prices at the same time. So the demand is that strong and we're able to raise price across these different products and really not seeing a pullback from the consumer as we continue to do so. And that is really a reflection of what we've seen since our last earnings call, or really since the announcement of the protocol being dropped just acceleration and the propensity to cruise across all three categories of new-to-cruise, first-to- brand, first-to-cruise has returned. And in many cases, it's better than what we saw pre-COVID.

Benjamin Chaiken :

Maybe I missed it, but the guide implies some net yield growth for the year, clearly. Is this simply occupancy improving? Or is the revenue per passenger cruise day also expected to improve? And I guess I asked that in the context of what sounds like better pricing in the last few weeks and months.

Benjamin Chaiken:

Got you. That's really helpful. And then on CocoCay, are you still seeing the same or similar pricing premiums to the CocoCay itineraries as you did in 2019? And then longer term, should we assume that you make further build-outs in other locations that are similar to CocoCay? And if so, how do you think about that opportunity while also bringing down [Hideaway Beach]?

Naftali Holtz:

So let me just add one other thing, which is the financial returns associated with CocoCay and the like are exceptionally high and are significantly above our targeted returns. So this should be accretive to profitability and obviously to EBITDA and those are the type of investments that we obviously want to continue to make.

Michael Bayley:

Yes.

Michael Bayley:

Yes, yes. That's incremental.

James Hardiman:

And congrats on a great quarter and some really important benchmarks here. I wanted to dig in a little bit on Europe and Asia. Obviously, a year ago, WAVE season, there was -- it was obviously marred by the Russia-Ukraine conflict. Being such a global brand, you guys do what you do, you adjust. And it sounds like both in terms of the destination markets as well as sourcing customers, things are getting better. I guess my question is on Europe, is there still a lingering impact of that conflict in your business that, who knows what's going to happen with that conflict, but that could ultimately be a positive for next year? And then sort of similar question with China. I'm assuming there's not much of a benefit yet from sort of the zero COVID policy going away there. But is there any way to sort of quantify or even anecdotally speak to what sort of a drag that is on your business that could potentially open up for you next year?

Michael Bayley:

Yes, on China, there's -- obviously, the environment's improved significantly from what we've being told by our China team. So things have started to normalize, and they seem to have got over that very difficult period. There's currently two impediments to the China cruise market opening up. One of them is there's still a ban technically on cruising and group travel in China. And also, there's a requirement from the Japanese that Chinese tourists have to test and potentially could be quarantined. We understand that both of these conditions will drop away at some point during this first half. That's what we've been led to believe, and we believe that that's going to happen. As soon as those two conditions change, then obviously, the market will reopen and we're thinking that it will be late '23, and we're kind of thinking that '24 probably, realistically, the China market will be back. But obviously, that's based upon how we understand and see the situation currently.

Naftali Holtz:

And it's also not obviously included in our -- this year results as well.

Jason Liberty:

Yes, I don't know -- I don't think we're going to close that gap in 2023. I'm encouraged by the ability now for us to increase our pricing even more, which I think will give us the opportunity to close that gap. I'm excited about what we're seeing in the onboard side, which also helps us close that gap. But that gap, which used to be 20% is now in the 30% zone relative to pre-COVID, which was around the 20% mark. But we do think that, that's -- there's a lot of runway for us, and that just I think through great execution, just broader awareness of our brands and the cruise complex that we see now as being appreciated more and more by our guests helps us lead to getting the pricing and which helps us lead that to that -- closing that gap. What we're not interested in is the gap closing just because their pricing could potentially go down. Like we want to elevate ourselves up to that level, and we think that's definitely something that's in our capabilities to do so.

Daniel Politzer:

Congrats on a nice quarter. So first, I wanted to just touch on the cost. It sounds like you're going to exit 2023 more in line with your historical levels. As you get to 2024, and I know it's still early days, are there any kind of onetime items that we should be thinking about that could impact your algorithm, that kind of 1% to 2% cost increase and whether it's China relaunching or land-based destinations or any technology initiatives?

Daniel Politzer:

Got it. And then I guess for my follow-up on TUI. Can you just talk a little bit more about the ramp there? I know that there's a big European piece, and it sounds like things are moving along. But how should we think about that contribution ramping over the course of 2023 given that it was a big piece of that adjusted EBITDA in 2019?

Jason Liberty:

Yes. The only I would add is for TUI cruises, a -- cruise is just similar to all of us. They still have some negative carry to burn off as well. And I think there are a few years from being at a place where they're contributing at the same level to us as they were in '19. But that's -- I think it's a very short duration as they have been really effectively managing the business. They've really been outpacing, I think, just a broader cruise world and getting their business back up and running and profitable and generating positive cash flow. But like all of us, they have some negative carry they're going to have to burn off.

Patrick Scholes:

First is actually just a modeling clarification question. On your percentage guidances to grow off of versus '19 for the net yields and the various cruise costs, are those apples-to-apples based numbers? Basically the reported numbers that you had in -- back in 2019, are those the numbers we should be growing off of? Or is there any adjustments in there that might make those percentages different than -- okay, all apples-to-apples?

Patrick Scholes:

Okay. And then a different question here. With the increase in direct business, do you see that disproportionately going to any types of destinations such as Caribbean or perhaps higher-end Alaska or Mediterranean any differentiation between those?

Patrick Scholes:

No, that I understand. But as far as any changes since pre-COVID, have you seen a greater acceleration in sort of direct booking to higher end or perhaps a greater acceleration to...

Patrick Scholes:

Thank you for the color. I am all set.

Operator:

Our final question will come from the line of Fred Wightman with Wolfe Research.

Naftali Holtz:

No. I think if you go through the guidance and our expectations of what we provided, our expectation is obviously, it's going to be lower than 2019 because what Jason mentioned is the negative carry. So they continue to recover.

Jason Liberty:

Yes. Well, and just our general commentary on WAVE. What's driving that strength is new-to-cruise and new-to-brand. And so, that mix is not only similar, but it's better than what we saw take place in the fourth quarter. So we feel that propensity to cruise -- and by the way, I think one thing that's important on the new-to-cruise stat, especially relative to '19 is because we don't have China in the mix of our business. Pretty much every Chinese consumer back in '19 was a new-to-cruise consumer. So that really talks about the strength of the North American and European consumer and their interest to go on a cruise for the first time or to go on to one of our brands for the first time.

Operator:

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator:

Good morning and welcome to the Royal Caribbean Group Third Quarter 2022 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Michael McCarthy, Vice President, Investor Relations.

Jason Liberty:

Thank you, Michael, and good morning, everyone. Over the past several months, our teams have been very busy and focused on generating strong quality demand, combating inflation and most of all delivering the best vacations in the world. As we return our business closer to historical load factors, while maintaining price integrity and generating $3 billion in revenue and almost $750 million in adjusted EBITDA in the third quarter. As you have seen in our announcement this morning, we have announced a three-year financial performance program that we have termed project Trifecta. Now, before getting into the details of the program, let's first talk about how the business is performing. As our third quarter results clearly demonstrate the strength of our vacation platform, which includes our leading global brands, the best and most innovative ships in the industry. And a powerful and nimble commercial apparatus, coupled with strong execution by our operating teams have delivered another quarter of strong performance that exceeded our expectations. Our entire fleet is operating globally in our key destinations, demand for our experiences was very strong, and we achieved 96% load factors overall with the Caribbean at close to 105% at record pricing and high satisfaction scores. We delivered adjusted EBITDA of 742 million and positive earnings per share of $0.26, which was above our guidance. Our strong financial performance, coupled with proactive refinancing actions, further strengthened our already strong liquidity position, and improved our debt maturity profile. I'm thankful and proud of everyone at the Royal Caribbean Group for delivering the best vacation experiences to our customers in a responsible way, while executing so well in our recovery and building on our future. The successful return of our business to full operations in the accelerating demand environment positions as well to deliver on our expectations of record yields, and record adjusted EBITDA in 2023. Next, let me elaborate on the Trifecta program we announced this morning. But the operational return of our business well in hand, we are now focusing the team and our stakeholders on returning to record financial performance and beyond. The introduction of the Trifecta program provides us the coordinates we are looking to achieve over the next few years while delivering the best vacations in the world responsibly. Specifically, we are focused on achieving three metrics by 2025, growing EBITDA profitability per APCD to triple digits, delivering double-digit earnings, and achieving a return on invested capital in the teens. We look to achieve these metrics while we return the balance sheet back to investment grade profile and reduce our carbon intensity by double digits compared to 2019, as part of our commitment and focus on advancing the sustainability of our business. Our formula for success is based on moderate capacity growth, moderate yield growth and strong cost discipline. For those who have followed us for some time, this will sound very familiar as we demonstrated in the past, it leads to strong financial performance, and does not assume a perfect operating environment. Our plan is well-grounded in a set of underlying strategies, robust secular and demographic trends, a strong culture and a powerful foundation of leading global brands, the most innovative fleet in the industry and the very best people. The main thrust of our plan is to take further advantage of our strong foundation, and further orient our ecosystem around the customer by enhancing our commercial apparatus and product offerings. By doing this, we will further enhance customer preference, engagement, cruise frequency, guests experience and spend. This combined with expanding our fleet through innovative new ships and land base experiences like Perfect Day at CocoCay will drive our profitability growth and strong cash flow generation. Disciplined capital allocation to high returning investments will allow us to reduce leverage while investing in our future and delivering strong shareholder value. Trifecta creates the pathway back to what we internally describe as Basecamp. However, Basecamp is not our final destination, our ambitions go well beyond it. And while it may not always be a straight line, and there may be some choppy waves from time-to-time, we are confident in our leading platform and ability to execute on our strategies to deliver those goals over the next few years. Before going into the booking commentary, I wanted to share some of the behaviors that we are seeing from our guests. Global demand for travel is ramping up as consumers continue to shift spend to experiences. While this is good news to us as we are squarely in the experience business. The value proposition of cruise remains incredibly attractive, I would say too attractive. Our full addressable market is back and our brands are attracting new customers into our vacation ecosystem. As a result guest mix for the quarter was equally distributed across loyalty, new to cruise, and new to our brand similar to what we saw in 2019. Let me highlight some observations from our daily engagement with our customers. This quarter we delivered 1.7 million amazing vacation experiences. And we have more than 130,000 guests sailing on our ships globally every day. The positioning of our brands attracts guests across broad demographics, psychographics and at a median household income above $100,000. This provides us a unique vantage point on what our guests are looking for and their behaviors. Overall across markets, brands and products, we continue to see a financially healthy, highly engaged consumer with a strong hunger to dream and seek a variety of vacation experiences. Our commercial apparatus is seeing elevated booking activity across channels as we help our customers design their dream vacations. Our guests are willing to spend more than ever with us to create those memories. Consumers are engaging earlier in the planning their vacation, with about 60% purchasing onboard experiences before they even set sail. This has led to an 8-point increase in penetration and much higher revenue APD related to pre-cruise purchases versus 2019 levels. Our guests continue to seek the rich experiences we offer spending significantly more onboard our ships compared to 2019 across nearly all categories. All this is translating into strong booking activity. During the third quarter we saw both strong demand for close in sailings and accelerating demand for sailings in 2023. Next, let me talk a little bit more about the new ships that are planned to join our fleet next year. Our innovative new ships and onboard experiences will allow us to continue to differentiate our offering as well as deliver superior yields and margins. Two weeks ago, we revealed details on our new and amazing Icon of the Seas, which will be delivered in late 2023 ahead of its January 2024 debut. It is a game changing first of its kind vacation experience where everyone can experience their version of the ultimate vacation. Icon will have eight distinct neighborhoods, each a destination in and of itself, packed with an array of amazing experiences. The ship's stateroom configuration will allow for load factors to be accretive to the overall portfolio, and the ship will be significantly accretive to our key financial metrics. The ship opened for sale about a week ago, and the market response was nothing short of remarkable. On the first day of bookings, we far surpassed our previous single-day booking record for the brand and the company overall, and it wasn't even close. With each new ship, we raise the bar in the travel industry while enhancing what our guests know and love. In addition to Icon, [indiscernible] will join the Celebrity fleet in the fourth quarter of 2023 and Silver Nova will join the Silversea fleet in late summer. In the coming days, we will open a brand new flagship terminal in Galveston, Texas. The new terminal significantly expands our capacity in the region, with the ability to accommodate the larger Oasis Class ships and give us further access into the attractive drive to markets of Texas, Oklahoma, and the entire southeast region. The facility will also be the first cruise terminal to generate 100% of its needed energy from onsite solar panels and will be the first zero energy cruise terminal facility in the world. While we are still early in our planning cycle, 2023 is shaping up to be a strong year for the company and a return to normal typical business. Our overall capacity will grow 14% compared to 2019, on account of 10 new ships which have joined or will join the fleet across our brands during this period net of dispositions. Our deployment across markets is relatively unchanged compared to 2019 with Caribbean representing just over half of our overall deployment, Europe at almost 20% and Asia in the low single digits with no planned deployment in the high yielding China market. About 80% of the population is within driving distance to a U.S. home port and we have upsides the short Caribbean product by 35% compared to 2019. Almost 65% of guests sailing on Royal Caribbean Internationals, Caribbean itineraries will experience Perfect Day at CocoCay in 2023, up from 30% in 2019. We expect almost 80% of 2023 guest sourcing to come from North America as we continue to see particularly strong demand from that customer. Our global brands appeal and nimble sourcing model allow us to attract the highest yielding guests and partially mitigate the impact from the strong dollar. While 2022 bookings remain strong and on pace to achieve occupancy targets, the most notable change over the past few months has been a substantial acceleration in demand for 2023 sails. We received twice as many bookings for 2023 sailings in Q3, as we did in Q2, resulting in considerably higher booking volumes than during the same period for 2019 sailings. As a result, all four quarters of 2023 are booked well within historical ranges at record prices, with bookings accelerating every week. While the last three years were certainly challenging. The resiliency of our business allowed us to recover quickly and be fully back up and running. Our operating platform is larger and stronger than it has ever been with the best brands, best ships and best people. Our commercial capabilities allow us to reach more quality demand, and our itineraries are strategically planned to appeal to both new to cruise and loyal customers. The value proposition of cruising remains incredibly attractive and we have an opportunity to close the gap to other land vacation alternatives as we grow our addressable market. We continue to expect the business to accelerate as we close out 2022 and set a strong foundation for us to deliver record yield and adjusted EBITDA in 2023. Our formula for success remains unchanged. As we have demonstrated in the past, moderate capacity growth, moderate yield growth and strong cost controls lead to enhanced profitability and superior financial performance as we seek to improve the balance sheet. The future of the Royal Caribbean Group is bright. With our strong platform and proven strategies, I'm confident in our recovery trajectory and our ability to deliver on the Trifecta program as well as reach new financial records. With that, I will turn it over to Naftali. Naf?

Operator:

[Operator Instructions] Your first question is from the line of Steve Wieczynski with Stifel. Steven, your line is open.

Jason Liberty:

You didn't say it last time, Steve.

Naftali Holtz:

Hey, Steve. Its Naf. good morning. So first of all, yes, we're very excited by Trifecta and as you've done, your math with some of the coordinates we gave you that's how we think about it. And that will help us as we grow continue to grow EBITDA, both help deleverage the balance sheet, but also generate cash flow. And with our capital allocation, we're very much focused on paying down debt. And if you're going to remember be in 2019, and before, our goal was around, and where we were, is around 3x leverage. And those are the topic coordinates that we're looking for. And which means for us, an investment grade balance sheet, in addition to being an unsecured balance sheet as well. We’ve been having conversations with the rating agencies, there hasn't been any indication of difference in their kind of ratings, versus what was pre-pandemic.

Jason Liberty:

Yes, great question, Steve. When we look at things over time, we've been able to grow our like-for-like yields. We've been able to grow our onboard. And obviously, as we take on new ships, the inventory mix has also been helpful as those ships have a better inventory mix in terms of speeds and outsides versus insides, as well as on the onboard side, there's more venues for us to have different services and experiences for our guests, which they'll spend money on. So I think when we think about moderate yield growth, we think about as we said it in the past, it's on average, 2% to 4% a year. And on the cost side, it's typically flat to low single digits. So we should be able to grab scale, as our business grows. And that's how I think we -- you'll see us continuing to do that. We're not looking at this as if, and I've said this in my remarks as the operating environment is going to be perfect, and that the consumer is going to be perfect. What we've done is we know that we have been able to manage our business in that way, in times in which the market might be accelerating. And sometimes when market is a little bit choppy. And that's why we looked at this over this kind of 2.5, 3-year period of time on us getting back, well not just getting back accelerating past our highs in 2019.

Naftali Holtz:

Yes. It's the former 3.6.

Jason Liberty:

I thought you're going to ask me about vacuuming, Steve, on the housekeeping question, I guess.

Robin Farley:

Great. Yes. Thanks. You mentioned that price is at record levels for '23. I wonder if you could sort of give a ballpark of how that price compares on a percentage basis to 2019 knowing that it could go up or down from there. But just in terms of how it's tracking?

Robin Farley:

Okay. Then you're probably going to love my next question.

Robin Farley:

Is sort of a similar about expenses that just looking at what we're sort of one-time expenses, meaning like the ramp up and some of the protocols that you don't have to follow anymore, was maybe about 3% to 5% of the expense increase in '23. And so, in Q4, when you're talking about being uploaded mid-single versus '19, if we think of that maybe some ramp down and some of those one-time costs, could you get to the point in '23, where your expense is actually lower, just given your greater scale and more efficient ships? And this is all excluding fuel cost, which it's not forecast that but just your fuel expense, perpetual cruise sails, like potentially being better being lower and better than it was in '19?

Jason Liberty:

And I mean just to add, Robin, we certainly much appreciate when we look at a 14% capacity increase, that we should be able to get more efficient over time. And, of course, some of that capacity increase that's coming in as a mix leans heavier now towards Silversea, and Celebrity in terms of the capacity growth. And of course, those are higher net cruise cost products. But in the same vein, we have been taking a lot, we have taken a lot of action during the course of this, we've done a lot of, as I've described in the past, getting into our wedding weight here, which is helping us combat a lot of the inflation. So that we can kind of think about that formula for success as we go into 2023.

Operator:

Your next question is from the line of Vince Ciepiel with Cleveland Research Company. Please go ahead.

Jason Liberty:

Yes. Well, I can't really speak for our competitors, in terms of what's happening inside their business. But I think for us, we obviously, we returned our ships very quickly. I do think that some of the things that you laid out there strong brands, I think leading brands, leading ships, having assets, like Perfect Day at CocoCay has resulted in an acceleration of our business. While has also been very mindful about price integrity, as you know, certainly could be higher load factors if we wanted to take action on price, which we're not looking and we have no intent to do. And of course, in the Q4, we're moving into the shoulder season, which is why load factors are more or less what we talked about in Q3 and rates are typically lower in Q4, because that's the shoulder season period of time. But what we see is a lot of demand for our brands, we see the return, I mean, everything has normalized in terms of new to cruise, loyal guests first to ran. And so now it's just building up a quality book business over time, as we would do in a regular way as we enter a normal 2023 year.

Michael Bayley:

Vince, what can I say, you just gave me the great question. I've been sitting quietly here waiting for somebody to ask such a question. Obviously, we are extremely pleased and delighted and honestly excited with the direction of the business. I think, as Jason commented earlier, the results from Icon of the Seas that the first weeks bookings for Icon were absolutely phenomenal. I mean, we had high expectations, and the actual results just even surprised us. I'm not going to give you the stats for that first week because I may get into trouble. But they were really phenomenal. And Icon is the first in a new class of ships for Royal Caribbean, which is squarely in the family market, which is a scale. Obviously, it's a scale brand with huge presence in the American market and a strong global footprint. That product and the journey that we've been on now for many years in terms of where we're taking the brands, the introduction of Perfect Day and our plans for future private destinations, combined with new hardware, and certainly with Icon now leading the way late in '23, and into '24, where we're really focusing on this target market, which is family and of course, has many new neighborhoods, including a neighborhood called Surfside, which is absolutely focused on young families. And those young families with children six and under travel all year round, because obviously, parents can pull their kids out of pre-k and what have you. The Icon product along with Perfect Day, with the kind of experiences that we're offering with the kind of new accommodations that we have on Icon, and the experiences that we have for young families, older families, and of course, couples and singles, and what have you, is really squarely standing shoulder-to-shoulder with Orlando, and those kinds of destinations. And what we're beginning to see is the -- for us is moving certainly the Royal brand into that space far more aggressively. And we're seeing the kind of booking activity and demand and enthusiasm for those products is increasing and accelerating. So I would say that's the direction we're on. And, again, what we've seen with Icon in the first week, and it's continued now into the second week. There's a huge amount of demand for that product. And I think, if I'm correct, Vince, Michael told me that you actually been sitting on a plane and you overheard a conversation maybe you could share with everybody else. What you overheard on that plane.

Jason Liberty:

Yes. But just assume that everybody says that. And I just wanted to add to Michael's comments, obviously, we've seen this 40% gap to land based vacation, it used to be about 20%. The Royal brand actually closed the gap very significantly, with the introduction of Perfect Day, the modernization of our fleet. And so we see there's a lot of opportunity to close that gap here over time. And I think what you're also hearing from us, and in, we'll probably talk more about this in our Investor Day in the coming weeks here is just how we need to increase frequency with our guests. We need to improve our loyalty programs. We need to be more one-to-one, so that we're putting offers in front of our guests that are very relevant to them individually, and just bring more awareness. And that should all yield us closing the gap further to land based vacation. So we're not happy about that gap. But it serves as great motivation for us to go after.

Jason Liberty:

Thanks, Vince.

Brandt Montour:

Hey, good morning, everybody. Thanks for taking my questions. And congratulations on getting this trifecta out there. My first question is on broader bookings volume trends throughout the quarter, Jason, if you could just speak broadly in terms of how that sort of trended post the protocol relaxation, if there was sort of a huge spike from a pent up people waiting for that to happen, and then it eased a bit or is it even or did it accelerate through anything you could help, you could add would be helpful. Thank you.

Jason Liberty:

Yes. I just want to add, because I know, coming out of all this, there's always a lot of what's happened with protocols and so forth. I think it is important to note that the business is back and operating, the booking activity is very, like, similar to what we were experiencing in '19. And of course, it's accelerating, which is what we want to see the consumer is very healthy. We're spending a lot of money on our ships. But psychologically, and we experience wise, it's almost as if we just stepped into the next quarter after '19. And we're just -- it's business as usual.

Jason Liberty:

Our expectation, as I said is our yields will be up in 2023. And our EBITDA will be better in 2023. And we expect we're going to manage our costs, as we always have. And we know that there are headwinds, there are some structural headwinds and not pointed out on the top-line. But our expectations are that our yields are going to accelerate. And we expect that we're going to be managing our cost effectively and our capital allocation effectively.

Jason Liberty:

Yes. For sure the combination of new ships and the exit of Azamara and so forth that nets out to a positive for us.

Operator:

Your next question is from the line of Ben Chaiken with the Credit Suisse. Please go ahead.

Naftali Holtz:

Yes. We actually are seeing some mitigation, but it's a little bit hard right. The environment is pretty complex. So what we're seeing is continuation of what we're seeing today.

Benjamin Chaiken:

Great. Thank you.

Operator:

Your next question is from the line of Daniel Politzer with Wells Fargo. Please go ahead.

Jason Liberty:

Yes, sure. So I think what we're seeing kind of across the Board is a lot of -- there is a lot of strength in the Caribbean. We see strength in Alaska. We see strength in the Europe, We’re more focused on the Mediterranean area. That's where we see the strength in the bookings. But yes, we see a lot of like these puts and takes and we see these trends change a little bit over time and but for the most part, we're seeing most of our products a lot of strength in demand with the focus a little bit more on the Caribbean in terms of where we're seeing the consumer want to get ahead of the curve in their booking activities. Historically, we've entered the year somewhere between 55% and 60%, I would just be mindful as we go into next year and some of the comments that I made and Naftali made, we don't have any China business assumed for 2023. Typically this point of the year we would have most of that business booked because it was charter related contracts. So that will weigh a little bit on in terms of the percent that were booked. And we have more short product going into 2023, which is a little bit more of a closer in product. But we feel very comfortable with not only how we're booking but we feel very comfortable on how we're going to turn the year to put us in a position for positive yield growth.

Operator:

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

Naftali Holtz:

Yes, Hi Fred. No, we think -- I think we mentioned it also in the prior call. We think that and we -- this is really a phenomena of this year, just given what happened earlier in the year. So as we look forward, we don't expect that we expect this to be normal. We do have, as I mentioned we did finish 90% in Europe is actually a little bit better than what we expected and for the fourth quarter it's really late season in Europe, which typically is a lower occupancy.

Frederick Wightman:

Make sense.

Frederick Wightman:

Make sense. And then just quickly on China no assumption that China comes back online in ‘23. But what if you guys assumed for the ‘25 targets for China?

Frederick Wightman:

Okay, thank you.

Jaime Katz:

Hey, it's Jamie from Morningstar.

Jaime Katz:

First and curiously as I would be able to delineate maybe what the best cost opportunity is you have out there to control are outside of these transitory things that are pruning back over the next few years?

Naftali Holtz:

Yes. And I guess that kind of if you take a step back or higher a little bit it's also as we continue to grow capacity and grow the business really leveraging the scale and creating the operating leverage. So we can expand the margin.

Jaime Katz:

Of course. And then, as you look at the brands, I know you probably won't bifurcate them. But I'm curious if there are any different demand patterns you guys are seeing between maybe Royal Caribbean and Silversea, is there any sort of booking pattern differences or pricing power differences just as we think about different income demographic status? Thanks.

Jaime Katz:

Thanks.

Operator:

Today's final question will come from a line of Paul Golding with Macquarie Capital. Please go ahead.

Michael Bayley:

Yes. No, that's right and we don't -- we expect this as I think we said even in the last quarter earnings we expect to be normalized in terms of our investment in sales and marketing. We're always thinking about where's the best money to spend which channel, which market, but generally we expect it to be at normal levels.

Paul Golding:

Thanks for that color. And then, thinking about Trifecta and some of the initiatives, I was wondering if there was any sort of order priority among those different initiatives? I'm mostly thinking about your ROIC and earnings relative to de-leveraging in light of the carbon reduction efforts which presumably would carry some amount of costs expense and capital. Thanks.

Paul Golding:

Thanks, Jason.

Jason Liberty:

Great. So thank you everyone for your participation and interest in the company. Michael will be available for any follow-up. I wish you all a great day. Thanks a lot.

Operator:

Good morning. My name is Joanne, and I'll be your conference operator today. At this time, I would welcome you to the Royal Caribbean Group Business Update and Second Quarter 2022 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Michael McCarthy, Vice President, Investor Relations. Mr. McCarthy, the floor is yours.

Jason Liberty:

Thank you, Michael. Good morning, everyone, and thank you for joining us today. Over the past several months, our teams have reached several very important milestones in our pursuit to quickly return our business back to 2019 financial metrics and beyond. In June, we successfully completed the return of our entire fleet into operation. This was a herculean task by our team, and I'm so thankful and proud of our shipboard and shoreside teams who have worked so incredibly hard under unthinkable and ever-changing circumstances to execute on such a successful return to delivering the best vacations in the world. Our complete operating platform is now up and running. That platform, which includes our leading brand, the most innovative fleet in the industry, our global sourcing and technology apparatus and the best people in the world. It is now positioned to deliver the best vacations in the world responsibly and accelerate our business back to superior financial performance. Another major milestone for the group this past quarter was that our business turned operating cash flow and EBITDA positive. During the second quarter, we achieved earlier than we had expected, positive EBITDA and operating cash flow. This achievement further strengthened our liquidity position and positions us well to continue methodically and proactively improving the balance sheet and refinancing near-term maturities as we seek to return to 2019 metrics and beyond swiftly. This outperformance in Q2 versus our expectations was driven by continued strength in our onboard revenue and accelerating load factors, which hit nearly 90% in June and delivered 82% for the quarter. This combination led us to achieving higher total revenue per guest versus 2019 levels. Our North American itineraries are now sailing at over 100% load factors, and we are building on this momentum as we expect to reach load factors in the mid-90s in Q3 and then return to triple-digit load factors globally by year-end. This will set us up very well for 2023. The combination of consumers' strong propensity to experience in travel, accelerating demographic trends, which are pulling in more bucket list and multigenerational travel, a very compelling value proposition and a strong preference for our brand is translating into strengthening demand. Lastly, the other major milestone for the group and the industry is related to the CDC ending its program for cruise ships as we are now transitioning to the point where everyone will be able to vacation with us. As we've always said, the health and safety of our guests, crew and communities we visit are our top priority, and cruising has proven to be one of the safest environments anywhere. After two years of successfully working with us, the CDC has transitioned from enforcing protocols and policies for the cruise industry to suggestions and recommendations to be in line with the travel and tourism sector. That speaks to the great work we've done together as an industry. While we plan to continue to operate our healthy return-to-service shipboard protocols, one immediate change that I'm happy to report is that starting August 8, pre-embarkation testing for vaccinated guests on voyages of 5 days or less will no longer be required. This will be subject to local destination requirements, and we will continue to test all unvaccinated guests. We also anticipate in the not-too-distant future that pre-embarkation testing for longer duration voyages will be reduced. Before going into the booking commentary, I wanted to share some of the behaviors that we are actually seeing from our guests. Now keep in mind that every day, we have well over 100,000 guests experiencing and spending on our ships. Every day, we take tens of thousands of bookings from our guests looking to travel to a wide range of destinations, anywhere from a quick weekend getaway to bucket list trip to the Galápagos Islands or Antarctica. Every day, we witness and engage in millions of interactions on our websites and through our call centers as guests learn about and book their dream vacations. We see a lot. Overall, we continue to see a financially healthy, highly engaged consumer with a strong hunger to dream and seek experiences, and they are willing to spend more than ever with us to create those memories. Let me give you some more concrete data points. The 100,000-plus guests that we have on our ship every day, including the 125,000 guests that are currently on our ships today, have been spending at least 30% more on board our ships across all categories when compared to 2019. These spending trends have been consistent across our customer base even as we are approaching full load factors. Approximately 60% of our guests book their onboard activities before they ever step foot on our ships. As we said in the past, every dollar a guest spends before the voyage translates into about $0.70 more on the dollar when they sail with us and double the overall spending compared to other guests. As we look into the second half of 2022, precruise revenue APDs are up over 40% versus 2019 levels. The strong consumer demand in our commercial and technical capabilities are contributing to the strong performance. Our distribution channels are now fully up and running. Our websites are receiving close to double the visits compared to 2019, and we are generating record level of direct bookings. In addition, our trade partners are fully up and running and are generating bookings in excess of 2019 levels. We are also seeing in our consumer data that cruise interest is now basically back to 2019 levels as the continued easing of travel protocols and the attractive value proposition is making cruising more and more appealing. The attractive new-to-cruise segment is now returning faster with non-loyalty guests doubling in Q2 compared to Q1, and the mix is essentially on par with 2019 levels. Our attractive brands as well strategically adjusted deployment towards shorter itineraries are driving more new-to-cruise. We also continued to benefit from secular tailwinds anchored in the shift of consumer preferences from goods to experiences. And we are squarely in the experience business. Recreational services are now growing 4x the rate of goods and are expected to continue to outpace 2019 levels. Favorable demographic trends support our growth as well. More than 3 million adults retired during COVID, doubled than what was expected. Meanwhile, millennials are financially healthy, as they reach their peak earning years, forming households and looking for vacations with their families. These trends, combined with the emergence of more paid time off and more flexible work environments, allow guests to spend more vacation time on our cruise ships. The value proposition for cruising remains incredibly attractive and the strength of our brands and platform allows us to continue and capture this quality demand as we ramp up the business this year and build for a successful 2023 and beyond. All this quality demand is translating into strong booking activity. During the second quarter, we saw a strong demand for close in sailings, which contributed to better-than-expected load factors. Bookings for 2022 sailings averaged about 30% above 2019 levels throughout the second quarter and more recently have been up to 35%. The second half of 2022 is booked below historical ranges, but at higher prices than 2019 with and without future cruise ship credits. Cancellations are at pre-COVID levels. In addition, we are now seeing the booking window starting to extend back out, providing further confidence in forward-looking business as our guests thoughtfully planned for the future. As a result, all four quarters of 2023 are booked within historical ranges at record prices with bookings accelerating every week. Our customer deposits are at record levels and over 90% of bookings made in the second quarter were new, while study FCC redemptions continued. Inflation continues to impact businesses across the globe, and we are no exception. As we discussed before, food and fuel are the main categories for us that are susceptible to inflation. We continue to navigate those cost pressures as we seek to enhance our margin profile while delivering the incredible vacation experiences that are expected by our guests. There are some initial positive signs with respect to inflation trends in our food basket. Our more recent month-over-month F&B inflation indicator has increased at the slowest pace thus far in 2022. This, combined with direct conversations with our key suppliers, indicate inflation levels are peaking and that we would start seeing some relief in the coming months. On the fuel side, we continue to optimize consumption and have partially hedged the rate below market prices, which is mitigating the impact on our fuel costs. As we mentioned in the last few quarters, we have taken and continue to take numerous actions to reshape the cost structure of the business to support growing margins as we execute on our recovery. We are now starting to see benefits of these efforts as we ramp up the fleet to full operations. We also expect the growth in margins to accelerate in the second half and into 2023. Earlier this month, we acquired the ultra-luxury cruise ship Endeavour. Originally delivered in 2021 the ship joined Silversea Cruise’s expedition fleet. The ship is scheduled to begin service this November in Antarctica with bookings already commencing. This opportunistic acquisition allows us to add capacity and capture growth opportunities in a very attractive expedition segment. Financially, it was a unique opportunity to acquire a brand-new, high-quality expedition vessel significantly below the building costs and that is fully financed through an attractive, long-term unsecured financing arrangement. We expect this transaction to be immediately accretive to earnings, cash flow and ROIC. While the last 2.5 years were certainly challenging, we have proven that our business and company are resilient. Our business is now fully back up and running, and our operating platform is larger and stronger than it has ever been. We have the best brands in their respective segments, industry-leading ships and one-of-a-kind private destinations like Perfect Day. Our diverse distribution channels and commercial capabilities allow us to reach more quality demand. Our itineraries are strategically planned to be closer to home with an emphasis on shorter itineraries that appeal to both new-to-cruise and loyal customers. Our data shows that consumers seek vacations in all economic conditions. Cruising has always been an attractive value proposition when compared to land-based vacation alternatives. And that is truer today than ever before. Our strategy remains consistent, continue to ramp up occupancy to generate yield growth while managing costs, enhancing profitability and repairing our balance sheet. Our business has a proven track record of generating robust cash flows through various economic cycles and our platform is bigger and better than ever before. Our liquidity is strong, and we have access to capital as we look to refinance debt and improve our balance sheet. We continue to expect 2022 to be a strong transitional year as we approach historical occupancy levels. This will set a strong foundation for success into 2023 and beyond. We are also providing guidance for the third quarter for the first time since Q1 of 2020. With our stronger platform and proven strategies, I am confident about our recovery trajectory and the future of the Royal Caribbean Group. With that, I will turn it over to Naftali. Naf?

Operator:

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

Jason Liberty:

Okay. Well, thanks, Steve. I thought you were going to first start off and say, wow, you're back positive EBITDA, positive cash flow. I was hoping for like a little bit of a hug. But I think to just kind of going into -- I know that there is focus around the balance sheet and especially in the current state of the capital markets. First, I think our business is clearly ramping up. We're generating cash flow after OpEx, after CapEx. We're not seeing slowing down in activity and demand. We're actually seeing acceleration with our bookings and onboard activity. I think we have clearly shown through this that we have been very thoughtful and very methodical about capital raising, balancing liquidity and minimizing dilution, especially relative to others. And so I think when we have raised equity, it has been to manage liquidity and as we are right now, we are generating cash flow. We do think we have access to the capital markets, and we are confident that we're going to be able to continue to manage our balance sheet and repair it here over time. I would note that issuing equity, one is obviously, it's a Board decision. The bars are exceptionally high for us to be issuing equity. We don't have any plans to issue equity. What the Board is really focused on is how do we get back to pre-COVID levels as soon as possible and by that, meaning earnings, meaning ROIC and getting our balance sheet back and leverage back to what it was pre-COVID. So I think we feel that we have a plan and a path. And I think that the -- what we're seeing in the business and the improvement in the cash flow in the business is also giving us opportunity to be able to address some of these maturities with cash.

Jason Liberty:

Sure. Well, I'll leave the question on cost for Naf. The one thing I would say is, I don't know how it categorized as a CDC leaving us alone. I think it's us proving through empirical data that cruising is an extremely safe environment and that our protocols are working effectively. And like them, we follow the science and are managing it. But I think to your point, there is a significant amount of cost that we were spending on healthy return to service and testing and so forth, and I'll let Naf address here in a second. So I think just to address a little bit on the pre-COVID, and I do appreciate the question because there are a number of factors that provide that I've talked about in my remarks, just incredible tailwinds to earnings and margin and returns as we accelerate to 2023 and beyond. As I mentioned, there are really strong secular trends, demographic trends that are providing tailwinds for our business. And the consumers are clearly looking to spend on experiences and of course, cruising has a really great value proposition relative to land-based vacations. I would argue it's way too good of a value proposition, and we're all working very hard on dealing that relative to land-based vacations. Also during the past few years, we worked pretty hard on reshaping our cost structure, improving our margin profile, like reducing non-guest-facing costs. We divested out of low-margin businesses to position ourselves for significant margin growth. Also like our brands, they are leading positions with each -- in each of their respective sectors, and we continue to go out and build the most innovative fleet in the industry. And that growth will lead to higher margins, as we've talked about in the past, better inventory mix, better onboard revenue venue, better fuel consumption and more scale brings more margin onto our G&A. And then with my comments today about the CDC and our change in our policies around that, and when we look at our booking environment that is accelerating, we expect 2023 to be a normal operating year. And by normal, I mean, we'll be at normal load factors, we'll be at better rates, and that will all lead to strong EBITDA and earnings performance. And with that comes positive cash flow and that cash flow will be prioritized and scrutinized to make sure -- and going towards high-returning investments and deleveraging. And we do anticipate swiftly reducing our negative carry, which will then return us to pre-COVID earnings over the next couple of years. I do want to be clear that getting back to pre-COVID financial metrics, it's part of the journey. I think we call it internally just getting back to base camp. So we're not going to be doing laps around the building when we get to pre-COVID levels because our ambitions around our financial performance based off of our brands, our ships, our growth is much greater than just getting to pre-COVID levels. And I do anticipate as we get towards the latter part of this year, giving a lot more color and definition to a longer-term program, which will include getting to base camp and beyond, and our plan is to get more clarity as we have done in the past with programs like Double-Double that help us galvanize our internal teams to focus on delivering on those results.

Operator:

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

Jason Liberty:

Yes. So we're starting off here by doing the five days or less and we're going to look at that. But I think our expectation here, call it, in the next 45 days or so and of course, following local requirements, which will somewhat dictate in some of our destinations what those testing requirements will be that the majority of the testing requirements will be lifted, especially around the majority of our deployment. We might, depending on where the ships are going, take some additional protocols. And of course, we're going to continue to follow where COVID is in society and take the necessary actions.

Naftali Holtz:

Robin, it's Naftali. So as you noted, our relationships with the ECAs are very, very strong. They have supported us as well as our commercial banks or other lending partners throughout the pandemic through multiple actions. And we have not -- we don't have anything to talk about today. We are very confident with our ability to generate free cash flow to cover operating and capital costs. Our liquidity is strong. So we're very confident that we can manage the maturities in the next 18 months.

Frederick Wightman:

It sounds like, and this is totally fair, that the European occupancy numbers were impacted by Ukraine and then also some of the reentry testing requirements. But have you seen a pickup in bookings for those? It sounds like '22 is not going to benefit. But as you look into '23, have you seen those European bookings numbers accelerate as some of those reentry testing requirements were lifted?

Frederick Wightman:

Perfect. And then I guess just all the metrics that you guys gave, Jason, was super helpful just from a consumer health perspective. But if you look at all the strong spending, both predeparture and onboard, and it seems a little bit of a disconnect versus some of the comments you've heard from Walmart and some of these other retailers, like can you sort of explain that away from where you sit just a customer base difference? Is there something structurally different? I mean how do you sort of see the consumer spending holding up here going forward?

Michael Bayley:

So Fred, it's Michael. Just to add one nugget of information to Jason's comments. We've seen -- really it's been an amazing response to our software and our communication and how we've been talking to the customers about experience, and just one nugget is that yesterday, we sold one -- just one of our overwater cabanas for 1 day for $4,000. And we just see there's just a lot of demand for these experiences, as Jason said. And we've also seen this in Alaska, for example, with the product that we have in Alaska that people just seem to be more willing to open their wallets and purchase these experiences. So it's been a very positive response to a lot of the products and services and experiences that we have.

Operator:

Your next question comes from the line of Ben Chaiken with Credit Suisse.

Michael Bayley :

Ben, it's Michael. Yes, I mean, I think what we're going to see today, we're already expecting it and our call centers are prepared and we've already worked on, obviously, our talking points and what have you. It's already going out into social media. We've started communicating to our distribution, and we're starting to communicate through e-mails to our customer base. So this kind of change, I think, we'll be seeing very positively. And we've got some distributors who have been anxiously awaiting changes as long as -- along with many of our customers. One of the calculations that we have is about 40% of all of the FCCs that are sitting on the buy lines of people who've been waiting for the protocols to change. So I think this easement and this change is going to be viewed very positively. So we're expecting to see an increase in bookings literally starting today.

Naftali Holtz:

Yes. So I think the way I would characterize it is that we are generating now positive EBITDA and cash flow. We are covering more than our operating costs and capital costs. And there's nothing unique in the third quarter in terms of anything to point out. And all that cash flow will be to prioritize to pay down debt.

Operator:

Your next question comes from the line of Brandt Montour with Barclays.

Jason Liberty:

Well, I think I'll just make a few comments and sorry, Michael, please jump in on it. So first, I think that there is a reality of we're packaging much more than we have had in the past. And some of that comes and that accelerates some of the pre-cruise activity that I was talking about in terms of the onboard experience. So depending on how you're looking at the discounting, sometimes it's more about geography of what's going into ticket and what's going in to onboard. And so there's a little bit of that reality that has been evolving now for many, many years, not just with us but also inside the industry. And then there's also -- we brought up eight ships in the second quarter. And so as we're bringing those ships up and there's more shore product, et cetera, some of those comparables look like there's -- it's a highly promotional environment, which is more promotional than it typically is. But it's something that is yielding higher rates because that combination of the ticket and the onboard are yielding a higher APD.

Jason Liberty:

Well, I think that what we're seeing, and even in our commentary into 2023, right, being within historical ranges at higher rates, I think that's what we're continuing to see. And I think it also leads a little bit into my comments about the value proposition, right? There is a very healthy gap and a larger gap today than there has been with land-based vacations. And I think when -- now that these protocols are falling off and we're operating and our guests who are incredible advocates of ours are sharing their experiences and telling them that cruise is just like what it was pre-COVID, that all of that is kind of manifesting into this opportunity where people look at cruising and saying, wow, this is a really good value proposition. And even if I pay a little bit more money, it's still a huge gap to if I did a land-based vacation.

Vince Ciepiel:

You talked about using cash flow to focus on deleveraging as well as high-returning investments. I think part of that's your investments in your existing ships. Can you talk about how you approached maintaining those through COVID? And what type of kind of cash CapEx for the existing fleet you kind of envision in '22 or '23?

Jason Liberty:

The other point I just wanted to add, which -- just a bit on Naf's point that we had invested a significant amount of money pre-COVID in the modernization of our fleet. As our ships got more and more innovative and larger and more incredible activities to do, that gap was widening. And we -- pre-COVID, we closed that gap considerably by adding a lot of those features onto our our legacy fleet. And so that's why I think we -- as Naf said, we will continue to invest in high-returning programs. But we've actually invested a lot to keep our core business relevance within our brands.

Naftali Holtz:

Yes. So thanks for the question. So first, on the consumption side, we continue to make progress on improvement on consumption. We did it the last several years, and that continues to happen. Obviously, we have newer ships that are much more efficient. So I think on the consumption side, obviously, we're continuing to make that progress. Specifically about the quarter, two things in mind. One, in my prepared remarks, I mentioned that we are lower than the average in terms of our hedging and that obviously impacts some of that fuel cost in the third quarter, but we are obviously going to be higher hedged in the fourth quarter. The other thing is that the consumption is a little bit more skewed in this quarter towards MGO and less IFO is also contributing to a little bit of a higher field expense. But it's very isolated to the third quarter.

Paul Golding:

Congrats on returning to positive EBITDA and cash flow. I wanted to circle back on Naf's comments in terms of the shorter itineraries to attract new-to-cruise. Is this sort of a post-COVID only move? Or is this something maybe a bit more structural that we should expect to see just in terms of jump starting the new-to-cruise return? And are there any costs associated with what may or may not be based on your response, a higher mix of shorter itineraries and certainly, that lines up with the testing requirement commentary as well? And then I have a follow-up about the booking curve.

Jason Liberty:

Yes. And I think just one point to add, we're also staying very kind of tuned in with the customer. And during COVID or the early days, they were very locally minded. Now, they're becoming much more regionally minded as we're seeing them being comfortable booking in different products in North America, booking products in Europe as they kind of now move more and more towards back being globally minded, which is where they were pre-COVID. And I think we're very tuned in. Our brands are very tuned into that. And in many cases, the product or the itineraries are a reflection of where we think the consumer is today relative to their travel preferences.

Jason Liberty :

Well, the booking curve is no longer really contracting. It's now expanding again. So I do think we expect it to return here over the coming, call it, 6 months or so to a normal level of a booking window relative to historical activity. But as our ships are coming up and as I think people are -- as protocols begin to fall away here now, we would expect there to be a further acceleration in close-in demand for whatever inventory is left, which can lean a little bit on that macro statistic around the booking window. But what we have seen over the coming -- over the past several weeks and months, is that window beginning to extend.

Operator:

Your next question comes from the line of Daniel Politzer with Wells Fargo.

Naftali Holtz:

Yes. So thanks for the question. So yes, we do expect to see an improvement in mid-single digits for the second half, and this should be also a sequential improvement from a quarter-to-quarter as the protocols are easing. Obviously, we're building the load factors as well. And as we look into 2023, our goal is to get to our pre-COVID margins as soon as possible. On one hand, as you mentioned, there is inflation, and we mentioned -- commented on the baskets that are impacting us the most. On the other hand, we also, as Jason mentioned, we've done a lot in the last two years to reshape our cost structure. And we expect that to ramp up this in the second half and well into 2023.

Jason Liberty:

I mean we -- I'll let Michael kind of comment on it. But I mean, we have been investing in marketing, and we continue -- we have our marketing plans. I don't think the CDC changes is something that really impacts our marketing activities, but I'll yield and see whatever else Michael wants to add to it.

Jason Liberty:

Okay. We have time for one more question.

Christopher Stathoulopoulos:

So the onboard spend, the strength on the onboard spend in your prepared remarks, you spoke about the dollar prebook and I think $0.70 on the dollar with translating to onboard. So is that -- do you feel that that's sort of part of some revenue initiatives that you had going into the prepandemic now starting to reengage? Or do you feel that, that sort of something has changed dynamically and this is in response to the pre -- to the pandemic? Just want to better understand how you're thinking about the sort of stickiness in the sort of the go-forward dynamic on onboard spend.

Jason Liberty :

Just I think just one thing I just want to add on to it, that we saw this pre-pandemic and very much kind of lead it into the investments that Michael was just talking about is that we have for decades thinking that the customer -- because the customer was focused on buying a cruise. And they have -- and we saw this when we saw the shift from goods to experiences pre-COVID is that they're really focused on buying an experience. And we had to make the investments on a technology basis to make sure that when a consumer is -- whether it's -- when they're booking their vacation or they're leading up to their vacation that we were able to put in front of them, the overall experience that they were going to have and they want to put it all together so that they can create the memories that they want to create just leveraging kind of the canvas that we provide them. And I think that's really what a lot of these investments and how we've been marketing to them, which is leading to more and more of the onboard pre-booking activities. But I would say that when we think about the technology that we've installed, we're still very early innings. It has opportunity to be very sophisticated, even easier to interact with. And I think that we're very bullish on what can come out of that. And yes, of course, there's money to be made in it, but it's really by focusing and enhancing on the experience, that's going to lead to a happier customer, a customer that's willing to pay more and that leads to better returns.

Jason Liberty:

Yes. So I mean, this is obviously a very difficult question to answer because depending on which recession you're talking about, I mean, the U.S. over the past 30 years has really had episodic type of economic downturns, whether it was the unfortunate circumstances with 9/11, the Great Recession, et cetera. What we see in other markets that just have kind of modest economic downturns, we actually don't see a lot of impact on our pricing. And I think it's more focused on the value proposition gap between land-based vacation that cruising tends to do quite well because of that gap that's out there. Now in saying that, what we do see is they will tend to look for the overall cost of their vacation. And I think leading into what we were talking about with shore product and 7-night and so forth and traveling more regionally, which is how we position our deployment. That typically leads to us coming out of that in very good shape. But I think it's important to stress in my comments is we do not see any of this in the day-to-day trading of our business, the day-to-day spend that's happening on our business. And we're a nimble organization. And of course, you can't save your way to greatness, but we do think our revenue managers do think that we can continue to improve yield even in an impact on an economic standpoint -- broader economic standpoint.

Operator:

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

Operator:

Good morning. My name is Abby Gail, and I'll be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's Business Update and First Quarter 2022 Earnings Call. [Operator Instructions] I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.

Jason Liberty:

Thank you, Michael. Good morning everyone. And thank you for joining us today. Before jumping in and talking about the exciting things happening in our business, I would like to express our deep thoughts and prayers to our 2000 plus Ukrainian Royal Caribbean Group, family members, and to the citizens of Ukraine who continue to be affected by this tragic war. We, as always, remain focused on the safety and wellbeing of our employees and continued to provide them with support services and financial assistance during this time of incredible hardship. We are all praying and hoping for a peaceful resolution soonest. Now moving on to the business, our teams have done an exceptional job, getting our fleet back into service so that we can continue our mission on delivering the best vacation experiences in a responsible way. As of today, 95% of our fleet capacity has returned to service. It's incredible to think that our journey to full fleet operations will be complete in less than eight weeks on our 63rd ship Celebrity Infinity welcomes guests for the first time since March of 2020. Since we resumed operations, we have delivered memorable vacation experiences to over two million guests worldwide while earning record high guest satisfaction scores. Additionally, outside of China, the vast majority of our destinations and markets are back online. I want to thank our teams, both ship and shore, for delivering on our mission. So successfully. During the first quarter, we managed through the challenges brought on by Omicron variant that resulted in the cancellation of 57 sailings in Q1, moderated our load factors in January and February and softened demand for future voyages. We have now sailed through these operational and short term demand challenges caused by the variant. Over the past 60 days, demand has materially surpassed both pre-Omicron and 2019 levels. Load factors improved throughout the first quarter and we finished the month of March at a load factor of 68%. We expect our load factors to continue to build averaging between 75% and 80% in the second quarter and reaching triple digits by the end of the year. We continue to be thoughtful about the build of our business, being mindful of maintaining price integrity, taking advantage of high onboard spenders, and as always focusing on the health and safety of our guest and crew. Now moving to the demand and operating environment, we continue to see strong demand for leisure travel and cruising. The robust, secular trend of experiences over things that propelled our business in the past years is now recovering towards pre-COVID levels. Consumers are now re-engaging with the world and as a result, spending on travel in 2022 is set to outpace pre-pandemic levels with consumers, planning to travel more frequently. Cruise consideration is the highest it has been in two years and nearing pre-pandemic levels with the most significant recovery among those new to cruising. Consumers are in a healthy financial position, strong labor markets, wage growth, and record cash savings, $4 trillion in the U.S. support spend on vacation experiences. We are watching the high inflationary environment, but so far we have not seen an impact on consumer behaviors or willingness to spend on travel and cruise vacations. Strong demand for cruise experiences continue to translate into robust, onboard revenue performance for us across all categories from casino, beverage, and shore excursions to internet, retail and spa. As we mentioned in recent quarters, our investment in a new pre cruise planning system allows guests to better plan and book their onboard experiences. As a result, we continue to see increased penetration of pre-cruise purchases, which is leading to significantly higher total spend per guest. We remain focused on continuing to innovate the vacation experience we offer. We are strategically investing in our future to maintain our strong, competitive advantage setting the foundation for a strong recovery and long term profitable growth. On our last earnings call, we discussed our expectations for a delayed wave period. And while it started a few weeks later than we originally expected, it is what we are seeing now. Bookings improved each week during the first quarter, as the impact from Omicron faded. For the past eight weeks, bookings have been meaningfully higher than 2019 with particular strength and North American itineraries. Our largest brand, Royal Caribbean International, set two new records in March with the largest single booking day and the highest booking week in the brand's 53-year history. We have also experienced some headwinds related to the impact from the ongoing conflict in Ukraine. Itineraries initially planned to visit Russia represent only 2% of our overall capacity and close to 10% of our European capacity. In early March we decided to cancel calls to Russian ports, including St. Petersburg and substituted those itineraries with other highly desirable destinations. Naturally, we saw a short-term increase in cancellations and booking hesitancy for Baltic Sea itineraries, combined with some softness in overall European demand. After several weeks of softer trends, booking volumes improved and are now above 2019 levels. However, the impact from the slow down during a key booking period is definitely weighing on our load factors for our European sail. While there are some headwinds in Europe, our North American based itineraries, which account for over 70% of our capacity this year have been trending much better with recent bookings more than 40% ahead of 2019 levels. We are also seeing an increased volume of close in bookings as consumers seem to be making their vacation decisions closer to their sailing date. This contributed to better than expected load factors in March, despite the impact of the Omicron variant earlier this year. We continue to build on the demand environment for the rest of this year and into 2023. Inflation is impacting businesses across the globe, and we are no exception. As we mentioned in the last few quarters fuel and food are categories that are most susceptible to inflation for us. The war in the Ukraine and continued supply chain constraints have further heightened those pressures. Our teams have become increasingly adept and navigating these challenges and we have implemented several strategies to manage cost pressures while delivering the incredible product expected by our guests. On the fuel side, we continue to optimize consumption and have partially hedged rate below market prices, which is mitigating the impact on our fuel costs. We have taken and continue to take numerous actions to reshape our cost structure with a focus on further improving our leading pre-pandemic margins. While these actions are intended to enhance our cost structure and margin profile, we do anticipate that inflationary pressures mainly attributable to fuel and food as well as transitory cost related to our health and safety protocols will weigh on our costs this year. I will now touch upon environmental stewardship, creating a more sustainable cruise industry as a journey and every day is an opportunity to innovate and improve. Back in 2016, we announced our partnership with the World Wildlife Fund to advance our sustainability performance. This partnership pushed us to set ambitious sustainability goals in three areas, greenhouse gas emissions, sustainable food supply, and destination stewardship. I am proud of the fantastic work to cheat by our teams since we first signed the agreement with the WWF. And I am pleased to announce that the Royal Caribbean Group has recently signed a new five-year agreement to take our advancements to the next level. I'm also pleased that in the first quarter we were named one of the world's most ethical companies by Ethisphere. This is the seventh consecutive year our company has been recognized, the only one in the leisure and recreational category. Furthermore, we also earned a 100% rating on the Human Rights Campaign Foundation's Corporate Equality Index, which rates corporate policies and practices that relate to LGBTQ+ workplace equality. We are immensely proud of these recognitions and we reflect our deep commitment to our employees and our purpose and values. As we continue to focus on completing our return-to-service, we are charting our course for future growth. Combination of strong secular demand tailwinds, our leading brands, the best cruise ships in the world, our global platform and the very best people position us exceptionally well for long-term success. It is no secret that our innovative and industry leading ships are the foundation for creating a great vacation experience. Year-to-date we welcome two new ships to our fleet, Wonder of the Seas which is the new largest and most innovative Oasis class vessel joined Royal Caribbean International, and Celebrity Beyond the newest, the revolutionary edge class joined Celebrity Cruises just a few weeks ago. We have a long track record on delivering new and exciting experiences through new ships while achieving premium yield and profits. These ships along with others that are set to join the fleet in the next few years will drive differentiated vacation experiences and financial performance. We have more exciting new ships currently on order; construction is now underway on Royal Caribbean International's 6th Oasis class ship, which will be named Utopia of the Seas. This ship is expected to debut in the spring of 2024. We are excited that Utopia will be the first Oasis class ship powered by L&G when she launches. Finally, the building of Royal Caribbean International is highly anticipated Icon of the Seas has reached a pivotal milestone, a physical construction ahead of its fall 2023 debut. Icon will set sale next year with the latest innovations and with signature features that were re-imagined by our teams in bold new ways. Stay tuned for more on that. On the destination front, we continue to make progress on the expansion of Perfect Day at CocoCay​with the addition of Hideaway Beach. Hideaway Beach will make Perfect Day at CocoCay even more perfect with an entirely new experience expanding capacity to the island. On the technology front, the team has made tremendous strides modernizing our digital infrastructure and capabilities to enhance our commercial engines and the guest experience. Our business model is incredibly strong and we have a long track record of growing revenue, earnings and cash flow. The pandemic has taught us new ways to operate with agility, but our formula for success remains unchanged. We have the best brands each of their segments, the most innovative fleet in the industry, exclusive destination experiences like Perfect Day at CocoCay, a nimble and effective global sourcing footprint, a leading technology platform, and most of all the very best team both at sea and on land. Despite these challenges at the start of the year and the complex operating environment, we still expect 2022 will be a strong transitional year as we bring the rest of our fleet back up into operations, and approach historical occupancy levels and return to our profit in the back half of the year. This will set a strong foundation for our success in 2023 and beyond. With these tools at hand, I'm confident about the recovery trajectory and the future of the Royal Caribbean Group. Our people will always be our most important competitive advantage, and I'd like to thank all of them for everything they do each and every day to deliver on our mission. With that I will turn to call over to Naftali. Naf?

Operator:

Thank you. [Operator Instructions] And our first question comes from the line of Steve Wieczynski with Stifel. Your line is not open.

Jason Liberty:

Well first good morning, Steve, I hope all is well. I think we should just really pause and take in that statement. I mean, it has been a effectively over two years since we can make a statement about being cash flow positive, and so it's great now to be in that position where we start to generate positive cash flow and positive EBITDA and then positive earnings as we get to the back half of the year. We very much think it is sustainable. Our load factors, our building in accordance with our expectations and there's been – there's been a lot of noise, you know, kind of generally in the system. There's always things that come up, but from what we can see in the day-to-day booking environment. We feel very good about the load factor build, the rate build that we're seeing. But I do think that this inflection point is a very important moment, not just for us but for the industry as we kind of get onto the other side of this.

Steve Wieczynski:

Okay. That is – that's a very solid positive there guys. Second question, bigger picture question obviously there's – there's a fear out there building around a possible slowdown in the economy in a possible recession. Given what you guys have gone through with COVID and the stress it's put on your balance sheet, I guess my question is, if we do encounter some type of economic slowdown, how do you guys envision being able to navigate in an environment like that given your current liquidity position, and maybe also remind us how you navigated through 2008, 2009?

Naftali Holtz:

And just to add quickly, we are in a very strong liquidity position. We're obviously in this inflection point of free cash flow – of the operating cash flow and our focus is, as I said in my remarks is to continue to refinance the balance sheet. And that means both refinancing our maturities, obviously that that creates the runway as well as reducing the interest costs and the, and the leverage overall. So we have plan here to, in the next – in the next future to manage the balance sheet.

Jason Liberty:

Thanks Steve.

Robin Farley:

Great, good morning. Thanks for taking the question. I wanted to ask about you mentioned that you lost a little bit of ground for some weeks there, even though European demand is above 2019 levels. Can you tell us how you're thinking about load factor? I mean, in normal times you're going to be 100% full, no matter what because of maximizing the variable revenue. Is this a period in Q3 with Europe where you might say given the ramp-up let's stay below 100%. In other words, I guess if you could help us think about that trade-off between giving up the onboard revenue and, but maybe potentially impacting the price of other things already booked for Europe?

Michael Bayley:

But Robin its Michael. I just have to jump in and say that we have ships now sailing at 100% and we've had ship sail at 100% now for several weeks out of the Caribbean into the Caribbean market and [indiscernible] product. And as we head towards Memorial Day weekends, we are going to see significant percentage of our ship sailing at 100% and greater. So the Europe's one thing but what we've seen in terms of demand in the American market for the drive to products, which I think we have around 70% of our products drive to this year has been really strong. And certainly over the past several weeks we've been delighted with the volume of bookings that we've been seeing coming in for these products it's been really good.

Robin Farley:

Okay, great. Now that's very helpful color. Thank you. And maybe just a last follow up given that you're back to profitability and sort of reasonable – reasonable visibility with that. Is there a point when you might restart giving guidance in the next quarter or two or is that something that we shouldn't necessarily expect this year?

Robin Farley:

Okay. That sounds great. Thank you.

Operator:

Next question is from Ben Chaiken with Credit Suisse. Your line is now open.

Michael Bayley:

Yes. Hi Ben, this is Michael. I think this is a – what looks like, it could be a structural change. I mean, we've now got as I said earlier and many ships sailing at 100% and our big Oasis class ships have been sailing in the 80s and our onboard spend continues to perform at the same levels, so it's been really – it's been wonderful. I think a couple of things; one is the [indiscernible] and the investment that we made in the software for pre-cruise revenue, which continued through the pandemic. And we've really leveraged that now and we've seen a significant increase in penetration and uptick with the pre-cruise sales. And of course we've always said that a one-pre-cruise dollar gives us another $0.50 on-board spend. So we really believe we're seeing that coming through now. So it continues and I think one of the things that we've been focused on in terms of the volume is that relationship between ticket and on-board spend. And if you even look at our first quarter net revenue APD, it was higher than back in 2019, and we see that continuing quarter-by-quarter through this year.

Ben Chaiken:

And is the pre-cruise; is that like at the time of ticket purchase you're kind of offering incremental onboard? Or is it like following up with the consumer or the customer from time of ticket purchase up until crew? Like, can you just give a little color on how that works exactly?

Jason Liberty:

Yes. But I think just to jump in, I mean, we are in the early innings of this pre-cruise system. Having the commerce engine in place, having the capabilities that Michael just talked about to be able to curate the experiences or services that we can be offering to that guest through their journey from when they book a cruise all the way through the time when they're sailing with us. And being proactive about opportunities that might arise even during the voyage and being able to put that or position that in front of the customer based off of things that they may have already had planned or things that they may have done in the past, et cetera. That is kind of getting to that one-to-one spot of engagement is really kind of what we see as the North Star here. And that's kind of what these systems and the AI and analytics and the use of data effectively is all about.

Operator:

Our next question is from Dan Pulitzer with Wells Fargo. Your line is now open.

Jason Liberty:

Yes. Hi Dan. Yes we're seeing it come through all of our customer segments. So we know, I think we commented maybe on the last call that the new to cruise was a little slower to return. And when we first started back in service, we did rely heavily on our loyalty customers, but that's really shifted now. And we've kind of moving back into a far more normal environment where we see our new to cruise returning. I mean, it helps with the fact that we've got great products that really do attract new to cruise. We've got perfect day. I think even in this year in 2022 we'll take over 2 million guests to perfect day this year alone. So the right products, the right mix of experiences that we're seeing on new to cruise customers come back to us. So, and then how they're spending is very similar. I mean, things shift and change around based upon age demographics, and what have you, but the kind of the product offerings that we have, that we provided to our customers and using the software and analytics seems to be really resonating.

Jason Liberty:

Yes. I think in terms of what we see, because we've seen this return in demand from Europe for our different deployments, especially within Europe. It's definitely the Ukraine that I think it really kind of weighs especially within Central and Northern Europe. Sailings are inside the Baltic’s in the [indiscernible] is certainly I think of great interest. I mean, they are booking – they are now booking at levels that are above 2019 levels, but it is softer than what we had originally expected it would be. I think fortunately you see the North American consumer accelerating and very much focusing on North American products, but also very much willing to go to Europe. My comment was, I think on the psyche side, testing to get back into the U.S. which I know the cruise industry, the airline industries and other industries are trying to influence for that change is I think that that kind of last psychological point that weighs on the consumer to kind of travel freely globally.

Naftali Holtz:

Yes. And just to add a quick – we, as I think we mentioned we do see an improvement in the European bookings, but also both from volumes from the – from North American, but also from some of the closer within the European sourcing markets. So we're definitely seeing the improvement there.

Operator:

Our next question is from Ryan Sundby with William Blair. Your line is now open.

Michael Bayley:

Well Ryan its Michael. I think happy customers is a beautiful thing to have and I think that's – that formula's never changed when people really have an amazing time. They go back word-of-mouth, they tell their friends and families, they want to come back and repeat. And we know we've done obviously work on net promoter score and repeat cruises. And the correlation is relatively high. There is a relationship between net promoter score and loyalty guests. So it's a winning formula. And I think that's always been one of the great things about cruise is the value proposition connected to satisfaction has always been remarkably high. So we think it's a great thing and we're always striving to deliver the highest level vacation that we possibly can. I think it's fair to say that in the beginning, the euphoria of excitement from primarily our loyalty guests was so incredibly high and the crew were so incredibly happy to be back that that for many months there was just this euphoria on our ships. And I think that comes through on the net promoter score. Certainly we see those net promoter scores staying at a really high level. They've started to come down a little bit as we see the volume increasing if the load factors get to a 100% and beyond, then you start seeing a more normalization of those net promoter scores. But I think there's just a, I would say, there is a happiness, not only with our customers, but with our crew members. And that happiness, coming out of the pandemic, going on vacation, going on vacation with Royal Caribbean, reconnecting to all of those experiences that people have missed for two years, I think, that has somewhat translated into people just saying I'm having a fantastic time. So, I think I would be naive to believe that these extremely high MPS scores will stay with us in the long run. But I think there has been a fundamental transformation in terms of how guests and customers are interacting with the experience. And it's a very positive thing for our business. And just add to it when you look at it by segment, right. So you look at you even the ultra-luxury side with Silversea and you see the luxury side on the Celebrity side, it's really across all segments. You're seeing this euphoria that Michael referred to. So, it's as Michael said, I don't think we're naive to think it's going to stay at this levels, but I think we're also surprised as the mix has changed from the very loyal to now more first to cruise coming in, those levels have continued to be exceptionally high.

Naftali Holtz:

Sure. So, as you can imagine inflation or not, we're trying to maximize price every day. That's revenue management team's job, and that's what we do here. So we do it every day. And as you can see, the volumes are obviously picking up you see the pricing that we command for our product. So, we try to do that couple from the pressures maybe that we're seeing on the expenses side.

Ryan Sundby:

Makes sense. Thank you.

Operator:

Our next question is from Vince Ciepiel with Cleveland Research. Your line is now open.