Carnival PLC (CUK) 2024 Q2 法說會逐字稿

Greetings and welcome to the Carnival Corporation & PLC's conference call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Beth Roberts, Senior Vice President, Investor Relations.

Thank you, Beth.

You may begin.

Thank you.

Good morning, and welcome to our second quarter 2024 earnings conference call.

I'm joined today by our CEO, Josh Weinstein; our Chief Financial Officer, David Bernstein; and Chair, Micky Arison.

Before we begin, please note that some of our remarks on this call will be forward-looking.

Therefore, I will refer you to the forward-looking statement and today's press release.

All references to ticket prices net per diem, net yields and adjusted cruise costs without fuel will be in constant currency unless otherwise stated.

References to per diems and yields will be on a net basis.

Our comments may also reference cruise costs without fuel, EBITDA, net income, earnings per share, free cash flow and ROIC, all of which will be on an adjusted basis unless otherwise stated.

All these references are non-GAAP financial measures defined in our earnings press release, a reconciliation to the most directly comparable US GAAP financial measures and other associated disclosures are also contained in our earnings press release and in our investor presentation.

Please visit our corporate website where our earnings press release and investor presentation can be found.

With that I'd like to turn the call over to Josh.

Thanks, Beth.

Inside of two years, we've made incredible strides in improving our commercial operations.

Strategically reallocating our portfolio composition, formulating growth points and strengthening even for our global team ship ensure, the best in the business.

Also, the back of these efforts, we closed yet another quarter, delivering records.

This time across revenues, operating income, customer deposits and booking levels exceeding our guidance on every measure.

Yeilds increased over 12% in Q2 over 1.5 points more the March guidance as we continue to drive strong per diem growth up over 6%, and this is on over 10% more passenger cruise days, which is a combination of capacity growth and sailing at historical occupancy levels.

Our European brands experienced extraordinary yield improvements again this quarter, up over 20%, while North America continued to improve on last year's high, up a healthy 7%.

We had record second quarter adjusted EBITDA, rough the $150 million more than guidance.

Encouragingly, on a per ALBD basis, the highlight operational improvements and even with significantly higher fuel prices.

Adjusted EBITDA not only surpassed the second quarter of 2019.

It was also our highest second quarter mark in over 15 years, coupled with flat cruise costs excluding fuel on a unit basis, which David will elaborate on.

We delivered $500 million more to the bottom line year over year and outperformed our earnings guidance by $170 million.

Based on continued strong demand trends, we are also taking up our expectations for the full year by $275 million, driven by double-digit yield growth.

Now this would get us to double digit ROIC this year.

And while that will be a strong outcome for 2024, it is nowhere near what our business is capable of delivering.

Our current booking trends are a testament to that.

We are hitting records on top of previous records which clearly tells us the strength in demand we have been building is continuing into next year and beyond.

In the near term, pricing on bookings taken in the second quarter has continued to run considerably higher for each of the third and fourth quarters.

And again, that's on top of record per diem last year.

This strength has enabled us to take up your guidance for the year by another 75 basis points.

We expect to deliver consistent mid single digit per diem growth through the balance of the year, which would mark eight consecutive quarters that we are achieving mid single digit or higher per diem improvements.

Our continued focus on optimizing our yield curve is not just the near term benefit.

We enter the second quarter with much less 2024 inventory to sell and have been able to lean even more into future periods.

Accordingly in the last three months, not only did we take more bookings for post 2024 sailings than we did for in year sailings.

We set yet another record for the most future bookings ever taken during the second quarter.

The unprecedented level of demand for 2025 sailings, coupled with flat capacity growth next year translate into meaningful pricing power.

And while it is still early for 2025, both price and occupancy are already ahead of where we were last year, leaving us in a position of strength with less inventory remaining for 2025.

It also shows in our more than $8 billion of customer deposits, which shattered last year's record by $1.1 billion.

You have heard me say this before.

This is not pent-up demand.

It is the compounding effect of building increased consideration in our cruise brands over time, an improvement in our yield management techniques to translate that demand into higher ticket prices.

And it is further evidence of the strength of our consumer.

Encouragingly, we're enjoying consistent growth in both repeat guest and new guests, with each segment up 10% this quarter over last year.

We also continue to actively manage our portfolio to further accelerate our underlying execution improvements.

As previously announced early next year, we will sunset the P&O Cruises Australia brand, selling the 28-year-old Pacific explore and transferring P&O Australia to remaining vessels to Carnival Cruise Line.

Of course, we will still retain our leading presence in the Australian market, carrying over 60% of AIDA cruisers.

It is a great market for us, especially since the Australian summer coincides with the Northern Hemisphere winter, enabling our seasonal shifts to capitalize on two summer periods.

And now, we get to optimize our presence in this market by consolidating into Carnival Cruise Lines.

Not only will we gain operational, administrative and back-office scale, we will ultimately have greater deployment flexibility compared to a dedicated Australian brand.

At this same time, this move will further boost capacity for our highest returning brands, bringing the total to nine new ships joining Carnival Cruise Lines fleet since 2019, including the successful shift of three vessels from Costa Cruises.

These actions, combined with a two XL Class ships scheduled for delivery in 2027 and 2028, will grow Carnival Cruise Lines capacity by about 50% over 2019.

By 2028, the Carnival brand will represent 37% of our portfolio, up from 29% as we continue to reshape our portfolio to maximize ROIC.

Of course, by amazing destination experience celebration key purpose built for Carnival Cruise Lines, will soon support that growth and bolster returns through incremental revenue uplift, coupled with improved fuel efficiency given its strategic location or introducing voyages that celebration key beginning in the second half of 2025 and ramp up to 18 ships calling celebration key in 2026.

This quarter, we also delivered Queen Anne.

Cunard’s fourth Queen with an amazing naming celebration in Liverpool, England, Cunard’s birthplace.

The streets of Liverpool were well with tens of thousands of people joining the festivities as of the 30 of Liverpool became the ships official God parent.

It was a historic moment and the first time an entire city ever, christened a ship.

The event generated overwhelming coverage and as intended broke booking records on the back of it.

The new Queen is a step forward in every way for Cunard.

It was still retaining the DNA of British elegance and refinery that the brand is known for.

We enjoyed another high-profile naming event for some Princess in Barcelona.

With God mother Hannah Waddingham of Ted Lasso, Sun Princess had a great media coverage, leading up and following the naming ceremony with particular focus on its expansive specialty dining and beverage offerings and one-of-a-kind magic castle experience.

Sun Princess, the first of its class has also been a big hit with guests as evidenced by outsized yields and high guest satisfaction scores.

Last but not least, we held a naming event for Carnival Firenze in Long Beach, California.

Home for Carnival's second ship featuring fun Italian style.

With Godfather Jonathan Bennett, fresh off his Broadway starring in Spamalot.

Welcoming fun Italian style to the West Coast, generated nearly 2.5 billion media impressions to date and of course, triggered a step up in bookings.

While these amazing new ships all contributed to the strong yield improvement we generated in the second quarter, even excluding them, yield on our existing fleet were up double digits, demonstrating fundamental strength on a same ship basis.

In addition, we completed the rollout of Starlink this quarter, another revenue uplift opportunity and a real game changer for onboard connectivity experience, enabling us to deliver the same high-speed Wi-Fi service available on LAN throughout our suite.

Not only does this technology provide our guests with more flexibility to stay connected, it enables our crew to stay in touch with friends and loved ones, and it enhances our onboard operational systems, a Win-Win-Win.

Also, our consistent track record, our book position, our focus on commercial activity improvement, our portfolio management and the yet to be realized future benefits will receive from our celebration key destination development builds increased confidence in achieving the low to mid-single digit yield growth set out in our long-term targets.

Infact, based on our outwardly improvised guidance, we will be on average two thirds of the way to achieving our three 2026 SEA Change Targets.

EBITDA per ALBD of $69, 12% ROIC and a 20% reduction in carbon intensity after just one year.

We're two years remaining, it gives us even greater confidence in achieving our target.

At the same time, we continue to aggressively manage down debt and interest expense while reducing the complexity of our capital structure, which David will elaborate on.

The number of actions we've taken to improve our balance sheet this quarter puts us further down the path on our return to invest in great credit rating over time.

It's hard to believe, in just over a month, April have been 2 years since I have a privilege of stepping into the role of CEO.

I'm very proud of all we have accomplished in such a short time.

Credit for our achievements go to our global team, 160,000 strong.

Everyone has worked very hard to deliver yet another strong quarter, solidifying an amazing 2024 and setting us up well to top it in 2025.

Equally important, they all had a hand in delivering amazing vacation experiences and unforgettable happiness to 3 million guests, yet again this quarter.

To our amazing team, thank you.

And of course, we couldn't do it without the support from our amazing travel agent partners and so many other stakeholders.

Thanks to all of you.

With that, I'll turn the call over to David.

Thank you, Josh.

I'll start today with a summary of our 2024 second quarter results.

Next, I'll provide the highlight of our third quarter June guidance and some colour on our improved full-year guidance.

Then I'll finish up with an update on our re-financing and deleveraging efforts.

Let's turn to the summary of our second quarter results.

Our bottom line exceeded guidance by nearly $170 million as we outperformed once again.

The outperformance was essentially driven by three things.

First, favourability in revenue worth almost $65 million, as yields came in at over 12% compared to the prior year.

This was more than a point and half better than March guidance, driven by closing strength in ticket prices as well as onboard spending.

Second, cruise costs without fuel per available lower berth day or ALBD came in flat compared to the prior year and worth three points better than March guidance, which was over $85 million.

Some cost savings were identified during the quarter, which flowed through as improvements to our full year June guidance.

However, most of the favourability in cruise costs for the second quarter was due to the timing of expenses between the quarters.

And third, other operational improvements slightly offset by higher fuel price in currency were worth $ 20 million.

Per diems for the second quarter improved 6% versus the prior year, driven on both sides of the Atlantic by considerably higher ticket prices and improved onboard spending.

At the same time, our European brands on a path back to historical occupancy saw out site growth in their occupancy of over 10 percentage points as compared to second quarter of 2023.

Our second quarter was fantastic across the board with strong demand delivering record revenues, record yields, record per diems and record operating income.

Now one thing to highlight about our third quarter to guidance.

The positive trends we saw in the second quarter are expected to continue in the third.

Yield guidance for the third quarter is set at a strong 8%.

The difference between the yield guidance for the third quarter and the second quarter yield improvement of over 12% is simply the results of the greater occupancy opportunity we had in the second quarter 2024, as we began sailing within our historical occupancy range in the second half of 2023.

It is great to see that we anticipate continued strong premium growth in the third quarter, which we are forecasting will drive the majority of the 8% yield improvement.

Turning to our improved full year June guide, June guidance for net income is $1.55 billion, an improvement over our March guidance of approximately $275 million.

This improvement was driven by three things.

First, three quarters of a point increase in yields to approximately [10 in the quarter percent] based on the considerably higher prices we have been seeing in booking trends so far this year and the continued strength in demand we anticipate going forward.

All of this is expected to drive an increase in net revenue of about $190 million.

Second, as I previously mentioned, we identify cost savings that we flowed through to a full year June guidance.

However, they will be partially offset by higher variable compensation driven by our forecast for improved operating income.

That, we are flowing through $25 million of cost savings for the full year.

And third, an improvement in net interest expense of $60 million, driven by our second quarter refinancing, repricing and debt prepayment activities.

The strong [10 in a quarter percent] improvement in 2024 yields is a result of the increase in all the component parts.

Higher ticket prices, higher onboard spending and higher occupancy at historical levels with all three components improving on both sides of the Atlantic.

We recognize that even within our industry leading cost structure, there will always be cost opportunities which we can focus on in harvest over time.

While we identify cost-savings opportunities during the second quarter, we will not stop there.

We will continue our endless quest for greater efficiency in our cost structure.

I will finish up with the summary of our refinancing and deleveraging efforts.

During the second quarter, we generated cash from operations of $2 billion and free cash flow of $1.3 billion.

We took delivery of one spectacular new ship cleaning and drew on her associated export credit facility, continuing our strategy to finance our newbuild program at preferential interest rates.

Our efforts to proactively manage our debt profile continued throughout the quarter, we prepaid $1.6 billion of secured term loan facilities.

We also repriced approximately $2.75 billion at the same secured term loan facilities.

And we issued $535 million of unsecured notes due 2030 refinancing our unsecured notes due 2026, extending those maturities and reducing interest expense.

These transactions simplified our capital structure, reduce net interest expense in the second quarter by $10 million, will reduce net interest expense for 2024 by $55 million and $85 million on an annualized basis.

Our decision to pre-pay $1.6 billion of debt during the second quarter was based on our strong liquidity, our improved financial performance and our optimism about the future.

We will continue to look for more opportunistic refinancings over time.

Our leverage metrics will continue to improve throughout 2024 as our EBITDA continues to grow and our debt levels improve.

Using our June guidance EBITDA of $5.83 billion, We expect the two-turn improvement in net debt to EBITDA leverage compared to year end 2023, approaching 4.5 times and positioning us two thirds of the way down the path to investment grade metrics.

Looking forward, we expect substantial free cash flow driven by our ongoing operational execution and the lowest newbuild order book in decades to deliver continued improvements in our leverage metrics and balance sheet, moving us further down the road to rebuilding our financial fortress while continuing the process of transferring value from debt holders back to shareholders.

Now, operator, let's open the call for questions.

Thank you.

We will now be conducting a question-and-answer session.

Matthew Boss, JPMorgan.

Great, thanks and congrats on a really nice quarter.

Thanks very much, Matt.

So Josh, maybe could you elaborate on the global momentum that you're seeing, notably any callouts in Europe?

And then just given the booked position for 2025, which you cited is higher than '24 a year ago, how does that translate to the forward progression of pricing power in just the promotional backdrop maybe versus historical periods in your view?

Sure.

So our global momentum, I think that's probably the key term, it is global momentum.

And so we're seeing strength from our North American brands, from a European brand.

And you started hearing me say, probably about six quarters ago, diversity, sometimes it helps and sometimes you got to wait a little bit because different places come out of different situations in different times.

And this is the strength that we're seeing right now in this portfolio.

And we're really hitting on all cylinders, which is really gratifying.

In North America, the booking curve is higher than it's ever been, then Europe, it's higher than the last 15 years.

So the team's doing a really good job of speaking to the consumer, pricing things right, and getting people on our ships and happy.

As far as 2025 goes, this is the first year where we currently are, where we've been able to stop firefighting in the short term while figuring out how to also extend the booking curve and trying to do both of those things at once, which is not an easy balance for revenue managers have to do in the brands to do so.

I do feel like we are firmly positioned, and although it is early days as you heard us say on the call, being ahead in bookings and having pricing is a good place to be and our team can really focus on optimizing the longer-term period, which is exactly what they're doing.

Great colour.

Best of luck.

Thank you.

Steve Wieczynski, Stifel.

Hey guys. Good morning.

So Josh, you know, look, I know it's still early on, but your commentary on 2025 bookings is really encouraging at this point in time.

To add on to the last question there, could you elaborate a little bit more about where you're seeing strength in 2025.

Is the strong demand pretty much across the board or are there certain brands or itineraries that are showing more strength versus others.

At this point, I'll just tell you, it's global.

It's the brands and it's the deployments.

So the brands are doing an extraordinarily good job of getting the message is out and getting people interested in -- there's I heard a lot of hard work behind that across the commercial space.

So I wouldn't give any shoutouts, one way or another because we're seeing it's so broadly.

Yeah.

So Josh also talked about the portfolio modifications we made, which should help in 2025 as well as celebration key.

And keep in mind on top of that, we also don't have capacity increase next year, it's relatively flat.

So hope that should provide us with some pricing power in 2025 as we move to the booking cycle.

Thanks for that David.

Second question, a bigger picture question around capital allocation.

So, dividend based on how strong early demand is for the next your bookings, you know, it just doesn't seem like there's any slowdown at this point taking place.

I guess question, we look out a year from now and bookings continue to look solid.

Your SeaChange targets are essentially and certainly than your even closer to an investment grade rating.

Is it fair to think that you guys could be in a position to bring the dividend back to the story?

I mean, just think it's another important milestone and something that investors are becoming more focused on.

Thanks.

I probably sound like a broke record here, right now, our priority is, generate enough free cash flow, pay down debt and restrengthen the balance sheet and in that process returning value from the debt side to the equity holders.

I can't wait to have those conversations, but I'd say that's premature.

We've got a lot of work to do and then when we get there, you know, you'll be the first to know Steve.

Okay, thanks.

Appreciate it.

Patrick Scholes, Truist Securities.

Hi, good morning.

Have some questions on return on invested capital.

First one, and then I'll have a follow-up question.

What kind of ball park we try to invest capital due target for celebration key.

I wonder if you could give us some colour on that.

Thank you.

Yeah, what we talked about is, you know, you could almost look at this like a newbuild investment.

And so from a newbuild perspective, we're looking for at least mid to high teens and we'd expect no less from our land-based investments as well.

And obviously, the beauty of celebration key is, it will benefit across dozens of ships over time not one newbuild.

Okay.

And follow up question.

Certainly, with a new public -- existing company going public in the luxury river space, they're doing 30% ROIC, now brand name is a bit of a niche.

Would you ever rule out you folks getting in that line of business?

I certainly could envision seaborne river cruisers is being quite popular and a good crossover for your existing customers.

Just some thoughts around that?

Thank you.

We've looked at cruising in the past, and I wouldn't say, we'll never look at it again.

It's a niche and it's rather small and something like us to move the needle have to be pretty grand.

And as you heard me say before Patrick, I think if we focus on our brands and we focus on doing all the things we're doing, the normal course and better will make much more of an impact on this business.

Okay, Josh, I appreciate.

Thank you.

Thanks Patrick.

Ben Chaiken, Mizuho Securities.

Hey, good morning.

Your two thirds of the way to your 2026 targets with two years remaining.

As you think about the remaining bridge to your targets and the toggle between costs and yields, do you feel tied to a specific yield requirement or threshold?

Or is there enough opportunity in the cost side to generate operating leverage necessary to reach our goals?

And then related costs were better in the quarter.

Can you maybe provide a little more specifics around what you're seeing or where you're getting more operating leverage than expected?

And then I have one quick follow-up.

Thanks.

So on the first question, you know, we're going to move forward as a company trying to focus on both certainly generating outsized revenue versus our historical norms and maintaining our cost leadership position.

We set out -- when we set a sea-change, you know, a basic math that would tell you from a pricing perspective after we got the occupancy back, we're looking at low to mid-single digit price increases on the revenue side.

And that's certainly what I would expect.

And I expect that to continue well beyond SeaChange, we also need to do good job of managing the cost.

So I don't think we have to tether SeaChange any one particular thing, it's just doing our jobs well across the board.

As far as, yeah, Dave, you want to go ahead?

As far as cost is concerned, in the second quarter, remember, we did identify cost savings, but the majority of the favourability was timing between the quarters.

But if you look broadly at the year, we are seeing a number of opportunities and the sourcing area, other efficiencies as well.

So it is broad-based.

There isn't any one particular item.

Our teams are working hard all across the board and there are hundreds of cost savings items that flowed into that full year savings.

Got it.

And then, Josh, in the quarter, you announced the P&O Australia will sunset into Carnival.

You still have a number of brands across geographies and customer preferences.

Do you feel there are other areas of the portfolio you can streamline and re-align?

Yeah, you know, the P&O Cruise in Australia is a bit unique, it is a dedicated brand to a tremendous market, but it is a small market.

And so the ability to really grow as a single source market brand of that size is not very feasible.

And so we're going to get a lot of operational synergy out of the moves that we made with P&O Australia.

We've been looking at our portfolio management for the last couple of years.

As you know, moving ships from one brand to another, retiring chips formulating our growth plans.

We'll continue to do that.

There's nothing on the horizon, but it's something we do on a on a very frequent basis to trying to figure out how to optimize overtime.

Got it.

Thank you.

Robin Farley, UBS.

Great.

Thanks.

The counters are very helpful, thanks, in addressing one of the concerns out there, especially I think showing that side, you have showing momentum in Q4 pricing in particular, thanks for having that additional clarity.

Just one question, they've been some headlines out there about some of the Greek Islands limiting the number of ships that might [commix] here.

And it does not include whether that's official or just something that is being considered.

Can you just put some context around that and whether that would just be changing a hearing to go somewhere on a Tuesday rather than a Wednesday, as opposed to not being able to go there at all.

In other words, is there anything we think about.

There's been different itinerary changes in the last year so that you guys are looking ahead to next year's.

Is that anything that we should be thinking about?

Thanks.

Sure.

So obviously, we have a great relationship with some with Greece and it's local communities.

And it's our job to make sure we're doing things sustainably.

In fact, a lot of the news that's come up lately, these islands had caps in many years, and we work with them and we have working, then we'll continue to work with them.

As we can really figure out how to coincide with their needs as well.

I mean, that's our job.

So I don't expect anything incredibly disruptive.

Unfortunately, for us, this is just part for the course, we do this all the time in lots of places.

And you've seen it work successfully in places like [New Brunswick] and will continue due to partner with local communities who want our economic benefit and move.

It's a relatively I mean, if you want context.

So you know, it's a relatively small part of our overall mix.

You're talking low single digit percentages, but it's important to us and we want show of show up well.

Okay.

Great.

Thanks.

And just one follow-up.

I think last call you might have given different percentage growth for I'm new to brand versus from new-to-cruise overall, is that something you can give a little bit more color on this quarter as well?

Thanks.

Sure, new-to-cruise was up 10%, new-to-brand a little bit less about 6%.

So we're pretty much moving forward with all components.

And as you know, brand repeaters is also a 10%.

Great.

Thank you.

James Hardiman, Citi.

Hey, good morning and thanks for taking my my question.

So this point of clarification, you talked about the same ship yields being up double digits.

Can you help us with how much of that is pricing?

Obviously you're getting some occupancy benefit there.

And then sort of I guess the bigger picture question there is you had mid-single digit per diem growth three quarters.

You don't think it's pent up demand.

It sounds like you made that point a couple of times, Josh, when and why do you think that ultimately decelerate?

Sure.

So on the same fleet is almost 50, 50 between price and occupancy is a little bit more occupancy than price.

But the premiums are there as well, which is really gratifying to see.

As far as when our growth has to and I wouldn't give you a time line for that.

I think all of the things that we've been talking about for the last two years are still in process, and we still have a lot of room to grow and making sure we're doing the right things.

As far as our creative marketing to reiterate people the performance, marketing and making sure we're getting in front of the right people in the right ways, getting them to click through and book with us trade partners.

One great thing I'd say whether it's a 25 year old shipped 2000 guest or it's one of our newest with 5,500 guest people love what we actually do, and we actually deliver on board and that should get some coming back.

So I don't see a natural ending point as long as we're focused on those things.

And let me add to that because we are still a tremendous value compared to land-based alternatives.

And so as we continue to grow that value gap and raise the price, we should be able to continue the progression over time.

And on top of that, you know, keep in mind that Mr. Josh, I think mentioned on last call, the service levels on land base resorts have deteriorated and ownerships.

We're doing a great job keeping or guest satisfaction levels up.

And people, it's a hassle-free vacation and people left to cruise.

And so we are expect to keep demand generations efforts high and hopefully we can continue to see price improvements and adjusting prices are up in 2025.

I am in our book position, and we expect to see that continue.

Got it.

And then sort of as a follow-up on along the same lines, right, as we think about Europe versus NAA per diems, obviously, Europe had a big occupancy tailwind in the last couple of quarters.

And it seems like that is now dissipating.

You've guided per diems to be up, I think about mid-single digit range for the reach of the next few quarters.

Any way we could sort of like the Europe versus North America as we think about per diems, are they pretty similar as we move forward or is one stronger than the other?

Thanks.

Sure.

I wouldn't peg it in any one particular quarter given that there's always noise and assume that you're comparing.

But I'd say that we expect both North America and you do to show up on pricing overtime in the normal course, I think is particularly gratifying, frankly, that the EU brands not only we are able to actually catch up on the occupancy.

But to do so significantly higher per diems means it's working.

And so when I say the same thing with North America, I mean, yeah, there per diems are a little bit lower, but at the end of the day, they recovered quicker and they're still maintaining mid single digit pricing.

So I think that bodes very well for the future.

Got it.

Much appreciated.

Brandt Montour, Barclays.

Good morning, everybody.

Thanks for taking my question and congratulations on the quarter.

I'm just wondering if you could elaborate a little bit on the revenue management strategy for '25.

I know you have already asked my question is more on the booking curve length -- the optimal booking curve length and you're ahead again on next year's booking curve.

But is there a certain point where you feel like you don't want to go any further than that and it's not necessarily optimal.

How do you think about that?

Yeah, thank you, Brandt, for the congratulations.

The 100% I do feel that way.

But also keep in mind we give you a very rolled up number.

When we say, you know, our occupancy is acts and our booking curve, as you know, the farthest out in history, when we go through this with our teams and what they do on a daily basis, it is ship by ship, sailing by sailing, brand-by-brand to figure out what that optimal point is.

It could very well be that over time for lots of reasons, you're not going to hear me say overall that we are increasing the booking curve.

And that's okay, our goal is not to get it as long as possible is to generate as much revenue as humanly possible by the time we ship leaves for sailing.

And so there's a lot that goes into that mix is not just base loading, but what price you base loading it out.

How are you managing your matters against each other, the balconies versus the insides?

I mean, so many variables go into it on a detailed basis.

And the output is what we talk about on this call.

So, the teams are very much aligned.

Optimization does not mean elongation.

It means optimization.

That's super helpful.

My follow-up is on three brands on Costa Princess in Holland America, those are three that we've been watching.

You guys talk about in your sort of improving our licensed across those three brands.

I know you've been focused on them.

How would you describe this success or versus your own benchmarks on those three brands improvement and or any three of them outperforming the others at this point along those guidelines?

So we'll start with some with the fact that every single one of them is showing significant improvement year over year and ROIC, which I would expect.

There are all coming from a different starting point back in the press pause world.

So you know, one of them is actually above where they were, one of those -- one of them is at where they were, and one of them is below where they were.

But I'd say it's a little bit irrelevant because of the brand and it's actually higher expected to be even higher because 2019, wasn't very good for them.

So from my perspective, the good news in this is a none of them yet are a 12% ROIC.

All of them have the potential to do that and we've got plans in place for them to do that over time.

So progress across the board.

Excellent.

Thanks so much.

Thank you.

Conor Cunningham, Melius Research.

Hi, everyone, thank you.

Just I think you said 10% new-to-cruise.

I was curious if you could talk a little bit about just the changing demographics of your customers in general.

How much is the younger demographic engaging with the projects or product is there anything that they're doing different and prior generations?

Thank you.

Sure.

Well, that's a deep question, right?

So everybody is engaging differently than they did in 5 and 10 years ago because everybody is getting more comfortable with everything digital and everything online.

So that's a shift it's not just about millennials, it's about society.

And when it comes to our mix, we've got, you know, we've got brands that might be one or two years younger average age than they were before the pandemic.

We've got some that might be a year older in the grand scheme of things.

It's not a huge swing.

We've got -- and you also got to remember with us, we've got brands that really do cater to a younger generation, like a Carnival, like a Naida, and they're going to be outsized in our portfolio mix.

When it comes to attracting millennials, we don't just want millennial.

I can't say a strongly enough a brand like Holland America, a brand like Qunar, it is playing in a place where they need and want people that have time and money, which generally leads to an older crowd that has time on their hands because maybe they're not working anymore.

And so I'm very happy that we're getting a broad church because we are across the board.

But make no mistake, we're happy with our with our mix, and we're happy to take many folks in the Boomer generation and Gen X, Gen Y, Gen Z you name it.

So we want to know.

Okay, appreciate it.

And I'm on the P&O Australia brand, things make sense.

And it just as you consolidate that into Carnival, is there any impact on the P&L or any investment needed like during that transition time?

Just curious like as it goes away as there are potentially cost headwind associated with that?

Thank you.

Sure we're going to for us, we're going to do some minimal CapEx investment, primarily on the ships to get the IT stacks on aligned to Carnival Cruise Line.

But from a guest experience standpoint, we don't have to do much with those ships and they're great for that market.

We obviously have in this particular instance, because we're effectively sunsetting of brand.

There are some one-time costs that we're absorbing, but it's really quite small.

So nothing really significant to speak of.

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

Thank you.

Assia Georgieva, Infinity Research.

Good morning, guys, and excellent quarter, and I'm really happy to exceed new from what you have accomplished.

I had two quick questions.

The first one is more on the external world competitive environment.

David mentioned you guys know, we do this really extensive pricing surveys which are quantitative, and we have about 95% of the private and public company.

So we're seeing some of the skin thinning out of one of your competitors into Q4 in the possibly into Q1 2025 and also seeing sort of encroaching on your territory by another brand that may be a private one.

Would you just give it the best be willing to comment as to how these external questions may carry a potential risk towards the winter season?

You think sort of.

So thanks for the time, which for us, as you heard, we gave you our forecast for effectively for each of the quarters by giving you the third quarter and the full year.

So you can see we're expecting continued progress, continued mid single digit type of price improvements over time.

With respect to any one competitor in the cruise space because you've got to remember we're not just competing with cruise companies.

We're competing with vacation companies to get the the traveler thinking about taking their vacation with us none of it is none of it should be disruptive to us in the grand scheme of things, given our size and scope, given the strength of our brands, given the continued focus that our brands have in differentiating themselves even further and providing amazing experiences is really our job to perform no matter what some nameless brand, which I have a feeling I know which one you're talking about, how you describe on, you know, how they may choose to operate.

And if we've seen this in markets all over the world and yet here, we are with record revenues, record per diems and really great momentum.

Thank you, Josh.

And a quick follow-up questions.

You described both ticket price and occupancy being tailwind in Q2.

And I think again with Europe being somewhat slower and the uptake in 2023, should we expect a continued benefit from higher occupancies and especially out of the European source passenger in Q3?

Or do we believe that the going into Q4 and Q1 and possibly next year then benefit will start to subside a little bit just because of the catch-up that's going on?

Yeah, you know if you recall last year actually you heard David earlier on the call.

We basically got back to his door occupancy level in the second half of last year.

So there's a little bit more opportunity on the occupancy side, certainly in Q3 where we were a little further behind.

Yeah, you know, in that range than we were about time.

We've got the Q4.

But really as we look -- as we move forward into 2025 and beyond, we've got to get the demand to keep that momentum up on the mid-single digit type of price increases that we want to push for.

There'll always be opportunity, the fringes.

And as you've heard me say before, the reason why we're not giving you guidance on occupancy with specificity as we want to make sure that our brands are doing the right thing in managing the revenue and managing the curve and not simply trying to make an occupancy target to the point or decimal point at the expense of doing something they shouldn't be doing with the pricing.

So our goal is very much how do we generate the most yield overtime, which is a combination of the price and occupancy and making sure we kind of nailed the discount there.

And that makes total sense, especially on the occupancy guidance, I understand and appreciate.

And so good luck we're expecting great things in September.

Thanks very much.

Jamie Katz, Morningstar.

Hey, guys, good morning.

I have a quick question.

Given the environment's been so strong team, that is what keeps you up at night?

Is that regulatory risk, is there some ESG risk, is it nothing right now.

I'm just curious to hear sort of the other side of the tack.

Thanks.

Ultimately we got through 2020 and I've got three kids.

So not much keeps me up at night.

What would comes to this, anything within our control, I feel very comfortable that the team we can manage it all.

And so I don't worry much about Black Swan because you really can't spend you're life worried about balck swan or you'll have a miserable life.

So our attitude is, you know, we got to keep performing will take, will people throw at us in the world throws at us, and we'll adapt and modify what we need to do as needed and move on and the greatest part about this business from that perspective is we're noble.

And when you have that mobility, it gives you a lot of flexibility to figure things out.

Thanks.

Dan Politzer, Wells Fargo.

Hey, good morning, everyone, and thanks for taking my question.

First one on celebration key.

Josh mentioned you're ramping up there 18 ships calling in 2026.

Can you maybe talk about the uplift that you're expecting, whether it's in the form of ticket prices onboard spend?

I know you mentioned fuel.

And then to what extent is this built into those sea change targets, which you already tracking well ahead of at this point?

Thanks.

Thanks, Dan.

Yeah, so you nailed the three components that are going to really be the things that drive the returns on celebration key.

It's going to be incremental price because of the demand it's going to be incremental spending on the island which we call on board.

Spending in this circumstance and fuel savings because of it's location we're now breaking those out for people but just to answer your question, that did factor into really 2026.

Benefit for us as we think through as we're thinking through that three year plan is fairly minimal for next year when it comes to the uplift because it's a fairly insignificant amount of our overall capacity that's hitting it as we ramp in starting in the second half of next year.

But you build those were the three components, yeah.

Got it.

And then just for my follow-up, in terms of costs for next year in acknowledging it's still very early, but do you think about that marketing and advertising component?

On the one hand, you don't have a ton of capacity growth, but with celebration Keynote starting to the opening in the back end of the year, how should we kind of think about that, that line item relative to 2024?

So it clearly is from a cost perspective, celebration, key will costs, but hopefully and we do anticipate that it will be a great return and the benefits on the revenue and the onboard spend side and fuel savings side.

So it is we're not managing to any particular line item, we're managing to our operating income in our bottom line, and we're not afraid to invest in celebration key to make it a great success and while we're on the cost for 2025.

I guess the only other thing I'd add on that front, we do also we announced the, i.e., that evolution program and those ships will be going into dry dock.

So you'll also see an increase in dry dock days in 2025 versus '24, which will also have a corresponding impact on cost.

And ultimately though we were doing that for right reason.

As we I think I can't remember if we talk about this on the last call or not, I think we did, i.e., there is one of our highest returning brands and we've got about them for a long time.

And this is going to make significant enhancements to their existing fleet, which is a great investment for us businesses and get outsized returns on those investments.

And then tier, I think you're asking a question about advertising specifically as well.

You're right, we might have flat capacity growth.

But remember, we're selling cruises that go beyond the current year we're thinking well into the future as our brand due try to optimize whatever that booking curve is for that particular brand.

I do not have a mandate or a cap or a floor on our spending for advertising, right.

The key is what are we spending it on?

How is it going to be effective?

Is it going to generate incremental an outsized revenue for whatever that initiative might be in the marketing space?

And we go through those plans with our brands, not only every year as part of the planning process.

But throughout the year, I'm talking to my President to make sure we're being thoughtful.

And so there's no the truly is no predetermined outcome.

I mean, you've -- as you've seen, we have significantly stepped up where we were before the pandemic to where we are now.

It's been working, it's been helping to support the results that we've talked about today and the momentum that we've got and will continue to look at a critical.

Got it.

And then just very one last very quick clarification.

David, I know you mentioned returning to IG metrics.

I just want to make sure that there's no change in your goal of getting back to IG an investment-grade credit rating.

No changes, we can control the metrics we can control the decisions of the rating agencies.

Got it.

Thanks so much.

David Katz, Jefferies.

Morning, everyone.

Thanks for taking my question.

I wanted to follow on

(inaudible).

I wanted to follow on the last question with respect to the balance sheet and I think we probably all progress through a period we're expecting maybe rate cut.

Nonetheless, you're making some very good progress with respect to that balance sheet.

Can you help us maybe shed a little light beyond just the obvious easy math around what a rate cut or would do for you and progressing that balance sheet?

Well, to start with, if you look at our whole portfolio about 15% of our debt profile is variable rate debt.

So as you saw in the earnings release, I think you said 100 basis points reduction in interest rates would benefit the back half of the year, I think was $23 million for the full year it's double that.

But really from a rate cut perspective, you know, we're in an environment where a for us where an improving credit and hopefully as the our interest rate -- how future interest rates will come down.

That just because of rate cuts because of the improving credit and a lower credit spreads.

And on top of that, we would expect to do some refinancings and those refinancing should drive our interest expense down.

So we do have some very good opportunities that we're looking at in the future, which should be net present value positive.

And we'll keep evaluating that.

And you'll hear more about refinancing over time.

Appreciate that.

And if I may follow up quickly, just going back to Josh to one of the things you talked about.

That's a bit more specific performance marketing, which was, I believe, a relatively new initiative.

Could you give us an update on where that is, how it's done, what's next, et cetera, please.

Sure.

So just to clarify, it wasn't a new initiative.

It was just more focus and ensuring we have the right on the services around capable these in the right approach.

So that that's but I'd be shocked, if wouldn't forever at a point in time where we're not talking about performance marketing and how do we keep progressing.

I mean, the world changes around us, which is going to dictate we've got to always be nimble and thinking about how do we adapt to that and to the consumer and how that consumer is going to see things and digest things and making sure we're actually being is forward thinking as we can to stay ahead of that curve.

So as far as how it happens, it certainly does not happen from me.

It doesn't happen from a centralized corporate group in Miami because different brands are sourcing from different source markets are different segments, et cetera.

So our six operating units really have teams that are focused on a for their brands to make sure that we're doing it as optimally as we can.

Okay, thank you.

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

Sharon Zackfia, William Blair.

Hi, good morning.

I'm convinced to go in alphabetical order on this call.

I guess I wanted I wanted to ask about kind of the tension between garnering are harvesting cost savings versus reinvesting in demand creation and how you think about that.

I mean, just you touched on and different elements and demand creation.

But I mean, historically, kind of all the known as kind of a cost leader, is there an opportunity as you harvest these cost savings to kind of SAP more of that gap in marketing spend per berth and that kind of old as relative to the competition?

And how far are you willing to go there?

Yeah, sure.

So as as you heard, so we want to continue to be at a cost leader.

I think they're not -- they don't have to be mutually exclusive.

And so we have been bringing more cost into reinvesting in the business.

And it's not just marketing and it has been on marketing.

I think it was 18% per ALBD versus pre 17% to 18% per ALBD since before the pandemic.

So certainly, we're -- we see the value of that.

But if you think about our onboard experience and making sure we're providing amazing food alternatives and services, we're reinvesting in bandwidth, we're spending more on bandwidth with than we ever have and is generating outsized returns because people love the service it's land-light.

It's something people are willing to pay for.

So there's examples up and down the P&L.

We're very happy to reinvest to drive the right behaviors to get the revenue that we're looking for.

I don't have a metrics how much when any particular quarter any particular year.

I mean, clearly our operating margin, we still got work to do our EBITDA margins.

You know, if we get to June guidance it will be about a 5 point bump from last year.

And it leaves us a few points short of where we were in '19.

So we got more work to do.

And so the team's very focused on it, and that will come from both sides.

Over to your point, it won't just be cutting costs.

We got to make sure we're doing the right things to drive that revenue.

Okay, thank you.

Okay.

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

Thank you.

Thank you.

This concludes today's conference call.