Carnival PLC (CUK) 2025 Q3 法說會逐字稿

Greetings, and welcome to the Carnival Corporation and plc Q3 2025 earnings results conference call and webcast. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Beth Roberts. Please go ahead, Beth.

Thank you. Good morning, and welcome to our third-quarter 2025 earnings conference call. I'm joined today by our CEO, Josh Weinstein; our CFO, David Bernstein; and our Chair, Micky Arison.

Before we begin, please note that some of our remarks on this call will be forward looking, therefore, I will refer you to today's press release and our filings with the SEC for additional information on factors and risks that could cause actual results to differ from our expectations. We will be referencing certain non-GAAP financial measures, including yields, cruise costs without fuel, EBITDA, net income, ROIC, and related statistics for all, which are on a net basis or adjusted as defined, unless otherwise stated.

A reconciliation to US GAAP is included in our earnings press release and our investor presentation which are available on our corporate website. References to ticket prices, yields, and cruise costs without fuel are in constant currency unless we note otherwise. 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. This was a truly outstanding quarter, with our business continuing to fire on all cylinders, outperforming and taking us to new heights. Once again, we delivered record revenues, yields, operating income, EBITDA, and customer deposits.

This quarter, we also achieved all-time high net income of $2 billion, surpassing our pre-pause benchmark by nearly 10%. This is a significant milestone, with strong operational execution more than compensating for a nearly 600% increase in net interest expense compared to 2019.

On a unit basis, both operating income and EBITDA reached the highest levels in the better part of 20 years. These record results were delivered on 2.5% lower capacity as compared to the third quarter last year, yet another proof point on our successful delivery of same-ship yield improvement and its marked impact on the bottom line.

In fact, yields increased 4.6%, all of which was achieved on a same-ship basis. Yields were also over 1 point better than guidance, again, due to the strength in both close in demand and onboard spending. Unit costs beat guidance by 1.5 points on continued cost discipline.

The outperformance on revenue and costs, alongside our refinancing efforts, enabled us to take up our full-year guidance for the third time this year. These fantastic results and our team's consistently strong execution delivered ROIC of 13% for the trailing 12 months. This is the first time since 2007, nearly 20 years ago, that returns have reached the teens, another clear testament to the fundamental improvements in our operational performance.

Our leverage is now down another notch to 3.6 times net debt to EBITDA, closing in on investment-grade leverage metrics. This positions us even closer to using our strong and growing free cash flow to not only continue to responsibly delever but also to return capital to shareholders. In fact, just today, we called the remaining converts using $500 million of cash that David will touch upon. To fuel this over the longer term, we believe we have much more opportunity to increase same-ship yields and further close the unbelievable value gap to land-based alternatives, pushing margins and returns even higher over time.

In fact, booking trends have continued to improve since our last update, nicely outpacing capacity growth at higher prices and setting a record for bookings made on sailings two years out. And with nearly half of 2026 already on the books at higher prices, we feel pretty good about next year.

We just welcomed Star Princess into the fleet, sister to the highly successful Sun Princess, previously awarded Condé Nast's 2024 Mega Ship of the Year. This new ship class will now represent over 15% of the Princess fleet, a nice tailwind for the brand next year.

Of course, we also have the full benefit of Celebration Key and the continued rollout of our destination development strategy as we progress through next year. Celebration Key is as phenomenal as we expected and open to rave reviews. I could not be prouder of both the Carnival Cruise Line and our destination development teams for not only getting this fantastic development done on time and on budget, but also delivering an amazing guest experience right from the start.

Since our late July opening, nearly 0.5 million Carnival Cruise Line guests have already passed through the sun-shaped arch in Paradise Plaza, soaking in the largest freshwater lagoon in the Caribbean, heading up to the top of the world's largest sandcastle, zipping down our racing water slides, or enjoying a cool cocktail at the world's largest swim-up bar. While early guest feedback from Celebration Key has been fantastic, we are paying close attention to our guests' suggestions and will continue to fine-tune operations and strive for continuous improvement to make the experience for our guests even better.

As you may have seen, the media coverage for our new destination has been overwhelmingly positive. Even before opening, we were amongst the most searched cruise destinations and we have clearly built on that success. Our marketing teams have been working around the clock to make Celebration Key a household name. The grand opening alone generated almost 1.5 billion media impressions, and we've been activating a ton of live footage from the destination on social media and the like ever since.

Celebration Key is sure to increase consideration amongst new to cruise, while at the same time giving our repeat guests yet another reason to come back soon. In fact, we expect word-of-mouth will continue to build with 2.8 million guests visiting Celebration Key next year on 20 Carnival ships leaving from 12 different home ports. This adds up to high utilization rates with a ship in port virtually every day of the year and at least two ships 85% of the time.

To that end, our pier extension is in progress and by next fall, will accommodate up to four ships at a time, allowing us to maximize the utilization of our existing land capacity. And because I know I will get asked, right off the bat, I'll just say in the early innings, the returns of our Celebration Key investment are indeed meeting expectations, all of which were built into our forecast and which we have exceeded.

Switching gears to another of our Caribbean gems, mid next year, we will also open the pier expansion at RelaxAway, Half Moon Cay, our pristine Caribbean oasis. This spectacular tropical paradise, already ranked amongst the best private islands in the Caribbean, invites our guests to relax and enjoy our white sand, crescent beach, and crystal-clear turquoise waters.

Once both piers are operating, one out of every five Carnival Cruise Line Caribbean itineraries will go to these perfectly paired destinations, providing guests with both the ultimate and the idyllic beach days, all in one vacation. And overall, the vast majority of our Caribbean guests will enjoy one of our seven purpose-built Caribbean gems, with half of those guests visiting more than one.

As beaches are the number one destination for vacationing Americans, our miles upon miles of some of the most beautiful beaches in the world are the perfect fix. By making targeted incremental investments and stepping up our marketing efforts to support this broad destination portfolio, we believe we have further opportunity to monetize these strategic assets by using them to drive consumer consideration and conversion, taking share from land-based alternatives.

Altogether, our exclusive Caribbean destinations will capture over 8 million guest visits next year, almost equal to the rest of the cruise industry combined. And let's not forget, our strategic portfolio of brands and assets stretch far beyond the Caribbean. We have by far the most assets in and capacity dedicated to Alaska, which has been incredibly strong this year, as well as the biggest reach into Europe, which has likewise been performing incredibly well for us.

Our portfolio of brands and land-based assets are clearly the largest and most diverse in the industry, and getting even better every day. While getting to 13% ROIC so quickly is a significant achievement, it's certainly not a ceiling. We have been disciplined in deploying capital towards our highest returning brands, with seven ships on order for Carnival and AIDA combined.

But keep in mind, we have many other brands that are quickly progressing up the internal leaderboard. This year, the overwhelming majority of capacity will be at brands delivering double-digit returns. Yes, this is already well above our cost of capital, but our brands have much more room to significantly improve. In fact, several of our brands are not yet back to either 2019 levels or the record highs they've reached in the past two decades, so we know the latent potential they have.

And even the two stars currently atop that internal leaderboard, AIDA and Carnival Cruise Line, have roadmaps to progress. AIDA will continue to benefit from its hugely successful Evolutions program, which, coupled with new ship orders, will modernize its current fleet.

Next month, AIDA Luna will enter drydock, the second of seven ships to receive this proven upgrade. Carnival will also be launching a fantastic new marketing campaign just ahead of wave season, an enhanced loyalty program mid-next year, and of course, stands to disproportionately benefit from the step-up we're making in our Caribbean destinations, given their large year-round Caribbean presence.

So while it is incredibly rewarding to see the great progress our teams have made in such a short amount of time, I am equally excited about the opportunities ahead as we create shareholder value through continued progress on profitability and returns. At the same time, further balance sheet improvement should continue the transfer of enterprise value from bondholders back to shareholders.

I would like to again thank our team members, ship and shore, for the dedication and execution which enabled us to deliver happiness to nearly four million guests this past quarter by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sail, place we visit, and life we touch. And special thanks to our travel agent partners, destination partners, investors, and of course, our loyal guests for their continuing support.

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

Thank you, Josh. I'll start today with a summary of our 2025 third-quarter results. Next, I will provide some color on our improved full-year September guidance, as well as some key insights on our fourth quarter. Then I'll provide you with a few things to consider for 2026 and finish up with an update on our efforts to rebuild our financial fortress through refinancing and deleveraging.

Turning to the summary of our third-quarter results, net income exceeded June guidance by $182 million or $0.13 per share as we outperformed once again and achieved our highest-ever net income for the quarter. The outperformance was mainly driven by three things. First, favorability and revenue were $0.04 per share as yields came in at 4.6% compared to the prior year, and that was on top of last year's robust increase of nearly 9%. This was 1.1 points better than June guidance driven by continued strong close-in demand resulting in higher ticket prices and a continuation of strong onboard spending. The increase in yields was driven by improvements on both sides of the Atlantic.

Second, cruise costs without fuel per available lower berth day, or ALBD, were up 5.5% compared to the prior year. This was 1.5 points better than June guidance and was worth $0.03 per share. The favorability was driven by cost-saving initiatives which we firmed up during the quarter. These will flow through to our full-year September guidance. And third, favorability and fuel consumption and fuel mix was worth $0.02 per share as our efforts and investments to continuously improve our energy efficiency of our operations, leveraging technology, and best practices paid off once again.

The balance of the favorability, $0.04 per share, was a combination of improved depreciation expense and better fuel prices, as well as favorable interest income and expense. Customer deposits at the end of the quarter were at a record for the third quarter at $7.1 billion, up over $300 million versus the prior year, driven by higher ticket pricing and increased sales of pre-cruise onboard revenue items.

Next, I will provide some color on our improved full-year September guidance. Our net income guidance of approximately $2.9 billion, or $2.14 per share, is a $235 million, or $0.17 per share, improvement over our June guidance.

The full-year improvement of $0.17 per share was driven by three things: first, flowing the $0.13 per share third quarter favorability through to the full year; second, an additional $0.03 per share of fourth quarter interest expense favorability as the actions that impacted third-quarter interest expense are also creating favorability in the fourth quarter; and third, $0.01 per share from improved fourth-quarter fuel prices.

Yield guidance for the fourth quarter remained the same as the prior guidance. Cruise costs without fuel for the fourth quarter are flat with June guidance. However, our cruise costs for the fourth quarter did benefit from some of the cost savings we solidified during the third quarter, but were offset by higher variable compensation driven by improved operating results. All of this results in over $7 billion of EBITDA, a 15% improvement over 2024, virtually all of which is being driven by same-ship yield improvement as our capacity is only up approximately 1% year over year.

Now a few things for you to consider for 2026. We are forecasting a capacity increase of just 0.8% compared to 2025. As Josh indicated, booking trends have continued to improve since our last update, and we now have nearly half of 2026 on the books at higher prices.

As we highlighted on our last call, Carnival Cruise Lines' new loyalty program, Carnival Rewards, will start in June 2026, impacting results for the second half of the year. As a reminder, while the program will be cash flow positive from day one, it does impact our yields in 2026. The year-over-year impact is expected to be about 0.5 point. It should also be noted that we do not anticipate any meaningful impact on costs from the new loyalty program when compared to the current program.

Our game-changing destination, Celebration Key, which opened in July 2025, has been delivering an amazing guest experience. With a full year of operation in 2026, along with the mid-2026 opening of our new pier at RelaxAway, Half Moon Cay, we expect that the operating expenses for these destinations in 2026 will impact our overall year-over-year cost comparison by about 0.5 point.

While it is still early in our planning process, we are expecting to do more work during our 2026 drydocks. The additional expenses will impact our overall year-over-year assumptions by up to 1 percentage point.

Now I'll finish up with an update of our refinancing and deleveraging efforts. During the quarter, we continued our refinancing strategy to reduce interest expense and manage our maturity towers, while also reducing secured debt by nearly $2.5 billion, leaving just $3.1 billion remaining. We issued two senior unsecured notes and completed one bank loan. The combined proceeds of $4.6 billion from these financings, together with cash on hand, were used to repay over $5 billion of debt, continuing our deleveraging efforts.

We have been working aggressively all year long to delever, as well as to simplify and strengthen our capital structure, rebuilding our investment-grade balance sheet. Since January, we refinanced over $11 billion of debt at favorable rates and prepaid another $1 billion, accelerating our path to investment-grade credit metrics. We are pleased that our efforts have been recognized with the recent Moody's credit rating upgrade and the maintenance of their positive outlook.

Based on our September guidance, we are expecting to end the year with a marked improvement in our net debt to EBITDA ratio, going from 4.3 times at the end of 2024 to 3.6 times at the end of 2025. Looking forward, we are targeting a net debt to EBITDA ratio of under 3 times.

Given the progress we have made, and while still a top priority, it is great to be able to say that debt reduction no longer has to be priority one, two, and three. We can soon pivot to diverting some of that effort to returning capital to shareholders as well. In fact, just today, we provided our redemption notice for all of our outstanding convertible notes, which, if converted, will be settled using a combination of $500 million of cash and equity as we continue to rebuild our financial fortress.

The convert redemption will be settled on December 5, just five days after year-end, and will result in a $600 million improvement in net debt. Pro forma for the convert redemption, our net debt to EBITDA ratio is forecasted to be 3.5 times very early in our fiscal year 2026. This transaction will also result in a lower share count used in the calculation of a fully diluted EPS for 2026 by approximately 13 million shares at a $30 share price.

As we near completion of our current refinancing strategy, and with no ship delivery scheduled during 2026, and just one delivery per year for several years thereafter, looking forward, we expect our leverage metrics to continue to improve as our EBITDA continues to grow and our debt levels continue to shrink. With strong investment-grade metrics in our future, an upgrade to investment grade should not be far behind, which will result in security release on our remaining secure debt. All of this continues to move us further down the road, 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.

(Operator Instructions) Robin Farley, UBS.

Great. Thank you very much. I wanted to clarify -- obviously, very positive forward booking commentary. When we talk about historic price levels, does that mean sort of in line with or is that actually suggesting prices above? And I also thought it was interesting -- the comment in the release that something like now both Europe and North American sourcing brands are at that historic price. Is the implication there that maybe a quarter ago that North American price on the books wasn't at that record level, like on a combined basis it was, but now North America better? So just wanted to get that clarification. Thanks.

Good morning, Robin. So what we intended to convey is that both North America and Europe are at historical record-high levels in pricing, which is great to see. As far as looking back a quarter ago, nothing dramatic happened along the way. So it might be that we just wanted to give more information rather than less. So things are looking great on both sides of the Atlantic across the brands.

Thank you. And then just as a sort of follow-up, anything you can quantify with Celebration Key when you look at the impact on forward bookings where you could sort of say it's causing an X percent premium in ticket price for ships that are calling on that island versus other ships that aren't calling on it? Or any way to just sort of help us think about how that's driving your yields? Thank you.

Yeah. We're ecstatic with Celebration Key and the impact it's already starting to have on the business. It's kind of hard because it's such a massive set of businesses that's actually just shifted and is now inclusive of Celebration Key. But it's certainly getting the returns as anticipated when we came up with it a long time ago and as we've been getting closer to fruition. And a nice chunk of that is obviously the premium we're getting on the ticket side for any itinerary that's going to Celebration Key.

So it's still six weeks -- actually, I guess it's two months into operations, which is we hit the ground running and early days on the future potential that it's got, but it's tracking exactly as we anticipated. As I said in my prepared notes, I knew we'd get this question, and the best I'm going to tell you right now is it's certainly meeting expectations and we couldn't be happier.

Great. Thanks very much.

Thank you.

Brandt Montour, Barclays.

Great. Thanks for taking my question. So I wanted to ask about the consumer -- your consumer, Josh. We see lower-end consumers sort of fatigued and hurting in several other travel verticals. It doesn't seem like you're seeing it. Maybe that's why you're not seeing it because of the value proposition like you talked about. But are you seeing any sort of behavioral shifts within your loyalty set or people maybe trading down between shore excursions or sort of any type of behavioral changes from your core consumer here?

Continue to say the same thing quarter after quarter, which is we've got an amazing business with amazing brands that are doing a phenomenal job of improving on a daily basis, so I'm real proud of all of them, regardless of whether that's contemporary, premium, luxury. I'd say if you look back, we said in the third quarter, we had a pretty great booking 13-week period. We booked more year over year than we had in the third quarter of 2024. And in fact, Carnival, for example, it booked 8% more in the third quarter of '25 than it did in the third quarter of '24.

So we feel like we are -- we feel like we're pushing ahead very well. And as you know, and most others know, we don't really have capacity growth. So when you think about 2026 with no new ships, and then one thereafter for the next couple of years, that's all going to increase demand on a very restrained supply side for our capacity. So it's setting us up very well.

Okay, great. That's helpful. And then just to follow up on the bookings commentary, you're half booked for '26. Sounds like from your tone that that's the place where you want to be. But just thinking about the ebbs and flows of that booking strategy over the last few months, bookings were choppy back in April and March and you kind of came back to that.

When you look forward and think about how your strategy might change into '26, do you feel like you want to go in kind of similar to where you were last year? Or was there learning from last year where that might not be perfectly optimal?

Yeah, that's a great question. I mean, to some extent, we need a little bit of a crystal ball and hindsight is great. But knowing where we were positioned last year as we got towards the end of the year, and then what we absorbed and still came out in a pretty great way as we've been talking about over the last few quarters, it is giving us some thought about how we need to make sure we're optimizing in light of the volatility that we had last year. It's a question mark, right? There's always something, but it's not an election cycle year, which was the case last year at this time.

Knock on wood, I think the volatility has certainly been reduced pretty dramatically. Now we -- I'm knocking on -- everybody around this table is knocking on wood right now. But knowing that that happened last year, and it shouldn't be recreated any similar way, it does give us some confidence in how we're approaching this and what we were able to do despite the volatility this past year.

Excellent. Thanks, everyone.

Thank you.

Steve Wieczynski, Stifel.

Hey, guys. Good morning. Congrats on the strong third quarter and outlook. So Josh, I want to ask a little bit more about how you're thinking about 2026 versus maybe three months ago. And fully understand you guys aren't in a position to provide guidance yet for next year. But based on your qualitative commentary, it seems like booking trends have actually accelerated, I would say, versus the fear that might be out there in the marketplace that demand is decelerating.

So just wondering from a bigger picture perspective, maybe how you're feeling about next year versus back in June. And then also in your slide deck, you mentioned that 2027 bookings are off to, in your words, unprecedented start. And maybe if you could help us think a little more maybe what that wording means there. Thanks.

Yeah, sure. Just because I have a bad memory, let me start with that one. So 2027, what I meant is literally we've never had more bookings in a 13-week window over the third quarter. So this is a record for us for 2027. And so it was exactly as it was intended to be, unprecedented.

With respect to 2026, yeah, we feel good about 2026. We obviously are -- I have a feeling I'm going to do this a lot on this call. We're not giving guidance yet. We're not really talking about 2026. We're just trying to give a little bit of an understanding about where we're sitting. But I think all the things that we've talked about for quarter over quarter over quarter around our brands really trying to just own their space in the vacation market and doing their commercial execution on an improved basis is paying off.

Okay, got you. Thanks for that. And then, Josh, here's another 2026 question. So David mentioned --

Thank you for warning me in advance.

Exactly. David did mention there are headwinds out there as you start next year. I mean, 50-basis-point impact on yields for the reward program, 100 basis points for the drydocks, and 50 basis points, I think he said, for the buildout of the rest of the island. So basically, you guys have a 200-basis-point headwind as we start 2026. But I guess the question, Josh, is there anything you didn't mention that maybe kind of behind the scenes that you guys are working on to help kind of mitigate some of those headwinds?

Yeah, absolutely. I mean, look, let me give you some pros about 2026. As you said, we're about 50% booked. That's the longest booking curve we've got on record. We just had a better two, three booking period than we did last year. As I said, there was no election cycle. We get the full-year benefit of Celebration Key, half a year of RelaxAway. OBR strength has continued and we expect that to continue as we look forward.

We have no capacity growth, very, very little, I should say, which bodes very well. The strength of our diversified portfolio, I think it's really been playing out over the last couple of years and couldn't be more complimentary of the work that is happening all over our eight brands to really drive the business forward. And we get a benefit on the loyalty side with cash flow, as you know.

So putting that aside, we're always trying to figure out how do we become more efficient in what we do and how we do it. And as a matter of fact, David and I are going -- starting next week, we're going to be meeting with each of our brands to go through the 2026 operating plan and really understand how we can up our game to mitigate cost headwinds that happen every year. And we'll try to mitigate as best as we can.

Okay, great color. Thanks, Josh. Appreciate it.

Thanks, Steve.

James Hardiman, Citi.

Hey. Good morning. Thanks for taking my call. So maybe sort of a nitpick question, maybe it's a dumb question. But as I think about your forward booking commentary, I think coming out of Q2, you were saying you were in line with respect to load factors. But then I think in the press release, you spoke to sort of an acceleration in bookings year over year since May, which I would think would mean that you're now ahead on bookings, but I think you're still in line. So maybe it's just too close to call out in terms of the overall numbers but just wanted to clarify on that point.

Yeah. James, I think you might -- I'm trying to recall back from the second quarter, I think the second quarter, we were talking about 2025 in the remainder of the year. And this time, the commentary was on 2026. Maybe you can double-check the comments.

Okay. I'll definitely do that. And then as I think about the quarter, and really the last couple of quarters, the organic growth has been pretty stunning here, right? Particularly, you don't have any new ships coming online, and I think you've had the best yields in the industry, at least the ocean side of the industry.

So maybe connect the dots between some of the programs that you've been talking about, Josh, right, i.e., the AIDA Evolutions program, and some of the things going on with Carnival, new marketing, the step-up in Caribbean destinations. Maybe connect those dots with how that's translating into pricing. And then as we think about moving forward, other low-hanging fruit, and how we should think about pricing moving forward in the context of sort of the brand-level initiatives that are underway. Thanks.

Yeah, look. Where to start? I mean, when you think about something like the AIDA Evolution program, that's one 2000 berth ship that's had four or five months of operations coming out of it, which is going great. And it is not going to cover up the ball and Felix Eichhorn should take a bow for everything that he's done with AIDA.

But in the grand scheme of things, that alone is fairly, fairly small. It will get better and better as we get more and more ships through that program over the next several years. And I expect actually some of our other brands to be embarking on similar exercises and initiatives to really up the game of their ships that might be 15 years old or so, but they're going to be with us for well over 15 years, as far as I'm concerned more. And so there's a lot of opportunity for that to run.

Celebration Key, we talked about, I think, quite a lot. Couldn't be more proud of the team there for delivering an excellent experience and just giving us tremendous wind at our backs as we look forward into 2026 and beyond. But really, this is fairly broad-based. I mean, most of our brands have not had growth for a long time. And they are improving their yields year over year, not insignificantly. And it is because they can actually execute at a higher level, which is what they've been doing, and that will continue.

We've made investment on the advertising side. We've made investments into our revenue management systems. We've made investments into our people to make sure we've got the right capabilities and the right leaders doing the right things. And I think we've been saying this for a for a long time. I mean, when we came out with SEA Change, we talked about what we need to do, and that was back in June of 2023. And really, the reality is it's just exceeded my expectations on the pace of that execution improvement. But the good news is there's a lot more in store.

Got it. That's really helpful. Thanks, Josh.

Thanks.

Ben Chaiken, Mizuho Securities.

Hey. Good morning. I guess first on capital return, I guess, how are you thinking about timing leverage bogeys? And then is there any preference between dividends and/or buybacks? And then kind of like separately, longer term, how do you think about capital return as a percentage of your free cash flow, if that's the way you kind of bucket it? Thanks, then one follow-up.

Yeah. Hey, Ben. Well, you hear what David said in his prepared remarks. I mean, like I was just saying, the acceleration is across the board. And that's certainly inclusive then in our ability to start returning cash to shareholders. As we get to that 3.5 times leverage metric, we'll be awful close to that at the end of our fiscal year. And as David noted, with what we're doing on the convert side should pretty much position us very well in early 2026 to get there.

I am fairly, I think, clear when I have conversations with anybody who asked about this that, number one, I want to be clear, it's a Board conversation and decision, which has not happened yet. Two, dividends are very important to us. We see the benefit of establishing -- re-establishing our dividend program. So I would expect outside of what we're doing on the converts, which is a little bit of a juice buyback because of what we're doing with our cash, it's really going to be reinstating the dividend, but it doesn't mean that it's to the exclusion of buybacks over time.

We have done both before very effectively, and we can do that again in the future. But it is a little premature for us to kind of try to telegraph what, when, and exactly how we're going to do that and any type of metrics that we're going to be using to moderate the amount of cash that's going out the door. What I can say in the good news side of the ledger is, again, we got no capacity growth next year. We don't have any new ships coming and we have one a year thereafter for the next several years, which should allow us to take a lot of free cash flow and return it to shareholders in the form of dividends and buybacks over time.

And so I -- once we've kind of fully turned that corner and can start talking about it, we'll try to give people more of a roadmap about how we're thinking about it. I'd say it's close. It is close. And I look forward to be able to talk about it having happened.

Understood. And then near term, I think previously, there was a pretty healthy acceleration kind of implied between 3Q and 4Q yields. Obviously, 3Q came in better. Maybe talk about what you're seeing with close-in demand and how you're thinking about the remainder of the year. Thanks.

Yeah. Look, Q3 ended on a strong note, and that was -- as David said in his notes, it was a combination of close-in demand being stronger than we had forecast and continued strength and onboard spending. For Q4, where you saw we've been fairly consistent since the beginning of the year, actually, about how we were looking at the second half of the year, and given the volatility impact that we had in the spring, it did limit our upside, as I've said before, and we managed to get some out of our third quarter.

And as always, we're going to work as hard as we can to outperform every quarter, and that includes the fourth. But I think I said it last time, whereas we were outperforming in the first half of the year by 250 basis points on the yield side, that was going to be hard in the second half of the year. And you saw what we were able to do on the third quarter.

Ben, you still there?

Matthew Boss, JPMorgan.

Thanks, and congrats on another nice quarter. So Josh, could you elaborate on the ample opportunity remaining with net yields, margins, and returns that you cited in the release? I don't know, maybe there's a way to think about what inning you see the overall story in today, or just how would you rank the continued areas for ample improvement that you noted?

Having just got to 13% on the return side, I don't see why that cannot make significant improvement on a longer-term basis. From there, I never looked at 13% as an ending point. Never looked at 12% as an ending point, which was our SEA Change targets, and now we're at 13%.

We are planning in our fiscal second quarter, hopefully early on in that second quarter, to be able to give longer-term targets, which will probably help give you some clarity around how we're thinking about things. But from a margin perspective, from an improvement in yield perspective, I think you should expect us to have a continued track record of improvement over time. That's what we've shown, and we expect that to continue.

And David, helpful color on costs for next year. Are there any constraints as we think about delivering on your algorithm for costs to grow below yields as we think about puts and takes for '26 and also as we think multiyear?

Yeah. So as Josh indicated, we're going to be looking at targets early next year, and we do expect to see improving returns and improving margins, so which would mean that in the long term, yields would grow faster than costs over time. And any one given year, obviously, that's a difficult metric. But there are things that we can do in difficult circumstances, and we will work hard.

We have lots of savings opportunities to leverage our scale. As we talked about, we saw things in the third quarter, hundreds of items leveraging our scale across various operating areas, and we expect to see that continue into 2026. Some of that is, what Josh was talking about before, offsets to the cost increases that I mentioned in my prepared remarks.

That's great color. Best of luck.

Yeah. I'd just add for everybody, the lack of capacity, I think, is part of our strategy. It also basically means for every dollar that we spend, that's a dollar increase on a unit basis. And I'm not shying away from that. That is what it is, and we're going to work hard to reduce our costs wherever we see efficiency and we can leverage our scale more.

But it's a very different environment on the cost side than when you're living with a 6%, 7%, 8% year-over-year capacity increase, which covers up quite a lot of cost spending underneath the surface. So that's on us. We're going to try to perform as well as we can in all circumstances. That's just a reality of a very low-capacity environment.

Conor Cunningham, Melius Research.

Hi, everyone. Thank you. In the prepared remarks, you talked a little bit about the laggard brands moving up the ranks. I'm just hoping you could maybe drill down on that a little bit and talk about what's actually improving there. And then, I mean, in the past, you've just talked about rationalizing brands and whatnot. So I would imagine that there's some sort of investment needed to kind of get those brands back to the 2019 and beyond level. So if you could just talk a little about the laggards, that would be helpful. Thank you.

Yeah. It is interesting, and we don't really -- and I'm not going to open the kimono and just tell you everything that you probably want to know. But I would say that, for example, some of the brands that are lagging 2019, well, they were super high up the leaderboard in 2019 and they're already at double digit. They're just not to where they were in 2019 because they were really clicking on all cylinders. And they've already got -- they're showing improvement, good improvement, but I know that there's a way to go.

Likewise, there's a couple of brands that have already improved versus 2019, but the 2019 starting point wasn't anything to be raving about. So I know that they've gone to even higher heights in the past 20 years, and we see a path to be able to help them get there.

So it is a bit of a mix underneath. When we talk about significant investment, though, in order to be able to help brands really get up to the top of that leaderboard, I don't think there's actually anything in particular that is a glaring hole for any of these brands that we've got to fill. We have rationalized.

We have right-sized many of our brands that needed right-sizing, and the progress is good and we'll continue to support the brands that need a little bit more help than others to keep pushing up the ranks. I'm ecstatic that, as amazingly as Carnival and AIDA have been doing over the last couple of years, they've got to look over their shoulder because there's some that are coming on fast.

Okay, that's helpful. And then I know that you got asked about '26, so maybe I can ask about '27. So on the drydock commentary, it seems like there's been a couple issues with that. I mean, you've had a headwind for several years now, right? And then '27, I would think that we'd actually start to tick down again.

What holds that back? Is your fleet back to -- if you could just talk about the drydock opportunity come '27, does it actually start to bend down again? That would be helpful. Thank you.

Yeah. So 2027, I mean, at the moment, these things move around constantly as we plan things. But at the moment, the plan is for less drydock days in 2027 than in 2026. But I caution you that things can change as they do all the time. So there may be some opportunity there on the flip side, but it's very premature.

Yeah. Okay. Thank you.

Lizzie Dove, Goldman Sachs Asset Management.

Hi there. Thanks for taking the question. So congrats on another great quarter, obviously really strong same-ship yields. I'm curious as you go forward, it feels like you're having really strong returns from things like the AIDA Evolution program. How do you evaluate, when you're thinking about building new ships versus maybe expanding that type of retrofitting type program to the other brands and the relative returns there?

Yeah. So actually, I'm not going to tell you which one, but I sat through a session last week with another one of our brands to be doing something similar vein to how AIDA is thinking about their midlife ship refurbishment program. So we are actively in the middle of that.

Most of our brands have no new builds on order. And so making sure that we're maximizing the assets that we've got and investing in them when the returns make sense is part of how we're thinking about the world going forward. It's one of the reasons why our drydock costs are higher than they have been in the past, but they're giving us the return.

So we do look at it. I would look at it very, very similar to a new build, what's the incremental amount that they want to spend, incremental to what would be normal just to run the ships in the normal course, and what are we going to get for it. And AIDA's shown us a template for getting significantly outsized returns on that type of investment.

So I would say stay tuned. There'll be more to come in this space.

Got it. That's helpful. And then shifting gears, in Galveston, I think you're still the leading cruise line there in terms of volumes, number of ships there, et cetera. But you do have one of your peers mainly, I suppose, like trying to get more active in that space over the next few years.

How does that impact or does it impact how you think of your go-to-market there? There's been a lot of expansion on islands in the Eastern Caribbean, which I know you can reach from Galveston. But whether it's more developments with the Western Caribbean or Mexico, Puerta Maya, that you have, Isla Tropicale, how do you just think about keeping that competitive edge in Galveston?

Yeah. Galveston has been a tremendous market for us for decades, and we expect that to continue. We've got some fairly loyal guest bases all throughout Texas, which is always appreciated.

So it's certainly more crowded. I mean, we find that everywhere, right? People see successful operations and they want to emulate it. And I want to do the same when I see it from others. So we're going to try to keep upping our game and the guest experience that we have, the ships that we put there and where we can take them. And we're always looking at opportunities, Lizzie, for how to diversify the offerings for our guests. And we'll continue to do that.

And every market is important. Every home port is important. But one of the things that we get with our scale and our size and that diverse portfolio is a lot of things are clicking well for us, right? I mean, the Caribbean is about a third of our business. It's an important third. But Europe is, I think, getting pretty damn close to 30% of our business. Alaska is inching towards double digit and primarily over the third quarter.

So we really do have a diversified portfolio that we've been -- I would say, over my tenure, it didn't start in a lot of folks' minds as a positive. It was a drag because North America started out the gate so quickly when we came out of our pause. But I can tell you that diversification and the strength of that portfolio are all over the world is a huge benefit for us. And we continue to enjoy the results.

Great. Thank you.

David Katz, Jefferies.

Morning, everybody. Thanks for taking my question. David, in some of your earlier remarks about capital allocation, there was some reference to a bit of a transition to getting to return capital. Should we think about leverage having to get inside of that 3 times before there'd be more substantial recurring, whatever adjective we'd like to put on it? How are we thinking about the progression from here before we'd see maybe a buyback and other forms? Thanks.

Well, I think, let's start by saying I think it's wonderful we're having this conversation -- that we're in with a strong balance sheet getting stronger every day. But as Josh said, it is a Board decision. And we do have to have some conversations with the Board.

We are looking at -- given our circumstances, as I said, we can begin to think about returning capital to shareholders, and we will do that. And as we go along throughout 2026, we will make decisions as to how much, when, where, and how. And so it's a little premature to give -- make any statements relative to the size or magnitude of anything in terms of that right now.

Yeah. One thing, David, I think you misspoke or you misread the release in that we're not looking to get to 3 times before we start doing that shareholder return of capital. It's as we have our line of sight on 3.5 times is where we can start pivoting and doing more. Even though our long-term target is under 3, once we get to that 3.5 times, we can walk and chew gum and we can do both.

Understood, and that's what I intended. But just to follow up, thinking about other potential large capital projects or investments that may come our way, is there any -- I know this is not always the best place for hypotheticals, but just thinking about what might get in the way or defer any of that leverage come down, anything out there we should just consider or be aware of?

No. The only thing I'd say is, as we've been talking about a little bit on this call, is part of what we do is invest in ourselves on the capital side. So if we see opportunities for midlife ship significant refurbishments like we're doing with AIDA, that will certainly come into effect. There's the opportunity for Phase 2 of Celebration Key, as we've talked about.

But none of that is even close, actually, to the price of a new build. So we're talking about things in any -- over the coming years that we think are accretive to the business, but in the grand scheme of things are significantly smaller than the types of investments that an individual new build would have us make.

Understood. Thank you.

Sure.

Sharon Zackfia, William Blair.

Hi. Thanks for taking the question. I think at the beginning, you talked about early learnings on Celebration Key, kind of things that maybe you can amplify and/or improve. So I'd be curious on what you're hearing from the guests there.

And then secondarily, on the loyalty hit to yields next year, I assume that's all kind of second half weighted, just given when loyalty kind of rolls out, if you could clarify that. Thanks.

Yeah. So on the Celebration Key side, some of this is us being a little bit more thoughtful about exactly how we schedule the arrivals and departures of our ships when we've got multiple ships in port to make sure that everybody's got time and space to have an amazing time. Because there's so many folks going ashore, which is amazing, we need to get some more shade lounges and more umbrellas, which I'm actually happy to do, some more shading in the island.

There are some things that structurally we are working on. There's a rocky stretch of the beach that we want to make less rocky over time. We just got to see how the natural flows of the environment are working in a little bit more of an extended period to make those types of decisions. But tweaks all over the place on the F&B offerings, the type of things we offer, where we offer them, I mean, it's all going to be in play.

I mean, I'd say this with a lot of love for the team at Carnival Corporation worldwide who have been participating in this. The fact that we've hit the ground running as hard as we have from opening to pretty much full is pretty phenomenal. And we'll take the learnings as we go and we'll just feed it in. Really no different from a new ship, no different from new functions. You just got to listen, get feedback, and move on.

As far as the loyalty hit, you want to --?

Yeah. The loyalty, it is the second half after the implementation of the program in June 2026.

Thank you.

Chris Stathoulopoulos, Susquehanna International.

Good morning, everyone. So I'm going to keep it to one question. Really more of a strategic view, Josh, I know you're not talking about '26, but this is more of a high level as we think about the industry and really about Carnival's ability to, I would say, protect pricing power, brand equity in the Caribbean. So you have a competitor who's going to be adding on a lot of new hardware and pivoting to fun and some itineraries, as well as another who recently announced a new class of ships beyond their icons.

So as we think about the Caribbean market, and maybe you want to kind of contextualize this in terms of the mix of premiums, so balcony and suites and the like, I'm guessing this is going to be growing year on year, low single digits for next year, perhaps at the same level through end of decade.

What is the plan for Carnival to protect its ability to push yield to maintain its share? I realize you have two private destinations coming online, so maybe you could contextualize that in terms of a premium for that itinerary versus non. But I want to understand how you're thinking about the Caribbean, particularly as the market looks to evolve and capacity, perhaps grow at a rate that we haven't seen for some time. Thanks.

Yeah. No, thanks for the question. I wish we could say we haven't seen this growth for a long time, but that's just not the case. I mean, the fact is the Caribbean market has, for 20 years, been growing at rates that people did not think was sustainable. And lo and behold, it is. And we do grow less -- we are growing less than some of our competitors.

But at the end of the day, I think the first thing we got to contextualize is that we are all competing for land alternative vacations and guests that would otherwise be going somewhere else, be that -- whether that's Orlando, whether that's a beach resort, whether that's going across to Europe, whatever that might be, that's who we're competing against. And in that context, we are all tiny. I mean, we are just incredibly insignificant in the grand scheme of the vacation market, which actually is a plus, because the better we've gotten at reaching into the mainstream, more consideration being given by those who do not cruise, the better off we are.

Now keep in mind, it doesn't mean we're standing still. So Carnival has got two XL sisters coming in -- one in '27 and one in '28. So we're building for Carnival. We also have announced our own new class, the ACE Class, which is going to carry more guests than anything that exists in the world today. And that's also for Carnival and helping to protect his position in general, but it has been the mainstay in the Caribbean forever.

So I -- this is just nothing new in the grand scheme of things. We just got to keep doing what we're doing, investing in the things that we think make a difference, leaning into the destination strategy, certainly Celebration Key, RelaxAway Half Moon, those things are going to help. And we're always looking at different opportunities like that.

And the other thing is, ultimately, what we see is with a lot of our competitors, they view the Caribbean differently. They view it as something that is more transient in nature than we do. Caribbean for Carnival, that is who they are, that is what they do, and they're amazing at it.

I'm not taking anything away from our competitors. Some of them have made a great go of it, and they're doing similar things, but they also look at the Caribbean as something like good enough until something better comes along. And we position ourselves very well being there for the long term.

So thank you for the question. We have time for one more, operator.

Vince Ciepiel, Cleveland Research.

Thanks. Just wanted to think a little bit longer term about the opportunity. I know in the multi-year goal, you guys are targeting low to mid-single-digit type per diem growth. When we look at occupancy here, still, I think about 1 point shy of where 2019 shook out. And I imagine something like 20% of the fleet might be newer. And we think it's overindexing the balconies and maybe have higher occupancy levels in terms of opportunity. So how are you thinking about the multi-year opportunity ahead in the occupancy side of the yield equation?

Yeah. Look, there's nothing -- I mean, truly, when I say this, there's nothing magic about the occupancy number that we hit exactly this year versus 2019. We're encouraging our brands to optimize between the price that they can achieve and the occupancy. We know we can get occupancy. It's really easy to sail completely full. It's just a matter of how much you can charge to do it. And we want to make sure our brands are focused on the total revenue and not just occupancy to hit it.

There is opportunity. There is opportunity for our brands to improve on the occupancy position that we found ourselves at the end of the third quarter, which isn't far off from 2019, which was a high watermark and is above the historical range. But in the grand scheme of things, there'll be incremental things that we do, brand by brand, to make the trade-off between that price and occupancy and getting more folks on at the right price.

Great. Thanks.

Thank you very much. With that, I'll say thank you very much. Look forward to talking in December when we can probably talk a little bit more about 2026. So thanks, everybody. Have a good day.

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