CARNIVAL PLC Q3 FY2022 Earnings Call

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

Thank you, Josh. I’ll start today with a review of guest cruise operations, and then provide booking trends and the current tone of business. Turning to guest cruise operations. Third quarter 2022 represents a significant milestone in the resumption of our guest cruise operations with adjusted EBITDA turning positive for the first time. We were pleased to see that third quarter 2022 revenue increased by nearly 80% compared to second quarter 2022, reflecting a continued sequential quarter-over-quarter improvement. For the third quarter, occupancy was 84%, a 15 percentage-point increase from the second quarter. We ended the quarter on a high note with 90% occupancy in the month of August. We were encouraged by the continued very close-in demand we experienced during the third quarter for the third quarter, a trend we had anticipated. Revenue per passenger day for the third quarter 2022 decreased from a strong 2019, mainly due to the impact of future cruise credits, or more commonly called FCC, and currency given the stronger U.S. dollar, along with our large presence in Europe with four brands in the UK and Continental Europe. Once again, our onboard and other revenue per diems were up significantly in the third quarter 2022 versus third quarter 2019, driven by price increases, greater spending by our guests and the increased effect of the second wallet as more guests are participating in pre-cruise sales of onboard activities. In fact, year-to-date, we have seen over 50% growth in pre-cruise sales of onboard activities on a per passenger cruise day, or PCD, basis as compared to 2019. Our teams have done an excellent job capitalizing on the opportunity in this area. As I indicated in my comments during our last business update, we expanded our bundled package offerings given their popularity. The new bundled offerings required us to make changes to the accounting allocations. As a result, in the third quarter, more of the revenue was left in ticket and less allocated to onboard, impacting the onboard and other revenue per PCD comparison for the third quarter as compared to the second quarter. Just another reason to add to the list of reasons why the best way to judge our revenue performance is by reference to our total cruise revenue metrics. On the cost side, our adjusted cruise costs without fuel in constant currency per available lower berth day, or ALBD, as it is more commonly called, for third quarter 2022 was up 14% versus third quarter 2019. We have seen a continuation of the sequential improvement quarter-over-quarter in costs throughout the year and expect to see a continuation of the improvement in the fourth quarter of 2022, with a low double-digit increase compared to 2019, driven in part by higher advertising expense to drive revenue for 2023. We ended the third quarter 2022 with $7.4 billion of liquidity, essentially the same liquidity level as last quarter. In addition, I am pleased to report that total customer deposits, both current and long term, were $4.8 billion at third quarter 2022, approaching the record third quarter of $4.9 billion in 2019. New bookings for the third quarter of 2022 offset most of the historical seasonal decline in customer deposits, which was over $1 billion in 2019. Furthermore, to facilitate investor engagement, I wanted to mention a couple of balance sheet-related items. First, let me clarify our debt-to-capital covenant test. Our current debt-to-capital percentage is in the mid-50s using the calculation methodology in our debt agreements. This methodology allows for the add-back to equity of noncash write-offs and other adjustments, which eliminates the volatility from the pause in guest cruise operations, leaving us well within the debt-to-capital covenant limit set at 75% at the end of the third quarter 2022. Second, we will provide and will continue to do so quarterly a detailed debt schedule and a listing of ships in our fleet by brand on our website, carnivalcorp.com. To find these supplemental schedules, refer to the Financial Information tab within the Investor Relations section of the website. Next, let’s look at booking trends and the current tone of business. Booking volumes for all future sailings during the third quarter 2022 saw a continuation of the accelerated booking volumes during the second quarter and closed the gap to strong 2019 levels. We did not see any seasonal slowing of booking activity in the third quarter 2022 versus the second quarter 2022 despite the third quarter normally being a slower booking period. It is great to see booking volumes for all future sailings considerably higher than 2019 levels since the announcement of the relaxed protocols in mid-August, aligning us towards land-based vacation alternatives. However, we are still managing through the close-in nature of the booking curve caused by the Omicron variant disruption to our important wave season earlier this year and the more restrictive industry protocols in effect until very recently. This left us with more inventory to sell closer in. To optimize in this environment, we have been working to increase near-term occupancy in part by using limited promotions and opaque channels available only to a select group of people to protect overall price integrity for 2023. Therefore, while this resulted in the cumulative advanced book position for the fourth quarter below the historical range, we believe we are well-situated with our current fourth quarter 2022 book position given current booking volumes that are running significantly ahead of 2019 levels as we capitalize on closer in booking patterns. Pricing impacted in part by limited promotions in opaque channels results in our cumulative book position for fourth quarter 2022 lower compared to 2019 sailings, but primarily due to FCCs. With respect to occupancy, fourth quarter occupancy historically has been lower than third quarter given the seasonal dynamic of our business. It was a 9 percentage-point drop in 2019. However, this year, that will not be the case. Our continuing build in cabin occupancy will more than offset the seasonal decline, which will result in slightly higher fourth quarter 2022 occupancy compared to the third quarter and represents another step forward in closing the gap to 2019. For the full year 2023, our cumulative advanced book position is slightly above the historical average and at considerably higher prices compared to record 2019 levels normalized for FCCs. While I do expect an impact on 2023 yields from the FCCs, the impact is likely to be less than 1 percentage point for the full year 2023. Additionally, during 2023, we expect improvement in occupancy, with occupancy returning to historical levels in the summer of 2023. While our return to guest cruise operations is essentially complete, we are still evaluating a few remaining deployment options as referenced in our business update release. As a result, for 2023, we expect our capacity increase to be somewhere in the range of 3% to 5% compared to 2019. Of course, with nearly 25% of our capacity in 2023 from new ships, we also expect to benefit from the efficiency gains from our fleet optimization efforts that Josh mentioned earlier, helping to mitigate inflation. In summary, looking forward to 2023, we have a strong book of business at considerably higher prices. Prices are higher in all four quarters of 2023. Onboard revenue per diems are up significantly in 2022, and this puts us on track for a record year in 2023 for onboard revenue. All of this clearly sets the stage positively for 2023, with Josh and I working together with all the brand teams to drive revenue growth over time.

Yes. Hey, guys. Good morning. And Josh welcome to your first call as CEO. I guess, my question, we seem to be hearing a much different tone from some of your peers in terms of how the EBITDA or cash flow recovery is playing out versus what you guys just reported in the third quarter and your outlook for the fourth quarter. So, I guess, is it fair to assume that your Carnival Princess, your domestic brands, are doing very, very well right now, but it’s your non-U.S. brands that are struggling at this point, and that’s the issue right now versus your peers? And then, Josh, does that make you think a little bit differently about your portfolio ships, meaning do you still need 9 brands at this point?

Yes. Thank you, Steve, for the welcome. You mentioned a couple of points, and I’ll try to address them all. First, I can't comment on our competitors, but I can say our momentum is strong, which is encouraging, as my prepared remarks and David’s indicated. In particular, over the last six weeks, we've seen tremendous growth, and our book of business is solid. Regarding our brands, Carnival in the Caribbean has performed exceptionally well; they clearly lead as America’s cruise line this past year. However, I wouldn’t frame this as a North American versus European issue. All our brands are at different stages in terms of pricing and occupancy, responding to their target audiences in their respective markets and optimizing wherever possible. As I previously mentioned and as we've discussed before, I believe we can do better. I expect all our brands to achieve significant revenue improvements. Some of this involves basic execution, while other aspects require innovation in specific areas. So far, I've focused on three brands—Costa, Holland America, and Princess—and the initiatives in progress are substantial. I think it's best not to discuss specifics in this setting, but we are monitoring numerous aspects, both large and small, that will contribute to meaningful enhancements.

Okay. Got you. Thanks for that color, Josh. And the second question would be around 2023. And look, I understand you guys aren’t going to give guidance for ‘23 at this point. But in the past, we’ve heard previous management at Carnival kind of talked about it at a very high level, there was a good chance that 2023 EBITDA, there was a chance to exceed 2019 EBITDA. So Josh, you’re now at the helm, and how do you view that probability from what you can see today? Is this something that’s still possible, or are you just saying, hey, look, it’s too early to make that call?

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

Josh, welcome aboard. There’s a lot of discussion about the increase in bookings since the easing of some COVID restrictions. I’m curious about the impact this has had on pricing, especially in light of the decline in per diem, which is around 4% compared to 2019 for the third quarter. However, looking ahead to next year, it seems like pricing has increased significantly. I’m trying to connect these two observations and wonder if there’s a notable improvement connected to the relaxation of restrictions. Could you elaborate on that?

The volumes have been very encouraging. I can't comment specifically on price trends over the past few weeks, but the pricing for our business for 2023 is currently higher than it was earlier this year. Several factors are contributing to this increase. Our alignment with land-based alternatives has reduced friction and increased demand for our brands. We also adopted a different advertising approach compared to our pre-pandemic strategy, which involved scaling back significantly. This change was made while we paused operations to focus on our loyal customers and more efficient channels. Now that we're ramping up our advertising strategy again, we're starting to see positive results. Additionally, more people are sailing again and sharing their positive experiences about our product, which is also contributing to this growth. While I wish I could provide precise insights into all the factors influencing pricing, it's challenging to determine exactly how each one affects it. We'll continue to evaluate what works and what doesn't and make the most of our opportunities.

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

Got it. My second question is somewhat open-ended. Josh, since you've taken the lead, have you considered the challenges and opportunities facing the Company? I'm trying to understand how much of this is related to the cruise industry as a whole versus something specific to Carnival. Feel free to discuss any aspects, such as your customer demographics, geographical distribution, or the strengths and weaknesses of your brands. I'm interested in how you differentiate between those two areas.

Overall, I believe that the entire industry offers great value compared to non-cruise options. If we can effectively communicate how excellent our product is and how inclusive it can be, it will yield positive results. That's why I am very dedicated to our travel agent partners, as they play a crucial role in sharing this message and helping first-time cruisers, who may find it overwhelming or confusing, to get on board. Once we attract them, they tend to return. I cannot speak for our competitors or their internal practices. However, I can mention that we are observing positive developments on the commercial side across our brands, which vary from one to another, and I believe those will significantly benefit our corporation.

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

Hi, this is Josh. I used to have a dictionary that David provided for everyone when we were preparing back when I was a Treasurer. I think it’s safe to say this is mid-single digits. So, I guess that’s your answer.

Great. That’s very helpful. Regarding the nonfuel expense, it seems like your guidance for the second half is significantly higher than before. Is it primarily due to advertising, or are there other factors as well? I also have a follow-up about advertising, but I wanted to understand more about the nonfuel expense first. Thanks.

Sure. So, if you take what we said about all the quarters and you actually weight average it with the ALBDs per quarter, you get something in the mid- to high-double digits. And we had said mid-double digits before. So, it is a tad higher as a result of potentially more advertising expense than we had previously anticipated. But it’s not a significant change on a full year basis from what we said before, just maybe a point or something like that from the previous guidance.

Okay. Regarding the advertising aspect, you've mentioned being ahead in both price and volume in 2023, and you've indicated that there's a natural ramp-up happening. It appears that demand is growing organically. Therefore, why choose to increase advertising efforts? Is the focus targeted at specific areas, particularly in response to European demand, or can you provide insight on how to evaluate this situation when you're experiencing such strong volume and pricing? Thank you.

Yes. We have volume, but we want to achieve both volume and pricing to optimize our shipments. We need to put in more effort to reach that goal. This is not a matter of European versus American markets. Additionally, advertising is not just about immediate returns or filling ships for the next quarter; it lays the foundation for awareness and consideration, ultimately influencing booking decisions. We must keep in mind that we are taking bookings for the next 2.5 years, not just for the upcoming quarter, so we need to be strategic. Regarding new-to-cruise customers, this is where we can make significant strides, especially as we prepare for the wave season. Our main objective is to position ourselves for a very successful wave season, and it's been years since we experienced that. There is a lot of excitement within the organization because our plans are in place, and we know what we want to accomplish.

Yes. It's accurate to say that when you review the four quarters, we had previously mentioned that we weren't focusing much on advertising in the first half of the year. However, we did increase our advertising efforts in the second half. I believe I mentioned earlier that we anticipated our overall advertising to surpass the levels of 2019. Therefore, you will notice a significant increase in the second half of this year compared to 2019, exceeding the usual level we expect in the fourth quarter as we prepare for wave season.

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

So, I think I had indicated in my prepared remarks that we did expect to see FCC’s impact yields in 2023, but it would be less than 1%. In 2022, we had seen a couple of points of an impact given our forecast and the expectation. And I think you’ll see that it’s the FCC sweeteners that you’re talking about. And I think you’ll see that end with 2023.

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

Yes. Well, just keep in mind that a lot of the CapEx, depending on which particular item you’re looking at, a lot of the CapEx is in foreign currency. And with the changes in foreign currency, particularly the new builds, you will see a reduction in the new build CapEx. The non-new build CapEx, we’ve been looking at that very carefully and making sure that we optimize those numbers. So you did see a decline in 2022 from the previous guidance. And we are relooking at 2023. As Josh had said, we’re going to be going through with all the operating companies that plans for 2023. So at this point in time, we haven’t made any changes, but we will continue to look at that and talk to them about optimizing CapEx for 2023.

I apologize if I overlooked something. It seems that the messaging regarding FY23 bookings has slightly shifted. If I'm mistaken, could you clarify the booked position for 2023 and how it has changed since the last update compared to 2019? It appeared that bookings have picked up since the transition in the vaccine sector, but I'm a bit unclear about the total booked position for 2023 in relation to the last update.

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

Okay, that’s helpful. Can you break that down? It seems like there’s been a slight slowdown in bookings for 2023. Is there a difference between European and non-European itineraries that might explain that change?

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

And our European brands are doing well, too. They’re just operating in a closer in booking window. So, they have seen a significant spike as well. It’s just more for a closer in period. But again, same thing, mid-August, and it took off.

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

For the fourth quarter, I don’t think it's a reliable indicator for future performance. We have the potential to improve, and we'll be discussing this with our brands. The fourth quarter does include some start-up costs, although most expenses were incurred earlier. There are protocol costs as well. Earlier in the year, I mentioned that we were spending tens of millions of dollars monthly on these costs. By the fourth quarter, when we consider adjusted cruise costs excluding fuel, we're probably looking at an increase of about $1 to $1.50 in expenses that factor into the forecast. This is influencing the low double-digit projection. I'm not certain we will actually spend that much, but that's what the brands have included. With that forecast, we are ready for the same timing as the easing of the protocols.

Not to dwell on the issue, but why only focus on calling up? Why is the fourth quarter not considered a suitable period for analysis?

Yes, I think when you consider all the different factors over a full year, it's important to note that evaluating costs by quarter doesn't accurately reflect the year due to variations each quarter. For instance, advertising significantly increased in the fourth quarter compared to 2019. This single item would have influenced your double-digit figures. Therefore, no quarter alone can provide a reliable indication of the entire year because of the seasonal nature of spending throughout the year.

I wanted to just get your thoughts on pricing and the value proposition strategy in the context that we look at other areas of hospitality that are driving price, and I recognize your model is different from that. But what are you doing? What can you do? What thoughts do you have about the ability to sort of drive price within the context of the value proposition now?

It’s a good question with many answers. It starts with clearly communicating who the brand is and whether the marketing efforts are targeting the right audience. Are they engaging them effectively? Do they have a solid digital performance marketing strategy to generate leads that can convert? It’s about the entire life cycle. The discussions we've been having with our commercial teams across various brands have focused on all of this. It involves revenue management, including how we set our pricing curves, when we introduce promotions, and how we utilize opaque channels. This encompasses our entire approach in the commercial space. There are opportunities for us to improve significantly in our revenue profile by enhancing various aspects of that whole cycle.

I appreciate that. I just want to clarify the possibility of any further capital raising. Are those completely off the table, mostly off the table, or still potential options at this point?

From a capital perspective, we are always opportunistic. In March, we indicated that we were looking to refinance the $3 billion in maturities due in 2023. We have already addressed $2.5 billion of that. However, we consistently consider the capital markets and strive to think long-term about our needs and actions, rather than focusing solely on the next quarter or the next six months. We will evaluate opportunities and consider all options to ensure we remain in a strong position. This is the best answer I can provide at this moment.

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

I'm not entirely sure I fully understood your question about Q4, but regarding that quarter, I mentioned in my prepared remarks that we expect to see a slight increase in occupancy. It's important to note that looking back at 2019, we experienced a 9 percentage-point drop in occupancy from the third to the fourth quarter, which is typical due to the strong summer season in the Northern Hemisphere and the influx of families. A decrease in occupancy is quite normal. However, this year, we don’t anticipate a decline in fourth-quarter occupancy; rather, we expect an increase, driven by the upcoming cabin occupancy growth. We're moving in a positive direction and feel confident about the fourth quarter. I hope that clarifies your question. If not...

Well, so first of all, as we said in the press release, on behalf of Carnival Corporation, I would like to extend our deepest concern for those affected by both Hurricane Ian and Fiona, and our thoughts and prayers are with anybody who’s been impacted. With respect to the current impact, we don’t see anything significant on our business. At this point in time, we don’t anticipate anything coming out of these hurricanes that would have any type of significant impact at all on our upcoming wave season.

Yes. If I had to estimate the impact on us at this time, it is clear that due to some disruption, we have canceled a couple of cruises. The impact from both hurricanes, Fiona and Ian, is probably less than $10 million. It's important to note that in a typical year, there is always some impact from hurricanes, and currently, the effect from these two is likely under $10 million.

I wanted to discuss 2023 a bit more, particularly regarding the issues you're experiencing with the current booking window lengths and how these are affecting the current quarter. When looking at 2023, you're performing better than historical volumes and pricing. Your current booking volumes are significantly higher than in 2019. So, I'm trying to understand what other factors, aside from external events, could potentially prevent you from finishing the calendar year on a similar note as in the past. What might cause this year to be unusual, apart from the average duration that people are planning their bookings?

Yes. That’s a good question. I mean, I think it points to what we were trying to express about how positive we are about the trajectory and how 2023 is already positioned. So, we’re going to do everything we can to make ‘23 a fantastic year. And so far, we’ve got a good base upon which to do it. We’re ramping back things, ramping up things that we hadn’t been doing in the past few years, a few months, whatever that might be, depending on the actions. And our goal is to smash it in 2023.

And the only thing I’ll add to that is our onboard revenue per diems have been up significantly in ‘22. And as I said in my notes, that also puts us on track for a record year in 2023 for onboard revenues.

Yes. And we keep leveraging more and more our presales of onboard spending, which is wind at our backs. We have a richer cabin mix, as we talked about. So, there are quite a few things that set us up for success that we thought we need to deliver.

And if I could just maybe ask a question about pricing and how to think about the effect of promotional activity this year, which for the whole industry was more elevated, or at least, we perceive it to be more elevated it was sort of as expected as the industry doubled its capacity essentially overnight earlier this year. But I guess, my question is, when you think about next year and headline prices versus net prices after promo, is there some kind of dynamic where it might be easier to lift pricing over the next several quarters just by peeling off promotional activity? It feels like that would be an easier exercise than raising headline prices, but I could be completely off.

Yes. Look, there’s lots of levers that our brands use via opaque channels, via promotions and such. We have the same goal, right, in any event, which is to generate as high a price as we can and as much revenue as we can. And so, to your point, there’s opportunity when you look at what we’ve done this year versus how we’re tackling next year, and we’re going to do our best to perform at a high level. Thanks, Brandt. I think, operator, I think that’s all the time we have for calls today. But, thank you, everybody, for joining and listening.

Yes. No, thank you very much, everybody. And look forward to working with Josh. 2023, as we said, with pricing being up considerably higher on our books and all the other things we indicated, we feel very good about 2023. So, thanks, and have a great afternoon.

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