CARNIVAL PLC (CUK) Q1 2024 Earnings Call Transcript

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

Thank you, Beth. Before I begin, I would like to express my support and heartfelt sympathy for all those impacted by yesterday's event at the Francis Scott Key Bridge in Baltimore and extend our appreciation to the co-stars and all first responders. The City and the Port of Baltimore have been our long-time partners and a home to many loyal guests as well as business and community colleagues. We proudly sail year round out of Baltimore through one of our Carnival Cruise Line ships, which was scheduled to return this weekend. Fortunately, our team has quickly secured a temporary home port in Norfolk for as long as it's needed, which should help to minimize operational changes. So we look forward to getting back to our home in Baltimore as soon as possible. Now, given that this happened just yesterday and the situation is fluid, we did not build this into our earnings materials or full-year guidance. However, we did provide a current perspective that we expect this situation to have less than a $10 million impact on full-year guidance. With that, I'll turn to our prepared remarks which address the accomplishments included in our strong results and outlook. The first quarter has been fantastic across the board and yet another set of records. We delivered record revenues, record bookings and record customer deposits again this quarter, a great start to the year. I want to acknowledge our global team right off the bat. Everyone has worked very hard to deliver another strong quarter in a very strong way. In fact, we outperformed our first-quarter guidance on every measure. Yields, cruise cost, ex-fuel, and EBITDA enabling us to take our expectations up for the full year. Yields increased over 17% year-over-year, another record, and more than double the increase in unit costs. This was driven not only by closing the occupancy gap but also through solid mid-single digit price increases. Customer deposits beat last year's record by another $1.3 billion, contributing to our strong cash flow and enabling us to prepay another $1.8 billion of debt already this year, which is on top of the $4 billion we prepaid last year. This is meaningful progress on our return to investment grade credit. Most important, we achieved all-time high booking volumes at considerably higher prices. In fact, our North American and European brands both set booking records in the first quarter with pricing strong across all core deployments and across all quarters. Prices ran up double-digits on limited inventory left for Q2. They ran considerably higher for our peak summer period in Q3. And they were also considerably higher for Q4 while still building on our occupancy advantage. Our record book position and activity did not just happen, and it is not the result of pent-up demand from repeat guests built up during the pause, which is now years in the rear-view mirror. It is because we have been creating more consideration and broad-based demand for cruise travel in all of our source markets across our well-balanced portfolio. As a result, we are capturing more new guests than ever before, which coupled with our growing base of repeat guests, delivers greater overall demand. Our brands are delivering sustainable revenue growth that hits the bottom line. At the same time, our brands are continuing to pull the booking curve forward in line with our yield management strategy to base load bookings and ultimately support higher overall pricing over the course of the booking curve. As you know, before even entering the year, we already had the best book position on record with less 2024 inventory remaining for sale after absorbing double-digit guest growth, half of which was from closing the occupancy gap and half from higher ship capacity. Those efforts have enabled us to maintain price integrity on the remaining 2024 inventory and set us up nicely to deliver a nearly double-digit improvement in yields this year. This also allowed us to focus more of our efforts through wave on further out bookings, helping to lay the foundation for an early build 2025. It is remarkable that we are even better positioned now for 2025 than we were last year at this time, heading into what is shaping up to be a phenomenal 2024. To aid in that effort, we have been rolling out an enhancement to YODA, our yield management tool designed to facilitate an even more optimal booking curve and which will continue to pay dividends well into the future. Of course, we have more in the pipeline to sustain our momentum and capitalize on this untapped revenue opportunity. For instance, we have three fantastic new ships driving increased consideration and demand to their respective brands. Carnival Jubilee, Carnival Cruise Line's third Excel-class ship was recently christened by Gwen Stefani at her inaugural home port in Galveston, Texas. Sun Princess was recently delivered the first of its class and a real game changer for Princess, and soon to be delivered is Queen Anne, a new flagship for Cunard and its first new ship in 14 years. Of course, as you've heard me say before, we do not need new ships to increase yield as we continue to position our brands to drive demand in excess of supply and address the unreasonable value gap to land-based alternatives. We are also continuing to invest in the existing fleet with AIDA evolution, the largest modernization program in that brand's history. The planned enhancements to the guest experience are designed to deliver a meaningful revenue uplift across the brand while further reducing its environmental footprint and bolstering the performance of one of our highest-returning brands. And speaking of brands that truly outperform, we are also continuing to strategically invest in growth for Carnival Cruise Line. Celebration Key, our exclusive destination purpose-built for that brand's target guest is really starting to capture the imagination as they launched a new marketing campaign right in the heart of wave season. Although early days, Celebration Key is already delivering an initial halo for bookings in the second half of 2025 across 18 Carnival Cruise Line ships departing from ten home ports. We also announced the second phase of development for Celebration Key, with a pier extension that can berth two additional ships in future years, further leveraging what will be a best-in-class asset for us. We expect ticket revenue uplift from this incredible destination as the guest experience delivers unmatched fun as well as incremental in-port spending. This will be coupled with cost benefits driven by considerable fuel savings as it will be the closest destination of our seven owned and operated ports in the Caribbean. This destination is designed to support the continued growth plan for Carnival Cruise Line, including the two recently announced additions to its highly successful Excel-class for delivery in 2027 and 2028. All of these investments demonstrate our disciplined capital allocation strategy. We continue to prioritize our investments towards our highest returning brands and biggest opportunities. This includes investments to reduce our carbon footprint, which will not only have a measurable impact on the environment but also improve our bottom line. Our strategic investment in advertising is also paying dividends, driving demand across our portfolio with several new campaigns launched during wave. In fact, our web visits are up over a very strong 2023 with increases in both natural search and paid search. We increased our advertising efforts around our strategic foothold in Alaska. Alaska has long been the lifeblood for both Princess and Holland America, and they have launched new campaigns to build even greater awareness for our unmatched land-sea experiences. This initiative isn't just US-based. We have stepped up our marketing efforts across Europe with new campaigns for all our major European brands. AIDA's new campaign, Experience Yourself Differently launched in Germany to rave reviews; P&O Cruises' new campaign, Holiday Like Never Before, really hit home with its British guest base. Costa's newly released campaign focusing on moments where guests are left speechless has been met with much success in its core markets of Italy, France, and Spain. These campaigns have contributed to the continued strength of our European brands, which has been a meaningful driver of our improved outlook. It is particularly rewarding to see our European brands flexing their muscles across their core European deployments. It is a real testament to the strength of our portfolio. The outperformance we've experienced this quarter has been a continuation of the strong demand we've been experiencing for all our core deployments. The Caribbean, Alaska, and Europe have all helped deliver over a point of incremental yield improvement. This more than offsets the impact of the Red Sea rerouting as well as changes in the price of fuel and currency exchange rates since our last update. It has also enabled us to raise our full-year guidance for EBITDA and net income. Our improving operational performance coupled with excess liquidity and the lowest order book in decades leaves us well positioned to continue to opportunistically manage down debt and interest expense while reducing the complexity of our capital structure. This is very much aligned with our return to investment grade credit over time, and our treasury team has been quick to capitalize on this trajectory with an ongoing stream of well-executed transactions to strengthen our balance sheet. With the vast majority of this year's business now booked, we have even more conviction in delivering record revenues and EBITDA, along with a step change improvement in operating performance lasting well beyond 2024. While we continue to optimize yield on the limited inventory we have remaining and still manage down costs, we have been turning more of our attention to delivering an even stronger 2025. We're gaining traction on improvements across the commercial space along our path of continued margin enhancement and increased returns. Again, I would like to thank our team members, ship and shore, the best in all of travel and leisure for delivering unforgettable happiness to another three million guests this past quarter by providing them with extraordinary cruise vacations. Of course, we couldn't do it without the support from our travel agent partners and so many other stakeholders. With that, I'll turn the call over to David.

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

Thank you. One moment please for the first question. Our first question comes from Robin Farley with UBS. Please proceed.

Thank you very much. I wanted to ask about your comments regarding significantly higher figures for the remainder of the year. Based on the calculations, can we say that your per diem growth for the rest of the year is accelerating to possibly 6% or more, compared to the 5% in Q1? I wanted to confirm if that aligns with what you consider significantly higher. Additionally, as a follow-up regarding ship orders, I noticed your second ship order since the pandemic announced yesterday. There was a statement indicating that you are continuing to review fleet plans, which made me wonder if it suggests you might have another ship order later this year for 2028, aligning with your long-term strategy. Is that what the language implies? Thank you.

Hi. Good morning, Robin. This is Josh. So, yeah, I mean, the good news is we just experienced a first-quarter booking activity that really knocked the cover off the ball, which is really gratifying to see. The volumes are going to naturally taper down, as we talked about, but the good thing is people are paying for what we have left to offer. And so when we came up with our guidance for yields overall, it was not just based on occupancy; it was based on occupancy plus per diem growth in pricing, and that is playing out. So I won't give you a specific number for rest of year or fourth quarter, but we know the comps get harder, but that's not an excuse. We just need to make sure we're doing what we need to do on the demand and get the per diems up year-over-year every quarter, which is what our expectation is. So that trend has continued well, and the great thing is that hasn't stopped. If you look at the first month of our next quarter of March, that trend has continued. So we're in good stead there, and that's spilling into 2025 as well, where, as you heard me say and David say, we're off to another unprecedented start, which is great to see. As far as the newbuild, yeah, we're incredibly excited that we've restarted our newbuild ordering. But as you mentioned, in line with what I've been saying for almost two years now, which is when we restart, which is what we've done, we're talking about one to two ships a year starting in 2027. There won't be another one in 2027. That will be what we've got. As far as 2028 goes, could there be another one? It's not closed, but I wouldn't necessarily bank on it either. We are working on more things that are going to be geared towards our highest returning brands as we've been talking about. And when there's something to talk about, we'll certainly share it.

Okay, great. Thanks very much.

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

Hi. Good morning. David, appreciate all the insights so far with respect to the guidance etc. But with the ship orders and just taking a much longer-term view, presuming, and I just looking for confirmation that, that doesn't change or alter the path to investment grade by sort of adding some more CapEx to the system longer term.

No, not at all. We are progressing towards investment grade by focusing on repaying and repurchasing debt. As indicated in the first quarter, we have already prepaid $1.8 billion of debt this year. With improved EBITDA, we anticipate achieving investment-grade metrics by 2026. Keep in mind, we are discussing one to two ships per year, and with our cash generation, we expect to continue improving our net debt to EBITDA ratio in 2027 and 2028, even with the new orders on our path to investment grade.

Yeah, when we came up with our roadmap, sorry, this is Josh. We did factor in the assumption that there would be future new builds with stage payments in advance. So that was already factored into how we were thinking about the world and still being able to pay down the debt and get to those investment-grade metrics.

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

Sure. I'm going to sound like a broken record. When it comes to the commercial side of the operations, I think everybody has room to improve across all areas, and that's never going to stop being a focus. We're seeing a good amount of progress across advertising, across revenue management, across onboard execution, certainly in deployment planning. I mean, you name it, we just expect to continually understand our business, understand our guests brand by brand, and have them execute at the highest level possible. So we've talked about some game changers for us around Celebration Key, which will be coming in 2025, a new pier, Half Moon Cay, which will open up that destination to even more guest flow. So there are certainly some very specific strategic assets that we've got moving in place which are going to be a great tailwind for us. But I think the bigger tailwind is really having our brands perform across their core markets, to their core guests, to the best of their abilities.

Thank you. Appreciate it.

Our next question comes from Brandt Montour with Barclays. Please proceed.

Good morning, everyone. Thank you for taking my question. Josh, looking at your per diem growth guidance for 2024 and considering what led to that, if we reflect on the past six to twelve months, you were focusing on base building for 2024 last year in what seemed to be a less favorable pricing environment. My question is, when you compare last year to this year, do you feel more confident in your strategy, and will it differ as you plan for 2025, particularly regarding pricing growth in the next year?

I feel optimistic because we have another year of our brands actively working to improve their booking curves. This year, we benefit from a more stable environment compared to last year, which was challenging for many brands as they tried to balance short-term needs with long-term planning. This year, thanks to what we've established, we have a historic opportunity to focus more on strategic optimization instead of just managing immediate issues, which was a priority last year. I believe the future looks very promising.

Okay, that's helpful. I would like to focus on the EA brands and the European brands and their performance. Can you provide insights into their recovery compared to 2019 and how they are performing in relation to your North American brands? Please break down the information by occupancy, ticket sales, and onboard metrics, and indicate the progress of those brands across these three areas. That would be helpful.

Let me provide an overview, and David, feel free to add any details. The most significant distinction between the brands by segment this year is the substantial increase in occupancy for the European brands compared to last year. This rise primarily occurred in the first half of the year, after which it began to stabilize more significantly in the second half. In terms of pricing and onboard spending, there has been positive movement on both sides of the Atlantic as we progress through this year. As anticipated, we expected the European brands to be a major factor in improving yield for us due to their occupancy rates. Importantly, they are achieving this without sacrificing pricing. Our European brands are successfully increasing both price and occupancy.

Okay.

David gave me a thumbs up, so I hope that answers your question.

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

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

Hey, James. So I think David talked about last quarter, the historical range. We're talking 104 to 107, and 2019 was the peak at 107. That may or may not be the right ending point for us. And I'm not trying to be vague, because we want to give our brands the flexibility to not optimize for occupancy or price, but it's about yield. It's about the combination of both. So I feel quite good about where we are. We did beat a little bit in occupancy, and we also beat a little bit in price in the first quarter, which was good to see. From my perspective, I'd like us to outperform on both every single quarter. So yeah, there's no games here. I expect us to be well in the historical range, and we'll take it and our brands will take it as far as they think it should be in order to get the price combination along with occupancy.

The only thing I want to add is that we essentially returned to historical occupancy levels in the latter half of 2023. Therefore, the opportunities for occupancy in 2024 are significantly more pronounced in the first half. As I mentioned in my prepared remarks, we managed to increase occupancy by 11% in the first quarter. We anticipate occupancy to rise in the second quarter as well.

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

That's helpful. And then, yeah, go ahead, David.

I just want to emphasize that we've returned to our historical occupancy levels in the latter part of 2023. Therefore, the potential for increased occupancy in 2024 is significantly more concentrated in the first half, as I mentioned earlier, where we achieved an 11% increase in occupancy during the first quarter. We also anticipate a rise in occupancy for the second quarter.

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

That's helpful. And then, Josh, you seem to make a point of noting that you don't think the current demand strength is really pent-up demand at this point, which seems to suggest that maybe we've graduated from the post-pandemic phase to the post-pandemic phase. Maybe speak to the secular story that seems to be building here, whether it be from an industry perspective or a company-specific perspective. I think a lot of people are just trying to figure out the sustainability of the demand growth that we're seeing. Obviously, per diems are ahead of sort of that long-term algo, right? How long can that ultimately last, and what are the drivers there? Thanks.

Sure. I believe I can speak for the industry. There is a growing awareness of the value and experience gap between cruising and other options. Since the pandemic, this gap has widened, as land-based operations have raised prices without offering a similar guest experience. In comparison, even with our significant per diem growth, we still face a value gap. Consumers are savvy; they seek value and worthwhile experiences. When you consider this, it bodes well for the cruise industry. We are also enhancing our advertising efforts to communicate our message more effectively, which is an added advantage. Our new-to-cruise numbers have increased by over 30% compared to the same time last year. This isn't just pent-up demand; it reflects our commitment to providing great experiences. I see no end in sight for this growth. We have opportunities to narrow the gap with land-based options while continuing to promote our value and focus on experience. This environment is very promising for the industry.

That's really good color. Thanks, Josh.

Yeah, thanks, James.

Our next question comes from Steve Wieczynski with Stifel. Please proceed.

Good morning, everyone. Josh or David, regarding the revised yield guidance for the year with an increase of 100 basis points, it makes sense considering the improved visibility into how the year is shaping up. You're likely in a very strong booking position. My question pertains to the onboard metrics. As you look ahead for the rest of the year, I'd expect a conservative outlook regarding these metrics. If the onboard metrics remain stable, I would assume there could be an upside to your guidance. Is that a fair way to ask?

Steve, one of the key points to note is that, as I mentioned earlier, we're observing growth on both sides of the Atlantic. However, there is a mix effect at play, and you can expect to see a similar impact in the second quarter, although it won't be as significant as in the first quarter since the occupancy growth will not be as pronounced for the European brands. Nevertheless, we are experiencing positive trends on both sides of the Atlantic, and we remain optimistic. We are witnessing continued strength in onboard sales from our guests and are accelerating pre-cruise sales. In fact, we noted a double-digit increase in the percentage of pre-cruise sales contributing to onboard revenue in the first quarter. There are many positive developments, all of which we have factored into our guidance.

I'd say, Steve, we always aim to provide our best perspective on the current situation while continuing to drive our brands internally to optimize and enhance both ticket sales and onboard spending. This is increasingly important as we consider our offerings as a whole, especially with how we package experiences for our guests. The momentum hasn't slowed down, which is the key takeaway. There have been comments that raised concerns about a potential slowdown in Q4, but for us, it's quite the opposite. We are seeing growth in both volume and pricing for Q4. We hope this trend continues.

Okay, thanks for that, guys. And then second question, I'm going to ask about 2025. And look, I'm sure you're obviously very limited in what you can say around bookings, given it's still so far out. But if you look at bookings for next year, I guess what I'm trying to get a sense is, are you seeing a change in who's booking today? And what I mean by that is normally you'd be booking your longer, more exotic itineraries right now, but are you starting to see more, what we would call the normal itineraries being booked this far out? And are you continuing to see that new-to-cruise category for next year still be pretty strong, or is it just still too early?

The good news is that we are seeing improvements across the board, not just in the number of people booking world cruises. There has been a positive shift in revenue management and booking trends. This looks promising for 2025. While it's still early to discuss the guest composition, our metrics show that we are successfully reaching beyond returning customers to attract new-to-cruise travelers, which indicates that our efforts are resonating. Additionally, as we approach the opening of Celebration Key in the second half of 2025, we expect to see and discuss its positive effects on our business more clearly.

Okay, great. Thanks, guys.

Thanks.

Our next question comes from Jaime Katz with Morningstar. Please proceed.

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

Sure. I don't think there's necessarily a change, other than we are doing things better than we used to. We are improving our investments in advertising and effectively getting the word out. Revenue management and pricing it correctly are crucial for encouraging people to commit. I don’t see anything inherently different, aside from our ability to dive deeper into our successful strategies. The positive results we see from bookings, search activity, website visits, and conversions all indicate progress. These commercial activities are enabling us to communicate effectively. Additionally, it’s important to remember that we’ve just entered a phase where we have full capacity after a four-year period of no sailings and gradual ramp-up. This year, all guests on our ships are able to share their experiences with friends and family, helping us attract newcomers. We are finally at a point where all our channels and avenues are aligned to support our future growth.

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

We provided guidance for the second quarter. The third quarter might be slightly lower than the fourth overall, but there are no shifts that we're observing at this time.

Excellent. Thank you.

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

Great, thanks, and congrats on another nice quarter.

Thank you.

So, Josh.

Is that a question? All right. Go ahead, Matt.

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

That's a good question. Let me consider how to respond. I would say that both of those brands have fully recovered to their pre-pause levels. Their return on invested capital is already back to where it was, and in fact, it is exceeding that. When we examine where all our brands stand in the commercial landscape regarding revenue management, deployment planning, performance marketing, and brand marketing, it's clear that those two brands are leading the pack in these areas. This sets a roadmap for our other brands to follow, which is precisely what we are doing. I want to clarify that all our brands are improving. Predictably, the ones that performed best are back at the top. We are ensuring that the insights and strategies are shared and implemented across the organization, which is enabling us to gradually recover our return on invested capital. Based on this guidance, we expect to exceed 9% by the end of this year. We have three additional points to achieve our targets for 2026, which I am confident we will reach, and then aim even higher. We will continue this momentum in the commercial space.

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

Although I would love to say that's our straightforward plan, it’s not that simple. Celebration Key is going to be fantastic, and we are already noticing the initial impact. However, I must stress how important it is for us to excel in revenue management, to advance that booking curve, and to manage pricing effectively as opposed to lowering prices at the end. It's a mathematical approach, and it works. This means we can maintain price consistency, and prices are expected to rise year-over-year. Regarding our other brands, some have been performing well for years, while others have struggled. The brands that had challenges are now embracing this strategy, and we are starting to see positive changes. The encouraging news is that there is ample opportunity for this trend to continue.

Great. Best of luck.

Thank you.

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

Great, good morning. Thank you. Josh, certainly, you've talked sort of high level on positives around Celebration Key. I'm wondering what sort of daily cruise pricing premium you're seeing or maybe expecting for itineraries that do stop at Celebration Key. Thank you.

Hey, Patrick. We're not providing guidance for 2025 yet, and since we're not operating there until then, I'll be cautious in my response. However, we do anticipate an increase in both ticket sales and import spending, which will translate to onboard revenue. It's premature to share specifics. With our investment in Celebration Key, we also expanded to build a pier for two additional berths, and we achieved this with a strong return on invested capital. This return comes from three key elements: one is the additional ticket revenue, two is the increased import spending, and three is the advantage of being close to many home ports in the U.S., which significantly reduces our fuel costs. These three factors influence our decision-making, and they will contribute to an excellent guest experience and a valuable asset for us.

Okay. I'm all set. Thank you.

Thanks, Patrick.

Our next question comes from Ben Chaiken with Mizuho. Please proceed.

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

The moving parts are accurate. The average for the first half of the year is approximately 5%, with 7% in the first quarter and 3% in the second. The second half is also estimated to be around 5%. Some of the variation is due to dry dock days, as we experienced different timing between the quarters. In December, I mentioned the increase in dry dock during the first quarter. There are also discrepancies in advertising and other factors between the quarters. I always advise evaluating our performance based on our full-year cost guidance, as the timing of expenses can vary based on discretionary spending on repairs, maintenance, or other factors. Therefore, it’s best to assess us from a full-year perspective.

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

Yeah, that is. And the 1Q is considerably higher than the second quarter or the fourth quarter.

Thank you. I appreciate it.

So, operator, I think we got time for one more question.

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

Hi. Good morning. Thanks for taking the question. I think your ticket price per passenger is very strong this quarter, and it sounds like a pretty decent outlook for this year and '25. I'm curious how much of that is kind of benefit from some of the new hardware: the Firenze joining the fleet over from the other brand, Carnival Jubilee, Sun Princess. How much do these new ships impact pricing? What kind of premium are you getting, and how does it change how you manage the pricing for the rest of the fleet?

Good morning, Lizzie. Welcome to your first call covering us. It's clear that new ships command a premium. How we manage that varies by brand and is influenced by the ship's itinerary, as we may not always place our best ship on the best route for the overall brand's benefit. There are multiple factors to consider. However, it's important to note that we operate nine brands, most of which haven't had new builds and won't for some time. The improvements in pricing are not limited to brands with new ships; those without are also experiencing positive pricing trends. While I appreciate the new ships, they represent just three out of our 95 ships. The 92 ships will have a greater impact on demand and pricing than the premium from a few new vessels. Therefore, it's crucial for us to focus on increasing per diems across the entire fleet, which has been our top priority.

Got it. That's helpful. Just one follow-up. I thought James' question about the long-term growth outlook was interesting. I know you tend to attract more new cruisers than some of your competitors. You mentioned that you captured 3.5 million new cruisers last year. How many of those do you expect to return as second-time or third-time cruisers? And what do you see as the potential for real category expansion here?

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

Got it. Thank you.

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

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