Greetings, and welcome to the Carnival Corporation Plc Third Quarter 2024 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Beth Roberts, Senior Vice President, Investor Relations. Thank you. You may begin.

Thank you. Good morning, and welcome to our third 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 diems, 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, 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 U.S. GAAP financial measures and other associated disclosures are also contained in our earnings press release and in our investor presentation. Please visit our corporate website where our earnings press release and investor presentation can be found. With that, I'd like to turn the call over to Josh.

Thanks, Beth. Before I begin, I'd like to express my support and heartfelt sympathy for all those impacted by Hurricane Helene this past week. Our thoughts and prayers are with you. With that, I'll turn to our prepared remarks. As September comes to an end and we closed out the year, I am happy to report that we are delivering well in excess of 2024 expectations. We've also built an even stronger base of business for 2025, and we're off to an unprecedented start to 2026. Our third quarter by all accounts was phenomenal, breaking multiple records and outperforming on every measure. Revenues hit an all-time high of almost $8 billion, a $1 billion more than last year's record levels. Record EBITDA exceeded $2.8 billion, up $600 million over last year and $160 million over guidance, and we delivered over 60% more net income than the year prior, achieving double-digit ROIC as of the end of our third quarter. These improvements were driven by high-margin same-ship yield growth across all major brands, not driven by capacity growth. And it resulted in EBITDA and operating income on a unit basis of 20% and 26%, respectively, to levels we've not seen in the last 15 years. Strong demand enabled us to increase our full year yield guidance for the third time this year. And consistent with our historical emphasis on efficiency, we also improved our cost guidance, which enabled us to drive more revenue to the bottom line with around 99% of our 2024 ticket revenue already on the books. We're poised to deliver record EBITDA of $6 billion, almost $600 million above our prior peak and $400 million above the original guidance we set in December. ROIC is expected to end the year at 10.5%, 1.5 points better than our original December guidance and almost double last year's ending point. Looking forward, the momentum continues as we actively manage the demand curve. At this point in time, 2025 is at historical highs on both occupancy and price. All core deployments are at higher prices than the prior year. Every brand in our portfolio is well booked at higher pricing in 2025, demonstrating the ongoing benefit of our demand generation efforts throughout our optimized portfolio. Our base loading strategy is continuing to work well, allowing us to take price, thanks to having pulled ahead on occupancy. In fact, in the last three months, our 2025 booked positions’ price advantage versus last year has actually widened for the full year and for each quarter individually. And with nearly half of 2025 already booked, we feel confident in maintaining our trajectory. While it’s early days, the benefit of our enhanced commercial performance is carrying nicely into 2026 as we just achieved record booking volumes in the last three months for sailings that far out. This incredibly strong book position for 2024, 2025, and 2026 drove record third quarter customer deposits towards $7 billion, along with continued growth in pre-cruise purchases of onboard revenue. It's also gratifying to note the onboard spending levels were not only up strongly again this quarter. Our year-over-year improvement in onboard per diems actually accelerated from the prior quarter. In essence, all demand indicators are continuing to move in the right direction. And we have so much more in the pipeline to sustain this momentum, including the North American Premier of the highly successful Sun Princess in just a few weeks. This will be followed by the introduction of her sister ship, Star Princess, the second next-generation Princess ship coming online in a year. We also continue to invest in the existing fleet with major modernization programs like AIDA evolution expected to deliver additional revenue uplift over the coming years. As you know, we're not just going to be buoyed by our ship. I can't wait for the introduction of our game-changing Bahamian destination Celebration Key. Its five portals built for fun were opened in July 2025, but it really ramps up in 2026 when Celebration Key serves as a premium call for 19 Carnival Cruise Line ships. And rest assured, we're already planning for our Phase 2 landside development to fully leverage the use of the four berths we're building. In 2026, there's also the midyear introduction of a two-berth pier at Half Moon Cay, our naturally beautiful and pristine beach consistently rated among the top private islands in the Caribbean. These two destinations will be available to even our largest ships, further reducing fuel costs and our environmental footprint at the same time. Stay tuned as we'll be sharing more exciting reveals about Half Moon Cay in the next few months. We're also stepping up our marketing efforts in the fourth quarter, which David will touch on. Our elevated marketing investment has been working as we continue to drive demand well in excess of our capacity growth, with year-to-date web visits up over 40% versus 2019; paid search, up more than 60%; and natural search up over 70%. Our brands are iterating on creative marketing and constantly finding ways to attract more attention to the amazing product and execution we already deliver on board, and it is continuing to pay off as we chip away at the unwarranted price disparity to land-based vacations. All of these activities, along with strong support from our travel agent partners, have allowed us to once again take share from land-based peers as we attract even more new-to-cruise guests. In fact, both new-to-cruise and repeat guests were up double-digit percentages over last year. Now, turning to our balance sheet. We expect to continue on our path towards investment-grade and have a clear line of sight for further debt paydown, having recently finalized our order book through 2028. We have just three ships spread over the next four years. That's one ship delivery in 2025, one in 2026, and one ship in each of 2027 and 2028. This limited order book should also position us well to continue to create demand in excess of capacity growth. Our continued focus on high-margin same-ship yield growth should deliver improving EBITDA off of this year's record levels. Of course, strong and growing free cash flow and further debt reductions provide a consistent formula for ongoing improvement in our leverage metrics and a continuation of the trajectory we have experienced already this year, resulting in a two-turn improvement in debt to EBITDA in just nine months. We have certainly come a long way in a relatively short amount of time. In just two years, we've already more than doubled our revenue and are going from negative EBITDA to an expected all-time high of $6 billion this year. This remarkable achievement is all thanks to our global team. They continue to outperform as we progress through 2024, and they are also setting us up for a successful 2025. It is their continued execution that has put us firmly on the path to achieving our SEA Change targets. And just as important, they once again powered our ability to deliver unforgettable happiness to nearly 4 million guests this past quarter by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sail, every place we visit, and every life we touch. With that, I'll turn the call over to David.

Thank you, Josh. I'll start today with a summary of our 2024 third quarter results. Next, I will provide the highlights of our fourth quarter September guidance, some color on our improved full-year guidance, along with a few other things to consider for 2025, then I'll finish up with an update on our refinancing and deleveraging efforts. Let's turn to the summary of our third quarter results. Net income exceeded June guidance by $170 million as we outperformed once again. The outperformance was essentially driven by two things; first, favorability in revenue was $40 million as yields came in up 8.7% compared to the prior year. This was 0.7 points better than June guidance, driven by close-in strength in ticket prices as well as onboard and other spending. Second, cruise costs without fuel for available lower berth days, or ALBD, improved slightly compared to the prior year and were nearly 5 percentage points better than June guidance, which was worth over $125 million. The third quarter benefited from cost-saving opportunities, accelerated easing of inflationary pressures, benefits from one-time items, and the timing of expenses between the quarters. Most of the third quarter cruise cost benefits will flow through as an improvement to our full-year September guidance. Per diems for the third quarter improved at least 6% versus the prior year, driven by higher ticket prices and improved onboard spending on both sides of the Atlantic. At the same time, our European brands, on the path back to higher occupancy levels, saw outsized growth in occupancy of 5 percentage points as compared to the third quarter of 2023. For the third quarter, we reported record-setting operating results with strong demand, delivering record revenues, record yields, record per diems, and record operating income. Now, two things to highlight about our fourth quarter September guidance. The positive trends we saw in the third quarter are expected to continue in the fourth. The yield guidance growth for the fourth quarter is set at 5% over the prior year. The difference between the yield guidance for the fourth quarter and the third quarter yield improvement of 8.7% is the result of a tougher prior year comparison, as fourth quarter 2023 per diems were up over 10% versus just 5% for the third quarter of 2023. Having said that, it is great to see that we anticipate continued strong yield growth in the fourth quarter, and that it is driven primarily by price. Cruise costs without fuel per available lower berth day for the fourth quarter are expected to be up 8%, like the first quarter of 2024, which was up 7.3%. Both quarters are impacted by higher dry dock days and higher advertising expenses planned, and we did have about $25 million of anticipated third-quarter costs shift to the fourth quarter. As I have said many times, relative to cruise cost per ALBD, judge us on the full year and not the quarters, as we often see certain cost items like dry dock expense, advertising, and other items have different seasonalization between the quarters from year to year. 2024 is a great example of this, where cruise costs without fuel per ALBD were up 7.3% in the first quarter, essentially flat in the second quarter, improved slightly in the third quarter, and are expected to be up approximately 8% in the fourth quarter. Turning to our improved full-year September guidance. Net income for September guidance is set at $1.76 billion, a $210 million improvement over our June guidance. This improvement was driven by three things: first, an improvement in yields to 10.4% by flowing through the $40 million revenue benefit from the third quarter; second, a one-point improvement in cruise cost per ALBD to approximately 3.5% from flowing through $100 million of the $125 million cost benefit from the third quarter, with $25 million re-seasonalized to the fourth quarter, as I previously mentioned; and third, a benefit from fuel pricing currency worth $70 million. The strong 10.4% improvement in 2024 yields is a result of the increase in all the component parts: higher ticket prices, higher onboard spending, and higher occupancy at historical levels, with all three components improving on both sides of the Atlantic. Now a few things for you to consider for 2025: we are forecasting a capacity increase of just 7% compared to 2024. We are well positioned to drive 2025 pricing higher with less inventory remaining to sell than the same time last year. We are also looking forward to the introduction of our game-changing Bahamian destination, Celebration Key, in July 2025. We anticipate that Celebration Key will be a smash hit with our guests and provide excellent return on our investment. However, we do expect that the operating expenses for the destination will impact our overall year-over-year cost comparisons by about half a point. In 2025, we are expecting 688 dry dock days, an increase of 17% versus 2024, which will also impact our overall year-over-year cost comparison by about 0.75%. I will finish up with a summary of our refinancing and deleveraging efforts. With record third quarter EBITDA of $2.8 billion, our efforts to proactively manage our debt profile continue. Since June, we prepaid another $625 million of debt bringing our total prepayments to $7.3 billion since the beginning of 2023. Additionally, we successfully upsized the borrowing capacity on our revolving credit facility by nearly $500 million, bringing the total undrawn commitment to $3 billion back to its 2019 level. Furthermore, we will continue to look for more opportunistic refinancings over time. Our leverage metrics will continue to improve in 2024, as our EBITDA continues to grow, and our debt levels improve. Using our September guidance EBITDA of $6 billion, we expect better than a two-turn improvement in net debt-to-EBITDA leverage compared to year-end 2023, and approaching 4.5 times, which positions us two-thirds of the way down the path to investment-grade metrics. Looking forward, we expect substantial free cash flow driven by our ongoing focus on operational execution and among the lowest new build order book in decades to deliver continued improvements in our leverage metrics and our balance sheet, moving us further down the road to rebuilding our financial fortress while continuing the process of transferring value from debt holders back to shareholders. Now operator, let's open up the call for questions.

Our first question comes from Matthew Boss with JPMorgan. Please go ahead with your question.

Great. Thanks, and congrats on another really nice quarter.

Thanks, Matt.

So Josh, on the continued momentum, maybe could you elaborate on the stronger base of business for 2025 and the record start to 2026 that you cited? Maybe if you could touch on volume and pricing trends that you're currently seeing across regions and maybe specifically in Europe?

Sure. So probably broad-based is the best way to talk about the strength and what we're seeing in 2025. The book position is higher for both North America and our European brands, and that's consistent across the quarters as well. So we're positioned very well. Our brands have been doing a great job of pulling forward the booking curve, and now we get to take price, which is the goal. So it's very encouraging. We are about two-thirds booked when you look at the next 12 months, so we're in a pretty enviable place. Matt, do you have a follow-up?

Yes, thanks. So maybe just a follow-up would be on the balance sheet. If you could speak to capital priorities from here, just given the free cash flow generation and some of the changes that you've made?

So basically, our priority one, two, and three is debt reduction, where you have the goal of becoming investment grade, and we do expect to see both the reduction in our debt levels as well as the improvement in our EBITDA to achieve investment-grade metrics as part of our SEA Change program towards the end of 2026. And so we've got plenty of time to think about other alternatives beyond that.

Great. Congrats, again. Best of luck.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Steve Wieczynski with Stifel. Please proceed with your question.

Good morning, everyone. Congratulations on the strong quarter and outlook. Josh or David, I have a question that might seem a bit shortsighted. David, you mentioned this in your prepared remarks, but regarding the fourth quarter yield guidance, it appears to be lower compared to the implied guidance from June. Is there anything in terms of pricing, geography, or brand that indicates a weakening in pricing during the fourth quarter? Or are you simply adopting a more conservative view on onboard spending for the upcoming months?

Yes, hi Steve, this is Josh. I'm not sure about your calculations, but there was really no change from our June guidance regarding the yield for the fourth quarter. We always mentioned that when we issued our guidance back in December, we faced significant challenges, especially for the fourth quarter, and many doubted our ability to achieve year-over-year breakeven since the fourth quarter of 2023 had performed so strongly. Now we're projecting a 5%, and we're confident about that.

Okay. I understand. Josh, I'd like to ask about the bookings for 2025 and 2026. You mentioned that you're already 50% booked for next year and seem to be in a strong position for 2026 as well. I'm curious if your booking window has expanded significantly. Are you getting to a point where you might risk leaving potential revenue on the table if demand remains the same? Additionally, have you noticed any acceleration in demand for bookings, particularly for late 2025 and 2026 that might be related to Celebration Key?

The goal is not to have a constantly increasing booking curve, but to maximize the revenue generated by the time we sell. This process is specific to each brand and itinerary. Most of our brands are performing better year-over-year, with one exception where we chose to scale back to avoid losing potential revenue. Even though we’re in a strong position overall, we are carefully analyzing our strategies to ensure we are optimizing revenue. Regarding Celebration Key, it clearly presents a premium opportunity that will benefit us, especially as we grow to about 20 ships by 2026, which will be impressive. Everything we have discussed for 2024 and the first half of 2025 is based solely on natural demand and our effective commercial strategies, which are driving strong revenue growth.

Got you. Thanks for that, Josh. Really appreciate it. Congrats, guys.

Thank you. Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.

Great. Thank you. I know it's too early to give guidance for 2025 but...

You're going to ask anyway, but you're going to ask anyway.

Let me ask it this way, which I think is harmless. Given everything you're saying about the booked position for 2025 and even 2026 being at record levels, is it fair to say that you're off to a better start for 2025 than a typical year? Hopefully, that's an innocent way to ask it. I also wanted to clarify on the expense. David, I heard you mention the $25 million of expense that will show up in Q4 from the shift. Was there a separate amount that was a one-time cost savings this year that we should expect to return in 2025? I just wanted to know what that amount was and what it was for. If you could share that, I would appreciate it. Thanks.

Okay. So I will actually very directly answer your question. So we are starting off even better for 2025 than we did for 2024, which is shaping up to be a record year. We are higher in occupancy, and we're higher in price, and the brands are doing a great job of really trying to optimize that booking curve and revenue generation. So that's not guidance, but it's a point in time, and that's where we are.

As far as the second question is concerned, yes, there were a couple of reasons why we reduced cost by the full point of the year. One included some onetime benefits that weren't huge, probably about $20 million of the $100 million related to some pension credits and a few other little things for the year.

Okay, great. Thank you.

Thanks, Robin.

Thank you. Our next question comes from the line of Ben Chaiken with Mizuho Securities. Please proceed with your question.

Hi. Good morning. On the cost side, EBITDA flow-through has been stronger than expected. It was almost 60%. Costs have been better generally for the majority of the year. Can you talk about some of the cost saves, margin opportunities you're finding? Is this simply better leveraging a fleet that is now leaner subsequent to some of the asset sales over the past few years? Or is it cost that you're actively pulling out of the business or both? Thanks.

No, it's not cost that we're pulling out of the business. I mean, what we're seeing is hundreds of small items across the board, across many brands, things like crew travel savings, other port savings opportunities as well as a lot of sourcing savings, cost innovation, and better leveraging our scale across all the brands. And that probably represented about half of the $100 million cost savings that we roll through for the full year.

Got it. That's helpful. And then I guess for Josh, higher level, you folded P&O Australia into the Carnival brand this year. I know it was somewhat smaller scale, but do you think there's other opportunities to streamline the portfolio in a similar way going forward? Thanks.

Yes. I'd never say never take things off the table. I think this is one of those decisions that just made a lot of sense and something that we felt pretty passionately about executing quickly. We'll continue to review our portfolio brand-by-brand and ship-by-ship. But right now, we feel real good about how we're entering 2025.

Thank you. Our next question comes from the line of James Hardiman with Citi. Please proceed with your question.

Hi. Good morning. I wanted to dig into some of the cost commentary you gave us, David. So 3.5% growth for this year, that seems like it's getting better, obviously, with some cost saves and maybe better inflation. I think you called out about 0.5 point next year for Celebration Key and another 75 bps from dry-docks. I guess, are there any call-outs on the other side of that equation? I don't think our starting point should be in that 5% range if we were to just take the 3.5% this year and add those 2% call-outs. Maybe talk us through sort of what the base level of inflation is as we think about 2025 and any other sort of positive factors that will help offset some of the negative ones for next year?

If you have a precise prediction for inflation over the next 15 months, please share it with me, as we are still trying to determine that. We are experiencing some inflation in our business, which we will factor into our guidance that will be released in December. Additionally, we are actively pursuing cost-saving initiatives. As I mentioned in the June call, despite having the best cost metrics in our industry, we still see opportunities to leverage our scale further, as we did in the second and third quarters. We will incorporate some of these efforts into our guidance, which will help counteract some inflation. However, please stay tuned. The two key points I emphasized in my prepared remarks regarding the dry docks and the costs associated with Celebration Key are largely settled at this time, and we wanted to bring attention to those in my remarks.

Got it. And then, obviously, it sounds like everything is going pretty well from a demand perspective. Maybe speak to one of the questions that we keep getting is the potential for the widening conflict in the Middle East to negatively impact your business. I mean, to some degree, it would seem to help that much of that region was already vacated in 2024. I guess the hope was that, that would be a '25 tailwind. That now seems off the table. But just maybe speak to how, if at all, you expect that region to impact your business next year?

We weren't relying on an improvement in the situation and sincerely hope it doesn't worsen. Our business isn't dependent on the Middle East, as it is not a significant market for us and we are not operating in that area. Unless the situation escalates significantly beyond the Middle East, our ships are flexible, and we are focused on markets that are highly beneficial for us and offer great potential.

Got it. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Hi, guys. Good morning everyone. My first question, you talked about dry docks increasing next year. Can you give us a little more possible granularity on dry dock increases or decreases for perhaps some quarters by quarter for next year modeling purposes? Thank you.

So I don't have all that detailed handy, Patrick. But if you call Beth, I'm sure she can provide that to you.

Okay. Beth, we will call you. Thank you. And then second, I see there's some news out about a new cruise pier at Half Moon Cay. Do you have any longer-term plans above and beyond just a pier for Half Moon Cay, such as water parks and the like down the road?

I'll give you a yes and a no. Do we have more plans? Absolutely. Do we want a water park? Absolutely not. The difference between Celebration Key and what we're building is that Celebration Key is focused on five portals of fun and aims to be an entertainment center. Half Moon Cay, on the other hand, features one of the most naturally beautiful white sand beaches and crescent-shaped islands in the Caribbean. It's a true private destination that we want to enhance. We'll be discussing this more in the coming months. I won't take away from Christine's reveal, but exciting developments are on the way that will make it a remarkable destination for entirely different reasons.

Great. Sounds great. Thank you.

Thank you. Our next question comes from the line of Brandt Montour with Barclays. Please proceed with your question.

Good morning everybody. Thanks for taking my questions. So just starting off, we haven't really touched on SEA Change and your three-year targets there. We kind of got a little bit of an update in the release. I guess the question is, Josh, with this new '24 full-year guidance, obviously, we can calculate the progress you're making, and we can look at that number and sort of imply some KPIs yields cost to get to those targets. And it's implying a pretty narrow spread between those two. And would give us the sense that if we harken back to your Investor Day, what you were thinking for per diems that were sustainable and costs that were sustainable that we would think you could do better? So I guess if you could just – I know that that was a long-winded way of asking the same question that you've already gotten twice. But if you could just give us a sense for how you think about the business in the current operating environment given all the positive commentary you've said today vis-à-vis those longer-term targets?

Well, I think the teams around the world are doing a phenomenal job. If you think about – in December, we were saying up 8.5 points on percent on yields, up 4.5% cost, which gets us to 9% ROIC. Now we're seeing up almost 10.5% on yield, only up 3.5% on cost. It gets us to 10.5% on ROIC. So clearly, we're outperforming expectations. It gets us about 75% of the way there for two of the metrics, the EBITDA per ALBD and the ROIC after one year with two years remaining, and carbon is progressing as expected. We're about 50% there after one year. The teams aren't doing all those things to make targets. They're doing those things to make their guests happy and provide great business results, and the outcome that's going to be hitting those targets. Do I want to hit them early? Yes. Do I want to get further than that? Absolutely. But we'll take that in stride, and we'll probably talk more when we get to December guidance, and you could put that in context where we'll end in 2025 and then take it from there.

Okay. Thanks for that. And then just a follow-up, maybe, Josh, if you could address the broader land-based leisure demand environment. What we're seeing elsewhere is not what cruise has seen; we see steady, slow, somewhat softer normalization. We don't get any of that from you in your commentary today. I guess we understand why it's happening, but if the rest of the world is narrowing a little bit toward narrowing your, let's say, your gap from the top. Do you see any of that affecting your consumers' behavior and willingness to spend and pricing sensitivity?

We are still a remarkable value to land-based alternatives. Maybe land-based is softening because we're doing better. Who knows? You have to ask them that. I can't tell you their business. But we have a tremendous value. We are doing a better job of getting our word out, better marketing, more eyes on the industry, more eyes on us. Our new-to-cruise this past quarter was up about 17% year-over-year. That's not an accident. That's because our brands are really focused on driving that demand profile. So I don't have a crystal ball, and I can't tell you what the world is going to look like a year from now, or two years from now. But I can tell you if we keep focusing on commercial execution and doing the right things and doing them better, then there's a long runway because the one thing that's never been a question is can we execute on board and deliver a great experience. And that's always been the case. It's just a matter of how we convince people to come with us who have never have, and I think we're doing a good job in that.

Great. Congrats on the quarter.

Thank you. I guess I'd be remiss if I didn't shout out the travel agents because all they do is amplify our voice in a tremendous way. And so that success that we're seeing in building that demand profile is really hand-in-hand with their success, and we appreciate their efforts.

Thank you. Our next question comes from the line of Conor Cunningham with Melius Research. Please proceed with your question.

Thank you, everyone. Could you provide an update on your 2025 bookings? Are you noticing an increase in new-to-cruise and new-to-brand customers? Also, could you comment on the younger demographic? I believe I asked about this last quarter, but it appears to be a significant long-term trend for you. Thank you.

I apologize for the distraction. Regarding the demand profile for future bookings, we typically do not discuss that ahead of time, but we would be glad to share details during our results presentation, including insights on the demographics of those who have sailed with us. It's important to note that our efforts to optimize and enhance execution will continue beyond 2024. We are focused on driving demand and broadening our appeal. With almost no capacity growth, the increase in demand will primarily reflect those willing to pay the most for a spot on our ships, which aligns with our goals.

Yes.

Okay.

Regarding the average age of our guests, we discussed this last quarter. Over the past 10 to 12 years, the average age for most of our brands has remained mostly the same. While repeat guests who sailed a decade ago are now older, the overall average age of our guests has not significantly changed. We are successfully attracting many younger individuals, with Carnival Cruise Lines having an average guest age of about 41 years. This aligns well with the millennial demographic, which has an average age of 43 or 44 years. Notably, millennials make up over half of the population in the United States, and Carnival has more than half of its guests from this age group because the average age is 41 or younger.

I want to emphasize that we really appreciate the baby boomer generation and Generation X. Our portfolio includes brands like Holland America and Cunard that specifically target consumers with high incomes, solid retirement savings, and plenty of time to enjoy extended cruises. While we are actively engaging with the millennial generation and seeing interest and demand from them, we also value our offerings for other generations and want to continue to cater to their needs as well.

On Celebration Key, I know you've received many inquiries about it. It's set to open in the middle of next year. Is it generating the anticipated halo effect? Are people requesting bookings, or perhaps in a slightly different manner? You mentioned that 19 ships will visit this location. Are those bookings selling out faster than expected compared to historical trends? Thank you.

Unfortunately, since every carnival ship is currently in use, there isn't a test case available. However, we are observing a premium interest in it. People are actively seeking it out, and the encouraging part is that it hasn't even opened yet. We believe the real impact will be felt once we can provide the experience and truly demonstrate what it can offer.

Appreciate. Thank you.

Thank you.

Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.

Hi. Good morning, everyone. Thanks for taking my question.

Hi.

Hi. I appreciate all the details so far. It's interesting when we look across our coverage, there are some smaller pockets of weakness that consumers have started to demonstrate here and there. And this is a broadly based positive quarter, and I just wanted to double-click on the issue of are there any small pockets, any areas of consumer behavior that we should just keep an eye on as we go forward that are, again, embedded in what appears to be a pretty broad-based strong quarter and outlook?

Yes. No, I appreciate the question. I guess I'm happy that I just have to say no. What we're seeing is, in fact, broad-based. We're seeing that demand for all the brands pretty much across the portfolio. What we're seeing in the booking trends that we've talked about, the onboard spending. The onboard spending levels were 7% up year-over-year. That's off the top of my head. Am I off by a point?

Something like that more than this second quarter, so…

Onboard per diems increased by 6.7% year-over-year, which is a faster pace compared to the second quarter of the previous year. When considering changes in demand or shifts in consumer behavior, I can't comment on broader economic trends due to the current global situation. However, based on what we offer, customers are willing to spend and engage, which is encouraging. This aligns with our ongoing focus and commitment to consistently improve our services over time.

Perfect. And if I can, just as my follow-up, are you able to observe or record any trade-down dynamics where part of the demand you're seeing is a consumer who's traded out of something else into a cruise vacation?

No, nothing that we've seen that says that. I mean, I think it's the opposite. We're doing a better job of convincing them. This is something they want to do, not because they're trading down from something, but that they want to experience what we have to offer.

Okay. And I apologize for the questions, my ratings speech mix up.

No, no. I think they were good. They were good questions. I think they're good questions.

Thank you. Our next question comes from the line of Jaime Katz with Morningstar. Please proceed with your question.

Hi. Good morning. I'm curious if you have any update on, I guess, the Chinese consumer? Is it trending as you would like or Asia Pacific in general? Just because the data that's been coming out of the region has been a little bit lumpy, and it was obviously something that was pretty meaningful prior to the pandemic? Thanks.

Yes. Hi, Jaime. It wasn't very meaningful for us prior to the pandemic in the grand scheme of things. It was a few percentage points of our capacity that was really dedicated to China. We have, as I've been pretty open about, I'm ecstatic that it's reopened to international cruising. I wanted it to be very successful for our competitors, but it's not something that we're pursuing at this time and have not. With respect to the region overall, when it comes to Japan, Taiwan, and other regions, that's going well. People liked cruising with us before, and they continue to enjoy it now.

Yes. I was just curious if there was any movement with them with outbound travel more so than anything else. As far as occupancy in the European brands, is there a little bit of room left in that for upside? Or has the gap sort of closed on that?

I mean, overall, we're back to historical norms, which is a range. It's not a number. And I'd say all of our brands to varying degrees have the ability to maybe address a little higher here and there. It's not going to be a big driver of our improvement as we look forward. It's really going to be from driving price, which is where we're focused. But there's always an opportunity to make some tweaks and find some more occupancy.

And I don't think you guys had mentioned anything on any hurricane impact, but any insight to the cost of that disruption if you have it, would be helpful? Thanks.

Yes, the impact on us is minimal compared to what it's causing in the region, which is something we should take a moment to consider. For us, it's just a few million dollars and not of significant concern.

Excellent. Thanks.

Thank you. Our next question comes from the line of Assia Georgieva with Infinity Research. Please proceed with your question.

Good morning guys. Congratulations on a great quarter. And I'll just delve into the few quick questions that I have. Occupancy is still not fully caught up relative to fiscal 2019. Isn't that by itself already a yield opportunity?

Yes, like I said, we operate in a range for occupancy, and we are within our range, but there's certainly the opportunity to push that a little bit more. It's just not going to be the biggest driver of how we can improve the revenue picture going forward.

And maybe a quick question for David. Fuel costs seem to be quite a bit higher than what we were estimating as we track for 180, 380 MGO. Could that possibly be related to shore power in the Baltics, Denmark, and Germany ports that are offering shore power in Sweden and others? Is that part of the situation here?

No, because our shore power, when we buy it, is actually not included in the fuel expense; it's included in port expenses because we purchased it at the port. So that would not have been an impact. So I'm not sure what you're looking at and what you're tracking. But Beth can give you some websites to look at, which maybe will improve your tracking overall.

That would be great and Beth, I'm sorry, I'll bother you on this one. And basically, my second question, given the acceleration in EBITDA generation and how far ahead you're with the SEA Change program? Is it possible at this point to order a sister ship for 2027, 2028 delivery, whether it's for a Princess brand or Carnival brand?

No, I mean, our order book is set through 2028. We feel very good about that. And as you know, we did order what we call Project ACE, which is next generation for Carnival, and that doesn't start until 2029. So the focus of all that EBITDA generation is really its cash flow, and we're going to use the headroom with a reduced capital expenditures to pay down debt.

So, Josh, in terms of the debt tranches, we're going after the highest cost of debt, correct?

As long as it has a good NPV, we are considering paying it down. There are many factors to take into account.

It's really a combination of three things that we look at. One is the cost of the debt, and we have two double-digit issuances out there, both callable in 2025, which should help our overall strategy when we consider refinancing those in the early part of next year. We also analyze the maturity towers, and we're well set through 2026 on those, as they are managed effectively. However, we will be looking to refinance some of the towers in 2027 and 2028, as well as considering the balance between secured and unsecured debt. Our goal is to ultimately be completely unsecured, but we will manage that transition over time as we move forward.

And David, that was basically my question, has cost versus secured towers. So it's a balancing act, I imagine?

Correct.

All right. Lastly, I wanted to ask about a competitor that is developing a terminal at your Galveston, Texas port. What are your thoughts on this? They already operate in Miami and are active at Port Canaveral, among other locations. Since they are not required to report their return on invested capital or other metrics to us, how do you feel about this encroachment?

I don't see it as an encroachment. We represent 2% of the overall vacation market. If you're referring to the company I'm thinking of, it's a small segment of the overall cruise market, which is growing but still small. As long as we maintain our standards with our world-class portfolio of brands, the demand profile will continue to be solid. However, I need to interrupt as you've asked three questions, and the operator only mentioned one. Apologies.

Thank you. Our next question comes from the line of Dan Politzer with Wells Fargo. Please proceed with your question.

Hi, good morning everyone. Thanks for taking my question. Josh, I want to follow up on your comment regarding the fourth quarter yield. I understand you indicated that there hasn't been much, if any, change to your previous guidance. However, given that the third quarter performed better, with David mentioning increased close-in demand contributing to that success, is there any reason to believe that won't be the case for the fourth quarter? Or are there potential near-term demand challenges or disruptions, like a new cycle or an election, that might lead to additional caution?

Look, we try to give you our best estimate of what's going to happen. And do we always try to outperform? Absolutely. That's the goal. There's nothing in particular about the fourth quarter other than what other than what you said. I mean right, the next month. A lot of attention is going to be focused on something other than what's normal. It happens every four years. So we'll see what kind of impact that has. But the business is still going strong, and we expect a lot of ourselves.

Yes. And also keep in mind, with 99% of the ticket revenue for the year already on the books, there's not a lot left to sell, yes.

Right. No, that makes sense. And then just for my follow-up. In a couple of weeks, you're hosting some investors at Board, Sun Princess. Any way to kind of think about maybe framework and maybe kind of the key topics we should focus on? It seems like there's a lot progress on SEA Change, your Celebration Key, maybe some of these cost opportunities or savings from easing inflation. But what are the kind of the key high-level focus points we should be thinking about? Thanks.

Look, it's been about 15 months since we got together for the first time to talk about what our priorities were and announced SEA Change. I think it's a good opportunity for us to just kind of level set on where we are and everything. Hopefully, as you see it, the way we see it, which is the progress that we're making across the board. We also get an opportunity to showcase the Princess brand and specifically the Sun Princess, which is just a true game changer for Princess. I would say for the premium market, she's a remarkable ship and the team on board does a remarkable job. You also get an opportunity, not just to hear from me, but to hear from David, but you'll be able to hear from the President of that brand and to actually meet the presidents of pretty much all of our brands who will be there with us. So, it's a good opportunity for you to get a little bit more educated and inundated by all things Carnival Corporation.

That's great. Thanks so much and congrats on a nice quarter.

Thanks a lot, Daniel.

Thank you. Our final question comes from the line of Chris Stathoulopoulos with SIG. Please proceed with your question.

Good morning. Thank you for taking my question. Josh, I want to approach the demand issue from a different angle. When we consider global travel and tourism across various segments such as lodging and airlines, there seems to be a different dynamic in demand. Specifically in lodging, the lower to middle-income consumers are facing some price sensitivity. The situation in airlines appears to be mixed. However, in cruise lines, we observe a unique trend with what seems like persistent demand and ongoing momentum. Could you help rank or elaborate on the factors influencing this? For instance, the new-to-cruise segment, the later reopening of certain markets, the strong U.S. dollar, discounts compared to land-based trips, and base loading. It would be helpful if you could provide some context regarding these elements of demand. There’s still some discussion around whether this indicates pent-up demand, which I believe is not accurate, or if this reflects a stable base load moving forward. Thank you.

I completely agree that it's no longer pent-up demand. We've been operating smoothly for over three years. I won't rank order the specifics, but as an industry, we're effectively generating and creating demand, bringing awareness to those who may not have considered cruising before. At our brands, we're actively improving our commercial operations, producing new creative content, enhancing performance marketing, identifying potential customers, and directing traffic to our trade partners and websites. All of this is crucial in generating interest and significantly driving our efforts.

Okay. And then as my follow-up, David, so my math here, I have about a point and a quarter on the adjusted NCCs for next year, and we can come up with our own assumptions, as you said, on inflation. But as we think about the other moving pieces here, puts and takes, on the advertising side. I know I think that's expected to be elevated in 4Q. Is there a reason? Or how should we think about next year? And do we need this level of advertising per ALBD to continue? Is it part of the base load book plan? Or can we expect that to sort of get softer, if you will, as that initiative continues to take hold? Thanks.

Yes. So the advertising as well as many other decisions are things that we really need to talk about over the next month or two in the planning process, which we're in the midst of doing. We'll give guidance in December relative to all of those items. It would be premature for us to be making a decision today exactly what we want to do, particularly for next summer or the back half of next year in advertising. So we'll give you more insight into that in three months.

I'd just add a couple of things. One is, remember, we just talked about a record-setting 2026 booking period. So we're not just booking for the short term. We're booking for the long term, and advertising is a combination of getting people to consider things for the longer term and getting the ships filled as we need to in the shorter term. So the metric of just looking at it on an ALBD basis is useful for benchmarking, but it's not too scientific. It's really about how much bookings we want to generate and how we think we need to spend to go get it. I think we're doing a good job. When you do look at the rest of the benchmark basis, even though we're higher than we were back in 2019, and I think a couple of percent higher year-over-year, we're still quite a bit lower than most, if not everyone. So we'll continue to be thoughtful about it and do what we think we need to do to drive the business. I think we got time for one more – yes, thank you. I think we've got time for one more if there are any more, operator?

Thank you. Our final question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your question.

Hi, everyone. Thank you for the opportunity to ask a question. I wanted to revisit the new-to-cruise metric, Josh. You mentioned it increased by 17% this quarter compared to a 10% rise last quarter. That's a significant acceleration for a brand of your size. Can you explain what contributed to this growth? Was there a shift in your advertising strategy? Additionally, how do you envision this could enhance the penetration rate from 2% to a larger share of overall vacation spending? Thank you.

Yes. There isn't just one solution for attracting new-to-cruise customers. It's a combination of improved advertising, effective efforts from the trade, and enhanced usability of our websites. Specifically, Alaska stood out this past year with exceptional results, particularly appealing to first-time cruisers. To truly appreciate Alaska, cruising is the best option, and choosing our brands ensures a remarkable experience. We have more permits for Glacier Bay than anyone else and a unique shoreside presence that others can't match. This has benefited us significantly. These are the same points I've mentioned in previous quarters and plan to continue discussing in the future, focusing on improving our fundamentals.

Thank you.

I appreciate it. Well, thank you, everybody, for joining us and look forward to talking again in a few months for those of you that I don't see next week. Take care.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.