Earnings Call
CARNIVAL PLC (CUK)
Earnings Call Transcript - CUK Q2 2022
Arnold Donald, President and CEO
Good morning, and welcome to our business update conference call. I am Arnold Donald, President and CEO of Carnival Corporation & plc. I'm joined today telephonically by our Chairman, Micky Arison, who is in Europe. And here with me in Miami, David Bernstein, our Chief Financial Officer; Beth Roberts, Senior Vice President, Investor Relations; and as part of our previously announced transition, our Chief Operations Officer, Josh Weinstein. Thank you all for joining us this morning. Now before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today's press release. This is my final business update as CEO. While very disappointingly, our share price unfortunately reflects the current market conditions, I am nonetheless very proud of all that the team has accomplished over the last 9 years. I am especially proud of how well we have collectively overcome what seemed like insurmountable obstacles at times these last few years. And I remain very excited about our future. With cash from operations now turning positive, we have reached an inflection point and, in fact, turned the corner and are headed on a positive trajectory. I'm not only excited about, I am also very confident in the future of our company, and I'm looking forward to its continuous success. I strongly believe in this team and we are enjoying a smooth transition. As Vice Chairman, far and away, my number one responsibility will be to support Josh and his management team as they work to build on the current momentum. Josh is a proven executive. He is well respected throughout the company. He has served in key leadership roles. He's driven strong business results during his tenure. And he played an integral part in steering the company through the global pandemic. Josh's thorough understanding of our industry, operations, and business strategy puts him in a strong position to lead the next phase of our company's journey. With his vision, intensity, and core values truly aligned with those that characterize our company, I cannot think of anyone better suited for this role than Josh. Now turning to our business results. It is reinforcing to see the continued strength in demand for cruise. We are aggressively, yet thoughtfully, ramping up to full operations, with over 90% of the fleet now in service. At the same time, we are driving occupancy higher on those ships that have been sailing and we are focused on improving pricing compared to pre-COVID levels. As we indicated, for the 20 ships that restarted over the last quarter, occupancy has been intentionally constrained. That said, occupancy increased from 54% last quarter to 69% this quarter, while we also increased available capacity by 25%. The combination drove an over 60% sequential improvement in passengers carried. In fact, we carried over 1.6 million guests this past quarter. And partly in the month of June, we are already approaching 80% occupancy and, again, on even higher capacity. What makes that even more impressive is we were able to achieve that in an environment of uncertainty, given frequently changing protocols, including those that were far more restrictive than those in broader society and that were far more restrictive than those found even in other portions of the travel and leisure sector. While thankfully, vaccination and test requirements are starting to relax given the improvement in the state of the virus, we continue, nonetheless, to face constraints in the pool of potential guests due to ongoing requirements in a number of places. Yet, we have been able to make very meaningful progress. As you know, the CDC recently lifted the testing requirements for reentry into the U.S. for air travel which, going forward, clearly removes some of the friction from our North American brands deployment in both Europe and due to Canadian embarkation in Alaska, usually requiring a longer duration flight. These itineraries are typically associated with longer lead times. Consequently, we expect the real benefit to be realized in 2023 and beyond. Importantly, customer deposits increased by $1.4 billion in the second quarter, topping $5 billion. We have seen a continued increase in express demand, and we expect to see that demand continue to build as protocols are further relaxed and as society becomes increasingly comfortable managing the virus. Concerning the threat of global recession, while not recession-proof, our business has proven to be recession-resilient time and again. We have seen in prior cycles that even in downturns, employed people take vacations. That's even more true in today's environment where people prioritize spending on experiences over spending on things. Cruise remains an especially appealing vacation option during downturns because of its compelling value proposition relative to land-based alternatives. There is also pent-up demand for travel globally which is a powerful tailwind. Currently, we are seeing success for close-to-home cruises, with many sailings achieving occupancy at or above 100%, where guests perceive far less friction than with international embarkations. In fact, our Carnival Cruise Line brand, sailing its entire fleet, is expected to reach nearly 110% occupancy during our third quarter. We also saw an improvement in new-to-cruise guests in the second quarter, and we have begun to ramp up our advertising efforts selectively to help support attracting first-time cruisers. Concerning pricing, we remain focused on improving price through next year. We are focused on optimizing occupancy while preserving long-term pricing. In this current environment of travel restrictions and health protocols where we have capacity unavailability, we use OPay channels and limited promotions to capitalize on near-term demand. We are building on our aggressive fleet optimization efforts. Given challenges in parts of Europe, we have reallocated capacity to capitalize on markets where there is stronger demand. In fact, we just announced an especially creative approach that we think holds great promise: the launch of Costa by Carnival. With Costa by Carnival, we bring the ambience and beauty of Italy to Carnival Cruise Line guests. Costa Venezia and Costa Firenze, both newly introduced and both spectacular, will be managed by Carnival Cruise Line, catering to Carnival's guest base beginning in the spring of '23 and 2024, respectively. This new concept will offer a unique experience for Carnival guests to choose fun, Italian style while capitalizing on Costa's beautiful Italian design elements. Deployment for Venezia will be announced shortly and will represent a new itinerary option for Carnival guests. Separately, we also announced the transfer of Costa Luminosa to the Carnival brand beginning in November 2022, catering to Australian guests. With these changes, the Carnival brand will replenish capacity that has been removed from recent ship exits and contribute to manage growth for the brand. These new and differentiated product offerings enable us to capitalize on demand among Carnival Cruise Line guests and strengthen return on invested capital across our portfolio. In addition, we continue to further optimize our fleet and have announced a removal of an additional smaller, less efficient ship, bringing the total to 23 ships to be removed from the fleet since 2019. The accelerated removal of these less efficient ships, coupled with delivering 9 larger, more efficient ships since 2019 fosters higher revenues over time through a 7 percentage point increase in the mix of premium priced balcony cabins, leading to an even better platform for onboard revenue opportunities, as well as generating a 6% reduction in ship level unit costs, excluding fuel, moderating the effects of inflation and enabling us to deliver more revenue to the bottom line. Upon returning to full operations, nearly a quarter of our capacity will consist of newly delivered ships, expediting our return to profitability and improving our return on invested capital. Moreover, next year, our capacity growth compared to 2019 is concentrated in brands with our highest returns. Concerning recent fuel prices, we continue to aggressively manage our fuel consumption. Upon reaching full fleet operations, we anticipate that we will achieve a further 10% reduction in unit fuel consumption and a 9% reduction in carbon intensity as compared to 2019. With our proactive efforts to reduce fuel consumption, we actually peaked our carbon footprint in 2011, despite an over 30% increase in capacity expected through 2023. We have reaffirmed and strengthened our carbon intensity reduction goals for 2030 and are on an accelerated path to achieve them through our fleet optimization efforts, investing in projects that drive energy efficiency, designing energy-efficient itineraries, and investing in port and destination projects. During the quarter, Carnival Cruise Line broke ground on an exciting new destination project, Carnival Grand Bahama Cruise port. This destination is expected to open in late 2024 and will offer guests a uniquely Bahamian experience with many exciting features and amenities. Now this private guest experience destination will join Princess Cay, Half Moon Cay, Grand Turk, Mahogany Bay, Amber Cove, and Cozumel, securing our strong foothold in the Caribbean. In fact, we benefit from a total of 9 owned or operated private destinations and port facilities, including terminals in Santa Cruz de Tenerife and Barcelona. Again, I believe we have operationally reached an inflection point and we are heading in the right direction with cash from operations turning positive this quarter. We have a strong liquidity position of $7.5 billion and have already managed our debt maturity towers down through 2024. We have 91% of the fleet now operating and at improving occupancy levels, which bodes well for future cash generation. While to date, travelers perceive uncertainty and friction continues to be a headwind, as protocols become less restrictive and society becomes increasingly more comfortable managing the virus, we expect to see demand continue to build, as we have already seen with the strength for Carnival Cruise Lines closer-to-home cruises. The attractive value proposition relative to land-based alternatives, which is even greater today, and the continued strength in onboard revenues should help foster a good environment for pricing and should help to accelerate our momentum going forward. Once again, I don’t have the words to adequately convey how personally rewarding and inspiring the commitment, the dedication, the creative ingenuity, and the phenomenal execution of our Carnival team, shipboard and shoreside around the world has been. That, of course, includes our Chairman, Micky Arison, and the rest of our Board of Directors. In the face of constantly changing barriers and constraints, in an environment of continuous and extreme uncertainty, our global team of tens of thousands successfully tackled challenge after challenge after challenge, honoring our commitment to our highest priority of compliance, environmental protection, and the health, safety, and well-being of everyone while stewarding the shareholders' assets and positioning us for great success over time. I simply can't thank them enough and it's truly a privilege and an honor to work with them. Thank you also to our valued guests. Their loyalty to our 9 world-leading brands and the countless letters and calls of support are deeply appreciated. Thank you to our travel agent partners, who are more critical than ever in helping to deliver the great story of our cruise. Thank you to our home port and destination communities who have stood by us throughout these challenges, among other contributions providing vaccines and lobbying for workable protocols. Thank you to our suppliers and many other stakeholders who stood by us and worked hard to meet our needs while facing challenges of their own. And of course, thank you to our shareholders, bondholders, banks, and export credit agencies for their continued confidence in us and for ongoing support. We are indeed poised for a great future because of the efforts and contributions of so many. With that, I would like to take the opportunity to introduce Josh and give him the chance to say a few words before turning the call back to David. Josh?
Josh Weinstein, Chief Operations Officer
Thank you, Arnold. And thanks again to Micky and the entire Board of Directors for this great opportunity. I strongly believe in our company and our ability to create happiness by delivering unforgettable and much-needed vacations for our guests. This need is even more important in the current environment given the stresses of the past 2 years and the value that we all place on shared experiences with friends and family. Now we are uniquely placed to deliver on this through our 9 leading cruise brands, each with a focus on meeting their specific guests' needs and wants. We plan on renewing our efforts to ensure each brand achieves clarity of positioning and effectively reaches their target audience. This, alongside providing cruise experiences that really resonate with their distinct guest base, will help each brand optimize its yield and growth aspirations to drive revenue. We also expect to capitalize on our revitalized fleet, our continued portfolio optimization efforts, and our unparalleled destination footprint, particularly in the Caribbean and Alaska. In addition, we have an exciting sustainability road map that underlies all of our efforts. What also gives me tremendous confidence is our determined and resilient team around the world. They've proven time and time again for the last 2.5 years that they can absolutely achieve anything, and they do it while staying true to Carnival Corporation's collective values and positive culture. All of this will help us accelerate revenues and returns, drive durable earnings growth, and improve the balance sheet. As you said, Arnold, we are clearly at an inflection point and have a bright future ahead. I'm looking forward to putting the perspectives I've gained here in my 20 years in multiple roles to work for the benefit of our shareholders and our many other stakeholders.
David Bernstein, Chief Financial Officer
Thank you, Arnold. I'll start today with a review of guest cruise operations, along with a summary of our second quarter cash flow. Next, I will touch on our 2024 mandatory auditor rotation. Then I'll provide an update on booking trends and finish up with adjusted EBITDA expectations and our current financial position. Turning to guest cruise operations. During the second quarter 2022, we restarted 20 additional ships, resulting in 74% of our total fleet capacity in guest cruise operations for the whole of the second quarter. This was a substantial increase from 60% during the first quarter of 2022. As of today, 91% of our fleet capacity is in guest cruise operations. We were pleased to see that the second quarter 2022 revenue increased by nearly 50% compared to the first quarter 2022, reflecting continued sequential improvement. For the second quarter, occupancy was 69% across the ships in service, a significant increase from the 54% in the first quarter. We were encouraged by the very close-in demand we experienced during the second quarter for the second quarter, resulting in nearly double the close-in occupancy gains in the second quarter 2022 versus the second quarter 2019, a trend we had anticipated. Revenue per passenger day for the second quarter 2022 decreased slightly from a strong 2019. As Arnold indicated, we are focused on optimizing occupancy while preserving long-term pricing. However, let's not forget the impact due to the future cruise credit, or FCC, which cost us a couple of percentage points in the second quarter 2022 versus second quarter 2019. Excluding the impact of FCC on revenue per passenger cruise day, the second quarter would have been higher than a strong 2019. Once again, our onboard and other revenue per diems were up significantly in the second quarter 2022 versus second quarter 2019, in part due to the bundled packages as well as onboard credits utilized by guests from cruises canceled during the past. We have recently expanded our bundled package offering given their popularity. The new bundled offerings require us to make changes to the accounting allocation. As a result, in the third quarter, you will see more of the revenue left in ticket, unless allocated to onboard, impacting the onboard and other revenue per PCD comparisons for the third quarter as compared to the second quarter. Just another reason to add to the list of reasons why the best way to judge our performance is by reference to our total cruise revenue metrics. On the cost side, our adjusted cruise cost without fuel per available lower berth day, or ALBD, for the second quarter 2022 was up 23% versus second quarter 2019. The increase in adjusted cruise cost without fuel per ALBD is driven by essentially 5 things: First, the cost of a portion of the fleet being in pause status. Second, restart-related expenses for 20 ships. Third, 24 ships being in dry dock during the quarter, which resulted in over double the number of dry-dock days during the second quarter versus the second quarter 2019. Fourth, the cost of maintaining enhanced health and safety protocols, and finally, inflation. Remember that because a portion of the fleet was in pause status during the second quarter and the higher number of dry-dock days, we spread costs over fewer ALBDs. The first half of 2022 had an unusually large number of ships in dry dock as part of our resumption of cruising ramp-up, optimizing our dry-dock schedule while the ships are not in service and ensuring that the ships were great and work great when they welcomed their first guests back on board. However, the second half of 2022 dry-dock schedule looks more normal by historical standards. We anticipate that many of these costs and expenses driving adjusted cruise costs without fuel per ALBD higher will end during 2022 and will not recur in 2023. As a result of all of the above, we expect to see a significant improvement in adjusted cruise costs, excluding fuel per ALBD, from the first half of 2022 to the second half of 2022, with a mid-teens increase expected for the full year 2022 compared to 2019. Next, I'll provide a summary of our second quarter cash flow. We ended the second quarter 2022 with $7.5 billion in liquidity versus $7.2 billion at the end of the first quarter. The change in liquidity during the quarter was driven essentially by 6 things: First, negative adjusted EBITDA of approximately $900 million due to our ongoing redemption of guest cruise operations, an improvement from the first quarter. Second, our investment of $500 million in capital expenditures. Third, $200 million of debt principal payments. And fourth, $400 million of interest expense during the quarter. All of which was more than offset by a $1.4 billion increase in customer deposits during the quarter, along with the $1 billion principal amount of senior unsecured notes we issued last month. Now I will touch on our 2024 mandatory auditor rotation. I wanted to take a moment to explain our situation as it is very different from most publicly listed companies outside the U.K. and the EU. Carnival plc, our U.K. publicly listed company, which is part of our dualistic company structure, is subject to U.K. law, which requires mandatory auditor rotation. Therefore, PricewaterhouseCoopers, or PwC, must be changed as Carnival plc's auditor for the fiscal 2024 audit at the latest. Therefore, we conducted a competitive RFP process for the independent audit of Carnival plc as well as the consolidated entity, Carnival Corporation & plc. As a result of the recently completed RFP process, yesterday, our Board of Directors appointed Deloitte as the company's independent auditor for fiscal 2024. We completed the RFP process in the first half of 2022 to ensure an orderly transition of non-audit services for the remainder of 2022 and to ensure independence by Deloitte in 2023, as required under U.K. law. Before I continue, I would like to add that the Board of Directors and management of Carnival Corporation & plc would like to thank PricewaterhouseCoopers for their continued service as the company's independent auditor. Now let's look at booking trends. The higher March weekly booking volumes we talked about on our last business update continued throughout the quarter. This resulted in booking volumes for all future sailings during the second quarter 2022 being nearly double the booking volumes during the first quarter 2022. Second quarter 2022 booking volumes for all future sailings were the best quarterly booking volumes we have seen since the beginning of the pandemic, although they were still below the 2019 level. I am happy to report that booking volumes since the beginning of April for the second half of 2022 sailings have been higher than 2019 levels. All of this reflects the previously expected extended wave season. And as I said before, we were very encouraged by the close-in demand we experienced during the second quarter for the second quarter, resulting in nearly double the closing occupancy gain in second quarter 2022 versus second quarter 2019, a trend we had anticipated. While the cumulative booking position for the second half of 2022 is below the historical range, we believe we are well situated with our current second half 2022 book position given current booking volume, coupled with closer-in booking patterns. We continue to expect that occupancy will build throughout 2022 and return to historical levels in 2023. Pricing on our cumulative booking position for the second half of 2022 was lower, with or without FCC, normalized for bundled packages, as compared to 2019 sailing. For the full year 2023, our cumulative advanced booking position continues to be at the higher end of the historical range and at higher prices, with or without FCC, normalized for bundled packages as compared to 2019 sailings. This is a great achievement given pricing on bookings for 2019 sailings is a tough comparison as that was a high watermark for historical yield. During the second quarter 2022, we once again increased our advertising expense compared to the first quarter 2022 in anticipation of our full fleet being in guest cruise operations and our 8% capacity increase for 2023 versus 2019. The second quarter 2022 was the first time since the pandemic that advertising expenses were above 2019 levels. I will finish up with our adjusted EBITDA expectations and our current financial position. We all know that booking trends are a leading indicator of the health of our business. With improved recent booking trends leading the way, driving customer deposits higher, positive adjusted EBITDA is clearly within our sights. Adjusted EBITDA over the first half of 2022 was impacted by restart-related spending and dry-dock expenses as 34 ships, nearly 40% of our fleet, were in dry dock during the first half of fiscal 2022. For the third quarter, with over 90% of our capacity back in guest cruise operations and occupancy percentages building, we expect ship-level cash contribution to grow. As a result, we expect adjusted EBITDA to be positive for the third quarter 2022 which, after everything we've been through, will be something worth celebrating. With EBITDA turning positive, more liquidity than last quarter, debt maturity towers that have been well managed through 2024. We have already refinanced a portion of our 2023 maturities and we will do the rest over time. And now I will turn the call back over to Arnold.
Operator, Operator
Our first question comes from the line of Steven Wieczynski with Stifel.
Steven Wieczynski, Analyst
Congratulations, Arnold, on a great run. Thank you for your service. My first question is about the booking patterns, which seem to be continuing to strengthen. However, given the current state of your stock, investors might look beyond these current booking patterns and focus on what could happen next amidst an uncertain economic environment. My question is, how will you manage a potential slowdown in bookings or load factors? In the past, you would generally cut prices to maintain high load factors. This time, if bookings do slow down, do you believe you and your competitors will be able to remain more disciplined regarding pricing so that the recovery won't be as steep on the other side?
Arnold Donald, President and CEO
A couple of quick comments. First of all, I wouldn't comment on what the others would do. You can talk to them directly. For us, we have, as we've been hit with different variants and invasion of Ukraine and other things and bringing more capacity on board, we've had to consider all of that. At this point in time, largely we have done everything in mind of trying to keep our pricing strong going forward because we think that's the right move right now. The positive thing here is that there is pent-up demand. Even if there was a global recession, the reality is we are, as I said in my comments, recession-resilient historically. This time, if there was a recession, there's tremendous pent-up demand, which in the past wasn't necessarily the case because it's been a couple of years where people have not been able to travel the way they wanted to. So a combination of things. One is we are naturally somewhat recession-resilient. We have added tailwinds of pent-up demand. And yes, we're focused on doing what we can to ultimately drive the cash we need but, at the same time, do it in a manner where we can maintain pricing strength. David may have a comment.
David Bernstein, Chief Financial Officer
Yes. Just one thing I'd add to that. Remember, Steve, not every recession is the same. We are currently in a very strong labor market. Given that, if people have jobs and they feel comfortable in their jobs, they're likely to need a vacation. Remember, vacations are no longer a luxury; they're a necessity in today's world. So I think we will do very well. As Arnold said, we are recession-resilient and we'll do very well in a recessionary environment.
Arnold Donald, President and CEO
We'll see if a recession occurs. Currently, savings levels are quite high, and as David mentioned, employment rates are low. This indicates economic strength for now. We'll have to wait and see what unfolds.
Steven Wieczynski, Analyst
Okay. Got you. And then second question I guess probably for you, David, around the recent debt raise. We've had a lot of questions from investors about why you guys would go out and raise debt north of 10% and maybe what drove you. Or maybe there was an underlying reason as to why you had to raise debt at those levels. And I guess from here, the question is going to be, what is the opportunity moving forward to refinance? Or maybe there is enough chance to refinance given where rates are at this point?
David Bernstein, Chief Financial Officer
Yes. As mentioned in the previous conference call, our plan has been to refinance the $3 billion maturing in 2023 over time. We assessed the market and recognized that we are in a rising interest rate environment. We successfully raised $1 billion at a rate of 10.5%. The market conditions were challenging, and the situation was unpredictable. However, we managed to secure that funding within our desired pricing for the day, which was encouraging. We aim to refinance the remaining $2 billion gradually, as noted earlier. Currently, interest rates are higher than they were when we executed our bond offering a month ago. Overall, we believe we are in a solid position and are pleased with our efforts. We plan to tackle the refinancing of the remaining $2 billion in the coming months. It's worth mentioning that despite the 10.5% rate, our overall debt portfolio has an average interest rate of 4.5%, reflecting our effective management of the portfolio. This situation represents just a small aspect of the entire portfolio.
Operator, Operator
Next question from the line of Robin Farley, UBS.
Robin Farley, Analyst
Great. Arnold, best wishes for your future endeavors, as this will be your last earnings call. I have a question regarding occupancy. Investors seem to be trying to understand how much of the lower occupancy is temporary, like the cancellations from Omicron in Q1 and the addition of new ships at lower levels. It would be helpful if you could provide some insights on the sequential improvement in occupancy through Q2. I realize you typically don't offer that level of detail, but perhaps you could share your visibility for Q3. Normally, I believe you would be 80% to 90% booked by now. Also, are you observing any changes in ticket prices compared to 2019 and in occupancy with that level of visibility? Any specific comments would be appreciated.
Arnold Donald, President and CEO
Yes, you bet, Robin. I'll have David share some details. But the overarching comment would be that we have real strength in occupancy. We had some intentionally constrained occupancy as we brought ships back online because of protocols in different places and so on. We also had some isolated situations where we were moving crew around temporarily as we were staffing up with crew and constrained capacity for those reasons as well. But overall, our occupancy rates, as we shared, have really improved over time here. As we mentioned, the Carnival brand is looking at 110% occupancy in the third quarter. So we have more capacity sailing and occupancy is rising nicely. As the world continues to relax and become comfortable managing the virus, and restrictions are relaxed, we see things moving more in the direction of the Carnival brand where things are more normalized even though they still have some restrictions right now. David?
David Bernstein, Chief Financial Officer
In the second quarter, the variance between the months increased from 67% to 71%, leading to an overall occupancy of 69% for the quarter. As Arnold mentioned, we are approaching 80% for June. The booking trends are promising, and we are continuing to grow. However, I want to emphasize that we started 20 ships in the second quarter, and there were several cruises where we limited occupancy to ensure a great experience for our guests. The positive impact of that was evident in June. We feel optimistic about the overall trend, which is moving in the right direction. We anticipate seeing further improvement in the third quarter and into 2023.
Robin Farley, Analyst
Okay, great. As a follow-up on the expense commentary, you mentioned various factors contributing to the 23% increase, including pause status, ship restart costs, and dry dock expenses. While you've indicated that these costs will improve significantly by year-end, could you provide some quantification on how much of that increase was solely due to inflation related to health and safety? Specifically, how much of those 23 points will decrease automatically once your fleet is fully back in service? This will help us understand the potential end-of-year expenses per passenger.
David Bernstein, Chief Financial Officer
Yes. I think the best way for you to approach this is to do your own quantification, which is fairly straightforward. For the first half of the year, we were approximately 24% up per ALBD. If you consider what the full year might look like in the mid-teens, you can estimate where we will stand in the second half after accounting for the pause status, the restart, and the dry docks. I mentioned that the number of dry-dock days in the latter half of the year is expected to return to a more normal level. By calculating those figures, you will have a clearer idea of our performance in the second half, which should provide a more accurate overall picture compared to the first half. Keep in mind that there are still some challenges, such as supply chain disruptions, which we are actively working to manage. That is likely the best way to approach your assessment.
Robin Farley, Analyst
I know that simple average would get you to kind of a mid-single digit for the second half. But I guess I was wondering by kind of the end of the year, really thinking about 2023, that's how I was looking for sort of what pieces would maybe go to...
David Bernstein, Chief Financial Officer
I understand. And I'm not in a position to give cost guidance for 2023 at this point. But I was just trying to give you some directional. You can see what the back half is, and we'll manage through all of those items effectively over the next 6 months. Like I always say, we hope to do better. But at this point, it would be premature for me to give you cost guidance.
Operator, Operator
Our next question comes from the line of Jaime Katz with Morningstar.
Jaime Katz, Analyst
I'd be interested in hearing how you guys are seeing differences between domestic and international consumers, particularly because of this transition of Costa ship, maybe being this rebranding with Carnival and whether or not that's signaling anything?
Arnold Donald, President and CEO
Yes, I think just generally, obviously, Europe in many ways is more challenged from a consumer demand standpoint as it relates to travel to an extent than North America. What you're seeing in the move with Costa by Carnival and the transfer of the Luminosa in Australia to Carnival is part of a rightsizing of Costa for what we see as a European environment which has been complicated not only by COVID and macroeconomic conditions, somewhat triggered by the invasion of Ukraine. All of those things are impacting the European market sector. So we're reallocating to brands that have stronger demand, that are in a stronger position. That's one of the beautiful things; our assets are mobile. But overall, we still see strong demand in Europe. There are portions of Europe, the U.K. in particular. Also, we see some continuing strength in portions of Germany. We see a good market in Europe and a strong market in North America. We're just reallocating across the brands to optimize our portfolio and maximize cash generation and position us for the long term.
David Bernstein, Chief Financial Officer
If I can build on that a little bit. I did want to point out that we talked about our bookings in the second quarter nearly doubling what they were in the first quarter. The North American brands were a little bit over double compared to the European brands, which include Costa, which were a little bit less than double booked. I mean, everything is heading in the right direction. There is good, solid, strong demand in all the brands, but the North American brands are doing a little bit better than the European brands from a booking trend perspective. I'd also like to add to Arnold's comments about Costa by Carnival. Because keep in mind, a big chunk of Costa's capacity in 2019 was in China. So with that market currently closed, we rather than take all of that capacity and put it in Europe, created a new market towards the Carnival guests, which we think will expand the market here in North America. We'll be in a much better position overall.
Jaime Katz, Analyst
Okay. And then David, I don't think it was explicitly noted, but in the past, I think you guys had pointed to 2023 EBITDA above 2019 levels. Do you still feel like the business is tracking in the right direction to achieve that?
David Bernstein, Chief Financial Officer
So I said that quite a number of times. What I've always said is we have the potential for EBITDA to be greater in 2023 than 2019. That one big wildcard, of course, is the price of fuel which has risen quite a bit in the last few months. Just keep that in mind. But there is, with the occupancy improving over time, there certainly is that potential.
Operator, Operator
Our next question comes from the line of Patrick Scholes with Truist.
Charles Scholes, Analyst
Arnold, best wishes as well. My first question is, can you comment on your potential willingness to sell one or more brands to help shore up the balance sheet?
Arnold Donald, President and CEO
Well, we're very pleased with our portfolio of brands. Having said that, our job is always to keep an open mind and do what's best for the shareholders. We would absolutely evaluate any and all options, but we're only going to do what makes sense for the shareholders given our projections of opportunity considering the portfolio we have.
Charles Scholes, Analyst
Okay. Fair enough. My second question is a clarification regarding the earnings release where you mentioned that cumulative advanced bookings for the second half of '22 are now below the historical range, indicating that it was lowered from the previous statement about being at the lower end. Specifically, you noted that this position aligns with expected improvements in occupancy levels for the second half of '22. Can you elaborate on what that last phrase means? I'm not fully clear on the connection to the anticipated improving occupancy levels.
David Bernstein, Chief Financial Officer
Yes. What we were trying to say there is, as Arnold indicated, in the month of June, in his prepared remarks, he said occupancy was approaching 80%. What we were trying to say is, despite the fact that we were below the historical range, we do expect, because of the closer-in nature of the booking patterns, to see occupancy in the back half of 2022 to be higher than the 69% in the second quarter. That's all we were really trying to indicate to people with that statement.
Operator, Operator
Next question from the line of James Hardiman with Citi.
James Hardiman, Analyst
Arnold, I want to congratulate you again and wish you all the best moving forward. I’d like to focus on some comments about pricing, especially regarding the revenue per passenger cruise day. I believe you mentioned that this figure has decreased slightly, impacted by some FCC headwinds. However, it was up over 7% in the last quarter. There’s growing concern in the industry about needing to adjust prices to fill the ships. Can you address that? As we work on increasing occupancy in the third quarter and beyond, should we anticipate a further decline in that pricing number? While we will see some effects from the FCC, excluding that, how should we view revenue per passenger cruise day as occupancy continues to rise?
David Bernstein, Chief Financial Officer
Okay. I think, overall, Arnold in his notes talked about the fact that we were focused on maximizing occupancy while preserving price in the long term. We are very keen on that. We did increase advertising expense in the second quarter for that purpose to create more demand. We are seeing more first timers. We had mentioned the fact that we saw a significant improvement in first timers. Building towards historical occupancy levels in 2023 with better pricing is our goal. As we indicated, the pricing for 2023 is up. But with the shorter booking window and the use of OPay channels and limited promotions, we are driving occupancy in the short term to optimize the EBITDA and the cash flow from operations of the business. While I'm not prepared to give you guidance on the third and fourth quarter gross revenue per PCD, which, by the way, think about the third quarter; one of the things to remember is we hope to have lots of kids on board in the third quarter. Those thirds and fourths will also generally add to the revenue, contributing to the bottom line, but also be lower than the lower berths, both for the ticket and onboard, as kids generally don't spend as much onboard either. But we're happy to have them all on board. So there are factors to consider as you think about the trend per PCD from third to fourth quarter and beyond.
Arnold Donald, President and CEO
With the increase in occupancy that we experienced in the second quarter, even with also the capacity increase we had in the second quarter, when you normalize the FCCs, our pricing did not decline.
Operator, Operator
Next question comes from the line of Dan Politzer, Wells Fargo.
Daniel Politzer, Analyst
And Arnold, best of luck. And Josh, congratulations on the new position. I had a question about customer deposits and how we should view this for the rest of the year. It was very strong in the second quarter, but there's usually a sequential decline. As we consider cash flow for the rest of the year and the impact of customer deposits, should we assume that the third quarter will not be cash flow positive due to this sequential decline? Or could the extent of your recovery in bookings and operations mean that the third quarter might still be cash flow positive?
David Bernstein, Chief Financial Officer
That's a great question, and we've been working on an answer. I can tell you that since the end of May, customer deposits have continued to rise, increasing by several hundred million dollars over the past 3.5 weeks. Typically, in the third quarter, we see a decline as we hit the seasonal peak at the end of May. However, this year, we anticipate some offsetting factors. With more ships returning to service and higher occupancy rates, we expect these factors to lessen the usual seasonal decline. It's difficult to predict whether they will completely offset it, but there are certainly factors that could reduce the normal decrease in customer deposits.
Daniel Politzer, Analyst
Yes. One more quick one, if I could just squeeze it in. On just the newer cruise product, a lot of your fleet has been refreshed. To what extent have you been able to capture that pricing? Typically, the newer product gets a premium price but this is kind of a weird environment. Have you been able to capture that? And if so, any kind of metrics or a way to quantify that?
David Bernstein, Chief Financial Officer
Yes. It's very hard to tell. I mean, we look at so many things, but...
Arnold Donald, President and CEO
There's so many variables right now.
David Bernstein, Chief Financial Officer
So many variables right now, it is just very, very difficult to tell in a comparison going back to 2019. So we look at the total, we manage it appropriately. I will say, those new ships are performing very well, high levels of occupancy, generating significant cash flows. As we move forward, I suspect that we will be able to continue to generate a premium there. Arnold indicated nearly 1/4 of our fleet will be new in 2023 or newly delivered. The average age of our fleet, believe it or not, I think I said this before maybe on one of the previous calls, but from 2019 to 2023, despite the passage of 4 years, the average age of our fleet went down 1 year. We've got a lot of new capacity which should help very well both on the revenue side and on the cost side from an efficiency perspective and better fuel consumption. We are very excited about the future and delivering memorable vacation experiences to probably 14 million people in 2023 as we go for historical occupancy levels.
Operator, Operator
Our next question comes from the line of Assia Georgieva, Infinity Research.
Assia Georgieva, Analyst
Arnold, you'll be missed. But Josh, very happy that you received this great position responsibility and triple promotion. So I do have a good question for you, hopefully. With the Costa by Carnival concept, that is obviously something that would be a long-term fixture. We're not just moving ships around for the next 2 or 3 years. Do you believe that this is something that could be expanded? And does the Costa fuel play any role in terms of what ships might actually continue to join the new concept? LNG deliveries have been somewhat difficult, I guess, in Europe. We had issues with Costa in South America last winter season. So how do you see the development of the concept? And what are the key parameters that would actually play into it?
Arnold Donald, President and CEO
I'm going to have Josh comment on the overall brand positioning and stuff as we go forward. But real quickly on the LNG fuel question. LNG, as you know, is the cleanest burning fossil fuel. It gives us a 20% reduction in carbon emissions, et cetera. But the ships are dual-fuel, so they can also burn MGO. And so that, unto itself, wouldn't impact the future of the Costa brand. We'll burn LNG whenever it makes sense to do so, which we think will be the majority of the life of the ships. But there are times where we'll obviously opt to burn MGO. But in terms of the Costa by Carnival positioning, it's a new concept, and I'll let Josh share his thoughts on it. Go ahead, Josh.
Josh Weinstein, Chief Operations Officer
Just one thing to clarify. The 2 ships that we're talking about that are going under this Costa by Carnival umbrella are not LNG ships. So that obviously didn't enter into our mindset at all. So just to reiterate Arnold's point. With respect to the positioning, I think this is a great example of leveraging the scale of this corporation. We could have taken those new beautiful ships solely under the Costa name and tried to introduce them into the North American market on a stand-alone basis. But this is the opportunity to leverage everything that Carnival does so well here in the United States and Canada for its guest base. By marrying that along with Costa's beautiful tonnage and onboard experiences, we have the ability to create something really special. The short answer is, we expect this to be successful and we don't look at this as something short term. Ideally, it will be something that works and we can build upon.
Arnold Donald, President and CEO
Thank you, everyone. Go ahead. Go ahead. I'm sorry. Okay. Thank you, everyone. I really appreciate it. I'm looking forward to listening to these as we go forward and hearing the great news coming from Josh and our team. So thank you all very much, and have a great day.
Operator, Operator
That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.