Earnings Call Transcript - VIK Q1 2026

Operator (Paul), Conference Operator

Good morning. My name is Paul, and I will be your conference operator today. At this time, I would like to welcome everyone to Viking's First Quarter 2026 Earnings Conference Call. As a reminder, this call is being recorded. Operator instructions were provided. I would now like to turn the program over to your host for today's conference, Vice President of Investor Relations, Carola Mengolini.

Carola Mengolini, Vice President, Investor Relations

Good morning, everyone, and welcome to Viking's First Quarter 2026 Earnings Conference Call. I am joined by Tor Hagen, Executive Chairman; Leah Talactac, President and Chief Executive Officer; and Linh Banh, Chief Financial Officer. Before we get started, please note our cautionary statement regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release as well as in our filings with the SEC. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We may also refer to certain non-IFRS financial metrics which are reconciled and described in our press release posted on our Investor Relations website at ir.viking.com. Tor, Leah and Linh will provide a strategic overview of the company, a recap of our first quarter results and an update of the current booking environment. We will then open the call for your questions. To supplement today's call, we have prepared an earnings presentation that is available on our Investor Relations website. With that, I am pleased to turn the call over to Tor.

Torstein Hagen, Executive Chairman

Thank you, Carola, and good morning, everyone. Today, I'm pleased to share an important leadership update with you. I will start by saying that it has been two years since Viking became a public company and almost 30 since we began operations. Whether it was perfecting ship designs or pushing through difficult moments, the Viking executive team always brought determination, drive, and discipline to every challenge. Their leadership, institutional knowledge and day-to-day execution have been critical to our performance and our success. As you can tell, I'm very proud of what we have accomplished together. After a thoughtful consideration, I will be stepping into the role of Executive Chairman; and Leah Talactac, our current President and CFO, will assume the role of CEO. You all know Leah. Her appointment as CEO is a natural next step. Leah has worked for the company for almost 20 years and has been instrumental to Viking's growth and success. The Board and I have full confidence in our ability to lead Viking with the same continuity, discipline and vision for the company going forward. Leah brings deep experience, a strong understanding of our culture and steady leadership that Viking needs as we enter our next phase of growth. I'm also pleased to share that Linh Banh will serve as Chief Financial Officer. Linh is a trusted leader within Viking and her financial stewardship will ensure a smooth transition. As Executive Chairman, I will focus on our long-term vision while supporting Leah in her new role. I will continue to serve as Chairman of the Board. I believe that this planned leadership transition shows the strength and depth of our executive team. It also reflects the succession planning that we've built over the years. It is designed to ensure continuity and stability for our guests, our people and our shareholders. And with that, I will hand things over to Leah.

Leah Talactac, President and Chief Executive Officer

Thank you, Tor. I am honored by the appointment and deeply grateful for the trust placed in me by the Board and by you. That trust is meaningful because you, together with our executive team, have built a phenomenal company over the past three decades. I am very fortunate to work alongside a team that is highly experienced and deeply committed to Viking's future. Turning to our business. As you can see from our first quarter results, 2026 is off to a strong start. The metrics reflect great demand for our products and disciplined execution across the business. As you can see on Slide 4, we are already 92% booked for 2026, which positions us very well for the remainder of the year. With 2026 mostly booked, our sales and marketing focus has shifted towards 2027, which has great momentum. The season is already 38% booked with capacity for our core product increasing by 15% over 2026. As we think about demand more broadly, I will take a moment to address the current macroeconomic environment. Historically, when geopolitical events occur, we have seen a short-term softening in bookings as our guests take time to process the new developments. After the last earnings call, we experienced a temporary slowdown, mostly in River bookings for the 2026 season. Demand has since rebounded, reflecting that travel remains a priority for our customers. With this context, I will highlight two of our core strengths that are especially relevant and position us well in this environment. First, our advanced booking curves and a long booking window provide exceptional visibility. With 2026 mostly sold out and 2027 already off to a strong start, we have a high degree of confidence in our forward outlook. This is supported by low cancellation rates within historical averages, reflecting the sticky nature of our bookings. Second, our direct marketing engine and well-defined loyal customer base allow us to proactively generate demand while maintaining pricing discipline. As a result, while we remain mindful of the broader macroeconomic backdrop, we are confident in the resilience of our business model. Our guests continue to prioritize travel, supporting sustained demand. From an operational standpoint, recent developments have implications for fuel costs. Higher fuel prices did not impact our first quarter results due to timing, but we expect some effect as the year progresses. Having said that, our River operation benefits from fixed-price contracts for a significant portion of the 2026 season contracted for in 2025. On the other hand, our Ocean operation has greater sensitivity to market movements. Importantly, we are able to mitigate some of the impact of fuel cost volatility because our ocean fleet has been designed with fuel efficiency in mind. Fuel represented approximately 4% of our adjusted gross margin in 2025, providing helpful context for the overall exposure. Now moving to Slide 5, I will highlight several updates related to our fleet, where we continue to expand and support the growth of our global operation. In March, the Viking Eldir joined our growing number of long ships sailing the European rivers, and we acquired the Viking Yidun, further strengthening our ocean lineup. As part of our strategy to grow Chinese demand, we are increasing our itinerary offerings. For example, this year, we introduced new ocean voyages in Europe tailored for Chinese travelers aboard the Viking Yidun. We are expanding our offerings to include ocean voyages enabling cross-selling, optimizing the use of our ships and increasing our ability to deliver the Viking experience to more guests worldwide. We also made meaningful progress across our new build program for Egypt. This quarter, we celebrated the float out of two river vessels bound for the Nile and to be delivered later this year. We also announced two additional vessels now in order for 2028. The itineraries in Egypt consistently generate some of the highest yields in our River portfolio and deliver great guest satisfaction scores. This continued investment reinforces our position in one of the most iconic river destinations in the world. Another important milestone this quarter was the float out of the Viking Libra. It will be the world's first hydrogen-powered ocean cruise ship capable of operating with zero emissions. This ship will be our most environmentally advanced to date and a clear reflection of Viking's commitment to innovation and sustainability. And finally, I would like to highlight a meaningful recognition of our business. This past April, Viking was named among Time's Most Influential Companies. The company was recognized in the disruptors category and was also highlighted as one of the 10 most influential companies shaping the travel and tourism sector in 2026. We are proud that our contrarian approach continues to resonate as we stay true to what makes Viking different. Now before we turn to our financials for the quarter, I want to take a moment to congratulate Linh Banh on her appointment as CFO. Linh is a trusted colleague and a great friend. Many of you are already familiar with her as she has joined us in previous earnings calls. Since joining Viking almost 20 years ago, she has held multiple positions within the accounting and finance department and is very well versed in Viking's financial responsibilities. With that, I will turn it over to Linh.

Linh Banh, Chief Financial Officer

Thank you, Leah. I am very grateful for the opportunity to serve as CFO and for the trust placed in me. With that, good morning, everyone. I will begin by reviewing our first quarter consolidated results and I'll walk you through some of the drivers behind our performance. Overall, we are very pleased to have reported another great first quarter. On a consolidated basis, total revenue for the quarter increased 17.5% year-over-year to over $1 billion, driven by increased capacity and higher revenue per PCD. Capacity was up 6.6% this quarter, driven primarily by the delivery of one ocean ship in 2025. Overall, this revenue performance reflects healthy pricing, a favorable itinerary mix and solid demand. Adjusted gross margin increased 16.9% year-over-year to $717 million, resulting in a net yield of $596, 9.5% higher than the first quarter of 2025. As expected, vessel expenses, excluding fuel per capacity PCD, increased 10.6% this quarter compared to the same time last year. This was mainly driven by repair and maintenance costs across the fleet. As we have mentioned in the past, these expenses can vary between quarters depending on maintenance schedules and other operational factors. It is important to emphasize that our repair and maintenance work is incurred against specific projects rather than being quarterly managed. Now turning to SG&A. We continue to invest in our people and in our sales and marketing capabilities to support growth and drive high-quality demand. At this point in the year, we are already marketing for 2027, when capacity for our core products is expected to increase by 15%. As always, we scale marketing in line with demand, capacity growth and our strategic priorities. Adjusted EBITDA for the quarter was $105 million, 43.9% higher than the same period last year. This significant year-over-year increase was mainly driven by higher revenues across all segments. Net loss was $54.2 million, which is an improvement of more than $51 million from the first quarter of 2025. As a reminder, the first quarter of the fiscal year has typically been negative due to the seasonality of our business. I will now briefly discuss our two reportable segments, River and Ocean. These are on Slide 8. For the River segment, capacity PCDs decreased 8.4% year-over-year and occupancy for the period was 93.7%, in line with last year. Adjusted gross margin increased 17.2% and net yield was $761, up 28.3% year-over-year. Please note that for River, our core season runs from April through October. To this end, metrics from the first quarter aren't indicative of the full year performance. With that, I will share a few drivers of the year-over-year changes in capacity and net yields. This quarter, we added capacity through new builds in Egypt and Vietnam, both regions with high yield and strong pricing power. At the same time, we intentionally removed lower-yielding winter capacity in Europe during January and February. This shift towards higher-yielding itineraries combined with continued pricing strength drove a materially favorable increase in net yield, while the overall capacity was lower than last year. With respect to Ocean, capacity PCDs increased 10% year-over-year due to the addition of the Viking Vesta, which began operating in July of 2025. Occupancy for the period was 95% and slightly higher than last year. Adjusted gross margin increased 16.9% year-over-year and net yield was $527, up 5.6% compared to the previous year driven by higher pricing across most itineraries. Now moving to the balance sheet and our liquidity position. On Slide 9, you can see that as of March 31, 2026, we had total cash and cash equivalents of $4 billion and an undrawn revolver of $1 billion. Our net debt was $1.9 billion. To this end, our net leverage improved from 1.1x as of December 31, 2025, to 1x as of March 31, 2026. As of March 31, 2026, deferred revenue was $5.4 billion. Also on Slide 9, you can see our bond maturity outlook with all maturities falling in 2028 and beyond. I will now confirm our debt amortization for 2026 and 2027. As of March 31, 2026, the scheduled principal payments for the remainder of 2026 were $174.4 million and $197.4 million for full year 2027. From a committed capital expenditure perspective, and for the full year 2026, the total expected committed ship CapEx is about $1.9 billion or $650 million net of financing. And for the full year 2027, the total expected committed ship CapEx is about $1 billion or $260 million net of financing. With that, I will turn it back to Tor to review our business outlook, including our booking curves.

Torstein Hagen, Executive Chairman

Thank you, Linh. As you can tell, I will continue to present the booking curves. I find them very insightful and relevant for the business. These are all as of May 3, 2026. On Slide 11, we show our consolidated metrics for our core products. As you can see, we are in great shape, both for 2026 and the 2027 seasons. The 2026 season is already at 92% booked, so we're mostly done selling the current season. Advanced bookings equaled $6.2 billion which is 13% higher year-over-year and capacity is increasing 7%. So we're in a very good position for 2026. And 2027 is shaping up very well, too. Capacity will increase 15% in 2027, and we're already 38% booked. Advanced bookings equaled $3.4 billion and are 31% higher than the 2026 season at the same point in time in 2025. I will note that the 2027 curve reflects some timing and product mix that at this stage are positively impacting both volume and rate. Regarding volume, I mentioned that capacity for the core products will increase by 15% in 2027. The drivers of this increase are the full-year impact of ships being introduced in 2026, plus an additional one ocean ship and river vessels in 2027. Because of the timing of these deliveries, capacity growth will be slightly higher in the first half of 2027 than in the second half. Regarding rates and besides strong pricing, there are some high-yield itineraries that are being sold earlier in the cycle due to reasons such as seasonality. Looking ahead, how the book and credit evolves for the remainder of the 2027 season will depend on the inventory we have available to sell and how we dynamically price the rest of the season. As we have previously communicated, if macro conditions are stable, our long-term target remains mid-single-digit yield growth across our core products. Let's now talk about the advanced booking curves for the segments. On the next slide, you will see our curves for ocean cruises. This is Slide 12. I will start with the yellow line, which shows the booking curve for 2026. Overall, we have sold 92% of the capacity PCDs for the year and have $2.8 billion of advanced bookings, which is 17% higher than last year at the same point in time. Capacity will increase 9%. So you can tell that we have been booking at attractive rates. They equaled $777 compared to $737 in 2025. If you now look at the gray line, you will see the booking trends for 2027. As of May 3, we have sold about 46% of the 2027 capacity, which is increasing by 18%. Advanced bookings are 38% higher than the 2026 season at the same point in time in 2025. Please note that the capacity is increasing due to the delivery of two ships in 2026 and one ship in 2027. Regarding the rates, they equal $882 compared to $786 for the 2026 season at the same point in time in 2025. Let's move to Slide 13, where you see the curves for the river cruises. I will start with advanced bookings for 2026, which is the yellow line. As you can see, 93% of the capacity was already sold as of May 3. We have almost $3 billion in advanced bookings, which is 10% higher than last year at the same point in time. The operating capacity for river will increase 6% year-over-year, and rates are equal to $878 compared to $828 in 2025. Like Ocean, we have had better net rates to sell for 2026, and our sales and marketing teams are now mostly focused on 2027 and beyond. Now the gray line shows advanced bookings for the 2027 season. As of May 3, we have sold about $1.2 billion, which is 21% higher than the 2026 season at the same point in time in 2025. Operating capacity for the River will increase 13% year-over-year, driven by the growth in the fleet with 10 vessels being delivered during 2026, and 8 more scheduled for 2027. Twenty-six percent of this capacity is already reserved. And regarding rates, these averaged $1,108 for 2027, up from $992 for 2026. As stated earlier, and like the Ocean curve, rates at this stage are driven by strong pricing as well as the mix of what is being sold. In the case of River, there is a larger mix of our itineraries in Egypt and India, which command higher-than-average yields. So overall trends for 2027 are very good: a strong book position, increased capacity and very good rates which gives us confidence that our consumer demographic remains financially resilient and prioritizes travel. At this point, Leah will add some color to our order book and capacity.

Leah Talactac, President and Chief Executive Officer

Thank you, Tor. Now turning to our order book and capacity. I will recap the update since our last earnings call. As noted in the opening remarks, we took delivery of the Viking Eldir, a long ship for Europe; we acquired the Viking Yidun, an ocean ship dedicated to Chinese guests; and we announced plans to build two additional river vessels for Egypt scheduled for delivery in 2028. As we close today's call, I want to thank our teams, guests, partners and shareholders for their continued support. We are encouraged to have started the 2026 fiscal year with strong financial results and a solid book position for both the 2026 and 2027 seasons. I am very proud to lead Viking as we continue to deliver great travel experiences that reinforce our brand, drive repeat business and create long-term value for our shareholders. With this, I conclude our prepared remarks. I will now turn it back to the operator to take questions.

Operator, Conference Operator

Operator instructions were given. And the first question today is coming from Steven Wieczynski from Stifel.

Steven Wieczynski, Analyst (Stifel)

First of all, congratulations, Leah and Linh on your appointments. So my first question is around the '27 booking curves, which I mean, look incredibly strong with PCDs, I would say, running well ahead of what I think anybody was expecting at this point. So look, I assume a lot of that strength is just the booking curves going back to a more normalized pattern meaning higher demand itineraries and cabin classes are being sold first, which is probably somewhat different versus this time last year. So wondering how we should think about those '27 booking curves moving forward and how you guys think they eventually settle? I know Tor said you guys kind of still think mid-single-digit range is fair. But just maybe wondering if they could eventually settle a little bit higher than that versus what you're seeing right now from a demand standpoint.

Linh Banh, Chief Financial Officer

Steven, thank you for your kind words. As it relates to 2027, I think at the end of the day, our booking curves are the best indicator of consumer health and where we are is very good. To your point and what Tor mentioned earlier, the 2027 curve does reflect some timing and product mix, which is reflecting positively on both rate and volume. How the curve develops for the remainder of the 2027 season will really depend on the inventory we have available to sell and how we dynamically price the rest of the season. As we previously stated, if macro conditions are stable, our target remains mid-single-digit yield growth across our core products.

Steven Wieczynski, Analyst (Stifel)

Okay. Got you. And then the second question, I want to ask about the cadence of bookings that you've seen recently. And Leah, you noted you guys witnessed a short-term softening in bookings, which was mostly for the '26 season. I guess wondering if you could walk us through maybe a little more detail about how long that lasted, maybe what you've seen more recently in terms of any material changes for certain itineraries or lack of demand for certain itineraries. And also if you could touch on cancellations, which I think you noted that are in your normal expected range, but any other color there would be super helpful.

Leah Talactac, President and Chief Executive Officer

Steven, thanks for the kind words. As far as demand from the consumer since the conflict began, we saw a slight softening. But we did find that our consumers are highly resilient. They responded quite well to targeted promotional marketing pieces that we sent out, which is the first thing we do to generate demand: to really get the Viking message across through our direct mail campaign. We found that once we were able to generate demand, the consumer responded appropriately, and you can see that in our booking curves where we are largely sold for 2026 and are off to a good start for 2027. As far as cancellations are concerned, they are in line with historical trends. We don't see any significant increases in cancellation rates related to the current macroeconomic events.

Operator, Conference Operator

The next question will be from Matthew Boss from JPMorgan.

Matthew Boss, Analyst (JPMorgan)

Congrats on a nice quarter, and congrats, both Leah and Linh on the promotions. So Leah, maybe if we take a step back, double-digit capacity growth, mid-single-digit yields, you're making the point is a clear baseline for the business. And that's despite macro backdrops if we think about from the multiyear. So could you speak to the market share opportunity that you're taking across both River and Ocean and how you see your product relative to peers as differentiated?

Leah Talactac, President and Chief Executive Officer

Sure. As you're aware, we are the market leader in the River North American passenger outbound segment and our strategy for the River is really to maintain our dominance and that's reflected in our order book, where we have 24 committed ship orders through 2028, with an additional 16 between 2029 and 2032. When we think about where our opportunities are for gaining market share, we're really focusing on the Ocean luxury segment where we have 10 committed ships between 2026 and 2031 with an additional six to be delivered in 2032 and 2034. And we feel that with being roughly 24% of the luxury ocean market with our current capacity, taking into account additional tonnage entering that market as we continue our build growth, we really see ourselves taking up to 30% market share in that very attractive segment. And I think what really sets us apart is what defines us, such as we are one brand — the guests know what to expect when they come on board our ships. It's understated luxury. We are immersive in terms of our experiences and in delivering a product that is really about the destination and not about the ship itself. It's more like a floating hotel that you can use to explore the world in comfort. It's about the fantastic service that our guests experience with our phenomenal crew. And really that is what sets Viking apart and enables us to continue the growth trajectory that we have outlined.

Matthew Boss, Analyst (JPMorgan)

That's great. And then maybe, Linh, just to elaborate on 2027. So as we think about the advanced bookings to start the year and some timing dynamics as you cited, should we look back to 2024's curve as a comparison to how to think about the progression throughout the year? It sounds like we should bridge at least to mid-single digits. But just what would be some of the puts and takes to consider as the year progresses for '27.

Linh Banh, Chief Financial Officer

Thanks for the congrats as well. I think as we look to 2027 and how it plays out, honestly, each season and each curve will develop differently; it really is dependent on what the calendar dates are and product mix and what's left to sell. I think we feel good about 2027. It's off to a wonderful start. And as we said, if macro conditions remain stable, our goal remains mid-single digits. And as you can see from history, that's where we've landed pretty well. So I wouldn't necessarily say to compare it directly to prior seasons given every season develops differently.

Operator, Conference Operator

The next question will be from Brandt Montour from Barclays.

Brandt Montour, Analyst (Barclays)

Congratulations again to Leah and Linh. I have a question on marketing. Obviously, it sounds like pulling the marketing lever a month or two ago worked pretty well. Is that something that has to sort of remain? Do you feel like you're still keeping your foot on the pedal with marketing right now? And what are the implications for SG&A unit cost this year from what you kind of are having to do now for '27 bookings?

Leah Talactac, President and Chief Executive Officer

As far as marketing, it does remain one of our levers in terms of generating demand. Even despite the current macroeconomic conditions, that is a tool that we use in order to fill the capacity of our growth. And we feel that that's really what separates us from others in the industry: our ability to interact with our consumers on a consistent basis to generate demand. So I think what you'll see is that we will manage it dynamically according to what we see both in the marketplace and according to how bookings come in, but marketing will always be our lever. Having said that, we do anticipate having some efficiencies in SG&A related to marketing, especially as we start to leverage some of the tools that we've invested in that would allow us to optimize, for example, human and large language model search tools that we may have put into place to increase conversions when we're able to personalize guest experiences on our website and really interact with that consumer and tighten the sales funnel. So there's certainly opportunity there. You must keep in mind that we are generally marketing today for tomorrow. So we are expensing today expenses that are supporting the growth for next year. So for example, next year, we have 15% capacity growth.

Brandt Montour, Analyst (Barclays)

Okay. That's great color. I appreciate that. And then another question would be on flights and the ratio to which you kind of book flights in coordination with when you're selling tickets. And really, the question is we don't really — we're not really concerned that your customer can't afford an increase in flight prices. But you guys — I don't think you book the flights for your customers at the exact same time as they book tickets. So how much is left to book this year relative to how much you have booked on tickets? And is there any sort of plans to maybe for next year to book that closer to 1:1 just to sort of reduce any chance of volatility between that gross and net line?

Leah Talactac, President and Chief Executive Officer

Given our customer demographic, as you can imagine, many of our guests prefer Viking to deliver an end-to-end experience. Historically, a significant portion of our guests do purchase air with Viking. That being said, Viking maintains agreements with the major airline alliances to secure inventory for our guests. So when a guest does elect to book air with Viking, we try to book tickets promptly. However, final routings and schedules are determined by carriers and they may affect availability and pricing. But that being said, we do try to book the air for our guests as properly as possible.

Operator, Conference Operator

The next question will be from Robin Farley from UBS. Robin.

Robin Farley, Analyst (UBS)

Great. Congrats to Leah and Linh. Wanted to ask sort of going back to the 2027 curve. If we look at the last three years, you basically ended up with net yield within about two percentage points of where you first gave us this change in booked revenue per day and definitely understand every year that product can make some timing differences because sometimes it's been two points higher, sometimes it's been two points lower. I guess would you say that what you have with product timing and mix this year is much more unusual than those normal fluctuations? I guess I'm just trying to understand whether there's something that would cause you to end up with an outcome that's wider than that sort of two points that we've seen from your initial booked revenue.

Linh Banh, Chief Financial Officer

Robin, thank you for the congrats. I think as it relates to 2027, it's off to a great start. Pricing looks good. We are 38% booked for the 2027 season as of May. I think we can all agree the curves are in a good position. As it relates to pricing, pricing will always be dependent on inventory mix, what's sold and what's left to sell and obviously, macro conditions. Our goal is generally mid-single digits. I think as Matthew asked earlier, each season is different and will behave differently. We are sitting here 38% booked and in a great position, but we still do have a little bit more than 60% of capacity left for 2027. So I think we just reiterate that our goal is generally mid-single-digit yield growth, especially with our double-digit capacity growth in our order book.

Robin Farley, Analyst (UBS)

Okay. Great. And maybe just as a follow-up, it was interesting that the change for remaining 2026 bookings was more noticeable in River than Ocean. I think given other commentary out in the market about Eastern Mediterranean concerns, maybe we would have expected to see that in your Ocean business more than your River business. So I wonder if you could just characterize for us in Q3 and Q4 what kind of exposure you have to the Eastern Mediterranean or in the River business is that mostly the delta in Egypt bookings? Or if we can just sort of understand a little bit more about where the variability was — which itineraries where you were seeing it. Was it Egypt that downticked the River business and what's happening in the Eastern Mediterranean and Ocean?

Linh Banh, Chief Financial Officer

Sure. At the end of the day, our overall book position for 2026 is great. We're 92% booked. Overall, pricing is 5.5% ahead of the same point in time prior year. So this is well in line with our expectations. And I think we've said all along our goal is still mid-single-digit yield growth for each year. As it relates to the itineraries, we mainly operate in Europe. So we are seeing both Eastern Europe and the Mediterranean booking similarly to our other itineraries. As it relates to the 2026 River metrics, some of this is really just deployment mix. Egypt did impact it slightly. As we said in the last call, we did cancel a couple of weeks. But Egypt is a great itinerary. It is a high-yielding itinerary that does very well for us. We still see strong occupancy and yields this year and next year for Egypt. So at the end of the day, we are pretty pleased with where we are for 2026.

Operator, Conference Operator

The next question will be from Trey Bowers from Wells Fargo.

Trey Bowers, Analyst (Wells Fargo)

Congrats to everyone. I guess I'll ask Brandt's air question in a slightly different way. When we see a pretty significant increase in transatlantic pricing like we've seen of late, when and how does that impact you guys? Is this when you re-up your deals with the different carriers, or is there a new price dynamic to that? Or is it, to some extent, you're just passing some of that on to your customers when you're ultimately buying that air for them? So just would love to get a better feel for how this might impact numbers going forward.

Linh Banh, Chief Financial Officer

So at the end of the day, we have agreements with all the major airline alliances. When a guest does book with Viking and they choose to purchase air with Viking, we try to book that ticket as promptly as possible. When you look to our financials, adjusted gross margin reflects the air purchased and the air cost. So you can see how yield moves through adjusted gross margin. Historically speaking, yields have increased, and the team that we have has managed through air cost fluctuations very well. So will it be a headwind to us? I think we would anticipate that there is some of that for the year given current conditions. That being said, we have long-term veterans in our air department, and they've done a good job managing through costs in the past.

Trey Bowers, Analyst (Wells Fargo)

And am I right in assuming that the air cost for your crew rolls through payroll, is that separate?

Linh Banh, Chief Financial Officer

Yes. All crew-related costs roll through operating expenses.

Trey Bowers, Analyst (Wells Fargo)

Perfect. And if I could just sneak one in. The Q1 yields in River were an incredibly impressive number. But is there any chance you could give us more of a like-for-like yield number that maybe you were seeing just in, say, European itineraries, just to get a feel for how strong the pricing is exiting the quarter on more of an apples-to-apples basis?

Linh Banh, Chief Financial Officer

I think first quarter for Rivers, due to seasonality, our River business really doesn't start in Europe until March and April and it ends around October to November. So the first quarter yields for Rivers aren't really indicative of the full year, which is why we provide the booking curves. From a booking curve perspective, you can see how pricing is trending for Rivers for all of 2026 year-to-date. That being said, a majority of that first quarter strength is Egypt and Vietnam, and those itineraries are high-yielding for us.

Operator, Conference Operator

The next question is coming from Elizabeth Dove from Goldman Sachs.

Elizabeth Dove, Analyst (Goldman Sachs)

Congrats to Leah and Linh and also Tor for an incredible 30 years as CEO. As we think about the next chapter of Viking under this new leadership, and I appreciate you've both been here 20-plus years, the answer might just be no. But should investors expect any evolution in terms of strategy or capital allocation here under this new management team?

Leah Talactac, President and Chief Executive Officer

Elizabeth, thanks for that. Tor was wondering when someone was going to congratulate him. As far as strategy, I think this leadership transition is really about stability and continuity. As you know, our long-term plan is largely laid out in our order book. I have been fortunate to work side by side with Tor for 20 years and with the executive committee. Together, we will continue to execute on the strategy that we've laid out for ourselves. It's really to ensure not just the investor community, but more importantly our guests, that Viking will remain committed and true to who we are as a company and to the guest experience.

Elizabeth Dove, Analyst (Goldman Sachs)

Makes sense. Got it. And then to ask my earlier question, for 2027 just on the like-for-like. I appreciate all the comments and color you've given so far in terms of the '27 booking curve and I appreciate the mix considerations, I think more India or Egypt. Is there a way to just think about on a like-for-like basis, whether that's Egypt versus Egypt prior, Europe versus Europe? Just how that like-for-like pricing is tracking so far for 2027 specifically to normalize for that mix, I suppose?

Leah Talactac, President and Chief Executive Officer

I think for 2027, at the end of the day, what we have sold to date includes some of our higher-yielding itineraries. To your point, Egypt has sold well for 2027, so that is skewing our pricing up. But I don't think we can provide like-for-like detail at this time. We're 38% sold, so it's not something that we should provide today. We have over 60% of capacity left to sell for 2027. We are in a great position, and not many can say that for the 2027 season as of May you're already 38% sold with pricing ahead year-over-year. We are quite pleased. Overall, we maintain that our goal is mid-single-digit yield growth and that will become a combination of pricing increases, ancillary revenue and deployment mix. We will approach each season with all three in mind to reach our goal.

Operator, Conference Operator

The next question will be from David Katz from Jefferies.

David Katz, Analyst (Jefferies)

Congrats all around and yes Tor, for building a strong team over a long period of time. I wanted to just double-click on the capital allocation question. We obviously all eye $4 billion in our imaginations run in all different directions. How are you thinking about that philosophically? Do you look at circumstances where the world's visibility may be a little bit lower as an opportunity? Or do you take a more conservative approach to that? And any boundaries you can give us or color you can give us on the kinds of things you'd like to add would be helpful.

Leah Talactac, President and Chief Executive Officer

Sure. One of the benefits of having been an executive team together for 20 years is we've seen things go up and down, particularly in the travel industry. This cash really allows us to continue our growth plans with a measure of stability for Viking and gives us an ability to make long-term plans through 2032 or 2034. Our top priority is to reinvest cash in the business to generate strong returns. This includes our strong order book. Our guiding principles when we think about how else we can deploy cash are based on three things: Is it scalable? Is it margin accretive? And will it add to the brand, be complementary to the brand and fit within the brand ethos? We've also said that to the extent that we are able to, our preference is to own and operate because then you can control the experience from beginning to end, which is so important to us. As far as the cash, given the current macroeconomic environment, this cash allows us to behave responsibly with our guests. That's all we can say about capital allocation at this time.

David Katz, Analyst (Jefferies)

Okay. Fair enough. And just going back to the initial commentary, Leah, around fuel. Any color you can provide on how we should think about your purchasing for 2027? And when that occurs just so that we can sort of mark you to market as we go.

Leah Talactac, President and Chief Executive Officer

From a fuel perspective, as Linh mentioned, we enter into fixed-price contracts for River. So the 2026 season is largely fixed-price, set in 2025. From an Ocean perspective, we do have fuel-efficient vessels and our operations team is highly experienced in managing through times where fuel prices move up and down. Our ocean fleet is equipped with closed-loop scrubbers, which allow us to operate using heavy fuel oil, and we are also able to avail ourselves of shore power. At this stage with fuel prices where they are, we do not feel this is the right time to enter into fuel hedges. We can assess that as the year progresses. To level-set exposure, because of the fuel-efficient designs of our ships, fuel as a percentage of adjusted gross margin is only about 4%. So our fuel expense exposure is quite manageable.

Operator, Conference Operator

The next question will be from Conor Cunningham from Melius Research.

Conor Cunningham, Analyst (Melius Research)

Congrats, everyone. So it's great to hear. Just on Egypt. Last quarter you talked a little bit about the headwinds that you were facing there, and I know that you're back to sailing within that market. Can you just talk about how that's trended? I assume the operational disruptions impacted bookings, but it seems like it snapped back even better on the demand and pricing side. If you could just talk about that a little bit, that would be helpful.

Linh Banh, Chief Financial Officer

I think for Egypt, it is a great itinerary and a wonderful experience. Viking does it well and it is high-yielding. But as a reminder, it is a small percentage of our capacity — eight ships. We're operating this year with average guest counts of about 80 guests per ship. As it relates to how it's progressing, for 2026 we did cancel a couple of weeks, but it is selling well for 2027. We believe in the product, we believe in the experience, and we have a strong order book for Egypt.

Unknown Executive, Executive (Viking)

One second. Linh, I think your mic is — here you go.

Conor Cunningham, Analyst (Melius Research)

Okay. And then maybe just following up on David's question around capital allocation. So you've historically taken advantage of times when the macro environment allowed opportunities. I don't think there's another travel company out there that has current bookings for 2027 like you do. So is it just the fact, ignoring shareholder returns, that you haven't seen an opportunity to really scale the side of the business? Is it that the assets aren't available, price points are different? Can you talk a little bit more about that?

Torstein Hagen, Executive Chairman

I'll comment on that. We have looked at a couple of things, but we have been very, very disciplined. Any acquisition or investment has to really be Viking-brand appropriate. It has to fit our brand. There are not many opportunities that fit. Our opportunities for organic growth are significant, and we'll make sure we do that first. If something dramatic comes along that fits the brand and delivers the right returns, we'll consider it, but it has to fit the brand and meet our return thresholds. We have good returns on our investments in the existing business, largely related to the way we design our ships and how we operate. As long as we can achieve good returns, that should be the priority. I will look at opportunities from a higher level in the future, but I think we're in a good position.

Operator, Conference Operator

The next question will be from Meredith Prichard Jensen from HSBC.

Meredith Prichard Jensen, Analyst (HSBC)

Yes, I'm excited to watch the next few decades of the progression of Viking. And quickly on China, I was interested to hear about reflagging the Viking Yidun and I was hoping you could speak a little bit more about brand building among Chinese travelers, learnings from the experience center and sort of a roadmap there, both for coastal, river and ocean.

Torstein Hagen, Executive Chairman

Maybe I can make a couple of comments on that. Our China business started around 2003–2004 when we had ships operating with Chinese operators and Viking was providing management services and marketing to Western customers. Then competition and pricing dynamics changed and we rethought our approach. We decided to create a Mandarin-speaking product for Chinese customers. Over the past few years we have developed that business. We now have derivative vessels operating in Europe for Chinese customers with Chinese crew, and we have undertaken joint initiatives with local partners. The Viking Yidun was initially operating in domestic China waters, but domestic operations are challenging given price competition and difficulties in differentiation. So our approach now is to offer a high-quality Viking product for Chinese travelers when they travel to Europe, either river or ocean. We are in the process of establishing a recognizable brand in China. It will take time and patience, but it is a significant opportunity. For now, we will operate the Viking Yidun in European waters and the ship will be operated under the appropriate flag.

Meredith Prichard Jensen, Analyst (HSBC)

Thanks for the visibility on that — that's super helpful. And just finally, I know Viking has been very focused on minimizing environmental impact. I know the Libra is launching later this year. I was hoping you might speak a little bit more about the accessibility of hydrogen propulsion technology, unit economics there and how you might scale further as other ships come along?

Torstein Hagen, Executive Chairman

The whole regulatory environment in shipping is complex, and unfortunately it is not always the science that wins. We have looked very carefully at propulsion technology. If we're going to have a true zero-emission product, hydrogen is the way forward. The Viking Libra will have hydrogen fuel cells that will cover a portion of propulsion and hotel power. Hydrogen is an expensive fuel and not easily available everywhere, so there are trade-offs between technology, cost and infrastructure. At least we feel we are setting a direction of travel for the future of shipping. Some people favor liquefied natural gas, but LNG has its own greenhouse gas considerations. For the time being, we stand by our approach and will continue to look at other technologies as they develop. Our existing vessels are diesel-powered with closed-loop scrubbers, so we don't discharge into the ocean, and we continue to explore other methodologies. Sustainability will remain a long-term focus and a priority for Viking.

Operator, Conference Operator

Thank you. That concludes today's Q&A session. I will now turn the conference back over to Leah Talactac, Viking's President and CEO, for closing remarks.

Leah Talactac, President and Chief Executive Officer

I wish to thank everyone for joining us on today's call. For additional context on our recent leadership transition, we encourage you to view a video which was beautifully narrated by Corina Hagen in the Investor Relations section of our website at ir.viking.com. Have a great day, and see you next quarter.

Operator (Paul), Conference Operator

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