Q3 2021 Royal Caribbean Cruises Ltd Earnings and Latest Updates On Operations Ramp-Up Call
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Good morning, My name is Shelby and I'll be your conference operator today.
At this time I would like to welcome everyone to Royal Caribbean groups business update and third quarter 2021 earnings call.
All participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
I would now like to introduce <unk>, Chief Financial Officer, Mr. Jason Liberty, Mr. Liberty the floor is yours.
Good morning, everyone and thank you for joining us today for our business update and third quarter earnings call. Joining me here in Miami are Richard Fain, Our chairman and Chief Executive Officer, Michael Bayley, President and CEO of Royal Caribbean International and Michael Mccarthy, Our Vice President of Investor Relations.
During this call we will be referring to a few slides, which have been posted on our investor website, Www Dot arceo investor Dot com.
Before we get started I'd like to refer you to our notice about forward looking statements, which is on our first slide.
During this call we will be making comments that are forward looking.
Statements do not guarantee future performance and do involve risks and uncertainties.
Examples are described in our SEC filings and other disclosures.
Please note that we do not undertake to update the information in our filings as circumstances change also we will be discussing certain non-GAAP financial measures, which are adjusted as defined and a reconciliation of all non-GAAP historical items can be found on our website.
Richard will begin the call by providing a strategic overview and update on the business I will follow up with a recap of our third quarter results. I will then provide an update on our latest actions and on the current booking environment.
We will then open up the call for your questions Richard.
Thank you, Jason and good morning, everyone as always it's a pleasure to give an update on what's happening within the Royal Caribbean Group.
It's certainly been a horrible year and a half looking at our financial statements and seeing that sea of Red ink is painful, but we are pleased to be looking at such a positive forward path.
The reason, we've gotten to this awful period of Covid as well as we have is because we've had our eye firmly on where we needed to go rather than on where we were at any given moment the.
At the same approach is serving us well as we look to the coming months before I comment on our position going forward I have to express my admiration for an appreciation of the men and women of the Royal Caribbean Group, who have worked so hard so diligently throughout this difficult time.
The pandemic has cost us all dearly, but our people stepped up to the plate and work so hard to get us through this period. They invented amazing protocols to protect our crew members and our guests they put in place financing arrangements with a deft hand, and they have taken care of themselves and their coworkers and their families.
Under some of the most trying circumstances any of us have ever experience to them I say. Thank you you are all true heroes.
Now the pandemic is not yet fully behind us, it's still very present, but scientists have given us a good answer to this type Mir was effective vaccines and remarkable treatments.
Alta variant cause a temporary slowdown in our bookings, especially close in but our trajectory for recovery remains very much intact in.
In this call I intend to focus on where we're going rather than where we've been we're all tired of talking about COVID-19 every conversation doesn't need to start with a description of the trauma. We've experienced every discussion doesn't need to dwell on how awful it's been Fortunately the path forward appears clear.
And very positive for our company and for our industry.
For some time now we have said that we hope to take advantage of the special features of cruising and make cruising one of the safest places on Earth to spend your vacation.
The numbers are now coming in and our objective appears to be validated.
Our strategy has been to get the flywheel spinning for over 18 months. Our guests have had to deal with cancellations interruptions confusing rules and changing protocols. These constant changes have added uncertainty.
Thankfully today were operating almost normally are published itineraries are being delivered on a consistent basis. Two thirds of our ships are already operating in virtually everything will be back to normal in our core markets before the end of this year.
Our goal is to start the new year with smooth steady consistent operations that will give our guests comfort and give travel advisors the confidence to book future cruises.
Like the pilot of a plane during takeoff prioritizing speed over altitude, we have prioritize spreading the wealth, we have prioritized starting up more ships, even with lower loads per vessel rather than trying for higher load factors on fewer ships, we have been executing this in a financially and <unk>.
Medically prudent manner.
January is the start of wave period, and our goal is to have our core markets operating normally as quickly as possible that will put us in an excellent position to have a good wave period.
Bookings are already showing that the public has a great deal of pent up demand and is eager to travel again.
We have a long period of poor bookings to make up for but current booking trends give us a high level of confidence for 2022, especially from the summer on.
We're not back to normal however, predictions of a dramatic different new normal do not appear to be bearing out.
Once aboard a ship cruises today are remarkably similar to cruises before the pandemic. There are some changes, but most of these are not visible to the public and the remaining ones are likely to be temporary.
Satisfaction level amongst those who are cruising today is the highest in our company's history and they were onboard spending is also unparalleled.
The recent announcement by the CDC they intend to eliminate the prescriptive conditional sale order in January is very welcome.
Our own requirements and protocols are stricter than the CSO anyhow, so the confidence though that they are demonstrating by the cdc's actions will help give confidence to the market.
Now while we are very encouraged about the strong bookings that we've been seeing we do appreciate that we are still not the normal travel environment.
We are emerging from a period of lower than usual bookings in our international sourcing, which has historically been a strength of the group has been confusing due to the constantly changing travel restrictions and is just now starting to build back.
The images the cruise industry from the early days of the pandemic is also weighing on the minds of consumers, albeit much much less than previously.
There's also a special story about what's happening in Asia, and how that affects the Royal Caribbean Group chat.
China was one of the fastest growing markets and we believe will continue to be an important part of our strategy going forward.
However, as you know China has essentially closed to international travel today and that includes cruise travel we do not expect China to reopen until at least the Olympics in Beijing are over.
Another important market for US is Australia Australia's approach to contain the pandemic has been based on isolation. They are now rapidly switching to the vaccines as a wave controlling the disease, we do not expect Australia to open to cruise travel until the spring.
But since this summer season doesn't start until our next winter anyhow, we're not counting on much from Australia until the end of next year.
Against this background, our ability to predict a profitable 2022 is strong evidence of how quickly our future can get better. We are encouraged to see the return to profitability and strong cash flows as a rapid turnaround rather than a slow steady progression.
It is unusual actually for us to provide any indication of next year's results. This early but we understand the need to have a frame of reference going forward and we wanted to be constructive in that regard.
Obviously, there are a large number of factors that could shift us office trajectory, including worsening spread of the disease, a new variant inflation et cetera, but on the current trajectory that we are seeing we believe we can prudently predict at least this level of profitability and cash flow.
I'd also like to touch on two other subjects that are of interest to any company human capital and supply chain issues.
Our people have been the strongest driver of our performance throughout our history. So we watched this area very carefully and we are concerned by reports of labor shortages, especially in the hospitality arena.
Fortunately, our shipboard jobs are seen as very attractive by crew members around the world. So that has not been a serious problem as we restart and we do not expect that it will become one.
Similarly onshore we have long been seen as a desirable place to work and while the current situation is something every business person should watch closely we do not expect it to interfere with our ability to operate successfully.
Supply chain issues are impacting everyone and we're no exception.
Fortunately, we have traditionally hedged our bets by buying key supplies forward and this is cushioning us from the current volatility.
Looking forward, we expect these contracts plus our purchasing power plus orange annuity to give us protection.
Now while this pandemic has been all consuming we have not been idle on other fronts, either the need to be a good corporate citizen to behave in a way that we can all be proud of as it remains an important part of our thought process. Even during this time frame.
Over the last few months, we've announced a significant number of highly significant steps forward on the environmental side of our ESG aspirations.
A few weeks ago, we announced that the new Silversea ship called project evolution will contain some of the most advanced environmental features of any cruise ship on the water or in the construction docs. It will be a multi fuel vessel capable of burning initially lower carbon producing LNG and <unk>.
<unk> is a developed the non carbon based fuels work off of those.
In addition, it will have fuel cell technology, not as a demonstration project, but it's a significant part of the energy capability of the vessel.
As a result, it will be able to operate 100% of its hotel load purely on these emission free fuel cells.
That means not only willing to ship need to use its engines and port, but it can do so without even having to plug into shore power.
This requires an amazing concentrated effort to develop the technology in conjunction with mayor first and others.
In addition, it will use waste to energy technology to convert rubbish to energy and used advanced supply chain techniques to reduce the carbon generated during the construction process.
And even bigger announcement. This week was our disclosure of our new project called destination net zero.
This is an ambitious project to eliminate our carbon footprint by 2050 by signing up for the science based target initiative.
We are not only setting a goal for the future.
But also establishing the interim milestones that will allow us to get there with confidence.
It's also interesting to look at the last 19 months and take note that during this period, we've taken delivery of five spectacular new vessels. During the next nine months, we will accept delivery of three more in fact over the next fortnight, we were aiming to have these shifts here in south Florida.
We have not remained idle.
Before I turn it back to Jason I'd like to reiterate my appreciation for the admiration of the people at Royal Caribbean Group, who have gone above and beyond not only to get us through this pandemic in far better shape than anyone would have expected, but have also prepared us to look forward to the future with confidence and yes.
Even excitement.
With that I'll turn it back to Jason Jason Thank.
Thank you Richard.
Before I begin my remarks, I also want to Echo Richard's comments regarding our incredible teams the people the Royal Caribbean Group are our strongest competitive advantage powering our resurgence and delivering again the world's best vacations.
Want to thank every member of the Royal Caribbean family for their ongoing and exceptional efforts and the incredible service and memorable experiences you provide to our guests every single day.
I will now turn to discuss our performance for the third quarter.
This morning, we reported an adjusted net loss of $1 2 billion.
Or a loss of $4 91 per share for the third quarter of 2021.
It's important to note that while these results may be below some of the street estimates our third quarter results and related cash burn were better than our internal expectations, driven by better cost and better onboard revenue performance onboard revenue strength contributed to a 12% increase in total revenue per passenger cruise day compared to the third.
Quarter of 2019.
In line with our expectations, our occupancy for the quarter was 36% with sequential improvements from one month to the next.
From the very beginning of our restart.
We talked about several tenants that would be the basis of our ramp up the.
The first was ensuring the health and safety of our guests and crew.
The second was that we wanted to ensure that their vacation experience matched or exceeded our guest expectations and the third was bringing the fleet up in a financially prudent way.
So far we have delivered on all three of these tenants we've carried over 500000 guests since the restart and have only had 150 COVID-19 positive cases, amongst these 500000 people and.
In addition to providing safe vacations. We are also clearly exceeding our guests' expectations with net promoter scores well above all time highs.
And once it beyond the initial startup period load factors on our core itineraries averaged 44% and all of those shifts were cash flow accretive.
The last point I would like to make is that while we now have more than 65% of our capacity up and running beating the industry by far on a relative basis. We are continuing to manage our load factors to ensure that we stay true to our healthy returned to service tenants as well as retaining price integrity.
Now I'd like to discuss capacity and load factor expectations over the upcoming period.
For the fourth quarter, a little over two thirds of our capacity will be failing core itineraries beyond the initial startup period.
As such our overall load factors will continue to trend of increasing from one month to the next and are expected to be in the range of 60% to 65% in the fourth quarter.
In addition, we do expect our fleet on our core itineraries to generate direct profit.
Given our health health returned to service tenants and our focus on price integrity, we expect our load factors in 2022 to continue to steadily increase month by month and return to historic levels in the summer.
From a capacity standpoint, we expect that 50 of our 61 ships will have returned to service by the end of this year.
By the end of Q1 2022, we expect about 85% of our capacity to be operating.
With 100% back in service in the spring and time for the lucrative summer season.
While we are offering cruises and the vast majority of our key destinations. We continue to closely monitor both China, and Australia and anticipate those markets will start opening in the spring.
This timing could influence it the return dates of few of our ships.
As to our balance sheet, we ended the third quarter of 2021 with $4 billion in liquidity.
During the third quarter, we continued our effort our efforts to manage and improve our balance sheet.
To that end, we successfully issued $1 billion in senior unsecured notes at five 5% due in 2026. These proceeds were used to replenish capital as a result of the redemption of 40% of the 11, 5% senior secured notes that were due in 2025.
This redemption will result in a full year interest savings of $51 million.
As we discussed on other calls during the pandemic, we have taken and continue to take numerous actions to reshape our cost structure with a focus on further improving our leading pre COVID-19 margins.
These actions include getting rid of older tonnage and adding more leading high yielding and cost efficient hardware to our fleet.
While these actions will improve our cost structure and margin profile, we do anticipate the recent inflationary pressures and some transitory costs related to health and returned to service.
We will weigh on next year's earnings.
Now I'll give you an update on our 2022 sailings at a macro level, we have seen a sequential improvement in new bookings from one quarter to the next book.
Bookings during Q2 were higher than Q1 and bookings during Q3 were higher than Q2.
This Q3 improvement took place despite the loan demand in August that corresponded with the rise in the Delta variant.
September was a great booking month overall with new bookings for 2022 more than 60% higher than Q2 average.
The momentum has continued for all three of our brands and bookings so far in October have been significantly better than September.
Bookings from our two biggest markets the U S and the U K had been improving from one week to the next and are now exceeding 2019 levels.
We have now restarted our brand's marketing programs, which are generating strong results and preparing us nicely for 2022 and 2023.
From a cumulative standpoint, our book load factors remain within historical ranges driven by strong booking levels for the second quarter of 2022 forward.
Load factors in the first quarter are lower than historical levels, but are aligned with our anticipated load factor ramp up.
Our book to a P. DS are up significantly both including and excluding the negative impact of FCC is for the full year and for each quarter of 2022.
As always trends do differ a little by itinerary with our core summer products and a stronger volume position than other itineraries.
Our customer deposit balance is now $2 8 billion an.
An improvement of about $400 million over the past quarter, despite the significant quarter over quarter increase in our revenue recognition, which reduces the customer deposit balance our customer deposit balance is less than 15% lower than it was at the end of September in 2019 for the three brands with almost the entire difference drew.
Even by Q4 2021 sailings.
Our customer deposit balance related to bookings in Q2 forward sailings for all three brands is higher than at the same time in 2019.
Approximately 35% of our customer deposit balances related to FCC sees.
The FCC is approximately 45% of them have been redeemed thus far.
Now considering everything I, just said about the booking environment and cost I would like to discuss our very early view of 2022.
The Royal Caribbean Group possesses the best brands in their segments. The most innovative fleet in the industry wholly owned destination experiences like perfect day at Coke, Okay that are second to none a nimble and effective global sourcing footprint and most of all the very best team both at sea and on land.
This incredible and unique set of assets have helped us effectively manage through the pandemic and is now helping us accelerate out of it.
As such while it's.
Still too early to provide guidance for next year. We currently anticipate the group generating positive EBITDA starting in the spring of 2022 and positive earnings for the full year of 2022.
With that I will ask our operator to open up the call for a question and answer session.
As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Ask that you limit yourself to one question and one follow up.
Well pause for just a moment to compile the Q&A roster.
Your first question is from Stephen <unk> of Stifel.
Yeah, Hey, guys. Good morning, So so wanted to dig into your commentary about getting back to historical load factors by the third quarter of next year and I guess I guess, what I'm wondering is how youre thinking about making that bridge from where you are today versus getting back to those levels and I guess really the question is would you have been able to make that assumption.
If the C. S order C. S. The order was extended versus you guys being able to operate more independently and I guess, even asked another way is.
How much higher load factors does the removal of the C. S. All contribute and how are you guys now thinking about the vaccine mandates across different age demographics into next year.
Yeah, Hey, Youssef.
How're you doing so I'll, just start off and talk a little bit about our load factor Bill for next year. So so one we didn't point specifically to the third quarter I think we pointed specifically to the summer so.
So we are kind of preparing our business to be kind of maximize our revenues and profitability in this and obviously, a very kind of lucrative peak summer season.
Our load factor ramp up as you know somewhere about five to seven load factor points.
Per month again, we're doing this in a measured way and we will have Michael in a second here and talk about the CSO, but that's that's not governing our load factor build I think it's it's more of US just thoughtfully ramping up our business based off of those three tenants of.
Health and safety guest experience.
And doing things.
Financially prudent way and with that I'll pass it over to Michael to talk a little bit about things on the CSO side.
Thanks, Jason Hello, Steve.
Yes, I think with the C. O. So you know we've been through quite a journey with the collaboration and the work with the C. D C and I think.
If you think what we've been through in terms of determining the protocols and then executing them.
I think it's fair to say that the industry and the C. D C. In the into governmental agency Representatives, who have been part of this.
Return to service team feel like we've been very successful in implementing these these protocols and improving as we commented earlier to be very successful.
While the CSO comes to it it's kind of a technical and on January the 15th we will continue ongoing collaboration with the C. D. C. In terms of the protocols that will voluntarily.
<unk> operate after this year, so expires and I think what's what's happened over this past several months is that we've really got a.
Our focused collaborative effort and we found the relationship with the CDC has been very constructive they certainly and we want to make sure that we're operating safely and they're also well aware that some of the protocols that we have in place will naturally fall away.
The pandemic moves further and further in the rear view mirror so.
I think as.
As we move into 'twenty, two hopefully what we'll see is as the protocols become easier and less cumbersome for our for our customers.
Having said that.
Uh huh.
Kind of jumping on Jason's comments about load factor.
While we've been extremely prudent and thoughtful about bringing back our fleet and managing the load factors, it's worth pointing out that and I'll use Royal Caribbean International as a proxy for the company. We've brought back significantly more capacity ships beds and bus than any of our competitors by a <unk>.
<unk> demand and what that means is that operationally and logistically we've already climbed over that mountain and we've now got a large number of our assets available for booking and more importantly, we've now gone through and absorbed all of those expenses. We've vaccinated all of our crew we've managed to get.
All of our crew to these ships and we're operating them one of the things that we were very.
Cognizant of is the need to be very consistent with the distribution and the customer because as Richard point to that we'd had so many cancellations of ships over the past year and a half and now we have this stability.
No.
As we look into 'twenty, two we feel pretty optimistic about what we've achieved with the CDC and the CSO and I think we're feeling very optimistic about the fact that we've got so many of our ships already up and operating and while we've talked about the load factors, it's worth pointing out that it's it's.
Story that's for.
For the purposes of this conversation is is averaged out.
Last weekend freedom of the seas sailed from Miami with an occupancy of 85%.
That's one of the products, that's particularly attractive to new to cruise and it's one of the products that we've been very focused on and making sure that we're learning and.
And understanding exactly how our protocols can adapt to more capacity. So we feel pretty good about what's happening. Thank you Steve.
Thank you that's that's a terrific color and then.
Second question would be maybe if you could help us Jason maybe help us think about some of the assumptions that you guys are embedding for next year to get you to that positive earnings level and I understand you're not ready to give guidance at this point, but maybe some high level thoughts around how you're thinking about pricing from here or change in onboard metrics or how youre thinking about for you.
For next year, I mean anything you would call out to help us think about that would be extremely helpful.
Well sure Steven of course, Yeah, we're we're still very much going through our planning process.
Next year, I mean, I think our commentary.
Round pricing.
And how we're seeing the business build back up are certainly.
What's supporting our current expectations around profitability.
<unk> for 2022, as well as the timing of cash flow.
Have we have done a lot and of course in that consideration as we do expect there to be some additional costs related to inflation.
We've hedged I think 53%.
Of our of our fuel for next year and I think one of the things that are that will toggle here is as Michael was referring to our healthy return to service protocols, yeah, there'll be a series of transitory costs a lot of those transitory costs we've absorbed.
This year as Michael talked about in the ramping up of our fleet, but there will still be more ramp up that happens next year and depending on on how some of these protocols.
Are very much kind of self induced here I'm around testing.
Is that.
Just off of that could could that could impact our cost profile, but even kind of considering all of that that's that's why I think we feel at this point.
Comfortable talking about pointing the business towards profitability.
In 2022, as we as our plans start to kind of firm up and I think as we get into next year.
Consider giving some more thought in terms of how 2022 is going to look through the course of the year.
Okay, great. Thanks, guys really appreciate it.
Steve.
Your next question is from James Hardiman of Wedbush Securities.
Hey, good morning.
So I'm getting a couple of questions on fuel obviously, there's been a lot of inflation. There I guess first housekeeping question can you give us the consumption.
The cost per metric ton in the third quarter.
Then I guess more broadly.
Your fleet is going to be younger.
The pandemic into 2022, and 2023 any way to think about sort of consumption per berth.
We looked at those years.
Hum.
Well first of all just to answer your tactical question James.
In the third quarter, we had about 237, well exactly 237.6 thousand.
Metric tons that we burned the average price there was $497.
To your point, we have a well as Richard mentioned in his remarks, we have taken on new capacity, we will be taking on additional new capacity into next year, we have gotten rid of older tonnage.
And so we are we do expect that our fleet will become more and more fuel efficient also as we focus on our R. R. R. R path here to.
Net neutrality on the carbon side that that will continue to help us focus on burning less fuel also here in the future, but in saying and saying all of that the mix of that is that our fuel consumption on a per berth basis.
Should get lighter and lighter.
As time passes here and that's what we would expect at this point, it's too it's too soon to guide.
On what our fuel consumption will be as as arent deployment for.
For next year is still not fully out.
Got it and then.
Everything that you've given us with respect to 2022.
I think really encouraging.
Obviously.
It's way too early to talk about.
But it seems like implicit with everything that you're saying.
Is there any reason to think that 2023 wouldn't be a pretty pretty normal year in terms of occupancy and pricing in the fleet and everything else.
Yeah, well it's there.
Ali It's your things are it's very very early days to be talking about 2023, but in terms of what we have really experienced especially over the past call. It 45 days.
And the acceleration, we're seeing in the demand environment in People's willingness to pay.
Go ahead of ahead of 2019 levels.
Is really encouraging and we're very excited about it and our marketing efforts are really.
Further bolstering that demand profile, well, what I would say about 2023, which again, it's very early is that we're seeing very similar strong trends for 2023.
And we're and we're booked in a place that's better than what where we would typically be booked.
This far out of a period for 2023. So if you were standing in 2019 same time last year and you were looking at 2021.
We're in a better position than we were back then.
You know I would just add one of the things that was interesting to me is that.
Is the Delta there and came on it really hit our bookings for 'twenty, one and 'twenty two but it didn't seem to have any impact on our bookings in 'twenty. Three so I think what people have been doing is saying.
There is pent up demand I want to get out there.
But I don't want to do it soon I want to make sure where things have stabilized and so I really do think its quiet.
Quite dramatic that we saw essentially no impact from <unk> from <unk>.
The Delta Varian twenty-three bookings, whereas it impacted 22% and 21 quite heavily.
I have to Jonathan Jamie Jamie.
Jamie I'll have to Jim jump in.
I know, Jason and Richard are probably fed up with me, saying these things, but we.
We launched the world cruise, if will cruises with Royal Caribbean International literally about 10 days ago, and we only made it available to.
16 million loyalty members and within seven days, we were 70% booked and the average price of a balcony room is $75000 for the balcony the Royal suite.
Sold within a week at $760000 in all of these.
Suites are booked with nonrefundable deposits so.
Even we were taken aback by the unbelievable response of our loyalty customers. The fact that within a week, we were 70% booked on a ship that.
Carries around 'twenty 100 guests and is on a nine months will cruise was just remarkable and I think that's indicative of what we're with you.
I never get tired of hearing that Michael in fact, maybe you could tell us just how booked are we on that curve.
70%.
No I think you forgot to mention that.
Hi.
He knew it wasn't going to be and if it was just a WAF.
[laughter].
That's great color thanks, guys.
Thanks, Jim.
Your next question is from Jamie Katz of Morningstar.
Hi, Good morning can you give us some insight into what your.
Or what.
Have surrounding the economic environment next year that alright.
Over the near term that you're incorporating into your outlook.
In order to give Michael another turn at the wheel it'd be.
So here.
Any updates on the private destination.
<unk>.
Maybe you had on the backburner.
You should just know Jamie he might bring up this thing called the world cruise.
It's part of that commentary.
Oh, perfect day might fit in my conversation, possibly yeah.
So Jamie in terms of and this is how we've always kind of thought about things as we look further out is.
As we obviously you have very good data in terms of how the guests are booking today are how big and how they have booked and what the book of business looks like and we don't speculate a lot on how the economic environment.
<unk> is going to change of course, we have seen secular trends that very much support experience and vacations and a lot of pent up demand that.
It makes us very much believe and we've seen this in the bookings and the acceleration in bookings that that will continue to you know to go on.
That's kind of how I don't have.
A forecast, there's probably people in it.
You have companies that have you know or or I would say banks and.
Consulting houses that have economic outlooks, but for us and what we tried to do is really.
Kind of firm up what we're seeing in the data and booking activity.
And Jamie on the private destinations I mean, one of the things that we're already seeing is perfect day is leading the charge in terms of demand in premium for those ships that are operating out of South, Florida already and in fact out of New York.
We do we did press pause during the pandemic.
These projects, but we've started to reengage and.
Quite quite literally last week, there was a conference down in Panama with many of the Caribbean countries and it was quite interesting to see the level of activity that we experienced in terms of re engaging and talking about destination developments throughout the Caribbean and south central regions. So.
We did obviously have a plan in place pre pandemic, we pressed pause when a re engaging on all of those plans in the immediate future. We have an expansion taking place in perfect day with the addition of Hideaway Beach, which is a new experience that will open in late 'twenty.
Two for perfect day, the beauty of highway beaches that it is a adult only area as part of perfect day. It will allow us to increase our capacity by approximately 3000 people a day in late 'twenty, two which is.
Obviously going to help improve overall profitability and drive more revenue both both ticket and onboard so that's coming and then we're close to finalizing the design and construction plans and the approvals for a beach club in Nassau, which we're hoping to start our work.
On that very soon and we have other projects that we've now started to reengage with so I think you know our aspirations never really moved away. We just have to press pause for a while also of course, we've got our Galveston terminal that's opening.
In 'twenty, two and that will accommodate our Oasis class ships, and then future icon and of course that gives his remarkable access into the Texas, Oklahoma and that whole region is a market for driving driving too so.
We are continuing our journey, but certainly perfect day is leading the charge.
On current bookings.
Thanks Jerry.
Yeah.
Your next question is from Stephen Grambling of Goldman Sachs.
Hi, Thanks, I kind of want to go back to something recognize you don't want to provide too much input on 2022, but I'd love. If you could just provide some additional thoughts on you.
Whats driving some of the strength in revenues per passenger day, and any details on where spend perhaps is more robust and where it could still be dampened by some of the limitations or social distancing that's being imposed.
Yeah sure. So I'll I'll I'll start off here and just talk a little bit about drivers here.
On the demand in <unk>.
And environment for 2022, I think I think the first is one of my comments that I had made.
And my my opening remarks was just really talked I mean, if you just look over the past two or three weeks.
We're seeing bookings occur that are higher than what we did on the day to day on a daily basis higher than what we were seeing in 2019.
I think that's a combination of us coming out of Delta and that pent up demand I also think it's a combination of our marketing efforts that have come into play here that are that are accelerating and getting into the minds of the consumer, especially our new to cruise consumer.
Now that we've seen that acceleration.
I'd also comment that we're seeing now very similar trends for all of our brands. So if you remember in the early part of this year, we talked about strong trends, especially in the ultra luxury side and as we were coming out of this we're now seeing strong trends across all of our brands, which helps us provide further confidence on there.
And we've also seen booking, especially over the past 30 to 40 days really pick up for Q1 as well as Q4 of next year, you know Theres always very strong demand for Q2, and Q3 with the summer, but seeing those shoulder seasons begin to rise I think has also been very encouraging and again that's consistent.
With all of our brands.
Super helpful.
Steven just to add to Jason's comments. The other thing that we we've seen which we commented on was the the onboard revenue environment, which is which is truly impressive.
A couple of things that are happening there I mean, we we know that there's just more consumers spend occurring and it seems to be really happening on ships.
We've also really increase the volume of special groups, such as gaming groups that are coming on our ships and that's proving to be very profitable and the other thing is that we continue the investment and hybris, which is new software, which really allows us to have far more capability.
And our pre cruise revenue marketing and that is really beginning to shine through for us. So as we look into 'twenty. Two for example, just in Q1 'twenty two.
Pre cruise revenue bookings already way ahead of 2019, even though there's less volume on gas. So it's it's you know there's a lot of positive things that are coming through.
To help us.
Great. Thanks, so much I'll jump back in the queue.
Thanks, Jim.
Your next question is from Robin Farley of UBS.
Great.
Okay.
Right.
Sure.
When you talk about.
Sure.
Sure.
Yeah.
You talked about expecting occupancy levels.
85%.
Can you quantify.
Are you actually sort of.
15.
Not available for sale in Q1.
It would be in service.
How much.
Load factor.
Actually what's not available for sale.
Probably the other big.
Factor.
Yeah.
A bunch of them.
In the last few months.
So.
This ballpark.
Alright.
Yes.
Adam.
The last year.
Normally.
A month.
Yes.
Yeah.
Less than six months.
Investors, who are trying to get a handle on how much.
Mike.
Thank you.
Yes.
Yep.
Thank you.
Part of it.
Yes, so I think there I think there's a few things in play one I think we need to remember that about 80% of our capacity.
It is expected to be up in sailing by the end of the year. So as we move into Q1, which is where the majority of that that the rest of that 20% comes into play similar to what we have been doing here and from June on as we you know we slowly bring in these ships.
To make sure that the crew and everyone is very used to the protocols that need to be executed on making sure. The guests experience is exceptional.
So we are certainly moderating load factor and ramping that up and so that's going to weigh in on Q1 load factors and even a little bit of early Q2 load factors as there is a few more ships that come into play that's probably the biggest driver of why in Q1, our load factor would be lower than what you would see Q2 going forward.
Certainly I my guess is there's probably 15% to 20% of our capacity in which there is.
I would say more than moderate itinerary changes and that you know because I mean, most of our itineraries there might be a port hero report there that has that has changed out of this.
But it's it's that's not really the driver of it maintaining price integrity.
Slowly ramping up our fleet or or ramping up our fleet.
Or the ships that come on in a in a in a manageable way is really what's driving the difference here on the load factor in Q1.
Great.
Thank you.
You talked about.
Revenue per passenger days at 12%.
Hi.
Uh huh.
Can you give a little bit of a comment.
Thank you.
Comparable cruises right, obviously shipped it would've been in Europe in 2019.
Compared to that ship in the Caribbean.
Yes.
Yes.
Okay.
Ticket price.
Yeah.
Yes, yes.
It's a it's a good question Robin you, obviously, we've seen significant rise here on the onboard side and I think first of all when I make a point that to them.
Michael I made a lot of this is pre cruise driven and that has really been something that has amplified our onboard spend but our ticket rates are better.
Then than what they would be seen in a 2019 period.
Just that we called out here, specifically around the onboard side. So similar commentary to what we've been saying about the booking environment on a on a rate and load factor basis is as a very much applies to what we saw here in the third quarter.
Robin I think I might just add a little more color too.
Your question on.
With chips are sort of different in which were on which where people didn't have time to.
Does your advanced bookings et cetera.
There's obviously an effect by vessel if you will but I think there is an overall effect of the uncertainty that all three of us have talked about.
There's just been Oh.
There have been cancellations or itineraries that are change et cetera, and I think people want to look forward to a period of stability and so that's really been our focus and it's a little hard to measure that on a on an itinerary by itinerary or a vessel by vessel, but I think <unk>.
Overall, it's a factor and that's why we've been so anxious to get.
Everything up and running and without changes.
Okay, great. Thanks, very much thanks Robyn.
Your next question is from Brent <unk> of.
J P Morgan.
Hey, good morning, everyone. Thanks for taking my questions.
So Jason My first question is when you think about expenses next year I know you gave some color around fuel, but excluding fuel and excluding sort of onetime restart costs do you expect inflation to have material impact on net operating unit costs and is there I don't know residual.
Savings that you guys had last year that that might be an offset for that.
Sure.
Say Bryan is that we certainly expect and in our consideration at least in terms of what we know today that inflation will have an impact.
On our on our business.
And that is in our consideration and of course, we will have as you said these transitory costs.
On the other side of it.
We've talked about this in the past.
We have taken significant action on reshaping our costs here.
Over the past several years and so we do think a lot of this inflation is temporary.
We do and we certainly think the transitory costs around healthy returned to service and getting our ships up is temporary.
And as those things evaporated, we believe a lot of our efforts, which are absorbing a lot of these costs additions into 2022.
Yeah.
Well, we'll then what kind of free and show here in our margins as our business returns to two historical load factors.
Okay. That's helpful. I appreciate that and then 2020 twos itinerary slate.
And in the spirit of maximizing profitability.
For the peak summer season.
Is there any I guess the easy way to ask is there are you expecting a little dilutive impact to pricing from a regional mix shifts you know given that some Americans are still.
Wanting to travel domestically do you expect that you paid mind toward that in your in your planning for 'twenty twos itinerary mix.
Yeah actually.
That is a very important point.
There's simply no question that the restrictions on international travel both the absolute restrictions in the psychological restrictions have made people being much more regional.
And for Us.
With our global brand strategy, that's not what we were hoping to see but it is a fact of life in and I think we expect it to be an impact remember part of our strategy was.
We could take Americans European cruise and Europeans on an American crews.
And both the formal restrictions the government restrictions, but also people's.
Uneasiness in longer term longer distance travel, we think is a factor and we've been we've incorporated what we think of that in our forward projections, but that is there's no question.
That's an important point that we tried to touch on it in our comments and I think just to stress you know obviously, we for the most part and know what our deployment is going to be here in 2022, we're seeing live every.
Every minute of every day, the booking activity that is coming in and the sourcing et cetera.
And so you know in our.
Our consideration and modeling here for the.
2022 period of time that sourcing mix that is very much married to the deployment is is.
It is being very thoughtful in how we think about next year.
Okay. That's helpful. Thanks, a lot guys and congrats on the progress so far.
Thanks Brent.
Your next question is from Fred Wightman of Wolfe Research.
Hey, guys, maybe just a follow up on that last point, Richard I think you called the international sourcing mix or sourcing environment confusing can you maybe just put some specific numbers as far as where do you see those cross border bookings for 'twenty, two and how that compares to sort of pre COVID-19 levels.
Yeah I mean, it's it's it's it's it's tough to kind of put it out.
And in a specific way at this point in time, but when we think about next year.
A lot of our deployment as you know.
Married here too to the Caribbean and Alaska in other parts of North America, and so we will be weighted more towards the U S and Canada.
We did and in a in a pre COVID-19 period of time on the same side a lot of our deployment that's going to be in the Mediterranean.
In northern Europe, and so forth will just be sourced more out of Europe.
In terms of our expectations and also in terms of what we're seeing in our bookings versus North Americans flying over to Europe now in saying all of that there's still plenty of people from Europe coming to the Caribbean and people from the U S going to Europe next year, but we are somewhat just kind of moderating those expectations in our in our.
Casting.
And Fred just to just to add to Jason and Rich's comments a minute I think it's it's also reasonable to say that day by day week by week, the news that we see and receive from.
That deals with all of these different issues continues to get brighter and better you know when you think back through the pandemic. There was a period that every single email or conversational piece of news from our government was.
With negative now everything is as is turning very positive. So for example, the presidential proclamation a few days ago, which basically opened up the travel between the United States and European countries and what have you know we continue to see across all of the different itineraries and destination.
And is that kind of a.
A leveling out of the protocols and reasonableness and you can feel that now coming through in the bookings so can see.
Adrian we're just entering into November I think that this news will continue over the next month or two which is going to be critical as we get into wave.
Great and then Jason could you just maybe comment on your current understanding of current readings with some of the tax proposals in the U S and what if any impact do you think that could have for you guys.
Sure obviously, it's it's it's evolving.
At this point in time, we don't anticipate there being any any significant impact.
To our business.
Great. Thank you.
Yeah.
Your next question is from Vince Stifel of Cleveland Research.
Great. Thanks for taking my question I was curious.
When you when you look at your bookings as well as what you are selling right now.
Anything interesting and demand mix between interior versus balcony, and what that might mean for onboard and pricing compare ability or what you are selling now versus 2019, and then as you think about ramping to full load into the second half of next year is that relying on selling out.
All the interiors like you did pre COVID-19.
Well well certainly if you were to look at our book business and I don't think this would be a surprise we are.
By the way is how we are typically booked.
This far out as were weighted more towards our.
Our suites in our balconies people when they tend to plan their vacations further out and you look at the in the booking window, it's typically weighted more that way and so between now and time of sailing is when you begin to see inside cabins, and so and so forth start to two to move in but when we look at the pricing of it again relative.
To 19, it it's coming in as as as we would expect it to an AD at rates that are going to have a very similar to those records of 2019, but certainly it's weighted heavier at this point towards those balconies.
As well as.
Those those suites, now and saying all of that our inventory of our ships is getting richer and richer until we have more and more.
That inventory coming into play, which again, just further supports and bolsters our yield profile and growth here in the future.
Great and then.
Unrelated follow up.
That's correct you had mentioned this yet, but how youre thinking about next year I normally there is coming out of cash and maintenance teams as well as some new <expletive> payments that I also think you have to wonder and beyond which is easily covered by committed financing. How are you thinking about capex going into next year.
Yes, that's exactly right as it relates to the Newbuild I mean, we have we have committed financing on all ships that we have under under construction.
We're still going through our planning process.
But obviously, we're very mindful.
Of our of our capital structure and our efforts here to get back to pre COVID-19 levels in a pre COVID-19 balance sheet and so as the as the business here ramps up and firms up for 2022 that will begin to form.
Our our expectations here on capital we plan to invest and also focusing on how do we how do we get the balance sheet back to pre COVID-19 levels.
Thank you.
You got a we have time for one more question.
Your final question is from Ben Chaiken with credit Suisse.
Hey, How's it going.
Jason Jason I think you mentioned strength in new to cruise shall we think about this as a return of that customer that didn't exist understandably over COVID-19 and.
As we as we exit.
Or just an accelerated was that net new to cruise comment accelerating versus 19.
Well, if if you looked at you know just propensity to cruise.
The early days of the pandemic.
To today, obviously, you're in the early days in new to cruise had basically kind of turns itself off for the most part and today. What we see is that they have certainly returned I think our marketing efforts have really helped that and just reminding.
Those those those customers about the incredible experiences you can have on our leading fleet as well as amazing places like perfect day and Coke. Okay. So I think those things in kind of a combination.
And of course, you just kind of throwing out here over the pandemic has led to that new to cruise customer coming back and certainly accelerating. So we're we're really happy to see that you're now taking place and again all the surveying that we're doing really shows that they are quite open to coming back and that's being supported by.
Their booking activity.
Gotcha, that's a return of the nucleus and then I guess just to clarify one more.
I think you said, 85% of capacity by the end of the <unk> 22, I believe that was from a fleet perspective can you just help US bridge the <unk> or is it similar.
Yes, I think on a capacity basis by the end of the first quarter were close to 90%.
And then.
Right, but just trying to connect between.
<unk> and <unk> is it a similar number or is there.
It's about five percentage points, it's about five percentage points higher.
On a capacity standpoint versus number of ships.
Okay. Thanks.
Got it okay. Thank you for your assistance today Shelby with the call. We thank all of you for your participation and continued interest in the company.
Michael will be available all day for any follow ups, you might have and that's it and that's Michael Mccarthy by the way.
Thank you for clarifying.
I'm available for any sales of world cruises for Royal Caribbean, Okay, you're giving out yourself phone number okay.
I wish you all a great day, and and everybody be safe take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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