Q4 2021 Royal Caribbean Cruises Ltd Earnings Call
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Yes.
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 fourth quarter 2021 earnings call.
All participants are in a listen only mode. After.
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 Michael Mccarthy, Vice President of Investor Relations. Mr. Mccarthy the floor is yours.
Good morning, everyone and thank you for joining us today, if our business update and fourth quarter and full year 2021 financial results earnings call.
Joining me here in Miami are Jason Liberty, Our Chief Executive Officer.
Dr <unk>, our Chief Financial Officer, and Michael Bayley, President and CEO of Royal Caribbean International before.
Before we get started I'd like to note that we were making forward looking statements during this call.
These statements are based on management's current expectations and are subject to risks and uncertainties.
A number of factors could cause actual results to differ materially from our current expectations.
Please refer to our earnings release issued this morning, as well as our filings with the SEC for a description of these factors.
We do not undertake to update any forward looking statements as circumstances change.
So we will be discussing certain non-GAAP financial measures, which are adjusted as defined and a reconciliation of all non-GAAP items can be found on our website and in our earnings release available at Www Dot Arceo Investor Dot com.
Jason will begin the call by providing a strategic overview and update on the business.
Holly will follow up with a recap of our fourth quarter and full year results.
An update on our latest actions and on the current booking environment.
We will then open the call for your questions with that I am pleased to turn the call over to Jason.
Thank you Michael and good morning, everyone I am pleased to be with all of you today in my new role here at Royal Caribbean Group, I'm, very fortunate and humbled to take the helm of this incredible organization, which includes our industry leading brands.
And the most innovative fleet in the world that is enabled by our incredible people and culture.
I'm very much looking forward to building on the company's remarkable legacy and track record in the years ahead.
I also want to congratulate and welcome Naftali as our new CFO . Many of you already know enough, but for those who don't I'm confident you'll enjoy working with him.
Our mission at Royal Caribbean has been and continues to be focused simply and completely on delivering everyday the very best vacation experience and doing so in a responsible way.
It is all inspiring to see our team deliver on our mission each and every day.
While 2021 with another challenging year for our company in the industry. It also marked our healthy return to selling.
And just a few short months and thanks to the incredible preparedness of our operating team and crew throughout the last year and a half we have brought back more than 85% of our capacity into service and delivered extraordinary vacations and memories to approximately $1 3 million guests.
I want to thank the hard working people at the Royal Caribbean Group, both our crew in our shore side employees for their incredible efforts to bring back our fleet in such a short window and such a successful way.
Proud and grateful for their efforts.
I want to thank our guests and travel partners destination partners suppliers investors and financial partners for their steadfast support.
As we navigate through this black Swan event, we have focused intently on a successful healthy return to service as you would expect.
At the same time, we have been charting our course to get back to pre COVID-19 performance levels and beyond soonest. The combination of very strong secular and demographic trends are leading brands. The most innovative and a growing fleet, our global sourcing footprint, a leading technology platform and the reshaping of our cost structure.
Positions us exceptionally well to accelerate.
Let me focus a moment on our healthy return to service since we resumed operations. Our goal has been to make cruising one of the safest vacations anywhere in the world, while providing an exceptional guest experience. We continued to demonstrate that in a very tangible way.
As you heard me say, we have carried approximately one 3 million guests since the restart with about 2500 guest testing positive for COVID-19, a positivity rate of 0.19%.
This positivity rate is still a small fraction of what it is and society at large in nearly all cases onboard were asymptomatic.
Or had mild symptoms.
Our rigorous health and safety protocols.
With 100% vaccination rate among our crew and close to a 100% vaccination rates among our guests provide a safe environment, where we can fulfill our mission of delivering amazing vacations.
And our guests are responding by providing record net promoter scores FERC for us exceeding their expectations.
A few weeks ago, the prescriptive CDC conditional sale order expired demonstrating the agency's confidence in the overall effectiveness of the health and safety protocols are the other cruise industry our own protocols continue to go above and beyond anything that framework provided what consumers will find any hospitality settings.
We continue to engage with the CDC and other public health agencies as we look to adjust our COVID-19 risk mitigation measures in response to the changing nature of the virus.
Our healthy return to service plans anticipated twist and turns on a recovery path. We remain nimble in our approach adjusting to changes in the operating environment with a constant focus on our long term strategy and success.
As everyone is aware the omicron Varian has impacted most parts of society as well as our operations since mid December we experienced an increase in the number of people testing positive for Covid onboard our ships.
The good news is is that in the last several weeks of cases onboard our ships have been declining rapidly and we now have returned to exceptionally low pre overcrowding levels. In fact over the last seven days, we have averaged only a handful of positive guest cases per crews.
With the declining cases operational challenges are also abating. So while the variant is not done it appears that the worst is behind us.
The timing of overtime was particularly painful as a typical way booking period begins in early January .
So we do expect it will weigh on our performance in Q1 and to a lesser extent in early Q2.
But the peaking omicron now seemingly behind US we have seen meaningful sequential improvement in the booking activity week over week since the beginning of the year.
In fact in the last week of January bookings returned to pre omicron levels, and we expect demand recovery to accelerate as the variance subsides.
With that in mind, we have extended our sales and marketing activities for a delayed and extended wave.
While omicron created some short term challenges and will likely delay our return to profitability by a few months our recovery trajectory remains intact. We remain confident that we will have a strong spring and summer season with great demand for cruising both domestically and internationally.
The robust secular trends of experience says over things that has propelled our business in the past few years is now recovering towards pre COVID-19 levels. We've also seen a change in the mindset of consumers coming out of the pandemic with a desire to travel and reengage with the world being stronger than ever.
And in fact, the U S travel organization research confirms that leisure travel will continue to increase at higher levels than business travel.
All of this coupled with consumer resilience and easing travel restrictions provides tailwind for our recovery.
After a storied 2020 in 2021, we are eager to move forward in this new year.
People are keen on taking a vacation we are ready to make their vacation dreams come true in a healthy and safe environment.
We expect 2022 will be a strong transitional year as we bring the rest of our fleet into operations and approach historical occupancy levels. We expect a net loss for the first half of 2022 due to the impact of <unk> and a return to profitability in the second half of the year.
During 2022, we look forward to welcoming two additional new ships wonder of the CS for Royal Caribbean International and celebrity beyond for celebrity cruises. These exciting new ships will deliver amazing vacations to our guests and joined six other new vessels that have entered our fleet since 2020.
This is a key pillar to support our recovery new hardware is an important driver of quality demand extraordinary customer experience and exceptional financial performance and just as important it improves our sustainability. As these are innovative ships that are much more energy efficient.
We remain focused on continuing to innovate our product and maintain our strong competitive advantage setting the foundation for a strong recovery and long term profitable growth.
During the pandemic, we have had a relentless focus on reshaping our cost structure and a rigorous capital allocation framework, we expect that the combination of new ships growing yields and higher profitability will propel our financial performance and support our focus to return to pre COVID-19 financial metrics and beyond the soonest.
Corporate stewardship remains another key priority as we continue to progress across environmental social and governance focused areas climate change and reducing our emissions have been central to our environmental stewardship activities for decades.
Last quarter, we announced our comprehensive de carbonization strategy and goals.
We realize that the transition to net zero will not be easy and to achieve our ambitions. We will rely on our culture of innovation as well as strong partnerships with governments suppliers and shipyards to develop alternative and accessible fuels and technologies.
Additionally, in the past few months, we were named an employer of choice by Forbes and Glassdoor and last week, we earned 100% score on the human Rights campaign Foundation, corporate equality index, which rates corporate policies and practices that relate to LGBTQ plus workplace equality.
These are recognitions, we're proud of and they reflect our commitment to our employees.
All of this tells you that our business model is incredibly strong and we have a track record of growing revenue.
Earnings and cash flow our formula for success is unchanged recover and grow yields enhance our margins profitability and ROIC.
To that we added returning our balance sheet to pre COVID-19 levels.
We have the best brands in each of our segments.
Most innovative fleet in the industry exclusive destination experiences like perfect day at Coke, Okay, a nimble and effective global sourcing footprint, a leading technology platform and most of all the very best team both at sea and on land.
That winning formula I am confident about.
About the recovery and I am very excited about the future Royal Caribbean Group.
And with that I will turn it off to enough tolly enough.
Jason before I begin my remarks, I would like to share our energized I am to take on the Chief Financial Officer role I will focus my energy on continuing the accelerated recovery and returning our performance metrics to pre COVID-19 levels as soon as possible while positioning the company for long term success.
I will now turn to discuss our results for the fourth quarter and full year 2021.
This morning, we reported an adjusted net loss of $1 2 billion for the fourth quarter and $4.8 billion for the full year.
It is important to note. The Q4 results were better than our internal expectations, mainly due to continued strong onboard revenue performance and better cost management the.
The financial results for 2021 reflect the impact from the suspension of sailing in the first half of the year and a tremendous effort to resume cruise operations and accelerate the flywheel in the second half.
In the fourth quarter, we continued our return, bringing 12 more ships back into operations building to load factors and restarting our sales and marketing efforts all to position the company for a successful 2022.
Load factors for the quarter were 65% on core itineraries with month over month improvements. We are incredibly pleased with the progress we have made in the fourth quarter.
Our total load factors grew from 36% in Q3 to close to 60% in Q4.
In addition, the continued strong onboard revenue contributed to a 10% increase in total gross revenue per passenger cruise day compared to the fourth quarter of 2019.
Cash flow from our operating ships turned positive in the fourth quarter.
Now I would like to discuss capacity and load factor expectations.
Over the coming period.
The omicron variant cause short term disruptions to the travel industry as well as our operations as Jason just mentioned our focus since we restarted operations has been to ensure the health and safety of our guests and crew.
<unk> or exceeding guest vacation experience expectations.
And bringing the fleet up in a financially prudent way.
With that in mind, we made the decision to cancel several sailings in the first quarter.
We plan to operate about $7 7 million APC deals in Q1 or approximately 95% of our planned capacity.
We expect that operating ships in the first quarter will be cash flow positive.
Our capacity will further increase at the end of the quarter following the delivery of the incredible wonder of disease.
Wonder will be introduced to the U S market in March before heading to the Mediterranean for the summer season.
Due to the impact from omicron on near term bookings and cancellations, we expect load factors of approximately 60% on core itineraries in Q1 with month over month improvement within the quarter.
We also expect to bring the rest of our fleet back to service in time for the lucrative summer season.
We expect that our load factors to continue to steadily increase month over month and approach historical levels in the third quarter.
While we offer cruises in the vast majority of our key destinations we continue to closely monitor both China and Australia.
We anticipate Australia to open for cruising for its summer season, our winter time with respect to China. It remains closed for cruising and we have redeployed their remaining two ships planned in 2022 to other key markets. We remain optimistic that we can capture long term growth opportunities into China.
Market.
Shifting to our balance sheet, we ended the year with $3 5 billion in liquidity, excluding the $1 billion issuance. We completed in early January we.
We have ample liquidity to allow us to continue our recovery trajectory.
During 2021, we focused on managing and improving our balance sheet.
We reestablished access to the unsecured debt markets and successfully refinanced $2 $3 billion of secured or guaranteed high coupon debt.
Our plan is to continue with these balance sheet improvement efforts throughout 2022.
In early January we issued $1 billion at five and three 8% coupon and we plan to use the proceeds to refinance near term debt.
In addition, 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.
While these actions will improve our cost structure and margin profile, we do anticipate that inflationary pressures and some transitory costs related to our healthy return to service will weigh on this year's earnings.
Now I'll provide an update on the demand environment and our 2022 sailings.
For the last several quarters, we have seen new bookings improve from one quarter to the next.
Bookings in the fourth quarter continued this positive trajectory, culminating in our biggest ever.
Black Friday, and cyber weekend from the U S B.
Bookings in the fourth quarter were up more than 75% compared to the third quarter.
As we restarted our brand marketing programs in Q4, we generated strong demand to support the book of business for 'twenty, two and 'twenty three.
As the Omicron variant began spreading in December we experienced slower booking activity and higher near term cancellations over the holiday period as many guests we're testing positive before their crews, but from the beginning of the year, we have seen meaningful week over week improvement in booking activity for <unk>.
The first and the second half of 'twenty two.
Second half booking activity has been recovering at a faster pace.
In addition to that we have seen a rapid improvement in cancellations over the same period.
Similar to our experience with the Delta variant.
As Omnicom cases, I'm beginning to decline booking activity has begun to pick up in fact in the last week of January bookings have returned to pre omicron levels.
The U K, which is further ahead on the omicron curve has been on that improvement trajectory for several weeks.
From a cumulative bookings standpoint, our book load factors for sailings in the second half of this year remain within historical ranges at higher prices, both with and without the impact of FCC's.
Load factors in the first half are below historical ranges as expected, but are aligned with our anticipated load factors.
Our customer deposit balance as of December 31 was $3 2 billion, an improvement of about $400 million over the past quarter. Despite the quarter over quarter increase in cancellations related to omicron and significant revenue recognition, both of which reduced the customer deposit.
<unk> balance.
Our customer deposit balance is only 5% lower than it was at the end of December 2019, with the entire difference driven by the first quarter sailings, where we have less capacity.
Our customer deposit balance related to bookings for Q2 forward sailings is higher than at the same time in 2019, approximately 32% of our customer deposit balance is related to future cruise credits.
Of the FCC's.
<unk>, 50% had been redeemed thus far.
Lastly, turning to the outlook for 2022, given the progress we have made ramping up operations and everything I said about the booking environment the costs and the impact of the Omicron theory, and we still expect to reach positive EBITDA and operating cash flow in late spring.
We expect our net loss for the first half of 2022 and our profit for the second half of the year.
With that I will ask our operator to open 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.
Just a moment to compile the Q&A roster.
Your first question is from Robin Farley of UBS.
Great. Thank you.
I ask you about your booking comments.
Obviously understood and expected.
Yeah.
Our lower than historic.
So positive.
Historical note in the second half.
There has been some concern that maybe.
Sure.
Given.
The first one.
I Wonder if you could.
Give us a little bit of.
Do you expect.
Sort of maybe later start.
Disruption.
We still expect the load factors in the second half.
<unk>.
Yes.
We're going through the next months.
Good.
Sure.
Historic ranges.
So it's.
Robert I'll start off and of course, good morning, good to talk to you.
I think the first point I would make is while we get involve omicron certainly was impacting our bookings and impacting our cancellation. It really was focused on the first quarter and a little bit of the second quarter, we didn't really see too much of an impact in terms of dimmed.
<unk> as it related for call. It June on in the year.
And I think that you just talked to the consumer psyche and just concerned around <unk> itself and the timing of all of that so I think we remain.
Confident in based off the booking activity that we've seen at the back half of the year is going to look like what we had expected it to and that includes <unk>.
Our expectations on a on a load factor standpoint.
Great. Thank you.
I should have said congrats by the way.
Thanks, Ron.
And then just.
It's about FCC.
So just wondering.
50% was redeemed or 15% I just wanted to clarify that.
Yes.
On the FCC.
Seems like a fair amount.
No.
Think about what.
Kind of a percent.
Yeah.
But is it fair to say that a lot of you.
Yes.
At this point.
The bonus S. He sees it.
At present a discount.
Dollar amounts.
Crews are canceled or moved to a later date.
So in other words.
You talked about as being FCC.
That automatically mean that that represents at discounted FCC.
Okay.
Yes.
Yes, I think thats right I think that most of the FCC application.
Our what we call our lift and shift program.
And then the balance of that would be the FCC's in which they have the.
25%.
Our value to them and and I think that that program in general has been working relatively well and for the most part our guests. They wanted to go on their vacations, they want to but.
Typically go around the same time that they were planning on going and they are just lifting and shifting that to.
Periods of time that in the same zone of when they were planning on vacationing before just a year later, we're a quarter later et cetera, and Robyn. It's naftali just to answer your question. It is five zero, 50% and we're very.
Pleased with that and we've seen progress.
And in the last quarter, both redemption as well as just new bookings.
Great. Thank you very much thanks.
Thanks Robert.
Your next question is from Steve Lozinski of Stifel.
Hey, guys good morning.
So I'm going to start with a quasi guidance question I'm not sure you'll answer it or not but.
I understand youre, not giving guidance for the year, but last quarter, you talked about being earnings positive for the full year. Now you are saying first half still will be generating losses back half of the year going positive. So.
I guess the question is do you still think it's possible for the full year to wind up being positive even with all the variant headwinds that have occurred so far and then the second part of that question is did you guys contemplate are still contemplating helping us think about the long term prospects for this business over the long term either through whether that's long term guidance or targets or stuff like that.
So on the first question, Steve and good morning.
I would I would say that.
We're not an organization that gives up based off of an event like <unk>. So we are.
Kind of taking all efforts to ensure that we maximize our profitability here.
Each and every quarter and each and every year.
<unk> certainly will weigh in here heavily on the first quarter and a little bit of the beginning of the second quarter and a lot of it will be as as bookings start to come in how can we improve on the first quarter in the second quarter and that will kind of dictate.
Whether were positive or negative on the on the on the earnings side, but we're focused on it but.
There certainly has been paying I mean, the cancellations of those 50, plus sailings weighs pretty heavily on to the first quarter on a profitability standpoint.
So thats kind of the answer to question one question two.
Certainly looking past Covid and we believe we are past.
Covid in terms of it.
The overall impact on our business and we're focused on our healthy returned to service and the great. As I said in my comments. This is a great business with great brands and great chips.
And as we get our load factors up to historical levels.
When we start getting to predictable quarters and patterns.
I do believe we will come out and provide long term.
Hmm.
Programs and metrics as it relates to the.
Overall business, so I feel I feel good about that but I think we're going to wait until we're in a little bit more of a predictable state and our quarters are predictable before providing that guidance.
Okay got you thanks for that Jason and then second question.
How do you guys think about changing COVID-19 mandates onboard and I guess, what I mean by that is.
I assume there are folks out there that still don't Wanna crude either because of testing or mass mandates and are waiting for those to be removed or eliminated. So what are you guys watching or what do you think it will give you the confidence to start removing some of those mandates and then what do you think that would ultimately do too.
Bookings in demand.
Hey, Steve its Michael.
Yes, I mean, obviously, that's a it's a consideration in terms of the protocols that we have in place in.
And how the customer perceives that.
I mean in many ways. The customer is is perceived as a positive during during the time of Covid, but obviously I think we believe and what we see now is that many destinations and countries are beginning to ease some of these restrictions.
The belief is is that we're going to stop moving to a new normal and we've seen that with the U K for example, with Brits returning to the U K don't require testing this.
Effectively almost no protocols for them to return home I think last week also Denmark and Sweden are following the same kind of path and we believe that we will see more and more of this over the coming weeks certainly we see now with with omicron that the decrease in positivity is really significant.
And not only in the U S in certain states, but also on both of our ships and we believe that we're going to move into a much more positive environment I think what we'll see.
As we get into that environment will start.
Again, working with the CDC will start removing many of the protocols that exist today, and it'll become easier and simpler for our customers.
Just as a point of reference around 10 million customers visit our Royal Caribbean International website every months and around 400000 also visit our healthy sale.
Section of that.
And you can see as People's anxiety, either raises or decreases then obviously that number raises and decreases so we're feeling quite positive about where we're going with this we also believe that in the not too distant future. The C. D. C level four will be downgraded to level three.
And I think that will also be another positive step in the right direction.
And Steve I'll, just add I mean, which is as you know this because we say it quite frequently.
The health and safety of our guests and our crew are our number one priority. So a lot of this as well following the science.
And the protocols that we have in place are well beyond what has been asked upon by the CDC and the CSO or or or by others.
We're we're following the science and were based off of that we're making changes to our protocols again to kind of help ensure that our guests and our crew are safe at all times.
That's great color. Thanks, guys really appreciate it.
Your next question is from Andrew.
Bank of America.
Hi, good morning, everyone.
Thanks, Kelly or Jason.
Youre marketing G&A spend.
At record levels at record levels and for Q, We clearly knew your marketing spend was going to be higher given the restarts, but when we think about the omicron impact I'm sorry.
Delay we have seen here does that mean these costs will stay elevated in the first half of 2022.
Is there any color you can provide just in terms of the cadence there I think would be helpful.
Yes, Thanks, Andrew So as you noted.
Yes, we did after quite a while it started our brand marketing efforts in Q4 and that's it.
That's why you see that elevated we've seen very good receptivity to those and generated really strong demand cultivated in the bookings that we've seen.
And as omicron.
Started spreading we we've we've really thought thoughtfully about how are we going to spend.
The sales and marketing also we are within the typical wave season. So we are thinking about that and we will continue to adjust we will we will eventually go back to what you would think is a more of a historical range.
I think that's a key point.
Our behavior in terms of our marketing activities and so forth.
As well as how we're going to market is actually very similar to how we were pre COVID-19 .
And that's kind of what you that kind of that pattern and tempo is what you should be kind of thinking about as you are considering.
Youre modeling and so forth.
Being mindful, we have more capacity.
Then we did in 2019.
I would just I would just kind of make that point that you should expect us to kind of return to kind of typical behavior.
Behavior.
Okay got it.
And then.
Follow up question certainly appreciate you wanting to wait to give long term guidance until there is just a bit more clarity.
On the revenue side.
Thank you have a little bit more.
Kind of.
A little bit more clarity on your cost situation, particularly as all your ships kind of return to service here. So.
I know there are puts and there've been some puts and takes during the pandemic in terms of taking costs out of the out of the system. Then there's just general inflation in the market.
Can you help us think about like kind of where your unit costs ex fuel.
Could be relative to 2019 as you begin to get back to the full utilization of your fleet.
Well.
Well I think what I I'll, just start off and off considerably.
And here our expectation as you start considering the transitory costs and.
Which will will evaporate here, we are hoping here in 2022.
We've made around cost is.
As for our cost per <unk> to get more efficient for us to gain more margin.
Here here over time, so a lot of the things that you're as you look at our cost per quarter.
And saying well, where where are these these cost savings a lot of that is being absorbed by short term.
Uh huh.
Transitory costs and also being absorbed by some of them what we believe to be some of the short term inflationary elements.
And food as an example that we think will we'll be able to effectively manage.
Yeah, and just to add that we also have.
Six new ships that have joined the fleet since 2019 in addition to the cost.
Focus that we've had in reshaping our structure as we had in the last couple of years.
Years, so as the fleet comes back and the load factors buildup, we're very well positioned to.
To perform and improve margins.
So.
Sorry, just one last follow up there. So do you think your longer term kind of non fee.
Fuel unit cost came back to get back to pre pandemic levels.
We do.
Thank you.
Your next question is from Ben Chaiken with credit Suisse.
Hey, How's it going.
You guys talked about you guys talked about load factors being in line with pre Covid I think third quarter 'twenty to <unk>.
That apart did you say <unk>, you you'd reach normal or requeue.
For the quarter I know this is like <unk>.
<unk> should be normal and then just one follow up.
In Q3.
Okay, and then I guess just with that in mind.
Can you help us with the thought process or data points, you're looking at and making them comfortable and that assumption is it simply the pace of bookings is there any way to approximate how booked you are currently on a percentage basis.
For Q sailings for example.
Yes, well, obviously, but we know those numbers.
Very closely but but.
It's not something that we typically are there were there were going to be guiding on.
At this point, but what brings us the confidence in whether it was knobs commentary around the customer deposits.
And in the back half of the year, especially for Q3 relative to 2019, the booking activity that we've seen is what provides us confidence that we're going to return to those historical load factor. So it is not.
Based off of hope, it's based off of the patterns that we're seeing today that is our best.
Perspective on on the patterns that are going to continue on.
That's really helpful. And then just one more on onboard spend which has been particularly strong is this do you think part of this has to do with like the ships heading lower occupancy so there's more opportunities to spend and not wait in line.
Kind of making that up or is it some pent up demand or is it a change in how people are booking packages I guess could you just help us think about how you guys view that strength and how it should persist.
Hi.
Hi, Ben its Michael M I.
I wish we knew.
I can tell you that we've been absolutely delighted and initially very surprised.
By the onboard spend but it's it's.
I think when we started operations out of the U S back in July we were initially just shocked it was really really positive.
And then it's just continued so I think it's.
Probably not far wrong that I think I think lower load factors created a different kind of environment that help people spend more but we've seen it across the board in nearly every single category.
Where people are just simply spending more in every single revenue stream. We also I'm really pleased with what we've seen with our investment in the pre cruise technology, that's really started to come online over the past 12 months.
Our pre cruise penetration is significantly higher than it's ever been before so.
We're in a very positive environment, we know back in 2020 one the savings rate was significantly higher than credit card debt was much lower so we do think that people are happy and we've seen.
Net promoter score on all of our ships and brands being at record highs. So we've got a lot of happy customers and in that happy.
Same in mind, the opening up their wallets and they are spending literally all over the place. So we're very.
Pleased with what we're seeing and I think I think just to add a little bit more color onto it but when Michael talks about categories I think its in two dimensions. When you look at whether it's the consumer that is booking the inside state room or the consumer that's booking.
The ultimate family suite.
As an example, youre seeing them all over index.
On their historical spend by quite a bit and then the other dimension of the category is by is by area.
Effectively every revenue area, whether that's a spa, whether thats gift shop, whether thats casino.
F&B and so forth is just.
Outperforming significantly I don't know how much of its volume how much of it's mix how much of it is just the consumer with more money in their pocket how much of it is just.
<unk>.
Cruise penetration does that mean like offering them opportunities to book Spa and all of that.
The items you listed before they get on board.
Yes, that's right Ben.
The level of sophistication of our pre cruise software and our ability to market directly to customers has improved quite a lot over the past year or so so I think that does play a key role in this.
Okay and then.
As you know from following us for for some time, we had talked about pre COVID-19 that we were replacing our pre cruise or E. R. R. E Commerce platform for our onboard spend which not only includes a being a lot easier to conduct business with us but.
Also our ability to yield manage it and so forth and so that's definitely been.
An area, where we have continued to invest under these very difficult times to prepare ourselves for again.
Another opportunity for margin improvement.
And just one final point on this wonderful piece of good news as it is.
As a rule of thumb.
Every dollar of pre cruise spend is with an incremental 50 cents of onboard spend and that's pretty much a rule of thumb.
Being true for quite some time.
Got it thank you.
Your next question is from Jamie Katz of Morningstar.
Hi, Good morning, I have a couple of bigger picture.
Your questions. Please all.
First can you unpack any of the supply chain constraints, you're seeing I know in the past you had talked about.
So I think different food items from different places and whether or not that.
Evening.
Or.
Problematic.
Yes sure so.
Okay.
Our our two our two main areas that inflation really impacts us as food.
And its fuel obviously in the food and other things that we have we have on the shipping side some.
On costs with our with our shipping lanes and so forth.
For the most part we have we have we have seen the cost of these items now begin to come down somewhat as we had anticipated and also what our suppliers had anticipated.
It's not back at all to kind of pre peak over or 2020 levels, but it is definitely beginning to move in the right direction.
Here, which aligns very well because we have a lot of longer term fixed contracts on a lot of our commodities.
So we've been patient.
Two.
<unk> those in.
Until we started to see a change in those patterns, which we have been saying.
Okay, and then can we talk about China, a little bit I'm curious what you guys think the relative to reopening looks like are there certain hurdles, we need to clear and then maybe what does that opportunity set.
Change to become.
Now that.
Is it a bit in flux.
Thanks.
Yes, Jamie it's Michael.
Question has been very much in our thoughts, particularly as it relates to genting and what's happening there and obviously, we see opportunity.
China for US has been a long journey, we've had we've had our ups and downs, we've had some incredibly productive and.
And wonderful years, and we've had some equally challenging is an intruder firm it seems to stay on the same path. So.
We've we've we're waiting.
There is a belief that after the Olympics are behind us.
There will be more positive news coming out of China. One of the positive things that has happened is obviously, we redeployed our capacity out of the China market. Some time ago and of course, one of the ships that we redeployed was wonder of the seas, which as you know our latest newest Oasis class ship.
And we put the wonder of the seas, both out of the American market and into Europe in the summer and the demand and the response to wonder of the seas has been incredibly strong and we've been actually delighted with what we've seen in <unk>.
I Wonder has been selling both in the European markets and in the American market, so that hasn't been a silver lining to redeployment efforts out of the China market.
A long term perspective of China as we are in China, and we're going to make China work and we see a huge amount of upside and opportunity.
I think genting.
Exiting the stage is again an opportunity for us.
Teams in Asia or are already planning and leveraging what we think could be those opportunities. So.
But our appetite for the opportunity has not shifted we think China is always going to be a very important part of our strategic portfolio and we're going to continue our journey as soon as the news.
Starts to become stars to become more positive, which at some point it does have to become more positive.
Thank you Jamie from ops.
Your next question is from Stephen Grambling of Goldman Sachs.
Hey, Thanks for taking the questions and congrats Jason and that's all in the roles.
Maybe following up on Steve's earlier question on the longer term earnings potential as we look back to 2019 can you just remind us of some of the big exogenous impact and are factors that may have hit the headline earning number as we contemplate a base to build off of in a normalized environment.
Yeah.
From memory, Steve I don't I don't think there were a lot of.
Large elements that impacted 2019, I mean, we did have a little bit of a write off with Grand Bahama shipyard.
An impact from some sailings to the Grand Bahama shipyard incident, but besides that.
There weren't a lot of.
One offs that that would have impacted 2019, if anything it would have helped 2019 relative to our final net income number.
Got it and then.
One of the other questions. We get is just really around.
Any change in terms of new to cruise versus kind of the core cruise customer is there any color you can provide on either how booking trends are evolving for the new to cruise passengers versus core customer and when you look at what happened with cancellations anything you can discern from the type of customers who are canceling.
Hi, Steve It's Michael.
Good good kind of proxy really was when we came out of Delta.
We saw a week by week in fact, what we're seeing now is almost exactly the same as what we saw when we came out of Delta which is.
As we went into it bookings dropped an anxiety was increase from from from customers.
As we started to come out of Delta bookings started to return and week by week month by month, those bookings really started to take off and then as we moved into the fourth quarter of last year, our bookings started to exceed 2019 levels, both in volume and rate and it was clear that everybody was in the vaca.
<unk> mode as it relates to new to cruise and loyalty loyalty certainly.
<unk> led the way and we've seen that but new to cruise lagged I would say four to six weeks when we look at our data.
And again I'm talking about when we came out of Delta.
Loyalty was at the beginning skewed heavily and then and then new to cruise started to jump back in and then it started to even add back to normal levels.
The consideration is the product that we have in place for new to cruise and particularly for the Royal brand out of the American market, We've got great new hardware and new products. We of course got a lot of short product, which is very appealing to new to cruise and we've got perfect day, which is in pristine condition and.
And then you know.
As we know an incredibly popular destination and that already is generating significant demand with a premium with new to cruise so.
Are you is is that new to cruise is lagging, but it's coming back and we feel that's exactly what's going to happen now as we come out of this latest variant.
And just to on your second part of your question in terms of the cancellation trends.
One is an easier one and intuitive one.
The majority of the people canceling where people who either tested positive for COVID-19 before getting on failing or somebody in their family who was traveling with them tested positive.
For Covid and that that the vast majority of the cancellation activity.
And we did see some of our customers shift their bookings from late December early January into future periods.
That's more or less the.
The story around the consumer and canceling.
Okay.
That's helpful and maybe this is more of a housekeeping question. If I can slip it in and then you may have had some of this in the press release, but can you give us a little more detail on the capex spend kind of split between maintenance and new ships and maybe not even just this year, but as we think towards next year could you provide some initial color. Thanks.
Yes, sure. So as we said in the release, we expect this year to have roughly three point in one bill.
Billion dollars of capital expenditures, you'll remember that we are taking to deliveries. We already took one I wonder if the season. The other one is celebrity beyond.
And we also have some progress payments towards.
Future deliveries. So those are the majority of our significant part of that.
Number and.
And we as you know.
Been really thoughtful and really disciplined about how we invest in capital.
And making sure throw out that on one hand, we maintain financial stability, but at the other hand, we also have we invest in the future is and then the years to come. So you should expect that a lot of it is just new build and the ships and.
Doug will be for this year.
And Stephen just as a reminder, which which I know you know this but all of the new builds what are the one the wonder we just took delivery of or beyond that we will take delivery of as well as in the future all have committed financing.
Yes, thanks, so much.
Thanks, Jim.
Your next question is from Fred Wightman of Wolfe Research.
Hey, guys. Good morning, I was hoping you could maybe just summarize sort of the big bullet point differences between omicron Delta so far whether that sort of peak to trough booking disruptions that you saw whether that's the speed of the recovery and just sort of how that informs your expectations for any future variants that come down the pipeline.
I mean, I think the big difference between Delta and Omicron was really the operational impact.
To us I mean, just like everybody is experiencing its spread like wildfire.
Which mark protocols and in our ability to manage the situation I think was exceptional I mean, our teams did an exceptional job.
Managing it.
So I think it was more of an operational issue I think what we saw as it relates to on the bookings side as Michael said.
A similar.
Pause.
And then we're seeing a similar recovery coming out of it.
I'd also just add that.
<unk> had a little bit more of an impact on shorter term or closer in.
Then then delta did.
In.
Delta was the spend more over over a couple of quarters in terms of bookings <unk> was really more focused on.
Upcoming sailings.
First quarter.
I have to add just one point to this.
Chrome versus Delta Omicron, certainly was fast and it did it did sweep through the fleet.
Interestingly all of the protocols as Jason mentioned that we worked on with the CDC were incredibly effective and the fact that all of our fleets in the industry continues to operate during this period I think is testimony to the quality of these protocols, but the other observation just to share is there.
For all of our crew positivity 19, 9% of the crew positivity was asymptomatic and the 1% was extremely mild symptoms.
It really was.
Remarkable in many ways, but the the impact on the crew was effectively zero, except it did take them out of operation for the period of the quarantine, but I just wanted to share that statistic with you, which I think builds on.
The environment of all of our crew are vaccinated.
If they are eligible theyre getting boosted.
And so we're doing I think all best efforts here to make sure that we are focused on ensuring that cruising is the safest experience you could have.
Makes sense and could you guys just built out a little bit on some of the UK booking trends that you alluded to it makes sense that they are a little bit farther along than the U S. But it also sounds like they've sort of continue that march up into the right as far as getting back to pre omicron booking trends, but could you just give us a little bit more detail.
Yes Fred.
Yeah, that's right I mean again, it's it's regardless of market kind of the behavior seems to be very similar.
When when a market or a country or a region goes into the the varian as it starts to spike.
Bookings head in the opposite direction and as soon as we get over the peak, which happened in the U K ahead of the US Then all of a sudden you start activity you see activity returning.
The.
The infection rate continues to drop you see the booking rate continue to accelerate upwards and that's that's really what we've seen out of the UK market.
The line of Ascension is very similar to what we saw in Delta and what we're seeing now and with omicron in the U S market.
The more that the more the positivity rate drops the more of the bookings increase.
And it's very.
It's kind of becoming quite typical in the U K.
In this case led the way because it's a fairly significant international market for us. So we have quite a lot of volume out of that market and we saw it literally start to come back as soon as things started to drop down.
Great. Thanks, guys.
Yeah.
Yeah.
Okay.
Operator. Your next question is Vince CPO of Cleveland Research.
Great. Thanks for taking my question revenue per cruise day remains up low double digits.
I'm curious if you could help us understand ticket prices on an apples to apples basis.
Relative to 2019 with what you just saw in the fourth quarter.
Looking at short term rentals of resorts that are pricing, 2025% ahead I don't think your ticket prices were that far ahead, but kind of curious where they are at now.
Maybe how you can kind of close that gap versus some of the other land based alternative indications over the next year or so.
I'll I'll jump in here first.
So in terms of the improvement in revenue you see it in ticket you see it in onboard.
I think I think the part of this is us just getting to a consistent operating environment.
Which is what we think which is other land based operators have that opportunity.
To be doing.
At this point and I think we're now getting there having a consistent operating environment. We think is key.
Two you have that consistent demand and also having that consistent demand here in the short term and that to me is very important for us to see similar trends in the short term to what others are seeing now when you look at it further out and you look at.
As I said back half of Q2, and Q3 and Q4, you are seeing similar trends to what youre seeing on some of the land based vacation experiences that you just talked about.
Yeah.
Great. Thanks, and then one housekeeping item.
Joel.
Price per ton guide for one.
It was almost 40% ahead of 19.
Mgo and ISO they're only up call it 25 to 30.
I think that maybe some of that increase is that attributable to mix, maybe burning a little bit more higher expensive mgo you remind us.
Is your mix expectations.
For 2022, and maybe how that compares to what you burned in 2019.
Yes so.
You know for US. It's obviously fuel prices are up from 2019, and just as a reminder.
We also.
Hedged.
Little bit over half of our fuel at below market prices.
Over the last couple of months, so we're benefiting from that from these actions.
You're right that we have some some of the mixed.
The short term.
Little bit skewed more towards the mgo, but that should.
Normalized throughout the year.
Thank you.
Okay.
Your next bill.
We have time for one more question final question is Patrick Joseph True security.
Hi, good morning.
And in your <unk>.
Repaired remarks press release, you talked about.
Booking.
Since the beginning of 'twenty, two now back to pre Macondo levels.
I Wonder if you can give us a little bit more apples.
Apples to apples color certainly we're in ways season, I would expect normally they should be back.
Well above pre omicron can be back to October November levels, how did January .
Apples to apples turnout for you versus a comparable 2019 as far as booking.
Booking pace. Thank you.
Well the reason why we pointed out pretty omicron levels is that where we were pre omicron.
And as <unk> commented in his remarks every week every month, our bookings were accelerating right. They were picking up steam and so forth and we had a period of time, which extended into January obviously, where <unk> was quite present in society.
And so our bookings went backwards in terms of the volume, especially as it relates to Q1 and in the early part of Q2.
Point about prion mccraw getting back to pre Omar Khan levels is just showing you the build here through the month of January despite the elevated cases of AMR crime.
Being on the other side of it we've seen that next pop on where pre omicron and then we continue as your comment around wave.
And our marketing activities and so forth getting back to levels.
That we would expect to.
On the on the booking and the booking volume side for the balance of the year and that it was just really just to kind of give you a point of reference on how we where we are in the journey.
The dip here on Amazon.
Okay, I guess I misread the press release, when you say pre omicron levels are we talking.
Mike.
2019 comparable linear.
Pre omicron as in October early November of last year.
The latter.
The ladder.
But remember that as we were going into into the.
Cyber Monday weekend and Black Friday.
We've seen a good accelerated pace.
And we have the best the best weekend there.
Okay. Okay.
Correct. Okay. Thanks, Thank you for the color.
Thank you.
Okay. Thank you for assistant shell beef with the call today, we thank all of you for your participation and interest in our company Michael will be available for any follow up you might have and I wish you all a very great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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