Q1 2022 Royal Caribbean Cruises Ltd Earnings Call
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Good morning, My name is Abigail and I'll be your conference operator today at this time I would like to welcome everyone to Royal Caribbean groups business update and first quarter 2000, and Senator 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'd now like to introduce Michael Mccarthy, Vice President of Investor Relations Mr. <unk>.
<unk> the floor is yours.
Good morning, everyone and thank you for joining us today for our business update and first quarter 2022 earnings call.
Joining me here in Miami are Jason Liberty, Our Chief Executive Officer.
<unk>, our Chief Financial Officer, and Michael Bayley, President and CEO of Royal Caribbean International.
Before we get started I would like to note that we will be 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.
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 also we will be discussing certain non-GAAP financial measures, which are adjusted as defined in our 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.
Naftali will follow with a recap of our first quarter results and an update on our latest actions and on the current booking environment.
We will then open the call for your questions.
With that I'm pleased to turn the call over to Jason.
Thank you Michael Good morning, everyone and thank you for joining us today before jumping in and talking about the exciting things happening in our business I would like to express our deep thoughts and prayers to our 2000, plus Ukrainian Royal Caribbean Group family members.
And to the citizens of Ukraine, who continued to be affected by this tragic war.
We as always remain focused on the safety and wellbeing of our employees and continued to provide them with support services and financial assistance. During this time of incredible hardship we.
We're all praying and hoping for a peaceful resolution soonest.
Now moving onto the business our teams have done an exceptional job getting our fleet back into service. So that we can continue our mission of delivering the best vacation experiences in a responsible way.
As of today.
95% of our fleet capacity has returned to service.
It's incredible to think that our journey to full fleet operations will be complete in less than eight weeks on our 63rd ship celebrity Infinity welcomes guests for the first time since March of 2020.
Since we resumed operations, we have delivered memorable vacation experiences to over 2 million guests worldwide, while earning record high guest satisfaction scores.
Additionally, outside of China, the vast majority of our destinations and markets are back online.
I want to thank our teams both chip and shore for delivering on our mission so successfully.
During the first quarter, we managed through the challenges brought on by the Omar Khan variant that resulted in the cancellation of 57 sailings in Q1.
Moderated our load factors in January and February and softened demand for future voyages.
We have now failed through these operational and short term demand challenges caused by the variant.
Over the past 60 days demand has materially surpassed both pre omicron and 2019 levels.
Load factors improved throughout the first quarter and we finished the month of March at a load factor of 68%.
We expect our load factors to continue to build averaging between 75 and 80% in the second quarter and.
And reaching triple digits by the end of the year.
We continue to be thoughtful about the build of our business being mindful of maintaining price integrity, taking advantage of high onboard spenders and as always focusing on the health and safety of our guests and crew.
Now moving to the demand and operating environment, we continue to see strong demand for leisure travel and cruising.
The robust secular trend of experiences over things that propelled our business in the past years is now recovering towards pre COVID-19 levels.
Consumers are now re engaging with the world and as a result spending on travel in 2022 is set to outpace pre pandemic levels with consumers planning to travel more frequently.
Cruise consideration is the highest it has been in two years and nearing pre pandemic levels with the most significant recovery among those new to cruising.
Consumers are in a healthy financial position.
Strong labor markets wage growth and record cash savings for Chilean dollars in the U S support spend on vacation experiences.
We are watching the high inflationary environment, but so far we have not seen an impact on consumer behaviors or willingness to spend on travel and cruise vacations.
Strong demand for cruise experiences continue to translate into robust on board revenue performance for us across all categories from casino beverage and shore excursions to internet retail and spa.
As we mentioned in recent quarters, our investment in a new pre cruise planning system.
Laos guests to better plan and book their onboard experiences as a result, we continue to see increased penetration of pre cruise purchases, which is leading to significantly higher total spend per guest.
We remain focused on continuing to innovate the vacation experience. We offer we are strategically investing in our future to maintain our strong competitive advantage.
Being the foundation for a strong recovery and long term profitable growth.
On our last earnings call, we discussed our expectations for a delayed wave period now.
And while it started a few weeks later than we originally expected. It is what we are seeing now bookings improved each week during the first quarter as the impact from omicron faded for.
For the past eight weeks bookings have been meaningfully higher than 2019.
With particular strength in North American itineraries.
Our largest brand world Caribbean International for two New records in March with the largest single booking day in the highest booking week and the brands 53 year history.
We have also experienced some headwinds related to the impact from the ongoing conflict in Ukraine.
Itineraries initially plan to visit Russia represent only 2% of our overall capacity and close to 10% of our European capacity.
In early March we decided to cancel call to Russian ports, including St. Petersburg.
And substitute those itineraries with other highly desirable destinations.
Naturally we saw a short term increase in cancellations and booking hesitancy for for Baltic Sea itineraries combined with some softness in overall European demand.
After several weeks of softer trends booking volumes improved and are now above 2019 levels.
However, the impact from the slowdown during a key booking period is definitely weighing on our load factors for our European sailings.
While there are some headwinds in Europe , or North American based itineraries, which account for over 70% of our capacity. This year have been trending much better with recent bookings more than 40% ahead of 2019 levels. We.
We are also seeing an increased volume of close in bookings as consumers seem to be making their vacation decisions closer to their sailing date.
This contributed to better than expected load factors in March despite the impact of the <unk> variant earlier this year.
We continue to build on the demand environment for the rest of this year and into 2023.
Inflation is impacting businesses across the globe and we are no exception as we mentioned in the last few quarters fuel and food are categories that are most susceptible to inflation for us.
The war the war in the Ukraine and continued supply chain constraints have further heightened those pressures our teams have become increasingly adept and navigating these challenges and we have implemented several strategies to manage cost pressures, while delivering the incredible product expected by our guests.
On the fuel side, we continued to optimize consumption and have partially hedged rate below market prices, which is mitigating the impact on our fuel costs, we have taken and continue to take numerous actions to reshape our cost structure with a focus on further improving our leading pre pandemic margins.
While these actions are intended to enhance our cost structure and margin profile. We do anticipate an inflationary pressures mainly attributable to fuel food as well as transitory costs related to our health and safety protocols will weigh on our costs this year.
I will now touch upon environmental stewardship, creating a more sustainable cruise industry is a journey and every day as an opportunity to innovate and improve.
Back in 2016, we announced our partnership with the World Wildlife Fund to advance our sustainability performance.
This partnership pushed us to set ambitious sustainability goals in three areas.
Greenhouse gas emissions sustainable food supply and destination stewardship.
I am proud of the fantastic work achieved by our teams since we first signed the agreement with the WWF and I am pleased to announce that the Royal Caribbean Group has recently signed a new five year agreement to take our advancements to the next level.
I'm also pleased that in the first quarter, we were named one of the world's most ethical companies by Ethisphere.
This is the seventh consecutive year, our company has been recognized the only one in the leisure and recreational category.
Furthermore, we also earned 100% of rating on the human rights campaign Foundation's corporate equality index, which rates corporate policies and practices that relate to LGBTQ plus workplace equality.
We are messy proud of these recognitions.
And they reflect our deep commitment to our employees and our purpose and values.
As we continue to focus on completing our return to service we are charting our course for future growth.
The combination of strong secular demand tailwind, our leading brands the best cruise ships in the world Our global platform and the very best people position us exceptionally well for long term success.
It is no secret that our innovative and industry, leading ships are the foundation for creating a great vacation experience.
Year to date, we welcome two new ships to our fleet.
Wonder of the seas, which is the newest largest and most innovative oasis class vessel joined Royal Caribbean International.
And celebrity beyond the newest.
And the revolutionary edge class joined celebrity cruises, just a few weeks ago.
We have a long track record on delivering new and exciting experiences through new ships, while achieving premium yields and profits. These.
These ships along with others that are set to join the fleet in the next few years will drive differentiated vacation experiences and financial performance.
We have more exciting new ships currently on order construction is now underway on Royal Crown International sixth Oasis class ship, which will be named Utopia overseas.
This ship is expected to debut in the spring of 2024.
We are excited that Utopia will be the first oasis class ships powered by LNG when she launches.
Finally, the building of Royal Caribbean International's highly anticipated icon of the seas has reached a pivotal milestone a physical construction ahead of its fall 'twenty twenty-three debut.
Icon will set sail next year with the latest innovations.
And with signature features that were re imagined by our teams in bold new ways stay tuned for more on that.
On the destination of front, we continued to make progress on the expansion of perfect day at Coke. Okay. With the addition of Hideaway Beach Hideaway Beach will make perfect day of cocoa K, even more perfect with an entirely new experience expanding capacity to the island on.
On the technology front. The team has made tremendous strides modernizing our digital infrastructure and capabilities to enhance our commercial engines and the guest experience.
Our business model is incredibly strong and we have a long track record of growing revenue earnings and cash flow.
The pandemic has taught us new ways to operate with agility, but our formula for success remains unchanged.
We have the best brands.
In each of their segments. The most innovative fleet in the industry exclusive destination experiences like perfect day 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.
Despite these challenges at the start of the year in a complex operating environment. We still expect 2022 will be a strong transitional year as we bring the rest of our fleet back up into operations.
And approach historical occupancy levels have returned to a profit in the back half of the year before.
This will set a strong foundation for our success in 2023 and beyond.
With these tools at hand, I'm confident about the recovery trajectory of that and the future of the Royal Caribbean Group, our people always be our most important competitive advantage and I'd like to thank all of them for everything they do each and every day to deliver on our mission.
With that I will turn the call over to Natale nothing.
Thank you, Jason and good morning, everyone. Let me begin by discussing our results for the first quarter.
This morning, we reported an adjusted net loss of $1.2 billion or $4 57 per share for the quarter.
During the first quarter, where we started operations on two additional ships and as Jason mentioned, we welcome Wonder if the seeds to the Royal Caribbean Fleet.
We operate at $7 7 million, a b C D S and carried 800000 guests.
Load factor on our core itineraries in the first quarter was 59%.
Earlier in the quarter, our load factor was impacted by about 2% due to temporarily elevated cancellations associated with Amazon.
Trends, however, improved throughout the quarter and March sailings exceeded our initial expectations, achieving an average load factor of 68%.
We also had multiple sailings in March did operated 100% load factors in the Caribbean.
As Jason mentioned, we are seeing consumers make vacation decisions closer to the sailing date, which contributed to the outperformance in March.
In Q1, we saw a 4% increase in total revenue per passenger cruise day compared to the first quarter of 2019.
Onboard revenue continues to perform well for us a combination of strong consumer spending and higher pre cruise purchase penetration is contributing to this favorable trend.
Cash flow from operating ships was positive in the first quarter.
Operating cash flow significantly improved throughout the quarter and approach a positive inflection point in the month of March operating cash flow turned positive in April . We are pleased to have reached this important financial milestone and.
And we expect that EBITDA will also turn positive from June forward.
Next I'd like to comment on capacity and load factor expectations over the upcoming period.
We plan to restart operations on all remaining ships by the end of June .
We plan to operate about $10 3 million a P. C d's during the second quarter, and we expect load factors of approximately 75% to 80%.
Our load factor expectations reflect the higher occupancy we are seeing the Caribbean and lower expectations for repositioning voyages and early season Europe sailings.
We now offer cruises in the vast majority of our key destinations once again, Australia announced the resumption of cruising in April and our cruises are open for sale.
While China remains close to cruising maintaining dialogue with the local authorities regarding our return to service when China opens its borders we have redeployed chips planned for China to other core markets, we remain optimistic about our ability to capture long term growth opportunities in that market.
Next I'll provide an update on the demand environment and our 2022 sailings as Jason noted we saw consistent improvement in bookings throughout the first quarter and in the past eight weeks booking volumes have been meaningfully higher than 2019.
In addition, the elevated near term cancellations experienced early in Q1 that impacted bookings have not normalized to pre omicron levels.
While we are very pleased by the ramp up in demand. It took a few weeks longer than expected leading to promotional activity on some itineraries that being said, we remain focused on maintaining price integrity, while maximizing both load factor and overall revenue.
Shipboard revenue a P. DS are at record levels and are contributing to Moreover, revenue per guest than ever before.
North American base itinerary have been trending, particularly well with load factor is building nicely.
Regarding our European sailings, we are now seeing improving trends with bookings outpacing 2019 levels. We did however lose some ground when the tragic situation in the Ukraine escalated, which is weighing on load factors for higher yielding summer season in Europe .
From a cumulative standpoint, our load factors on sailings in the second half of the year, our book slightly below historical levels with a greater mix of high yielding suite inventory booked versus inside and outside state rooms.
Our booked apd's remain higher than 2019, both including and excluding FCC's, while still early 'twenty 'twenty three is booked with historical ranges at record pricing.
We expect sequential occupancy improvements each quarter with fleet wide load factors, reaching triple digits by the end of the year.
Our customer deposit balance as of March 31 was $3 6 billion, an improvement of about $400 million during the quarter.
Approximately 27% of our customer deposit balance is related to future cruise credits, which is an improvement from last quarter to date, 56% of FCC's had been redeemed as Jason shared the main impact of the current inflationary environment is on our fuel and food costs regarding fuel we are 55%.
For 2022, and 25% hedged for 2023 at below market rates.
Our practice hedging efforts helped us mitigate the rate impact we continue to actively manage our fuel consumption and our investments in technology and systems help us reduce our emission profile and fuel costs.
In addition, the eight new vessels to joined our fleet in the last 18 months or 30% to 35% more fuel efficient that older capacity.
Fuel is typically just over 10% of our cost basket. So while elevated prices certainly weigh on our cost we continue to manage consumption and proactively hedged the rate.
Like other businesses, we are seeing inflation across the food basket.
Our operational and supply chain teams have been navigating these pressures through long term partnerships and contracts within our diversified supplier base that allow us to opportunistically adjust sourcing strategies as needed.
Due anticipated inflationary pressures and transitory costs related to our healthy returned to service and continued safety protocols will weigh on this year's earnings.
Shifting to our balance sheet, we ended the quarter with $3 8 billion in liquidity, we have ample liquidity to allow us to continue our recovery trajectory.
We're extremely focused on managing and improving the balance sheet.
Our plan throughout 2022 is to continue with refinancing debt maturities and high coupon debt issued during the pandemic.
In January investors again demonstrated their support when we access the capital markets by issuing $1 billion of senior unsecured notes. The proceeds from the offering have been used to repay principal payments on debt maturing in 2022.
In February we arrange for a three point and one $5 billion backstop facility to provide us flexibility in refinancing debt maturities in June 2023.
Lastly, turning to the outlook for 2022 we expect a net loss for the first half of the year and a profit for the second half. We also expect positive EBITDA starting in June.
We continue to focus on bringing the fleet back to service building, our load factors and restoring profitability when our business is fully operational it generates attractive financial results and significant cash flow. We are pleased with the progress, we're making towards the inflection points of profitability.
As we complete our return and build the future for the Royal Caribbean Group with that I will ask our operator to open the call for your questions.
Thank you and as a reminder to ask a question you will need to press star one on your telephone.
A question.
Uh huh.
Please standby, we will compile the Q&A roster.
And our first question comes from the line of.
Yeah.
With Stifel. Your line is now open.
Yeah, Hey, guys good morning.
So Jason I'm going to ask about the the cash flow inflection point that you reached in April and I'm wondering if you think that positive operating cash flow level should be sustainable now moving forward.
Or do you think April was an anomaly and you might go back into a negative position until the full fleet is deployed in basically simplify this question.
You think outside of some crazy event or events operating cash flow from here should remain positive.
Yes.
Well first good morning, Steve Hope all is well I think we should just really pausing and taken that statement I mean, it has been a.
Effectively over two years [laughter] since since we can make a statement about being cash flow positive.
And so it's really great now to be in that position, where we start to generate positive cash flow and positive EBITDA and positive earnings.
As we get to the back half of the year, we very much think it is sustainable.
Our load factors are building in accordance with our expectations.
And.
There's been there's been a lot of noise.
Kind of generally in the system, there's always things that come up but from what we can see in the day to day booking environment.
We feel very good about the load factor build the right build that we're seeing but I do think that there's inflection point.
It is a very important moment not just for us but for the industry.
As we kind of get onto the other side of this.
And maybe to add Steve good morning, So yes.
We sure here that.
This is obviously a great inflection point.
And as you as we go forward. Obviously there are things you know every quarter you know interest expense timing other timings of expenses, but this.
This is the inflection point that we've reached here and we expect that to continue.
Okay that is a that's a.
It's a very solid positive there guys second question a bigger picture question. Obviously, there's you know there's a fear out there building around a possible slowdown in the economy and a possible recession.
Given what you guys have gone through with Covid and the stress. It's put on your balance sheet. You know I guess my question is if we do encounter some type of economic slowdown how do you guys envision being able to to navigate an environment like that given your current liquidity position and maybe also remind us how you navigated through two.
2008 2009.
So Steve I think I think first and as <unk> always said in his in his comments we are in a strong financial position, we're in a strong liquidity position.
I first want to point out that.
The level of booking activity that we're seeing the spend levels that we're seeing on the ship.
We don't see anything to date.
That would show that Theres, some type of of recession or recession fear.
Weighing on the consumer and I think a piece of that as I said in my comments are the trillions of dollars.
Of cash sitting in the savings accounts and the low leverage.
Of the customers just in North America alone.
But whereas we've seen in the past you know when there are recessionary periods I think one of the things that's really important.
And it is it does pay me, sometimes I say this but we trade still had a significant value relative to land based vacations.
When a consumer and let's just say if they are feeling a level of pressure.
Many of you know they still need and want to go on vacation and build experiences and memories and I think that that value differential, which we are everyday doing all we can to close that gap.
Is one in which the consumer recognizes.
And and that is as tend to kind of farewell relative to other.
Travel or consumer discretionary products during times like that.
And just to add quickly.
We are in a very strong liquidity position.
And this inflection point of free cash flow of the operating cash flows and our focus is as I said in my remarks is to continue to refinance the balance sheet.
That means both refinancing our maturities obviously that that creates.
The runway as well as reducing.
The interest costs and and under leverage overall, so we have a we have a plan here to in the next you know in the next future too to manage the balance sheet.
That's great color. Thanks, guys really appreciate it thanks, Steve.
Our next question comes from the line of Robin Farley with UBS. Your line is now open.
Great. Good morning, Thanks for taking my question I wanted to ask about you mentioned that you lost a little bit of ground for some weeks there, even though European demand is above 2019 levels.
Can you tell us how youre thinking about.
Load factor.
In normal times.
We're going to be 100%.
No matter what because.
Maximizing that.
Yes.
Period.
You might say.
The ramp up.
Let's stay below 100%.
In other words I guess, if you could help us think about that trade off between giving up the onboard revenue.
But maybe potentially impacting the price of other.
Okay.
Sure.
Well I think Theres, a few things I mean, just to comment on on the Europe side.
So first I would say it is our expectation.
In Europe for our load factors to be lower.
Some of it is very much related to price integrity, but some of it's also you know that relates to the testing requirement to come back into the U S.
For for Americans and that those the combination of those things weighs on the consumer.
In terms of their travel expectations, and so and so as we said in our remarks, our expectation is we're going to be building up.
Through the back half of this year to that.
That triple digit Mark so are our expectation is we will have lower load factors.
And in Q3 relative to two 100%.
But robin it's Michael.
Just have to jump in and say that we we have ships now sailing at 100%.
We've had ships setting in 100% naphtha for several weeks.
Out of the Caribbean into the Caribbean market in a short product and as we head towards Memorial day weekend, we are going to see significant percentage of our ship selling at 100% and greater so the europes one thing, but what we've seen in terms of demand in the American market for the drive to pre.
<unk>, which I think we have around 70% of our products drive to this year has been really strong and certainly over the past several weeks we.
We've been delighted with the volume of bookings that we've been seeing coming in for these products has been really good.
And when we make.
The comments around the load factor is obviously, that's total load factor solar with the whole fleet right. So that reflects the combination of the transit that Jason and Michael just shared.
Great. That's very helpful color. Thank you and maybe just a.
A follow up.
Given that.
<unk>.
Profitability.
Reasonable reasonable visibility.
Sir.
Restart.
Guidance.
In the next quarter or two or is that something that we shouldnt necessarily expect.
Well Robert.
We had a.
A meeting a few days ago with our senior leadership team in.
I think my comment to them was we have now moved from scenarios to now a forecast.
And because we can see that visibility and that predictability and that's a that's a big statement for us and I'm sure others.
I think Michael I always remind us, but I think we're like on our 300th scenario.
Since since the start of the pandemic. So I think where we are getting closer to that than our visibility within the quarter is much is much greater and we do appreciate it.
That having that visibility.
And predictability is important to the investment community. So I would say that we're getting close to it.
And so I would I would have to wait to see what happens in the next quarter call.
Okay that sounds great. Thank you. Thanks Robyn.
Next question is from Ben Schachter with.
Credit Suisse. Your line is now open.
Hey, How's it going.
Onboard spend continues to be particularly strong is this driven by a smaller number of core guests or is it a more kind of like widespread structural uptick in spend that you see even as load factors.
Bill It on ships that are getting back to that.
Normal occupancy close to that yes.
Yes, Hi, Hi, Ben its Michael.
This is a.
It looks like it could be a structural change I mean, we've.
We've now got as I said earlier, many ship selling at 100% and a big Oasis class ships had been sailing in the eighties and our onboard spend continues to perform at the same levels. So it's been really.
It's been wonderful.
I think a couple of things one is the hybris and the investment that we made in the software for pre cruise revenue, which continued through the pandemic and we've really leveraged that now and we've seen a significant increase in penetration and uptake with a pre cruise sales and of course, we've always said that one.
Pre cruise dollar gives us another 50 cents onboard spend so we really believe we're seeing that coming coming through now. So it continues and I think one of the things that we've been focused on in terms of the volume is that relationship between ticket and onboard spend and if if.
If you if you even look at our first quarter net revenue a P. D. It was higher than back in 2019, and we see that continuing quarter by quarter through through this year and just to add to Michael's point. We also see the strength in onboard across all categories. So it's not just one category that you can you can.
Draw the conclusion, it's everything like Jason said from spot to retail shore excursions casino food and beverage. So it seems like the consumer is really.
Willing to disband and great experiences and we've made all these investments and Michael mentioned to make sure that we capture that spend.
As much as we can as they are enjoying our cruises.
And.
The pre cruise is that like at the time of ticket purchase you kind of offering incremental onboard or is it like following up with the consumer or the customer.
Time of ticket purchase up until crude I can just get a little color on how that works exactly yeah. I mean, it follows ticket purchase as soon as we have a commitment from a customer that the you know it.
They're going to sell with US then we have a whole cadence of communication to the customer.
We use all of this software development and the improvement we've had over the years with analytics to provide them with options and offers and promotions et cetera for onboard products and we literally have that communication cadence in place until they sell with us.
And by the way when they're selling with as we continue that commuting communication cadence as well, giving them office and what have you. So it's it's really.
You know, it's the kind of the evolution of the sophistication of our communications and in terms of the pre cruise software yeah and.
But I think just to jump in I mean, you where we are in the early innings.
Of of this pre cruise system.
You are having their commerce engine in place, having the capabilities that Michael just talked about to be able to cure rate.
The experiences or or services that we can be offering to that guest through their journey from when they book a cruise them.
All the way through the time, when they are sailing with us and being proactive about opportunities that might arise even during the voyage and being able to.
Put that or position that in front of the customer base off of.
Things that they may have already had planned or things that they may have done in the past et cetera.
That's the that is kind of getting to that one to one.
Spot on.
Engagement is really kind of what we see is the answer.
The North Star here.
And that's kind of what these systems in the AI and analytics and the use of data effectively is all about.
Got it I appreciate it thank you.
Yeah.
Our next question is from Dan.
Wells Fargo. Your line is now open.
Hey, guys. Good morning, Thanks for taking my questions. So first I wanted to hit on.
It's been obviously, we've seen a lot of commentary in terms of a robust travel and leisure spend and demand and you guys have certainly seen that as well how would you how would you break that out between you know the new to cruise customers and are you seeing that kind of come in through their longer term bookings are short and bookings.
Okay.
Yeah, Hi, Dan, Yes, we're seeing it come through.
Through all of our customer segments, I mean, I think we'd comment too maybe.
Maybe on the last call that the new to cruise was a little slow to return.
And when we first started back in service, we did rely heavily on our loyalty customers, but that's really shifted now we're kind of moving back into a far more normal environment, where we see on Youtube cruise returning.
It helps with the fact that we've got great products that really do attract new to cruise. We've got perfect day I think even in this year in 2022 will take over 2 million guests to to perfect day. This year alone. So.
The right products, the right mix of experiences and we're seeing a new to cruise customers come back to us. So and then how the spending is it's very similar I mean things shift and change around based upon age demographics and what have you, but you know.
The the kind of the product offerings that we have that we provide to our customers and using the software and analytics seems to be really resonating.
Got it and then I think you guys called out particular strength in North America, and that customer base, and maybe Europe , a little bit softer.
To what extent if any could you maybe bifurcate that that softness is it a reflection of kind of what's going on on the geopolitical front in Europe or is that more related to a slowing of the consumer any any color there.
Yeah, Yeah, I think in terms of what we see because we've seen this this.
Return in demand from Europe for our R. R.
Our different deployments, especially within Europe , it's definitely the Ukraine that I think it really kind of ways, especially within central and northern Europe .
Your savings are inside the Baltics and in the Med is certainly I think of great interest I mean, they are booking.
They are now booking at levels that are above 19 levels, but it is softer than what we had originally expected it would be I think Fortunately you see the north American consumer accelerating.
And very much focusing on north American products, but also very much willing to go to Europe .
My comment was I think on the on the on the on the psyche side testing to.
To get back into the U S, which I know you know the cruise industry the airline industry and other industries are trying to influence.
For that change is I think that that kind of a last psychological point that weighs on the consumer to travel freely globally.
Yeah.
Yes, Dan just just to add to Jason's comment on the testing to return to the United States I mean, as we know many European countries now is stopping that requirement. So it kind of freeing up the ability for the Europeans to travel around and I think you know, we're all hopeful that that's going to change fairly soon in return.
To the United States.
Yeah, and just just to add a quick quick.
We as I think we mentioned, we do see an improvement in the European bookings, but also both from our volumes from the from North American but also from some of the closer in within the European sourcing markets.
So we're definitely seeing the improvement there.
Great. Thanks, guys.
Our next question is from Ryan Sundby.
With William Blair. Your line is now open.
Yeah, Hey, guys. Good morning, Thanks for taking my question.
From Florida to Ben's question around guest spending I just wanted to follow up on the record guest satisfaction scores.
You start to ramp up itineraries and load factors here do you think you'll be able to maintain that or is there something structural there.
Then as my follow up if you use you guys session scores hold up in the past when you've seen it jump and satisfaction for one reason or another have you seen that translate into a material impact in terms of selling or word of mouth referrals.
Well, Ryan it's Michael I think.
You know happy customers.
It's a beautiful thing to have and I think that's you know that formula has never changed when people really have an amazing time.
They go backward a math they tell their friends and families. They want to come back and repeat and we know we've done obviously work on net promoter score and repeat cruises and the correlation is relatively high there is a relationship between net promoter score in our loyalty guests. So it's it's a winning formula.
And I think that's always been one of the great things about crews as the value proposition connected to satisfaction has always been remarkably high. So we think it's a it's a great thing and we're always striving to deliver the highest level of vacation that we possibly can I think it's fair to say that in the beginning the euphoria.
Of excitement from primarily our loyalty guests was so incredibly high and the crew was so incredibly happy to be back there.
That for many months there was just this euphoria on our ships and I think that comes through on the net promoter score certainly we see those net promoter scores staying at a really high level they've started to come down a little bit as we see the volume increasing as the load factors get to 100% and beyond then you start seeing a more normalization of.
Those.
Net promoter scores, but I think there's there's just a.
I would say there's a happiness.
Not only with our customers, but with our crew members and that happiness.
Coming out of the pandemic going on vacation going on vacation with Royal Caribbean Reconnecting to all of those experiences that people have missed for two years I think that is.
Somewhat translate it into people, just saying I'm, having a fantastic time. So I think it's I think it would be naive to believe that these extremely high NPS scores will stay with us in the long run, but I think there's been a fundamental transformation in terms of how guests and customers are interacting with the experience in it.
A very positive thing for our business.
And just to add to it when you look at it by segment right. So you look at even the ultra luxury side with Silversea and you see the luxury side with <unk>.
The celebrity side, it's really across all segments Youre seeing this euphoria.
But you know that Michael referred to.
As Michael said I don't think were naive to think it's going to stay at this levels, but I think were also surprised as the mix has changed from our loyal very loyal to now a more more first to cruise coming in those levels have continued to be exceptionally high.
Got it maybe I could just squeeze one more in there I would tell you it sounds like a bunch of different levers to navigate the current fuel and food inflationary economy.
Can you just talk about if you've started to consider price as a lever.
These pressures and how accommodating.
So it would be given that we're still somewhat.
Sure.
So as you can imagine.
Inflation or not we're trying to maximize price every day, that's a revenue management team's job and that's what we do here. So we do it every day.
And as you can see the values are are obviously picking up.
The pricing that we command for our products. So you know what.
We tried to do that decoupled from from the pressures may be that we're seeing in the on the on the expense side.
Yeah.
I think the other thing just to add what we well we do see over time, whether it's with inflation or other other related activities in the macro environment is as the consumer recalibrates its willingness to pay more for things and they see comparables and theyre paying more but there is this gravitational pull.
To those locations. So we do as <unk> said, we try to maximize revenue each and every day, whether it's ticket are on board.
At the same time, but we do see is as the consumer begins to gravitate towards higher pricing as they get calibrated to what they're paying for a hotel room.
Or what they're or they are paying for other other services and restaurants and so forth.
That makes sense. Thank you Ed.
Thanks.
Our next question is from Vince <unk> with Cleveland Research. Your line is now open.
Thanks, you alluded to kind of the value of cruising versus other land based on the goal to close the gap over time when you look here recently.
March bookings ADR were running 12 ahead bookings saw ADR run 20% ahead in April Airbnb is since your outlook calls for it.
ADR at around like 30% ahead, so I'm curious kind of what you're seeing in your leading edge bookings.
On pricing for all future periods.
Has that been accelerating through the course of the last three to four months and.
That continues to layer in is your booked position for the second half of 'twenty three embedded pricing theyre moving higher over the last 60 days.
Yeah, I think that's all so fast I mean, that's exactly what we're seeing I I do think that in the backdrop of this the entire industry is coming back online at the same time and so there's a there's a lot of.
Ships coming online, which I think causes a little bit of noise.
In the system overall.
Overall, but I think we look at two things one we're looking real time of what people are paying and as you noted we're seeing those those those similar trends there was still at a discount to what the the hotels and other other operators are getting and by operators I mean non crews.
And then we also look at what's happening on board and I think you have to look at those two things in combination because that's how the consumer looks at their travel experience in combination its not just a hotel room, it's not just an airplane seat.
This is a kind of total vacation package, that's kind of in their consideration.
We've talked about as it relates to onboard spend combined with the ticket.
Really kind of all connects to that storyline.
And then as we mentioned obviously as we look ahead in our book position both for the second half in 'twenty three we are higher.
Without even the impact of the FCC as compared to 2019.
Great and then.
Other on cost.
Not sure if you've mentioned this or not but obviously through Q code that you become more efficient newer ships some cost changes made.
<unk> side, how are you thinking about longer term non fuel unit cost.
Do you think they can get back to those 2019 levels, just with everything going on right now with inflation.
Is it labor.
Good.
How are you thinking about the longer term cost opportunities.
Yeah. So you know to dwell that we we.
We had great margins.
Before the pandemic, we had these leading margins and our goal is to get back and beyond of those margins as soon as possible you mentioned some of the factors. We've we've done a lot to the pandemic and this is what we're working towards as soon as possible. So yes, there are some.
Inflation kind of inflationary pressures he called it around flu and few that we.
We pointed out.
We're seeing some stabilization.
But all the things that we've done this is definitely our goal.
Alright, thank you.
Thank you.
Our next question is from Stephen Grambling with Goldman Sachs. Your line is now open.
Hey, thanks.
Follow up on your answer there.
His comments on price and onboard I guess I would note that the hotels and others are also seeing very strong food and beverage I would think it kind of comparable to be onboard.
And those are off and running also double digits up versus 19, So make sure I heard you correctly I think you said that the magnitude.
Both of these combined you feel like it's effectively comparable to those peers.
Or is the higher capacity growth across the industry driving that perhaps a little bit lower but the overall dollars are kind of ending up in the San please.
Yeah, My point was that Directionally.
It's exactly what we're seeing but my comment was in the short run. There is there you know you have a lot of ships coming online and.
And there is different.
Category mixes that are that that are in play that can cause some noise.
So as you guys are doing price checks and so forth, but what we're seeing in recent bookings what were seeing obviously, what our guests spend directionally as is very much in line with what we're hearing from other travel providers.
Got it that's helpful. And then this may be a difficult thing to assess but given this is the first time the entire fleet is really been shut down and restarted.
Is there any risk or any thoughts that we need to consider around kind of <unk>.
Deferred maintenance capex or other onboard maintenance type cost that may need to be incurred as the whole ship fleet gets up and running over the next couple of years here. Thank you.
Thanks, Steven So we hope that this will be the the only time that we will see that we have shut down the fleet that's for sure and <unk>.
What we've done through a lot and I think we spoke about it in past quarters is even through the pandemic and even to the shutdown the way we laid up the ships. The way. We we continue to maintain them was our one of our key goals. So.
We still maintained in the lay up was was such that it will it will help us to get the ships back quicker and without many issues and I think we're very pleased as we are bringing the full fleet, we're not seeing something that is out of the ordinary.
And and that's a you know kind of how we think about it and we do not expect it to two way on maintenance costs in the next couple of years.
Helpful. Thanks, so much.
Our next question is from Fred Wightman with Wolfe Research. Your line is now open hey.
Guys. Good morning, just another one on that gap versus what Youre seeing.
Versus land based peers I mean, Jason you made a comment as far as just looking to reset that do you feel like the current environment is a situation where you could look to close that gap pretty materially versus land based peers. Do you think that you want to maintain a bigger gap just to try to get back some of that market share that you guys might have seen it over the past year or two how are you sort of thinking about that at a high level.
Yeah.
Yes.
I think we had said earlier that we're always trying to maximize our revenue and price integrity is is very much kind of an important part of that so I don't think that we're doing anything to try to make to kind of certainly maintain a gap.
Covid.
The combination of things like perfect day.
You know you could add things like the edge class ships and so forth that we saw a pretty significant reduction in that gap to land based vacations, especially in key products like in Orlando in and.
The other products.
That are out there and and I think that you know we very much are focused on that we have really managed to enhance the experience both on the shipping on land.
Based off of really tuning into the customer for us to be able to go ahead and do that.
I think that's why we are seeing similar trends, but when you look at the overall fleet as a whole and you compare those two <unk>.
Based vacation in Europe , when you look at that a land based vacation in Alaska or Vegas et cetera.
There's still that gap and there's still that opportunity that you that we're very honed in on I mean, that's really where if you saw us pre COVID-19 or during Covid, where we where we have focused our energy is less about.
Our crews periods, but more about how do we close those gaps to land based vacations.
Great. Thank you.
Okay.
Our next question is from Paul Golding with Macquarie Capital. Your line is now open.
Great. Thanks, so much just wanted to ask you about China I know in the prepared remarks, you commented that you're poised to reenter that market, but just wanted to ask if there was any.
Anything longer term or structural.
Maybe shifting.
Terms of future plans for itinerary deployment based on the volatility we've seen in Asia in terms of reopening and.
What expectations do you have in terms of a normalized period. Once you can redeploy shifts there and then I have a follow up on labor.
Yeah.
Hi, Paul This is Michael.
I think we you know we've stated previously our strategic intent is to return to the China market. We've.
Being in the market for over a decade, we've had some phenomenal he is in the China market and we've had a very successful operation there.
You know the Volatilities existed in all markets for the past two years, including China I think it's regretful that the China market is still not accessible to us.
I think Ah.
Our current thinking was that 23, we would be back in the China market I'm not sure whether that'll come true or not it could be 24, but we're ready to go and we're looking forward to returning to the market I think when you look at the region of Asia Pacific, It's always been a meaningful market for Royal Caribbean Group and our intention.
Just to return to that market into two to leverage the opportunities that we have we've spent time building our brand in China, where our in our space. We're a very well known brand. We're very liked them. We have very good consumer following with with the Royal Caribbean International brand.
And we think that when the market opens back up we'll be able to re access the marketing and get back to business and that's exactly what we're thinking.
Thanks, Michael and then on the labor side some of your land base Entertainment peers.
Has that started.
Waning.
Age increases this year as they tap international Labor I was wondering for shoreside operation if youre seeing a similar picture.
Your thoughts are around.
Rate increases on onshore side labor for this year. Thanks, so much.
Well on the shore side standpoint, I think we're experiencing I mean, most of our shore side employees or are you are you are your sales and marketing your accounting supply chain et cetera. So.
What we're experiencing there is similar to what.
Most organizations are experiencing though I think because we wake up every day delivering the.
The best vacations in the world, we tend to be more attractive than others in terms of attracting talent.
So we're very fortunate for.
For that I think what people are experiencing in hotels and others in terms of that Labor force.
Certainly getting 75000 employees back up and running on our ships.
It was a tremendous and herculean effort.
By by our teams for the most part that's that's been able to be managed well.
And you can see that really through the net promoter scores that we're seeing on our ships.
Great. Thanks, Jason Great. We have time for one more question Abigail.
Sure. Our last question is from Ivan.
With Tigress financial your line is now open.
Alright, Thanks for taking my question and congratulations on the ongoing progress.
Thanks, Tom can.
Can you go into a little more detail about the.
<unk>.
Cruising planning App, and what kind of things that could go to and what are some of the things that you can do with it and how you're seeing that incremental revenue specifically outside of just onboard spending.
Yeah.
Well I haven't it's Michael.
Pre cruise revenue is fundamentally about onboard spend I mean, everything that we're marketing is about products and services that.
Customers consumers purchasing historically when they bought it ships they would purchase different packages and products now we have over time developed the sophistication and the ability to.
Not only use the analytics and the information that we know about the customer to offer them products and experiences and services that we think they're going to like and we've also been able to over time through testing bundle. These promotional products together to not only maximize revenue but also.
Ensure that we're delivering a great vacation experience to the guests so.
In some cases, we've got customers, who prefer gaming and dining and other cases, we've got families who prefer shore excursions and we now have the ability to tailor our communications and our promotions to those customers based upon what we think that key preferences are.
And the fact that we can stop that cadence of communication. After the ticket purchase gives us the time to really engage with the customers. So we can start a dialogue about the kind of products and services that they want.
And I think you know over time as we built this knowledge and expertise we've become and to Jason's point. It really is the beginning of this journey, but I think what we've learned in this journey is how we can offer products bundle.
Manage the right pricing.
Two different customer groups and segments and be successful with it. So we continue to see the penetrate penetration rates, increasing and obviously the purchase is is quite significant so.
That's kind of the journey that we're on with this.
And I'm just trying to put it.
This into context.
Everyone here, who has hurt us for years talk about project Excalibur, which was our journey.
To take friction out of the guest experience and that has come through engagement and providing tools and technologies and app.
That allows you to whether it's booking your crews whether it is.
Being able to just walk on and off of our ships in very short periods of time on demand services. So it's really it's really kind of just continuing to bake out. This this this journey of taking friction out and what we know is if we could take friction out.
I'm out of the out of the experience and friction is also booking shore excursions in the spa appointments et cetera that the guest is very much willing to spend when they're when they are aware of what what the offering is to them.
Tools and technologies also allow us to be able to yield manage in real time.
As well, which allows us to take advantage when there are those opportunities and just to add either and I think one of the other beautiful things of this is to Jason's point with the development of the App.
The integration between the pre cruise and the App is is very harmonious. So when we are communicating with you before you sell and you purchased various packages and products than when you bought the ship and you signed into the App all of those products and services are made available to you on a calendar. There's reminders just communication to you. So it's a very seamless.
Process.
Okay very good and also can you, let's say proactively market, both before and use it to proactively market, both before and onboard lets say if there was downtime in the Spa you could yeah, yeah, yeah, yeah yeah.
Yes, exactly right on yeah.
Alright, it sounds I appreciate it thanks.
Thank you.
Thank you.
Well, thank you for assistant Abigail with the call today and we thank all of you for your participation and interest in our company Michael will be available for any follow up you might have I wish you all a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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