Q2 2022 Carnival Corp & Carnival PLC Earnings Call

June 24, 2022

So there's going to be extend by the call will begin momentarily. Once again. Please continue to standby we thank you for your patience.

[music].

Good morning, and welcome to our business update conference call.

Donald President and CEO of Carnival Corporation and plc.

I'm joined today telephonic lead by our Chairman Micky Arison, who was in Europe and here with me in Miami, David Bernstein, Our Chief Financial Officer, Beth Roberts Senior Vice President of Investor Relations and as part of our previously announced transition our Chief operations Officer, Josh Weinstein.

Thank you all for joining us this morning.

Before I begin please note that some of our remarks on this call will be forward looking.

Therefore, I must refer you to the cautionary statement in today's press release.

This is my final business update as CEO .

While very disappointingly our share price. Unfortunately reflects the current market conditions.

I am Nonetheless, very proud of all that the team has accomplished over the last nine years.

I am, especially proud of how well we are collectively overcome what seemed like an insurmountable obstacle that times. These last few years.

And I remain very excited about our future.

With cash from operations now turning positive we have reached an inflection point and in fact turned the corner and are headed on a positive trajectory.

I'm not only excited about I am also very confident in the future of our company and I'm looking forward to his continued success.

I strongly believe in this team and we are enjoying a smooth transition.

As Vice Chairman barring away my number one responsibility will be to support Josh and his management team as they work to build on the current momentum.

Josh is a proven executive.

He is well respected throughout the company.

Served in key leadership roles. He has driven strong business resorts. During his tenure and he played an integral part in Stewarding the company through the global pandemic.

Josh as thorough understanding of our industry of our operations and our business strategy puts them in a strong position to lead the next phase of our company's journey.

With his vision intensity and core values truly align with those that characterize our company I cannot think of anyone better suited for this role then Josh.

Now turning to our business results it.

It is reinforcing the see the continued strength and demand for cruise, we are aggressively yet thoughtfully ramping up to full operations with over 90% of the fleet now at service and at the same time, we are driving occupancy higher on those ships that have been failing and we are folks.

On improving pricing compared to pre COVID-19 levels.

As we had indicated for the 20 ships that restart over the last quarter occupancy has been intentionally constrained.

That said.

Occupancy increased from 54% last quarter to 69% this quarter.

While we also increased our available capacity by 25% now the combination drove an over 60% sequential improvement in passengers carried in.

In fact, we carry over 1.6 million guests this past quarter.

Importantly in the month of June we are already approaching 80% occupancy and again on even higher capacity.

Now what makes that even more impressive as we were able to achieve that in an environment of uncertainty given frequently changing protocols, including those that were far more restrictive than those in broader society and that we're far more restricted than those found even in other portions of the travel and leisure sector.

Well thankfully vaccination of test requirements are starting to relax given the improvement in the state of the virus, we continue nonetheless to face constraints and the pool of potential guests due to ongoing requirements in a number of places.

Yet we have been able to make very meaningful progress.

As you know the CDC recently lifted the testing requirements for reentry into the U S for air travel, which going forward clearly removes some of the friction from our North American brands deployment in both Europe and due to the Canadian Embarkation Alaska.

Usually require a longer duration flight. These itineraries are typically associated with longer lead times and consequently, we expect the real benefit to be realized in 2023 and beyond.

Importantly, customer deposits increased by $1 $4 billion in our second quarter.

Topping $5 billion.

Now we have seen a continued increase in express demand and we expect to see that demand continue to build as protocols are further relax and as society becomes increasingly comfortable managing the virus.

Concerning the threat of global recession, while not recession proof.

Our business has proven to be recession resilient time and again.

As we have seen in prior cycles, even in downturns employed people take vacations and that's even more true in today's environment, where people prioritize spending on experiences.

Spending on things.

Cruise remains an especially appealing vacation option during downturns.

<unk> of its compelling value proposition relative to land based alternatives.

So there is pent up demand for travel globally, which is a powerful tailwind.

Currently we are seeing success foot close to home cruises with many failings achieving occupancy at or above 100%.

Guests perceived far less friction than with international Embarkation in fact, our carnival cruise line brands selling its entire fleet is expected to reach nearly 110% occupancy during our third quarter.

We also saw an improvement in new to cruise guests in the second quarter, and we have begun to ramp up our advertising efforts selectively to help support attracting first time cruisers.

Concerning pricing.

We remain focused on improving price through next year.

We're focused on optimizing the occupancy while preserving long term pricing.

In this current environment of travel restrictions and health protocols, where we have close in availability, we use opaque channels and limited promotions to capitalize on near term demand.

We are building on our aggressive fleet optimization efforts.

Given challenges in parts of Europe , we have reallocated capacity to capitalize on markets, where there is stronger demand in fact, we just announced in our specialty creative approach that we think holds great promise.

The launch of Casa by Carnival.

With Casa by Carnival, we bring the ambiance and beauty of Italy to Carnival cruise line guests.

Cost of an ETF constant currency, both newly introduced in both spectacular will be managed by Carnival cruise line catering to carnival's guest base beginning in the spring of 'twenty, three and 2024, respectively.

This new concept warfare unique experience for carnival guests to choose fun Italian style, while capitalizing on our costs as beautiful Italian design elements.

<unk> will be announced shortly and will represent a new itinerary option for carnival guests.

We also announced the transfer of possible Minoso till the Carnival brand beginning in November 2020 to catering to Australian guests.

With these changes the carnival brand will replenish capacity that had been removed from recent ship exits and contribute to manage growth for the brand.

These new and differentiated product offerings enable us to capitalize on demand among carnival cruise line guests.

And strengthened return on invested capital across our portfolio and.

In addition, we continue to further optimize our fleet and have announced to remove an additional smaller less efficient ships, bringing the total to 23 ships to be removed from the fleet since 2019.

The accelerated removal of these less efficient ships, coupled with the delivery of nine larger more efficient ships delivered since 2019 foster as higher revenues over time through a seven percentage point increase in the mix of premium priced balcony cabins and an even better platform.

Onboard revenue opportunities.

As well as generating a 6% reduction in ship level unit costs, excluding fuel.

Moderating the effects of inflation and enabling us to deliver more revenue to the bottom line.

Upon returning to full operations nearly a quarter of our capacity will consist of newly delivered ships.

Expediting, our return to profitability and improving our return on invested capital.

Moreover, next year, our capacity growth compared to 2019 is concentrated and brands with our highest returns.

Concerning recent fuel prices, we continue to aggressively manage our fuel consumption.

Upon reaching full fleet operations, we anticipate that we will achieve a further 10% reduction in unit fuel consumption and 9% reduction in carbon intensity as compared to 2019.

With our proactive efforts to reduce fuel consumption, we actually peaked our carbon footprint.

2011, and that's despite an over 30% increase in capacity expected through 2023.

In fact, we have reaffirmed our strengthen our carbon intensity reduction goals for 2030.

On an accelerated path to achieve them through our fleet optimization efforts investing in projects that drive energy efficiency, designing energy efficient itineraries and investing at port and destination projects.

During the quarter Carnival cruise line broke ground on an exciting new destination project.

Carnival Grand Bahama crews for it.

This destination is expected to open in late 2024, and we will offer our guests a uniquely bahamian experience with many exciting features and amenities. This private guest experience destination will join Princess Cay half Moon Cay Grand Turk Mahogany Bay Amber.

Coal and copper mill, securing our strong foothold in the Caribbean.

In fact, we benefit from a total of nine owned or operated private destinations of port facilities, including terminals in Santa Cruz to Tenerife and Barcelona.

Again, I believe we have operationally reached an inflection point.

And we are heading in the right direction with cash from operations turning positive this quarter.

We have a strong liquidity position of $7 $5 billion and have already managed our debt maturity towers down through 2024.

We have 91% of the fleet now operating and at improving occupancy levels, which bodes well for future cash generation.

While to date travelers perceived uncertainty and friction continues to be a headwind as protocols become less restrictive and society continues to become increasingly more comfortable managing the virus, we expect to see demand continue to build.

As we have already seen with the stress, but carnival cruise lines closer to home cruises.

The attractive value proposition relative to land based alternatives, which is even greater today and the continued strength in onboard revenues should help foster a good environment for pricing and should help to accelerate our momentum going forward.

Once again.

I don't have the words to adequately convey how personally rewarding and inspiring.

<unk> the dedication the creative ingenuity and the phenomenal execution of our carnival team shipboard and shore side around the world.

Ben.

And that of course includes our chairman Micky Arison, and the rest of our board of directors.

You know in the face of constantly changing barriers and constraints.

In an environment of continuous and extreme uncertainty.

Our global team of tens of thousands.

<unk> tackle challenge after challenge after challenge.

Our commitment to our highest priority of compliance.

Bimodal protection, and the health safety and well being of everyone.

While stewarding the shareholders assets and positioning us for great success over time.

I simply can't thank them enough and is truly a privilege and an honor to work with them.

Thank you also to our valued guests their loyalty to our nine world, leading brands and the countless letters and calls of support are so deeply appreciate it.

Thank you to our travel agent partners, who are more critical than ever and helping to deliver the great story about cruise.

Thank you to our Homeport in destination communities, who have stood by us throughout these challenges.

Among other contributions providing vaccines and lobbying for workable protocols.

Thank you to our suppliers and other many stakeholders, who stood by US and worked hard to meet our needs while facing challenges of their own and of course of course, thank you to our shareholders. Our bondholders the banks the export credit agencies will continue.

<unk>.

And for ongoing support.

We are indeed poised for a great future because of the efforts and contributions of so many.

With that I would like to take the opportunity to introduce Josh and give him the chance to say a few words before turning the call back to David Josh.

Josh.

Thank you Arnold and thanks, again to Micky and the entire board of directors for this great opportunity, but I strongly believe in our company.

Our ability to create happiness by delivering unforgettable a much needed vacation for our guests.

This needed even more important in the current environment given the stresses of the past two years and the value that we all placed on shared experiences with friends and family.

We are uniquely placed to deliver on this through our nine leading cruise brands each with a focus on meeting their specific gas needs and wants.

We plan on renewing our efforts to ensure each brand achieved clarity of positioning and effectively reaches their target audience.

This alongside providing cruise experiences that really resonate with their distinct guest base will help each brand optimize its yield and growth aspirations to drive revenue.

We also expect to capitalize on our revitalized fleet.

Our continued portfolio optimization efforts and our unparalleled destination footprint, particularly in the Caribbean and Alaska.

In addition, we have an exciting sustainability road map that underlies all of our efforts.

What also gives me tremendous confidence as our determined and resilient team around the world.

They've proven time and time again for the last two and a half years, they can absolutely achieve anything.

And they do it while staying true to Carnival Corporation's collective values and positive culture.

All of this will help us accelerate revenues and returns drive durable earnings growth and improve the balance sheet.

As you said Arnold we are clearly at an inflection point and have a bright future ahead.

Looking forward to putting the perspectives I have gained here in my 20 years in multiple roles to work for the benefit of our shareholders and our many other stakeholders.

Thanks, Josh we're looking forward to your leadership.

David.

Thank you Arnaud.

I'll start today with a review of guests cruise operation along with the summary of our second quarter cash quarter.

I will touch on our 2024 inventory auditor rotation.

And then I will provide an update on booking trends and finish up with adjusted EBITDA expectation and our current financial position.

Turning to gas cruise operation during the second quarter 2022, we restarted 20 additional shifts resulting in 74% combined total crude capacity guests cruise operation.

All of the second quarter. This was a substantial increase from 60% during the first quarter 2022.

As of today, 91% of our crude capacity.

Guests cruise operation.

We were pleased to see that the second quarter 2022 revenue increased by nearly 50% compared to first quarter 2022.

We'll conclude sequential improvement.

For the second quarter occupancy was 69% across the ships and serve them.

Yes, we can increase from the 54% in the first quarter.

We were encouraged by the very close in demand we experienced during the second quarter, who is the second quarter, resulting in nearly double the close in occupancy gain in second quarter 2022 versus second quarter 2019, our trend we had anticipated.

Revenue per passenger day for the second quarter 2022.

<unk> slightly from a strong 2019.

As Arnold indicated we are focused on optimizing occupancy while preserving long term pricing power.

However, let's not forget impact due to the future cruise credits or <unk> as they are more commonly call, which cost us a couple of percentage points in second quarter 2022 versus second quarter 2019.

Excluding the impact of these revenue per passenger cruise days for the second quarter would have been higher than our strong 2019.

Once again, our onboard and other revenue premiums were up significantly in the second quarter 2022, first and second quarter 2019 in part due to the bundled packages as well as the envoy credits utilized by deaths from cruises canceled during the path.

We have recently expanded our bundled package offering given their popularity.

New bundled offering to require us to make changes to the accounting allocation.

As a result in the third quarter, you will see more rapidly lapsing ticket and less allocated to ongoing impacting the onboard and other revenue per PCB comparison.

Third quarter as compared to the second quarter Jeff.

Just another reason to add to the list of reasons why the best way to judge our performance is by reference to our total cruise revenue metrics.

On the cost side, our adjusted cruise costs without fuel per available lower birth date or.

As it is more commonly called for the second quarter 2022 was up 23% versus second quarter 2019.

The increase in adjusted cruise costs without fuel per <unk> is.

Given by essentially ice cream.

First the cost of a portion of the fleet caused status.

Second we start related expenses for 'twenty ship.

Third 24 ships in dry dock during the quarter, which resulted in over double the number of dry dock days during the second quarter versus the second quarter 2019.

The cost of maintaining enhanced health and safety protocols and find little inflation.

Remember that because a portion of the fleet was implies that is true.

In the quarter and the.

A higher number of Drydocking.

<unk> costs over the less <unk>.

The first half of 2022.

Unusually large number of ships in Drydock as part of a resumption of cruising ramp up optimizing our dry dock schedule. While the ships are not in service and ensuring that the ships who are great work right. When they welcomed our first guests back onboard however.

However, the second half 2022, dry dock schedule looks more normal by historical standards.

We anticipate that many of these costs and expenses driving adjusted cruise costs without fuel per LTV higher.

During 2022 and will not reoccur in 2023.

As a result of all of the above we expect to see a significant improvement in adjusted cruise costs, excluding fuel per <unk> from the first half of 2022 to the second half of 2022 with a mid teens increase expected for the full year 2022 compared to 2019.

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Next I'll provide a summary of our second quarter cash flow.

We ended the second quarter 2022, with seven and a half billion in liquidity versus $7 2 billion at the end of the first quarter.

The change in liquidity during the quarter was driven essentially by 16.

First negative adjusted EBITDA of approximately $900 million due to our ongoing resumption of guests cruise operation and improvement from the first quarter.

Second our investments of 500 million and capital expenditures.

Our $200 million of debt principle payments and 400 million interest expense during the quarter.

All of which was more than offset by a one 4 billion increase in customer deposits during the quarter, along with the $1 billion principal announcement of unsecured notes.

<unk> last month.

Now I will touch on our 2020 for mandatory wanted a rotation.

I wanted to take a moment to explain our situation has it is very different from most publicly listed companies outside the UK and EU.

Carnival plc, our UK publicly listed company, which is part of our dual listed company structure.

Subject to UK law, which requires more inventory auditor rotation.

Therefore price Waterhouse coopers or pwc as they are more commonly called must be changed as carnival plc as auditor for the fiscal 2020 audits at the latest.

Therefore, we conducted a competitive RFP process for the independent audit of Carnival plc, as well as the consolidated entity Carnival Corporation and plc.

As a result of the recently completed RFP process yesterday, our board of directors appointed Deloitte as the company's independent to what are there for fiscal 2024.

We completed the RFP process in the first half from 2022 to ensuring quarterly transition of non audit services for the remainder of 2022 and to ensure independent bike avoid in 2023 is required under U K law.

Before I continue I would like to add that the board of directors and management for Carnival Corporation and plc, we'd like to thank price quarter has Cooper's group's conclude serving as the company's independent auditor.

Now, let's look at booking trends.

The higher March weekly booking volumes, we talked about on our last business update.

Continued throughout the quarter.

This resulted in booking volumes for all future sailings during the second quarter 2020 to nearly double the booking volumes during the first quarter 2022.

Second quarter 2022 booking volumes for all future sailings were the best quarterly booking volumes, we have seen since the beginning of the pandemic.

Although they were still below the 2019 level.

I am happy to report that.

<unk> volume.

Beginning of April for the second half of 2022 sailings have been higher than 2019 level.

All of this reflects the previously expected extended weight people.

And as I said before we were very encouraged by the closing demand we experienced during the second quarter or the second quarter, resulting in nearly doubled the closing occupancy gain in second quarter 2022 versus second quarter 2019.

And we had anticipated.

While the cumulative book position for the second half of 2022 is below the historical range. We believe we are well situated with our current second half 2022 book position given current booking volume coupled with closer in booking pattern.

We continue to expect that occupancy will build throughout 2022 and returned to historical levels in 2020 spring.

Pricing on our accumulative book position for the second half of 2022 was lower with or without FTC normalized for bundled packages as compared to 2019 failing.

For the full year 2023, our cumulative advanced book position continues to be at the higher end of the historical range.

At higher prices.

So without FCC normalized for bundled packages as compared to 2019 ceiling.

This is a great achievement given pricing on bookings for 2019 tailings is a tough comparison as that was the high watermark for historical yield.

During the second quarter 2022, we once again increased our advertising expense compared to the first quarter 2022 in anticipation of a full sleeping and guests cruise operation and our 8% capacity increase for 2023 versus 2019.

Fourth quarter 2022 was the first time since the pandemic that advertising expense was above 2019 level.

I will finish up with our adjusted EBITDA expectation and our current financial position.

We all know that booking trends are a leading indicator of the health of our business with improved recent booking trends, leading the way driving customer deposits higher positive adjusted EBITDAX is clearly within our sights.

Adjusted EBITDA over the first half of 2022 was impacted by start related spending in dry dock expenses.

30 ports shipped nearly 40% of our fleet.

<unk> during the first half of fiscal 2022.

The third quarter with over 90% of our capacity back and gets cruise operation and occupancy percentages building.

That ship level cash contribution to grow.

As a result, we.

Expect adjusted EBITDA to be positive for the third quarter 2022, which after everything we've been through will be something worth celebrating.

With EBITDA, turning positive more liquidity than last quarter.

That maturity towers that I think well manage through 2024, we have already refinanced a portion of our 2023 maturities and we will do the rest over time.

And now I will turn the call back over to Arnold.

David Operator, please open the call for questions.

Yeah.

Thank you.

To queue up for a question. Please press the one followed by the four on your telephone.

You will hear a suits unprompted military request.

One moment please for the first question.

Our first question comes from the line of Steve <unk> with Stifel. Please go ahead.

Yeah, Hey, guys good morning.

Arnold Congratulations and it was a great run so thanks for Europe for your service.

So first question would be around the booking patterns, which.

Clearly here are continuing to strengthen however.

However, I guess investors are going to at this point based on where your stock is theyre going to look past booking current booking patterns and you know theyre going to focus on what could come next given an uncertain macro backdrop and I guess my question is how would you guys.

The slowdown in bookings.

Load factors in the past you would've typically cut prices in order to keep load factors.

Hi, but this time around if you do see bookings slowed do you think you guys and your peers will be able to say more disciplined on the pricing side of things. So the recovery wouldn't be at steep on the other side.

A couple of quick comments first of all wouldn't comment on what the others would do you can talk to them directly.

We have as we've.

Then hit with different variance, an invasion of Ukraine, and other things and bringing more capacity on board.

We've had to consider all of that and at this point in time.

Largely we have done everything in mind trying to keep our pricing strong going forward.

Because we think that that's the right move right now the positive thing here is that there is pent up demand.

And so even if there was a global recession.

The reality is we are as I said in my comments.

Recession resilient historically.

And this time, if there was a recession, there's tremendous pent up demand, which in the past wasn't necessarily the case, because there's been a couple of years where people have not.

Been able to travel the way they wanted to so comb.

A combination of things one is we are naturally somewhat recession resilient, we haven't added tailwind of pent up demand and yes, we're focused on.

Doing what we can to ultimately drive the cash we need but at the same time due in a manner, where we can maintain pricing strength David.

Yeah, Joe just one thing I'd add to that remember Steve not every recession is the same and we are currently in a very strong labor market.

And given that.

People have jobs and they feel comfortable in their jobs, they are likely to need a vacation and remember vacations that are no longer a luxury they are a necessity in today's world. So I think we will do very well.

As Arnold said, we are recession resilient and we will do very well in a recessionary environment.

And then as you know we will see if a recession comes right now savings are really high as David pointed out unemployment rates are.

Really low.

And so there is.

<unk> economic strength for the time being local we'll see what happens.

Okay got you. Thanks for that guys and then second question I guess, probably for you David around the recent debt raise and we we've got a lot of questions from investors about why you guys would go out great that north of 10.

10% and maybe what drove you or maybe there was an underlying underlying reserves.

As to why you had to raise debt at those levels and I guess from here. The question is going to be what is the opportunity moving forward to refinance or maybe there isn't a chance to refinance given where rates are at this point.

Yes so.

If you.

As I said on the last conference call. We were looking to over time refinance the $3 billion of 2023 maturities and we were focused on that.

And.

We took a look and we believe that we're in a rising interest rate environment.

So we did go out and we raised $1 billion at 10, 5%.

It was a difficulty in the market nobody could have predicted the what would happen in the overall market, but what's interesting is despite the market backdrop, we were able to raise $1 billion within the price talk that we wanted on that day and we felt very good about that.

Looking to do $2 billion to refinance the remaining portion as I said in my notes over time, but we just averaging in.

If you look at it today.

Interest rates are higher than they were a month or so ago. When we actually did our around bond offerings. So you know I.

I'd say that we were in a good position we feel good about what we did.

And we will look to refinance the other 2 billion over the ensuing months ahead and were just averaging in keep in mind. Despite I will say, adding $10, 5%. If you look at our portfolio of debt. Our average interest rate today is four 5%. So we've done a.

Great job managing the whole portfolio and this is just one minor piece in the portfolio.

Okay, great. Thanks, guys really appreciate it.

Okay.

Thanks, Steve.

Next question from the line of Robin Farley UBS. Please go ahead.

Great. Thank you Arnold best wishes since this is the last earnings call.

Good luck with everything.

A question.

On occupancy and I think investors kind of struggle with you know how much of a lower occupancy is sort of temporary like the other kind of cancelations in Q1, and new ships coming into service.

<unk> levels.

How much in other words to try to kind of see the pent up demand there I wonder if you could give us a little bit of color on sort of the sequential build in occupancy through Q2, I know you normally wouldnt give that level of detail.

<unk>.

Maybe something with your visibility on Q3, which I think normally you would be.

And 90%, which by now and just kind of.

Are you seeing.

It's four four ticket price relative to 19 and occupancy with that level of disability I don't know if you can comment a little more specifically thanks.

Ron.

David to share some details, but the overarching comment would be that we.

<unk> and occupancy and we have some intentionally constraining occupancy as we brought shifts on back.

Online because of protocols in different places and so on.

Also had some isolated situations, where we're moving crude.

Crew around temporarily as we were staffing up with crew and constrained capacity.

So for those reasons as well, but all of our occupancy our occupancy, but our occupancy rates as we've shared.

Really improved over time here and as we mentioned the Carnival brand is looking at 110% occupancy.

In the third quarter. So we have more capacity sailing and occupancy is rising nicely and as the world.

<unk> continues to relax and become comfortable managing the virus.

And restrictions are relaxed.

We see things moving more to the erection of the Carnival brand, where things are more normalized even though they still have some restrictions right now.

David Yes, so during the second quarter I mean, the variance between the months, we went from 67% to 71%, which is why we wound up overall with that 69% occupancy for the quarter.

And as Arnold said, we're approaching 80% for the month of June .

And with booking trends good we continue to build so but keep in mind that has had.

Indicated we started 20 ships in the second quarter and of course, there are a number of cruises where early on we constrain occupancy to ensure we practice and the guests have a great time.

And so we build on those ships and you can see the benefit of that when we got to tune.

So we feel very good about the overall trend is positive.

Moving in the right direction, and we do expect to see an improving trend in the third quarter and.

And into 2023.

Okay, great. Thank you and maybe just as a follow up question.

The expense commentary.

You mentioned a lot of sort of buckets about the pause status ship restart costs Drydock Alastair.

Has been part of that 23% increase and I know you mentioned that will improve significantly by year end I Wonder if you could quantify a little bit.

How much of that increase with just inflation in health and safety in other words. The other factors all day somewhat temporary pause status the restart costs to dry dock.

How much of that is sort of 23 points are.

Go away automatically just by having your sleep.

The fleet back in service.

So we can think about kind of where.

You could get to by the end of the year in terms of expense per passenger.

Yes, I think the best way to.

For you to you can do your own quantification and its pretty easy. If you think about we were sort of 24% per <unk> in the first half.

All you have to do is if you're a mid teens for the full year you come back into where we were for the second half taking out the pause status the restart to dry docks, because I did say that the drydocks in the back half of the year.

Going to be sort of more normal like in terms of the number of dry dock days. So if you back into the number youll be able to see where we are for the back half of the year, which is a better reflection overall than the first half now there is still noise in that because <unk>.

Supply chain disruption and other things and we are working really hard to manage that down and we will do that so, but that's probably the best way to tabak into it.

I know that that's simple average would get you to kind of a mid single digit four.

For the second half, but I guess I was wondering by the end of the year really thinking about 2023.

That's what I was looking for.

Maybe.

Yes.

Your stand.

And I'm not in a position to give cost guidance for 2023 at this point, but I was just trying to give you. Some directional you can see with the back half is and we will manage through.

All of those items effectively over the next six months and like I always say, we hope to do better.

But at this point it would be premature for me to give you a cost guidance.

Okay understood. Thank you very much thanks, thanks, Rob.

Yes.

Our next question comes from the line of Jamie Katz with Morningstar. Please go ahead.

Hi, good morning, Thanks for taking my question.

I'd be interested in hearing how you guys are seeing differences between domestic and international consumers, particularly because as <unk>.

This transition.

Sure maybe.

Maybe being.

This rebranding with carnival, and whether or not that's taken away anything.

Yes, I think just generally.

Obviously Europe in many ways is.

More challenged from consumer demand.

Standpoint, as it relates to travel to.

To an extent in North America, and what Youre seeing in the move with.

Costa by Carnival.

The transfer of the Luminoso in Australia to Carnival is part of a right sizing of Costa for what we see as the European environment, which is complicated and not only by Covid.

Macroeconomic conditions somewhat triggered by.

Invasion of Ukraine, but also.

The invasion of Ukraine, and so all of those things are impacting that.

The European market.

Market sector.

So we're reallocating too.

Two brands that have stronger demand are in a stronger position.

That's one of the beautiful things our assets are mobile and so but overall, we still see strong demand in Europe and there are portions of Europe . The U K in particular.

Also we see some.

Continuing strengthen and portions of Germany, or what have you and so so.

So we see a good market in Europe .

A strong market in North America and.

We're just reallocating across the brands to optimize our portfolio and maximize.

The cash generation position us for the long term.

If I can if I can build on that a little bit I did want to point out so we talked about.

Bookings in the second quarter nearly doubling.

<unk>.

They were in the first quarter so.

The NAA brands were a little bit over double in the EAA brands, which includes some costs that were a little bit less than double bump I mean everything is heading in the right direction. There is good solid strong demand.

In all the brands, but.

The NAA brands are doing from a booking trend perspective, a little bit better than the EAA brands I'd also like to point out.

Add to Arnold's comments about <unk>.

Testify carnival because keep in mind.

Big chunk of it.

Cost this capacity in 2019 was in China, and so with that market at the moment closed.

We'd rather than take all of that capacity and put it in Europe , we created a new market for the Carnival guests, which we think will expand the market here in North America, and we'll be in a much better position overall, so we feel very good about.

All of our brands and the direction and we are managing it appropriately as you could see that.

<unk> talked about the moves of the ships.

Okay, and then David I don't think it was explicitly.

But in the past I think you guys had pointed to 2023 EBITDA above 2019 levels.

Do you still feel like.

This is tracking in the right direction to achieve that.

So I've said that quite a number of times.

I think we are.

What I've always said is we have the potential for EBITDA to be greater in 'twenty, two 'twenty three than 2019.

That's one big wildcard of course is the price of fuel which has risen.

Right a bit in the last few months.

So just keep that in mind.

But there is with the occupancy improving over time, there certainly is that potential.

Thank you.

Yeah.

Our next question comes from the line of Patrick shows with Truest does it go ahead.

Hi, good morning, everyone.

Arnold best wishes as well.

You bet.

Thank you.

Can you two quite well first question is can you comment on your potential willingness to sell brands too.

One or more brands to help shore up the balance sheet.

Well.

Very pleased with our portfolio of brands.

Having said that our job is always to keep an open mind and do what's best for the shareholders.

No.

We would absolutely.

Again evaluate any and all options, but we're only going to do what makes sense for the shareholders given our projections of opportunity.

Given the portfolio we have.

Okay.

Fair enough and then my second question is.

There is a clarification on some of the text in the earnings release, where you.

You noted that cumulative advanced bookings for the second half of 'twenty two are.

Now below the historical range, which implies obviously it was.

Lowered from the previous where you said it was it lower.

Typically you'd noted here this position is consistent with its expected improving occupancy levels for the second half of 2022 can you explain a little bit more what that.

What that lapse rate means im not quite understanding what you mean by consistent with expected improving occupancy levels.

Yes, so while we were trying to say.

Yeah, what we're just trying to say there.

Is.

Like Arnold indicated that in the month of June in his prepared remarks. He said occupancy was approaching 80% and so what we were trying to say is despite the fact that we were below the historical range.

We do expect because of the closer in nature of the booking patterns to see occupancy in the back half of 2022 to be higher than the 69% in the second quarter and Thats. All we were really trying to indicate to people.

With that statement.

Okay. Thanks.

Thank you for the clarification.

Sure. Thank you Beth.

Yes.

Next question from the line of James Hardiman with Citi. Please go ahead.

Hey, good morning.

Thanks for taking my questions and Arnold I wanted to.

Reiterate congratulations.

And good luck.

Next page.

Sorry.

Wanted to.

In a little bit on some of the pricing commentary, particularly the revenue per passenger cruise days.

I think you said that number was down a little bit there was some a little bit of an FCC.

Headwind there, but I think I think that same number was up north of seven 7% in the last quarter. Obviously, there is growing concern that the industry is going to.

Need to push price a little bit to fill the ships.

Maybe speak to that idea as we continue to fill up the ships in the third quarter and beyond.

Should we expect that pricing number.

To go down down further and then obviously, we're going to get back some of that FCC impact, but sort of excluding that.

<unk>.

How should we think about revenue per passenger cruise day as we continue to raise occupancy.

So okay.

I think overall.

Arnold in his notes talked about the fact that we were.

Focused on maximizing occupancy while preserving.

Price in the long term.

And so we are very keen on that.

We did increase advertising expense in the second quarter for that purpose to create more demand. We are seeing more first timers. We had mentioned the fact that we saw a significant improvement in first timers. So what we're trying to do here is were.

Building towards historical occupancy levels in 2023 with better pricing as we indicated the pricing for 2023 is up but with the shorter booking window and the use.

Okay channel and the use of limited promotions.

Driving occupancy in the short term.

In order to optimize the EBITDA and the cash flow from operations of the business So why not.

Prepared to give you guidance on the third and fourth quarter revenue gross revenue per PC D.

Which by the way if you just think about the third quarter one of the things to remember.

As we hope to have a lot of kids onboard in the third quarter and those third and fourth will also generally.

They add to the revenue they add to the bottom line, but they will also on a per <unk> basis be lower than the lower birth.

Both for the ticket and the onboard the kids don't generally spend as much on board either but we're happy to have more onboard. So there are factors in there that you have to consider as you think about the.

The trend per PCB.

From third to fourth quarter and beyond and with the increase in occupancy that we experienced in the second quarter, even with the also the capacity increase we had in the second quarter when you normalize for the FCC's.

Pricing did not decline.

That's really helpful color.

Maybe you already answered this to some degree, but if I if I zoom out here for a minute historically the industry has largely use this price to.

Phil paradigm.

And I think with some of these metrics.

The concern is that we will return to that we were pre pandemic, we were it seemed like in a better place.

Thinking more about long term pricing opportunity.

Maybe speak to if theres been any change in your philosophy pre pandemic and now.

Just given the importance of filling up the ships and getting to positive free cash flow.

So one of the things that you have to think about and all of this is over time, we are already seeing it but.

But we're in the protocol friction is reducing.

Just recently they dropped the U S dropped the testing requirements for people to get back into the U S from.

International Places and we are seeing we are starting to.

To see the ability for us to reduce our protocols and reduce the frictions and I think that will bring back people from the sidelines and will create additional demand, which will allow us to get better occupancy.

At a better price.

So directionally.

With more first timers coming onboard and the reduced protocols, we feel very good about the future.

Over the next few quarters in 2023.

And keep in mind as you as you track all of this.

There are mix issues in here too just portfolio mix.

Overall brand positioning as well as specific itinerary.

Itineraries available and what have you. So the average prices there is a lot of noise on that.

The overall demand.

Message, we're sending in what we are experiencing is encouragement.

Strong market coming back pent up demand.

And those carefully managing that thoughtfully managing as we create the cash.

At the same time position the business well for the future.

That's really helpful color. Thank you Bob Thank you.

Next.

From the line of <unk> <unk> Wells Fargo. Please go ahead.

Hey, good morning, everyone and Arnold Best of luck and Josh Congratulations on the new position.

So I had a question on customer deposits and how we should think about this for the rest of the year. Obviously it was very strong in the second quarter I mean, there's typically a decline sequentially.

So just as we think about cash flow for the rest of the year and how customer deposits flow through is it is it safe to say that.

Okay.

Third quarter should.

Not going to be cash flow positive or just given that theres that sequential decline or given the debt that you guys continue to recover in terms of your bookings and operations third quarter could continue to be cash flow positive.

So that's a great question and we've been.

Trying.

To answer that I will tell you that in the last since the end of May our customer deposits have continued to increase they are up a few hundred million dollars.

So that at least directionally and in.

The last what is it been three five weeks, that's where we're at.

Normally during the third quarter there is a reduction because we reached the seasonal high peak at the end of May.

But there are offsetting factors this year that we would expect to see with more ships coming back online and higher occupancies that should mitigate.

Any normal seasonality nation, whether it completely mitigates it or not it's <unk>.

Very hard for me to predict at this point.

But there are some mitigating factors to the normal seasonality <unk> of customer deposits.

Got it.

Go right ahead.

Yes, one more quick one if I could just squeeze it in.

The newer cruise product a lot of your fleet has been has been refreshed to what extent have you been able to capture that pricing typically these newer product at a premium price, but this is kind of a weird environment have you been able to capture that and if so any kind of metrics or way to quantify that.

Yeah.

It's very hard to tell I mean, we look at so many things but.

So many variables variables right now it is just very very difficult to tell.

And the comparison going back to 2019 so.

We look at the total we manage it appropriately I will tell you those new ships are performing very well.

High levels of occupancy generating significant cash flows and as we move forward I suspect that we will be able to continue to to generate a premium there.

Arnold indicated nearly.

A quarter of our fleet will be new in 2023, our newly delivered the average age of our fleet believe it or not I think I said this perform maybe on one of the previous calls but from 2019 to 2023. Despite the passage of four years. The average age of our fleet went down one year.

So that that we've got a lot of new capacity, which should help very well.

Both on the revenue side and on the cost side from an efficiency perspective, and better fuel consumption. So we are very excited about the future and delivering memorable vacation experiences.

14 million people in 2023 as we go for.

Historical occupancy levels.

Well take one more question, let's make it a good one for Josh go ahead.

[laughter].

Sure.

Our next question comes from the line of Assia Georgieva Infinity Research. Please go ahead.

Good morning, Arnold you'll be missed just very happy that you received this great position responsibility and triple promotion. So I do have a good question for you hopefully.

With the cost of my Carnival concept that is obviously something that would be a long term fixture where not just.

Moving ships around.

The next.

Two or three years.

Do you believe that this is something that could be expanded and does the cost of fuel.

Play any role in terms of what ships might actually.

<unk> to join the new concept LNG.

We have been.

Somewhat difficult I guess in Europe .

Issues with cost in South America last winter season, So how do you see the development of the concept and what are the key parameters that would actually play into it.

I have John comment on the overall.

Our brand positioning and stuff as we go forward, but real quickly on the LNG fuel question.

LNG as you know as clean as Bernie.

Fossil fuel it gives us a 20% reduction.

A reduction in carbon emissions et cetera.

But the shifts.

Our dual so they can also burn mgo and so that onto itself.

Pat the future of the Costa brand.

We'll burn LNG whenever it makes sense.

To do so, which we think will be the majority of the life of the ships, but there are times, where we will obviously help too.

Brian Mgo, but in terms of the carnival by Costa positioning its a new concept and all that.

Josh share his thoughts about it go ahead Josh.

Just one thing to clarify obviously the two ships that were talking about that are going under this cost of by Carnival umbrella are not LNG ships that obviously didnt enter into our mindset at all so just to.

Arnold points with respect to the positioning I think this is a great example of leveraging the scale of this corporation.

Because we could have done is taken those shifts new beautiful shifts solely under the cost to name and tried to introduce them into the north American market on a standalone basis, but this is actually the opportunities to leverage everything that carnival does so well here in the United States and Canada for its guest base.

So by marrying that along with cost is beautiful tonnage.

And onboard.

Onboard experiences we have the ability to marry that up and make a best go of creating something really special. So the short answer is we absolutely expect us to be successful and we don't look at this as something short term, but ideally it will be something that works and we can build upon.

Okay. So currently no further plans obviously, you've made plans for 2023 and 2024, so that's plenty of.

Time and capacity coming in the two ships. So at this point still early to discuss whether this would become sort of a mini brand on its own.

Let's try it out with two shifts and then well then we'll see how we do but that's it for now.

So thank you everyone.

Go ahead go ahead I'm sorry.

Okay. Thank you everyone really appreciate it.

And looking forward.

To listening to these as we go forward.

During the Great news covered from Josh Authority. So thank you all very much and.

Have a great day.

That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.

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Good morning, and welcome to our business update conference call.

Donald President and CEO of Carnival Corporation and plc.

I'm joined today telephonic lead by our Chairman Micky Arison, who was in Europe and here with me in Miami, David Bernstein, Our Chief Financial Officer, Beth Roberts, Senior Vice President Investor Relations and as part of our previously announced transition.

<unk> operations Officer, Josh Weinstein.

Thank you all for joining us this morning.

Before I begin please note that some of our remarks on this call will be forward looking.

Therefore, I must refer you to the cautionary statement in today's press release.

This is my final business update as CEO .

While very disappointingly our share price. Unfortunately reflects the current market conditions.

I am Nonetheless, very proud of all that the team has accomplished over the last nine years.

I am, especially proud of how well we have collectively overcome what seemed like insurmountable obstacle that times. These last few years.

And I remain very excited about our future.

With cash from operations now turning positive we have reached an inflection point and in fact turned the corner and are headed on a positive trajectory.

I'm not only excited about I am also very confident in the future of our company and I'm looking forward to its continued success.

I strongly believe in this team and we are enjoying a smooth transition.

As Vice Chairman barring away my number one responsibility will be to support Josh and his management team as they work to build on the current momentum.

Josh is a proven executive.

Well respected throughout the company.

Third in key leadership roles. He has driven strong business results. During his tenure and he played an integral part in Stewarding the company through the global pandemic.

Josh as thorough understanding of our industry of our operations and our business strategy puts them in a strong position to lead the next phase of our company's journey.

With his vision intensity and core values truly align with those that characterize our company.

I cannot think of anyone better suited for this role and Josh.

Now turning to our business results it.

It is reinforcing to see the continued strength and demand for cruise.

Our aggressively yet thoughtfully ramping up to full operations with over 90% of the fleet now in service.

And at the same time, we are driving occupancy higher on those ships that have been daily and we are focused on improving pricing compared to pre COVID-19 levels.

As we had indicated for the 20 shifts that restart over the last quarter.

Pepsi has been intentionally constrained.

That's it.

Occupancy increased from 54% last quarter to 69% this quarter.

While we also increased the available capacity by 25%.

The combination drove an over 60% sequential improvement in passengers carried.

In fact, we carry over 1.6 million guests this past quarter.

Importantly in the month of June we are already approaching 80% occupancy and again, an even higher capacity.

Now what makes that even more impressive as we were able to achieve that in an environment of uncertainty given frequently changing protocols, including those that were far more restrictive than those in broader society and that we're far more restrictive than those found even if other portions of the travel and leisure sector.

Well thankfully vaccination of test requirements are starting to relax given the improvement in the state of the virus we continue nonetheless.

<unk> constraints and the pool of potential guests due to ongoing requirements in a number of places.

Yet we have been able to make very meaningful progress.

Usually require a longer duration flight. These itineraries are typically associated with longer lead times.

Currently we expect the real benefit to be realized in 2023 and beyond.

Importantly, customer deposits increased by one $4 billion in our second quarter topping $5 billion.

Concerning the threat of global recession, while not recession proof.

Business has proven to be recession resilient.

And again.

As we have seen in prior cycles, even in downturns employed people take vacations.

Even more to with today's environment, where people prioritize spending on experiences overspending on things.

Cruise remains an especially appealing vacation option during downturns because of its compelling value proposition relative to land based alternatives.

So there is pent up demand for travel globally, which is a powerful tailwind.

Currently we are seeing success with close to whole cruises with many sailings achieving occupancy at or above 100%.

Well I guess perceived far less friction than with internationally of locations in fact Carnival cruise line brands sale in this entire fleet is expected to reach nearly 110% occupancy during the third quarter.

We also saw an improvement in new to cruise guests in the second quarter, and we have begun to ramp up our advertising efforts selectively to help support attracting first time cruisers.

Concerning pricing will be.

Remain focused on improving price through next year, we are focused on optimizing the occupancy while preserving long term pricing.

In this current environment of travel restrictions and health protocols, where we have close and availability, we use opaque channels and limited promotions to capitalize on near term demand.

We are building on our aggressive fleet optimization efforts.

Given challenges in parts of Europe , we have reallocated capacity to capitalize on markets, where there is stronger demand in fact, we just announced and especially creative approach that we think holds great promise.

The launch of Costa by Carnival.

With Casa by Carnival, we bring the ambiance and beauty of Italy to Carnival cruise line guests.

So the neat cost of forensic both newly introduced and bulk spectacular will be managed by Carnival cruise line catering to carnival's guest base beginning in the spring of 2003 and 2024, respectively.

This new kind of warfare unique experience for carnival guests to choose fun Italian style, well capitalized at all costs is beautiful Italian design elements.

Deployments of <unk> will be announced shortly and will represent a new itinerary option for Carnival guess.

Separately, we also announced the transfer of cost alumina noted till the Carnival brand beginning in November 2020 to catering to Australian guests.

These changes.

<unk> brand will replenish capacity that had been removed from recent ship exits.

And contribute to manage growth for the brand.

These new and differentiated product offerings enabled us to capitalize on demand among carnival cruise line guests.

Strength in return on invested capital across our portfolio.

In addition, we continue to further optimize our fleet and have announced and remove an additional smaller less efficient ships, bringing the total to 23 ships to be removed from the fleet since 2019.

Accelerated removal of these less efficient ships, coupled with the delivery of nine larger more efficient ships delivered since 2019 fastest higher revenues over time through a seven percentage point increase in the mix of premium priced balcony cabins.

And an even better platform for onboard revenue opportunities as.

As well as generating a 6% reduction in ship level unit costs, excluding fuel.

Moderating the effects of inflation and enabling us to deliver more revenue to the bottom line.

Upon returning to full operations nearly a quarter of our capacity will consist of newly delivered ships.

Expediting, our return to profitability and improving our return on invested capital.

Moreover, next year, our capacity growth compared to 2019 is concentrated and brands with our highest returns.

Concerning recent fuel prices, we continue to aggressively manage our fuel consumption.

<unk>, reaching full fleet operations, we anticipate that we will achieve a further 10% reduction in unit fuel consumption and 90% reduction in carbon intensity as compared to 2019.

With our proactive efforts to reduce fuel consumption, we actually peaked our carbon footprint.

2000, and old oven and that's despite an over 30% increase in capacity expected through 2023.

In fact, we have reaffirmed our strengthen our carbon intensity reduction goals for 2030.

During the quarter Carnival cruise line broke ground on an exciting new destination project.

Carnival Grand Bahama cruise ports.

This destination is expected to open in late 2024.

We'll offer our guests a uniquely bahamian experience with many exciting features and amenities this private guest.

<unk> experienced destination will join Princess Cay half Moon Cay Grand Turk Mahogany Bay, Amber Cove, and Cosla mill, securing our strong foothold in the Caribbean.

In fact, we benefit from a total of nine owned or operated private destinations of port facilities, including terminals in Santa Cruz to Tenerife and Barcelona.

Again.

I believe we are operationally reached an inflection point.

And we are heading in the right direction with cash from operations turning positive this quarter.

We have a strong liquidity position of $7 $5 billion.

<unk> managed our debt maturity towers down through 2024.

We have 91% of the fleet now operating and at improving occupancy levels, which bodes well for future cash generation.

While to date travelers perceived uncertainty and friction continues to be a headwind as protocols become less restrictive.

<unk> continues to become increasingly more comfortable managing the virus, we expect to see demand continue to build.

As we have already seen with the strip for Carnival cruise line's closer to home cruises.

The attractive value proposition relative to land based alternatives, which is even greater today and the continued strength in onboard revenues should help foster a good environment for pricing.

Should help to accelerate our momentum going forward.

Once again.

I don't have the words to adequately conveyed.

Personally rewarding and inspiring.

The commitment.

The dedication the creative ingenuity.

The phenomenal execution of our carnival team shipboard and shore side around the world.

Ben.

And that of course includes our chairman Micky Arison, and the rest of our board of directors.

In the face of constantly changing barriers and constraints in an environment of continuous and extreme uncertainty.

Global team of tens of thousands.

<unk> tackled challenge after challenge after challenge.

Our commitment to our highest priority of compliance.

Environmental protection, and the health safety and well being of everyone.

While stewarding the shareholders assets and positioning us for great success over time.

I simply can't thank them enough and is truly a privilege and an honor to work with them.

Thank you also to our valued guests their loyalty to our nine world, leading brands and the countless letters and calls of support are so deeply appreciate it.

Thank you to our travel agent partners, who are more critical than ever.

<unk> to deliver the great story about cruise.

Thank you to our home ported destination communities, who have stood by us throughout these challenges among.

Among other contributions providing vaccine lobbying for workable protocols.

Thank you to our suppliers and other many stakeholders, who stood by US and worked hard to meet our needs while facing challenges of their own and of course of course, thank you to our shareholders.

Owned holders the banks the export credit agencies for continued confidence in us.

For ongoing support.

We are in the poised for a great future because of the efforts and contributions of so many.

With that I would like to take the opportunity to introduce Josh and give him the chance to say a few words before turning the call back to David Josh.

Josh.

Thank you Arnold and thanks, again to Micky and the entire board of directors for this great opportunity I strongly believe in our company and our ability to create happiness by delivering unforgettable and much needed vacations for our guests. This.

This needed even more important in the current environment given the stresses of the past few years.

Value that we all placed on shared experiences with friends and family.

We are uniquely placed to deliver on those who are nine leading cruise brands each with a focus on meeting their specific guests needs and wants.

We plan on renewing our efforts to ensure each brand achieved clarity of positioning and effectively reaches their target audience.

This alongside providing cruise experiences that really resonate with their distinct guest base will help each brand optimize its yield and growth aspirations to drive revenue.

We also expect to capitalize on our revitalized fleet.

Our continued portfolio optimization efforts and our unparalleled destination footprint, particularly in the Caribbean and Alaska.

In addition, we have an exciting sustainability roadmap that underlies all of our efforts.

What also gives me tremendous confidence as our determined and resilient team around the world.

They've proven time and time again for the last two and a half years.

Absolutely achieve anything.

And they do it while staying true to Carnival Corporation's collective values and positive culture.

All of this will help us accelerate revenues and returns drive durable earnings growth and improve the balance sheet.

As you said Arnold we are clearly at an inflection point and have a bright future ahead.

Looking forward to putting the perspectives I have gained here in my 20 years in multiple roles to work for the benefit of our shareholders and our many other stakeholders.

Thanks, Josh we're looking forward to your leadership.

David Thank you Arnaud.

I'll start today with a review of guests cruise operations, along with the summary of our second quarter cash quarter.

Next I will touch on our 2020 for mandatory auditor rotation.

And then I will provide an update on booking trends and finish up with adjusted EBITDA expectation and our current financial position.

Turning to guests crews the operation during the second quarter 2022, we restarted 20 additional ships, resulting in 74% of our total fleet capacity and guests cruise operations.

All of the second quarter. This was a substantial increase from 60% during the first quarter 2022.

As of today, 91% of our fleet capacity is and gets cruise operation.

We were pleased to see that the second quarter 2022 revenue increased by nearly 50% compared to first quarter 2022.

The continued sequential improvement.

For the second quarter occupancy was 69% across the ships and serve them.

Yes, we can increase from the 54% in the first quarter.

We were encouraged by the very close in demand we experienced during the second quarter or the second quarter, resulting in nearly doubled the close in occupancy gain in second quarter 2022 versus second quarter 2019, a trend we had anticipated.

Revenue per passenger days for the second quarter 2022 decreased slightly from a strong 2019.

As Arnold indicated we are focused on optimizing occupancy while preserving long term pricing power.

However, let's not forget impact due to the future cruise credits or FCC is they are more commonly call, which cost us a couple of percentage points in second quarter 2022 versus second quarter 2019.

Excluding the impact of the FCC's revenue per passenger cruise days for the second quarter would have been higher than our strong 2019.

Once again, our onboard and other revenue premiums were up significantly in the second quarter 2022 versus second quarter 2019 in part due to the bundled packages as well as onboard credits utilized by deaths from cruises canceled during the call.

We have recently expanded our bundled package offerings given their popularity.

The new bundled offerings require us to make changes to the accounting allocation.

As a result in the third quarter, you will see more of the revenue left in ticket and less allocated to ongoing impacting the onboard and other revenue per PCB comparisons for the third quarter as compared to the second quarter.

Just another reason to add to the list of reasons why the best way to judge our performance is by reference to our total cruise revenue metric.

On the cost side, our adjusted cruise costs without fuel per available lower birthday or <unk> as it is more commonly called for the second quarter 2022 was up 23% versus second quarter 2019.

The increase in adjusted cruise costs without fuel per <unk> is driven by essentially five states.

First the cost of a portion of the fleet being caused status.

Second restart related expenses for 2000 ship.

Third 24 ships in dry dock during the quarter, which resulted in over double the number of dry dock days during the second quarter versus the second quarter 2019.

Fourth the cost of maintaining enhanced health and safety protocols.

Finally inflation.

Remember that because the portion of the fleet was implies status during the second quarter and the higher number of dry dock days.

<unk> costs over less <unk>.

The first half of 2022.

However, the second half of 2022 dry dock schedule looks more normal by historical standards.

We anticipate that many of these costs and expenses driving adjusted cruise costs without fuel per <unk> higher.

And during 2022 and will not reoccur in 2023.

<unk>.

Next I'll provide a summary of our second quarter cash flow.

We ended the second quarter 2022, with $7 5 billion of liquidity versus $7 2 billion at the end of the first quarter.

The change in liquidity during the quarter was driven essentially by six.

First negative adjusted EBITDA of approximately $900 million due to our ongoing resumption of guests cruise operation and improvement from the first quarter.

Second our investments of 500 million and capital expenditures.

$200 million of debt principle payments and cost 400 million of interest expense during the quarter.

All of which was more than offset by a one 4 billion increase in customer deposits during the quarter, along with the $1 billion principal announcement.

Secured notes.

Issued last month.

Now I will touch on our 2020 for mandatory auditor rotation.

I wanted to take a moment to explain our situation as it is very different from most publicly listed companies outside the UK and EU.

Carnival plc, our UK publicly listed company, which is part of a dual listed company structure is subject to U K law, which requires mandatory ported over location.

Therefore price Waterhouse coopers or pwc as they are more commonly called must be changed as carnival plc as auditors for the fiscal 2020 audits at the latest.

Therefore, we conducted a competitive RFP process for the independent audit of Carnival plc, as well as the consolidated entity Carnival Corporation and plc.

As a result of the recently completed RFP process yesterday, our board of directors appointed Deloitte as the company's independent of what it does for fiscal 2024.

We completed the RFP process in the first half of 2022 to ensure an orderly transition of non audit services for the remainder of 2022 and to ensure independence by Deloitte in 2023 as required under U K law.

Before I continue I would like to add that the board of directors and management of Carnival Corporation and plc, we'd like to thank price quarter has Cooper's group's continued service as the company's independent auditor.

Now, let's look at booking trends.

The higher March weekly booking volumes, we talked about on our last business update.

Continued throughout the quarter.

This resulted in booking volumes for all future sailings during the second quarter 2022, being nearly doubled the booking volumes during the first quarter 2022.

Second quarter 2022 booking volumes for all future sailings were the best quarterly booking volumes, we have seen since the beginning of the pandemic, although they were still below the 2019 level.

I am happy to report that.

Booking volume.

Beginning of April for the second half of 2022 sailings have been higher than 2019 level.

All of this reflects the previously expected extended way people.

And as I said before we were very encouraged by the close in demand we experienced during the second quarter or the second quarter, resulting in nearly doubled the closing occupancy gain in second quarter 2022 versus second quarter 2019.

And we had anticipated.

We continue to expect that occupancy will build throughout 2022 and returned to historical levels in 2020 spring.

Pricing on our cumulative book position for the second half of 2022 was lower with or without FCC normalize the bundled packages as compared to 2019 sailings.

For the full year 2023, our cumulative advanced book position continues to be at the higher end of the historical range.

At higher prices.

Without FTC's normalized for bundled packages as compared to 2019 ceiling.

This is a great achievement given pricing on bookings for 2019 tailings is a tough comparison as that was the high watermark for historical yields.

During the second quarter 2022, we once again increased our advertising expense compared to the first quarter 2022 in anticipation of a full fleet being in guests cruise operation and our 8% capacity increase for 2023 versus 2019.

Quarter 2022 was the first time since the pandemic that advertising expense was above 2019 level.

I will finish up with our adjusted EBITDA expectation and our current financial position.

Adjusted EBITDA over the first half of 2022 was impacted by restart related spending in Drydock expenses.

<unk> 34 ships nearly 40% of our fleet.

<unk> during the first half of fiscal 2022.

The third quarter with over 90% of our capacity back and gets crudes operation and occupancy percentages building.

That shift level cash contribution to grow.

As a result, we expect adjusted EBITDA to be positive for the third quarter 2022, which after everything we've been through will be something worth celebrating.

With EBITDA, turning positive more liquidity than last quarter.

Maturity towers that have been well managed through 2024, we have already refinanced a portion of our 2023 maturities and we will do the rest over time.

And now I will turn the call back over to Arnold.

Thank you David.

Operator, please open the call to questions.

Thank you.

Are you up for a question. Please press the one followed by the four on your telephone.

You will hear a switch on pump technology request.

One moment please for the first question.

Our first question comes from the line, Steve <unk> with Stifel. Please go ahead.

Yes.

Yeah, Hey, guys good morning.

Arnold Congratulations and it was a great run so thanks for Europe for your service.

Yes.

So first question would be around the booking patterns, which clear.

Clearly here are continuing to strengthen however.

However, I guess investors are going to at this point based on where your stock is theyre going to look past booking current booking patterns and theyre going to focus on what could come next given an uncertain macro backdrop and I guess my question is how would you guys.

The slowdown in bookings or.

Load factors in the past you would have typically cut prices in order to keep load factors.

Hi, but this time around if you do see bookings slow do you think you guys and your peers will be able to say more disciplined on the pricing side of things. So the recovery wouldn't be a steep on the other side.

A couple of quick comments first of all wouldn't comment on what the others would do you can talk to them directly.

We have as we've.

<unk> been hit with different variance, an invasion of Ukraine, and other things and bringing more capacity on board.

We've had to consider all of that and at this point in time.

Largely we have done everything in mine of trying to keep our pricing strong going forward.

Because we think that's the right move right now the positive thing here is that there is pent up demand.

So even if there was a global recession.

The reality is we are as I said in my comments.

Recession resilient historically and this time, if there was a recession there is tremendous pent up demand.

In the past wasn't necessarily the case, because theres been a couple of years where people have not.

<unk> been able to travel the way they wanted to so comb.

A combination of things one is we are naturally somewhat recession resilient, we haven't added tailwind of pent up demand and yes, we're focused on.

Doing what we can to ultimately drive the cash we need but at the same time due in a manner, where we can maintain pricing strength David.

Joe just one thing I'd add to that remember Steve not every recession is the same and we are currently in a very strong labor market.

And given that.

People have jobs and they feel comfortable in their jobs, they are likely to need a vacation and remember vacations are no longer a luxury they are a necessity in today's world. So I think we will do very well as Arnold said, we are recession resilient and we will do very well in a recessionary environment.

Okay.

And then there is we will see if a recession comes right now savings are really high as David pointed out unemployment rates are.

Really low.

And so there's economic strength for the time be.

We'll see what happens.

Okay got you. Thanks for that guys and then second question I guess, probably for you David.

The recent debt raise.

We got a lot of questions from investors about why you guys would go out and raise debt north of.

10% and maybe what drove you or maybe there was underlying underlying reserves.

Yes, so if you.

As I said on the last conference call. We were looking to over time refinance the $3 billion of 2023 maturities and we were focused on that.

And.

We took a look and we believe that we're in a rising interest rate environment.

And so we did go out and we raised $1 billion at $10, 5%.

Looking to do $2 billion to refinance the remaining portion as I said in my notes over time, but we're just averaging in.

If you look at it today.

Interest rates are higher than they were a month or so ago, when we actually did our bond offering so.

I'd say that we were in a good position and we feel good about what we did.

And we will look to refinance the other 2 billion over the ensuing months ahead, and we just averaging in keep in mind. Despite I will say, adding $10, 5%. If you look at our portfolio of debt. Our average interest rate today is four 5%. So we've done.

Great job managing the whole portfolio and this is just one minor piece in the portfolio.

Okay, great. Thanks, guys really appreciate it.

Good luck.

Thanks, Steve.

Next question from the line of Robin Farley UBS. Please go ahead.

Great. Thank you best wishes. Since this is the last earnings call you will be joining us for good luck with everything.

No.

A question.

On occupancy I think investors kind of struggle with how much of a lower occupancy is sort of temporary like cancellations in Q1, and new ships going into service it at lower levels.

<unk>.

Maybe something with your visibility on Q3, which I think normally you would be.

80% to 90% booked by now and just kind of.

Are you seeing.

Four four ticket price relative to 19 and occupancy.

That level of disability I don't know if you can comment a little more specifically thanks.

Now I'll ask David to share some details, but the overarching comment would be that we.

Have.

Real softness in occupancy and we have some intentionally constraining occupancy as we brought shifts on back online because.

The protocols in different places and so on.

Also had some isolated situations, where we're moving.

Crew around temporarily as we were staffing up with <unk> and.

Constrained capacity.

So for those reasons as well, but overall, our occupancy our occupancy, but our occupancy rates as we share.

Have really.

Really improved over time here and as we mentioned the Carnival brand is looking at a 110% occupancy.

In the third quarter, so we have more capacity sailing.

Occupancy is rising nicely and as the world.

Continues to relax and become comfortable managing the virus.

And restrictions are relaxed.

We see things moving more to the erection of the Carnival brand, where things are more normalize even though they still have some restrictions right now.

David Yes, so so during the second quarter the variance between the months. It went from 67% to 71%, which is why we wound up overall with that 69% occupancy for the quarter.

So and as Arnold said, we're approaching 80% for the month of June .

And with booking trends good we continue to build so but keep in mind that I had.

Indicated we started 20 ships in the second quarter and of course, there are a number of cruises where early on we constrain occupancy to ensure we practice and the guests have a great time.

And so we build on those ships and you can see the benefit of that when we got to tune.

So we feel very good about the overall trend is positive moving in the right direction and we do expect to see an improving trend in the third quarter and.

Into 2023.

Okay, great. Thank you and just as a follow up question on the expense commentary.

You mentioned a lot of sort of buckets about the pause status ship restart costs Drydock all of it.

It has been part of that 23% increase.

You mentioned that will improve significantly by year end I Wonder if you could quantify a little bit.

How much of that increase with just inflation in health and safety in other words. The other factors all day somewhat temporary pause status the restart cost to drydock.

How much of that is sort of 23 points are.

Go away automatically just by having your sleep.

Fleet back in service.

So we can think about kind of where you.

You could get to by the end of the year in terms of expense per passenger cruise days. Thanks.

Yes, I think the best way to.

For you to you can do your own quantification and its pretty easy. If you think about we were sort of 24% hub per <unk> for the first half.

All you have to do is if your mid teens for the full year you come back into where we were for the second half taking out the pause status the restart to dry docks, because I did say that the dry docked in the back half of the year.

Supply chain disruption and other things and we are working really hard to manage that down and we will do that so but thats, probably the best way to back into it.

I know that simple average would get you to kind of a mid single digit four.

For the second half I guess I was wondering by kind of the end of the year really thinking about 2023.

That's what I was looking for sort of peaked.

Got it.

I understand.

And I am not in a position to give cost guidance for 2023 at this point, but I was just trying to give you. Some directional you can see with the back half is and we'll manage through.

All of those items effectively over the next six months and like I always say, we hope to do better.

But at this point it would be premature for me to give you a cost guidance.

Understood. Thank you very much thanks, thanks, Rob.

Yes.

Our next question comes from the line of Jamie Katz with Morningstar. Please go ahead.

Hi, good morning, Thanks for taking my question.

I'd be interested in hearing how.

You guys are seeing differences between domestic and international consumers, particularly because of this transition.

Sure maybe.

Maybe.

This rebranding with carnival, and whether or not that has taken away anything.

Yes, I think just generally.

Obviously Europe in many ways is.

More challenged from consumer demand.

Standpoint, as it relates to travel.

To an extent in North America, and what Youre seeing in the move with.

Costa by Carnival and <unk>.

Transfer of the alumina also in Australia to Carnival.

As part of a right sizing of Costa for what we see is that European environment, which is complicated and not only by Covid.

Macroeconomic conditions somewhat triggered by.

Invasion of Ukraine, but also.

Invasion of Ukraine, and so all of those things are impacting that.

European.

Market sector.

So we're reallocating too.

Two brands that have stronger demand are in a stronger position.

That's one of the beautiful things our assets are mobile and so but overall, we still see strong demand in Europe and there are portions of Europe on the U K in particular.

Also we see some.

Continuing strengthen and portions of Germany, or what have you. So so.

So we see a good market in Europe .

A strong market in North America and.

We're just reallocating across the brands to optimize our portfolio and maximize.

The cash generation and position us for the long term.

If I can if I can build on that a little bit I did want to point out. So we talked about our bookings in the second quarter nearly doubling.

<unk>.

Yes.

They were in the first quarter so.

All the brands, but the.

The NAA brands are doing from a booking trend perspective, a little bit better than the EAA brands I'd also like to point out.

Add to Arnold's comments about <unk>.

Testify carnival because keep in mind.

A big chunk of it.

Cost this capacity in 2019 was in China, and so with that market at the moment closed.

Rather than take all of that capacity and put it in Europe , we created a new market for the Carnival guests, which we think will expand the market here in North America, and we'll be in a much better position overall, so we feel very good about all of our.

Brands and the direction and we are managing it appropriately as you could see with <unk>.

<unk> talked about the moves of the ships.

Okay, and then David I don't think it was explicitly noted but in the past I think you guys had pointed to 2023 EBITDA above 2019 levels.

Do you still feel like the business is tracking in the right direction to achieve that.

So I've said that quite a number of times.

I think we are.

What I've always said is we have the potential for EBITDA to be greater in 'twenty, two 'twenty three than 2019.

One big wildcard of course is the price of fuel.

Which has risen.

Wait a bit in the last few months.

So just keep that in mind.

But there is with the occupancy improving over time, there certainly is that potential.

Thank you.

Oh.

Our next question comes from the line of Patrick shows with choice does it go ahead.

Hi, good morning, everyone.

Arnold.

<unk> as well.

Patrick.

Thank you.

Kidney to quite well first question is can you comment on your potential willingness to sell brands too.

One or more brands to help shore up the balance sheet.

Well.

Very pleased with our portfolio of brands.

Having said that our job is always to keep an open mind to do what's best for the shareholders.

No.

We would absolutely.

Again evaluate any and all options, but we're only going to do what makes sense for the shareholders given our projections of opportunity given the portfolio we have.

Okay.

Fair enough and then my second question is.

They have a clarification on some of the text in the earnings release, where.

You noted that cumulative advanced bookings for the second half of 'twenty two are.

Now below the historical range, which.

Obviously it was.

<unk> lowered from the previous where you said it was it lower.

Specifically you had noted here this position is consistent with its expected improving occupancy levels for the second half of 2022 can you explain a little bit more what that.

That lapse rate means I'm not quite understanding what you mean by consistent with expected improving occupancy levels.

Yes, so what we were trying to say, yes, what we're just trying to say there.

Is.

Like Arnold indicated that in the month.

<unk> in his prepared remarks, he said occupancy was.

Approaching 80%.

And so what we were trying to say is despite the fact that we were below the historical range.

We do expect because of the closer in nature of the booking patterns to see occupancy in the back half of <unk>.

<unk> 22 to be higher than the 69% in the second quarter and Thats. All we were really trying to indicate to people with that statement.

Okay.

Thank you for the clarification.

Thank you Beth.

Yes.

Sure.

Next question from the line of James Hardiman with Citi. Please go ahead.

Hey, good morning.

Thanks for taking my questions and I wanted to reiterate congrats.

Congratulations.

And good luck with what's next.

Okay.

Wanted to.

Hone in a little bit on some of the pricing commentary, particularly the revenue per passenger cruise days.

I think you said that number was down a little bit there was some a little bit of an FCC.

Headwind there, but I think I think that same number was up north of seven 7% in the last quarter.

Obviously, there is growing concern that the industry is going to.

Need to push price a little bit to fill the ships.

Speak to that idea as we continue to fill up the shifts in the third quarter and beyond.

Should we expect that pricing number.

To go down down further and then obviously, we're going to get back some of that FCC impact, but sort of excluding that.

Yes.

How should we think about revenue per passenger cruise days, we continue to raise occupancy.

So okay.

I think overall.

Arnold in his notes talked about the fact that we were.

Focused on maximizing occupancy while preserving.

Price in the long term.

And so we are very keen on that.

Building towards historical occupancy level in 2023 with better pricing as we indicated the pricing for 2023 is up but with the shorter booking window and the use.

Okay channel and the use of limited promotions.

Driving occupancy in the short term.

In order to optimize the EBITDA and the cash flow from operations of the business so well.

I'm not.

Prepared to give you guidance on the third and fourth quarter revenue gross revenue per PCT.

By the way if you just think about the third quarter one of the things to remember is we hope to have a lot of kids onboard in the third quarter and those third and fourth will also generally.

Add to the revenue they add to the bottom line, but they will also on a per <unk> basis be lower than the lower berths.

Both for the ticket and the onboard the kids don't generally spend as much on board either but we're happy to have them. All onboard. So there are factors in there that you have to consider as you think about the.

The trend per P. C D.

Pricing did not decline.

Yes.

That's really helpful color.

Maybe you already answered this to some degree, but if I if I zoom out here for a minute historically the industry has largely use this price.

So Phil paradigm.

And I think with some of these metrics.

The concern is that we will return to that we were pre pandemic, we were it seemed like in a better place.

Thinking more about long term pricing opportunity.

Maybe speak to if theres been any change in your philosophy pre pandemic and now just given the importance of filling up the ships and getting to positive free cash flow.

So one of the things that you have to think about it all of this is over time, we are already seeing it.

But we're in the protocol friction is reducing.

Just recently they dropped the U S dropped the testing requirements for people to get back into the U S from.

Places and we are seeing we are starting to to see the ability for us to reduce our protocols and reduce the frictions and I think that will bring back people from the sidelines and will create additional demand, which which will allow us to get better occupancy.

Had a better price.

So directionally.

With more first timers coming onboard and the reduced protocols, we feel very good about the future.

Over the next few quarters in 2023.

And keep in mind as you as you track all of this.

There are mix issues in here too.

<unk>.

Overall brand positioning as well as specific itinerary.

<unk> is available and what have you. So the average prices there is a lot of noise on that and.

The overall.

The message we're sending in what we are experiencing is encouragement of a strong market coming back pent up demand.

And us carefully managing that thoughtfully managing that as we create cash.

And at the same time position the business well for the future.

That's really helpful color. Thank you Bob Thank you.

Yes.

Next question from the line of <unk> Wells Fargo. Please go ahead.

Hey, good morning, everyone and Arnold Best of luck and Josh Congratulations on the new position.

So any questions.

Customer deposits and how we should think about this for the rest of the year. Obviously it was very strong in the second quarter.

There's typically a decline sequentially.

So just as we think about cash flow through for the rest of the year and how customer deposits flow through is it is it safe to say that.

The third quarter is not going to be cash flow positive or just given that there's that sequential decline or given the debt that you guys continue to recover in terms of your bookings and operations third quarter could continue to be cash flow positive.

So thats a great question and we've been.

Trying to.

To answer that I will tell you that in the last since the end of May our customer deposits have continued to increase they are up a few hundred million dollars.

So that at least directionally.

The last what is it been three five weeks, that's where we're at.

Normally during the third quarter there is a reduction because we reached the seasonal high peak at the end of May.

But there are offsetting factors this year that we would expect to see with more ships coming back online and higher occupancies.

That should mitigate.

Any normal seasonality nation, whether it completely mitigates it or not it's.

Very hard for me to predict at this point.

But there are some mitigating factors to the normal seasonality <unk> of customer deposits.

Got it alright.

Alright, yes, one one more quick one if I could just squeeze it in.

The newer cruise product a lot of your fleet has been has been refreshed so what I'm, saying, if you've been able to capture that pricing typically the newer product at a premium price, but this is kind of weird environment have you been able to capture that and if so any kind of metrics or way to quantify that.

Yeah, it's very hard to tell I mean, we look at so many things but.

So many variables variables right now it is just very very difficult to tell.

And the comparison going back to 2019 so.

We look at the total we manage it appropriately I will tell you those new ships are performing very well.

High levels of occupancy generating significant cash flows and as we move forward I suspect that we will be able to continue to to generate a premium there.

Arnold indicated nearly.

A quarter of our fleet will be new in 2023, our newly delivered the average age of our fleet believe it or not I think I've said this perform maybe on one of the previous calls but from 2019 to 2023. Despite the passage of four years. The average age of our fleet went down for one year.

So that that we've got a lot of new capacity, which should help very well.

Both on the revenue side and on the cost side from an efficiency perspective, and better fuel consumption. So we are very excited about the future and delivering memorable vacation experiences.

14 million people in 2023 as we go for.

Historical occupancy levels.

We'll take one more question, let's make it a good one for Josh go ahead.

Yeah.

Our next question comes from the line of schedule as you have.

<unk> research. Please go ahead.

Good morning, Arnold Youll be missed the Jos.

Happy that you received this great position responsibility and triple promotion.

I do have a good question for you hopefully.

With the cost of my Carnival concept that is obviously something that would be a long term fixture where not just <unk>.

Moving ships around for the next two or three years.

Do you believe that this is something that could be expanded.

Does the cost of fuel.

Play any role in terms of what ships might actually continue to join the new concept LNG deliveries have been.

Somewhat difficult I guess in Europe .

Issues with cost in South America last winter season.

How do you see the development of the concept and what are the key parameters that would actually play into it.

I'm going to have Josh comment on the overall.

Our brand positioning and stuff as we go forward, but real quickly on the LNG fuel question.

LNG as you know as clean as Bernie.

Fossil fuel it gives us a 20%.

Reduction in carbon emissions et cetera.

But the shifts.

<unk> dual so they can also burn mgo and so that unto itself wouldnt impact the future of the Costa brand.

We will burn LNG whenever it makes sense.

To do so, which we think will be the majority of the life of the ships, but there are times, where we will obviously help too.

Brian Mgo, but in terms of the carnival by Costa positioning its a new concept.

Josh share his thoughts about it go ahead Josh.

Just one thing to clarify obviously the two ships that were talking about that are going under this cost of by Carnival umbrella are not LNG ships. So that obviously didnt enter into our mindset at all so just.

Arnold points with respect to the positioning I think this is a great example of leveraging the scale of this corporation.

Because we could have done is taken those shifts new beautiful shifts solely under the cost to name and tried to introduce them into the north American market on a standalone basis, but this is actually the opportunities to leverage everything there carnival does so well here in the United States and Canada for its guest base.

So by marrying that along with cost is beautiful tonnage.

And onboard.

Onboard experiences we have the ability to marry that up and make our best go of creating something really special. So the short answer is we absolutely expect us to be successful and we don't look at this as something short term, but ideally it will be something that works and we can build upon.

Okay. So currently no further plans obviously, you've made plans for 2023 and 2024, so that's plenty of.

Time and capacity coming in the two ships. So at this point still early to discuss whether this would become sort of a mini brand on its own.

Let's try it out with two shifts and then well then we'll see how we do but thats it for now.

So thank you everyone.

Go ahead go ahead I'm sorry.

Okay. Thank you everyone really appreciate it.

And looking forward.

To listening to these as we go forward here.

The great news covered from Josh Authority.

Do you all very much.

Have a great day.

That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.

Q2 2022 Carnival Corp & Carnival PLC Earnings Call

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