Q3 2022 Carnival Corp & Carnival PLC Business Update Call

September 30, 2022

Okay.

Good morning.

This is Josh Weinstein.

Welcome to our third quarter 2022 business update conference call My first as CEO.

I'm joined today telephonic lead by our chair Micky Arison.

And with me here in our Miami Office is our Chief Financial Officer, David Bernstein, and our senior Vice President of Investor Relations Beth Roberts.

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.

Our business continues on a positive trajectory.

We've been closing the gap to 2019, as we put a stake in the ground internally and shifted from return to service to our relentless focus on return to strong profitability.

The occupancy gap to 2019 has reduced from over 50 points in Q1 to less than 30 points in Q3 at.

At the same time, our capacity in service has gone from approximately 60% in Q1 to over 90% in Q3.

In fact in the month of August we achieved almost 90% occupancy at higher constant dollar revenue per dms, despite the impact of future cruise credits.

And the differential in adjusted cruise costs, excluding fuel per <unk>.

Has reduced from over $25 in Q1 down to $10 in Q3.

As a result, we were able to generate over $300 million of adjusted EBITDA in the third quarter overcoming a near doubling in fuel prices.

We expect these favorable trends to continue as we finish up 2022 and head into 2023.

While we expect breakeven to slightly negative fourth quarter EBITDA, given the seasonality of revenues and our increasing investment in advertising to drive revenue yield in 2023.

We do expect second half EBITDA overall to be positive.

We've also been making strategic changes to our fleet composition that will pay dividends over time.

Our global fleet of 91 chips has never been better position. Thanks to the exiting of 'twenty three smaller less efficient ships and taken delivery of nine large and very efficient ships.

While we will all be four years older than we were in 2019 next.

Next year the.

The average age of our fleet will actually be a year younger than in 2019 at 12 years. It also means our average per account per ship is increasing nearly 20% the largest amongst our public peers. We expect benefits of this profile to include a fleet with 10% higher fuel efficiency.

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6% more efficiency and remaining operating costs.

A richer cabin mix and larger overall platforms to deliver onboard experiences and generate associated revenues. We have also begun to address the brand portfolio to improve ROIC.

And drive durable top and Bottomline growth.

In light of the continued closure of cruise operations in China.

And our Costa brands significant presence there pre COVID-19, we are reducing costs as capacity by 10% from 2019 levels.

Bolstering our highly successful Carnival cruise line brain through the previously announced transfer of three ships, including two via our innovative caused by Carnival initiative launching in 2023.

All three ships will be placed on new itineraries, allowing carnival to expand its drive to cruise offerings.

We will continue to evaluate opportunities to further optimize our brand portfolio overtime.

These fleet and portfolio decisions will provide strong tailwind.

And while during the pause in operations being nearly twice the size of the next closest crew's company with a distinct disadvantage for our cash burn we.

We will once again benefit from our industry leading scale.

And there are even greater opportunities ahead to drive revenue as we return to full occupancy and March towards strong profitability.

Throughout the pause we have benefited from the dedicated support of our loyal guests.

Now as we grow capacity in 2023 and beyond we are.

Doubling efforts to attract new to cruise guests about one third of our guests have historically been new to cruise and as you probably know two of the most important drivers of new to cruise or word of mouth and advertising.

With respect to word of mouth.

After the pause we have been building back our army of advocates that leave the shifts spreading the word about the unparalleled vacation experiences we deliver day in and day out.

In the third quarter alone we carried twice the number of guests we carried in all of 2021 and over 50% more than in just the prior quarter.

On the advertising front, we've also been ramping up our efforts having reached 2019 spend levels in just the last two quarters in fact until six months ago. We had spent less on advertising cumulatively over a two year period than in all of 2019.

And most of this was directed at more efficient channels like past guests.

This was a conscious decision to re prioritize our resources to withstand the pause as our brands have now been increasing their advertising investment, we will increase awareness and consideration and actively target those new to cruise.

While we're still carrying a higher proportion of repeat guests we have seen an improving trend in new to cruise and are already two thirds of the way back to 2019 levels.

And newcomers will be absolutely thrilled once we get them onboard.

We are delivering a great all inclusive vacation experience convenient.

Great dining and entertainment choices fantastic itineraries beautiful and innovative ships and the most amazing onboard teams, providing a higher level of personalized service and you can find anywhere on land or sea.

Our net promoter scores are telling us we are delivering a phenomenal product.

The issue is we are way too much of a value.

We should not be priced at a significant discount to land, which is exactly the case today.

We're from 25% to 50% based on itinerary bottomed.

Bottom line when it comes to generating demand and increasing our revenue profile, we can should and will do better.

I have begun travelling to meet with each brand president and his or her commercial team to understand their strength.

Capabilities and areas for improvement.

We're working through their strategies and roadmaps to seize opportunities.

All while taking advantage of tactics to quickly capture price and booking in the interim.

This cuts across multiple areas of our commercial operations.

Driving further brand differentiation and clarity around each brand's optimal target segment.

Ensuring that creative marketing speaks to each brand's target audience.

Launching more effective digital performance marketing and lead generation approaches.

Our renewed focus on our trade relationships another key driver of new to cruise demand to reduce friction points and allow our travel agent partners to more efficiently secure bookings, while continuing to support internal sales as we need all sales channels to perform at a high level.

Successful.

Improving revenue management execution, as we continue to adapt to an evolving booking environment.

And using data guests and target audience insight and cross brand learnings to aid and all of the above.

The engagement and transparency that characterize these brand sessions has been fantastic and the sense of urgency. These leaders have to drive their brands forward is real and speaking of leaders, we actually have new leadership at the brands and throughout the organization and propose began.

Five of our nine brands have welcomed new energetic president.

And these brand president had been actively bolstering the bench below them.

Additionally, I've made a half dozen changes across corporate leadership and just the last few months.

It's worth noting that with the changes I've made to date six of my 12 direct reports are now women.

We are actively focused on diversity and inclusion and we'll continue to invest in talent and talent management now diversity fits alongside our overall sustainability agenda.

And we've been making significant progress across the board.

There are probably been no greater strides in reducing our carbon intensity, despite being over 25% larger our carbon footprint peaked more than a decade ago.

And we've set 2030 targets for carbon intensity to be 20% lower in 2019 levels.

We will achieve this through technology upgrades currently being rolled out.

Investing import and destination project.

Even more focus on itinerary optimization.

And realizing the benefit of our fleet optimization efforts, while there is no silver bullet to de carbonization part industry, yet we are committed to working towards a solution.

To this end I'm excited about three successful pilots, we recently completed using biofuels in existing engines without modification.

Turning now to the current tone of business.

Pricing for our 2023 book business is currently at considerably higher levels in 2019 adjusting for FCC.

And it is very encouraging that since announcing our relaxation and protocols in mid August we have already seen a very meaningful improvement in booking volumes.

We are now running considerably higher in 2019 level at.

At the same time, we have seen a notable improvement in cancellation trends.

We expect these favorable trends to accelerate as the <unk>.

Pact of our current and planned efforts will continue to materialize as we move toward our important summer season, where we make the bulk of our operating profit.

When it comes to our capital structure, maintaining a strong balance sheet has always been a priority for our company.

Pre pandemic.

<unk> been able to achieve this while investing significantly in our Newbuild program. Thanks to the substantial cash flow our company generated.

Going forward, we are committed to using our cash flow strength to repair the balance sheet over time, and we'll be disciplined and rigorous in making newbuild decisions accordingly.

We have two ships on order in 2024 and one in 2025, we do not anticipate significant deviation annual level for several years.

This will significantly reduce our capital commitment and set us on the path to deleveraging.

We have the opportunity to emerge as a company that is more efficient more sustainable and more energized for the future.

We have a transformed fleet and.

An unmatched portfolio of well recognized brands and unparalleled scale in an underpenetrated industry.

We are strategically managing our portfolio to optimize our near and long term performance.

We now have a tremendous opportunity to drive revenue growth by delivering measurable pricing improvements, while returning to historically high occupancy levels overtime.

That opportunity will drive significant free cash flow and accelerate our path to profitability.

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In the coming months, we'll talk specifically about long term goals and targets. So that we can track progress and maintain accountability along our path.

Our travel agent partners important destination communities suppliers investors lenders and of course, our guests are also important to our business.

I plan to speak with more of our stakeholders in the coming months to gather their perspectives as we strive for continuous improvement I.

I would like to end by personally thanking all of our talented and dedicated team members globally ship onshore for that.

Heavy lifting it took to get us back to full operation.

And now comes the exciting part.

We get to take all of the creativity agility and innovation that the team has built up in response to external factors throughout the pause and resumption of operation and we now get to use that skill set to proactively drive our business forward and to <unk>.

So our mission of creating happiness by delivering unforgettable and much needed vacation to our guests.

And now I'll turn the call over to David.

Thank you Josh.

I'll start today with a review of guests cruise operations, and then provide booking trends and the current tone of business.

Turning to guests cruise operations.

<unk> third quarter 2022 represents a significant milestone in the resumption of our guests cruise operations with adjusted EBITDA turning positive for the first time.

We were pleased to see that third quarter 2022 revenue increased by nearly 80% compared to second quarter 2022, reflecting a continued sequential quarter over quarter improvement.

Third quarter occupancy was 84% a 15 percentage point increase from the second quarter.

We ended the quarter on a high note with 90% occupancy in the month of August .

We were encouraged by the continued very close in demand we experienced during the third quarter for the third quarter a trend we had anticipated.

Revenue per passenger gate that third quarter 2020 to decrease from a strong 2019, mainly due to the impact of future cruise credits or more commonly called Hep C C.

Currency, given the stronger U S dollar along with our large presence in Europe with four friends in the U K Continental Europe .

Once again, our onboard and other revenue per Dms were up.

They currently in the third quarter 2022 versus third quarter 2019, driven by price increases greatest spending by our guests and the increased effect of the second wildly as more guests are participating in pre cruise sales of onboard activities.

In fact year to date, we have seen over 50% growth in pre cruise sales of onboard activities on a per passenger cruise days or PCB basis as compared to 2019.

Our teams have done an excellent job capitalizing on the opportunity in this area.

As I indicated in my comments during our last business update we expanded a bundled package offerings given their popularity.

A new bundled offerings required us to make changes to the accounting allocation.

As a result in the third quarter more of the revenue, reflecting ticket and less allocated to onboarding.

Impacting the onboard and other revenue per P. C. D comparison for the third quarter as compared to the second quarter.

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

On the cost side, our adjusted cruise costs without fuel in constant currency per available low what birthday or a L. E. D is it is more commonly called for third quarter 2022 was up 14% versus third quarter 2019, we have seen a continuation of the sequential.

Chill improvement quarter over quarter and costs throughout the year and expect to see a continuation of the improvement in the fourth quarter of 2022 with a low double digit increase compare to 2019, shrimping impart by higher advertising expense to drive revenue for 2023.

We ended the third quarter 2022, with $7 4 billion of liquidity essentially the same liquidity level as last quarter.

In addition, I am pleased to report that total customer deposits. Both current and long term were $4 8 billion at third quarter 2022 approaching.

Approaching the record third quarter up $4 9 billion in 2019.

New bookings for the third quarter of 2020 to offset most of the historical seasonal decline in customer deposits, which was over a billion dollars in 2019.

Furthermore to facilitate investor engagement.

I wanted to mention a couple of balance sheet related items.

First let me clarify our debt to capital Covenant tests.

Our current debt to capital percentage is in the mid fifties using the calculation methodology in our debt agreements.

Methodology allows for the add back equity of noncash write offs and other adjustments, which eliminates the volatility from the pause in guest cruise operations, leaving us well within the debt to capital Covenant limits set at 75% at the end of the third quarter two.

'twenty two.

Second we will provide and we will continue to do so accordingly.

Detailed that schedule.

This thing of ships in our fleet by brand on their web site Carnival Corp Dotcom.

These supplemental schedules referred to the financial information tab within the Investor Relations section of the website.

Next let's look at booking trends and the current tone of business.

Booking volumes for all future sailings during the third quarter 2022, so a continuation of the accelerated booking volumes during the second quarter and closed the gap to strong 2019 levels.

We did not see any seasonal slowing of booking activity in the third quarter 2022 versus the second quarter 2022, despite the third quarter normally being a slower booking period.

It is great to see booking volumes for all future sailings considerably higher than 2019 levels since the announcement of the relaxed protocols in mid August aligning us towards land based vacation alternatives.

However, we are still managing through the close end nature of the booking curve caused by the omni cranberry and distraction to our important wave season earlier this year and the more restrictive industry protocols in effect until very recently.

Left us with more inventory to sell closer in.

To optimize in this environment, we have been working to increase near term occupancy impart by using limited promotions and opaque channels.

Available only to a select group of people to protect overall price integrity for 2023.

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While this resulted in accumulative advanced book position for the fourth quarter below the historical range. We believe we are well situated with our current fourth quarter 2022 book position given current booking volumes that are running significantly ahead of 2019 levels as we can.

Capitalized on closer in booking patterns pricing impacted in part by limited promotions and opaque channels results in our cumulative book position for fourth quarter 2022, lower compared to 2019, sailings, but primarily due to FCC.

With respect to occupancy fourth quarter occupancy historically has been lower than third quarter, given the seasonal dynamic of our business.

It was a nine percentage point drop in 2019.

However, this year that will not be the case, our continuing build in cabin occupancy will more than offset the seasonal decline, which will result in slightly higher fourth quarter 2022 occupancy compared to the third quarter and represents another step forward.

The GAAP to 2019.

For the full year 2023, accumulative advanced book position is slightly above the historical average and at considerably higher prices compared to a record 2019 levels normalized for Hep C. CS.

While I do expect an impact on 2023 yields from the FCC's the impact is likely to be less than one percentage point for the full year 2023. Additionally during 2023.

We expect improvement in occupancy with occupancy returning to historical levels in the summer of 2023.

I returned to guests cruise operations is essentially complete.

We are still evaluating a few remaining deployment options as referenced in our business update release.

As a result for 2023, we expect our capacity increase could be somewhere in the range of 3% to 5% compared to 2019.

Of course with nearly 25% of our capacity in 2023 from new ships. We also expect to benefit from the efficiency gains from our fleet optimization efforts that Josh mentioned earlier, helping to mitigate inflation.

In summary.

Looking forward to 2023.

We have a strong book of business at considerably higher prices prices are higher in all four quarters of 2023.

Onboard revenue per games are up significantly in 2022, and this puts us on track for a record year in 2023 for onboard revenue all of this clearly sets the stage positively for 2023, we trash and I working together with all the brand teams.

To drive revenue growth over time.

And now operator, let's open up the call for questions.

Yeah.

Thank you.

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One moment please for our first question.

Okay.

Yeah.

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

Yeah.

Yeah, Hey, guys good morning, and Josh welcome to your first call as CEO .

I guess.

I guess my question is that we seem to be hearing a much different tone from.

Some of your peers in terms of how the EBITDA or cash flow cash flow recovery is playing out versus what you guys just reported in the third quarter and your outlook for the fourth quarter. So.

I guess is it fair to assume.

Carnival Princess you know your domestic brands are doing very very well right now, but it's your non U S brands that are struggling at this point and that's the issue right now versus your peers and then just does that make you think a little bit differently about the your portfolio shifts meaning.

Do you still need nine brands at this point.

Thanks, Thanks for the welcome.

So I think you asked a couple of things I mean, let me see if I can hit them all so.

First of all I can't speak to us our peers I won't speak to our peers I'll speak to speak to us.

The momentum is continuing which is really promising as you heard from my prepared remarks, as well as as well as David's, particularly over the last six weeks things have ramped up incredibly strong in the book of business is as good with respect to how we're looking at the brands obviously carnival.

In the Caribbean has done a great job they are Americas cruise line.

It showed through loud and clear as we've been going through this past this past year, but I don't I wouldn't look at this as a as a north American versus European.

Question all of our brands are in are in varying points with respect to their pricing on their occupancy and how those play out and theyre responding to their target audience and their source markets and trying to optimize as best as they can.

You heard.

In my prepared remarks, and I think what we've talked about already before.

As you know.

We can do better.

Have high expectations for all of our brands to make significant improvement on the revenue side and some of it's blocking and tackling some of it is really pushing the envelope in certain areas and I actually feel pretty pretty confident so far.

Managed to hit our three brands and that type of.

<unk>, it's been Costa Holland America and Princess.

The the activities that are underway or are significant and.

I really I don't think it's appropriate in this forum to get into any specifics, but we are tracking.

Hundreds of things some big some small that are going to ultimately lead to significant improvement.

Okay got you thanks for that color, Josh and then second question would be.

Around 2023, and look I mean, I understand you guys aren't going to give guidance for 'twenty three at this point, but.

You know in the past we've heard the previous management had carnival kind of talk about at a very high level. There was a good chance that 2023 EBITDA.

There was a chance to exceed 2019, EBITDA, so Josh you're now at the helm and how do you view that probability from what you can see today is this something thats still possible or are you just saying Hey look it's it's too early to make that call.

Well.

We're certainly anticipating.

Strong EBITDA in 2023, we're not providing guidance obviously, so I don't want to get ahead of where we are in that process.

And currency are obviously, a big swing.

Swing and we'll see how that plays out in 2023, we have no idea, but we're working hard to generate as much as we can.

Okay got you thanks, guys appreciate it.

Yes.

Next question is from the line of teams argument with Citi. Please go ahead.

Hey, good morning. Thanks.

Thanks for taking my call and Josh are welcome aboard.

So obviously, there's a lot of discussion.

<unk>.

The booking.

Sir I don't know if surge as the wife right word that you've seen since the relaxation of some of the.

Covid restrictions.

I guess I'm curious.

What if any impact that is having on pricing.

Particularly in the context of you know we have this per diem decline I think it's about 4% versus 2019.

For the third quarter, but then as we look to next year or the pricing seems like it's up meaningfully and so I'm just trying to connect those two dots.

And maybe sort of the missing pieces.

Significant improvement coming off of these restriction relaxations, but maybe paint that picture for us.

Hi, James.

So so yeah.

The volumes have been incredibly encouraging.

Can't speak specifically to price over the last few weeks, but I can tell you that.

The pricing of our our business on the books for 2023 overall is actually higher today than it was earlier in the year.

As far as what's driving that I think I think there's a lot of things that are driving that.

I do think that the fact that we are now able to be more aligned to land based alternatives.

Reduces a lot of friction and and opens up more demand too to us as a in our brands.

You heard us mentioned advertising.

We had a different advertising approach.

What our norm was pre pandemic and we really we scaled way back and in the process of doing that.

We're doing it in the context of the pause on how we wanted to prioritize our resources and focus in on those on those loyal guests and more efficient channels, but as we've been ramping back up.

Two really excuse me.

<unk> strength with our offer our advertising strategy is starting to pay dividends.

In addition to that we.

We have you.

You heard we have more and more people sailing again in going back and telling folks that we are a great product and all of that is helping so I can't give you.

Wish I could be scientific and tell you all of the drivers and how they impact the pricing, but I'd be lying I don't think anybody can do that so we'll just have to see what's working and see what's not and leverage what we count.

And also just.

Let me just add.

When youre looking at the fourth quarter.

<unk>, we were in a situation where our wave season was impacted and remember we didn't start the increase in advertising expense until the third quarter.

So that too impacted the revenue per Dms that you mentioned in the third quarter, but as Josh talked about we are addressing that clearly as we move forward.

Yeah.

Got it and then my second question, maybe a bit well, it's an open ended question, but Josh.

Josh.

Since you've been at the helm.

I don't know if you've had a chance to think through.

Or maybe you could help us think through some of the challenges and opportunities facing the company I guess, what I'm trying to figure out is how much of that is sort of a cruise industry.

Set of challenges and opportunities versus carnival specific.

It takes good wherever you want to take it whether it's the mix of your customers mix of geography strength and weaknesses of your specific brand.

But I'm curious, how you sort of slice and dice those too.

Oh, well overall I'd say you know like I.

I think I can say on behalf of the industry all of US are way too good of a value.

When it comes to stacking up versus non cruise alternatives and so I think the more we can breakthrough as an industry with how good of a product we are how inclusive it can be.

That will serve dividends that's why.

I am very committed to our travel agent partners because they are critical for us.

And that success in being able to communicate that story and and convinced first timers, who don't know cruising can be daunting could be confusing and help them get onboard because once we get them they want to come back.

I don't know.

So I can't speak to the to our peers in.

What they do and how they do it behind closed doors.

Do think the things that we're seeing on the on the commercial side with all of our brands and it varies by brand but.

I think.

All I can tell you is this specific to our corporation and I think theyre going to really.

Paid dividends for us in a big way.

Got it.

Thanks, Yeah sure.

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

Great. Thank you.

So it just kind of looking at the language you used over the years to describe forward bookings when you say considerably higher.

That's.

More upbeat language than you typically use it seems like considerably higher is probably more than 5%, but should we think of it as being more than 10% or would that be a different adjective.

Right.

Hi. This is Josh you know I used to I used to have a dictionary that David provided for everybody. When we were doing this preparations back when I was a pleasure.

I think it's safe to say this is mid single digits.

And so.

So I guess I can there's your answer.

Great.

It's very helpful. Thank you.

And then also on the non fuel expense it seems like Ed.

Still digesting the release that it seems like your guidance for second half.

Fuel expense was quite a bit higher than previous is it is it just the advertising you bet, you've mentioned or are there other things.

And I started to have a follow up about the advertising, but it may be just to even frame what's happening with the non fuel expense.

Sure. So if you.

If you take what we said about all the quarters and you actually weighed average it with the <unk> per quarter.

You get something in the.

Mid to high single low double digits, and we had said.

Mid double digits before so it is a tad higher as a result of a potentially more advertising expense than we had previously anticipated, but it's not a significant change on.

A full year basis from what we said before just up.

Maybe a point or something like that from from the previous guidance.

Okay, and then just to.

On the advertising piece is just you've talked about being ahead in price.

And volume in 'twenty, three and then you talked about this.

Sequentially, how things are ramping up so I guess just thinking about.

It seems like demand is growing natural itself. So I guess why the decision to do more advertising and I don't know if that's.

Yeah.

I will get it in certain I know Franklin European demand issue or just kind of help us think about when you sort of naturally seeing such strong volume and price and how to think about that thanks.

Yeah. So a couple of things one as you know we have volume, but we want to get volume.

Plus price and fill the ships at good pricing. So we just we need to be doing more to accomplish that.

Got it.

It's not a European versus.

American phenomenon and remember advertising, it's not just for the moment and filling the ship in the next quarter and setting the groundwork for aware.

Awareness consideration and ultimately making that booking decision and we have to be thinking about this in the context of the fact that.

We're taking bookings for the next two and a half years not just in the next quarter.

So we need to be real thoughtful and the point about new to cruise.

That's where that's where it makes a huge amount of inroads, particularly as we're building towards wave.

All of this.

Our goal is to be setting ourselves up really well for a very successful way than it has been years since we've had that.

And so I think theres a lot of excitement in the organization actually.

Our game plans are out and.

We know what we want to achieve.

Okay. That's helpful. Thank you so it sounds like the advertising.

It's up versus what you originally thought but not higher than what you would typically do sort of pre pandemic is that the right way to think about it.

No I wouldn't I wouldn't say that yet actually you know where we are we're back up to those levels that we have more capacity to sell so naturally that should well always try to find efficiencies.

<unk>.

There's a lot of there's a lot of pluses or minuses in the equation and we're working through our 2023 plan with the.

With all of our brands now so.

More insight about how exactly that's going to shape up in a few months, but it's fair to say that if you look at the four quarters remember we had talked about we werent doing much advertising in the first half of the year. When we did increase it in the back half and I think I said once before that we did expect advertising overall to be higher than it.

It was in 2019, so you're what Youll see is a big ramp up in the back half of this year versus 2019.

Even higher than the normal level.

The level that we would see in the fourth quarter in anticipation of wave season.

Thank you.

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

Hi, Good morning, I'm, hoping you guys can help us think through.

What the magnitude of FTC is left to work through might be and when.

Do you think we may be sort of through digesting meli.

So I think I had indicated in my prepared remarks that.

We did expect to see FCC's impact yields in 2023, but it would be less than 1% in.

In 2022, where you had seen a couple of points of an impact is.

Given our forecast and the expectation.

And I think you'll see that it's the FCC sweeteners that you're talking about.

Thank you will see that and with 2023.

Excellent and then from a capital spending perspective, I think there were some shifts and expenses.

The table in the press release is there anything noteworthy worth mentioning.

Different spending programs that have shut down or anything like that thanks.

Yeah, well just keep in mind that a lot of the capex, depending on which particular item you are looking at a.

A lot of the Capex is in foreign currency and with the changes in foreign currency, particularly the new builds you will see a reduction in the Newbuild capex.

The non new build capex, we've been looking at that very carefully and making sure that we optimize those numbers. So you did see a decline.

In 2022.

From the previous guidance and we are really looking at 2023 as Josh said, we're going to be going through with all of the operating companies their plans for 2023.

So at this point in time, we haven't made any changes, but we will continue to look at that and talk to them about optimizing capex for 2023.

Thank you.

Next question from the line of Ben Chaiken with Credit Suisse. Please go ahead.

Hey, How's it going.

Sorry, if I missed it I think that FY 'twenty three the language surrounding FY 'twenty three bookings changed slightly maybe im mistaken I guess simplistically can you help us with the booked position in 'twenty three and maybe how that's changed since the last update relative to 19, it sounds like I mean, it sounded like bookings are.

And since the vaccine protocol.

Change, but just a little unclear on the total booked position for 'twenty three relative to the last update.

Sure so keep in mind that.

What we're talking about here in terms of an acceleration of the book position, but the bookings that occurred in mid August with the relax protocols and the booking patterns as we indicated accelerated in fact, our north American brands were up 30.

<unk>, 30% over 2019 in the last few weeks so the booking patterns have been tremendous.

But you know.

The book position.

Previously we had said was at the higher end.

<unk>.

The historical range and now we're saying it's at the average.

Earlier in the quarter.

We were.

Slightly below 2019 levels, but closing the gap and now we have exceeded 2019 levels. So we feel very good about the overall book position, particularly with relaxed protocols and now exceeding 2019 level, but from a pricing perspective.

Our better priced than we were earlier in the year and we feel very good about that as well.

Okay. That's helpful. And then or is that are you able to break up so it sounds like a little bit of a deceleration in bookings for 'twenty three position.

Is there I know a few times is there a is there a difference between European and non European itineraries in terms of driving that.

Yes.

I wouldn't have called it a deceleration during that period remember that for most of the quarter.

We still have the protocols in effect.

And as a result of that while we were getting bookings the booking levels were slightly below 2019 and.

Level for 2023, but since the relaxation of the protocols we have seen.

You know things accelerate considerably the other thing to keep in mind is that we have seen a much closer in booking curve than we had previously seen historically and so that too is probably impacted 2023.

As well, but with with the relax protocols and putting us more in line.

With the testing requirements gone.

We're in great shape, and as I said before we're now in the last few weeks since the relaxation of the protocols.

Our North American brands were up 30% over 2019 levels and we feel great about that so we're looking forward to 2023.

European brands are doing well too they're just operating in a closer in booking window. So they have seen a significant spike as well, it's just more for closer in period, but again same thing mid August and it took off.

Okay, and then just one more on the on the cost.

Sounds like we are in this low double digit range versus 19 exiting the year can you help us just directionally, maybe how much of that is core underlying costs and how much of that or maybe like fleet ramp up Covid protocol related.

Et cetera.

Ballpark.

Well it's.

So for the fourth quarter well first of all let me just say that the fourth quarter. I don't think is a great indication of looking forward do you think I think we can do better and we're going to be having those conversations with our brands, but embedded in the fourth quarter, there's probably a little bit of startup cost but.

Most of the ships and most of that was.

Spent before the fourth quarter, but there are protocol cost.

From an I had said earlier in the year, we were probably spending tens of millions of dollars a month.

Protocol costs by the time, you get to the fourth quarter when you're looking at adjusted cruise costs without fuel, you're probably talking about or maybe a dollar to $1 50 of costs in there that are.

Were included in the forecast.

So there is something which is affecting that double digit low double digit projection.

But it is like I said, maybe a dollar $1 15, and I'm not even sure we're going to spend that much but that's what the brands have included them given their forecast where we're prepared.

No.

At the same time as the relaxation of the protocol.

Not to belabor the point, but why why it just follow up why is <unk> not I think you said <unk> is not a good.

I think kind of like various news yes.

I think when you when you look at all the different things over a full year period keep in mind, just as an example.

I'll give you. One example, so I've always said that looking at costs by quarter are not a good reflection of the year because things vary by quarter and I. Just indicated I think it was Robin who was asking the question about advertising and I said that advertising was up considerably in the fourth quarter versus.

Is 2019.

So if you just take that item alone.

That would have had an impact on your double digit number and so no one quarter is ever going to be a good indication of the full year because of the seasonality of the spending by quarter.

Okay. Thank you.

[laughter].

Our next question.

From the line of David Katz with Jefferies. Please go ahead.

Hi, good morning.

Yes.

Thanks for taking my questions I appreciate it.

I wanted to just get your thoughts on <unk>.

And the value proposition strategy.

Context that we look at other areas of hospitality that are driving price and I recognize your model is different.

From that but.

But what are you doing what can you do.

Thoughts you have about the ability to sort of drive price.

Within the context of the value proposition now.

Okay.

So I mean.

It's a good question.

A lot of answers right.

I mean, it does it does start with being able to clearly communicate who the brand is in and then from a marketing perspective are they targeting the right folks.

To them the right way do they have the right digital performance marketing agenda that they can generate leads better effective and turn them into conversion I mean, it's just it's that whole lifecycle right and so.

The discussions that we have been having.

With.

With our commercial teams at the various brands. So far has really been focused on all of it.

And its revenue management, how we choose to do our pricing curves, how we introduced promotions at the right time, how we use the opaque channels.

Yes.

Literally.

It's the whole way, we do things in the commercial space and there are opportunities for us I can't speak to people outside our company for US we have a good amount of opportunity to drive significant improvement in our revenue profile by making improvements in various aspects of that.

Full cycle.

Okay I appreciate that and can I just got another matter.

Hi.

Just wanted to be clear about the possibility of any.

Any sort of further capital raising.

Out there are those.

Are those categorically off the table or are those largely.

Off the table or are they maybe.

At this point.

So from a capital perspective.

Oh, we're always opportunistic we did indicate back I think it was in March.

We were looking to refinance the $3 billion.

Maturities in 2023.

We've worked to $2 5 billion of that.

But we always look at we remain opportunistic.

We look at the capital market, we try to look longer term.

And to see what needs, we have and what we should do rather than just looking at next quarter or the next six months and we will evaluate opportunities.

And we will look at all options as we always do to.

Make sure that we are in a good solid position so.

So best answer I can.

I can give it to that point in time.

Okay that'll work, thank you very much.

Thanks.

Next question from the line of Al <unk> with HSBC. Please go ahead.

Hi, Thank you for taking my question just on.

Maybe some comments on the Q4 trends.

Can you give us any sort of commentary on a like for like basis regarding volumes and is any of your countries should suggest that there's any demand consumer weakness demand or is it mainly due to.

As you said the future cruise credits and closer in bookings. Thank you.

So I'm not sure I fully understood. Your question, but you were talking about Q4 and as far as Q4 is concerned.

One of the things that I had indicated was we.

In my prepared remarks, we did expect to see a slightly.

Slightly increased occupancy now keep in mind, if I went back to 'twenty nine.

19, we saw a nine percentage point drop in occupancy from third quarter to fourth which is pretty typical because of the third quarter is the seasonally strong summer season for north the northern Hemisphere, and we have all of those kids onboard so so a drop in occupancy.

He is pretty normal, but we arent expecting this year a drop in occupancy in the in the fourth quarter, we're expecting an increase in occupancy and Thats. The result of the cabin occupancy bills that we are.

So we're moving in the right direction.

And I think we're in good shape for the fourth quarter hopefully that answers your question if not.

Maybe there's a couple of other points to to put out there as well.

We started in a whole because we didn't have the benefit of our Q4, having gone through a successful waves in the beginning of the year all the things that you heard us talking about with respect to the advertising spend and the change in tactics, we have at the beginning of the year.

The protocol changes all of those things.

Left us where we were the great news is our brands have been doing a good job of adapting to a closer in booking window and so as you probably heard by now because we've said it a couple of times that the.

The volume that we are getting in bookings is certainly not just for 2023. It is also closer in and benefit in Q4 as well and the brands are doing a good job of optimizing.

The the demand we're seeing on a shorter term basis.

Part of it.

And maybe just with the benefit of your experience what are the sort of impact the way.

Susan Oscar.

After you have sort of hurricane and the impacts from that please thank you.

You said.

The impact of the Hurricanes on wave season.

Well so first of all.

In the press release on behalf of Carnival Corporation.

I'd like to extend our deepest.

Concern for those affected by both Hurricane PNM, Fiona and our thoughts and prayers are with anybody who's who has been impacted with respect to the current impact.

We don't see anything significant on our business.

At this point in time, we don't anticipate anything coming out of these currency gains that would have any type of significant impact at all on our upcoming wave season.

By the way if I had to estimate the impact on us at this point in time clear.

Clearly because of the some of the disruption probably have us we have canceled a couple of cruises.

And probably less than $10 million impact from both Hurricanes and Ian.

So but remember.

That in a normal year, there is always an impact from Hurricanes and you know the.

The impact right now for these two is probably less than $10 million.

Thank you.

Our next question from the line of Brad.

Since I'm on tour with Barclays. Please go ahead.

Hey, everybody good morning, and thanks for taking my question so.

I just wanted to maybe talk about a little more about 'twenty three and specifically put the issues that you guys are having with.

Current sort of booking window links.

The length of time at the average booking that you called out as impacting the current quarter into context, which is that looking at 'twenty three right Youre ahead of.

Historical volumes for 'twenty through Youre ahead of pricing for 'twenty three against historical pricing and your current run rate of bookings volumes right. Now are well ahead of <unk> 19, and so when you add all that up I guess I'm, just trying to figure out what else what.

Besides exogenous events could derail you from turning the calendar year in a normal and a normal position versus history like why why else would that not be a normal year, except for maybe the length of time people are averaging they're booking out into the future.

Yes.

That's a good question I mean, I think at that point.

<unk> to what we were trying to express about how positive we are about the trajectory and how 2023 is already positioned.

So we're going to do everything we can to make 23, a fantastic year.

So far we've got a good base upon which to do it we're ramping back things ramping up things that we haven't been doing in the past few years few months whatever that might be depending on the b actions and our goal is to smash hit in 2023.

The only thing I'll add to that as you know our onboard revenue per Dms have been up significantly in 'twenty, two and as I said in my notes.

It also puts us on track for a record year in 2023 for onboard revenues.

Yeah.

Keep leveraging more and more our pre sales of onboard spending which is wind at our backs we have a Richard cabin mix as we talked about so there are quite a few things that you know that set us up for success, but we need to deliver.

That's helpful guys and.

If I could just maybe ask a question about how about pricing.

And how and how to think about the effect of promotional activity this year, which for the whole industry was was more elevated at least what we expect.

We perceived to be more elevated.

Sort of as expected.

The industry double this capacity essentially overnight earlier this year, but I guess my question is when you think about next year and headline prices versus net prices.

After promo is there some kind of dynamic where it might be easier to lift pricing over the next several quarters just by peeling off promotional.

Activity.

It feels like that would be an easier exercise than raising headline prices, but I could be completely off.

Yes look there's lots of levers that our brands use via opaque channels via promotions and such.

We have the same goal right in any event, which is to generate as higher prices, we can and as much revenue as we can and so to your point Theres opportunity. When you look at what we've done this year versus how we're tackling next year and we're going to do our best to to perform at a high level.

Alright, thanks, guys. Thanks.

Thanks, Brett I think operator, I think that's all the time, we have for calls today, but thank you everybody for joining and listening yeah. No. Thank you very much everybody and.

Look forward to working with Josh.

2023, as we said with pricing being up considerably higher on our books and all the other things we indicated we feel very good about 2023, so thanks and have a great afternoon.

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

Yeah.

Uh huh.

Hum.

Okay.

Yes.

Mhm.

Uh huh.

Okay.

Sure.

Okay.

Sure.

Thanks.

Yeah.

Uh huh.

Okay.

Yeah.

Uh huh.

Okay.

[music].

Good morning.

This is Josh Weinstein.

Welcome to our third quarter 2022 business update conference call My first as CEO .

I'm joined today telephonic lead by our chair Micky Arison.

And with me here in our Miami Office is our Chief Financial Officer, David Bernstein, and our senior Vice President of Investor Relations Beth Roberts.

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.

Our business continues on a positive trajectory.

We've been closing the gap to 2019 as we've put a stake in the ground internally and shifted from return to service to our relentless focus on return to strong profitability.

The occupancy gap to 2019 has reduced from over 50 points in Q1 to less than 30 points in Q3 at.

At the same time, our capacity and service has gone from approximately 60% in Q1 to over 90% in Q3.

In fact in the month of August we achieved almost 90% occupancy at higher constant dollar revenue per dms, despite the impact of future cruise credits and.

And the differential in adjusted cruise costs, excluding fuel per <unk>.

Has reduced from over $25 in Q1 down to $10 in Q3.

As a result, we were able to generate over $300 million of adjusted EBITDA in the third quarter overcoming a near doubling in fuel prices.

We expect these favorable trends to continue as we finish up 2022 and head into 2023.

While we expect breakeven to slightly negative fourth quarter EBITDA, given the seasonality of revenues and our increasing investment in advertising to drive revenue yield in 2023.

We do expect second half EBITDA overall to be positive.

We've also been making strategic changes to our fleet composition that will pay dividends over time.

Our global fleet of 91 chip has never been better positioned thanks to the exiting of 'twenty three smaller less efficient ships and taking delivery of nine large and very efficient ships.

While we'll all be four years older than we were in 2019 next year. The average age of our fleet will actually be a year younger than in 2019 and 12 years. It also means our average per account per ship is increasing nearly 20% the largest amongst our public peers.

We expect benefits of this profile to include a fleet with 10% higher fuel efficiency.

6% more efficiency and remaining operating costs.

A richer cabin mix and larger overall platforms to deliver onboard experiences and generate associated revenues. We have also begun to address the brand portfolio to improve ROIC.

And drive durable top and bottom line growth.

In light of the continued closure of cruise operations in China.

And our Costa brands significant presence there pre COVID-19, we are reducing costs as capacity by 10% from 2019 levels.

Bolstering our highly successful Carnival cruise line brand through the previously announced transfer of three ships, including two via our innovative caused by carnival initiatives launching in 2023.

All three shifts will be placed on new itineraries, allowing carnival to expand its drive to cruise offering.

We will continue to evaluate opportunities to further optimize our brand portfolio overtime.

These fleet and portfolio decisions will provide strong tailwind in.

And while during the pause in operation being nearly twice the size of the next closest crew's company with a distinct disadvantage for our cash burn we will once again benefit from our industry leading scale.

And there are even greater opportunities ahead to drive revenue as we return to full occupancy and March towards strong profitability.

Throughout the pause we have benefited from the dedicated support of our loyal guests now as we grow capacity in 2023 and beyond we are.

Doubling efforts to attract new to cruise guests about one third of our guests have historically been new decree and as you probably know two of the most important drivers of new to cruise or word of mouth and advertising.

With respect to word of mouth.

After the pause we have been building back our army of advocates that leave the shifts spreading the word about the unparalleled vacation experiences we deliver day in and day out.

In the third quarter alone we carried twice the number of guests we carried in all of 2021 and over 50% more than in just the prior quarter.

And most of this was directed at more efficient channels like Pascal.

While we're still carrying a higher proportion of repeat guests we have seen an improving trend in new to cruise and are already two thirds of the way back to 2019 levels.

And newcomers will be absolutely thrilled once we get them onboard.

We are delivering a great all inclusive vacation experience convenient.

Great dining and entertainment choices fantastic itineraries beautiful and innovative shifts and the most amazing onboard teams, providing a higher level of personalized service and you can find anywhere on land or sea.

Our net promoter scores are telling us we are delivering a phenomenal product.

The issue is we are way too much of a value.

We should not be priced at a significant discount to land, which is exactly the case today.

Anywhere from 25% to 50% based on itinerary bottomed.

Bottom line when it comes to generating demand and increasing our revenue profile, we can should and will get better.

I have begun travelling to meet with each brand president and his or her commercial team to understand their strength.

Capabilities and areas for improvement.

We're working through their strategies and roadmaps to seize opportunities.

All while taking advantage of tactics to quickly capture price and booking in the interim.

This cuts across multiple areas of our commercial operations.

Driving further brand differentiation and clarity around each brand optimal target segment.

Ensuring that creative marketing speaks to each brand's target audience.

Launching more effective digital performance marketing and lead generation approaches.

Successful.

Improving revenue management execution, as we continue to adapt to an evolving booking environment.

And using data guests and target audience insight and cross brand learnings to aid and all of the above.

Engagement and transparency that characterized the brand sessions has been fantastic and the sense of urgency. These leaders have to drive their brands forward is real and speaking of leaders, we actually have new leadership at the brands and throughout the organization.

Pause began.

Five of our nine brands have welcomed new energetic president.

And these brand presidents have been actively bolstering the bench for Logan.

Additionally, I've made a half dozen changes across corporate leadership and just the last few months.

Worth, noting that with the changes I've made to date six of my 12 direct reports are now women.

We are actively focused on diversity and inclusion and we'll continue to invest in talent and talent management diversity fits alongside our overall sustainability agenda.

And we've been making significant progress across the board.

They are probably been no greater strides in reducing our carbon intensity.

<unk> being over 25% larger our carbon footprint peaked more than a decade ago.

We've set 2030 targets for carbon intensity to be 20% lower in 2019 levels.

We will achieve this through technology upgrades currently being rolled out.

Investing import and destination project.

Even more focus on itinerary optimization and.

And realizing the benefit of our fleet optimization efforts, while there is no silver bullet to Decarbonize Asian or industry, yet we are committed to working towards a solution.

To this end I am excited about three successful pilots, we recently completed using biofuels and existing engines without modification.

Turning now to the current tone of business.

Pricing for our 2023 book business is currently at considerably higher levels in 2019 adjusting for FCC.

And it is very encouraging that since announcing our relaxation and protocols in mid August we have already seen a very meaningful improvement in booking volumes.

We are now running considerably higher in 2019 level.

At the same time, we have seen a notable improvement in cancellation trends.

We expect these favorable trends to accelerate as the impact of our current and planned efforts will continue to materialize as we move toward our important summer season, where we make the bulk of our operating profit.

When it comes to our capital structure.

Maintaining a strong balance sheet has always been a priority for our company.

Pre pandemic we had.

<unk> been able to achieve this while investing significantly in our Newbuild program. Thanks to the substantial cash flow our company generated.

Going forward, we are committed to using our cash flow strength to repair the balance sheet over time, and we'll be disciplined and rigorous in making newbuild decisions accordingly.

We have two ships on order in 2024 and one in 2025, we do not anticipate significant deviation annual levels for several years.

This will significantly reduce our capital commitment and set us on the path to deleveraging.

We have the opportunity to emerge as a company that is more efficient more sustainable and more energized for the future.

We have a transformed fleet and.

An unmatched portfolio of well recognized brands and unparalleled scale in an underpenetrated industry.

We are strategically managing our portfolio to optimize our near and long term performance.

We now have a tremendous opportunity to drive revenue growth by delivering measurable pricing improvements, while returning to historically high occupancy levels overtime.

That opportunity will drive significant free cash flow and accelerate our path to profitability.

<unk> grade credit ratings and higher Rois.

In the coming months, we'll talk specifically about long term goals and targets. So that we can track progress and maintain accountability along our path.

Our travel agent partners important destination communities suppliers investors lenders and of course, our guests are also important to our business.

I plan to speak with more of our stakeholders in the coming months to gather their perspectives as we strive for continuous improvement I.

I would like to end by personally thanking all of our talented and dedicated team members globally ship and shore, where the heavy lifting it took to get us back to full operation.

And now comes the exciting part.

Happiness by delivering unforgettable and much needed vacation to our guests and now I will turn the call over to David.

Thank you Josh I'll start today with a review of guests cruise operations, and then provide booking trends and the current tone of business.

Turning to guests cruise operations third quarter 2022 represents a significant milestone in the resumption of our guests cruise operations with adjusted EBITDA turning positive for the first time we've.

We were pleased to see that third quarter 2022 revenue increased by nearly 80% compared to second quarter 2022, reflecting a continued sequential quarter over quarter improvement.

For the third quarter occupancy was 84%.

15 percentage point increase from the second quarter.

We ended the quarter on a high note with 90% occupancy in the month of August .

We were encouraged by the continued very close in demand we experienced during the third quarter for the third quarter a trend we had anticipated.

Revenue per passenger gate that third quarter 2020 to decrease from a strong 2019.

Mainly due to the impact of future cruise credits or more commonly called Hep C C.

Currency, given the stronger U S dollar along with our large presence in Europe with four brands in the UK and Continental Europe .

Once again, our onboard and other revenue per Dms were up significantly in the third quarter 2022 versus third quarter 2019, driven by price increases greatest spending by our guests and the increased effect of the second wallet as more guests are participating in.

Pre cruise sales of onboard activities.

In fact year to date, we have seen over 50% growth in pre cruise sales of onboard activities on a per passenger cruise days or PCB basis as compared to 2019.

Our teams have done an excellent job capitalizing on the opportunity in this area.

As I indicated in my comments during our last business update we expanded a bundled package offerings given their popularity.

The new bundled offerings required us to make changes to the accounting allocations.

As a result in the third quarter more of the revenue, reflecting ticket and less allocated to onboarding.

Impacting the onboard and other revenue per PCB comparison for the third quarter as compared to the second quarter.

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

On the cost side, our adjusted cruise costs without fuel in constant currency per available lower birthday, or a L. E. D is it is more commonly call for third quarter 2022 was up 14% versus third quarter 2019, we have seen a continuation of the sequential.

<unk> improvement quarter over quarter and costs throughout the year and expect to see a continuation of the improvement in the fourth quarter of 2022 with a low double digit increase compared to 2019, driven in part by higher advertising expense to drive revenue for 2023.

We ended the third quarter 2022, with $7 4 billion of liquidity essentially the same liquidity level as last quarter.

In addition, I am pleased to report that total customer deposits. Both current and long term were $4 8 billion at third quarter 2022 approaching.

Approaching the record third quarter up $4 9 billion in 2019.

New bookings for the third quarter of 2020 to offset most of the historical seasonal decline in customer deposits, which was over $1 billion in 2019.

Furthermore to facilitate investor engagement.

I wanted to mention a couple of balance sheet related items.

First let me clarify our debt to capital Covenant tests.

Our current debt to capital percentage is in the mid fifties using the calculation methodology in our debt agreements.

Methodology allows for the add back equity of noncash write offs and other adjustments, which eliminates the volatility from the pause in guest cruise operations, leading us well within the debt to capital Covenant limits set at 75% at the end of the third quarter.

'twenty two.

Second we will provide and we will continue to do so quarterly.

Detailed debt schedule and a listing of ships in our fleet by brand on our web site Carnival Corp Dot com.

These supplemental schedules referred to the financial information tab within the Investor Relations section of the website.

Next let's look at booking trends and the current tone of business.

Booking volumes for all future sailings during the third quarter 2022, so a continuation of the accelerated booking volumes during the second quarter and closed the gap to strong 2019 levels we.

Did not see any seasonal slowing of booking activity in the third quarter 2022 versus the second quarter 2022, despite the third quarter normally being a slower booking period.

Left us with more inventory to sell closer in to.

To optimize in this environment, we have been working to increase near term occupancy in part by using limited promotions and opaque channels.

<unk> only to a select group of people to protect overall price integrity for 2023.

Fab four.

While this resulted in the cumulative advanced book position for the fourth quarter below the historical range. We believe we are well situated with our current fourth quarter 2022 book position given current booking volumes that are running significantly ahead of 2019 levels as we can.

With respect to occupancy fourth quarter occupancy historically has been lower than third quarter, given the seasonal dynamic of our business.

Was a nine percentage point drop in 2019 however.

Hosing the gap to 2019.

For the full year 2023, our cumulative advance booked position is slightly above the historical average and at considerably higher prices compared to a record 2019 levels normalized for Hep C.

While I do expect an impact on 2023 yields from the FCC's the impact is likely to be less than one percentage point for the full year 2023.

Additionally, during 2023, we expect improvement in occupancy with occupancy returning to historical levels in the summer of 2023.

While our return to guests cruise operations is essentially complete we are still evaluating a few remaining deployment options as referenced in our business update release.

As a result for 2023, we expect our capacity increase could be somewhere in the range of 3% to 5% compared to 2019.

In summary, looking forward to 2023.

We have a strong book of business at considerably higher prices prices are higher in all four quarters of 2023.

Onboard revenue premiums are up significantly in 2022, and this puts us on track for a record year in 2023 for onboard revenue all of this clearly sets the stage positively for 2023, we trash and I working together with all of the brand teams.

To drive revenue growth over time.

And now operator, let's open up the call for questions.

Yeah.

Thank you.

Like to register a question. Please press the one followed by the four on your telephone you will hear a suites on prompt technology request.

If your question has been answered and if you would like to withdraw your registration. Please press 131.

One moment please for our first question.

Okay.

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

Yeah, Hey, guys good morning.

And Josh welcome to your first call as CEO .

I guess my question is that we seem to be hearing a much different tone from.

Some of your peers in terms of how the EBITDA or cash flow cash flow recovery is playing out versus what you guys just reported in the third quarter and your outlook for the fourth quarter. So.

I guess is it fair to assume.

Carnival Princess your domestic brands are doing very very well right now, but it's your non U S brands that are struggling at this point and that's the issue right now versus your peers and then just does that make you think a little bit differently about the your portfolio shifts meaning.

Do you still need nine brands at this point.

Thanks, Thanks for the welcome.

So I think you asked a couple of things I mean, let me see if I can hit them all so.

First of all I can't speak to us our peers I won't speak to our peers I'll speak to speak to us.

The momentum is continuing.

Which is really promising as you heard from my prepared remarks, as well as well as David's, particularly over the last six weeks things have ramped up incredibly strong in the book of business is good with respect to how we're looking at the the brands obviously carnival in the Caribbean has done a great job.

They are Americas cruise line and it showed through loud and clear as we've been going through this past this past year.

But I wouldn't look at this as a as a.

North American versus European.

Question all of our brands earn are in varying points with respect to their pricing on their occupancy and how those play out and theyre responding to their target audience and their source markets and trying to optimize as best as they can.

You heard.

In my prepared remarks, and I think we've talked about already before.

We can do better.

High expectations for all of our brands to make significant improvement on the revenue side and some of it's blocking and tackling some of it is really pushing the envelope in certain areas.

I actually feel pretty pretty confident so far.

Managed to to hit three.

Three brands in that type of setting it's been Costa Holland America, and Princess and.

The activities that are underway or are significant.

I really I don't think its appropriate in this forum to get into any specifics, but we are tracking.

Hundreds of things some big some small that are going to ultimately lead to significant improvement.

Okay got you thanks for that color, Josh and then second question would be.

Around 2023, and look I mean, I understand you guys aren't going to give guidance for 'twenty three at this point, but.

You know in the past we've heard the previous management had carnival kind of talk about at a very high level. There was a good chance that 2023 EBITDA.

There was a chance to exceed 2019, EBITDA, so Josh you're now at the helm and how do you view that probability.

From what you can see today is this something thats still possible or are you just saying hey look it's too early to make that call.

Well.

We're certainly anticipating.

Strong EBITDA in 2023, we're not providing guidance obviously, so I don't want to get ahead of where we are in that process of fuel and currency are obviously a big.

Swing and we'll see how that plays out in 2020, we have no idea, but we're working hard to generate as much as we can.

Okay got you thanks, guys appreciate it.

Yes.

Next question is from the line of teams argument with Citi. Please go ahead.

Hey, good morning.

Thanks for taking my call and Josh welcome aboard.

So obviously, there's a lot of discussion.

<unk>.

The booking.

I don't know if surge as the wife bright word that you've seen since the relaxation of some of the.

Covid restrictions.

I guess I'm curious.

What if any impact that is having on pricing.

Particularly in the context of we have this per diem decline I think it's about 4% versus 2019.

For the third quarter, but then as we look to next year or the pricing seems like it's up meaningfully and so I'm just trying to connect those two dots.

And maybe sort of the missing piece is.

Significant improvement coming off of these restriction relaxations, but maybe paint that picture for us.

Hi, James.

So so yes.

The volumes have been incredibly encouraging.

That speaks specifically to price over the last few weeks, but I can tell you that the.

The pricing of our our business on the books for 2023 overall is actually higher today than it was earlier in the year.

As far as what's driving that I think theres a lot of things that are driving that.

Yes.

I do think that the fact that we are now able to be more aligned to land based alternatives.

It reduces a lot of friction.

And opens up more demand too to us and our brands.

You heard us mentioned advertising.

We had a different advertising approach.

What our norm was pre pandemic and we really we scaled way back and in the process of doing that.

We're doing it in the context of the pause on how we wanted to prioritize our resources and focus in on those on those loyal guests and more efficient channels, but as we've been ramping back up.

Two really excuse me.

<unk> strength with our offer our advertising strategy is starting to pay dividends.

In addition to that we.

We have as you heard we have more and more people sailing again in going back and telling folks that we are a great product and all of that is helping so I can't give you I wish I could be scientific and tell you all of the drivers and how they impact the pricing, but I'd be lying.

Don't think anybody can do that so we'll just have to see what's working and see what's gotten leverage what we count.

And also just.

Let me just add.

When youre looking at the fourth quarter clearly we were in a situation where our wave season was impacted and remember we didn't start the increase in advertising expense until the third quarter.

So that too impacted the revenue per Dms that you mentioned in the third quarter, but as Josh talked about we are addressing that clearly as we move forward.

Got it and then my second question, maybe a bit well, it's an open ended question but.

Josh.

Since you've been at the helm.

I don't know if you've had a chance to think through.

Or maybe you could help us think through some of the challenges and opportunities facing the company I guess, what I'm trying to figure out is how much.

Of that as sort of a cruise industry.

Set of challenges and opportunities versus carnival specific.

It takes good wherever you want to take it whether it's the mix of your customers mix of geography strength or weaknesses of your specific brand.

But I'm curious, how you sort of slice and dice those too.

Well, Oh, well overall I would say.

I can say on behalf of the industry all of US are way too good of a value.

When it comes to stacking us up versus non cruise alternatives and so I think the more we can breakthrough as an industry with how good of a product we are how inclusive it can be.

That will serve dividends that's why.

Im very committed to our travel agent partners because they are critical for us.

In that success and being able to communicate that story and and convince first timers, who don't know cruising could be daunting could be confusing and help them get onboard because once we get them to want to come back.

I don't know.

So I can't speak to the to our peers in.

What they do and how they do it behind closed doors I do think the things that we're seeing on the commercial side with all of our brands.

There is brand by brand.

I think.

All I can tell you the specific to our corporation.

And I think theyre going to really.

Paid dividends for us in a big way.

Got it.

Sure.

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

Great. Thank you.

So it just kind of looking at the language you used over the years to describe forward bookings when you say considerably higher.

That's.

More upbeat language that you typically use it.

It seems like considerably hires probably more than 5% that should we think of it as being more than 10% or would that be a different adjective.

Right.

This is Josh.

Just to have a dictionary that David provided for everybody. When we were doing this preparations back when I was the treasurer.

I think.

Is it safe to say this is mid single digits.

And so.

So I guess I can answer.

Okay.

Very helpful. Thank you.

And then also on the non fuel expense it seems like Ed.

Still digesting the release that it seems like your guidance for second half.

Fuel expense is quite a bit higher than previous.

Is it just the advertising you bet, you've mentioned or are there other things.

And I sort of have a follow up about the advertising, but it may be just to even frame what's happening to non fuel expense. Thanks.

Sure. So if you.

If you take what we said about all the quarters and you actually weighed average it with the <unk> per quarter.

You get something.

Mid to high single double digits, and we had said.

Mid double digits before so it is a tad higher as a result of potentially more advertising expense than we had previously anticipated, but it's not a significant change on.

Full year basis from what we said before.

Just up.

Maybe a point or something like that from from the previous guidance.

Okay.

And then just.

On the advertising piece is just you've talked about being ahead in price.

And volume in 'twenty, three and then you talked about this.

Essentially how things are ramping up so I guess just thinking about.

So it seems like demand is growing natural itself. So I guess why the decision to do more advertising.

No.

Got it and certainly I know Franklin European demand issue or just kind of help us think about when you sort of naturally.

<unk> had strong volume.

Hi.

How to think about that thanks.

Yeah. So a couple of things one is we have volume, but we want to get volume.

Plus price and fill the ships at good pricing. So we just we need to be doing more to accomplish that it's not a.

It's not a European versus <unk>.

American phenomenon and remember advertising is not just for the moment and filling the ship in the next quarter and setting the groundwork for awareness consideration and ultimately making that booking decision and we have to be thinking about this in the context of the fact that we're.

We're taking bookings for the next two and a half years not just in the next quarter.

So we need to be real thoughtful and the point about new to cruise.

That's where that's where it makes a huge amount of inroads, particularly as we're building toward wave.

And all of this.

Our goal is to be setting ourselves up really well for a very successful way than it has been years since we've had that.

And so I think theres a lot of excitement in the organization actually because.

Our game plans are out and.

What we want to achieve.

Okay. That's helpful. Thank you so it sounds like the advertising.

Versus what you originally thought but not higher than what you would typically do sort of pre pandemic is that about the right way to think about it.

No I wouldn't I wouldn't say that yet actually.

We are we're back up to those levels that we have more capacity to sell so naturally that should we will always try to find efficiencies but.

There's a lot of there's a lot of pluses or minuses in the equation and we're working through our 2023 plan with the with all of our brands now so.

More insight about how exactly that's going to shape up in a few months.

But it's fair to say that.

If you look at the four quarters remember, we had talked about we werent doing much advertising in the first half of the year. When we did increase it in the back half and I think I had said once before that we did expect advertising overall to be higher than it was in 2019, So what youll see is a big ramp up.

Up in the back half of this year versus 2019.

Even higher than normal.

The level that we would see in the fourth quarter in anticipation of wave season.

Okay. Thank you.

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

Hi, Good morning, I'm, hoping you guys can help us think through.

What the magnitude of FTC is left to work through might be and when.

Do you think we may be sort of through digesting meli.

So I think I had indicated in my prepared remarks that.

We did expect to see FCC's impact yields in 2023, but it would be less than 1% in.

In 2022, we had seen a couple of points of an impact is.

Given our forecast and the expectation.

And I think you'll see that it's the FCC sweeteners that you were talking about.

Thank you will see that and with 2023.

Excellent and then from a capital spending perspective, I think there were some shifts in expenses.

The table in the press release is there anything noteworthy worth mentioning.

Different spending programs that have shut down or anything like that thanks.

Yeah, well just keep in mind that a lot of the capex, depending on which particular item you are looking at.

A lot of the Capex is in foreign currency and with the changes in foreign currency, particularly the new builds you will see a reduction in the Newbuild capex.

Non new build Capex, we've been looking at that very carefully and making sure that we optimize those numbers. So you did see a decline in 2022.

From the previous guidance and we are re looking at 2023 as Josh had said, we're going to be going through with all of the operating companies their plans for 2023.

So at this point in time, we haven't made any changes, but we will continue to look at that and talk to them about optimizing capex for 2023.

Thank you.

Next question from the line of Ben Chaiken with Credit Suisse. Please go ahead.

Hey, How's it going.

Sorry, if I missed it I think that FY 'twenty three the language surrounding FY 'twenty three bookings changed slightly maybe I'm mistaken I guess simplistically can you help us with the booked position in 'twenty three and maybe how that's changed since the last update relative to 19, it sounds like I mean, it sounded like bookings and accelerating.

Since the vaccine protocol.

Change, but just a little unclear on the total booked position for 'twenty three relative to the last update thanks.

Sure so keep in mind that.

30% over 2019 in the last few weeks so the booking patterns have been tremendous.

But.

The book position.

Previously we had said was at the higher end.

<unk>.

The historical range and now we're saying it's at the average.

Earlier in the quarter.

We were.

Very good about that as well.

Okay. That's helpful. And then or is that are you able to break up so it sounds like a little bit of a deceleration in bookings for 'twenty three position.

Is there any I know a few times is there a is there a difference between European and non European itineraries in terms of driving that.

Yes.

Wouldn't have called it a deceleration.

During that period remember that for most of the quarter.

We still have the protocols in effect.

And as a result of that while we were getting bookings the booking levels were slightly below 2019 and level.

A level for 2023.

But since the relaxation of the protocols we.

Have seen.

Things accelerate considerably the other thing to keep in mind is that we have seen a much closer in booking curve than we had previously seen historically and so that too is probably impacted 2023.

As well, but with the relax protocols and putting us more in line.

With the testing requirements gone.

We're in great shape and as I said before we're now in the last few weeks since the relaxation of the protocols are north.

With American brands were up 30% over 2019 levels.

And we feel great about that so we're looking forward to 2023.

Our European brands are doing well too they're just operating in a closer end booking window. So they have seen a significant spike as well, it's just more for a closer in period, but again same thing mid August and it took off.

Okay, and then just one more on the on the cost.

It sounds like we are in this low double digit range versus 19 exiting the year can you help us just directionally, maybe how much of that is core underlying costs and how much of that or maybe like fleet ramp up Covid protocol related.

Et cetera.

Just ballpark.

Well it's.

So for the fourth quarter well first of all let me just say that the fourth quarter. I don't think is a great indication of looking forward I think we can do better and we're going to be having those conversations with our brands, but embedded in the fourth quarter.

A little bit of startup costs, but most of the ships and most of that was.

Spent before the fourth quarter, but there are protocol cost.

From an <unk>.

Had said earlier in the year, we were probably spending tens of millions of dollars a month.

Im protocol caused by the time, you get to the fourth quarter, when you're looking at adjusted cruise costs without fuel.

Probably talking about or maybe a dollar to $1 50 of costs in there that.

Are included in the forecast.

So there is something which is affecting that double digit low double digit projection.

But it is like I said, maybe a dollar of $1 50, and I'm not even sure we're going to spend that much but thats what the brands have included them given their forecast where we're prepared.

About the same time as the relaxation of the protocol.

Not to belabor the point, but just a follow up why is <unk> not I think you said <unk> is not a good.

I think kind of like period.

Yes, I think when you when you look at all the different things over a full year period keep in mind, just as an example.

I'll give you. One example, so I've always said that looking at cost by quarter are not a good reflection of the year because things vary by quarter and I. Just indicated I think it was Robin who was asking the question about advertising and I said that advertising was up considerably in the fourth quarter versus.

Is 2019, so if you just take that item alone.

That would have had an impact on your double digit number and so no one quarter is ever going to be a good indication of the full year because of the seasonality of the spending by quarter.

Okay. Thank you.

Our next question.

From the line of David Katz with Jefferies. Please go ahead.

Good morning.

Thanks for taking my questions I appreciate it.

I wanted to just get your thoughts on <unk>.

Pricing and the value proposition strategy.

Context that we look at other areas of hospitality that our.

Driving price and I recognize your model is different.

From that.

But what are you doing what can you do what thoughts do you have about the ability to sort of drive price.

In the context of the value proposition now.

So I mean, it's.

It's a good question if there is a lot of answers.

It does it does start with being able to clearly communicate who the brand is in and then from a marketing perspective are they targeting the right folks I'll be speaking to them. The right way do they have the right digital performance marketing agenda that they can generate leads better effective and turn them into converge.

I mean, it's just it's that whole lifecycle right and so.

The discussions that we have been having with.

With our commercial teams at the various brands. So far has really been focused on all of it.

And its revenue management, how we choose to do our pricing curves.

We introduced promotions at the right time, how we use the opaque channels.

Yes.

Literally.

All cycle.

I appreciate that and can I just go on another matter.

Hi.

Just wanted to be clear about the possibility of any.

Any sort of further capital raising.

Out there are those.

Are those categorically off the table are those largely.

Off the table or are they maybe.

At this point.

So so from a capital perspective.

Are always opportunistic we did indicate back I think it was in March.

We were looking to refinance the $3 billion.

Maturities in 2023.

We've worked to $2 5 billion of that but we always look at.

We remain opportunistic.

We look at the capital market, we try to look longer term.

And to see what needs, we have and what we should do rather than just looking at next quarter or the next six months and we will evaluate opportunities.

And we will look at all options as we always do.

To make sure that we are in a good solid position so.

The best answer I can.

I can give at this point in time.

Okay that'll work, thank you very much.

Thanks.

Next question from the line of Ali <unk> with HSBC. Please go ahead.

Hi, Thank you for taking my question just on.

Maybe some comments on the Q4 trends could you give us any sort of commentary on a like for like basis regarding volumes and <unk>.

Of your countries to suggest that there's any demand consumer weakness demand or is it mainly due to that.

You said the future cruise credits and sensory.

And bookings thank you.

So I'm not sure I fully understood. Your question, but you were talking about Q4 and as far as Q4 is concerned.

One of the things that I had indicated was we.

In my prepared remarks, we did expect to see slightly.

Slightly increased occupancy now keep in mind, if I went back to 'twenty nine.

Is pretty normal, but we arent expecting this year a drop in occupancy in the in the fourth quarter, we're expecting an increase in occupancy and Thats. The result of the cabin occupancy bills that we are.

So we're moving in the right direction.

And.

I think we're in good shape for the fourth quarter hopefully that answers your question if not.

Yes, I think maybe there's a couple of other points to to put out there as well.

We started in a whole because we didn't have the benefit of our Q4, having gone through a successful wave in the beginning of the year all the things that you heard us talking about with respect to the advertising spend and the change in tactics, we have at the beginning of the year.

The protocol changes all of those things.

Left us where we were the great news is our brands have been doing a good job of adapting to a closer in booking window.

So as you probably heard by now because we've said it a couple of times.

But the volume that we are getting in bookings is certainly not just for 2023. It is also closer in and benefit in Q4 as well and the brands are doing a good job of optimizing.

The the demand we're seeing on a shorter term basis.

Part of it maybe.

And maybe just with the benefit of your experience what is the sort of impact the wave season Oscar.

After you have sort of hurricane and the impacts from that please thank you.

Thank you Steve.

The impact of the Hurricanes.

Susan.

So first of all.

In the press release on behalf of Carnival Corporation.

I would like to extend our deepest.

Concern for those affected by both Hurricane PNM, Fiona and our thoughts and prayers are with anybody who is who has been impacted with respect to the current impact.

We don't see anything significant on our business.

At this point in time, we don't anticipate.

Anything coming out of these currency gains that would have any type of significant impact at all on our upcoming wave season by the way if I had to estimate the impact on us at this point in time.

Early because of the some of the disruption probably have us we have canceled a couple of cruises.

Probably less than $10 million impact from both hurricanes.

So, but but remember.

In a normal year, there is always an impact from hurricanes and.

The impact right now for these two is probably less than $10 million.

Thank you.

Our next question from the line of Brian <unk> with Barclays. Please go ahead.

Hey, everybody good morning, and thanks for taking my question. So I just wanted to maybe talk about a little bit more about 'twenty, three and specifically put the issues that you guys are having with.

Current sort of booking window links.

The length of time that the average booking that you called out as impacting the current quarter into context, which is that looking at 'twenty three right. Youre ahead of historical volumes for 'twenty through Youre ahead of pricing for 2003 against historical pricing and your current run rate of booking volumes right. Now are well ahead of <unk> 19, and so when you add all that up.

I guess I'm, just trying to figure out what else what.

Besides exogenous events could derail you from turning the calendar year in a normal and a normal position versus history.

Why else would that not be a normal year, except for maybe the length of time people are averaging they're booking out into the future.

Yes.

That's a good question I mean, I think point.

Points to what we were trying to express about how positive we are about the trajectory and how 2023 is already position. So we're going to do everything we can to make 23, a fantastic year.

So far we've got a good base.

Upon which to do it we're ramping back things ramping up things that we haven't been doing in the past few years few months whatever that might be depending on the the actions and.

Our goal is to smash hit in 2023.

Only thing I'll add to that as you know our onboard revenue per Dms have been up significantly in 'twenty, two and as I said in my notes. It also puts us on track for a record year in 2023 for onboard revenues.

Yes.

Keep leveraging more and more our pre sales of onboard spending.

Wind at our backs, we have a richer cabin mix as we talked about so there are quite a few things.

That set us up for success, but we need to deliver.

That's helpful guys and.

If I could just maybe ask a question about about pricing and.

And how to think about the effect of promotional activity this year, which for the whole industry was was more elevated at least we expect we proceeded to be more elevated with this sort of as expected.

The industry would double this capacity essentially overnight earlier this year, but I guess my question is when you think about next year and headline prices versus net prices.

After promo is there some kind of dynamic where it might be easier to lift pricing over the next several quarters just by peeling off promotional.

Activity.

It feels like that would be an easier exercise than raising headline prices, but I could be completely off.

Yes.

Lots of levers that our brands use via opaque channels via promotions and such.

We have the same goal right in any event, which is to generate as higher prices, we can and as much revenue as we can and so to your point there is opportunity. When you look at what we've done this year versus how we're tackling next year and we're going to do our best to to perform at a high level.

Alright, thanks, guys. Thanks.

Thanks, Brett I think operator, I think that's all the time, we have for calls today, but thank you everybody for joining and listening.

Thank you very much everybody and.

I look forward to working with Josh.

2023, as we said with <unk>.

Pricing being up considerably higher on our books and all the other things we indicated we feel very good about 2023, so thanks and have a great afternoon.

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

Q3 2022 Carnival Corp & Carnival PLC Business Update Call

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