Q3 2022 Royal Caribbean Cruises Ltd Earnings Call

November 3, 2022

After the Speakers' remarks, there will be a question and answer session.

If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad to withdraw your question Press Star One again I would now like to turn the conference over to Michael Mccarthy, Vice President Investor Relations.

Good morning, everyone and thank you for joining us today for our third quarter 2022 business update conference call.

Joining me here in Miami are Jason Liberty, Our Chief Executive Officer, Beth <unk>, our Chief Financial Officer, and Michael Bayley, President and CEO of Royal Caribbean International.

Before we get started I'd like to note that we will be making forward looking statements. During this call. These statements are based on management's current expectations and are subject to risk and uncertainties a number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as we.

Well as our filings with the SEC for a description of these factors we.

We do not undertake to update any forward looking statements as circumstances change also we will be discussing certain non-GAAP financial measures, which are adjusted as defined and a reconciliation of all non-GAAP items can be found on our website and in our earnings release available at Www Dot our seal investor Dot com.

Jason will begin the call by providing a strategic overview and update on the business Naftali will follow with a recap of our third quarter results and an update on our latest actions and on the current booking environment.

We will then open the call for your questions, but first we will start the call with a video highlighting and introducing our trifecta program.

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Business Naftali will follow with a recap of our third quarter results and an update on our latest actions and on the current booking environment.

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We will then open the call for your questions, but first we will start the call with a video highlighting and introducing our trifecta program.

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Hey, Michael.

Yes.

And good morning, everyone over the past several months our teams have been very busy and focused on generating strong quality demand combating inflation and most of all delivering the best vacations in the world as we return our business closer to historical load factors, while maintaining price integrity and generating 3 billion.

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And revenue and almost $750 million and adjusted EBITDA in the third quarter.

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As you have seen in our announcement. This morning, we have announced a three year financial performance program that we have termed project trifecta.

Hey, Michael.

Now before getting into the details of the program, let's first talk about how the business is performing.

As our third quarter results clearly demonstrate the strength of our vacation platform, which includes our leading global brands the best and most innovative ships in the industry.

A powerful and nimble commercial apparatus, coupled with strong execution by our operating teams have delivered another quarter of strong performance that exceeded our expectations.

And revenue and almost $750 million and adjusted EBITDA in the third quarter.

As you have seen in our announcement. This morning, we have announced a three year financial performance program that we have termed project trifecta.

Our entire fleet is operating globally and our key destinations.

<unk> for our experiences.

Now before getting into the details of the program, let's first talk about how the business is performing.

Very strong and we achieved 96% load factors overall with the Caribbean at close to 105% at record pricing and high satisfaction scores we.

As our third quarter results clearly demonstrate the strength of our vacation platform, which includes our leading global brands the best and most innovative ships in the industry.

We delivered adjusted EBITDA of $742 million and positive earnings per share of <unk>, 26, which was above our guidance.

A powerful and nimble commercial apparatus, coupled with strong execution by our operating teams have delivered another quarter of strong performance that exceeded our expectations.

Our strong financial performance, coupled with proactive refinancing actions further strengthen our already strong liquidity position and improved our debt maturity profile.

Our entire fleet is operating globally and our key destinations.

I am thankful and proud of everyone at the World Caribbean group for delivering the best vacation experiences to our customers in a responsible way while executing so well on our recovery and building on our future.

<unk> for our experiences.

Very strong and we achieved 96% load factors overall with the Caribbean at close to 105% at record pricing and high satisfaction scores we.

The successful return of our business to full operations in the accelerating demand environment positions us well to deliver on our expectations of record yields and record adjusted EBITDA in 2023.

We delivered adjusted EBITDA of $742 million and positive earnings per share of <unk>, 26, which was above our guidance.

Our strong financial performance, coupled with proactive refinancing actions further strengthen our already strong liquidity position and improved our debt maturity profile.

Next let me elaborate on the Trifecta program, we announced this morning.

With the operational return of our business well in hand, we are now focusing the team and our stakeholders on returning to record financial performance and beyond.

I am thankful and proud of everyone at the Royal Caribbean Group for delivering the best vacation experiences to our customers in a responsible way while executing so well on our recovery and building on our future.

The introduction of the <unk> program provides us the coordinates we are looking to achieve over the next few years, while delivering the best vacations in the world responsibly.

The successful return of our business to full operations in the accelerating demand environment positions us well to deliver on our expectations of record yields and record adjusted EBITDA in 2023.

Specifically, we are focused on achieving three metrics by 2025.

Growing EBITDA profitability per EPC D to triple digits.

Next let me elaborate on the Trifecta program, we announced this morning.

Delivering double digit earnings and achieving a return on invested capital and the teams.

With the operational return of our business well in hand, we are now focusing the team and our stakeholders on returning to record financial performance and beyond.

We look to achieve these metrics, while we return the balance sheet back to investment grade profile and reduce our carbon intensity by double digits compared to 2019 as part of our commitment and focus on advancing the sustainability of our business.

The introduction of the <unk> program provides us the coordinates we are looking to achieve over the next few years, while delivering the best vacations in the world responsibly.

Our formula for success is based on moderate capacity growth moderate yield growth and strong cost discipline.

Specifically, we are focused on achieving three metrics by 2025.

For those who have followed us for some time this will sound very familiar as we demonstrated in the past it leads to strong financial performance and does not assume a perfect operating environment.

Growing EBITDA profitability per <unk> to triple digits.

Delivering double digit earnings and achieving a return on invested capital in the teens.

Our plan is well grounded in a set of underlying strategies robust secular and demographic trends a.

Strong culture, and a powerful foundation, a leading global brands. The most innovative fleet in the industry and the very best people there.

The main thrust of our plan is to take further advantage of our strong foundation and further orient our ecosystem around the customer by enhancing our commercial apparatus.

Our formula for success is based on moderate capacity growth moderate yield growth and strong cost discipline.

For those who have followed us for some time this will sound very familiar as we demonstrated in the past it leads to strong financial performance and does not assume a perfect operating environment.

And product offerings.

By doing this we will further enhance customer preference engagement cruise frequency guest experience and spend.

Our plan is well grounded in a set of underlying strategies robust secular and demographic trends a.

This combined with expanding our fleet through innovative new ships and land based experiences like perfect day at Coke, Okay will drive our profitability growth and strong cash flow generation.

Strong culture, and a powerful foundation, a leading global brands. The most innovative fleet in the industry and the very best people there.

Disciplined capital allocation to high returning investments will allow us to reduce leverage while investing in our future.

The main thrust of our plan is to take further advantage of our strong foundation and further orient our ecosystem around the customer by enhancing our commercial apparatus.

And delivering strong shareholder value.

Trifecta creates the pathway back to what we internally describe as base camp. However.

And product offerings.

By doing this we will further enhance customer preference engagement cruise frequency guest experience and spend.

However base camp is not our final destination, our ambitions go well beyond it.

And while it may not always be a straight line and there may be some choppy waves from time to time, we are confident in our leading platform and ability to execute on our strategies to deliver those goals over the next few years.

This combined with expanding our fleet through innovative new ships and land based experiences like perfect day at Coke, Okay will drive our profitability growth and strong cash flow generation.

Disciplined capital allocation to high returning investments will allow us to reduce leverage while investing in our future.

Before going into the booking commentary I wanted to share some of the behaviors that we are seeing from our guests global demand for travel is ramping up as consumers continue to shift spend to experiences.

And delivering strong shareholder value.

Trifecta creates the pathway back to what we internally describe as base camp. However.

Well. This is good news to us as we are squarely in the experience business the.

However base camp is not our final destination, our ambitions go well beyond it.

The value proposition of cruise remains incredibly attractive I would say two attractive our full addressable market is back and our brands are attracting new customers into our vacation ecosystem.

As a result guest mix for the quarter was equally distributed across loyalty new to cruise and new to our brand similar to what we saw in 2019.

Let me highlight some observations from our daily engagement with our customers.

This quarter, we delivered $1 $7 million of amazing vacation experiences and.

Well. This is good news to us as we are squarely in the experience business the.

And we have more than 130000 guests sailing on our ships globally every day.

The value proposition of cruise remains incredibly attractive I would say two attractive our full addressable market is back and our brands are attracting new customers into our vacation ecosystem.

The positioning of our brands attracts guests across broad demographics psychographics and at a median household income above $100000. This.

As a result guest mix for the quarter was equally distributed across loyalty new to cruise and new to our brand similar to what we saw in 2019.

This provides us a unique vantage point.

On what our guests are looking for and their behaviors.

Overall across markets brands and products, we continue to see a financially healthy highly engaged consumer with a strong hunger to dream and seek a variety of vacation experiences.

Let me highlight some observations from our daily engagement with our customers.

This quarter, we delivered $1 $7 million of amazing vacation experiences.

Our commercial apparatus is seeing elevated booking activity across channels as we help our customers design their dream vacations.

We have more than 130000 guests sailing on our ships globally every day.

The positioning of our brands attracts guests across broad demographics psychographics and at a median household income above $100000. This.

Our guests are willing to spend more than ever with us to create those memories consumers are engaging earlier in the planning their vacation with about 60% purchasing onboard experiences before they even set sail.

This provides us a unique vantage point.

On what our guests are looking for and their behaviors.

Overall across markets brands and products, we continued to see a financially healthy highly engaged consumer with a strong hunger to dream and seek a variety of vacation experiences.

This has led to an eight point increase in penetration and much higher revenue apd related to pre cruise purchases versus 2019 levels.

Our guests continue to seek the rich experiences we offer spending significantly more onboard our ships compared to 2019 across nearly all categories.

Our commercial apparatus is seeing elevated booking activity across channels as we help our customers design their dream vacations.

All of this is translating into strong booking activity.

During the third quarter, we saw both strong demand for closer in sailings and accelerating demand for sailings in 2023.

Next let me talk a little bit more about the new ships that are planned to join our fleet next year.

This has led to an eight point increase in penetration and much higher revenue apd related to pre cruise purchases versus 2019 levels.

Our innovative new ships and onboard experiences will allow us to continue to differentiate our offering as well as deliver superior yields and margins.

Our guests continue to seek the rich experiences we offer spending significantly more onboard our ships compared to 2019 across nearly all categories.

Two weeks ago, we reveal details on our new and amazing icon of the seas, which will be delivered in late 2023 ahead of its January 2024 debut.

All of this is translating into strong booking activity.

It is a game changing first of its kind vacation experience, where everyone can experience their version of the ultimate vacation.

During the third quarter, we saw both strong demand for closer in sailings and accelerating demand for sailings in 2023.

Icon will have eight distinct neighborhoods each a destination in and of itself packed with an array of amazing experiences. The ships stay room configuration will allow for load factors to be accretive to the overall portfolio and the ship will be significantly accretive to our key financial metrics.

Next let me talk a little bit more about the new ships that are planned to join our fleet next year.

Our innovative new ships and onboard experiences will allow us to continue to differentiate our offering as well as deliver superior yields and margins.

Two weeks ago, we revealed details on our new and amazing icon of the seas, which will be delivered in late 2023 ahead of its January 2024 debut.

<unk> opened for sale about a week ago.

Market response was nothing short of remarkable on the first day of bookings, we far surpassed our previous single day booking record for the brand and the company overall and it wasn't even close.

It is a game changing first of its kind vacation experience, where everyone can experience their version of the ultimate vacation.

With each new ship, we raise the bar in the travel industry, while enhancing what our guests know and love and addition to icon celebrities will join the celebrity fleet in the fourth quarter of 2023, and silver Nova will join the Silversea fleet in late summer.

Icon will have eight distinct neighborhoods each a destination in and of itself packs with an array of amazing experiences. The ships stay room configuration will allow for load factors to be accretive to the overall portfolio and the ship will be significantly accretive to our key financial metrics.

And then coming days, we will open a brand new flagship terminal in Galveston, Texas, the new terminal significantly expands our capacity in the region with the ability to accommodate the larger Oasis class ships and gives us further access into the attractive drive to markets of Texas, Oklahoma and the entire southeast region.

Ship opened for sale about a week ago.

Market response was nothing short of remarkable on the first day of bookings, we far surpassed our previous single day booking record for the brand and the company overall and it wasn't even close.

With each new ship, we raise the bar in the travel industry, while enhancing what our guests know and love and addition to icon celebrities Senate will join the celebrity fleet in the fourth quarter of 2023, and silver Nova will join the Silversea fleet in late summer.

The facility will also be the first cruise terminal to generate a 100% of its needed energy from onsite solar panels and it will be the first zero energy cruise terminal facility in the world.

While we are still early in our planning cycle 2023 is shaping up to be a strong year for the company and a return to normal typical business.

Our overall capacity will grow 14% compared to 2019.

On account of 10, new ships, which have joined or will join the fleet across our brands. During this period net of dispositions.

The facility will also be the first cruise terminal to generate a 100% of its needed energy from onsite solar panels, and we will be the first zero energy cruise terminal facility in the world.

Our deployment across markets is relatively unchanged compared to 2019 with Caribbean, representing just over half of our overall deployment.

Europe at almost 20% in Asia in the low single digits with no planned deployment and the high yielding China market.

While we are still early in our planning cycle 2023 is shaping up to be a strong year for the company and a return to normal typical business.

80% of the population is within driving distance to a U S home port.

Our overall capacity will grow 14% compared to 2019.

And we have upsized, the short Caribbean product by 35% compared to 2019.

On account of 10, new ships, which have joined or will join the fleet across our brands. During this period net of dispositions.

Almost 65% of guests sailing on Royal Cream International's Caribbean Itineraries will experience perfect day at Coke, Okay in 2023 up from 30% in 2019.

Our deployment across markets is relatively unchanged compared to 2019 with Caribbean, representing just over half of our overall deployment.

We expect almost 80% of 2023 guest sourcing to come from North America, as we continue to see particularly strong demand from that customer.

Europe at almost 20% in Asia in the low single digits with no planned deployment and the high yielding China market.

Our global brands appeal, and nimble sourcing model allow us to attract the highest yielding guest and partially mitigate the impact from the strong dollar.

About 80% of the population is within driving distance to a U S. Homeport.

And we have upsized, the short Caribbean product by 35% compared to 2019.

While 2022 bookings remained strong and on pace to achieve occupancy targets. The most notable change over the past few months has been a substantial acceleration in demand for 2023 sailings.

Almost 65% of guests sailing on World Cup International's Caribbean Itineraries will experience perfect day at Coke, Okay in 2023 up from 30% in 2019.

We received twice as many bookings for 2023 sailings in Q3 as we did in Q2, resulting in considerably higher booking volumes than during the same period for 2019 sailings.

We expect almost 80% of 2023 guest sourcing to come from North America, as we continue to see particularly strong demand from that customer.

As a result, all four quarters of 2023 are booked well within historical ranges at record prices with bookings accelerating every week.

Our global brands appeal, and nimble sourcing model allow us to attract the highest yielding guest and partially mitigate the impact from the strong dollar.

While the last three years, we're certainly challenging the resiliency of our business allowed us to recover quickly and be fully back up and running our operating platform is larger and stronger than it has ever been with the best brands Best ships and best people, our commercial capabilities allow us to reach more quality demand and our itinerary.

While 2022 bookings remained strong and on pace to achieve occupancy targets. The most notable change over the past few months has been a substantial acceleration in demand for 2023 sailings.

We received twice as many bookings for 2023 sailings in Q3 as we did in Q2, resulting in considerably higher booking volumes than during the same period for 2019 sailings.

Our strategically plan to appeal to both new to cruise and loyal customers.

As a result, all four quarters of 2023 are booked well within historical ranges at record prices with bookings accelerating every week.

The value proposition of cruising remains incredibly attractive and we have an opportunity to close the gap to other land vacation alternatives as we grow our addressable market.

We continue to expect the business to accelerate as we close out 2022 and set a strong foundation for us to deliver record yields and adjusted EBITDA in 2023.

Our formula for success remains unchanged as we have demonstrated in the past moderate capacity growth moderate yield growth and strong cost controls lead to enhanced profitability and superior financial performance as we seek to improve the balance sheet.

Our strategically plan to appeal to both new to cruise and loyal customers.

The value proposition of cruising remains incredibly attractive and we have an opportunity to close the gap to other land vacation alternatives as we grow our addressable market.

The future of the <unk> group is bright with our strong platform and proven strategies I am confident in our recovery trajectory and our ability to deliver on the <unk> program as well as reach new financial records with that I will turn it over to Naftali.

We continue to expect the business to accelerate as we close out 2022 and set a strong foundation for us to deliver record yields and adjusted EBITDA in 2023.

Thank you, Jason and good morning, everyone.

Let me begin by discussing our results for the third quarter.

This morning, we reported a net profit of approximately $60 million 26 per share above the high end of our guidance range.

Total revenue was just shy of $3 billion.

And adjusted EBITDA was $742 million.

Third quarter outperformance was a result of continued strong demand for our brands vacation experiences, especially after the easing of health protocols continued strength of onboard revenue and better cost management.

Thank you, Jason and good morning, everyone.

The successful ramp up of our operations completed earlier. This summer has positioned us well to return to generating consistent financial performance and recovering towards a record 2019 levels and beyond.

Let me begin by discussing our results for the third quarter.

This morning, we reported a net profit of approximately $60 million 26 per share above the high end of our guidance range.

Total revenue was just shy of $3 billion.

We finished the third quarter at 96% load factor with peak August sailings at close to a 100%.

And adjusted EBITDA was $742 million.

Both factors vary by itinerary with Caribbean, averaging close to 105, Alaska at about 96, and Europe as expected at just under 90%.

Also as expected total revenue per passenger cruise day was up 1% in constant currency compared to the record third quarter of 2019.

Strong demand for our brands and outperformance in onboard revenue mitigated the negative impact from FCC redemption, and a lower than average load factors on higher priced Europe and Alaska sailings.

We finished the third quarter at 96% load factor with peak August sailings at close to a 100%.

Both factors varied by itinerary with Caribbean, averaging close to 105, Alaska at about 96, and Europe as expected at just under 90%.

Our goal has always been to maximize our revenue yields as we optimize occupancy and pricing.

With our ramp up almost complete we are nearing the point of full recovery to our record 2019 yields are constant currency yield improved by 8% in the third quarter and we expect a similar improvement in the fourth quarter, we expect yields to continue ramping up in the first half of 2023 as we return to historical lows.

Also as expected total revenue per passenger cruise day was up 1% in constant currency compared to the record third quarter of 2019.

Actors in late spring.

Next I will comment on capacity and load factor expectations over the upcoming period.

Our goal has always been to maximize our revenue yields as we optimize occupancy and pricing.

We plan to operate about $11 7 million <unk> during the fourth quarter with load factors close to the third quarter.

But our ramp up almost complete we are nearing the point of full recovery to our record 2019 yields are constant currency yield improved by 8% in the third quarter and we expect a similar improvement in the fourth quarter, we expect yields to continue ramping up in the first half of 2023 as we return to historical lows.

Historically, our third quarter load factors have always been higher than the fourth quarter due to peak summer family travel.

This year as we are continuing to ramp up we do not expect a decline in overall occupancy quarter over quarter.

Let me break down fourth quarter load factors and capacity expectations a little more.

Actors in late spring.

Next I will comment on capacity and load factor expectations over the upcoming period.

During the quarter, our ships transition to their winter itineraries and as a result, two thirds of our capacity is in North America.

We plan to operate about $11 7 million APC d's during the fourth quarter with load factors close to the third quarter.

Our remaining capacity is mostly split split between late season, Europe , Australia and repositioning voyages.

Historically, our third quarter load factors have always been higher than the fourth quarter due to peak summer family travel.

We expect Caribbean sailings to continue to sell a triple digit load factors with slightly lower occupancies on late season, Europe , sailings, which are just about 10% of capacity for the quarter.

This year as we are continuing to ramp up we do not expect a decline in overall occupancy quarter over quarter.

We're returning to Australia for the first time in three years and as a result expect to build to load factors in the low to mid nineties.

Let me break down fourth quarter load factors and capacity expectations a little more.

During the quarter, our ships transition to their winter itineraries and as a result, two thirds of our capacity is in North America.

We expect to return to overall historical occupancy level by.

By late spring of 2023.

Our customer deposit balance as of September 30 was $3 8 billion.

Our remaining capacity is mostly split between late season, Europe , Australia and repositioning voyages.

Which is about $400 million higher than our balance at the end of the third quarter 2019 as.

We expect Caribbean sailings to continue to sell a triple digit load factors with slightly lower occupancies on late season, Europe , sailings, which are just about 10% of capacity for the quarter.

As we previously shared now that the full fleet is in service and occupancy is ramping up we are returning to a more typical seasonality in customer deposit levels and.

We're returning to Australia for the first time in three years and as a result expect to build to load factors in the low to mid nineties.

In 2019, our customer deposit balance declined by about $500 million between the end of Q2 at the end of Q3.

We expect to return to overall historical occupancy level by.

The seasonal decrease was smaller this year as we continued to see stronger booking volumes.

By late spring of 2023.

Our customer deposit balance as of September 30 was $3 8 billion.

In the third quarter over 95% of total bookings were new versus future cruise credits redemptions.

Which is about $400 million higher than our balance at the end of the third quarter 2019 as.

Guests sailing with FCC's impact our <unk> by about 1% this year and we expect the impact to be smaller next year.

As we previously shared now that the full fleet is in service and occupancy is ramping up we are returning to a more typical seasonality in customer deposit levels and.

Less than 20% of our customer deposit balance is it related to the FTC's.

In 2019, our customer deposit balance declined by about $500 million between the end of Q2 at the end of Q3.

Shifting to costs.

Net cruise costs, excluding fuel per <unk> improved 11% as reported and 10% in constant currency compared to the second quarter of 'twenty two.

The seasonal decrease was smaller this year as we continued to see stronger booking volumes.

Net cruise costs for the quarter also included $3 37 per APC D of transitory costs related to health protocols and onetime legging costs related.

In the third quarter over 95% of total bookings were new versus future cruise credits redemptions.

Guests sailing with FCC's impact our <unk> by about 1% this year and we expect the impact to be smaller next year.

Related to fleet ramp up.

We still expect to have transitory costs in the fourth quarter, but as we are nearing full occupancy and full crew staffing levels and are adapting our protocols, we expect them to significantly ease.

Less than 20% of our customer deposit balance is it related to the FCC's.

Shifting to costs.

Net cruise costs, excluding fuel per APC D improved 11% as reported and 10% in constant currency compared to the second quarter of 'twenty two.

Similar to other businesses around the world. We continue to actively manage inflationary pressures that for us mainly relate to fuel and food costs.

Net cruise costs for the quarter also included $3 37 per APC D of transitory costs related to health protocols and onetime legging costs related.

Our teams continue to demonstrate the ability to manage cost pressures, while staying focused on our mission of delivering the incredible vacation experiences that are expected by our guests.

Related to fleet ramp up.

In fact year to date, we have consistently been able to abate about one third of the market increases as we observed two benchmarks across the various categories.

All while achieving consistently high NPS scores.

Similar to other businesses around the world. We continue to actively manage inflationary pressures that for us mainly relate to fuel and food costs.

We will continue to both monitor the inflationary cycle as well as focus on mitigation strategies as we enter 2023.

Our teams continue to demonstrate the ability to manage cost pressures, while staying focused on our mission of delivering the incredible vacation experiences that are expected by our guests.

Regarding fuel we have seen fuel rates coming off the highs of earlier in the year, but they are still volatile we continue to improve consumption and have partially hedged the rate, which is helping us mitigate the volatility in cost of fuel expense.

In fact year to date, we have consistently been able to abate about one third of the market increases as we observed two benchmarks across the various categories.

As of today fuel consumption is 64% hedged for the fourth quarter and 50% hedged for 2023.

All while achieving consistently high NPS scores.

NCC, excluding fuel per <unk> in the fourth quarter is expected to be higher by low to mid single digits on constant currency basis compared to the fourth quarter of 2019.

We will continue to both monitor the inflationary cycle as well as focus on mitigation strategies as we enter 2023.

This includes a few percentage points of transitory costs related to the protocols and a ramp up of operations.

Lower expenses related to returning ships and crew to operations and easing health protocols are supporting the improvement in costs. In addition, the benefits from actions taken during the pandemic to improve margins continue to materialize and we would expect them to ramp up in the fourth quarter and into 2023.

As of today fuel consumption is 64% hedged for the fourth quarter and 50% hedged for 2023.

NCC, excluding fuel per <unk> in the fourth quarter is expected to be higher by low to mid single digits on constant currency basis compared to the fourth quarter of 2019.

We expect these actions to partially mitigate the inflationary pressures, we expect to continue to weigh on our cost through the first half of 'twenty three.

This includes a few percentage points of transitory costs related to the protocols and a ramp up of operations.

Shifting to our balance sheet, we ended the quarter with $3 1 billion in liquidity.

Lower expenses related to returning ships and crude to operations and easing health protocols are supporting the improvement in costs. In addition, the benefits from actions taken during the pandemic to improve margins continue to materialize and we would expect them to ramp up into fourth quarter and into 2023.

Our liquidity position remains strong and we are focused on expanding our margins to further enhance EBITDA and free cash flow. Our ultimate goal is to return the balance sheet to an investment grade profile.

During the third quarter, we took multiple proactive actions to address $5 6 billion of.

We expect these actions to partially mitigate the inflationary pressures, we expect to continue to weigh on our cost through the first half of 'twenty three.

Of 2022 and 2023 maturities.

Since early August we issued $1 5 billion of unsecured notes to refinance the remaining 22 maturities and refinance $2 $8 billion of 'twenty three maturities that were previously backstopped by a Morgan Stanley commitment.

Shifting to our balance sheet, we ended the quarter with $3 1 billion in liquidity.

We also extended for one year the commitment to a $700 million term loan and extended our $500 million term loan that was scheduled to mature in 2023.

During the third quarter, we took multiple proactive actions to address $5 6 billion.

Of 2022 and 2023 maturities.

Since early August we issued $1 $2 5 billion of unsecured notes to refinance the remaining 22 maturities and refinance $2 $8 billion of 'twenty three maturities that were previously backstopped by a Morgan Stanley commitment.

While rates are higher than what we were able to issue earlier in the year. We have included early redemption features to allow for refinancings or pay down prior to maturity.

We also extended for one year the commitment to a $700 million term loan and extended our $500 million term loan that was scheduled to mature in 2023.

For 2023, our scheduled debt maturities, our $2 1 billion made up of predominantly ECA debt amortization, which we expect to pay down with cash on hand, and cash flow generated from operations.

All of these transactions have been well received by investors and we were able to upsize and improve pricing or access to capital remains strong and our execution and performance resonate with our investors while rates are higher than what we were able to issue earlier in the year. We have included early redemption features.

Now turning to guidance for the fourth quarter of 'twenty, two and based on current currency exchange rates fuel rates and interest rates, we expect to generate approximately $2 $6 billion in total revenue adjusted EBITDA of $350 million to $400 million and adjusted loss per share of dollar.

To allow for refinancings or pay down prior to maturity.

30 to $1 50.

For 2023, our scheduled debt maturities, our $2 1 billion made up of predominantly ECA debt amortization, which we expect to pay down with cash on hand, and cash flow generated from operations.

The combination of our strong brands amazing experiences and focus on building quality demand position us well for 2003.

We expect yields to continue ramping up in the first half of 'twenty three based on a return to historical load factors, but late spring I want to take a moment to highlight certain changes in our yield profile and cost base.

Over the last several years, we divested the pool mature and Azamara brands as well as several other small ships across the fleet.

In addition, we do not have any China deployment planned for 'twenty, three and we have increased our short Caribbean product.

30 to $1 50.

The combination of our strong brands amazing experiences and focus on building quality demand position us well for 2003.

Effect is a slight reduction in yield, but an increase in overall profitability.

We expect yields to continue ramping up in the first half of 'twenty three based on a return to historical load factors, but late spring I wanted to take a moment to highlight certain changes in our yield profile and cost base.

New ship additions for celebrity and Silversea result in those brands being a larger percentage of our overall mix in 'twenty three as compared to 2019.

These additions are expected to add to our yield and return profile, but also have higher cost per berth.

Over the last several years, we divested the pool mature and Azamara brands as well as several other small ships across the fleet.

Our shift to more north American itineraries reduces our exposure to foreign exchange rates with about 20% of our revenue expected to be sourced in non USD currencies versus just over a quarter in prior years with.

In addition, we do not have any China deployment planned for 'twenty, three and we have increased our short Caribbean product does that.

The effect is a slight reduction in yield, but an increase in overall profitability.

With that said exchange rates for our basket of currencies are down on average 9% versus 2019.

New ship additions for celebrity and Silversea result in those brands being a larger percentage of our overall mix in 'twenty three as compared to 2019.

We are very excited about the introduction of that Trifecta program.

These additions are expected to add to our yield and return profile, but also have higher cost per berth.

As we demonstrated before our proven formula should once again result in strong financial performance by 2025, our capacity is expected to grow by 6% on an annual basis compared to 2019 with the introduction of 17, new ships across our brands and markets, we expect new ships as well as <unk>.

Our relentless focus on the customer to drive additional yield benefits cost efficiencies and profitability of at least triple digit EBITDA or APC D by 'twenty five.

With that said exchange rates for our basket of currencies are down on average 9% versus 2019.

We are very excited about the introduction of that Trifecta program.

Every 1% improvement in yield in 2025 will result in a $130 million more in revenue and every 1% of change in NCC, excluding fuel will result in $60 million benefit and operating costs.

As we demonstrated before our proven formula should once again result in strong financial performance.

2025, our capacity is expected to grow by 6% on an annual basis compared to 2019 with introduction of 17, new ships across our brands and markets, we expect new ships as well as our relentless focus on the customer to drive additional yield benefits cost efficiencies and profitability.

Increasing EBITDA per APC D to triple digits will allow us to generate strong and growing cash flow and together with disciplined capital allocation and paydown of debt returned to an investment grade balance sheet profile.

<unk> of at least triple digit EBITDA or <unk> by 25.

We will stay focused on executing on our strategy to achieve strong financial results by growing yields expanding margins and improving the balance sheet.

Every 1% improvement in yield in 2025 will result in a $130 million more in revenue and every 1% of change in NCC, excluding fuel will result in $60 million benefit and operating costs.

We have done it before we have the best brands, the best assets and the best people as we build a bright future of the Royal Caribbean Group.

With that I will ask our operator to open the call for Q&A.

Okay.

At this time I would like to remind everyone in order to ask any questions simply press Star then the number one on your telephone keypad. We ask that you. Please limit yourself to one question and one follow up question, we'll pause for just a moment to compile the Q&A roster.

We will stay focused on executing on our strategy to achieve strong financial results by growing yields expanding margins and improving the balance sheet.

Your first question is from the line of Stephen <unk> with Stifel. Steven Your line is open.

We have done it before we have the best brands, the best assets and the best people as we build a bright future of the Royal Caribbean Group.

Yeah, Hey, guys good morning.

No Jason I know when you like it when I say nice quarter. So I'll go ahead and get that other way and say nice quarter.

With that I will ask our operator to open the call for Q&A.

You didn't say last time Steve.

I forgot.

As we think about this this trifecta program I guess, what I'm. Most interested in is the is the return to investment grade and if.

If I do the math here I guess you guys are kind of embedding around let's say 5 billion of EBITDA by 25, if not higher so what does that mean from a leverage perspective and have you had conversations at this point yet with the rating agencies about whats your leverage profile would have to look like to get back into that investment grade status is saying that in.

Your first question is from the line of Stephen <unk> with Stifel. Steven Your line is open.

Yeah, Hey, guys good morning.

Jason I know when you would like it when I say nice quarter. So I'll go ahead and get that other way and say nice quarter.

Other way I mean is it is it a number like four times or is it going to be more about what's your interest coverage.

You didn't say last time Steve.

I forgot.

It looked like at that point.

As we think about this this trifecta program I guess, what I'm. Most interested in is the is the return to investment grade.

Hey, Steve it's enough good morning.

So first of all yes, we are very excited about trifecta in as you've done your math with some of the coordinates we gave you.

If I do the math here I guess you guys are kind of embedding around lets say <unk> 5 billion of EBITDA by 25% if not higher so what does that mean from a leverage perspective and have you had conversations at this point yet with the rating agencies about whats your leverage profile would have to look like to get back into that investment grade status is saying that in.

That's how we think about it and that will help us as we grow continue to grow EBITDA, both help deleverage the balance sheet, but also generate cash flow and with our capital allocation, we're very much focused on.

Paying down debt and if you kind of remember the end of <unk>.

Other way I mean is it is it a number like four times or is it going to be more about what's your interest coverage.

2019 than.

Before our goal was around where we were is around three five times leverage and those are the.

It looked like at that point.

Hey, Steve its <unk> good morning.

Top of coordinates that we're looking for and which means for us an investment grade balance sheet.

So first of all yes, we are very excited about trifecta in.

You've done your math with some of the coordinates we gave you.

<unk> to being an unsecured.

Our balance sheet as well.

That's that's how we think about it and that will help us as we grow continue to grow EBITDA, both help deleverage the balance sheet, but also generate cash flow and with our capital allocation, we're very much focused on.

And we've been having conversations with the rating agencies.

There hasnt been any indication of difference and they're kind of ratings versus what it was pre the pandemic.

Paying down debt and if you kind of remember the end of.

Okay, great. Thanks, Thanks for that and then.

2019 than.

When you guys think about.

Before our goal was around where we were is around three five times leverage and dose.

Moderate yield growth.

What that looks like going forward I guess, what I'm wondering is how do you think about breaking yields down moving forward between ticket and onboard and I guess, what im trying to get at here is are you embedding the consumer at this point are you thinking the consumer kind of stays strong in terms of that onboard spend patterns moving forward or can you still get would you call moderate yield growth.

Top of coordinates that we're looking for and which means for us an investment grade balance sheet.

<unk> to being an unsecured.

Our balance sheet as well.

And we've been having conversations with the rating agencies.

There hasnt been any indication of difference and they're kind of ratings versus what it was pre the pandemic.

Even if that onboard side does start to slow down.

Yes.

Great question, Steve when.

When we look at things over time.

Okay, great. Thanks, Thanks for that and then.

We've been able to grow our like for like yields we've been able to grow our onboard and obviously as we take on new ships. The inventory mix has also been.

When you guys think about.

Moderate yield growth.

What that looks like going forward I guess, what I'm wondering is how do you think about breaking yields down moving forward between ticket and onboard and I guess, what I'm trying to get out here is are you embedding the consumer at this point are you thinking the consumer kind of stays strong in terms of that onboard spend patterns moving forward or can you still get would you call moderate yield growth.

Helpful. As those ships have a better.

Inventory mix with in terms of <unk>.

<unk> and outside versus inside as well as on the onboard side, there's more venues for us to have.

Different services and experiences for our guests, which they which they will spend money on them. So I think when we think about moderate yield growth. We think about as we said in the past.

Even if that onboard side does start to slowdown.

Yes.

Great question, Steve when.

On average, 2% to 4% a year.

When we look at things over time.

We've been able to grow our like for like yields we've been able to grow our onboard.

And on the cost side, it's typically flat to low single digits. So we should be able to grab scale.

As our as our business grows.

Honestly as we take on new ships the inventory mix has also been.

And that's how we I think you'll see us continuing to do that where we're not looking at this as if.

Helpful. As those ships have a better.

Inventory mix with in terms of <unk>.

I just had a semi remarks as the operating environment is going to be perfect and.

Suites, and outsides versus insides and as well as on the onboard side, there's more venues for us to have.

And that the consumer is going to be perfect.

We have done is we know that we have been able to manage our business in that way in times in which the market might be accelerating and sometimes when the market is so a little bit choppy and thats why we looked at this over over this kind of.

Different services and experiences for our guests, which they which we will spend money on them. So I think when we think about moderate yield growth. We think about as we said in the past.

On average, 2% to 4% a year.

And on the cost side, it's typically flat to low single digits. So we should be able to grab scale.

Two and a half three year period of time on us on us getting back well not just getting back accelerating past.

As our as our business grows.

<unk>.

And that's how we think youll see us continuing to do that where we're not looking at this as if.

Our highs in 2019.

And can I ask one real quick housekeeping question I guess, there might be some confusion out there about when you talk about records EBITDA in 'twenty three is that going off of a.

And then I just had a semi remarks as the operating environment is going to be perfect and.

And that the consumer is going to be perfect.

And EBIT EBITDA base in 2019 of $3 6 billion or 3.4 billion I think theres different thought processes out there.

Yeah.

253 year period of time on us on us getting back well not just getting back accelerating past.

The former to $3 six throughput okay. Thanks, guys I appreciate it.

No.

<unk>.

So what youre going to ask me about vacuuming, Steve on the housekeeping question.

Our highs in 2019.

And can I ask one real quick housekeeping question I guess, there might be some confusion out there about when you talk about record EBITDA in 'twenty three is that going off of a of an EBIT or EBITDA base in 2019 of of $3 6 billion or 3.4 billion I think there's different thought processes.

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

Great. Thanks, you mentioned that prices at record levels for 'twenty three I Wonder if you could sort of give a ballpark of how that price comparison on a percentage basis from 2019, knowing that it could go up or down from there but.

Out there.

Yeah.

The former to $3 six turbotax, okay. Thanks, guys I appreciate it.

Just in terms of how it's tracking.

Well, it's still early.

How about Youre going to ask you about vacuuming, Steve on the housekeeping question.

Robin you know this from the past and it would be early for us to provide guidance, but I think how we how we've kind of talked about the trifecta program is kind of how we.

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

How we how we think about.

Yields and costs and so forth for for next year. So that's what I would kind of use more principally as a guiding tool, but it is early there is we still have.

Great. Thanks, you mentioned that prices at record levels for 'twenty, three I wonder if you could sort of give.

Give a ballpark of how that price comparison on a percentage basis for 2019, knowing that it could go up or down from there but.

We're still building the book of business, while it is accelerating and we're very happy with it.

We're comfortable providing exactly what those coordinates will be come.

In terms of how it's tracking.

Well, it's still early.

Our January early February call.

Robin you know this from the past it would be early for us to provide guidance, but I think how we how we've kind of talked about the trifecta program is kind of how we how we how we how we think about it.

Okay, then you're probably going to love My next question.

I Love that question Robyn.

Well sort of.

Similar.

Expenses.

Just looking at what were sort of one time expenses, meaning like the ramp up in some of the protocols that you don't have to follow anymore.

Yields and costs and so forth for for next year. So that's what I would kind of use more principally as a guiding tool, but it is early there is we still have.

Maybe about 3% to 5% of the.

Expense increase in 'twenty three.

We're still building the book of business, while it is accelerating and we're very happy with it.

So if you're in Q4, when you were talking about being up low to mid single versus 19.

We are comfortable providing exactly what those coordinates will be come.

Think of that maybe some ramp down in some of those one time costs.

Our January early February call.

Okay.

Probably going to love My next question.

Could you get to the point in 'twenty, three where your expense is actually lower just given your greater scale and more efficient ships.

I Love that question Robyn.

Well sort of.

Similar.

Is that.

This is all excluding fuel cost, which.

Just looking at what were sort of one time expenses, meaning like the ramp up in some of the protocols that you don't have to follow anymore.

It is now forecast that but.

Sure.

<unk> expense.

Potentially being.

Better being lower.

Maybe about 3% to 5%.

Then it was 19.

Expense increase in 'twenty three.

Yeah, So I'll I'll follow.

And here in Q4, when you were talking about being up low to mid single versus 19, if we think of maybe some ramp down in some of those one time costs.

What Jason was saying, which is we're still early in our planning cycle and obviously, we're not providing guidance here, but I think as we think about it as we said.

Could you get to the point in 'twenty, three where your expense.

Are those one time costs that we incurred this year, we expect them to be lagging into the.

Actually lower just given your greater scale and more efficient ships and this is all.

The fourth quarter.

Excluding fuel cost, which.

And again.

And going back to the Trifecta in order for me. This is how we think about things in terms of.

Now forecast that but just here.

Fuel expense.

Potentially being.

<unk>.

Better being lower.

How do we increase profitability.

Then it was 19.

We continue to see inflation, we're working really hard to mitigate the impact of it.

Yeah, So I'll follow up.

What Jason was saying, which is we're still early in our planning cycle and obviously, we're not providing guidance here, but I think as we think about it as we said.

And and making sure that we are continuing to increase the margins of the business.

I think just just to add Robin.

Are those one time costs that we incurred this year, we can we expect them to be lagging into the.

We certainly are much appreciated when we look at a 14% capacity increase.

We should be able to get more efficient over time and of course some of that capacity increase that's coming in as a mix.

The fourth quarter.

And again.

And going back to the Trifecta in order for me. This is how we think about things in terms of.

Leans heavier now towards Silversea and celebrity in terms of the capacity growth.

<unk>.

How do we increase profitability.

And of course those are those are higher net cruise cost products.

We continue to see inflation, we're working really hard to mitigate the impact of it.

In the same vein, we have been taking.

And and making sure that we are continuing to increase the margins of the business.

We have taken a lot of action during the course of this we've done a lot of as I've described in the past getting into our wedding weight here, which is helping us combat a lot of the inflation.

I think just just to add Robin.

We certainly are much appreciated when we look at a 14% capacity increase.

So that we can kind of think about that formula for success as we go into 2023.

We should be able to get more efficient over time and of course some of that capacity increase that's coming in as a mix.

Okay, great. Thanks very much.

Your next question is from the line of Vince <unk> with Cleveland Research Company. Please go ahead.

Leans heavier now towards Silversea and celebrity in terms of the capacity growth.

Great. Thanks for taking my question first a little bit more near term focus.

And of course those are those are higher net cruise cost products.

In the same vein, we have been taking.

At your occupancy progress in <unk> as well as what's implied for <unk>. It looks like you're outperforming peers by almost a low teens percentage in the second half of this year and I'm curious your thoughts on what's driving that is that geography is it mix shifts strength of your brands more marketing what do you.

We have taken a lot of action during the course of this we've done a lot of as I've described in the past getting into our wedding weight here, which is helping us combat a lot of the inflation.

So that we can kind of think about that formula for success as we go into 2023.

Okay, great. Thanks very much.

The biggest contributor to the occupancy recovery outperformance.

Your next question is from the line of Vince <unk> with Cleveland Research Company. Please go ahead.

Yes.

Can't really speak for our competitors in terms of what's happening inside their business, but I think for US. We obviously, we returned our ships very quickly I do think that some of the things that you laid out there strong brands.

Great. Thanks for taking my question first a little bit more near term focus.

Well I think leading brands leading ships.

Having assets like perfect day at Coke Okay.

Has resulted in an acceleration of our business, while also being very mindful about price integrity.

Certainly it could be higher load factors, if we wanted to take action on price, which we're not looking and we have no intent to do.

The biggest contributor to the occupancy recovery outperformance.

Yes.

And of course in the Q4, we're moving into the shoulder season, which is why load factors are more or less what we talked about in Q3 and and rates are typically lower than in Q4, because thats. The thats the shoulder to shoulder season period of time, but.

But what we see is a lot of demand.

Well I think leading brands leading ships.

For our brands, we see the return I mean, everything is normalized in terms of new to cruise.

Having assets like perfect day at Coke Okay.

Has resulted in an acceleration of our business, while also being very mindful about price integrity.

Our loyal guests first to brand.

And so now it's just building up a quality book of business.

Certainly it could be higher load factors, if we wanted to take action on price, which we're not looking and we are known to do.

Time is we would do in a regular way as we enter a normal <unk>.

And of course in Q4 were moving into the shoulder season, which is why load factors are more or less what we talked about in Q3 and and rates are typically lower than in Q4, because thats the vessels shoulder to shoulder season period of time.

'twenty three year.

Great. Thanks, and then thinking longer term.

Racing opportunity ahead of you.

Value gap versus land base.

Some of that gap has been exacerbated through Covid, which makes sense given the industry was on pause for so long, but some of that gap even existed pre COVID-19. So I'm curious how you guys have and improve the product in the last few years to kind of better meet the consumers' need or is it just marketing.

But what we see is a lot of demand.

For our brands, we see the return I mean, everything is normalized in terms of new to cruise.

Bar loyal guests first to brand.

And so now it's just building up a quality book of business.

Over time, as we would do in a regular way as we enter a normal.

The product more to raise awareness to help close that gap.

2023 year.

Great. Thanks, and then thinking longer term pricing opportunity ahead of you and the value gap versus land base.

Vince what can I say.

Gave me the great question.

Sitting quietly here waiting for somebody to ask such a question.

Some of that gap has been exacerbated through covered which makes sense given the industry was on pause for so long, but some of that gap even existed pre COVID-19. So I'm curious how you guys haven't improved the product in the last few years to kind of better meet the consumers' need or is it.

Obviously with.

Extremely pleased and delighted and honestly excited with the direction of the business. So I think as.

As Jason commented earlier the results from icon of the seas first.

Weeks bookings for icon with absolutely.

Just marketing.

The product more too.

I mean, we had high expectations and the actual result, just even surprised us.

Raise awareness to help close that gap.

Vince what can I say you.

Im not going to give you the stats for that first week I may get into trouble, but they were really phenomenal.

Can you just gave me the great question.

Sitting quietly here waiting for somebody to ask such a question.

And icon is.

Obviously with <unk>.

Extremely pleased and delighted and honestly excited with with the direction of the business I think.

The first in a new class of ships for Royal Caribbean, which is squarely in the family market, which is a scale obviously its a scale brand with huge presence in the American market.

As Jason commented earlier the results from icon of the seas first.

And our strong global footprint.

<unk> bookings for icon, we're absolutely phenomenal I mean, we had high expectations and the actual result, just even surprised us.

<unk> product and the journey that we've been on for many years in terms of where we're taking the brands. The introduction of perfect day, and our plans for future private destinations combined with new hardware and certainly with icon now leading the way later in 'twenty and into 'twenty for where we are.

Im not going to give you the stats for that first week.

Megan as travel, but they were really phenomenal.

And icon is.

The first in a new class of ships for Royal Caribbean, which is squarely in the family market, which is a scale obviously its a scale brand with huge presence in the American market.

We're really focusing on this target market, which is family and of course.

Has many new neighborhoods, including a neighborhood coal suicide, which is absolutely focused on young families and those young families with children six Ananda travel all year end, because obviously the parents can pull their kids at a pre K and what have you.

Strong global footprint.

That product and the journey that we've been on for many years in terms of where we're taking the brands. The introduction of perfect day, and our plans for future private destinations combined with new hardware and certainly with icon, leading the way later in 'twenty, three and into 24, where we're really.

The ikon product along with perfect day with the kind of experiences that we're offering with the kind of new accommodations that we have an icon and the experiences that we have for young families older families and of course couples and singles and what have you is really squarely.

<unk> on this target market.

His family and of course has many new neighborhoods, including a neighborhood KOL service side, which is absolutely focused on young families and those young families with children six Ananda.

Handing shoulder to shoulder with Orlando and those kinds of destinations.

What we're beginning to see is the is the for US is moving certainly the royal brand into that space more aggressively and we're seeing the kind of booking activity and demand and enthusiasm for those products is increasing and accelerating so I would say that's the direction we're on.

Travel all year end, because obviously the parents can pull the kids that are pre K and what have you the.

Icon product along with perfect day with the kind of experiences that we're offering with the kind of new accommodations that we have an icon and the experiences that we have for young families older families and of course couples and singles and what have you is really squarely standing shoulder to shoulder with Orlando.

Again, what we've seen with icon in the first week and has continued now into the second week. There is a huge amount of demand for that product and I think if I'm correct.

Vince.

And those kinds of destinations and what we're beginning to see is the is the.

Michael told me that you've actually been sitting on a plane and you have heard the conversation maybe you could share with everybody else, but what you overheard on that on that on that play.

<unk> is moving certainly the royal brand into that space more aggressively and we're seeing the kind of booking activity and demand and enthusiasm for those products is increasing and accelerating so I would say that's the direction we're on and.

Yes.

Something we hear often from our conversations with agents just stealing a little bit of market share from land based and it was a random traveler behind me, saying they were.

Again, what we've seen with icon in the first week and has continued now into the second week. There is a huge amount of <unk>.

Thinking about going to Disney but.

Book the family on the icon. So yes speaks to maybe some some market share gains there one off conversation, but part of a broader theme.

Demand for that product and I think if I'm correct.

Vince.

Michael told me that you've actually been sitting on a plane and you have heard the conversation maybe you could share with everybody else, what what you overheard on that on that on that play.

Let's just assume that everybody says that.

At <unk>.

<unk> I just I just wanted to add to Michael's comments, obviously, we've seen this 40% gap to land based vacation it used to be about 20%.

It's something we hear often from our conversations with agents just stealing a little bit of market share from land based and it was a random traveler behind me, saying they were.

Royal brand actually closed the gap very significantly with the introduction of a perfect day, the modernization of our fleet until we see there is a lot of opportunity.

Thinking about going to Disney but.

Going to book the <unk>.

Family on the icon.

To close that gap here over time, and and I think what you're also hearing from us in.

Yes speaks to maybe some some market share gains there.

Off conversation, but part of a broader theme.

We'll probably talk more about this in our Investor day in the coming weeks here is just how we need to increase frequency.

Let's just assume that everybody says that.

At Anvil.

I just wanted to add to Michael's comments, obviously, we have seen this 40% gap to land based vacation it used to be about 20%.

With our guests we need to improve our loyalty programs, we need to be more one to one.

So that we're putting offers in front of our guests that are very relevant to them individually and just bring more awareness and that should all yield us closing the gap further.

<unk> brand actually closed the gap very significantly with the introduction of a perfect day, the modernization of our fleet until we see theres a lot of opportunity.

<unk> to land based vacation so we're not.

Yes, we're not happy about.

That gap, but it serves as a great motivation for us to go after it.

To close that gap here over time, and I think what you're also hearing from us in.

Great Best of luck.

We'll probably talk more about this in our Investor day in the coming weeks here is just how we need to increase frequency with our guests we need to improve our loyalty programs, we need to be more one to one.

Thanks Vince.

Your next question is from the line of <unk> with Barclays. Please go ahead.

Hey, good morning, everybody. Thanks for taking my questions and congratulations on getting.

So that we're putting offers in front of our guests that are very relevant to them individually and just bring more awareness and that should yield us closing the gap further.

This is <unk> out there.

My first question is on broader booking bookings volume trends throughout the quarter, Jason If you could just speak broadly in terms of how that sort of trended post the protocol relaxation. If there was sort of a huge spike from a pent up but people waiting for that to happen and then it eased up.

To land based vacation. So we're not yes, we're not happy about.

That gap, but it serves as a great motivation for us to go after it.

Great Best of luck.

Thanks Vince.

A bit or is it even or does it accelerate through anything you could help you could add would be helpful. Thank you.

Your next question is from the line of <unk> with Barclays. Please go ahead.

Hey, Brian So let me just jump in before maybe Jason has some comments but.

Hey, good morning, everybody. Thanks for taking my questions and congratulations on getting.

This is <unk> out there.

We were all waiting for that change and the protocols we can.

Alkylation on the on the addressable market was quite significant in terms of.

The number of people who are excluded from the brands and the product because of these protocols requirements et cetera.

And we had already we were already doing very well pre that announcement, but when those protocols fell off we immediately saw a significant increase in the volume of bookings and that volume continue to is just continued.

Or is it even or does it accelerate through anything you could help you could add would be helpful. Thank you.

Hey, Brian So let me just jump in before maybe Jason has some comments but.

Has accelerated and I think what we've seen is that literally I think our cancellation in the American market.

We were all waiting for that change in the protocols.

The addressable market expanded by about 35 million people almost overnight and we saw that coming through in our bookings. So it was a very positive.

Alkylation on the on the addressable market was quite significant in terms of.

The number of people who were excluded from the brands and the product because of these protocols requirements et cetera.

And if you look globally now.

We had already we were already doing very well pre that announcement, but when those protocols fell off we immediately saw a significant increase in the volume of bookings and that volume continue to is just continued and has accelerated and I think what we've seen is that literally I think our calculation and the American.

It's pretty much the same story all around the world in the Australian market, where we're obviously operating in the there is still some.

Some protocol is still in place, but we're pretty confident they're going to they're going to fall away in the coming weeks and months. So we've really entered into a very normalized environment and we've seen the customers respond honestly with a huge amount of enthusiasm has been extremely positive.

Market.

The addressable market expanded by about 35 million people.

Yes.

Overnight, we saw that coming through in our bookings. So it was a very positive step.

I just wanted to add because I know coming out of all this there's always a lot of what's happened with protocols and so forth I think it's just important to note that the business is back in operating our booking activity is very similar to what we were experiencing in 19.

And if you look globally now.

Pretty much the same story all around the world in the Australian market, where we are.

Obviously operating.

There is still some some protocol is still in place, but we're pretty confident they're going to they're going to fall away in the coming weeks and months. So we've really entered into a very normalized environment and we've seen the customers respond honestly with a huge amount of enthusiasm has been extremely positive.

And of course, it's it's accelerating which is what we want to see what the consumer is very healthy we are spending a lot of money on our ships.

But.

Psychologically and we experience wise.

Yes.

We're it's almost as if we just stepped into the next quarter. After 19 and we're just we're just it's business as usual.

I just I just wanted to add because I know coming out of all this.

As always a lot of what's happened with protocols and so forth I think it's just important to note that the business is back in operating our booking activity is very similar to what we were experiencing in 19 and of course, it's it's accelerating which is what we want to see what the consumer is very healthy spend.

Got it great that's excellent to hear and then my second question is on net yields for 2023 you.

You guys went through lots of puts and takes versus 2019, I feel like I'm going to need.

Phd in physics, just sort of distill it down.

A common denominator here, but.

A lot of money on our ships.

If I add up everything Paul mature chain.

But.

Psychologically and we experience wise.

Change in mix for Coke, Okay that change in mix for North America in general the exiting of higher yield in China.

We're it's almost as if we just stepped into the next quarter. After 19 and we're just we're just it's business as usual.

I know you guys don't have guidance out there and youre not going to get it but just when you add it all up does it equal a net positive or negative mix shift, where we would have been otherwise versus 19.

Got it great that's excellent to hear and then my second question is on net yields for 2023.

You guys went through lots of puts and takes versus 2019, I feel like I'm going to need.

Our expectation as I said is our yields will be up in 2023.

Phd in physics, just sort of distill it down.

Our EBITDA will be better in 2023 and.

A common denominator here, but.

If I add up everything Paul mature in March the <unk>.

And we expect we're going to manage our costs as we always have.

Change in mix for Coke, Okay that change in mix for North America in general the exiting of higher yield in China, but I know you guys don't have guidance out there and youre not going to get it but.

And.

And we know that there are headwinds as we know there is some structural headwinds enough pointed out on the top line.

But our expectations are that our yields are going to accelerate.

When you add it all up does it equal a net positive or negative mix shift, where we would have been otherwise versus 19.

And we expect that we're going to be managing our cost effectively and our capital allocation effectively.

Okay. Thanks, guys just to clarify I wasn't suggesting that.

Our expectation as I said is our yields will be up in 2023, and our EBITDA will be better in 2023.

Just wanted to focus just on the mix. It was up versus 19 are down versus 19, but if you were to take a benchmark versus 19, what the mix shift alone would do to that benchmark, that's what I was asking about but I.

We expect we're going to manage our costs as we always have.

And.

And we know that there are headwinds as we know there is some structural headwinds enough pointed out on the topline.

Yes for sure the combination of new ships and the exit of Azamara and so forth.

But our expectations are that our yields are going to accelerate.

That nets out to a positive for us.

And we expect that we're going to be managing our cost effectively and our capital allocation effectively.

Perfect. Thanks, everyone.

Yes.

Okay. Thanks, guys just to clarify I wasn't suggesting that.

Your next question is from the line of Ben that Chicken with Credit Suisse. Please go ahead.

Hey, How's it going just a quick clarification.

You mentioned some inflationary cost in the first half of next year.

Is that is that incremental to what youre seeing today or are you just kind of suggesting a continuation of the trend into the first half of next year.

Yes for sure the combination of new ships and the exit of Azamara and so forth.

Yes.

We actually are seeing some mitigation, but it's a little bit hard right. The environment is pretty complex. So what we're seeing is continuation of what we're seeing today, yes, but.

That nets out to a positive for us.

Perfect. Thanks, everyone.

Yes.

Your next question is from the line of Ben <unk> with Credit Suisse. Please go ahead.

But I think just to just to add onto it we're not really seeing now is our commodities.

Hey, How's it going just a quick clarification you guys mentioned some inflationary cost in the first half of next year.

Things that are inflationary you impacted going up now so it has stabilized and as <unk> mentioned, we're starting to see especially kind of in the protein space, where those commodity costs are starting to come down.

Is that is that incremental to what youre seeing today or are you just kind of suggesting a continuation.

The trend into the first half of next year.

Great. Thank you.

Yes.

Thank you.

Actually we're seeing some mitigation, but it's a little bit hard right the environment is pretty complex.

Your next question is from the line of Daniel <unk> with Wells Fargo. Please go ahead.

So what we're seeing is continuation of what we're seeing today.

Hey, good morning, everyone and thanks for taking my questions.

I think just to just to add onto it.

I was wondering if we could just unpack the bookings commentary a little bit more.

Not really seeing now is our commodities.

As you look across.

Things that are inflationary you impacted going up now so it has stabilized and is not mentioned there we're starting to see especially kind of in the protein space, where those commodity costs are starting to come down.

2023, where what are some of the highlights you would call out is it Europe .

As the Caribbean and also as you exit this year, what's the typical percentage of bookings that you have on the books for the following year.

Great. Thank you.

Sure. So so I think what we're seeing kind of across the board as a lot of there's a lot of strength in the Caribbean, we see strength.

Thank you.

Your next question is from the line of Daniel <unk> with Wells Fargo. Please go ahead.

In.

In Alaska, we see strength in Europe .

Hey, good morning, everyone and thanks for taking my questions. I was wondering if we could just unpack the bookings commentary a little bit more.

Focused on the Mediterranean area is where we see the strength in the bookings, but we see a lot of these puts and takes.

As you look across.

2023.

And we see these trends change a little bit over time.

What are some of the highlights you'd call out is it Europe is.

But for the most part we're seeing in most of our products.

The Caribbean and also as you exit this year, what's the typical percentage of bookings that you have on the books for the following year.

A lot of strength in <unk>.

The demand with the focus a little bit more on the Caribbean in terms of where we're seeing the consumer.

Sure. So so I think what we're seeing kind of across the board as a lot of there's a lot of strength in the Caribbean, we see strength.

I want to get ahead of the curve and they're booking activities.

You historically.

We've entered the year somewhere between 55% to 60%.

In.

In Alaska, we see strength in Europe .

I would just be mindful as we go into next year and some of the comments that I made enough tall. He made we don't have any China business assumed for 2023.

Focused on the Mediterranean area is where we see the strength in the bookings, but we see a lot of these puts and takes.

And we see these trends change a little bit over time, but.

Typically at this point of the year, we would have.

But for the most part we're seeing in most of our products.

Most of that business booked because charter related contracts.

A lot of strength in.

Demand with the focus a little bit more on the Caribbean in terms of where we're seeing the consumer.

So that will weigh a little bit on in terms of the percent that were booked.

We have more short product going into 2023, which is a little bit more of a closer in product.

Want to get ahead of the curve and they're booking activities.

You historically.

But we feel very comfortable with not only how we're booking but we feel very comfortable on how we're going to turn the year.

We've entered the year somewhere between 55% to 60%.

To put us in a position for positive yield growth.

I would just be mindful as we go into next year and some of the comments that I made and I've totally made we don't have any China business assumed for 2023.

Got it thanks, so much.

Your next question is from the line of Fred Wightman with Wolfe Research. Please go ahead.

Typically at this point of the year, we would have.

Most of that business booked because there was charter related contracts.

Hey, guys good morning.

As a comment and sort of the breakdown on the occupancy in the quarter that Europe lagged Alaskan Caribbean and I know that that was the plan, but can you just sort of help us think about that European occupancy figure as we move into <unk> and then into next year is that going to be a laggard for a while or do you think that that ultimately just catch us up to the other markets yes.

So that will weigh a little bit on in terms of the percent that were booked.

We have more short product going into 2023, which is a little bit more of a closer end product.

But we feel very comfortable with not only how we're booking but we feel very comfortable on how we're going to turn the year.

To put us in a position for positive yield growth.

No. We think I think we mentioned it also in the prior call we think.

Got it thanks, so much.

This is this is really a phenomenal this year just given what happened earlier in.

Your next question is from the line of Fred Wightman with Wolfe Research. Please go ahead.

In the year. So as we look forward, we don't expect that we expect this to be normal.

Hey, guys good morning.

There's a comment in sort of the breakdown on the occupancy in the quarter that Europe lagged Alaskan Caribbean and I know that that was the plan, but can you just sort of help us think about that European occupancy figure as we move into <unk> and then into next year is that going to be a laggard for a while or do you think that that ultimately just catches up with the other markets yes.

We do have as I mentioned 90, we did.

Finished 90% and Europe is actually a little bit better than what we expected.

For the fourth quarter, it's really late season in Europe , which typically is a lower occupancy.

Just to add your front I think the real the real trigger in Europe was when the U S. Finally dropped the testing requirement.

No. We think of that I think we mentioned it also in the prior call we think.

This is this is really a phenomenal this year just given what happened earlier.

For U S citizens to come back in and unfortunately that didn't happen until very late spring.

In the year. So as we look forward, we don't expect that we expect this to be normal.

That impacted.

Just the bookings over time, but the ramp up from when that announcement was made.

We do have as I mentioned 90 did.

Finished 90% and Europe is actually a little bit better than what we expected.

As Bob commented that acceleration resulted in us doing better than we had anticipated.

For the fourth quarter, it's really late season in Europe , which typically is a lower occupancy.

Third quarter, but it is a high yielding product.

And so that mix shift impacts your overall yields.

And just to add your front I think the real the real trigger in Europe was when the U S. Finally dropped the testing requirement.

Makes sense. So just to add just to add to that we also had the whole Ukrainian situation, which when you think about it that came I think pretty much at the beginning of the season. So that was a really pretty significant copa bookings for awhile.

For U S citizens to come back in and unfortunately that didn't happen until very late spring.

That impacted.

Makes sense and then just quickly on China, No assumption that China comes back online in 'twenty, three but what have you guys assumed for the 'twenty five targets for China.

Just the bookings over time, but the ramp up from when that announcement was made.

As Bob commented that acceleration resulted in us doing better than we had anticipated.

Yes.

Very minimal.

The third quarter, but it is a high yielding product.

Actually there is no real though we expect that we will be in China.

And so that mix shift impacts your overall yields.

Before the end of 2025, and our assumptions around our dry effective plan, we have not considered that at this point in time.

Okay. Thank you.

Your next question is from the line of.

Makes sense and then just quickly on China, No assumption that China comes back online in 'twenty, three but what have you guys assumed for the 'twenty five targets for China.

Yeah.

The next question is from the line of Jamie Katz with Royal Caribbean. Please go ahead.

Hey, Jamie.

Jordan.

Yes.

Very minimal.

Yeah.

I was getting excited Jamie.

Actually there is no real though we expect that we will be in China.

Okay.

First I'm curious have you guys would be able to.

Before the end of 2025, and our assumptions around our dry effective plan.

Germany, maybe what the box cost opportunity as you have.

We have not considered that at this point in time.

Okay. Thank you.

Actual controller outside of these transitory things that are bringing back over the next few years.

Your next question is from the line of.

Yeah.

Well I think some of that comes into.

The next question is from the line of Jamie Katz with Royal Caribbean. Please go ahead.

On the on the inflationary side and our ability to just continue to evolve our very nimble supply chain platform to reduce our costs and some of that is by being able to do things more locally.

Hey, Jamie.

Good morning.

[laughter].

I was getting excited Jamie.

Okay.

Yes.

Yeah.

First.

Versus.

Tracy you guys would be able to.

Yes.

Going on globally source, everything, which sometimes can result in us lowering freight costs, and so forth, which can improve our cost structure.

Yeah, Let me maybe what the box cost opportunities you have.

<unk> in Chile are outside of these transitory things that are that are bringing back over the next few years.

There's also a lot of opportunity on just automation and doing things more efficiently.

Well I think some of that comes into.

We also think is an opportunity for us to to lower.

And our costs and I guess, the kind of if you could.

On the on the inflationary side and our ability to just continue to evolve our very nimble supply chain platform to reduce our costs and some of that is by being able to do things more locally.

Take a step.

<unk> or higher a little bit. It's also as we continue to grow capacity and grow the business.

Leveraging the scale and creating the operating leverage so we can expand the margin.

Good morning.

Versus.

And then.

Yes.

If you look at the brands I know you probably won't bifurcate and I'm curious if there are any different demand patterns. You guys are seeing between maybe royal Caribbean and Silversea is there any sort of booking pattern differences or pricing power differences, just as we think about different incomes.

Going on globally source, everything, which sometimes can result in us lowering the freight costs and so forth, which can improve our cost structure.

There's also a lot of opportunity on just automation and doing things more efficiently.

We also think is an opportunity for us to lower our costs.

And I guess, the kind of if you take a step back.

Mcgrath <unk>. Thanks.

Back or higher a little bit. It's also as we continue to grow capacity and grow the business really leveraging the scale and creating operating leverage so we can expand the margin.

Yes.

All three brands are actually doing very well.

The Silversea guests there is obviously a higher yielding guys.

They tend to book further out which helps us when we think about our booking curve and more mix of silversea in there.

Good point.

And then.

If you look at the brands I know you probably won't bifurcate them, but I'm curious if there are any different demand patterns. You guys are seeing between maybe royal Caribbean and Silversea is there any sort of booking pattern differences or pricing power difference is just as we think about different incomes.

I think the only thing that I would probably just.

And as you certainly see the currently.

The drivable market.

It is certainly something thats.

You're benefiting our brands are you can see that in the bookings.

Yes, you are willing to drive six seven to eight hours.

Demographic strategy. Thanks.

Yes.

To their homeport is definitely.

All three brands are actually doing very well.

A trend that we have been seeing.

The Silversea guests there is obviously a higher yielding guys.

But this is not a surprise coming out of Covid.

They tend to book further out which helps us when we think about our booking curve and more mix of silversea in there.

And now we're starting to see guests plan their vacations for fly cruise for example into Europe much earlier than we saw pre COVID-19.

I think the only thing that I would probably just.

And as you certainly see the currently.

Thanks.

Sure. Thanks, Jamie.

The drivable market.

Today's final question will come from the line of Paul <unk> with Macquarie Capital. Please go ahead.

It is certainly something thats.

You're benefiting our brands are you can see that in the bookings.

Thanks, so much and congrats on the quarter.

Guests, who are willing to drive six seven to eight hours.

I wanted to dive quickly into the marketing selling and admin line. It looks relatively flat sequentially. So I'm just trying to figure out here if outside of wave. We should think about this returning to normalized structural.

To their homeport is definitely.

A trend that we have been seeing.

This is not a surprise coming out of Covid.

Now, we're starting to see guests plan their vacations for fly cruise for example into Europe much earlier than we saw pre COVID-19.

Proportional levels does it.

In addition to Tam unlocking is it getting cheaper easier to acquire customers.

Thanks.

From a marketing cost perspective per unit and then I have a follow up thanks.

Sure. Thanks Shannon.

Today's final question will come from the line of Paul <unk> with Macquarie Capital. Please go ahead.

Yes, no Thats right. Then we don't we expect this is I think we said even in the last quarter earnings. We expect this due to be normalized in terms of our investment in sales and marketing.

Thanks, so much and congrats on the quarter.

I wanted to dive quickly into the marketing selling and admin line it looks relatively flat sequentially.

We're always thinking about where is the best.

Im just trying to figure out here if outside of wave, we should think about this returning to normalized structural.

Money to spend with channel, which market, but generally we expect it to be as of now are at normal levels.

Proportional levels does it.

In addition to Tam unlocking is it getting cheaper easier to acquire customers.

The point is.

We're getting much more efficient and our ability to grow one to one to our customers, but the cost, which I know you guys. All follow the costs for Seo and other other related marketing activities is.

From a marketing cost perspective per unit and then I have a follow up thanks.

Yeah, No that's right and we don't we expect this is I think we said even in the last quarter earnings. We expect this due to be normalized in terms of our investment in sales and marketing.

That's gone up there's been inflation or demand elements that have caused that to go up and our teams have done I think a very great job in finding efficient ways to do that.

We're always thinking about where is the best money.

And we're not having to spend.

Additional marketing dollars to generate demand, which really just shows the strength of our brands and the positioning of our deployment.

Money to spend with channel.

But generally we expect it to be as of now are at normal levels, yes.

Which is which is.

The point is.

<unk> has paid us quite well.

Thanks for that color and then.

Thinking about trifecta and some of the initiatives I was wondering if there was any sort of.

Order priority among those different initiatives, mostly thinking about your ROIC and earnings.

Has gone up there's been inflation.

Or demand elements that have caused that to go up and our teams have done I think a very great job.

Relative to deleveraging in light of the carbon reduction efforts, which presumably would carry some amount of.

Finding efficient ways to do that.

And we're not having to spend.

Additional marketing dollars to generate demand, which really just shows the strength of our brands and the positioning of our deployment.

Cost expense and capital.

Yes, I wouldnt put them in that they have they have different priorities of course the ROIC.

Which as much as is.

Paint us quite well.

The EBIT margin.

Thanks for that color and then.

And leverage and earnings they are all very interrelated, but at the same time we are.

Thinking about trifecta and some of the initiatives I was wondering if there was any sort of.

Order priority among those different initiatives, mostly thinking about your ROIC and earnings.

We've quadrupled down on what we can do to reduce our consumption of the technologies that we can be employing to reduce our carbon footprint.

Relative to deleveraging in light of the carbon reduction efforts, which presumably would carry some amount of.

So that is not when we look at the lens of making decision, making it's about what's best for the customer what's best for our investors and what's best for the environment.

Cost expense and capital.

Yes, I wouldnt put them in that they have they have different priorities of course the ROIC.

And how we make those decisions to make sure that we're optimizing all of them.

The EBIT margin.

And leverage and earnings they are all very interrelated, but at the same time we are.

Thanks, Jason.

Thank you great.

So thank you everyone for your participation and interest in the company Michael will be available for any follow up I wish you all a great day. Thanks.

We've quadrupled down on what we can do to reduce our consumption of the technologies that we can be employing to reduce our carbon footprint.

Thanks, a lot.

Thank you all for joining today's conference call you may now disconnect.

So that is not when we look at the lens of making decision, making it's about what's best for the customer what's best for our investors and what's best for the environment.

And how we make those decisions to make sure that we're optimizing all of them.

Thanks Nathan.

Thank you great.

So thank you everyone for your participation and interest in the company Michael will be available for any follow up I wish you all a great day. Thanks.

Thanks, a lot.

Thank you all for joining today's conference call you may now disconnect.

You talked about.

So feeling carefree to adventure, Dave on the biggest and best in the world. So feeling great. When you conquer the tallest waterslide in North America Daredevil and are proud of an island in the Bahamas perfect day at <unk>.

Hoping for awhile to a world of mesmerizing spectacular.

Deep diving Aqua theater on board.

Boulder bonding and memory, making on a royalty.

Q3 2022 Royal Caribbean Cruises Ltd Earnings Call

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