Q4 2022 Carnival PLC & Carnival Corp Business Update Call

December 21, 2022

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Good morning.

This is Josh Weinstein.

Welcome to our fourth quarter 2022 business update conference call.

I'm joined today by our chair Micky Arison.

Our Chief Financial Officer, David Bernstein, and our senior Vice President of Investor Relations Beth Roberts before.

Before I begin please note that some of our remarks on this call will be forward looking therefore, I must refer you to the cautionary statement in today's press release.

Our business continues to accelerate on an upward trajectory as we rapidly close the gap to 2019.

But we are already exceeded 2019 revenue per Dms, and we're gaining momentum on a return to strong profitability.

Taking a step back this year, we've completed a monumental 18 month journey.

With our scale, what we believe to be the world's largest startup.

Returning 90 ships to service re boarding over 100000 team members and restarting our unmatched portfolio of eight private islands important destination.

Plus our unrivaled lambastes footprint in Alaska and the Yukon.

All while welcoming back nearly 9 million yes.

For that I sincerely, thank our global teams around the world, where the ingenuity and sheer determination it took to see that through to completion.

Throughout 2022, we have aggressively built occupancy from a 50 point gap in the first quarter to less than 20 points in the fourth quarter.

We achieved this on growing capacity.

We returned another 35% of our fleet to service in 2022, reaching 99% of our 2019 capacity levels during the fourth quarter and on top of this our constant dollar revenue per passenger cruise days was 2% higher than 2009.

<unk> record levels for the full year and 4% higher in the fourth quarter.

Overcoming the dilutive effect of future cruise credits.

Without this impact each would have been two points higher.

And in the process, we sustained record breaking onboard revenue per dms significantly higher in 2019.

We're also not losing sight of our cost base.

As we've worked through a restart and continue to absorb and mitigate the impacts of the high inflationary environment. We've all been living it we reduced the increase in adjusted cruise costs, excluding fuel per <unk> in constant currency.

From up 25% in Q1, two up 11% in Q4.

We've also significantly ramped up our advertising and sales support to drive future demand.

Thanks to this and the hard work of our Amazing trade partners. Our percentage of first time guests has continued to sequentially improve closing the gap to 2019 levels.

And we've been working smarter with our shoreside teams head count already having been significantly reduced from 2019 levels for some time now.

We delivered stunning new flagships for five of our brands, including Carnival celebration Aida customer.

So, it's gonna and discovery Princess as well as our first luxury expedition ship the finest in the world seaborne venture.

All of these shifts were purpose built to generate higher returns.

We broke ground on a new exclusive destination.

Rand Bahama port, which will be a game changer for carnival cruise lines, while at the same time benefiting more than ever from our existing private islands and unique port destinations, which captured 6 million visits from our guests.

And all while working to minimize our environmental impact with a 7% reduction in carbon intensity of 30% reduction in food waste and $290 million less single use items compared to our baseline. Most importantly, we are back to doing what we do best.

Delivering millions of unforgettable and much needed vacation experiences to our guests.

And we are truly a global company with 45% of those guests.

Outside of North America in 2019.

In fact, we practically carried more people outside the U S than any of our peers carried in total we believe that having the number one or two brands in each of the largest cruise market such as North America, The U K, Germany, Australia.

Italy, France, and Spain is the foundation of our portfolio strategy.

And allows us to tailor our experiences and offerings to those specific source markets, enabling us to generate stronger brand loyalty and gain greater penetration and profit.

In this current environment, though there are two factors that have had an outsized impact on our results.

And uneven reopening of cruise travel around the world and the aftermath of Covid.

And the more direct impact the war in the Ukraine has had on European countries.

While all of our brands are on an upward trajectory the pace of the recovery has trailed for those brands most heavily exposed to these factors in 2019, one third of our non North American guests 2 million people came from Australia Asia and the Baltics.

The vast majority of these guests were sourced through Costa and Princess.

Representing 40% of cost as guests and 25% of princesses guests.

At this point in time, Australia's reopening is where North America was a year ago, and Japan is closer to two years behind.

The lagging reopening of these markets had triggered multiple changes in deployment and guest sourcing approaches as we anticipate the impacts will continue to be felt particularly for the first half of 2023.

Of course, China also has yet to reopen.

Given cost has significant presence in Asia with five ships planned to operate there year round pre pause.

We've taken actions to rightsize, the Costa brand with the removal of another two smaller less efficient ships from the Costa fleet.

In addition to the previously announced three ships transferring to our highly successful Carnival cruise line brand.

Dispositions cost of well with our competitive fleet with closer to home deployment focused on its core markets in Continental Europe .

We have already been encouraged by the recent strength in booking volumes for the Costa brand in fact last month cost as booking volumes in these core markets were above 2019 levels for the fourth quarter of 2022, and the first quarter of 2023 as they navigate a closer in booking curve.

The war in the Ukraine remains concerning for us all and especially those in the affected regions.

Given the closer proximity for both Costa and our German brand Aida.

The war and associated impacts have weighed heavily on consumer confidence in those regions, resulting in greater uncertainty and closer in booking patterns to help manage we've made strategic deployment decisions leaning into more itineraries that home port where the guests originate as well as shorter duration crew.

This is helping us to reduce the friction of air travel lower the overall cost and facilitate a closer in booking environment.

We believe this positions us well to attract more new to cruise guests and make us even more of a value proposition versus land based alternatives by bringing our ships closer to where our guests.

We have furthered our fleet optimization efforts again this quarter, bringing the cumulative number of ship disposition since the pause to 'twenty.

When coupled with the delivery of larger more efficient ships, including the successful introduction of Carnival celebration last month.

And the addition of RVO for piano cruises just last week.

This will result in nearly a quarter of our fleet consisting of new capacity.

This fleet transformation resulted in an eight percentage point increase in balcony cabins, along with a tremendous increase in available real estate onboard to deliver even more differentiated onboard experiences and generate associated revenues contributing to durable revenue growth going forward.

We will also benefit from lower ship level unit costs that help to mitigate inflation with nine percentage points higher fuel efficiency and six percentage points greater efficiency and remaining operating costs.

Our revenue generation will also benefit from the launch of Carnival event Etsy is fun Italian style in New York.

The program is off to a great start having been met with strong demand and high prices building confidence and prospects for this creative initiative.

Overall in 2023, we will have just 3% capacity growth compared to 2019, while still retaining the excitement and demand from 12 fantastic delay.

<unk> delivered 2020.

And thanks to portfolio optimization effort, our capacity growth is weighted toward three of our highest returning brands Carnival cruise line Aida.

Opposite UK.

There is no doubt 30 year assets will pay dividends, along our path to strong profitability as we build demand and generate higher revenue yields overtime.

Having said that brand by brand there is high capacity growth that we are managing in 2023.

In this transition year.

Oh cruises, it's absorbing 40% more capacity in 2019, thanks to Iona and RVO.

He has 20% more capacity at the start of the year.

Costa will have significantly more capacity in its core markets versus 2019 as the full benefits of our fleet optimization program won't be completely felt until 2024.

And Princess will source more heavily than ever before from North America, given its source market disruptions.

As I mentioned on the previous call to help support this growth and to drive overall revenue generation.

Actively been working with each brand on their strategies and Roadmaps.

As a result, I have authorized our brands take a significant step up in advertising activities, including a nearly 20% increase in our investment this past quarter over 2019 to elevate awareness and consideration and to drive demand for both the near and the longer term.

This should be particularly impactful with those new to cruise, where we draw about one third of our guests as we positioned to take share from land based alternatives.

We are capitalizing on the 25% to 50% value gap to land based alternatives that frankly should not exist with new marketing campaigns to communicate our significant value advantage to land based alternatives.

<unk> newly launched digital creators from several brands.

We plan to continue these increased investments in advertising as we head into next year to promote a strong wave season, where we captured disproportionately higher bookings for the year, particularly our important summer season.

Having been in Pas status for the better part of two years. We are also rebuilding top of funnel demand through the army of advocates coming off our ships everyday recommending our cruise vacations.

Our renewed focus on our trade relationships and a growing sales force.

On the revenue management side, we are ensuring that each brand is utilizing pricing philosophies to maximize revenue from launch to sailing and sharing best practices across brands.

Our teams are focused on higher value add from bundled packages supported by our market to fill approach and consistently capturing incremental revenue streams for many initiatives such as more robust cabin upgrade programs.

While building back demand and enhancing our yield management tools and strategies, we are optimizing.

<unk> the combination of occupancy ticket and onboard to deliver revenue to the bottom line in the near term, while maintaining price integrity for the long term.

Given the close in nature of the booking curve from the disruption caused by the omicron variant earlier this year.

And the friction from protocols in effect through the bulk of the year.

Most brands have leaned heavily into opaque distribution channels like our friends and family rates, which allow us to achieve higher occupancy and resultant onboard revenue, while still preserving pricing power over time as they are rates that are not offered in the general marketplace.

These channels are beneficial and reaching higher occupancy levels and higher onboard revenues, particularly for our north American brands booking.

<unk> have already strengthened following the relaxation and protocols cancellation trends are improving globally, and we have seen measurable lengthening in the booking curve <unk>.

This applies across the board.

Since the start of the year, our EAA brands have pushed the booking curve out and narrowed the gap by more than a month, while our north American brands have pushed the curve out and narrowed that gap by two months now nearing 2019 lead times.

We enjoyed a strong response to our recent black Friday and cyber Monday activities.

And the momentum has continued into December .

Our base occupancy and marking an early start to a strong wave season ahead.

It is important to recognize much of the first half of 2023, which booked prior to the relaxation and protocols and in actuality. Many of these first half cruises are still implementing certain more restrictive protocols given the itinerary profiles consists of lengthier exotic deployment.

Including our long awaited return to world cruises.

And long winter deployments for our European brands operating from colder climates and much of this relies heavily on long haul flights, which are not conducive to a closer in booking environment.

Nonetheless, we expect our first quarter occupancy gap to 2019 to be reduced even further and on higher net <unk> on our way to historical occupancies in the summer.

This bodes well for 2023 overall as we expect more markets to open for cruise travel protocols to continue to relax or closer to home itineraries play out.

Our brands continue to hone all aspects of their revenue generating activities.

And as we continue to invest to build demand we are positioned to pullback on promotions and opaque channels to drive meaningful ticket price improvement overtime.

On a complementary basis, our industry, leading operating costs and fuel consumption per <unk>.

Let us up to effectively deliver more of this revenue to the bottom line.

Normalizing for 2019 fuel price and currency changes, which provides a better sense of the strength of the underlying fundamentals of the business and our progress.

We expect adjusted EBITDA for <unk> to reach 50% of 2019 levels in the first quarter of 2023.

Sequential quarterly improvement as we progress through 2023 that should rival 2019 levels by the end of the year.

Turning to capital expenditures, we actively manage down our spend by over $500 million during 2022, and we've taken a hard look at 2023 and beyond and reshape investment spending by $300 million annually for a cumulative reduction of $1 $7 billion.

We have re prioritized project list.

And hurdle rates to reflect the current environment, while absolutely maintaining our commitment to excellence and compliance protecting the environment and the safety and wellbeing of our guests team members and communities we serve.

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

We have just four ships on order through 2025, plus our second incredible seaborne luxury expedition ship to be delivered in 2023.

This is our lowest order book in decades, we don't.

Not expect any new ships in 2026.

And anticipate just one or two newbuild each year for several years thereafter.

Turning back to our operating performance, we were effectively addressing near term challenges in the post pause transition.

With higher first quarter net per Dms expected.

And have been reshaping our portfolio to drive revenue growth as we return to historically high occupancy levels and delivering measurable pricing improvements over time.

We are fast tracking our momentum by investing in marketing and sales support to effectively communicate the amazing vacation experiences.

Liver day in and day out.

Offering an unparalleled level of convenience and personalized service and at way too good of a relative value to land based alternatives at every price point from mass contemporary to ultra luxury.

Overall, we remain focused on driving revenue growth and hits the bottom line and accelerating our return to strong profitability.

And over time this revenue generation, our industry, leading cost base and a more focused capital expenditure profile will support significant free cash flow and propel us on the path to deleveraging investment grade credit ratings and higher Rois.

This has been a truly remarkable year and we have come a long way in an incredibly short amount of time.

These efforts highlight what we've always known.

Our people are our greatest asset.

And now they are armed with an even greater skill set built up over the last few years.

<unk> agility and perseverance that will help push us forward.

Looking forward to 2023, and our positioning for our first strong wave season in four years, enabling us to deliver a strong summer period, where we generate the bulk of our operating profit for the year.

With that I'd like to turn the call over to David.

Thank you Josh I'll start today with a recap of our cumulative book position and our financial position then I'll provide some color on 2023.

Turning to our cumulative book position.

Marking an early start to wait season.

Ended the year with multiple brands breaking records are very strong black Friday, and cyber Monday booking behind.

Our full year 2023 cumulative advance position is at higher prices than constant currency normalized for Hep C. CS when compared to a strong 2019 pricing and is higher than the historical average.

Sure.

The second third and fourth quarters, all have a pulse sensation at or above the historical average.

The first quarter 2023 book transition was impacted by heightened protocols during its prime booking period, which has since been responsibly relax.

As a result of the relaxation of the protocols booking volumes for first quarter 2023, along with all future sailings have increased now.

And therefore, we expect to continue reducing our occupancy gap, Inc. First quarter 2023 to 2019.

Nearly five percentage points from fourth quarter.

2022.

The strong cumulative book position has resulted in total customer deposits moving a fourth quarter record.

$5 $1 billion as of November 32022.

Passing the previous record of $4 9 billion as of November 32019.

Next let's talk about our financial position.

During 2022, we continue to take refinancing risk off the table by addressing our 2023 debt maturities and getting ahead of our 2024 maturities.

As a result of this we ended the fourth quarter of 2022 with $8 6 billion of liquidity.

Looking forward, we expect that turn free cash flow positive in the back half of 2023 and continue to be free cash flow positive in 2024 and beyond.

We anticipate utilizing this free cash flow to Delever, our balance sheet on a path back to investment grade credit rating.

Now I'll finish up with some color on 2023.

For first quarter 2023, we expect capacity growth to be three 7% when compared to first quarter 2019.

And three 3% for the full year 2023, as compared to the full year 2019.

During 2023, we expect to continue to close the gap on occupancy to 2019 levels.

I can T for first quarter 2023, and is expected to be 90% or slightly higher testing 14 percentage point gap or better.

I said before this would be nearly five percentage point improvement from the fourth quarter 2022 gas.

That is not enough we are working hard and expect to close the gap to 2019 with occupancy returning to historical levels in the summer of 2023.

On the pricing front first quarter 2023, we expect premiums to be up I didn't hang up to 6% constant currency and 3% to 4% in current dollars as compared to first quarter 2019.

A great accomplishment as we start the new year. However.

However, our first quarter 2023 are expected to benefit from brand mix when compared with first quarter 2019.

During 2023, while our European brands expect onboard and other revenue premiums to be up significantly versus 2019 as they were in 2022 and as has been the case with our North American brands.

Absolute onboard spending on our European brands, and so less than that on our North American brands.

Our European bringing gas attempt to drink a little more like Gamble a lot less.

As the European brands catch up on I can see with our North American brands during the second and third quarters and filled their shafts. They will make up a larger percentage of the total changing that per passenger average.

And with their historically lower onboard revenue per Dms, we will no longer benefit from the brand.

Also for 2023, we do anticipate returning to non-GAAP financial measures to report revenue performance and huge NAV per Dms as opposed to revenue per passenger cruise date, we used in 2022.

By 2023.

We once again expect the onboard and other revenue <unk> to be up significantly versus 2019, helping to drive the NAV per Dms out.

However, as I indicated in the past as we change the bundled package offerings, we reevaluate the revenue accounting allocations.

As a result in 2023 more of their revenue will be left in ticket and less allocated to envoy impacting the onboard and other revenue per diem comparisons to both 2020, two and 'twenty anything changed.

Just another reason to add to the list of reasons why the best way to judge our revenue performance is by reference to our total revenue metrics such as net per deal.

Now turning to costs.

Off the base of our industry, leading cost structure adjusted cruise costs without fuel per hail deep in the full year 2023 versus 2019 are expected to be up to 6% incurring towers, and seven and a half to eight and a half and constant currency.

Let's see.

For the first quarter 2023, the ranges are up one point less driven by lower dry dock cost for hail P. T versus first quarter 'twenty 19, but first quarter 2023 does include henkel with 30% increase in advertising to further accelerate that.

Yeah.

There were three main drivers of the cost increase first.

Our forecast is for an average mid teen level of inflation across all our cost categories globally.

Second our decision to further invest and appetizing to drive demand and pricing in 'twenty two 'twenty three and beyond is expected to add one to two percentage points to cost per a L. E D.

And third deployment optimization and other small investments are likely to add one percentage point.

Significantly mitigating these increases are our fleet optimization program that is expected to drive six percentage point improvement did ship operating cost per <unk> D.

It is worth four and a half points of a Chesapeake cruise costs without fuel per a L. E D.

And the creativity resourcefulness from hard work by our global teams, producing sourcing and productivity savings of approximately four percentage points.

A great accomplishment.

I would like to say thank you to all the team members who contributed to this effort.

The details of depreciation and amortization interest expense and fuel expense can be found in the business update press release, we issued earlier. This morning in the section titled selected forecast information. So I will not walk you through all the numbers.

However for those of you modeling our fuel expense. Please note that we expect M. G O to represent about 40% of fuel consumption for 2023.

However that percentage may be slightly higher during the early part of the year.

While we were on the subject of fuel consumption.

We'd like to recognize everyone on our global team, who contributed to the expected 15% reduction in both fuel consumption per a L. P D and carbon emissions per a L. B day for the full year 2023, boes as compared to 2019.

We're working aggressively to drive down our carbon footprint fuel consumption and costs through technology upgrades being rolled out.

Air Lubrication systems mentioned in this morning's business update along with investing in port and destination projects and even more focus on itinerary optimization across our portfolio of brands, while realizing the benefits of our fleet optimization efforts.

Everyone can fully understand the underlying strength of our business.

Did want to point out that for 2023 versus 2019 at current fuel prices and FX rates, we did expect a negative impact from fuel price fuel mix and currency of our plan.

Accurately are hungry and 15 million for first quarter and an impact that is multiple times that the full year, including a full year currency impact of over $70 million.

Putting all these factors together, we expect 215 million to $350 million of adjusted EBITDA for the first quarter 2023.

Financial improvement compared to 2019 in each quarter of 2023, as we continue to close the gap.

However, given the significant wave season ahead of US we will be in a much better position to provide full year guidance for net premiums are keeping safe and EBITDA early next year, we plan on providing that guidance during our first quarter business update in March.

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

Uh huh.

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One moment please for the first question.

Yes.

And our first question is from the line of Steve license key with Stifel.

Please go ahead.

Yeah, Hey, good morning, guys. Good morning, Josh David So.

I guess the first question would be around the marketing spend for 2023, and I guess you know I guess, we were thinking that marketing would be accelerated.

Accelerated.

Throughout the fourth quarter of 'twenty, two and then into the first quarter of 'twenty three and then start to fall off some but it sounds like you guys might be keeping marketing spend pretty high throughout the entire.

2023 year I guess the question is maybe you know maybe why are you keeping it.

Hi for the full year and is there any way to understand.

You know, maybe what that cost cadence will look like throughout throughout next year, just wondering if there any quarters that were.

Spend levels for marketing or other costs might be higher or lower.

All makes sense.

Maybe Steve how are you doing.

So with respect to the advertising in 2023.

If you if you saw the materials have been put on the website you know we've been ratcheting up.

Across across all of 2022.

We.

We are very excited about the momentum that we've got.

We've already started the waves.

As an incredibly strong with our <unk>.

Black Friday, cyber Monday, and really just the whole book position Thats moved nicely in the month of November and we think that advertising has a good amount to do with that to really.

Reach first timers generate awareness generate consideration in doing so.

A really meaningful way and I think we've got great brands and we've got tremendous brands, but we need to do a better job getting the voice out.

And this is a good way to do it and it helps not just us it helps our trade partners. It helps the bookings across the board so as far as how we'll look at it across 2023, we've given you the guidance specifically for for for the first quarter. The great thing about advertising is we can dial up dial down.

Across the board, where where it's working and where we don't think it's having as much of an impact but right now the activities that we're doing both in the mainstream media side and then the digital and performance marketing, it's really starting to hit hit our stride. So so we're pretty pleased with the results yet.

See the only other additional color that add to that is remember I've said historically, the best way to judge our cost structure as the full year and I gave you the guidance there of one to two point increase.

The problem with this seasonality is as we go along we make decisions that are most appropriate and we remain agile and flexible, but so with that said I will say that the advertising is likely on a quarterly basis to be the highest in the first quarter and the lowest in the third quarter, but the third quarter traditionally has.

Always been.

A low quarter in terms of advertising so.

It's probably the best guidance, we can give you at this point.

And to follow up on that I guess, as we kind of think a little bit further down the road.

You guys kind of get back to those.

Normalized load factors and demand still looks pretty solid through the majority of 'twenty. Three would you expect as we get to 'twenty. Four did you would be able to pull back.

A good bit on that marketing spend.

Yeah, I mean, it's certainly within our within our control ultimately we're not just trying to get back to occupancy levels that are historical we're trying to really drive the unit pricing as well and so advertising is a big big component of that so we're also.

I hope, we'll have that conversation in six months.

Okay, Great and then just one quick.

Keeping a possible David the two ships that are leaving Costa.

Where were they.

Told or are they just going to be scrapped.

No. So we announced three ships in total and two of them, we actually have a contract for at the moment and one we're working on.

A contract per se okay.

Okay got you. Thanks, guys have a have a great holiday.

Yeah.

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

Thank you.

There were a couple of really key things that I, just I wonder if you could clarify.

For us.

First the comment on twenty-three price.

<unk> did a tire.

I think you say adjusted for FCC, so, including the impact of that discount, which probably would only be a percent or two at this point is your price on the books in 'twenty, three and constant currency higher than 19, including that.

And then just I guess I'm, a little surprised that there's no yield guidance for Q1.

Because you gave a lot of.

Detailed to get to the EBITDA line, including occupancy and I haven't been able to do all the math since they released it only out for a few minutes before the call, but it seems like you have a yield.

For Q1.

It would be sort of 80% plus foot by now so I just wonder if you could help us with that.

Sort of a range of what might get to the EBITDA that you're talking about just to help us check our math and then and then lastly, the comment on.

EBITA.

So the guidance for Q1 of 250 to 315 that up sequentially each quarter after that.

It is.

I Wonder if you could just help us with a floor like on a full year basis. You know can we get you comfortable that you would be higher than $3 billion in EBIDTA for the fleet like in other words.

<unk>.

That's sort of up sequentially each quarter could still get to sort of quite a low EBITDA number for the full year and I just wonder if you could help give us the floor. Thank you.

Yeah.

Robert how are you doing.

There's a lot of questions. So let me start backwards because I can remember the first the last one so with respect.

To EBIT.

We tried to convey is on a performance basis on a unit performing basis, when you strip out the noise of fuel and currency whats our trajectory and how are we looking at things and so we said on that basis, we get back to 50% of 2019 levels in Q1 and sequentially throughout the year continue to close that gap to 2019.

<unk>.

I am certainly hopeful and pushing that we're going to exceed 2019 levels by the time, we get to Q4, but we've got a lot of work to do to be able to do that.

With respect to.

With respect to your question about your guidance just to make sure. We're not sorry, do you want to do it.

Robyn I guess.

Maybe you missed part in my note.

Hi, I did talk about this I said, specifically that we expect net per dams to be up 5.5% to 6.5% in constant currency and that does translate to 3% to 4% in constant dollars now we gave per Dms, but of course, we also gave the Aki.

And so you have 90% or slightly higher in the.

Press release, so you can calculate the revenue associated with that and as far as the booking trends are concerned you're right. We did indicate that the FCC's would be less than a point for the year.

And the book the pricing would still be up even if we didn't add back the FCC's.

We're still at higher prices.

Thanks, Thanks, so much.

Questions any follow up.

I have more but I won't I won't get back in the queue. Okay great.

[laughter].

Uh huh.

Yeah.

Our next question is from the line of data excuse me Fred Wightman with Wolfe Research. Please go ahead.

Hey, guys. Thanks for the question I, just wanted to sort of follow up and build on the occupancy ramp. If we look just from <unk> to <unk> 10 points of improvement. If we look at sort of what you guys are expecting in <unk> with the sort of five ish percent. So can you just sort of walk us through what's driving that lower sequential improvement relative to the 2019 levels, maybe how we should think about that.

In the context of the expectation that you guys are going to be back to sort of full occupancy over the summer.

Sure sure.

One thing to think.

About when you think about our Q1 deployment profile is very different from what we.

What we typically have the rest of the year, we've got actually nine ships in Q1 on World cruises. Another four ships on 70, plus night Grand Voyager and then a host of ships that are doing longer exotic voyages 35, and <unk> 28 and <unk>.

And so with that profile you know those take those are longer lead time type of itineraries. Some buckets those types of things and so it is progressing for Q1, exactly where we thought it would be with respect to closing the occupancy gap given the dynamic of that itinerary profile and as.

As we get into Q2, those those have stopped or wind down and we get back to the to the cadence that we expect.

Understood that makes sense and just on the booking momentum.

There was a comment in the release just talking about November booking volumes exceeding 2019 levels also a comment about momentum continuing into December our December bookings still above 2019 levels or did those sort of tail off after some of the promos in November Arnaud they've continued very strong and they've continued.

Well above the 2019 level. So we're very pleased with the overall position.

Physician and the bookings that are coming in today.

Perfect. Thank you.

Thank you.

Yeah.

Our next question is from the line of David Katz with Jefferies. Please go ahead.

Good morning, everyone. Thanks for taking.

Two quick ones I think in the past you've referenced.

Back to.

10% ROIC to see if you could just talk about the path there and you know the puts and takes of what has to happen for that.

At.

To occur and then second with respect to the advertising.

Do you have any sort of measurements or metrics that you are that are shareable.

The demonstrator confirms some of the productivity around that.

And that's it for me thanks.

Thanks, David with respect to the advertising.

Our brands without wanting to give away.

Competitive positions.

Positions, our brands are tracking with respect to.

Wariness in consideration, which has a correlation to booking they track regeneration that drop conversion.

<unk> conversions on websites they track performance.

Type deals in the marketplace and we actually know exactly what the impact is from me from the activities that we.

We are taking so we do have them across the board and we followed them and we discuss them with the brands and that's how we make decisions with them about where it is effective and where it might not be effective and what's great about us having nine brand sharing amongst themselves, what's working and what's not working so we can learn from each other.

With respect to the ROIC.

Revenue in our revenues the thing Thats going to drive us back to double digit.

ROIC.

David mentioned, our industry, leading cost base that will continue to be a focus of course.

But really it's going to be the revenue and that's that's where our brands are focused.

The one thing David I would like to add on the advertising front.

One thing we've been tracking as we take a look at our book position for 2023 and in the last six months since we have increased the advertising we have seen a shift and a lot more new to brand and in fact, it's an eight percentage point improvement. So at this point in time, what we're seeing.

For the 2023 book position is that its roughly half of the gas or repeat loyal guests and the other half were new to brand.

Unfortunately, these people having all sales so I don't know, whether they are new to cruise or their brand switchers.

We'll find that out shortly as they sale, but the fact is they are.

We're getting a lot of great demand and we're seeing it in the booking volumes and Thats an indication also of the growing.

<unk> of our trade partners, because they're a huge piece of our ability to drive first timers onboard.

So a shout out to them as well.

Helpful. Thank you very much.

Yes.

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

Hey, good morning, Thanks for taking my question in the prepared remarks, there was a comment on re prioritizing project list is there anything noteworthy to update us on maybe what you guys are shifting focus on our shifting focus away from anything.

Anything sizable Nash.

So.

I think a lot of the stuff is timing.

From a big perspective, if you look at the change in the Capex a lot of that had to do with the fact that 26 ships have left or fleet. They were smaller less efficient ships and therefore, we don't necessarily need the overall CAC capex number.

As high as we had previously.

But when it comes time to prioritizing it. It's also a timing issue and doing the things that are most important first and that's some of the reason why you saw the capex.

<unk> come down in 2022.

The only noticeable thing that we've really is as far as.

Our office space clearly with the new ways of working in today's environment, we're significantly reducing the amount of capex that will probably need to expand our offices as we continue to grow.

Yeah.

I can give you an example of where we would where we wouldn't re prioritize so.

We've talked in the press release and some of our prepared remarks about the impact, we're making on our carbon footprint and fuel consumption.

That drives that that's going to continue full steam ahead, we see a great returns in that and be doing our part.

On the sustainable sustainability front, which is critical to our long term success as well.

There could be things that when it comes to.

Making a decision about the speed at which we want to introduce new venues on board of a particular brand.

Can pesos out differently.

We can we can take a little bit less risk on trial and error of creating new experiences. So it's all a question of what we think the appropriate return could be where we want to take risk and where we just want to.

To be more focused on.

On managing the cost down.

Uh huh.

Okay, and then I know there's been a line of discussion on marketing spend.

I'm not sure if you guys sense directionally.

Yes.

Elaborated on maybe the RLI of marketing spend area and seems to be a pretty decent push to start seeing more north American consumers and craft.

The cruise operator landscape and so I'm wondering if the marketing spend is as productive as it has been historically or if you expect that to be maybe temporarily depressed.

Before you can claim that back thanks.

Well I can repeat what we said, which is we are spending more and we're very happy with the results and we'll keep monitoring it and adjusting is appropriate, but we feel real good about our brands the strength in the market and our ability to champion them with additional advertising.

Thanks.

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

Hey, good morning, everybody. Thanks for taking my question. So just I wanted to dig into the opportunity a little bit more on the on the marketing front as well.

If you were to try and isolate how much of the.

Opaque channel mix shift Youre doing now versus 19 that additional <unk>.

Next to that channel and trying to isolate the upside to that those per Dms.

Just from taking off the additional sort of again opaque channel promo activity is there a way to sort of give us that level of magnitude for that opportunity. When you. When you are able to remove the rest of that.

I'd love to I'd Love to give you a straight answer, but I gotta be honest I'm not sure that I could in a way that.

Feel comfortable it makes sense in a short amount of time, so Brent I know that's like another way of asking us what is our yield guidance for the the rest of the year.

So the one thing I do want to point out, which I said in my prepared remarks is that we will.

Season's important and we will give guidance for the net per Dms in occupancy and EBITDA for the balance of the year.

However, we did give <unk> guidance for the first quarter as I reiterated before.

When Robin asked the question and one thing I do want to point out is that I also mentioned that the first quarter benefited by.

By brand mix and that brand mix was worth about two points and so as you think through the balance of the year there will be positives as what you are just describing but as you think through that please take.

Take that into consideration as we forecast the year.

Caribbean.

And I guess I could say looking backwards and you look at our trajectory from Q3 to Q4.

We are pulling back right and that is helping improve our <unk>.

Well I mean, the great thing is it's pretty easy to turn on and turn off.

And so far as we get into this wave season. The momentum is good it gives us.

It gives us a lot of excitement about about being able to fold out further as we get into 2023.

Okay.

Really helpful.

The second question I have is related to China.

You guys. It looks like the two ships that we didn't know where they were gonna go are now being are now being removed and so that means that there is no near or maybe even medium term plans to return to China do you guys consider China still a medium to longer term opportunity for you and are you watching that market closely to potentially.

Go back eventually to <unk>.

Alleviates supply pressures in other markets or how are you thinking about that market now.

Yes, I mean look the.

Great thing about our assets.

<unk> mobile.

And we've moved them.

We've moved on to optimize our demand and our revenue generation.

When China opens up again and opens up not just the domestic cruising, but really opens up we'll certainly look at that but we're not relying on it we're not counting on it. We have we are the number one or two brand in all the major cruise markets today, and we like that position and we're going to push hard on increasing our penetration there.

Excellent thanks, everyone.

Yeah.

Our next question is from the line of James Hardiman with Citi.

Please go ahead.

Hey, good morning, Thanks for taking my call. So.

There was a comment in.

In the prepared remarks about.

Discounting through opaque booking channel that seemed like an important comment I know.

Criticism by at least one of your competitors is that you guys had been discounting in such a way that is going to be difficult to recover from that anytime soon.

Seems like you disagree with that criticism.

But also it seems like you know if I if I look at the big difference between <unk> and <unk> was sort of a turnaround in those per Dms, which which is obviously a focus for you guys. So maybe maybe speak to that strategy and your level of confidence that it's ultimately going to pay off.

Sure So I'll speak for ourselves I won't speak for firm.

We are a global company.

We have a different profile than our competitors with respect to how our brands are optimizing revenue, which is price it is occupancy and onboard spending.

They are all using different levers and different mechanisms, including opaque channels, which as you just referenced we've been able to pull back over time without much of a problem.

We focus on the revenue that is going to get to the bottom line and that's our focus not just driving revenue driving revenue that doesn't get caught up in the cost and not hit.

Our EBITDA or not hit our operating income and Thats where were focused.

Got it that's helpful and then my second question.

Obviously, there's been a lot in the news and if anybody has.

Any kids in school right now.

Half the class has something right Blue Covid RSV.

This whole idea of a triple demick.

You've got to hand, it to the media for their ability to brand.

[laughter] diseases at this point, but.

I guess I'm curious if youre seeing anything in any of the metrics bookings.

Bookings statistics, if you look at that would suggest that that's having an impact on your business at this point for us the consumer largely over as we think about.

How viruses and diseases are going to impact their willingness to book a cruise.

Yes.

Look I mean, having come through two years of Covid, I think pretty pretty much across the board. What we see is people are.

People are happy to get on with their lives and obviously.

I'm not trying to be a little what you said because there could be some folks that are dealing with some some things that are pretty tough on them and their family right now, but what we see is.

Trends that are going back to normal about how people are thinking about those types of illnesses and.

<unk>.

We always knew this point would come right when all of the the masking and staying away from each other will go away and.

Some things that we didn't experience will come back with.

With a little bit of a fury.

The world not on our ships and that's what's going on and where we're taking it in stride.

Doesn't seem to be a problem.

Good stuff I appreciate it guys.

Thanks.

Yeah.

Our next question is from the line of Patrick Scholes with <unk> Securities. Please go ahead.

Great Good morning.

Okay. The first question.

Good morning, how should we read into your comments regarding pricing for next year, you know certainly Sematic theory previously said higher now it's.

Slightly above I mean, technically they could mean the same thing but.

More color on that please thank you.

Well I think you gave you gave my answer which is the language change, but it's really not a significant change in our book position.

Half one we are really trying hard to close that occupancy gap we are using.

The opaque channels, where we think it makes sense and where we want to lean lean harder and we plan to keep pulling that back as we get through a great wave season, and regardless, we anticipate very strong onboard spending to supplement our ticket prices. So.

For us pun intended it's full steam ahead.

Okay. Thank you then.

One or two more questions here quickly can you just.

Give us an update on what the book direct.

James have been.

The most recent quarter versus say the comparable quarter in 2019 versus bookings.

Travel agency what are you seeing there. Thank you.

You know what we've been saying all along is that the direct business held up relatively well.

Throughout the.

Throughout the pandemic and the trade.

How to build itself back up and we've been trying to support them to do just that.

Great thing is as we've referenced in some of the other questions that trade has been doing great lately.

They're as excited about our advertising as we are because it helps them to and they really started to push push on the volumes and so we couldn't be happier with how they are progressing.

Okay, and then just lastly, if I caught it correctly you talked about 15% reduction in fuel for <unk> next year I think the previous number had been 10% how much is that being driven by the reduction in it sounds like some of the older legacy fleet and what else may be drive.

Thank you.

Yes.

Yes so.

The combination of the well.

Louisville of the smaller less efficient ships with the new ships that we delivered makeup 9% of the 15% and then the other six has to do with all of the itinerary optimization as well as the investment in <unk>.

Fuel reduction technology things like the air Lubrication system, which I mentioned in my notes and was also in the press release.

Okay. Thank you thats it for me thanks.

I think we got Chris time for one more one more question.

Certainly our final question will be from the line of Vince <unk> with Cleveland Research Company. Please go ahead.

Thanks, just real quickly here wanted to get your big picture perspective on the path for margins potentially for the business.

It sounds like there's some real fuel efficiencies to be had.

Assumption side, obviously, youre dealing with higher fuel prices, but also.

Your operating cost outlook was pretty strong and then when you layer in your view for a return to historical occupancy coupled with prudent pretty decent price position for 'twenty three like when you put all that together.

I don't know, maybe you're even exiting 'twenty three going into 'twenty four.

Proceed margins getting back close to historical levels ahead of historical levels kind of what are you targeting.

Over the long run.

Well.

Because we're not giving guidance I think the best I can tell you is how we're thinking about that EBITDA on a per unit basis, and when you get rid of the noise from currency and.

And fuel prices.

Operationally, what we're really trying to do is exceed 2019 levels by the time, we get to the end of the year and Thats where were focused.

As far as the longer term, maybe we can have more of a conversation on that.

March one we're going to be talking to more fulsome whole wholly about our full year guidance, but it is fair to say, there's a lot of potential relating to the revenues of the advertising that we're doing.

Which should bode well for the return on invested capital, which we expect to increase considerably over time as we move through the next year or two.

Great. Thanks.

So.

To everybody on the call. Thank you very much for joining us and happy holidays and I'd encourage you to go to our website for our presentation materials and some supplemental schedules.

You all very much.

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Good morning.

This is Josh Weinstein welcome to our fourth quarter 2022 business update conference call.

Joining today by our chair Micky Arison, our Chief Financial Officer, David Bernstein, and our senior Vice President of Investor Relations Beth Roberts.

Before I begin please note that some of our remarks on this call will be forward looking therefore, I must refer you to the cautionary statement in today's press release.

Our business continues to accelerate on an upward trajectory as we rapidly close the gap to 2019.

In fact, we are already exceeding 2019 revenue per Dms, and we're gaining momentum on a return.

<unk> profitability.

Taking a step back this year, we've completed a monumental 18 month journey and with our scale, what we believe to be the world's largest startup.

Returning 90 ships to service re boarding over 100000 team members and restarting our unmatched portfolio of eight private islands important destination.

Plus our unrivaled lambastes footprint in Alaska and the Yukon.

All while welcoming back nearly 9 million guests.

I sincerely, thank our global teams around the world, where the ingenuity and sheer determination it took to see that through to completion.

Throughout 2022, we have aggressively built occupancy from a 50 point gap in the first quarter to less than 20 points in the fourth quarter.

We achieved this on growing capacity.

We returned another 35% of our fleet to service in 2022.

Reaching 99% of our 2019 capacity levels during the fourth quarter and on top of this our constant dollar revenue per passenger cruise days was 2% higher than 2019 record levels for the full year and 4% higher in the fourth quarter.

Overcoming the dilutive effect of future cruise credits.

Without this impact each would have been two points higher.

And in the process, we sustained record breaking onboard revenue per dms significantly higher in 2019.

We're also not losing sight of our cost base.

From up 25% in Q1, two up 11% in Q4.

We've also significantly ramped up our advertising and sales support to drive future demand.

Thanks to this and the hard work of our Amazing trade partners. Our percentage of first time guests has continued to sequentially improve closing the gap to 2019 levels.

And we've been working smarter.

Our shore side team's head count already having been significantly reduced from 2019 levels for some time now.

We delivered stunning new flagships for five of our brands, including Carnival celebration, Aida customer caustic coast, Ghana, and discovery Princess as well as our first luxury expedition ship the <unk>.

<unk> in the world seaborne venture.

All of these shifts were purpose built to generate higher returns.

Broke ground on a new exclusive destination Grand Bahama Port.

Each will be a game changer for carnival cruise lines.

At the same time benefiting more than ever from our existing private islands and unique port destinations, which captured 6 million visits from our guests.

And all while working to minimize our environmental impact with a 7% reduction in carbon intensity of 30% reduction in food waste and 290 million less single use items compared to our baseline.

Most importantly, we are back to doing what we do best delivering millions of unforgettable and much needed vacation experiences to our guests and we are truly a global company with 45% of those guests sourced outside of North America in 2019.

Italy, France, and Spain is the foundation of our portfolio strategy.

It allows us to tailor our experiences and offerings to those specific source markets, enabling us to generate stronger brand loyalty and gain greater penetration and profit.

In this current environment, though.

There are two factors that have had an outsized impact on our results.

And uneven reopening of cruise travel around the world and the aftermath of Covid.

And the more direct impact the war in the Ukraine has had on European countries.

The vast majority of these guests were sourced through Costa and Princess.

Representing 40% of cost as guests and 25% of princesses guests.

At this point in time, Australia's reopening is where North America was a year ago, and Japan is closer to two years behind.

The lagging reopening of these markets has triggered multiple changes in deployment and guest sourcing approaches as we anticipate the impacts will continue to be felt particularly for the first half of 2023.

Of course, China also has yet to reopen give.

Given cost has significant presence in Asia with five ships planned to operate there year round pre pause we've taken actions to rightsize the Costa brand with the removal of another two smaller less efficient ships from the Costa fleet.

This is in addition to the previously announced three ships transferring to our highly successful Carnival cruise line brand dispositions cost of well with our competitive fleet with closer to home deployment focused on its core markets in Continental Europe .

The war in the Ukraine remains concerning for us all and especially those in the affected regions.

Given the closer proximity for both cost and our German brand Aida.

The war and associated impacts have weighed heavily on consumer confidence in those regions, resulting in greater uncertainty and closer in booking patterns.

Help manage we've made strategic deployment decisions.

Going into more itineraries that home port where the guests originate as well as shorter duration cruises, helping us to reduce the friction of air travel lower the overall cost and facilitate a closer in booking environment.

We believe this positions us well to attract more new to cruise guests and make us even more of a value proposition versus land based alternatives by bringing our shifts closer to where our guests.

We have furthered our fleet optimization efforts again this quarter, bringing the cumulative number of ship disposition since the pause to 'twenty.

When coupled with the delivery of larger more efficient ships, including the successful introduction of Carnival celebration last month.

And the addition of RVO for piano cruises just last week.

This will result in nearly a quarter of our fleet consisting of new capacity.

We will also benefit from lower ship level unit costs that helped to mitigate inflation with nine percentage points higher fuel efficiency and six percentage points greater efficiency and remaining operating costs.

Our revenue generation will also benefit from the launch of Carnival event Etsy is fun Italian style in New York.

The program is off to a great start haven't been met with strong demand and high prices building confidence and prospects with this creative initiative.

Overall in 2023, we will have just 3% capacity growth compared to 2019, while still retaining the excitement and demand from 12.

<unk> delivered 2020.

And thanks to portfolio optimization effort, our capacity growth is weighted towards three of our highest returning brands Carnival cruise line Aida.

Did you get.

There is no doubt 30 year assets will pay dividends, along our path to strong profitability as we build demand and generate higher revenue yields overtime.

Having said that brand by brand there is high capacity growth that we are managing in 2023.

In this transition year.

Piano cruises is absorbing 40% more capacity in 2019.

Two Iona and RVO.

He has 20% more capacity at the start of the year.

Costa will have significantly more capacity in its core markets versus 2019 as the full benefits of our fleet optimization program won't be completely felt until 'twenty 'twenty four and.

And Princess will source more heavily than ever before from North America, given its source market disruptions.

As I mentioned on the previous call to help support this growth and to drive overall revenue generation.

Actively been working with each brand on their strategies and Roadmaps.

As a result, I have authorized our brands to take a significant step up in advertising activities, including a nearly 20% increase in our investment this past quarter over 2019 to elevate awareness and consideration and to drive demand for both the near and the longer term.

This should be particularly impactful with those new to cruise, where we draw about one third of our guests as we positioned to take share from land based alternatives.

<unk> newly launched digital creative from several brands.

Having been in pause status for the better part of two years. We are also rebuilding top of funnel demand through the army of advocates coming off our ships everyday recommending our cruise vacations.

<unk> focus on our trade relationships and a growing sales force.

On the revenue management side, we are ensuring that each brand is utilizing pricing philosophies to maximize revenue from launch to selling and sharing best practices across brands.

Teams are focused on higher value add from bundled packages supported by our market to fill approach and consistently capturing incremental revenue streams for many initiatives such as more robust cabin upgrade programs.

Building back demand and enhancing our yield management tools and strategies we have.

Optimizing the combination with occupancy ticket and onboard to deliver revenue to the bottom line in the near term, while maintaining price integrity for the long term.

Given the close in nature of the booking curve from the disruption caused by the omicron variant earlier this year.

And the friction from protocols in effect, because the bulk of the year.

These channels are beneficial and reaching higher occupancy levels and higher onboard revenues, particularly for our north American brands booking volumes have already strengthened following the relaxation and protocols cancellation trends are improving globally, and we have seen measurable lengthening in the booking curve <unk>.

This applies across the board.

We enjoyed a strong response to our recent black Friday and cyber Monday activity.

And the momentum has continued into December .

Our base occupancy and marking an early start to a strong wave season ahead.

Including our long awaited return to world cruises.

And long winter deployments for our European brand operating from colder climates and much of this relies heavily on long haul flights, which are not conducive to a closer in booking environment.

Nonetheless, we expect our first quarter occupancy gap to 2019 to be reduced even further and on higher net <unk> on our way to historical occupancies in the summer.

This bodes well for 2023 overall as we expect more markets to open for cruise travel protocols to continue to relax or closer to home itineraries play out.

Our brands continue to hone all aspects of their revenue generating activities.

And as we continue to invest to build demand we are positioned to pullback on promotions and opaque channels to drive meaningful ticket price improvement overtime.

On a complementary basis, our industry, leading operating costs and fuel consumption per <unk>.

Set us up to effectively deliver more of this revenue to the bottom line.

Normalizing for 2019 fuel price and currency changes, which provides a better sense of the strength of the underlying fundamentals of the business and our progress.

We expect adjusted EBITDA for <unk> to reach 50% of 2019 levels in the first quarter of 2023.

Sequential quarterly improvement as we progress through 2023 that should rival 2019 levels by the end of the year.

We have re prioritized project list.

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

We have just four ships on order through 2025, plus our second incredible seaborne luxury expedition ship to be delivered in 2023.

This is our lowest order book in decades, we don't.

Don't expect any new ships in 2026.

And anticipate just one or two newbuild each year for several years thereafter.

Turning back to our operating performance, we were effectively addressing near term challenges in the post pause transition.

With higher first quarter net per Dms expected.

It had been reshaping our portfolio to drive revenue growth as we return to historically high occupancy levels and delivering measurable pricing improvements over time.

We are fast tracking our momentum by investing in marketing and sales support to effectively communicate the amazing vacation experiences, we deliver day in and day out.

Offering an unparalleled level of convenience and personalized service and at way too good of a relative value to land based alternatives at every price point from mass contemporary to ultra luxury.

Overall, we remain focused on driving revenue growth and hits the bottom line and accelerating our return to strong profitability.

And over time this revenue generation, our industry, leading cost base and are more focused capital expenditure profile will support significant free cash flow and propel us on the path to deleveraging investment grade credit ratings and higher Rois state.

This has been a truly remarkable year and we have come a long way in an incredibly short amount of time.

These efforts highlight what we've always known.

Our people are our greatest asset.

And now they are armed with an even greater skill set built up over the last few years creativity agility and perseverance that will help push us forward.

We're looking forward to 2023, and our positioning for our first strong wave season in four years, enabling us to deliver a strong summer period, where we generate the bulk of our operating profit for the year.

With that I'd like to turn the call over to David.

Thank you Josh.

I'll start today with a recap of our cumulative book position and our financial position then I'll provide some color on 2023.

Turning to our accumulative book position.

Marking an early start to wave season, we ended the year with multiple brands breaking records are very strong black Friday, and cyber Monday booking value.

Our full year 2023 cumulative advance position is at higher prices than constant currency normalized for FCC's when compared to a strong 2019 pricing and is higher than the historical average position.

The second third and fourth quarters, all have a both sensation that are above the historical average.

While the first quarter 2023 book position was impacted by heightened protocols during its prime booking period, which has since been responsibly relax.

As a result of the relaxation of the protocols booking volumes for first quarter 2023, along with all future sailings have increased.

Therefore, we expect to continue reducing our occupancy gap, Inc. First quarter 2023 to 2019 by nearly five percentage points from fourth.

Quarter 2022.

The strong cumulative book position has resulted in total customer deposits moving a fourth quarter record.

$1 billion.

November 30 of 2022.

Surpassing the previous record of $4 9 billion as of November 32019.

Next let's talk about our financial position.

During 2022, we continue to take refinancing risk off the table by addressing our 2023 debt maturities and getting ahead of our 2024 maturities.

As a result of this we ended the fourth quarter of 2022 with $8 6 billion of liquidity.

Looking forward, we expect to turn free cash flow positive in the back half of 2023 and continue to be free cash flow positive in 2024 and beyond.

We anticipate utilizing this free cash flow to de lever our balance sheet on a path back to an investment grade credit rating.

Now I'll finish up with some color on 2023.

For first quarter 2023, we expect capacity growth to be three 7% when compared to first quarter 2019.

And three 3% for the full year 2023, as compared to the full year 2019.

During 2023, we expect to continue to close the gap on occupancy to 2019 levels.

I can see for first quarter 2023 is expected to be 90% or slightly higher testing 14 percentage point gap or better.

As I said before this would be nearly five percentage point improvement from the.

Fourth quarter 2022 gas.

But that is not enough.

We are working hard and expect to close the gap to 2019 with occupancy returning to historical levels in the summer of 2023.

On the pricing front.

First quarter 2023, we expect premiums to be up I didn't hang up to six 5% in constant currency and 3% to 4% in current dollars as compared to first quarter 2019.

A great accomplishment as we start the new year.

However, net per Dms for first quarter 2023 are expected to benefit from brand mix when compared with first quarter 2019.

During 2023, while our European brands expect onboard and other revenue premiums to be up significantly versus 2019 as they were in 2022 and has been the case with our North American brands absolute onboard spending on there.

European brands is less than that on our North American brands.

Our European bringing gas tend to drink a little more like gamble a lot less.

As the European brands catch up on occupancy with our North American brands during the second and third quarters and filled their shifts.

They will make up a larger percentage of the total changing the per passenger average.

And with their historically lower onboard revenue per Dms.

Will no longer benefit from the brand.

Also for 2023, we do anticipate returning to non-GAAP financial measures to report revenue performance and huge net per Dms as opposed to revenue per passenger cruise days.

In 2022.

2023, we once again expect the onboard and other revenue <unk> to be up significantly versus 2019, helping to drive the NAV per Dms out.

However, as I indicated in the past as we change the bundled package offerings, we reevaluate the revenue accounting allocations.

As a result in 2023 more of their revenue will be left in ticket and less allocated to envoy impacting the onboard and other revenue per diem comparisons to both 2022 and 'twenty and chain.

Just another reason to add to the list of reasons why the best way to judge our revenue performance is by reference to our total revenue metrics such as net per deal.

Now turning to costs.

Off the base of our industry, leading cost structure adjusted cruise costs without fuel per <unk> for the full year 2023 versus 2019 are expected to be up 5% to 6% incurring towers, and seven and a half to eight and a half in constant currency.

Yeah.

For the first quarter 2023, the ranges are up one point less driven by lower dry dock cost per <unk> versus first quarter 2019, but first quarter 2023 does include an over 30% increase in advertising to further accelerate that.

Yeah.

There were three main drivers of the cost increase first our forecast is for an average mid teen level of inflation across all our cost categories globally.

Second.

Our decision to further invest in advertising to drive demand and pricing in 2023 and beyond is expected to add one to two percentage points to cost per E. L. D.

And third deployment optimization and other small investments are likely to add one percentage point.

Significantly mitigating these increases our fleet optimization program that is expected to drive six percentage point improvement did ship operating cost per <unk> that is worth four and a half points of adjusted cruise costs without fuel per <unk>.

And the creativity resourcefulness and hard work by our global teams.

Using sourcing and productivity savings of approximately four percentage points.

Great accomplishment.

I would like to say thank you to all the team members who contributed to this effort.

The details of depreciation and amortization interest expense and fuel expense can be found in the business update press release, we issued earlier this morning in the section titled selected forecast information.

I will not walk you through all the numbers.

However for those of you modeling our fuel expense. Please note that we expect mgo to represent about 40% of fuel consumption for 2023.

However that percentage may be slightly higher during the early part of the year.

While we were on the subject of fuel consumption.

Like to recognize everyone on our global team, who contributed to the expected 15% reduction in both fuel consumption per <unk> and carbon emissions per <unk> for the full year 2023, Boes as compared to 2019, we are working aggressively to drive down our carbon.

<unk> footprint fuel consumption and costs through technology upgrades being rolled out like the air lubrication systems mentioned in this morning's business update.

Along with investing in port and destination projects and even more focus on itinerary optimization across our portfolio of brands, while realizing the benefits of our fleet optimization efforts. So that everyone can fully understand the underlying strength of our business.

I did want to point out that for 2023 versus 2019 at current fuel prices and FX rates. We did expect a negative impact from fuel price fuel mix and currency of approximately 115 million for first quarter.

And an impact that is multiple times that the full year, including a full year currency impact of over $70 million.

Putting all these factors together, we expect 215 million to $350 million of adjusted EBITDA for the first quarter 2020 to rate and sequential improvement compared to 2019 in each quarter of 2023 as we continue to close the gap.

However, given the significance of the wave season ahead of us.

We'll be in a much better position to provide full year guidance for net per Dms occupancy and EBITDA early next year, we plan on providing that guidance during our first quarter business update in March.

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

Okay.

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One moment please for the first question.

Yes.

And our first question is from the line of Steve license key with Stifel.

Please go ahead.

Yeah, Hey, good morning, guys. Good morning, Josh David So.

I guess the first question would be around the marketing spend for 2023, and I guess I guess, we were thinking that marketing would be.

Accelerated.

2023 year I guess the question is maybe maybe why are you keeping it.

Hi for the full year and is there any way to understand.

Maybe what that cost cadence will look like throughout throughout next year, just wondering if there any quarters that were.

Spend levels for marketing or other costs might be higher or lower.

All makes sense.

Maybe Steve how are you doing.

So with respect to the advertising in 2023.

If you if you saw the materials that have been put on the website you know we've been ratcheting up.

Across across all of 2022.

Yeah.

We are very excited about the momentum that we've got we've already started the waves.

Incredibly strong with our <unk>.

Black Friday, cyber Monday, and really just the whole book position Thats moved nicely in the month of November and we think that advertising has a good amount to do with that to really.

Reach first timers generate awareness generate consideration in doing so.

In a really meaningful way.

We've got great brands, and we've got tremendous brands, but we need to do a better job getting the voice out.

And this is a good way to do it and it helps not just us it helps our trade partners. It helps the bookings across the board so as far as how we will look at it across 2023.

We've given you the guidance specifically for for for the first quarter. The great thing about advertising is we can dial up dial down.

Across the board, where it's working and where we don't think it's having as much of an impact but right now the activities that we're doing both in the mainstream media side and then the digital and performance marketing, it's really starting to hit hit our stride. So so we're pretty pleased with the results.

See the only other additional color that I would add to that is remember I've said historically, the best way to judge our cost structure as the full year and I gave you the guidance there of one to two point increase.

The problem with this seasonality is as we go along we make decisions that are most appropriate and we remain agile and flexible but with that said I will say that the advertising is likely on a quarterly basis to be the highest in the first quarter and the lowest in the third quarter, but the third quarter traditionally is.

Always been.

A low quarter in terms of advertising. So that's probably the best guidance. We can give you at this point.

And to follow up on that I guess, as we kind of think a little bit further down the road. If you guys kind of get back to those normalized load factors and demand still looks pretty solid through the majority of 'twenty. Three would you expect as we get to 'twenty. Four did you would be able to pull back.

But on that marketing spend.

Yes, its certainly within our within our control ultimately, we're not just trying to get back to occupancy levels that are historical we're trying to really drive the unit pricing as well and so advertising is a big big component of that so were.

Also having that conversation in six months.

Okay, Great and then just one quick.

Housekeeping a possible David the two ships that are leaving Costa.

Or were they.

Sold or are they just going to be scrapped.

No. So we announced three ships in total and two of them, we actually have a contract for at the moment and won.

Working on.

A contract per se okay.

Okay got you. Thanks, guys have a have a great help to do so thank you.

Yes.

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

Great. Thank you.

There were a couple of really key things that I, just I wonder if you could clarify for us.

First the comment on 'twenty three price.

It's higher.

I think you say adjusted for FCC. So.

<unk> the impact of that discount, which probably would only be a percent or two at this point.

Is your price on the books in 'twenty, three and constant currency higher than 19, including that.

And then just I guess I'm, a little surprised that there is no yield guidance for Q1.

Could you give a lot of <unk>.

Detailed to get to the EBITDA line, including occupancy and I haven't been able to do all the math since they released only out for a few minutes before the call, but it seems like you have a yield.

For Q1.

What would be sort of 80% plus foot by now so I just wonder if you could help us with that.

Sort of a range of what might get to the EBITDA that you're talking about just to help us check our math and then and then lastly, the comment on EBIT.

EBITA.

So the guidance for Q1 of 250 to 315 that up sequentially each quarter after that.

It is.

I Wonder if you could just help us with a floor like on a full year basis.

No.

Can we get you comfortable that you would be higher than $3 billion in EBITDA for the fleet like in other words.

Yes.

That sort of up sequentially each quarter could still get to sort of quite a low EBITDA number for the full year and I just wonder if you could help give us the floor. Thank you.

Hey, Robyn how are you doing.

There's a lot of questions. So let me start backwards because I can remember the first the last one so.

With respect to EBITDA, what we tried to convey is on a performance basis on a unit performing basis. When you strip out the noise of fuel and currency whats our trajectory and how are we looking at things and so we said on that basis, we get back to 50% of 2019 levels in Q1 and sequentially throughout the year continued.

To close that gap to 2019.

I'm, certainly hopeful and pushing that we're going to exceed 2019 levels by the time, we get to Q4, but we've got a lot of work to do to be able to do that.

With respect to with respect to your question about your guidance just to make sure. We're not so do you want to go I guess.

Yes, Robin I guess.

Maybe you missed the part in my note, where I did talk about this.

Specifically that we expect net per dams to be up five and a half to six 5% in constant currency and that does translate to 3% to 4% in constant dollars now we gave per Dms, but of course, we also gave the occupancy of 90% or slightly higher.

In the.

And the book the pricing would still be up even if we didn't add back the FCC's wished.

We're still at higher prices.

Thanks. Thanks, I was wondering your questions any follow up.

I have more but I will I'll get back in the queue. Okay great.

Thanks.

Okay.

Yes.

Our next question is from the line of data excuse me Fred Wightman with Wolfe Research. Please go ahead.

In the context of the expectation that you guys are going to be back to sort of full occupancy over the summer.

Sure sure.

One thing to think about when you think about our Q1 deployment profile is very different from what we.

What we typically have the rest of the year.

<unk> got actually nine ships in Q1 on World cruises another four ships on.

70, plus night Grand Voyager and then a host of ships that are doing longer exotic voyages 35, and <unk> 28 and <unk>.

And so with that profile those take those are longer lead time type of itineraries. Some buckets those types of things and so it is progressing for Q1, exactly where we thought it would be with respect to closing the occupancy gap given the dynamic of that itinerary profile and as we do.

Get into Q2, those those have stopped or wind down and we get back to the to the cadence that we expect.

Okay.

That makes sense and just on the booking momentum.

Well above the 2019 levels. So we're very pleased with the overall.

Physician and the bookings that are coming in today.

Perfect. Thank you.

Thank you.

Yeah.

Our next question is from the line of David Katz with Jefferies. Please go ahead.

Okay.

Good morning, everyone. Thanks for taking.

Two quick ones I think in the past you've referenced.

Back to <unk>.

A 10% ROIC if you could just talk about the path there.

Puts and takes of what has to happen for that to.

To occur and then second with respect to the advertising.

Do you have any sort of measurements or metrics that you are that are shareable.

The demonstrator confirm some of the productivity around that.

And that's it for me thanks.

Thanks, David with respect to the advertising.

Our brands without wanting to give away.

Competitive positions.

Positions, our brands are tracking with respect to.

Awareness and consideration, which has a correlation to booking they track regeneration that drive conversion.

<unk> conversions on websites they track we outperformance.

Type deals in the marketplace and we actually know exactly what the impact is from me from the activities that we.

With respect to the ROIC.

Revenue in our revenues the thing Thats going to drive us back to double digit.

ROIC.

David mentioned.

Our industry, leading cost base that will continue to be a focus of course.

But really it's going to be the revenue and that's where our brands are focused.

One thing David I would like to add on the advertising front.

<unk> for the 2023 book position is that its roughly half of the gas or repeat loyal guests and the other half were new to brand.

Unfortunately, these people having all sales so I don't know whether they are new to cruise or their brand switchers, we'll find that out shortly as they sale, but the fact is.

Sure.

We're getting a lot of great demand and we're seeing it in the booking volumes.

That's an indication also of the growing.

Health of our trade partners, because they're a huge piece of our ability to drive first timers onboard.

So a shout out to them as well.

Helpful. Thank you very much.

Yes.

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

Anything sizable there.

So.

I think a lot of the stuff is timing.

As high as we had previously.

But when it comes time to prioritizing it. It's also a timing issue and doing the things that are most important first and thats. Some of the reason why you saw the capex come down in 2022.

The only noticeable thing that we're really is as far as.

Our office space clearly with the new ways of working in today's environment, we're significantly reducing the amount of capex that will probably need to expand our offices as we continue to grow.

Yes.

I can give you an example of where we would where we wouldn't re prioritize so.

We've talked in the press release and some of our prepared remarks about the impact, we're making on our carbon footprint and fuel consumption.

That drives that that's going to continue full steam ahead, we see hey, great returns in that and be doing our part.

On the sustaining sustainability front, which is critical to our long term success as well.

There could be things that when it comes to.

Making a decision about the speed at which we want to introduce new venues on board of a particular brand.

We can pesos out differently.

To be more focused on.

On managing the cash down.

Uh huh.

Okay, and then I know there's been a line of discussion on marketing spend.

I'm not sure if you guys sense directionally.

Yes.

Elaborated on maybe the RLI of marketing spend area and seems to be a pretty decent push to start seeing more north American consumers and craft.

On the cruise operator landscape and so I'm wondering if the marketing spend in <unk> as it has been historically or if you expect that to be maybe temporarily depressed.

Before you can claim that back thanks.

Thanks.

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

Hey, good morning, everybody. Thanks for taking my question. So just I wanted to dig into the opportunity a little bit more on the on the marketing front as well.

Try and isolate how much of the.

Opaque channel mix shift Youre doing now versus 19 that additional.

Next to that channel and trying to isolate the upside to that those per Dms.

I'd Love to I'd Love to give you a straight answer, but I got to be honest I'm not sure that I could in a way that.

Feel comfortable it makes sense in a short amount of time, so Brent I know that's like another way of asking us what is our yield guidance for the the rest of the year.

So the one thing I do want to point out, which I said in my prepared remarks is that we.

We will start to.

Wave season's important and we will give guidance for the net per Dms in occupancy and EBITDA for the balance of the year.

However, we did give <unk> guidance for the first quarter as I reiterated before.

When Ah.

<unk> asked the question.

And one thing I do want to point out is that I also mentioned that the first quarter benefited.

Take that into consideration as we forecast the year.

Caribbean and.

I could say looking backwards and you look at our trajectory from Q3 to Q4.

We are pulling back and that is helping improve our <unk>.

Well I mean, the great thing is it's pretty easy to turn on and turn off.

And so far as we get into this wave season. The momentum is good it gives us.

It gives us a lot of excitement about about being able to pull back further as we get into 2023.

Okay.

Really helpful.

The second question I have is related to China.

You guys. It looks like the two ships that we didn't know where they were going to go are now being are now being removed and so that means that there is no near or maybe even medium term plans to return to China do you guys consider China still a medium to longer term opportunity for you and are you watching that market closely to potentially.

Go back eventually too.

Alleviates supply pressures in other markets or how are you thinking about that market now.

Yes, I mean look the great thing about our assets.

Our mobile App.

We've moved them.

We've moved on to optimize our demand and our revenue generation, if and when China opens up again and opens up not just the domestic cruising, but really opens up we'll certainly look at that but we're not relying on it we're not counting on it. We have we are the number one or two brand in all the major cruise markets today, and we like that.

And we're going to push hard on increasing our penetration there.

Excellent.

Thanks, everyone.

Okay.

Our next question is from the line of James Hardiman with Citi.

Please go ahead.

Hey, good morning, Thanks for taking my call. So.

There was a comment in.

In the prepared remarks about.

Discounting through opaque booking channel that seemed like an important comment I know.

Criticism by at least one of your competitors is that you guys had been discounting in such a way that is going to be difficult to recover from that anytime soon.

Seems like you disagree with that criticism.

Sure So I'll speak for ourselves I won't speak for firm.

We are a global company.

We have a different profile than our competitors with respect to how our brands are optimizing revenue, which is price. It is occupancy and onboard spending they are all using different levers and different mechanisms, including opaque channels, which as you just referenced we've been able to pull back.

Over time without much of a problem.

We focus on the revenue that is going to get to the bottom line and Thats. Our focus not just driving revenue driving revenue that doesn't get caught up in the cost and not hit.

Our EBITDA or not hit our operating income and Thats where were focused.

Got it that's helpful and then my second question.

Obviously, there's been a lot in the news and if anybody has.

Any kids in school right now.

Half the class has something right Blue Covid RSV.

This whole idea of a triple demick.

Which you got to hand, it to the media.

Their ability to brand.

[laughter] diseases at this point, but.

I guess im curious if youre seeing anything in any of the metrics.

Bookings statistics, if you look at that would suggest that that's having an impact on your business at this point for us the consumer largely over as we speak.

Thinking about.

How viruses and diseases are going to impact their willingness to book a cruise.

Yes.

Look I mean, having come through two years of Covid, I think pretty pretty much across the board. What we see is people are.

People are happy to get on with their lives and obviously.

I'm not trying to be a little what you said because there could be some folks that are dealing with some some things that are pretty tough on them and their family right now, but what we see is.

Trends that are going back to normal about how people are thinking about those types of illnesses and.

And.

We always knew this point would come right when all of the masking and staying away from each others will go away and.

Some things that we didn't experience will come back with.

With a little bit of a theory on.

In the world not on our ships and that's what's going on.

Were taking it in stride.

It doesn't seem to be a problem.

Good stuff I appreciate it guys.

Thanks.

Yeah.

Our next question is from the line of Patrick Scholes with <unk> Securities. Please go ahead.

Great Good morning.

Okay. The first question.

Thank you good morning.

Should we read into your comments regarding pricing for next year, certainly Sematic theory previously said higher now.

Slightly above I mean, technically they could mean the same thing but.

More color on that please thank you.

Well I think you gave you gave my answer which is the language change, but it's really not a significant change in our book position.

Half one we are really trying hard to close that occupancy gap, we are using the.

The opaque channels, where we think it makes sense and where.

Where do we want to lean lean harder and we plan to keep pulling that back as we get through a great wave season, and regardless, we anticipate very strong onboard spending to supplement our ticket prices. So.

You know for US pun intended it's full steam ahead.

Okay. Thank you then.

One or two more questions here quickly can you just.

Give us an update on what the book direct brands have been.

The most recent quarter versus say the comparable quarter in 2019 versus bookings.

Through a travel agency what are you seeing there. Thank you.

You know what we've been saying all along is that the direct business held up relatively well.

Throughout the.

Throughout the pandemic and the tree.

Jade.

How to build itself back up and we've been trying to support them to do just that and the great thing is as we've referenced in some of the other questions that trade has been doing great lately.

They're as excited about our advertising as we are because it helps them to and they really started to push push on the volumes and so we couldn't be happier with how they are progressing.

Thank you.

Yes.

Yes so.

The combination of the well.

Louisville of the smaller less efficient ships with the new ships that we delivered makeup 9% of the 15% and then the other six has to do with all of the itinerary optimization as well as the <unk>.

<unk> Hum.

Fuel reduction technology things like the air Lubrication system, which I mentioned in my notes and was also in the press release.

Okay. Thank you thats it for me.

I think we got Chris time for one more one more question.

Certainly our final question will be from the line of Vince <unk> with Cleveland Research Company. Please go ahead.

Just real quickly here wanted to get your kind of big picture.

Perspective on the path for margins potentially for the business and it sounds like Theres, some real fuel efficiencies to be had.

Consumption side, obviously, youre dealing with higher fuel prices, but also.

I don't know, maybe you or even exiting 'twenty three going into 'twenty four but do you foresee margins getting back close to historical levels ahead of historical levels.

What are you targeting.

Kind of over the long run.

Well.

Because we're not giving guidance I think the best I can tell you as it is.

Is how we're thinking about that EBITDA on a per unit basis, and when you get rid of the noise from currency.

And.

And fuel prices.

Operationally, what we're really trying to do is exceed 2019 levels by the time, we get to the end of the year and that's where we're focused.

As far as the longer term, maybe we can have more of a conversation on that.

March one we're going to be talking to more fulsome whole holy about our full year guidance, but it is fair to say, there's a lot of potential relating to the revenues of the advertising that we're doing.

Which should bode well for the return on invested capital, which we expect to increase considerably over time as we move through the next year or two.

Great. Thanks.

So.

To everybody on the call. Thank you very much for joining us and happy holidays and I'd encourage you to go to our website for our presentation materials and some supplemental schedules.

You all very much.

Q4 2022 Carnival PLC & Carnival Corp Business Update Call

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