Q4 2022 Royal Caribbean Cruises Ltd Earnings Call
Speaker 3: It's when all your senses become aware. You are present and focused. Good morning. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's 4th Quarter Full Year 2022 and Business Update Earnings Call. All participants are in a listen-only mode.
Speaker 4: After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.
Speaker 5: Good morning everyone and thank you for joining us today for our fourth quarter and full year 2022 Business Update Conference call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer, Nafi Tali Holtz, our Chief Financial Officer, and Michael Bailey, President and CEO of Royal Caribbean International.
Speaker 6: Before we get started, I'd like to note that we will be making forward-looking statements during this call. These statements are based on management's current expectations and are subject to risks and uncertainties.
Speaker 7: A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as well as our filings with the SEC for description of these factors. We did not undertake to update any forward-looking statements as circumstances change.
Speaker 8: Also, we will be discussing certain non-GAAP financial measures which are adjusted as defined in a reconciliation of all non-GAAP items can be found on our website and in our earnings release available at www.rclinvestor.com.
Speaker 9: Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our fourth quarter and full year results and an update on our latest actions and on the current booking environment. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason.
Speaker 10: Thank you, Michael, and good morning everyone.
Speaker 11: Before getting started and on behalf of the entire World Creeping Group organization, 100,000 proud, I want to express how happy we are that our business has returned to normal. In fact, as you saw in the release this morning, our business is accelerating.
Speaker 12: So let me get into the detail and start off by talking about the fourth quarter.
Speaker 13: and the full year 2022.
Speaker 14: As highlighted on slide 6, 2022 was a challenging but successful transitional year as we returned our business to full operations and delivered memorable vacations to 6 million guests. As you can see on slide 7, during the fourth quarter, demand for our brands accelerated.
Speaker 15: We delivered a record 1.8 million vacations.
Speaker 16: achieved a 95% load factor and successfully returned to Australia for the first time in three years.
Speaker 17: Pricing for our vacation experiences was higher than record 2019 levels when we operated with normalized occupancy.
Speaker 18: and guest satisfaction scores were exceptional.
Speaker 19: Adjusted EBITDA and adjusted loss per share were above our expectations.
Speaker 20: and at the high end of our guidance.
Speaker 21: It is incredible to consider that just one year ago we were in the midst of Omicron, we were still returning our ships to service, and we were sailing at load factors below 60%.
Speaker 22: Our fourth quarter results clearly demonstrate that we are back to usual occupancy.
Speaker 23: Back to our full addressable market.
Speaker 24: Back to EBITDA and cashflow profitability. Back to providing full year guidance.
Speaker 25: and most importantly, back to delivering a record number of incredible vacations on the most innovative fleet in the industry.
Speaker 26: We finished 2022 on the high note and are entering 2023 with the full strength of our operating and commercial platforms.
Speaker 27: our strong book position along with the normalization of the booking window.
Speaker 28: provides the visibility needed for us to resume annual guidance.
Speaker 29: which is in line with our trifecta program.
Speaker 30: I am incredibly thankful and proud of everyone at the Royal Caribbean Group for executing so well on our mission of delivering the best vacation experience as responsibly.
Speaker 31: and building the foundation for our future growth.
Speaker 32: There has been a lot of talk about the state of the consumer.
So I want to share what we are seeing from daily interactions with consumers.
who are either booking their dream vacations or who are currently sailing on one of our amazing ships.
Overall, we continue to see robust demand from financially healthy, highly engaged consumers that are excited to sail on our brands.
Secular tailwinds continue to benefit us as consumer preferences shift from goods to experiences.
Entertainment and travel spend remains strong and the job market continues to show resilience.
Consumer sentiment has improved, and banks have recently reported healthy savings and continued resilience in credit card spending.
Our addressable market is larger than in 2019 and continues to grow.
Our products appeal to a broad range of vacationers.
With everything from a short getaway to perfect day to a luxury world cruise.
Cruising remained an exceptionally attractive value proposition and as I have said in the past, it is too attractive.
and we are working very hard every day to close that gap.
Growth in cruise search has outpaced general vacation searches.
resulting in double the number of visits to our websites compared to 2019.
Our brands are attracting new customers into our vacation ecosystem.
with fourth quarter new to cruise and new to brand mix above 2019 level.
We are constantly enhancing our commercial capabilities so we can further capture quality demand.
Approximately 60% of our guests book some of their onboard activities in advance of their cruise.
representing double-digit growth in pre-cruise purchase penetration when compared to 2019.
at significantly higher rates.
As we have said before, every dollar a guest spends before the cruise translates into about 70 cents when they sail with us.
and over double the overall spending when compared to other guests.
Our guests are now engaging with us to book onboard activities much earlier than in 2019.
So far, guests booked on 2023 sailings purchased onboard experiences an average of more than two months earlier than in 2019.
This translates into more revenue, stickier bookings, and happy guests.
Now I'll provide them insight into the demand environment and what can only be described as a record-breaking wave season.
As you can see on slide 8, bookings outpaced 2019 levels by a very wide margin throughout the fourth quarter.
with particularly strong trends during Cyber Weekend.
We expect a strong wave season.
but what we are currently experiencing has exceeded all expectations.
even when considering our capacity growth.
as a result and as highlighted on slide 9.
The 7 biggest booking weeks in our company's history.
All occurred since our last earnings fall.
Our commercial apparatus is full speed ahead and all channels are delivering quality demand above 2019 levels.
Our direct-to-consumer channels continue to perform exceptionally well as a combination of consumer preference for digital engagement and our enhanced capabilities.
supporting record-level bookings.
We are also encouraged that our strong base of loyal travel partners continues to recover and is supporting our brands with bookings above 2019 levels.
As always, the case. Trends vary by region. We are seeing particularly strong booking trends for North American based sailings.
which account for nearly 70% of our capacity this year.
From a cumulative standpoint, these itineraries are now booked.
at the same load factor as they were in 2019.
2019 and at higher prices.
Our 2023 European sailings are booked within historical ranges at better rates with recent bookings outpacing 2019 levels.
We expect almost 80% of our guests to come from North America as we continue to see particularly healthy demand from that region.
Our global brand, the PEO and NIMBEL SORCY models, allow us to continuously ship sourcing to the highest-yoding guests.
I will now comment on our outlook for 2023.
In 2023, we expect to deliver amazing vacation experiences to over 8 million guests at record yields as we deploy our best-in-class fleet across the best global ice tinnemaries.
The ramp up of our load factors in 2022 coupled with a higher and improving pricing environment.
is positioning us to fully recover our yields beyond 2019 levels in the first quarter, which is another important milestone.
and then ramp up further to record levels as we return to historical load factors in late spring.
Our strong yield growth outlook is driven by the performance of our new hardware, strong demand for our core products.
and continued growth from onboard revenue areas.
This year we expect to increase capacity by approximately 14% compared to 2019 with eight new ships already introduced since 2019.
and three more sets of be delivered this year.
Each of our Holy Own Brands will welcome a new vessel in 2023.
Silver C will welcome Silver Nova, the first of the Evolution class.
Celebrity cruises will welcome the fourth Edge series ship Celebrity Assent, and Royal Caribbean International will take delivery of icon of the seas.
marking the first new ship class for the brand in nine years, which is sure to set a new standard for vacation experiences.
In addition to our incredible new vessels, we plan to launch Hideaway Beach in the fourth quarter of 2023.
and adult-only neighborhood, making perfect day at Coco K. More perfect.
and increasing capacity in the island to 13,000 visitors daily.
Our journey to deepen the relationship with the customer will continue in 2023. We will further enhance our commerce capabilities to optimize our distribution channels.
build a deeper connection with guests, and lower customer acquisition costs.
We will also further enhance our e-commerce and pre-cruise capabilities and focus on increasing our guest repeat rate and spend.
We will continue to excel in the core and drive business excellence in order to increase yield and capture efficiencies across our platform.
Our teams have been working hard for over two years to reshape our cost structure and a bait what would have otherwise been at least a 25% increase in non-fuel cost per APCD when compared to 2019.
Net cruise costs, excluding fuel, is expected to grow 4.75% to 5.75% versus 2019.
That's versus a three-year benchmark that includes a period of significant global inflation.
Our cost outlook for the year includes approximately 210 basis points from lingering transitional costs such as crew movement and additional structural costs such as full year operations or perfect day at cook okay and our new Galveston terminal.
Our teams have been committed to controlling costs and enhancing profitability while focusing on delivering the best guest experience.
We continue to expect the business to accelerate and allow us to deliver record yields.
and adjusted EBITDA in 2023.
Our proven formula for success remains unchanged.
Moderate capacity growth, moderate yield growth, and strong cost controls leads to enhanced margins, profitability, and superior financial performance.
Our ESG ambitions help inform our strategic and financial decisions on a daily basis, ensuring that we always act responsibly while achieving our long-term profitability goals.
In 2023, we will continue active efforts toward our target at reducing carbon intensity by double digits by 2025. We also expected deliver on significant milestones in our decarbonization pathway, including the advanced technologies on our new ships, while also investing in retrofitting our existing fleet.
with emission reducing technology and programs.
We will utilize tools to expand supplier diversity and improve our ability to build an inclusive network of suppliers.
We will further focus on improving diversity, equity and inclusion, and ensure our employees are physically and mentally healthy.
To wrap up, 2023 sets the foundation for our trifecta program.
Our people are committed to our mission of delivering the best vacations responsibly and doing so while achieving our trifecta goals.
In 2023, we will be hard at work executing on our strategic pillars.
focusing on deepening customer relationships, delivering the best hardware, and destinations, and excelling in the core.
The future of the Royal Crimin Group is bright. I am confident in our growth trajectory and our ability to deliver on our near-term and long-term goals, as well as to reach new financial records.
And with that, I will turn it over to Nef, Nef.
Thank you Jason and good morning everyone.
Let me begin by discussing our results for the fourth quarter. As you can see on slide 10, we reported a net loss of $500 million or loss per share of $1.96, an adjusted net loss of approximately $300 million.
per share of $1.12.
The results were above our expectations and the high end of our guidance range.
Total revenue was $2.6 billion, operating cash flow was $600 million, and adjusted EBITDA was $409 million. Again, above our expectation and guidance.
Fourth quarter outperformance was a result of continued strong demand for our brand's vacation experiences.
Strong, close-in bookings at higher prices.
and continue strength of on board revenue.
better cost management and favorable timing of expenses across several categories, lower fuel rates, lower customer acquisition costs, and lower interest expense also contributed to the financial results.
We finished the fourth quarter at 95% load factor with peak December holiday sailings at 110%.
Load factors varied by itinerary with the Caribbean averaging 100% and both late season Europe and Australia which opened in Q4 at just under 90%.
Total revenue per passenger cruise day was up 4.5% in constant currency compared to the record fourth quarter of 2019.
Net yield was down 7.4% in the fourth quarter compared to 2019, a significant improvement for the 14% decline in Q3 and above our expectation.
2022 closed out as a successful transitional year and we generated $8.8 billion of total revenue, $712 million of adjusted EBITDA and almost $500 million of operating cash flow.
I'll now provide an update on our 2023 business.
Let's start with capacity.
Our overall capacity for 2023 will be about 14% higher than 2019.
Nearly 70% of our 23 capacity will sail on North America-based itineraries. About 17% will be in Europe and close to 10% will be in the APAC region.
The remaining capacity will operate in a number of other regions including South America and Antarctica.
From a cumulative standpoint, our book load factor remains well within historical ranges and we have meaningfully narrowed the gap to 2019 levels.
Overall, our North America-based itineraries, many of which visit the amazing perfect day at Cocoa Cay, are booked in line with 2019 for the full year and are ahead for Q2 forward at better rates.
Sailings in Europe are booked within historical ranges and are catching up.
We have seen improved booking trends for these itineraries so far in WAV, particularly from the US and the UK.
We expect the improvement to continue, supported by our global sourcing model.
Constant currency net yields are expected to be higher than 2019 in all four quarters with more growth for Q2 through Q4 when load factors return to normal.
The return to yield growth in the first quarter marks a significant point in our recovery and highlights the resilience of our company, the strength of our brands, and the consumers' desire to spend on our amazing vacation experiences.
As of December 31st, our customer deposit balance was $4.2 billion, which is about $400 million higher than our balance at the end of the fourth quarter in 2019.
Shifting to costs.
Our teams continue to demonstrate the ability to manage cost pressures while staying focused on our mission of delivering incredible vacation experiences to our guests.
Net cruise costs, excluding fuel per APCD, increased 3.9% as reported and 4.7% in constant currency compared to the fourth quarter of 2019.
Net cruise costs for the fourth quarter included $1.23 per APCD or 100 basis point impact of transitory costs related to our health protocols and lagging costs relating to fleet ramp up and crew movements.
We expect these transitory costs to substantially dissipate as the majority of our crew as we turn and protocols have eased.
Our teams have been working constantly for over two years on reshaping our cost structure through operational and distribution efficiencies and leveraging group scale.
We continue to see the benefits further materialize in 2023 to partially mitigate continued inflationary pressures.
regarding fuel.
Fuel rates are coming off the highs of last year. We continue to improve consumption and have partially hedged the rate, which is helping us mitigate the volatility and cost of fuel expense.
As of today, fuel consumption is 55% hedge for 2023 and 10% for 2024.
As highlighted on slide 11, we are resuming annual guidance for the first time in three years as we have more visibility into our book of business and the year ahead.
We expect net yield growth of 2.5 to 4.5% for the full year. The underlying yield improvement is driven by the performance of new hardware, strong demand for our core products, continued growth from onboard revenue areas, and it also accounts for lower expected loss factors versus 2019 levels.
We expect yields to ramp up as we return to historical load factors in late spring such that we achieve record yields and revenue throughout the year.
Net cruise costs, excluding fuel, are expected to be up 4.75 to 5.75% for the full year as compared to 2019.
Our cost outlook reflects our culture of continuous improvement and innovation.
Now let's remember that we are comparing cost figures to a 3 year old benchmark, including a period of high global inflation.
The expectant NCC-X also includes 210 basis points of leg-in transitory and structural costs.
Inflationary pressures and supply chain disruptions continue to put pressure on costs across many categories, including food and beverage, airfare, and short-side human capital.
Our teams continue to find creative ways to manage through inflation and increase profitability.
Lastly, caused in the first half of the year are also burdened by more dry duct days during the second half of the year.
Fuel expense is expected to be approximately $1.1 billion for the year.
and we are 55% hedged at below market rates.
Based on current fuel pricing, currency exchange rates, and interest rates, we expect record-adjusted EBITDA and adjusted earnings per share of $3 through $3.60.
Now, turning to slide 12, I'll provide some color on first quarter capacity in guidance.
We plan to operate about 11.2 million APCDs during the first quarter with load factors at 100%.
Let me break down first quarter capacity expectations a little more.
During the quarter, approximately 80% of our capacity will operate from North America, mostly sailing to the Caribbean.
This is higher than in the first quarter of 2019, particularly for short Caribbean sailings, we have added more capacity in the region to capitalize on the incredible perfect aid cocoa K, which was not yet open three years ago.
10% of our capacity is in Australia, close to 5% is in Asia, and the remainder is spread across multiple other itineraries.
Based on currency exchange rates, fuel rates, and interest rates, we expect adjusted loss per share of $0.65 to $0.85. Constant yields are expected to be up 1-2% vs 2019 in constant currency.
We are excited to finally recover our yields to record 2019 levels and continue to work hard at further growing our yields and revenues as occupancy level normalizes.
On the cost side, overall we expect our net cruise cost, excluding fuel, to be up approximately 8.5% compared to 2019.
Similar to the full year guidance, the first quarter carries 320 basis points of transitory costs, structural costs, and timing of expenses that are weighing on NCCX when compared to the first quarter of 2019.
Shifting through our balance sheet, we under the quarter with $2.9 billion in liquidity.
Our liquidity remains strong and we are focused on expanding our margins to further enhance EBITDA and free cash flow. Our ultimate goal is to return the balance sheet to an investment-grade profile.
During the fourth quarter, we'll repaid $600 million of death maturities.
and close on the refinancing of $2 billion of secured and guaranteed debt previously due June 2023.
Additionally, in January , we successfully extended $2.3 billion of our existing Revolver Credit Facility commitment to April 2025.
Our access to capital remains strong and our execution and performance resonate with our investors and financial partners.
We will proactively and methodically continue to manage near-term materities and improve the balance sheet.
For 2023, our scheduled death maturities are 2.1 billion.
made up of predominantly ECA dead amortization, which we expect to pay down with cash on hand and cash flow generated from operations.
Our business continues to accelerate and we expect to grow yields and control costs such as we achieve record yields and adjusted EBITDA in 2023 as we regain the tremendous profitability of our business.
Our strong booked position and enhanced commercial capabilities provide further visibility into 2023 and remain committed and focused on executing our strategy and delivering our mission while achieving the trifecta goals.
With that, I will ask our operator to open the call for a Q&A session.
to open the call for a Q&A session.
At this time, if you would like to ask a question, simply press star then the number one on your telephone keypad. To withdraw your question, press star one again. We ask that you please limit yourself to one question and one follow-up. Our first question comes from the line of Steve Wisinski with STPL. Please go ahead. All right.
Hey guys, good morning and very solid results here. So look, you're back to guiding the way you used to guide before COVID, which should tell us that your visibility is as good as it's probably ever been, or I should say back to normal. So my question is like historically you've turned the year, let's call it 15 years, but you've turned the year
for this year would not not just exceed 2019 levels, but I mean pretty well exceed 2019 levels. I just want to understand if that's fair and your guidance maybe incorporates some conservative, some conservatism around maybe consumer trends.
Yeah. Hey Steve, thank you for your questions. I would first start off and say that on a book position standpoint, you know, we're now in eyelash away from our historical load factors or book position. But we also expect our load factors as we.
as we got it to be a little bit lower until we get into the spring and that's why on the Q1 our load factor. So when you adjust for our expectations on load factors, we're in a very strong book position and at rates that are considerably higher than what we saw in 2019.
structure.
We do expect to exceed handsomely our EBITDA.
that we generated in 2019. And clearly, we see patterns continuing to accelerate in the way that they are. There's certainly opportunity for us to have a better outcome for the year. But I think we're thoughtful in just how we've always been. We're very thoughtful in how we guide.
We're thoughtful in how we're seeing these different products and markets operate. And so we feel really strongly about 2023. And quite frankly, we feel very strongly when we consider the acceleration towards trifecta.
Okay, gotcha. Thanks for that. And then second question would be around the transitory costs. I would assume that most of these costs are kind of hitting the other operating and SG&A lines. But look, I would assume by the time we get to the third quarter, maybe fourth quarter, the majority of those headwinds should be gone. And by the time we get to 24, all those costs should be gone. I just want to make sure that.
in our remarks, but we're a little bit of a different organization than we were in 2019. We have a full year of Perfect Day now. We have things like Galveston. We've also shed some businesses like Azamara as an example. So I think when you step back and you see that
our costs are basically up mid single digits versus 2019. And 210 basis points of that are the structural and some transitory. You kind of get into like a 3% or so cost increase versus 19. What it shows is that what we were saying during the pandemic.
about us getting into our wedding weight has really helped us absorb a very high inflationary environment that we've all experienced during 2019. And that is really the result of incredible effort by our brands and our shared service areas who have really put the time and the work in.
while not impacting the guest experience. Gotcha. Thanks guys, appreciate it, congratulations.
Thanks Steve. Your next question comes from the line of Robin Farley with UBS. Please go ahead. Great, thanks. I just wanted to get a little bit more of a split in your yield guidance between the occupancy and the revenue per day piece of it, just thinking about
the occupancy issue sort of going to cure itself. And I guess would think about that price increase as something that would carry forward into 2024, unless you think that some of that pricing, you know, that there's a trade off to get back to full occupancy. So just trying to think about how much of the...
yield increase that you're guiding to, really money occupancy spec implies a greater yield increase for going forward. Thanks.
Yeah, so hey Robin, so first for the full year obviously many moving pieces as we are again comparing a three-year benchmark and as Jason said just a minute ago we were obviously different. So we exited some ships, some brands, we added Galveston, we have direct contribution out from Perfect Dead Coco K.
All of it is slightly negative to yield, but overall obviously very important to us. The majority of the benefit that you see on the yield side is from new hardware. We also put that hardware on the best itineraries. They have more on board revenue opportunities.
And the rest is like for like that is up just by the fact that as you mentioned, the load factors are much lower than what we had in 19. For Q1, if we adjust for the load factor difference, no yield would have been around mid-single digits. So it's obviously more impact for Q1.
Okay, great. That's helpful. Thanks. And then maybe just sort of follow up to that is, you know, one of your trifecta goals is that sort of EBITDA per birth that you've given us a long term goal. Is there any kind of ballpark EBITDA per birth that you might...
It gives for a range for 23, just thinking about, you know, obviously a lot of the EBIT divers is 19, you know, would clearly be above given the 14% capacity growth. So if we just think about the possibility of not per birth base, it's just kind of wondering how recovered you may be in 23 versus 19.
Yeah, and so Robin, we've obviously moved now to start to guide back to what we were doing in 2019 to make sure we create comparability. We clearly believe that our EBITDA is going to be up and our EBITDA per birth is on its way getting back to those record levels.
across all of our brands. And so, you know, that's how we've guided for 2023. And the focus is very heavy on internally, on us improving those margins.
Okay, great. Thank you.
Your next question comes from the line of it, Cpio with Cleveland Research Company. Please go ahead.
Thanks for taking my question. Helpful commentary there with the onboard bookings in advance and especially strong results here in 4Q despite you continuing to close that occupancy gap versus 2019. So curious how you're thinking about that onboard per passenger cruise day throughout the course of this year.
As you fill out the interior of the ship, I imagine there's maybe a little bit of a mix headwind there, but can these onboard levels remain elevated? And, secondarily to that, the ticket component, how would you expect that to evolve through the course of this year?
Hi, Banks, this is Michael. If you remember when we first started coming out of the pandemic and we saw this really strong robust onboard spend.
we wondered how long it would last for. And, you know, we had different theories about that. It's just continued to strengthen. And I think, you know, all of the investments we made during the pandemic with Hybris and our pre-cruise software and our capabilities with the web really has...
change this needle and we just continue to see incredible strength with the onboard spend and the number continues to improve so
The pre-cruise penetration is now above 60%. We've now got 25% of activity occurring on our app, which is something new over the past couple of months. We've made multiple changes to the software and our capabilities to communicate with the customer, pre-cruise and on cruise.
and the response has been extremely positive. So we see a great deal of strength. We're very pleased with the performance and we think it's gonna continue all the way through this year and into 24. Yeah, I just wanna just add on a few things. You obviously, as we add more thirds and fourths, that can weigh a little bit on the average APD.
on the on-board side. But I think what's important to point out is that the strength and on-board in the spending, as Michael mentioned,
One is obviously the consumer or our addressable consumer.
is healthy, is sitting on a lot of savings, is searching for experiences and creating memories with their friends and family. But our ability to get the consumer to book earlier.
is really the main force behind why we're seeing an increase in onboard activity. So a healthy consumer certainly helps. Their desires and interests certainly help. But also allowing them to effectively get –
at least a day back of their vacation by allowing them to plan what they want to do on the ship as well as shore excursions.
It's certainly creating a great tailwind for us. And on the ticket side, we expect our ticket yields to continue and our APDs to increase. There's a little bit of always that how we package and how we do things can lead a little bit more into ticket or a little bit more into onboard depending on how it is.
with the brand and also one of that I think the other drivers on the ticket and on board side is
is just whether it's through e-commerce and other things. We're taking more and more friction out of the acquisition experience or how the customer shops. And that's also allowing them to get the exact vacation of choice that they're looking for and on the platform or the channel of choice that they choose to go through.
That's helpful and maybe taking a step back, a bigger picture question, if you look at the order book for industry supply growth.
Looks like kind of this 45% range in 23 and 24, but then falls off In 25 and 26. So can you remind us the timeline around new ship builds? Is that? B cell and 25 into 26
pretty set and you know you're your take on what decelerating industry supply growth might mean for the the broader pricing picture.
Well, I certainly don't know the plans of our competitors on a new building standpoint.
in our release how we expect our business to grow next year by about 10 percent, then about 5 percent, and then about 6 percent respectively. And I think the first thing to point out is…
That's not just one brand and one market and one destination. So this is really reflects our three Holy Own brands and how they're going to grow and their different segments and also for these ships to be in different parts of the world.
If you look at the order book, you do see as you get into 27 and 28, a lighter order book.
We believe that Royal Caribbean that the addressable market is underpenetrated, especially in all the different markets that we operate. We work very hard to create global brands.
that attract guests from all over the world, and of course to build the revenue management systems to effectively harvest that quality demand. And we think that apparatus more than supports our expected supply growth over the coming years.
Hey Vincent, my college is just about to add one little comment here talking about new ships coming online. Obviously we opened up to sell icon of the seas.
A few months ago and that ship literally has been the best selling product in the history of our business and has been absolutely outstanding in terms of the demand and the pricing we are generating for that product. In fact, it's really driving a great 24. We never talk about 24 at the beginning of 23.
the ultimate family townhouse that we sell on ICOM, which is a three-story experience in our new surfside venue for younger families, is already 55% sold for 2024 at an average price of $75,000 a week. So you can just get a feel of the kind of demand that's...
being generated by these new products and obviously we're very excited with what we're seeing with icon and that new class which Jason mentioned is the first time Royal Caribbean International has had a new class of ship in nine years And we are delighted with the performance so far
We'll save you a cabin Vince, don't worry.
Got to start saving for that. Appreciate it, Paul.
saving for that. Appreciate it. Thanks.
Your next question comes from the line of Brandt Montour with Worklades. Please go ahead.
Hey, good morning everybody. First off, congratulations on this really important milestone.
So my first question is on wave season, by all accounts, in your account this morning wave season is going really well. Volumes seem to be pretty consistent week over week, month over month. Jason or anyone, if you could just expand a little bit more on the behavior you're seeing within the bookings, any differentiation between brands or any pricing sensitivity sort of forming.
So it's wonderful to say, but we're really seeing these very strong wave trends across all of our brands.
And you see an elevated amount of demand coming from North America. And we have been very happy to see over the past two or three weeks.
that elevated demand now move into Europe as well. We have been,
very happily surprised.
by how strong we're seeing the consumer plan their vacation travel and to see that our booking window is now within a couple weeks of what it has normally been. And that includes a lot of acceleration for short-close-in products especially as we've increased.
more of our 3, 4, and 5-night products is really encouraging overall. So I wish I could say it's different. Well, actually, I don't wish I could say. I should say that it's different from family to ultra luxury or to expedition, but we're really seeing this across.
all of our brands really strong and we've seen markets like for example like Northern Europe now begin to move into a much stronger place. I also just add is demand.
You probably have seen another travel products for North Americans to go to Europe has been exceptionally strong. And so we're now seeing that you take over here in the cruise space.
And just ask one comment. Go ahead, Michael.
Thanks. Sorry, just to add one comment on the demand from North Americans. We've also seen strong demand coming out of the Latin American markets for the European product, which has surprised us, but obviously we're taking advantage of that. But it's pretty much across the board that we're seeing the strength in the consumer and it's...
across so many of our markets, which is really healthy to see. That's great. Just to follow up on both of those comments, it sounds like US into Europe and the UK, as you called out, are where you're most excited, even if it's the Europe and market.
In terms of the consumer that you sell to and that European consumer that you sell to that might not be as good as a consumer right now for you, are they accelerating to, you know, sort of against their own comparables?
Yeah, they are. And I think the other thing that has been, that we've seen through the course of this wave is our ability to raise prices at the same time. So the demand is that strong and we're able to raise prices across these different products.
and really not seeing a pullback from the consumer as we continue to do so. And that is really a reflection of what we've seen since our last earnings call. A really since the announcement of the protocols being dropped, just acceleration and the propensity to cruise across all three categories of new to cruise, first to brand, first to cruise.
Hey, how's it going?
Maybe I missed it, but the guide implies some net yield growth through the year, clearly. Is this simply occupancy improving, or is the revenue per passenger cruise day also expected to improve? And I guess I asked that in the context of what sounds like better pricing in the last few weeks and months.
Maybe I missed it, but the guide implies some net yield growth through the year clearly. Is this simply occupancy improving, or is the revenue per passenger cruise day also expected to improve? And I guess I asked that in the context of what sounds like better pricing in the last few weeks and months. Yeah.
Hey Ben, it's enough. So it's both. And you can see the acceleration in the business. Obviously with the normalizing of the occupancy levels and the...
and the senior strength of pricing. Gotcha, that's really helpful. And then on Coco K, are you still seeing the same or similar pricing premiums to the Coco K itineraries as you did in 2019? And then longer term, should we assume that you make further build-outs in other locations that are similar to Coco K? And if so, what are some of the blocks that could bring that much insight into our processes? You're using hotspots, I see, hopefully we can copy one of those, cellphone, if that works, so we'd love to circle that, but in a different scenario, we need actually more of the kings and your
How do you think about that opportunity while also bringing down leverage? Hey, Ben, it's Michael. I think the answer to those questions is yes and yes. I mean, you know, we...
We ironically opened Cook OK in 2019 and it was just a huge success. Now of course it's really doing an amazing job and the demand for that product is exceptionally high.
have a significant increase in our overall capacity that we bring into Cocoa-K. I think for this year, 23 will be bringing 2.5 to 3 million guests to Cocoa-K. And the demand not only is there from a volume perspective, but the rate is there. And that rate has been...
going up in again in a very healthy way and it's the same with the spend for the products and Experiences on perfect day. We've seen a great demand and a lot of resilience as the prices go up So it's it's a hit and it's very successful Successful, we are opening hideaway beach on the fourth quarter of this year in preparation
And yes, we have an appetite for other such ventures. And as soon as we're ready to make any announcements, we will. But clearly from our perspective, we think this is a really – it's a wonderful part of the product experience. And our guests clearly demand this type of experience that we can now give them. So our intention is to continue.
terms. So this should be a creative to profitability and obviously to EBITDA and those are the type of investments that we obviously want to continue to make.
Gotcha. And just one quick follow-up is the high to weight, those numbers are on highway beach. For 3,000 a day is that incremental to the 2.5 to 3 million? They cook okay or is 2.5? Yes. Yeah, that's incremental.
Great. Thank you.
Your next question will come from the line of James Hardeman with Citi. Please go ahead.
Hey, good morning and thanks for taking my question and congrats on a great quarter and some really important benchmarks here. I wanted to dig in a little bit on Europe and Asia. Obviously, a year ago wave season there was...
It was obviously marred by the Russia Ukraine conflict. Being such a global brand, you guys do what you do. You adjust. And it sounds like both in terms of the destination markets as well as sourcing customers, things are getting better. I guess my question is on Europe , is there still a lingering impact of that conflict in your business that...
who knows what's gonna happen with that conflict, but that could ultimately be a positive for next year. And it's sort of similar question with China. I'm assuming there's not much of a benefit yet from sort of the zero COVID policy going away there, but is there any way to sort of quantify?
or even anecdotally speak to what sort of a drag that is on your business that could potentially open up for you next year.
So I'll just start on the Europe button and then take China. First off, I think the consumer, the impact on the Ukraine Russia, I think comes to us in two ways. One of which is a little bit of a deployment impact and we're not able to go. So
more east into the Baltics because of the very unfortunate conflict that continues on. And then obviously there's some impact on the European consumer because of energy prices.
That I think is the impact that hopefully will evaporate over time. But their propensity to cruise, their desire to go on a vacation experience is high. The value proposition for the cruise as I noted in my remarks, that gap is still very significant, it's too significant.
as we look to try to close that. But I think that's really where you see the effect. The European consumers desire to go to the Nordics.
desire to go to the western men, eastern men, which is really kind of fully open to them to experience is that the man is there. I just think that they continue to probably be a little bit more pinched. There's certainly more pinch in the North American consumer because of the increase in energy prices and how that's impacted their economy. With that, I'll let Michael comment on China.
Hey James, yeah on China this obviously the environments improved significantly from what we've been told by our China team. So things have started to normalize and they seem to have got over that very difficult period. There's currently two...
two impediments to the China cruise market opening up. One of them is there's still a ban technically on cruising and group travel in China. And also there's a requirement from the Japanese that Chinese tourists have to test and potentially could be quarantined. We understand that both of these conditions will drop away.
the China market will be back. But obviously, that's based upon how we understand and see the situation currently. Yeah, I was just going to, and clearly, you know, China was a very high yielding, highly profitable market for us.
And as that market comes back online, we're very optimistic about how that can either further propel the opportunity for us. And I would just comment in the context of Trifecta, we didn't contemplate China in that consideration as it has not.
Turned itself back on. It's also not obviously incorporated in our this year results as well.
All really helpful. And then by way of follow up here, I mean, you've talked a couple times, I think, about closing that gap to land-based vacation. I thought the commentary about cruise search outpacing general vacation searching seemed relevant. That's playersate.
close that gap in 2023. I'm encouraged by the ability now for us to increase our pricing even more, which I think will give us the opportunity to close that gap. I'm excited about what we're seeing in the onboard side, which also helps us close that gap.
But that gap which used to be 20% is now in the 30% zone relative to pre-COVID which was around the 20% mark. But we do think that there's a lot of run-away for us and that's just adding through great execution.
just broader awareness of our brand and the cruise complex that we see now is being appreciated more and more by our guests. It helps us lead to getting better pricing and which helps us lead to closing that gap. What we are not interested in is the gap closing just because...
their pricing could potentially go down. We want to elevate ourselves up to that level, and we think that's definitely something that's in our capabilities to do so.
Thanks and good luck the rest of the Wave guys.
Thanks and good luck the rest of the wave guys. Thanks for watching.
Your next question comes from the line of Daniel Pulitzer with Wells Fargo. Please go ahead.
Hey, good morning everyone and congrats on a nice quarter.
So first I want to just touch on the cost. It sounds like you're going to exit 2023 more in line with your historical levels. As you get to 2024, and I know it's still early days, are there any kind of one-time items that we should be thinking about that could impact your algorithm that kind of 1 to 2%?
cost increase, whether it's China relaunching or land-based destinations or any technology initiatives?
Yeah, hi, good morning, Dan. So as we said, our formula is moderate capacity growth, moderate yield growth, strong cost control, and obviously you have some moving pieces here in the first quarter and throughout the year, but this is kind of where we're marching towards, so our expectation is to get back to that formula.
Then, I guess for my follow-up on TUI, can you just talk a little bit more about the ramp there? I know that there's a big European piece and it sounds like things are moving along, but how should we think about that contribution, you know, ramping over the course of 2023, given that it was a big piece that adjusted EBITDA in 2019?
Yeah, so they continue, we're very happy with TUI and their performance has been a very successful cruise brand. Their recovery is well underway. They've been positive operating cash flow in Ibadah for several quarters now. They're very strong.
occupancy levels and pricing so we expect this to continue to recover towards 2019 levels and beyond. Yeah, the only out that is for two e-cruisers and hotpot ward cruisers, just somewhere all of us, they still have some negative carry to burn off as well. And I think the other few...
years from being at a place where they're contributing at the same level to us as they were in 19. But that's, I think it's a very short duration as they have been really
effectively managing the business. They really have been outpacing, I think, just a broader cruise world and getting their business back up and running and profitable and generating a positive cash flow. But like all of us, they have some negative carry they're going to have to burn off.
Got it. Thanks so much.
Your next question will come from the line of Patrick Scholes with Truist Securities. Please go ahead.
Hi, good morning everyone. Good morning. First, this is actually just a model and clarification question. On your percentage guidances to grow off of versus 19 for the net yields and the various cruise costs, are those apple to apple base numbers?
Basically, you know, the reported numbers that you had in back in 2019, are those the numbers we should be growing off of or is there any adjustments in there that might make those percentages different than, okay, all Apple's apples. No adjustments. Those are apples to apples and obviously we gave you the color of all the moving pieces.
Okay, thank you. And then a different question here.
with the increase in direct business. You know, do you see that disproportionately going to any types of destinations such as Caribbean or perhaps higher end Alaska or Mediterranean?
and any differentiations between those. Well, clearly on direct business, the shorter the product, the higher the percentage, and that's just more because the consumer is comfortable and understands the complexity or the lack of complexity on the short product.
The further typically the consumer goes or the higher end that it goes typically requires, they're more comfortable going to our travel partners. We have really tried hard to be just kind of a channel of choice.
And of course, the consumer has become a little bit more digitally minded through COVID cuz they were buying a lot of stuff online as we all know. And as they now shift to experiences, they're comfortable in different channels. And some of those digital platforms are through us, and some of those digital platforms are through our travel partners.
But that's typically how you would see it is the shorter and closer, the higher.
No, I mean, yeah, no, that I understand, but as far as any changes since pre-COVID, you know, have you seen a greater acceleration in sort of direct booking the higher end or perhaps a greater acceleration? Just it it yes.
It's really across the board. The consumer at all different levels have gotten more comfortable using digital commerce to make their purchases. And that is whether you want to look at Royal, or Celebrity, or Silversea, or Tui, or Ha Pang, that's what we have been consistently seeing. Okay, thank you for the caller. I'm all set.
Operator, we have time for one more question. Our final question will come from the line of Fred Weidman with Wolf Research. Please go ahead.
Hey guys, thanks for squeezing us in. I just want to make sure I understood the equity investment line commentary. Are you guys saying to just take a haircut to what you guys did in 19? But it'll be relatively similar from a seasonality perspective, or were you trying to say something else?
I think if you go through the guidance and our expectations of what we provided.
You know our expectations obviously it's going to be lower than 2019 because what Jason mentioned is the negative carry so they continue to recover
Okay, and then there was a comment that 4Q new to cruise was about pre-COVID levels. I just curious when you look at what you have on the books for 23, does that percentage continue to improve? And could you give us a sense for order of magnitude?
Yeah, well, it's just our general commentary on Wave. What's driving that strength is new to Cruise and new to brand.
And so that mix is not only similar, but it's better on what we saw take place in the fourth quarter. So we feel that propensity to cruise, and by the way, I think one thing that's important on the new to cruise status, especially relative to 2019, is because we don't have China in the mix of our business.
pretty much every Chinese consumer back in 19 was a new to cruise consumer. So that really talks about the strength of the North American and European consumer and their interest to go on a cruise for the first time, or to go on to one of our brands for the first time.
Perfect, thank you. We thank you all for your participation and interest in the company. Michael will be available for any follow-ups. I wish you all a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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