Q1 2023 Royal Caribbean Cruises Ltd Earnings Call
Police available at Www Dot, our seal investor Dot com.
Jason will begin the call by providing a strategic overview and update on the business Naftali will follow with a recap of our first quarter 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 am pleased to turn the call over to Jason.
Thank you Michael and good morning, everyone I'm thrilled to be here. This morning to share our incredible first quarter results and the strong trajectory of our business. When we turned the page from 2022 into 2023 with the full strength of our operating platform deployed and numerous tailwind related to the consumers' desire to travel and <unk>.
<unk> the world. We believe this would be a great year.
We expect it to finally return to yield growth in the first quarter and accelerate even more through the rest of the year.
Well as you saw on the press release this morning, what transpired over the past four months was much better than we had anticipated our brands are stronger than ever.
Our yield in Q1 blew away previous records.
Before getting into the detail I want to thank the entire Royal Caribbean Group team 100000, plus strong.
For another outstanding quarter.
Their dedication and commitment allow us to deliver the very best vacation experiences responsibly, while generating strong financial results.
As highlighted on slide four it has been a tremendous first quarter that set us well on the path to a year that is significantly better than we expected just a few months back.
We knew that demand for our business was strong.
What has transpired was a record breaking extended wave season that translated into robust bookings and meaningfully better prices.
In the first quarter, we delivered a record $1 9 million memorable vacations.
<unk>, 102% load factor at higher pricing in 2019.
And earned exceptional guest satisfaction scores.
<unk> grew five 8% compared to a record 2019 levels and were significantly above our guidance.
Strong demand for Caribbean itineraries translated into higher load factors at better than expected pricing for both ticket and onboard.
Our yields are now exceeding record highs and we expect this trend to continue for the rest of the year and beyond.
This is particularly significant because while we thought the first quarter would be a transition period.
We always expected the rest of the year to be strong.
The fact that demand for the coming nine months is so much stronger than our already robust expectations says a lot about the strength of the consumer and the strength of our brands.
Adjusted EBITDA and adjusted EPS in the first quarter, where both considerably higher than our guidance and we generated $1 3 billion of operating cash flow.
Strong revenues, our continued focus on increasing margins and favorable timing of operating expenses contributed to the better than expected earnings performance.
Yeah.
The acceleration of demand coupled with our team's incredible execution is also translating into higher revenue and earnings expectations for the full year.
As you can see on page five we are more than doubling our full year yield growth expectations to six and three quarters to seven and three quarters on increased expectations for ticket and onboard revenues. We are also increasing earnings per share expectations by 40% to $4 40 to.
To $4 80, as we continue to focus on expanding margins as revenue accelerates.
Now I'll provide some insight into the robust demand environment and our incredible wave season bookings.
Bookings outpaced 2019 levels by a very wide margin throughout the entire first quarter and into April .
Pricing was also significantly higher as our commercial apparatus across all channels has been driving quality demand into our vacation ecosystem.
The strong wave season resulted in an acceleration of our book position in relation to prior years.
The booking window is now completely back to normal demonstrating consumers desire to continue to plan their vacation travel with us well in advance.
While demand has been strong across all products and markets. We continue to see exceptional strength from the North American consumer.
This strength in combination with the incredible perfect day of cocoa. Okay has resulted in record yields for our Caribbean sailings.
In addition, European bookings are nicely outpacing 2019 levels with peak summer sailings trending, particularly well in recent weeks.
The robust demand, we see for our products as a result of our superior brands hardware enhanced destination offerings, a nimble and global sourcing model and strong execution by our teams.
As you heard me say on prior earnings calls, we continue to see financially healthy and engage consumers are eager to vacation and build memories with us.
Our customer sentiment remains strong and is bolstered by strong labor markets high wages and excess savings.
Secular tailwind continue to benefit us as consumers continue to ship preferences and spend from goods to experiences, resulting in a strong entertainment and travel spend.
This trend continued in the first quarter were spent on experience was 24% higher than 2019 and double the spend on goods.
Further our research shows that consumers planned to continue prioritizing ease your travel over other spend.
Our addressable market is plentiful and continues to be meaningfully larger than it was in 2019, our product appeals to a broad range of vacationers, who are seeking everything from a short getaway to perfect day to a luxury world cruise.
Cruising remains an exceptional value proposition.
What's actually say, it's two attractive value proposition.
Which is allowing us to outperform broader leisure travel as we seek to close the gap to land based vacations and drive better revenue and happy customers.
Crew searches up 15% versus 2019 significantly outpacing the growth in general vacation search and contributing to the doubling of visitors to our website when compared to 2019.
Our vacations are popular among a broad range of consumers, which allows us to attract more and more new customers into our ecosystem.
In the first quarter the percentage of guests, who are either new to brand or new to cruise surpassed 2019 levels by a wide margin.
The improvements we have made in our commercial capabilities have allowed us to capture quality demand and expand our share of guest wallet.
In the first quarter about two thirds of our guests booked some of their onboard activities in advance of their crews.
The comparable figure in 2019 was 48%.
So you can see we have used our time well to upgrade our systems every.
Every dollar of guest spends pre cruise translates into approximately 70.
Of incremental spend once onboard while we have made a significant leap and our commercial capabilities. We are still in the early innings of our journey and we'll continue to add features and capabilities to our app and commercial engines.
Looking to the rest of 2023, we expect to deliver amazing vacation experiences to over 8 million guests a record yields as we deploy our best in class fleet across the best Global itineraries.
We expect to return to historical load factors in late spring and continue to benefit from a strong pricing environment.
We expect to deliver record yields better six and three quarters to seven and three quarters higher than 2019.
With every one of our brands generating positive direct profit this year.
Our strong yield growth outlook is driven by the performance of new hardware, a strong pricing environment, especially for Caribbean itineraries and continued growth from onboard revenue areas.
New hardware has been a great differentiator for us and we are benefiting from the eight ships that joined our fleet since 2019.
This year each of our wholly owned brands will welcome a new vessel.
These ships are sure to continue elevating vacation experiences for our guests and we will continue to further drive our competitive advantage and deliver very attractive financial returns.
Since all three of these ships will be delivered in the second half of this year they will be a key yield driver next year.
Silversea, we're welcomed silver and over this summer the first of the new evolution class Celebrity cruises will welcome the fourth and the award winning edge series and Royal Crown International will take delivery of the game changing icon of the seas.
Let me spend a minute talking about icon of the seas and the excitement she is generating with our customers.
With icon, we set out to create the ultimate vacation for thrill seekers, the chill enthusiasm and everyone in between without compromise.
She is getting exceptional demand with bookings well, surpassing previous records despite being on sale for only five months icon significantly more booked for her inaugural season at materially higher rates than any other world Caribbean ship launch.
Icon will join the fleet later this year and will debut in the Caribbean in January 2024, with itineraries that include perfect day, and cocoa K and its new expansion Hideaway Beach.
Moving to costs, our team had been working hard for several years to reshape our cost structure with the goal of enhancing margins our cost outlook for the year reflects our commitment to enhancing profitability, while focusing on delivering the best vacation experiences.
We continue to expect the business to deliver a record yield an adjusted EBITDA in 2023.
Our proven formula for success remains unchanged moderate capacity growth moderate yield growth do I wouldn't define this year's growth is moderate and.
And strong cost controls will lead to enhanced margins profitability and superior financial performance.
We just published our 15th annual sustainability report, providing an in depth update on our strategy and performance of delivering the best vacation experiences responsibly.
In this report we outlined our progress towards reducing our carbon intensity by double digits by 2025 versus 2019, we expect to deliver on significant milestones of our decarbonization pathway. This year, including the introduction of advanced technologies on our new ships, such as LNG fuel cells and a first of its <unk>.
<unk> onboard waste to energy system.
To wrap up the business continues to accelerate and we are uniquely positioned to grow earnings and cash flow in 2023 on our way to achieving our trifecta goals.
The strength of our brands and operating model continues to grow.
We are committed to delivering the best vacation experiences responsibly and I couldnt be more excited about what's ahead for the Royal Caribbean Group.
With that I will turn it to naftali.
Thank you, Jason and good morning, everyone.
Let me begin by discussing our results for the first quarter as you can see on slide four we reported an adjusted net loss of approximately $59 million or 23 per share.
These results were significantly above our expectations and the high end of our guidance range.
Total revenue was $2.9 billion adjusted EBITDA was $642 million in operating cash flow was $1 3 billion again significantly above our expectations.
We finished the first quarter with a load factor over 102% at net yields that were up five 8% for the quarter or 440 basis points higher than the midpoint of our guidance.
Better than anticipated close in demand for Caribbean, sailings, and improving pricing environment and continued strength in onboard revenue were the main drivers for these exceptional results.
Higher load factors drove two thirds of the yield outperformance and higher pricing drove the remainder.
Net cruise costs, excluding fuel per a P. C D increased five 8% in constant currency compared to the first quarter of 2019.
Net cruise costs for the first quarter included $2 87 per a P C D or 240 basis points impact of the structural costs.
Operating costs also benefited from approximately 160 basis points of favorable timing compared to guidance.
First quarter results are a testament to the continued robust demand environment attractive value proposition of our cruise vacations and strong commitment by our teams to deliver the best vacation experiences responsibly.
Turning to the booking environment.
Bookings have consistently been higher than the same time in 2019 with a gap widening as wave extended further into the year than ever before.
The booking strength has been particularly evident on Caribbean sailings, where our superior hardware and perfect day at Coco K continued to be winning combination.
More than half of our Caribbean sailings visiting perfect day at Coke, Okay, which is royal Caribbean International's highest rated destination in the Caribbean.
So it's perfect day opened midway through the second quarter of 2019. These itineraries are driving outsized yield and pricing growth.
While the Caribbean has seen bookings strength performance of our European Itineraries is also aligned with our initial expectations.
European Itineraries account for 17% of full year capacity, peaking at 35% in the third quarter.
Bookings for our European sailings have been nicely outpacing 2019 levels with peak summer trending, particularly well in recent weeks.
Several of our newest chips, including celebrity beyond Odyssey of the seas and silver Dawn.
Sailing in Europe , this summer and are attracting quality demand and rates.
Now let me review, our 2023 outlook, if you turn to slide eight you will see our updated guidance for the full year 2023.
We expect net yield growth of 675% to 775% for the full year.
This represents an approximately 400 basis point increase from the midpoint of our prior guidance.
About a third of the increase is due to strong Q1 results with the remainder due to better business outlook for the rest of the year.
The underlying yield improvement is driven by the performance of new hardware strong demand for our core products, particularly Caribbean itineraries and continued strong growth from onboard revenue areas.
While yield growth is expected to ramp up for the rest of the year. There is some variability at a quarter level.
Yield growth.
Is likely to be the highest in Q2, where we lap the opening of perfect day at Coke, Okay and benefit from our Caribbean deployment mix.
As you can see from our guidance yields for the back half of the full year are expected to be up by more than 6%.
From a cost perspective net cruise costs, excluding fuel are expected to be up five five to six 5% for the full year as compared to 2019, our cost outlook reflects our culture of continuous improvement and innovation and we are benefiting from all the actions we have taken over the last several years to support any.
<unk> margins.
Net cruise costs also include 210 basis points of structural costs that we did not have in 2019.
Those include for example costs related to the full year operations of perfect day at Coke, Okay, and our new Galveston terminal.
We continue to actively manage persistent inflation across categories, including food and beverage airfare and shoreside human capital. Our teams continue to find ways to manage through inflation, while maintaining exceptional guest experience and increasing profitability.
Fuel expense is expected to be approximately $1 1 billion for the year and we are 54% hedged for the remainder of the year.
Looking ahead fuel consumption is 25% hedged for 'twenty, four and 5% hedged for 2025.
Based on the current business outlook, along with current fuel pricing currency exchange rates and interest rates, we expect a record adjusted EBITDA and adjusted earnings per share or $4 40 to $4 80.
Now turning to slide nine I'll provide some color on second quarter capacity guidance.
We plan to operate about $11 7 million a P C d's during the second quarter net.
Net yields are expected to be up 10, 1% to 10, 6% compared to 2019.
Exceptional strength in Caribbean itineraries, combined with our amazing private island destination perfect day at Coke, Okay is driving the increase in yields net.
Net cruise costs, excluding fuel are expected to be up approximately eight 9% as we continue to focus on margin expansion while revenue accelerates.
Second quarter operating costs carry approximately 430 basis points of incremental expenses the way an NCC ex when compared to 2019 of which half are structural and half are timing from the first quarter.
So in summary, based on current currency exchange rates.
Bill rates and interest rates, we expect adjusted earnings per share of $1 50 to $1 60 for the second quarter.
Turning to our balance sheet.
We ended the quarter with $3 9 billion in liquidity.
Our liquidity remains very strong and we are focused on expanding our margins to further enhance EBITDA and free cash flow.
During the first quarter, we repaid $286 million of debt maturities as well as $2 $4 billion of revolver advances and.
In February we issued $700 million of senior guaranteed notes at seven in a quarter percent of coupon to refinance 2023, and 2024 debt maturities 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 improve the balance sheet through debt pay downs and opportunistic refinancings.
Our remaining scheduled maturities for 2023 or $1 8 billion made up predominantly of ECA debt amortization, which we expect to pay down with cash on hand, and operating cash flow.
As the business continues to accelerate and generate strong and growing cash flows. We are committed to a disciplined capital allocation and to return to an investment grade balance sheet profile in line with our trifecta goals.
In closing our business continues to accelerate and we expect to grow yields and margin. So we can achieve record adjusted EBITDA in 2023.
We remain committed and focused on executing on our strategy and delivering on our mission, while achieving artra effect that goes.
With that I will ask our operator to open the call for a question and answer session.
Thank you Sir just a reminder that entire one if you have a question well go first to Steven.
Paul.
Yeah, Hey, guys good morning.
So first off congratulations on a strong quarter.
Jason in the release, you mentioned that for 2023 Youre expecting.
2023, EBITDA to significantly exceed 2019 levels, which is which is a change in wording relative to where you were back in February .
Understand I'm, probably nitpicking here, a little bit, but just want to understand maybe how we should think about EBITDA trajectory now.
For the year and the progression you guys are on now to get north of.
<unk> 5 billion in EBITDA by 2025, according to your Trifecta program.
Hey, Steve Good morning, it's Naftali.
So as you as you can see we are very pleased with the results and and as we think about EBITDA and and how this translates to two the progression throughout the year.
You can see that we are increasing yields and we expect the EBITDA growth to be higher than our yield growth and that's because a lot of the revenues is dropping to the bottom line. Because we are very much focused on costs and enhancing margins.
So if we look at what we kind of look.
Look at the guidance that we provided we're going to we expect to be an eyelash away from our previous EBITDA per ABCD record in 2019.
And a lot of the things that we're doing and a lot of the strategies that we're in.
Employing should benefit to us as we as we.
Continue to execute towards our technical.
I mean, I'd just add just to add onto what Steve as we think about it on the <unk> side.
Obviously this year the performance of this year is better than much better than we had expected.
And I think the commentary we talked around about icon, obviously, we have Nova coming online, which is a high yielding.
We have a sand coming online, which is high yielding you have hideaway coming online.
And of course, the commentary that we've been talking about that we've seen acceleration in price and volumes is also what we're seeing for like for like for 2024, though it's early.
And for us to get to the marks are forced trifecta, we really just need moderate yield growth and good call.
Good cost control, which we continue to show and so that's kind of very much on our path and that was not mentioned.
It's great to see that that really almost every penny.
The outperformance on revenue is dropping right down to the bottom line, which would be dropping right down to EBITDA.
Yeah.
That's great color. Thanks, guys and then and then second question as we think about the back half of the year.
Obviously, we can we can back into your yield guidance, but if we kind of breakdown those yields a little bit are you assuming.
Your customer from an onboard onboard has obviously been extremely extremely healthy.
Are you assuming that your customer kind of stays in the same ballpark that they are now do you have them slowing a little bit in terms of spend levels and then the second part of this question, which is a little bit different but we get a lot of questions from investors about.
Demand in demand into 2024 and can the demand levels that are there right now.
Persist into next year or is 23 being.
'twenty three benefiting from.
Just still kind of reopening in COVID-19.
Bookings and stuff like that so hopefully all of that makes sense.
Yeah sure well I think obviously, we don't have a crystal ball, but we know is what we see happening.
Likely every minute of every day.
Taking tens and tens of thousands of bookings today, we've got 160 170000 people spending on our ships and so we have a very good idea of.
The customer in terms of what's happening today. We also obviously do a lot of surveying of our customers in terms of what they're looking to do in the future.
It's obviously clear to us that they are very focused on.
On gathering experiences and creating memories.
With their with their friends and family.
So the other point I'll just add is and this is more on the pre cruise side and what and what they are booking on.
The ship for the future if that number continues to rise, which also just shows their appetite.
To spend more and more on non ticket related.
Spend so I think for us when we think about the back half of this year. Our expectation is that we're going to continue to see what we're seeing.
However, the mix changes a little bit in Q3, we have a little bit more Europe , we have a little bit less Caribbean and of course, you've heard our commentary on the Caribbean.
Exceptionally strong which is really what's driving the overall outperformance while Europe is now very much coming in as we expected for the.
Yeah.
The year so.
I think that probably probably talks a bit about how we think about the back half of next year now again going to demand level for 2024.
What we have again as what we're seeing day in and day out.
And at this point in the year the customer now and of course, we begin to.
Hum position ourselves in and Orient ourselves to 2020 for more and more certainly the majority of the bookings. We're now taking are focused on 2024, and we see very similar strength and acceleration.
From what we've been seeing close in as well as what we've been seeing for the bookings for 2023.
That's great color. Thanks, guys appreciate it and congratulations.
Steve I just have to add one comment because it's half.
To talk about icon of the seas.
I think if you.
If you think about 24 in the comments, we made earlier about icon icon as literally the best performing new product launch we've ever had in the history of our business and we're delighted with.
Volume and rate and that really is a full 24 products. So you can see if you wanted to use eikon is a proxy I know, it's a brand new product and its stunning, but its really driving a huge amount of demand and great rates.
That probably will be the first time, you hear about icon for Michael just.
[laughter] Thanks, guys. Thanks, Steve.
Your next question comes from Brandon <unk> Barclays.
Hey, good morning, everybody, obviously exceptional quarter congratulations.
A question about load factors I know you guys are going to hit historical load here in the spring, but curious looking past that.
The new normal for load it looks like given.
Maybe you have some regional mix shift, which could affect it but more so you have obviously a lot of new capacity.
That's different than it has more onboard and more space. So any any comments about what the new normal looks like for you guys.
So on an expectation standpoint, I mean, just just mathematically.
Our load factor.
Normalized load factor will be we will begin to rise.
And that's really leading with with icon coming on which will have a higher load factor profile.
Now we're also taking on Nova.
Which has a lower load factor and then the Royal Caribbean brand on the celebrity brand and we also were taking on a sandwich is lower load factors and royal but with with icon coming on next year Utopia coming on next year, you would expect our load factors to be up a point or two.
We look into 2024 and beyond.
That's Super helpful. And then my second question is just on China.
Back in 2019, if I recall, you guys had something like mid single digits of your global demand.
Demand coming from China traveling outside of China, and I know there is.
Outbound international flight constraints, limiting China outbound travel but.
Probably engaged with your database over there just curious what youre seeing from them now that they are starting to travel again, and it's even showing up sort of on the radar in terms of whats booked for this related this year.
Yeah, Hi, it's Michael.
<unk> always been a relatively small percentage of our China business I think we're more encouraged by all of the signals that we've had for a reopening in China in 'twenty four and.
We still got some work to do but we've now started to rebuild our sales organization in China, and we expect hopefully by late spring early summer to be back operating out of China.
24, 24, it's pretty good.
And then sorry, that's in terms of that in terms of actual capacity in China. The question was more about China outbound to other areas right.
Yeah, that's correct, that's an actual capacity operating out of China and 24 as it relates to outbound outbound started to return, but it's obviously coming now from a smaller base.
Great. Thanks, so much.
Thanks, Brian .
Next we'll hear from Robin Farley UBS.
Great. Thanks.
Guidance increase I don't even have a question on demand because that was kind of a market.
[laughter] I actually have a question kind of.
Just looking at related to balance sheet issues.
Another cruise line.
Talked about getting ECA funding for them a significant amount of money that's not related directly to a ship owner, but that's fair.
Owners extras and I'm just wondering.
The opportunity because obviously you guys can be up to the one and 2% interest rate is there opportunity for well I know you guys aren't giving any big change orders that we know of at the moment, but is there opportunity for you to get to the ECA funding for things not directly related to ship delivery.
Yeah, Hi, Robyn it's naftali.
These savings have been fantastic partners to us, we obviously very committed to our Newbuild program and they provide us a very attractive financing, there's always puts and takes but we don't expect.
Any material changes from our financing arrangements at this point, yes, the only thing I would just I would just add.
Robin what Youre, describing is not a new concept, we've actually probably been doing that for about a decade.
So we have change orders or we have owners extras.
The same concept of the 2020% down 80% financed.
Is how those ships have been financed whether it is for the contract price or or or other elements that we're adding onto the ship.
I guess it was really more I was thinking that if it's the first time, we've seen sort of like incremental ECA funding. It wasn't tied to any ships ordered before the pandemic.
Hi, Tim.
A.
The change order so not yet.
Yes.
And then just one.
Quick clarification on the expense side of things.
You'll get your expenses for the full year.
Some of that you mentioned structural because you'll have a full year of Coca Cola in Galveston.
Some of it's transitional I don't know if I.
I heard you say I'm, just wondering what amount because obviously some of the structural that'll be recurring next year, but some of the transition costs would they fall away create an expense decline next year. So just quantify how many basis points yes.
The increase is onetime.
So it's predominantly structural some of the two examples that you mentioned are there.
Obviously, there will be now in our base as we go forward as we get to our full our historical load factors.
Those transitional costs are very minimal.
We are expecting them to go away so it's predominantly <unk>.
The structural costs.
And I mean for the transition cost is there is it a 100 basis points or 200 basis points of the full year expense this year that yes.
Well, it's roughly it's even less at all.
Even less than a 100 basis points and some of the some of the.
Covid protocols.
We had a little bit in Q1, and some of our crew movements that we need to finish up but that's generally the ballpark yes.
And in <unk>.
The reality on the cost side. If you if you take out the transition runoff just talked about and you take out the structural cost.
Cost for the year were basically up around 3%.
So just to kind of give you the sense of the level of all.
All the actions we took over through Covid to get our.
Our cost structure and operating model align has effectively absorbed.
A tremendous amount of inflation so our costs.
It's really just up.
2% to 3%.
And would you say that inflation is sort of now moderating as we think about 2020 for that like the rate of increase.
Thanks.
That 3% something that you would expect to reoccur.
It's definitely moderating I mean, it's.
All of them, but but it's still it's still a pain and it's still it's still coming at you in different ways.
We have I mean, our teams are really exceptional and trying their very best to two.
To combat it and come up with Great solutions, sometimes it's around how do we get goods from point a to point B and in some cases, how do we just leverage more of our buy across our brands, but it is painful.
The word I would say, it's just persistent right, which we it's not unique to US you see it.
Everywhere, it's definitely moderating I think the other thing just to point out that our focus is also what you saw in the first quarter, which is our revenue accelerates how do we keep the costs down.
And really try to get that revenue all the way to the bottom line.
Great. Thank you very much thanks. Thanks.
It's robin.
Well go now.
Capo Cleveland Research company.
Great. Thanks, I wanted to dig a little bit more of the pricing, obviously with the net yield guidance.
Looks like net per Dms for this year to be up high singles, maybe even approaching 10% versus 19, and curious kind of how you might breakout or talk directionally about how much of that like for like versus new hardware versus coke. Okay last and then maybe just zeroing in on a like for like.
Nick.
Our ability to continue to move that up in years ahead, when you consider the value gap versus land.
Yes so.
First youre right. If you kind of look at the pricing. It is an eyelash away from from double digits. We do have some structural costs, especially on the backend of the year, we eliminated some of the.
A lag reporting lag for Silversea. If you if you take that out where are double digits. So we're very pleased with that and it comes from from different things, yes, we.
We have eight new shifts that we did not have in 2019.
Great yield driver and price driver, we have a lot of these ships going to coke, okay. The continuous threat track.
Youll premiums without the onboard strength that we are that we continue to execute on.
So all of these are are driving the pricing increase and pricing strength and we also see like for like pricing increases as well. So it's a demand environment. That's all these actions that we've taken we think are going to continue to benefit us.
Beyond 2023.
Wanted to add what's also just.
Very encouraging when you when you see which is effectively a double digit price increase for US that also does not include I mean or the negative side of this is we don't have China, obviously here in 2023, which had a substantial apd differential to the average and we also sold our tomorrow.
Which was a higher yielding versus the average.
And so to be at a double digit price increase.
And which has been accelerating I think really just shows the strength of leisure.
The strength of crews and the strength for our brands.
Great and then a little bit longer term question.
<unk> margin looks like it was basically back in line with pre Covid levels, if you ex out fuel and the guide.
Yes.
Further as you move through 'twenty three.
I think that's really reflective of gains in our core operations of the business and in light of that I'm curious, how you're feeling about the ROIC target long term I think you said teams, which sounds like a pretty broad range, but in light of the progress you're making in 'twenty three on the margin front, just how youre feeling about.
Longer term Oh I see.
Yes, well I think first off we are.
Based off of this latest guide we are now in double digits on an ROIC basis.
And so our focus here is to is to have a business model that during good times and bad times stays within the teens on an ROIC basis, the focus on margin.
And also the capital discipline that youre seeing us employee each and everyday.
We think very much gets us there with moderate yield growth good cost control.
So we feel very good about our trifecta goals, you've talked about that is that's really us just getting to base camp.
Which is kind of pre COVID-19 levels scaled up for the additional capacity on our business.
And really if you just think about 2023 in itself if it wasn't for the crisis actions we had to take.
Well go to Benjamin.
On credit.
Hey, How's it going.
Just one for me.
On cocoa K are you still seeing the same pricing premiums.
For those itineraries as you did to the portfolio as you did in 19 I ask that in the context of there just being much more capacity at the island.
Today than a few years ago.
Then part two I think tied to each is a <unk> opening any color on demand or pricing there. Thanks.
Hi, Benjamin.
Yes, I mean I think we.
We are truly delighted with perfect day, and I think the comments earlier, we spoke about the volume that we have.
<unk> to perfect day.
This year will take around $2 5 million of our guests to perfect day and the pricing premiums.
Continue to be really robust.
And the spend on the island continues to be really robust as well so we've seen.
As we've increased the volume we've seen no decline in the power of the pricing and in fact it continues to accelerate.
With Hideaway beach that will accommodate approximately two and a half thousand more gas so today with.
I think in March we had close to 250000 guests in perfect day and on average now we're having around 11000 guests a day.
And in Coke Okay.
With high the way, we can add another two <unk> 3000 guests and that's really for designed to be open in time for icon of the season or close icon will visit at the end of January and I will be going to perfect day every single week. We've also got Utopia coming online in June we haven't announced the deployment.
But utopia will also be going to.
Perfect day, and the demand is just very strong I mean, we've seen there.
A lot of demand for that particular product in any of our ships that have perfect data on their itinerary.
<unk> and the strong pricing premium that we see there.
Just one just one point on a highway.
For modeling purposes, just keep in mind that its coming online at the very end of this year, but its ramp up of operations and so forth as Michael said is kind of in line when icon comes on.
Line, which will be towards the end of January so just as you're thinking about yielding costs just keep that in a month.
That's helpful. Thank you.
Also Benjamin just to add a quick comment not on perfect day, but we did receive the.
The kind of the greenlight approval from the Bahamian government to proceed through the environmental permitting and planning process now in the Bahamas. So our intention is to have the Royal Beach club opened in.
Towards the end of the spring summer of 'twenty five.
That New addition to the portfolio is also going to really produce an incredible.
Experience.
Certainly for the short product in the short product is doing exceptionally well at the moment, we continue to increase our short product and put really great ships into that into that market. So the combination of perfect day on one day and the Beach club on the second day really is a winning winning combination.
And forgive me as the expectations around the Royal Beach Club is at a similar size to <unk>.
The highway or large smaller larger just in the past.
Actually from a capacity perspective, it's very similar to hideaway remember hideaway as part of the perfect day experience. So the perfect experience capacity, you'll be around 13000, a day, but the beach clubs capacity will be around 2500, $27 50 a day.
Thanks.
Thanks, Bob.
Your next question comes from Conor Cunningham Melius research.
Hi, everyone. Thank you for the time just on the $5 3 billion in customer deposits that you have I was curious if you could parse.
Parse out what percentage of the bookings are people that are new to cruise versus historical levels. It just seems like.
Youre, gaining a lot of momentum there just curious on where that sits.
So as we I think Jason citizen.
In his prepared remarks, this quarter and it's been consistent in the last several quarters.
Combination of new to our brands and new to our crews significantly exceeded 2019 levels. So we're very pleased with seeing this quality demands that our brands are attracting.
New people to our ecosystem and at the same time, we also focus on making sure that they stay there right and increase repeat rates. This is all in line with or.
Our strategies so some of the benefit you see in the first quarter in these customer deposits is just more people booking with us utility brands in your two crews.
Yeah.
Okay. That's helpful. And then just I was hoping if you could you could unpack a little bit just on this close in pricing momentum that you saw in the quarter. What did you assume originally and then how <unk> played out and just how youre thinking about that trend through the remainder of the year I realized load factors are stepping up so there's probably less and less to fill but just curious.
On how youre thinking about that going forward. Thank you.
Yeah, well I think.
First first what I would say is it was a.
It was it was an incredible.
Apprise.
The differential between our wave expectations close in versus the realities of what occurred there was a substantial difference versus 19 levels, which were already at a.
At a record high and.
And so we built another three or four load factor points.
As you pointed out Conor we are our expectations for the balance of the year was to be at normal load factors.
So those book positions were higher so there is less inventory.
But certainly there is the opportunity and of course, we recognize a lot of that opportunity.
In terms of the expectation that those those volumes will continue.
And at higher rates I think the thing that was great.
I wouldn't say surprised but the light to us was while the volumes were building it at at those large volumes. We were also able to continue to raise pricing.
During that period of time, which is not always what you see as you.
Times of what Youre looking to fill.
Volume gaps.
And then just.
I think I said it in my prepared remarks, two thirds of our yield outperformance in the quarter were just load factors.
200 basis points more and the remaining was just higher pricing both on ticket and exceptional strength in onboard revenue.
Okay I appreciate the time thank you.
Yeah.
Matthew boss from Jpmorgan.
Great. Thanks, and congrats on a really nice Brent.
Thanks, Mike.
Maybe to follow up on on demand as we think about the drivers and the magnitude of the top line upside relative.
Three months.
I guess, maybe if you could help to maybe rank order.
Outside and then could you elaborate on your most recent momentum that you cited and bookings that you've seen.
And finally, maybe just relative to the Trifecta plan that you laid out in November 22.
Your confidence today, but just how best to think about puts and takes to consider relative to when you initially laid this out.
Okay, well I'll take a stab at it and.
For my teammates here to add and I think first just starting off on trifecta.
We feel very good about our trifecta program.
Obviously the results of what we're talking about today in terms of the acceleration the higher pricing.
Our continued ability to manage our costs is all is all very encouraging.
As we kind of think through 2025 is going to look at.
Or look like there is obviously, there's always headwinds.
That youre dealing with but.
But we do really believe that by US just continuing to moderately grow our yields and managing our costs and managing our capital allocation.
We see kind of clear skies towards towards those goals.
Theres, obviously things in which when you think about negative carry we think about it.
How to manage that and get that down to the levels I am thinking of our earnings power back from there. That's also kind of top of mind for us.
As it relates to on the demand side just to be I mean.
We kind of laid out in our remarks, there are several things first as you know.
The Caribbean has been exceptionally strong.
Especially ships that are touching a perfect day, we saw a huge strength from onboard spend has been very very strong. It's not one area of onboard it's really across the board. So that that's really that's been very.
Encouraging our north American products have all been booking well, Alaska northeast and so forth.
And for Europe .
I think we were a little bit concerned going into the year.
But because of our of our global and nimble sourcing model.
Really have seen a surge in European bookings.
We feel very good on how Europe is going to play out this year, but not to the level that we saw in the in the Caribbean.
And so that's just broader combination is what's driving.
Acceleration and demand acceleration in pricing and while we and why are we why are we doubled our yield and increased our earnings by 40%, Yes, just to add it's nostalgia I think first on the latest points around the demand I think if you kind of zoom out a little bit.
We did talk about and we've been talking about the value proposition of crews being very attractive and you see that play it out.
Our goal is to close the gap and we do that with.
The ships that we have the experiences we deliver perfect that coke, okay. Some of the itineraries wheat with design, but those are things that if you have the consumer are obviously, it's very attractive.
<unk> I just wanted to make one comment which is as we were designing it we weren't designing it for a perfect.
Environment right. So as Jason said Theres puts and takes there is headwinds tailwind and.
As we were we're designing those coordinates.
We're confident we can get there.
And.
I'm asking you just just to add one.
Just using the Royal Caribbean International as a proxy for the company.
I think about 2024 and 2025, we've got icon of the seas coming online we've got Utopia of disease, We've got Hideaway Beach and perfect day coming online.
This year, we've got expectations that China will be up and operating in 'twenty four and we've got the Beach club coming online in 'twenty five.
Just from the roll brands perspective, we've got an incredible lineup of really new and exciting products and we've seen that these products really to ignite the market and generate significant demand. So we feel pretty optimistic about that.
About the future.
That's great color, Congrats again and best of luck.
I appreciate it.
Next up we'll hear from Daniel pellets or Wells Fargo.
Hey, good morning, everyone and congrats on the quarter.
Just a quick one for me.
Caribbean Itineraries I mean, it sounds like pricing is tracking pricing and demand is tracking well above your expectations.
And you've talked about this shift to short term product do you could you see a prolonged shift there and how do you think about your your capacity allocation over the next kind of year or two as it relates to Europe and some of the more.
Mhm itineraries relative to kind of lift you're probably getting now from coke okay.
I think we feel pretty good about the balance of our deployment. We have been I think we have we have shown that having great assets like perfect day, putting great assets and the short product, which connect very well to millennials and Gen X and so forth that are looking for more volume vacation experiences.
And they may do that over shorter periods of time.
And so that really kind of zones in to that clientele.
But I think when we look at and of course, our deployment, we will shift a little bit in our expectations. As we look forward as we expect China to come online in an Asia Pac too.
Light back up here in 2004, and 2025, but Caribbean is going to continue to be where the majority of our capacity is.
And I think our broader portfolio of deployment will more or less look like it does this year with a little bit more indexing into short and probably a little bit more indexing into into China.
Got it thanks, and just for my follow up I wanted to get a little bit more color on China.
And maybe that cruise customer if you can maybe put a little bit more color around what it's looked like historically in terms of mix.
Preboard spend versus onboard the EBITDA relative to the rest of your portfolio per <unk> yields kind of any additional color as we think about the reopening in and take that into account given the strong and robust demand from the travel and leisure customer there.
So then.
Pre pandemic we.
We built a significant business for cruise in the China market.
<unk> was the number one.
Cruise brand in China by volume.
We had a few of our ships that were operating there and in fact before the pandemic. We had wonder of the CS originally planned to deploy into the China market, which of course subsequently changed.
Our expectation is that this market will return to how it was pre pandemic.
The value of the Chinese customer is very high when you look at the net revenue from a from a Chinese consumer it's typically around the same level as an American and slightly higher so we see that returning the spend changes somewhat in terms of onboard spend they skewed differently in different areas.
But overall the aggregate of the spend is very high. So we believe that that market will will return and where.
We're hoping and Twentyfold, we'll see that.
Got it thanks, so much.
Your next question comes from Brian White Wolf Research.
Hey, guys. Good morning, I was hoping you could just talk a bit more about if you think about the really strong demand youre seeing for the Caribbean and sort of inline European demand what is driving sort of that divergence is it just the Coco K is.
Thats attractive or you're hearing pushback on European airfare, like where is the biggest.
Difference.
Well I think in the.
Earlier part of the year, we were a little bit concerned about the air lift for Europe , but that has that has kind of normalized at least for our guests and also don't forget we source.
As well in Europe for our European product and that just goes back to our business model of having this kind of global nimble sourcing.
Our model. So I think that's that's how we have we kind of think about that.
As it relates to the Caribbean I think it's a combination of things and as <unk> pointed out.
So there is still a significant value gap between land based vacation and cruise.
I think we've closed.
Some of that gap this year, which is which is encouraging and we saw pre pandemic that ships that touched perfect day. As an example had really kind of close the gap to land based especially Orlando and Vegas.
And what we're doing is what we're seeing is that that is that is starting to kind of get <unk>.
Back to 19 level, so the gaps still exist as that as those as those businesses got stronger during the period.
And so I don't think its I don't think it is one thing, but I think the value gap I think that the demand.
<unk> spent time with People's friends and family and gather experiences and buy less staff all of these secular and demographic trends.
Or are just huge tailwind for the demand environment.
It makes sense and then on the expense side, you guys called out some benefits from expense timing in the quarter I think that was sized at 180 basis points.
Is that all showing up in the <unk> guide some of that get pumps it into <unk> and <unk>.
How should we think about it yes.
Majority of it almost all of it is and should be expected in Q2.
Perfect. Thank you.
Yeah.
Okay.
And we'll go to Paul Golding Macquarie capital.
Thanks, so much and congrats on the quarter just one for me a longer term question here I know you are still building load factor, but as you think about Q1 and the strength in close in.
Bookings does this change the way you think about wave and how you manage the booking curve in inventory as you go into the next wave cycle. The next booking cycle and just in the context of what we have through the pandemic, which was a bit protracted booking curve. Thanks. So much.
Yes, well, we actually through.
Through the Covid period.
Had kind of shifted how we go to market with their inventory we used to.
What kind of put everything out there and all the suites would be sold.
You're basically right off the bat and then you would kind of work your way down to the inside cabins, while now we we hold back inventory and we release it.
Based off of our are much more sophisticated revenue management models that we have today and so all of that takes into account the.
Demand environment, we're seeing and that's why I think sometimes when we get into conversations around what percent booked are you how does it relate to this period versus that period, what we're really focused on is optimizing yield and so there might be periods, where.
Quarter over quarter or year over year.
We want to be in a stronger book position or less.
Or lesser than what we were booked in a previous period, because what we're focused on is maximizing yield which sometimes.
Youre comes with us having more inventory to sell.
I appreciate the context thanks.
Okay.
Thank you everyone.
Yeah go ahead.
Thank you we thank everyone for their participation and interest in our company Michael Mccarthy will be available for any follow up. So we wish you all a great day. Thank you.
Once again, everyone that does conclude today's conference we would like to thank you all for your participation you may now disconnect.