Q3 2024 Royal Caribbean Group Earnings Call
Speaker Change: Feel like a local on anything black ordinary excursions from the great barrier weave in Australia to the glaciers of Alaska from secluded beaches in the Caribbean to the Colosseum in Rome.
Speaker Change: which have our destinations you've been dreaming about for a year to take you there. And what really makes us differness our ships, which offers so much to explore along the way. You'll never ask. Are we there yet?
Regina: Good morning, my name is Regina and I will be a conference operator today. At this time I would like to welcome everyone to the Royal Caribbean Group, third quarter, 2024 earnings call.
Speaker Change: All participants are in listen only mode. After the speaker presentation, there was a question and answer session. Qaskha question during the session, you will need to press star 1 on your telephone. I would now like to introduce Blake Bannier, vice president of Investor Relations. Mr. Bannier, the floor is yours.
Blake Bannier: Good morning everyone and thank you for joining us today for our third quarter, 2024 earnings call. Joining me here in Miami, our Jason Liberty, our Chief Executive Officer, Naftali Holtz, our Chief Financial Officer, and Michael Bailey, President and CEO of Royal Caribbean International.
Blake Bannier: 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 our subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations.
Blake Bannier: Please refer to our earnings release issued this morning as well as our filings with the SEC for a description of these factors.
Blake Bannier: We do not undertake to update any forward-looking statements as circumstances change. Also, we will be discussing certain non-gap financial measures, which are adjusted as defined and a reconciliation of all non-gap items can be found on our investor website and in our earnings release.
Blake Bannier: On last week's state otherwise, all metrics are on a constant currency adjusted basis.
Speaker Change: Jason will begin the call by providing a strategic overview and update on the business.
Speaker Change: will follow with a recap of our third quarter, the current booking environment, and our updated outlook for 2024. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason.
Jason Liberty: Thank you Blake, and good morning everyone.
Jason Liberty: I'm thrilled to discuss our exceptional third quarter results updated outlook and all the exciting things happening at the Royal Caribbean Group.
Jason Liberty: This has been an incredible year for us, and the third quarter was no exception with momentum continuing to build.
Jason Liberty: As you saw on the press release, we increased our full year yield and earnings guidance, driven by better than expected results for the third quarter and an improved outlook for the fourth quarter.
Jason Liberty: Our full year yield is now expected to be up by more than 11% and earnings by more than 70%.
Jason Liberty: In addition, we are on track to deliver more than 3.3 billion of cash flow this year and have reached a key financial milestone while returning to a fully unsecured capital structure that will support our growth ambitions and expanding capital allocation.
Jason Liberty: During the quarter, we also announced two exciting expansions of our private destinations portfolio with the incredible perfect day Mexico opening in 2027 and silver sees new hotel in Puerto Williams, Chile opening in the winter for the 25, 26 and art of the season.
Jason Liberty: I want to thank the entire World Caribbean group team for their passion, dedication, and commitment that enable us to deliver the best vacation experiences responsibly and to drive exceptional financial results.
Jason Liberty: The strong financial result and the achievement of our trifecta financial goals, 18 months ahead of schedule are truly just to be getting for us.
Jason Liberty: With our industry leading global brands, the most innovative fleet and private destinations.
Jason Liberty: and the best people we remain focused on winning a greater share of the $1.9 trillion vacation market.
Jason Liberty: Our plan to capitalize on this opportunity is grounded in our proven formula for success.
Jason Liberty: Madder Capacity Growth, Madder Yield Growth and Strong Cost Control.
Jason Liberty: We are thrilled to share more details during the upcoming investor day in the first quarter of next year.
Jason Liberty: Before I get into the details of our performance this quarter, I went to acknowledge the storms that impacted our local communities.
Jason Liberty: We are incredibly thankful that our South Florida employees were largely unaffected.
Jason Liberty: But true to the Royal Caribbean Group Spirit, we mobilize relief efforts for those in need.
Jason Liberty: are thoughts continue to be with those who have been affected.
Jason Liberty: Now moving on to discuss our results and outlook. Third quarter results exceeded our expectations due to strong close in demand at higher prices on all of our key itemeraries coupled with continued strength and onboard revenue.
Jason Liberty: As a result, net yields are up 7.9% year over year, which was 110 basis points above our guidance.
Jason Liberty: Better revenue, lower cost due to timing and multiple balance sheet actions resulted in a adjusted earnings per share that was higher than our guidance.
Jason Liberty: will elaborate more about their quarter details and results in a few minutes.
Jason Liberty: We are increasing full year yield growth expectations to 10.8% to 11.3%.
Jason Liberty: A strong demand for our experiences across identities is translating and to higher load factors, stronger pricing and continued growth and onboard revenue.
Jason Liberty: Trans-remain Strong for the Bounce of the Year, and despite the impact of Hurricane Milton.
Jason Liberty: Re now expect net yield growth of 5.1% to 5.6% for the fourth quarter. On top of an increase, on close to 18% last year.
Jason Liberty: We also expect a strong margin and earnings growth with adjusted earnings per share expected at $11.57 to $11.62.
Jason Liberty: and EBITDA margins that is more than 300 basis points higher than last year.
Jason Liberty: We are very pleased with how the man is shaping up for 2025, with booking outpacing 2024 levels during the third quarter and into October.
Jason Liberty: Our book load factors are in line with prior years and nicely higher rates allowing us to further optimize pricing and yield growth as we build the book of business for 2025.
Jason Liberty: Our Nimble Stores thing model and AI enabled yield management tools coupled with our brand's global and multi-generational appeal allow us to successfully capture quality demand across segments.
Jason Liberty: Source from new and younger consumer bases and attract the highest unit guests.
Jason Liberty: The last two years saw unprecedented yield growth and although that created a high bar for comparables are proven formula for success, a moderate capacity growth, moderate yield growth and strong cost control.
Jason Liberty: will continue to drive top line growth, margin expansion, and substantial cash flow.
Jason Liberty: While still very early in the planning process, we anticipate earnings in 2025 to start with a $14 candle.
Jason Liberty: We continue to see a very positive sentiment from our customer and a macro environment that favors growing demand for experiences and vacations.
Jason Liberty: American Household are wealthier than ever with continued wage growth and low unemployment driving strong consumer spending.
Jason Liberty: Spend on Leisure has grown a lot faster than most other spend categories over the past 12 months with spend on travel increasing at a faster pace than other leisure categories.
Jason Liberty: Our research suggests that this trend will continue over the next 12 months with leisure travel spending growing by more than any other leisure category.
Jason Liberty: Millennials, families and active cruisers are all over indexing on both leisure travel and specifically cruise travel.
Jason Liberty: Cruz remains in attractive value proposition, and Cruz purchase intent remains high.
Jason Liberty: Furthermore, the majority of consumers are now actively planning their next vacation, but haven't booked it yet.
Jason Liberty: Further supporting demand for crews, with our exceptional and leading portfolio brand, innovative and differentiated ships, exciting and exclusive destination experiences.
Jason Liberty: and leading commercial and AI-driven capabilities. We are excited to welcome those customers on board our ships and deliver the best vacation experiences responsibly.
Jason Liberty: Our breathable market is growing and we are attracting more new customers into our vacation ecosystem.
Jason Liberty: and particularly younger demographics.
Jason Liberty: In fact, the majority of our guests this year are either new to crews or new to brand, while the same time our loyalty guests are up 20% compared to last year.
Jason Liberty: Once booked, Jason quickly engaged with us and buying onboard experiences at higher APDs.
Jason Liberty: Translating into higher satisfaction rate and higher onboard spend.
Jason Liberty: Notably, more than 70% purchase onboard activities before they sail and they spend more than double compared to those who only make purchases on board.
Jason Liberty: Half of our onboard revenue in the third quarter was purchased through our AI-driven pre-cruise channels.
Jason Liberty: We deliver vacation experiences that meet the demands of evolving consumer profiles and preferences.
Jason Liberty: A key differentiator for us has always been our hardware, where we are constantly innovating.
Jason Liberty: Disco Order.
Jason Liberty: We launch you to a P.O.O.P. of the season, a shift that has quickly become a game changer for our short Caribbean product, which serves as an important entry point for new to crews and new to brand.
Jason Liberty: It also skews towards millennials and younger guests.
Jason Liberty: The demand for utopia has been incredible and has well exceeded our expectations for both ticket prices and onboard revenue.
Jason Liberty: Following the incredible market response to icon of the seas, and the anticipation of star of the seas.
Jason Liberty: We announced our agreement to build a fourth icon class ship which will join the World Caribbean fleet in 2027.
Jason Liberty: Holtz, since its debut, Icon has revolutionized vacation experiences and continued to exceed our expectations in both guest satisfaction and financial performance.
Jason Liberty: We also continue to build on our exciting collection of private destination experiences.
Jason Liberty: Earlier this month we announced two incredible land-based initiatives that will be truly game-changing for our guests.
Jason Liberty: We are incredibly excited for our recent announcement of Perfect Day Mexico, which will combine the adrenaline pumping thrills and ways to chill. The Royal Caribbean is known for the vibrancy and beauty of Mexico.
Jason Liberty: Perfect Day Mexico is strategically located to deliver exceptional vacation experiences.
Jason Liberty: and both the Eastern and Western Caribbean.
Jason Liberty: and supports our ambition that every guest on the Royal Caribbean brand will have a perfect day on their Caribbean itinerary.
Jason Liberty: It also allows us to further grow the large and growing Gulf Coast area, including the Texas market, which is larger than Florida. It has a similar cruise consideration, but only half the penetration.
Jason Liberty: Opponents completion in 2027, perfect day Mexico will join our incredible collection of private destinations that include perfect day at Cocoa and Lobbete.
Jason Liberty: World Beast Club Paradise Island, opening in 2025 and World Beach Club and CosML opening in 2026.
Speaker Change: Silver C is developing the world southernmost hotel in the Praetal Williams chili. That upon completion in late 2025 will create a unique seamless journey for guests and barking on Silver C's innovative Antarctica fly cruise program. The most direct route to the White continent.
Speaker Change: Allowing guests to enjoy Silver Seas Personalized Service and Warm Hospitality throughout their voyage.
Speaker Change: We remain committed to our see the future vision.
Speaker Change: to stay in the planet, energizing communities and accelerating innovation.
Speaker Change: Last quarter we achieved our trifecta financial goals and we now expect to also achieve a double-digit reduction in carbon intensity compared to 2019, one year ahead of our original expectation.
Speaker Change: This further solidifies our commitment and focus on advancing the sustainability of our business.
Speaker Change: As part of our journey to accelerate innovation to decarbonize our business, we continue to diversify our fuel sources.
Speaker Change: Our new ship, Utopia of the Seas, completed her inaugural Transylastic Crossing using BioLNG and July. Icon will start utilizing Shore Power at Port of Miami next week.
Speaker Change: and Celebrity Aged Fowl will be our first Mephanol Capable ship.
Speaker Change: which are all important milestones in our energy transition.
Speaker Change: We have so much to be proud of and this is just the beginning. With our industry leading brands that excel in each of their respective segments.
Speaker Change: The most innovative fleet and destinations and the best people were focused on delivering a lifetime of vacations for our guests. We focus on winning share from the large and attracted travel industry while delivering long-term shareholder value.
Speaker Change: and with that, we'll turn the call over to Naftali. Now, thank you, Jason and good morning, everyone. I will start with third quarter results. Our teams delivered another exceptional performance that exceeded our expectations, resulting in adjusted earnings per share of $5.20.
Naftali Holtz: The 25th St. Percherre outperformments compared to the midpoint of our guidance is driven by better revenue across our brands and key itineraries, benefits from multiple balance sheet actions we have taken during the quarter, as well as approximately 10th St. Percherre, favorable timing of expenses.
Naftali Holtz: We finished a third quarter with a net yield growth of 7.9% which was driven mostly by stronger APDs.
Naftali Holtz: The strong yield growth was driven by both new ships and like for like hardware and across all key itineraries especially Alaska and Europe.
Naftali Holtz: That cruise costs, excluding fuel, increase 4% in cost and currency.
Naftali Holtz: The favorable cost performance compared to our guidance is driven by favorable timing of expenses, the more than offset the negative impact of stock compensation given the appreciation of our share price during the third quarter.
Naftali Holtz: had just an EBDA with $2.1 billion, 24% year over your growth, and adjusted EBDA margin was 44% 240 basis points higher than last year.
Naftali Holtz: Now let me talk about our increased guidance expectations for 2024.
Naftali Holtz: We're set to have another exceptional year of yield growth with net yield expected to be up 10.8 to 11.3%.
Naftali Holtz: The increase in our yield guidance is driven by the stronger than expected performance in the third quarter and better outlook in the fourth quarter, which also includes the impact from Hurricane Melton.
Naftali Holtz: Now, moving to cost. Full year, net cruise costs, excluding fuel, are expected to be up to 6.2 to 6.7%.
Naftali Holtz: Our cost metric is up 40 basis points compared to our prior guidance, and is driven entirely by higher non-gas stock-based compensation given the increase in the stock price since the last earnings goal.
Naftali Holtz: We anticipate a full fuel expense of $1.16 billion for the year and we are 61% hedged at below market rates.
Naftali Holtz: We are raising adjusted earnings per share guidance to $11.57 to $11.62.
Naftali Holtz: I want to provide a little more color on the progress of our earnings guidance.
Naftali Holtz: We're increasing our guidance by 20 cents for the year, which includes 14 cents negative impact from Hurricane Milton and higher stock-based expense.
Naftali Holtz: when excluding that impact to 34 cents better than expected business performance is more than half driven by fourth quarter outlook and the remainder related to better third quarter results.
Naftali Holtz: Now I will discuss our fourth quarter guidance.
Speaker Change: Many of the ships have now transitioned from their summer to their winter itineraries.
Speaker Change: In the fourth quarter, about 63% of our capacity will be in the Caribbean, 9% in Europe, and about 13% in the Asia Pacific region.
Speaker Change: The remaining capacity is spread across several other 18 areas, including repositionings, west coast and extedition cruisers.
Speaker Change: We plan to operate 12.8 million APCDs during the fourth quarter.
Speaker Change: Yields are expected to be up 5.1 to 5.6% for the fourth quarter, which includes approximately the 40 basis points of impact from Hurricane Melton.
Speaker Change: As our yield growth normalizes, we're remained focused on executed on our proven formula of modern capacity growth, modern yield growth and strong cost control that delivers strong earnings power and cash flow.
Speaker Change: and the next crew's loss, excluding fuel, are expected to be up 11.6 due to 1.1%.
Speaker Change: The year over year increasing costs in the fourth quarter is predominantly driven by elevated dry dock days, higher non-cash stock compensation and shifting of costs from the third quarter. Without those, our costs would have been in the low single digits.
Speaker Change: Taking all this into account, we expect adjusted earnings per share for the quarter to be $1.40 to $1.45.
Speaker Change: The quarter includes 14 cent impact from Hurricane Milton at highest dog base comp in addition to approximately 10 cents of cost shifting from the third quarter.
Speaker Change: Now I will share insights for 2025, which while still very early is shaping up to be another exciting year.
Speaker Change: 2025 capacity is expected to be up 5% as we introduce star of the series in the third quarter and celebrity excel in the fourth quarter, as well as benefit from a full year of utopia and silver ray.
Speaker Change: Capacity is most pronounced in the second and fourth quarters.
Speaker Change: Due to the timing of new ship deliveries and dry ducks.
Speaker Change: We are growing Caribbean capacity about 5% in 2025 and it will represent about 57% of our deployment.
Speaker Change: We expect the opening of Royal Beach Club Paradise Island in Ausa at the end of 2025, which will benefit our 2026 Caribbean itinerers.
Speaker Change: European itineraries will account for 15% of our capacity, Alasco will account for about 6% and Asia Pacific will account for 11%.
Speaker Change: Jason mentioned our book Low Factors are in line with previous years and at higher APDs.
Speaker Change: Our book's position is exactly where we want it to be. The further optimised our yield profile and deliver on our formula for success.
Speaker Change: Moderate capacity growth, moderate yield growth, and strong cost discipline. This position is us to continue delivering margin expansion and strong cash flow.
Speaker Change: Now moving to Cross.
Speaker Change: Our focus remains to manage costs as we seek to grow our margins.
Speaker Change: In 2025, we expect to have lower dry dock days compared to this year, but still higher than 2023, partially due to longer dry dock days.
Speaker Change: For several planned modernization projects of our existing ships.
Speaker Change: Overall, we expect disciplined cost growth consistent with our proven formula and we will provide more details during our fourth quarter earnings call.
Speaker Change: Taking all of this into account, we expect adjusted earnings per share to start with a $14 handle.
Speaker Change: Turning to our balance sheet.
Speaker Change: We ended a quarter with $3.9 billion in liquidity.
Speaker Change: Over the last two years, we have made significant progress in strengthening the balance sheet, and this quarter we reached the key financial milestone by returning to a fully unsecured capital structure.
Speaker Change: During the quarter, we refinance $3.5 billion of that lowering rates by 300 basis points.
Speaker Change: Our leverage was below three and a half times as of the third quarter on a trailing 12-month basis and when excluding the impact of new ships that were delivered mid-year.
Speaker Change: Also this quarter we have opportunistically exchanged $827 million of our outstanding convertible bonds for cash and shares.
Speaker Change: This transaction allowed us to address a 2025 death maturity.
Speaker Change: Well, also effectively buying back 5.1 million shares at an attractive, weighted average price of $154 per share.
Speaker Change: Our strong balance sheet position allows us to further support our growth ambitions and expand capital allocation while delivering strong cash flow and maintaining investment grade balance sheet metrics.
Speaker Change: In closing, we remain committed and focused on executing our strategy and delivering on our mission. With that, I will ask our operator to open the call for a question and answer session.
Speaker Change: At the time, if you would like to ask a question press, star followed by the number one on your telephone keypad. We ask that you live at yourself to one question and one follow up, then re-enter the queue for any additional questions that you might have. Our first question will come from the line of Brandt Monddler at Barclays. Please go ahead.
Brandt Monddler: Good morning everybody and congrats on another really solid quarter. The first question is about pricing and thinking about the exit rate that you're seeing in the fourth quarter. I want to take a broader look and think about if you can kind of...
Brandt Monddler: Talk about like for like pricing, cumidilly, from verses 2019, and just sort of level set, where you're thinking you're at. And if you're still trailing sort of cumulative US inflation.
Brandt Monddler: and the information coming down next year, act as some sort of governor or a little bit how strong yields can be or how do you think about that?
Speaker Change: Sure, first-good morning Brent Pope-all as well. I think first just kind of starting off is, you know, when you compare to 19 levels.
Speaker Change: The fourth quarter is up about 25% you know, the year is up about 26% versus 2019 levels. And so I think when we look at that there's a lot of things that you know that's inside of that, which is not only just...
Speaker Change: White for White Growth, it's not just the new capacity, it's so great as that's like perfect Dave, you fully normalizing within our business.
Speaker Change: and Wawther has been a lot of growth on the pricing standpoint, a little bit of growth on the occupancy standpoint.
Speaker Change: I'm the trend show that we continue to be able to elevate.
Speaker Change: Demand, LV Prasing.
Speaker Change: H.D. and so what you see over all trends.
Speaker Change: is that we continue to see Armstrong volumes, the customers willingness to pay more.
Speaker Change: I don't think this is an inflation related type of driver. I think the driver is that cruise or the propensity of cruise.
Speaker Change: is that a significantly high level.
Speaker Change: I think that the cruise experience is now considered to be a very mainstream vacation product.
Speaker Change: and there's still a significant value proposition versus land-based.
Speaker Change: Frecation.
Speaker Change: So I think the combination of...
Speaker Change: You're really understanding what our guests are looking for.
Speaker Change: and leveling up our business with our brands, meeting those expectations.
Speaker Change: The Ships Meeting Notes Expectations, Descentations Meeting Notes Expectations.
Speaker Change: I'm in having the tools and technology that really allow us to harvest quality demand.
Speaker Change: I think it's all leading to why we keep seeing our performance on the yield growth side and we do not in any way.
Speaker Change: See anything in the ingredients that say that we're hitting some type of ceiling. If anything, you continue to accelerate in demand for our business.
Speaker Change: and that's super helpful. Thanks for that, Jason. And then just to follow up, you know, and I'm pretty excited and now it's been here in ¨Corder and I know that.
Speaker Change: and the first quarter of the day. There were some conflicting reports out there at how much the capital investment was going to take. I was wondering if you could give us a little insight into the sort of gross level.
Speaker Change: and if you want to talk a little bit about the return expectations that you'd expect for that project that would be helpful.
Speaker Change: Yes, sure. Well, I think I think just starting off on a cost standpoint, you know, we were still in the design and planning process for perfect day Mexico.
Speaker Change: Obviously we have a incredible foundation of...
Speaker Change: What our guests are looking for and their willingness to spend an experience with perfect day at Cocoa.
Speaker Change: We did acquire the port which we'll see later in our filing today for 292 million. It's not just the port but it's also all the land that is surrounding the port. And again, we're still in that design process. But what I would say is...
Speaker Change: We're very mindful of having sizable significant returns associated with these private destinations. But more importantly, we're very focused on making sure that the guest experience.
Speaker Change: is at an all time high, perfect day, Cocoa Kays are highest breaded.
Speaker Change: and the National and the Appermotor Score. So our ability to not only capture additional demand from other markets.
Speaker Change: but our ability to deliver.
Speaker Change: I'm a perfect day to basically every Royal Caribbean International guest.
Speaker Change: and the Caribbean. I think just drives greater demand for that brand. And I think that's ultimately what we look for. Because we know that when we can deliver the best vacation in the world.
Speaker Change: and Mark Guest are willing to pay for that and they're also willing obviously to help us deliver great financial returns on investments like these destinations.
Speaker Change: Brandt just quick thing to add, you'll see obviously in the thing cute today that acquisition and we expect to close that in just first half of 2025, so that will be also included in our capital commentary in the next quarter.
Speaker Change: Great, thanks everybody.
Speaker Change: Our next question comes from the line of Steve Levin ski with Steve Llevin, please go ahead.
Speaker Change: Hey guys, good morning and congrats on another very solid quarter. So Jason, we think about your your 2025, you know, $14 handle earnings comment. And, you know, look, I know it's early on in your planning stages for next year. But, you know, just wondering how you guys are thinking about, you know, what are maybe some of the pillars that are going to get you to that $14 plus in earnings. And I assume you're going to...
Speaker Change: You know, tell me the company line of...
Speaker Change: and the Mottler capacity growth, Mottler yield growth and strong cost control. Is there anything else that can help us with as we think about next year based on your current book position? I mean, Naftali Holtz and really good color on the cost side, but anything we should be thinking about from the yield side or how we should maybe be thinking about interest cost next year and does that.
Speaker Change: 14 dollars, you know, a share plus include any buybacks or would buybacks be, you know, a creative to that number.
Speaker Change: Trump.
Speaker Change: Well, we'll see you. You said our company line really well and it is something obviously you know that we're very religious about. You have to get to the to I would say it's not $14. We're saying it's going to have a $14 handle on it.
Speaker Change: is you really just need your moderate yield growth and you just continue to manage our costs effectively. And of course, we're going to benefit from interest costs a lot of the...
Speaker Change: Great activity we've been able to do over the past couple of quarters to get our balance sheet back to pre-COVID Lovers levels as well as getting to an unsecured state. So I think that will help.
Speaker Change: Drive that. So, on the shared repurchase standpoint, obviously we were able to take some action here.
Speaker Change: and last quarter and being able to recapture about 5.1 million shares.
Speaker Change: that we're dilutive to us.
Speaker Change: and I would say that in that number, that is not contemplate of buying back shares.
Speaker Change: which of course, when you look back in time we've always had when we think about capital returns.
Speaker Change: Amix of...
Speaker Change: You know, they haven't competitive dividend.
Speaker Change: and Opportunist of Libye and Backshare. So it's, but that is not something that is in the consideration set in that early guide of the $14 handle.
Speaker Change: Okay, gotcha, thanks for that. And then second question going back to, to, to, to perfect day Mexico. You know Jason, can you help us think about maybe the potential yield uplift. You guys might be able to achieve based on what you've learned from Coco Kay. I guess I'm just trying to figure out if we start to think about 2007, you know, what that yield outlook could look like for your Western Caribbean Itineraries. I mean, if we assume based on our math Coco Kay, we had at least a double digit impact or yield impact on your Eastern Caribbean Itineraries. I mean, is there any reason to believe, you know, you guys won't see that same type of uplift for your Western Caribbean Itineraries.
Jason Liberty: Well, I would say what you pointed to is directionally right. I mean I think we certainly see an uplift not.
Jason Liberty: There's a piece of it which is the uplift on board side or the on island revenue that we get.
Jason Liberty: But there's also a lot of things on the island we don't charge for. And so our guests, whether you're paying for some of the more unique experience, like Hightaway, or the Beach Club, or the slide that you would see on perfect day at Cocoa, that will of course exist.
Jason Liberty: and Perfect Day Mexico. People going to those islands or going to Perfect Day at Cocoa Kay, pay additional money for access to all the things that we also also provide on that island, not just things that you have to pay for. So I think what you kind of pointed to with double digit, you hold.
Jason Liberty: Opportunity is certainly there in the Western Caribbean, and I don't think we can think of something that would not generate more demand because of course we're going to take the learnings.
Jason Liberty: from Coca-Cola, and we'll all be applying things that work exceptionally well. And there's things that we can do better because that's kind of our continuous improvement. mantra, we will certainly do so to drive really strong demand.
Jason Liberty: I think it's also important to add Steven and with all of this too, we're going to have the world beach clubs.
Jason Liberty: and one in Naftali, we're going to have one in Kaza Mel, as well in Van Wattu, which is in the South Pacific. So there are other things that we're doing that will also be value drivers for our shareholders, and also improve our yield profile.
Speaker Change: Okay, God, Jeff, thanks Jason, appreciate it. Sure, one.
Speaker Change: Our next question comes from the line of Matthew Bals with JP Morgan. Please go ahead.
Matthew Bals: Thanks and congrats on another really nice quarter.
Matthew Bals: Thank you.
Matthew Bals: So, Jason, could you elaborate on the continued elevated demand patterns that you cited? Maybe just trends across regions through October that you're seeing.
Matthew Bals: and then for 2025, Naftali, maybe just if you could elaborate on the book to position being
Matthew Bals: Exactly where you want to further upline notes. What exactly that means how it translates to continued margin expansion?
Jason Liberty: I'll take the first one, of course, team can chime in.
Jason Liberty: We have, you know, it's, it's, I think each.
Jason Liberty: Month that goes by our expectations rise, you're seeing that in the close in demand.
Jason Liberty: and even as we saw through the month of October, we saw that the man continued to rise, we're able to...
Jason Liberty: to increase pricing as well as being able to successfully build our book position, whether it's for the quarter or whether it is into next year. So that's what our commentary around the elevation is that it continues to strengthen.
Jason Liberty: and that is the spite obviously having a couple of off days around the hurricanes, right? Because when we have hurricanes there is...
Jason Liberty: You know, people are concentrated on hiding more important things like making sure their homes are secured or they're focused on the news and so there's always a little bit of
Jason Liberty: So often a second come, you know, the couple days in or around a storm. But we were able to see when we look at the month we were at an elevated position. We saw the same thing happen in September, an elevated position.
Jason Liberty: Above and beyond what had already risen through the course of the year and I think that that helps us kind of build not only a strong quarter but also a strong period into next year and all that. Naftali Holtz, Naftali Holtz, on the Alps on the Book Position. Yep.
Speaker Change: So Matt, you can imagine every year we go through this process where, you know, we build a book of business for the next year. We tried to maximize yield, but that's the most important thing that we do and we tried to do and we the last couple of years have been.
Speaker Change: focused on deploying AI tools and other technology to make sure that we are taking all the information and making the right decisions. And what it means is that, you know, we feel pretty good at where we sit. We built a good start to build a good book of business and we have...
Speaker Change: Good runway to continue to drive the man that pricing as we kind of cross the year into into wave.
Speaker Change: yeah
Speaker Change: and Matt, if I could just add one point to it, obviously our yield management tools get smarter and better every day. And when we look back,
Speaker Change: Whether we look back at this at the same time last year or even the year before.
Speaker Change: We would obviously look at that and say we had some summary of grit. We left revenue on the table. The tools we should have slowed a little bit are bookings.
Speaker Change: but we're probably a little more conservative in that and so I think we're building more and more confidence in these tools.
Speaker Change: You know, we're in line with our position at the same time last year, we had a where we were in 2019, we're at higher rates.
Speaker Change: and so you know I think we're not looking to be a...
Speaker Change: Wake up and be able to say, oh look, we're booked ahead of same time last year on a volume standpoint. We're here wanting to make sure that we optimize our revenue.
Speaker Change: for a 2025 and beyond, and that's ultimately what's most important is to drive you or growth, and as strong as strong margin returns.
Speaker Change: and the Great Color Festival.
Speaker Change: Our next question comes from a line of Ben C. Peel with Cleveland Research. Please go ahead.
Speaker Change: Thanks. One of the zoom in a little bit more on the bookings trends recently. It sounds like things I think he used the term accelerator since the last call.
Speaker Change: Despite maybe a little bit of hurricane noise within bookings in Atobro.
Speaker Change: Can you comment on what you expect, bookings, growth, so look like through the course of the quarter I imagine that
Speaker Change: and the BEST strategy. Imagine managing your ad budget through the course of 4K in the early next year as you get a kick in the wave season.
Speaker Change: I think we have not been able or it's probably a good problem to have but when we see demand patterns elevate.
Speaker Change: and I think that's through really just great.
Speaker Change: advocacy from our guests who are coming off of our ships, having the best vacations.
Speaker Change: and then of course we're seeing them book more frequently on Maccarring and then we, you know, that advocacy is building more demand and that helps feed all the great marketing that our teams do each and every day. So I think we continue to expect that we're going to invest.
Speaker Change: and Marketing the way that we have and the types of marketing that we have we have been doing.
Speaker Change: and that's driving you really, really helping demand for our business. So, Rob, you're not guiding on the quarters for next year or for next year.
Speaker Change: Outside of the same moderate yield growth. But I think that we're focused on generating high quality demand across our different channels and our different markets.
Speaker Change: Great, one follow up on that. You mentioned the hurricane having a small impact here on 4Q yields.
Speaker Change: and he carried through into 25 based on what you can see right now. And I think last year at this time, you called out a little bit on the cadence of the out-years yield growth. Anything worth mentioning, still opportunities drive occupancy, anything worth calling out for yield growth in the next year.
Speaker Change: Yeah, hey then, so not really there isn't been any impact from the hurricane, so that's not, and nothing really to call out some of the capacity growth by just giving the dry dark days and the delivery of the ship, that the new ship next year.
Speaker Change: Great thanks.
Speaker Change: Hi Vince, it's Michael just to add on the impact of the elections on bookings we've gone back and done the analysis over literally decades.
Speaker Change: It may be a little bit of volatility during the week of the election but when you spread it over a longer period, there's effectively no impact on booking as a result of elections, no matter which way they go.
Speaker Change: Our next question comes from a line of Benchickin with Miss Uho, please go ahead.
Speaker Change: Hey, thanks for taking my questions. First, I just wanted to touch on something that Jason, I think you mentioned that may have been glossed over. Did I hear you correctly? Did you say that Gulf Coast is a similar size cruise market as Florida, but only half the penetration? And then I'll presumably, sorry, go ahead.
Speaker Change: Yeah, no, actually I didn't say that I said Texas.
Speaker Change: is a similar size marketplace that has half the penetration with a very similar propensity to cruise.
Speaker Change: So I think that having assets like the real beat club in Cosmo, the real beat Mexico will allow us to drive more and more not only of that market, but also.
Speaker Change: More of the Gulf Coast and other markets that can have an easier flight cruise experience and at a lower cost flight cruise experience.
Speaker Change: Got it, and I guess the feedback that you've gotten from customers or the work that you guys have done suggests that it's just a lack of destinations. It's also Texas being under penetrator. How do you think about that opportunity? It seems really compelling.
Speaker Change: Hi, it's Michael, just to add to Jason's comment, this is quite a few really positive things that come with perfect A-Mexico and the role B-G Club Cosmol. One is that we can really introduce a much larger volume of short product market out of Texas, Louisiana, North Florida, Tampa.
Speaker Change: I mean it really is a great opportunity for us and we know that that short product really catches with younger families.
Speaker Change: and of course we'll be able to offer really an extraordinary short break from these ports to perfect day and roll beach club cosemail.
Speaker Change: So we think that's really a huge competitive advantage. And when you think about the product offering that Royal Caribbean will have, for example, in the Texas market.
Speaker Change: You know, we opened up our brand new terminal just around when we came out of the pandemic, that's been a huge success.
Speaker Change: Incredibly efficient, so it can handle the larger, racist and icon class ships. So when you think about that class of ship operating on short product to perfect a Mexico and rural beach club, we think we've really got a great product offering for our
Speaker Change: K.K. That's very helpful. And then shifting gears a little bit, K.K.K.K. is clearly been a material positive over the last couple years. As you think about your next private destination, Paradise Island.
Speaker Change: Directionally, we'll have a similar level of Ancillary, Uplift, per customer.
Speaker Change: Lyr, why not? I know it's slightly different than think of, okay, geographically. Yeah, it's slightly different. I mean, it's going to be an exclusive beach club experience. It does have approximately 4,000 people a day. We'll be able to go to the Royal Beach Club in the Bahamas.
Speaker Change: The difference is that when you go to perfect day, it's a combination of pay for and included in the cruise. You can actually go to perfect day and you can have a great day or perfect day without having to spend additional to experience things.
Speaker Change: But with a raw beach club, it'll be all for pay. I mean, you'll have to literally buy a ticket to go and experience the beach club. And so we see it as a really positive, rather than a new generator with good margins.
Speaker Change: Thanks for shooting.
Speaker Change: Your next question comes from the line of Lizzie Doug with Goldman Sachs, please go ahead.
Speaker Change: Hi there, good morning. Thanks for taking the question. I wanted to start off on costs. I was looking back and you've called out favorable timing of costs. I think every quarter just curious if you can share more details there in which kind of cost book it's that hitting in the fourth quarter. And whether there is also a degree of just, you know, that's wrong cost discipline, but it's also kind of benefiting the cost line.
Speaker Change: Yep.
Speaker Change: Hi Lizzy. So this year is a little unique here. We have a lot of dry docs, double we had last year.
Speaker Change: So a lot of the cost timing that we have called out this year and you're right has been related to those dry docs, specifically around supply chain.
Speaker Change: Impact from the suppliers and we're trying to work around it to make sure that we kind of get the best.
Speaker Change: Timing out of it, but that's always a little tricky especially today, so that's really what it is. And we're trying to manage this, you know, cost really, really.
Speaker Change: Strongly, and really making sure that we are focused on enhancing margin. At the same time, making sure that we make the right investments into the product, making sure that we are investing for the future. So all of that is going to how we manage the cost.
Speaker Change: Got it, that makes sense. And then just on the kind of comments around moderate yield growth longer term. A lot of the questions on the call are focused about all these tailwinds you have with the new private islands, private destinations, the new ship premiums that you have. So does that moderate yield growth longer term? Does that begin upside from the private islands? And then you have coming online with those big premiums. Is that or is that more of a kind of like for like outlook?
Speaker Change: Yeah, hi Lizzy. So I think when we look at modern yield growth, which has a little bit of a range to it, I think when we think about life for like and new hardware, like, typically new hardware, you know, what contribute a pointer so a year to our yields, I mean, you know, because the base is getting...
Speaker Change: Bigger, we do expect there to be a like for like growth and then you get to the higher, again, this is looking at things historically. You get to the higher end of the range when you have the introductions of these private destinations as an example into it. And that's why I think when we look at the outlook, like we're not.
Speaker Change: and we look at the value gap right opportunity that's ahead of us when we think about in the out of you. Each year we try to more plan on what we have seen.
Speaker Change: in the past. And that's where we get into that moderate yield growth.
Speaker Change: I'm kind of outlook. The only I would say is that, you know, you're also in the course of a year where your yields keep increasing. You know, we got it at the beginning of the year at six and a half percent. As Naft commented, you know, we're over 11 percent.
Speaker Change: and the sheer and so just a comparable, you'll get a little bit different. But that moderate yield growth is kind of when we're going to long-term run rate is what we have seen. You'll generally take place in our business and kind of takes into consideration your market trends and behaviors that we have seen over time.
Speaker Change: Got it. Thanks. That's helpful
Speaker Change: Our next question will come from the line of Robin Farley with UBS. Please go ahead.
Robin Farley: Great, thank you. Just hearing your commentary about the 2025 outlook, it sounds like it's sort of off to an above average start. And so, if we look at where you guided yields
Robin Farley: say, the five years before the pandemic, your initial guidance would kind of be in the three to four percent range for net yields. Should we think about that as being kind of what is average or typical and maybe you're sort of positioned to be better than that next year?
Speaker Change: Well, I would say, first, hi Robin, hope you're well. It is still too early for us to guide for next year.
Speaker Change: But I think how you looked at kind of our historical long run average, that's more or less where we...
Speaker Change: where we had landed. We'll see how the book continues to build and our ability to continue to be able to raise prices off of a...
Speaker Change: We've already raised them and that's off of a higher base and see how we continue to close that gap to land-based vacation.
Speaker Change: You know, we're feeling very good about the strength of our demand patterns that we're seeing and the book position and our ability to continue to optimize our yield profile.
Speaker Change: Okay, great. Thank you. And then just as a follow up, a question on your order book. Can you give us an idea of, you know,
Speaker Change: kind of what period you're sort of done ordering for. In other words.
Speaker Change: And I'm counting your options. I'm kind of thinking of them as being orders, but anything that you're still thinking about any periods, like have we seen all of your orders for 2028 at this point, but sort of 29 and forward, still fair game or just how to think about that. Thanks.
Speaker Change: Yeah, I think for the most part, you certainly have seen all of our orders through 27, and maybe even into 2028.
Speaker Change: But as you commented, we have lots of options that are available to us that we've secured. But I will say that we heavily subscribe to
Speaker Change: moderate yield growth, moderate capacity growth, and good cost control. So on that moderate capacity growth standpoint, we continue to look to moderately grow our fleet, moderately grow each of our brands.
Speaker Change: And, again, as just a general reminder, when we order ships and we take ships,
Speaker Change: They're not all going to the same brand, they're not all going to the same market, they're not all going to the same itinerary. We operate a very large global footprint that we feel very confident about our ability to get yield growth and good yield growth on capacity growth over time.
Speaker Change: Great. Thank you. Thanks, Robyn.
Speaker Change: Our next question comes from the line of Connor Cunningham with Melius Research. Please go ahead.
Speaker Change: Everyone, thank you.
Speaker Change: You know, the numbers are obviously very good, Naf, you've done a very good job with the balance sheet.
Connor Cunningham: When I look at your debt at this point,
Connor Cunningham: Not a lot of high cost debt left. Your cashflow is going to start to really ramp. I'm just trying to understand, are you gonna continue to lean in the balance sheet or are we thinking about cashflow as a potentially to really start ramping to shareholders? I realize that may be discussed at the investor day, but just any thoughts that would be helpful. Thank you.
Connor Cunningham: Thank you.
Speaker Change: status, no guarantees, all the guarantees and security that we have granted to everybody during the pandemic to get through are gone now. And then we also feel that, you know, that where we are on the leverage is within our targets.
Speaker Change: We will continue to make sure that we have a very strong balance sheet.
Speaker Change: and while a lot of the high-cost debt is gone, we always continue to find ways to lower the cost of capital and that will be the focus to make sure that we
Speaker Change: generate even more cash flow for the company. And as we think about capital allocation, obviously we need to maintain a strong balance sheet.
Speaker Change: We have a great opportunity to invest as we see a large opportunity in the almost $2 trillion market to continue to win share. So we're doing very important things and strategic things like the new ships, the destinations, technology, and other things to get closer to the customer and just getting better with our business.
Speaker Change: And then, you know, we re-initiated the dividend last quarter and we said that we want to continue to get it to a competitive dividend factor and then, you know, historically there were also was...
Speaker Change: capital return through a buyback. We did something this this quarter with the converts so obviously with a lot of cash generation we will will continue to have those opportunities.
Speaker Change: Okay, helpful. And then...
Speaker Change: You talk about all these investments that you have underway. And, you know, historically, I would think that, you know, with investments come additional cost pressures, and so on and so forth. But I, it seems like this is going to be a regular type of cadence in terms of new product investment, whether it's, you know, onboard, or, you know, private islands and whatnot. So should we just assume that there's going to be an ongoing
Speaker Change: cost pressure from investments.
Speaker Change: and your outlook going forward. The point being is this, like, talk about, you know,
Speaker Change: strong cost management. Is it just, is that going to be embedded in there?
Speaker Change: Yeah, so we managed, yes, absolutely. So, you know, we managed the business and the cost on the holistic basis, right? So we take everything into account, including everything you just said.
Speaker Change: We continue to grow capacity. We're a large company.
Speaker Change: So, you know, as we kind of think about prioritization of where we're going to invest both capital and cost, all of that is taken into account, and we're very much subscribed and committed to the formula, moderate capacity growth, moderate yield growth, strong cost control.
Speaker Change: And we think that a lot of these investments, while they may add some cost to the cost structure, they will have incredible returns and there will be a margin expansion.
Speaker Change: Yeah, I think that's one really important point, which we've gotten this in the past, is...
Speaker Change: is, you know, our focus, while obviously we want to grow yields, we want to manage our costs, but our ultimate focus is growing our margins.
Speaker Change: And by growing our margins, it leads to, obviously, a higher and higher return profile. Higher margins result in more free cash flow and capital that's available to our shareholders, et cetera. So I think that there are these new things that come up that can sometimes cause a little bit of noise.
Speaker Change: in our numbers as we add more destinations without APCDs as an example. But with that, it would also come obviously increasing our yield profile expectations and all that driving a better guest experience, higher margin and higher returns.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of James Hardiman with Citi. Please go ahead.
James Hardiman: Hey, good morning. I wanted to actually stay on this topic of potential investments. It certainly seems like you have a broader menu of investments available to you.
James Hardiman: maybe than ever, and at higher returns, I should say. I guess maybe speak to why your return profile seems to be so much better than...
James Hardiman: that it has been for you, and I would argue maybe better than we've ever seen in this industry. It's one of the questions I continually get, you know, certainly for new cruise investors who just haven't seen this as a
James Hardiman: as a viable or a strong return type of an industry. It seems like something has has changed meaningfully. And I guess as we think about moving forward,
Speaker Change: Where do you think returns ultimately settle in over the long term? Is there a ceiling? You're at double-digit return on invested capital. It doesn't seem like it's it's slowing down necessarily. So just trying to think through sort of what what the endgame is there or at least the long term.
Speaker Change: Yeah.
Speaker Change: Well, you know, James, I think there's a lot of things that are inside of that. I mean, you know, we for, you know, this is a long-term business. We've been making, you know, very, I think, thoughtful investments for a very long period of time. I think a lot of it starts with being very
Speaker Change: discerning about what are the segments we want to be in, building our brands to be leaders in those segments, making sure they're seated with...
Speaker Change: with ships and experiences on those ships that are very much tuned into those segments and what are
Speaker Change: the customers of today and the customers of tomorrow looking like. And then really, you know, looking at how can we enhance the experience and also monetize it, and we've been able to do that.
Speaker Change: on the destination front.
Speaker Change: A lot of that, I think, comes down to, you know, our focus is...
Speaker Change: is orienting ourselves as an experienced business and focusing on what's happening in broad travel, leisure, consumer, on the experience side, and then ensuring that we have the wherewithal and the assets.
Speaker Change: to be able to wake up every day and compete with that.
Speaker Change: And I think that's not just on, you know, things that are very visible like ships, but it's also on technology.
Speaker Change: and how do we take friction out of the experience.
Speaker Change: How do we be more sophisticated in how we yield manage and how we interact with our customer?
Speaker Change: And I think all those things combined is why...
Speaker Change: We feel that we are able to continue to enhance our margins and our return profile.
Speaker Change: which we both think have your runway.
Speaker Change: to that. This is a business with a lot of fixed operating leverage, and so just moderately growing your yield and being mindful of your cost drops a lot of margin and opportunity to the bottom line. And I think us being very focused on how do we take share.
Speaker Change: More share out of that, you know 2 billion. I'm sorry 2 trillion dollar Travel leisure Market is is I think what's what's driving us? And I think that you should expect us to continue to think and behave in that way
Speaker Change: Got it. That's really helpful. And then along those lines as I think about...
Speaker Change: capital allocation, obviously.
Speaker Change: you know, returns focus is key, but maybe can you speak to any non-financial considerations to that? And by that I mean, you know, an early question Naft talked about leverage profile,
Speaker Change: It sounds like there's really no...
Speaker Change: Priority that you're putting on
Speaker Change: bringing that down even further outside of just, you know, refinancing and sort of improving maybe that interest rate. But maybe as I think about some of these land-based vacations.
Speaker Change: In the context of the competitive environment, whether it be other cruise lines or other
Speaker Change: and other land-based competitors, how do you think about these investments in the context of continuing to push your advantage in those areas and what that brings you longer term?
Speaker Change: Sure. Well, as you said, James, I think we feel really good about the balance sheet, Nafcoma, and there's always opportunity for us to do better.
Speaker Change: who are obviously also returning and being thoughtful about returning capital to our shareholders. I've talked about it, you know, competitive.
Speaker Change: Dividend as well as your share repurchasing especially on an opportunistic basis, but of course that's always
Speaker Change: That's always a board decision. And then look, we're focused on how do we keep our customer in our ecosystem.
Speaker Change: Right. And so, you know, we're, you know, we're an experience driven business.
Speaker Change: and how do we have strong sustainable growth and leverage all the experience and know-how we have internally.
Speaker Change: If there are other experiences that can keep our customer in our ecosystem, those are all these things that we'll consider. That probably doesn't mean we have to buy something. It could mean we could build something. It could mean that we partner, have strategic relationships, but ultimately trying to get
Speaker Change: more reps out of the customer and doing that because we're delivering the best vacations in the world.
Speaker Change: And that's why I know we have our slogans, but I think that we are the best in the world at delivering a vacation of a lifetime, and we are building more and more the capabilities to deliver a lifetime of vacations.
Speaker Change: That's really helpful. Thank you.
Speaker Change: Ciao!
Speaker Change: And that will conclude our question and answer session. I'll hand the call back to Naftali Holtz, CFO, for closing remarks.
Naftali Holtz: We thank you all for your participation and interest in the company. Blake will be available for any follow-ups. We wish you all a great day.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Experience the best family vacation in the world, Icon of the Seas. It's the first of a whole new class of ships, where everyone in your crew will have the time of their life multiple times a day.
Speaker Change: You'll never forget the feeling of plunging down six record-breaking slides at Thrill Island