Royal Caribbean Group (RCL) — Q2 2023 Earnings Call Transcript

Good morning everyone, and thank you for joining us today for our second quarter 2023 earnings call. Joining me are Jason Liberty, our Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bailey, President and CEO of Royal Caribbean International. Before we get started, I’d like to note that we will be making forward-looking statements during this call. These statements are based on management’s current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change. Also, we will be discussing certain non-GAAP financial measures, which are adjusted as defined, and a reconciliation of all non-GAAP items can be found on our website and in our earnings release available at www.rclinvestor.com. Unless we state otherwise, all metrics are on a constant currency adjusted basis. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our second 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’m pleased to turn the call over to Jason.

Thank you, Michael, and good morning, everyone. I’m thrilled to share with you this morning our strong second quarter results and another step change in the trajectory of our business. You may recall that we doubled our revenue yield guidance and increased our earnings expectations by 40% in May on the heels of a record wave period that drove strong booking momentum for our brands. Well, as we shared in this morning’s press release, it got even better since then. The combination of strong preference for our leading brands, numerous consumer tailwinds and the attractive value proposition of cruise contributed to strong and accelerated demand for our vacation experiences. Our brands continue to excel, and we not only delivered another outstanding quarter that significantly exceeded expectations, but are also increasing our full year earnings guidance by another 33%. I’m thrilled to share that we are now expecting double-digit yield growth for the full year and low teens growth rate for the remaining quarters. I want to thank the entire Royal Caribbean Group team for delivering another outstanding quarter. Their passion, dedication and commitment allow us to deliver the very best vacation experiences responsibly while generating strong financial results. Last year, we laid out Trifecta, which set clear and ambitious targets. We have made tremendous progress towards those goals and now expect to achieve record EBITDA per APCD and record return on invested capital this year. We are well on our way to achieving Trifecta as we continue to execute on our strategies. As highlighted on Slide 3, we delivered another outstanding quarter that exceeded expectations. The robust demand environment we reported back in May continued throughout the second quarter and translated into strong booking volumes and meaningfully higher prices. During the second quarter, we delivered a record 1.9 million memorable vacations and exceptional guest satisfaction scores. We achieved record yields that were 12.9% higher than 2019, strong close-in demand, higher pricing and continued strength of onboard spend drove the revenue outperformance. While the Caribbean remains a standout performer this year, we were particularly pleased with the strength and quality of cruising demand for European itineraries. This acceleration of demand for Europe contributed to the better-than-expected yield performance for the quarter. Our continued focus on enhancing margins and our disciplined capital allocation resulted in more than 100% of the revenue outperformance flowing to the bottom line. We had record adjusted EBITDA and cash flow in the quarter and achieved significantly better-than-expected earnings. Booking volume since our last earnings call have continued to accelerate, both for 2023 sailings and even more so for 2024 as the majority of the bookings we are currently taking are for next year’s sailings. The North American consumer remains incredibly strong, and volumes from European consumers looking to book their summer vacations accelerated. The strength of our brands and quality of our vacation experiences combined with the value proposition of cruise is translating into double-digit yield growth expectations versus 2019 for the year and low teens growth rate for the second half of 2023. Our load factors are now back to normal. So the incredible yield growth is driven by strength in pricing and onboard spend for both new and like-for-like hardware. While it’s still too early to provide any specific color for next year’s outlook, clearly, the very healthy demand environment we are seeing is quite encouraging. There has been a lot of talk about the state of the consumer, and I want to share what we are seeing from millions of daily interactions with our customers. Sentiment remains strong and is bolstered by strong labor markets, high wages and excess savings. Our customers remain engaged and eager to vacation and build memories with us as they continue to shift preferences towards experiences over goods. Over the last few months, experience spend was up 25% compared to 2019 and double that of spend on goods. Despite this increase, spend on experiences remains lower than the long-term trend line, implying a multiyear catch-up opportunity. Our vacation platform is appealing to a broad range of vacationers and our addressable market continues to expand as we benefit from favorable demographics and wealth trends. In the second quarter, the percent of guests who were either new to brand or new to cruise surpassed 2019 levels by a wide margin, and we have seen post-cruise repeat booking rates nearly double 2019 levels. While we have made positive strides in narrowing the gap to land-based vacations over the last several months, cruising remains an exceptional value proposition, allowing us to outperform broader leisure travel as we seek to further close the gap to land-based vacations, drive better revenue and welcome even more happy customers. Future cruise consideration is near all-time highs and a contributing factor to a doubling in website visits compared to 2019. In addition, our travel partners are now fully back up and running and delivering more bookings than they did in 2019. Our improved commercial capabilities have allowed us to capture this quality demand and expand our share of the guest wallet. In the second quarter, about two-thirds of our guests booked some of their onboard activities in advance of their cruise, translating into incremental spend once on board. While we have made a significant leap, we are still in the early innings of our journey, and we continue to add new features and capabilities to our app and commercial engines. One thing is clear: our guests continue to spend more on their vacation experience, and our teams continue to deliver strong guest satisfaction and Net Promoter Scores. The robust demand we see for our products is bolstered by our industry-leading brands, innovative hardware, enhanced destination offerings, nimble global sourcing model and strong execution by our teams. New hardware has been a great differentiator for us, allowing us to drive quality demand and attract new customers into our vacation ecosystem. In 2023, we take delivery of three new ships that support our strategy and will deliver premium yields in 2024 and beyond. This month, Silversea welcomed Silver Nova, the first of the new Evolution class. Later this year, Celebrity Cruises will welcome Celebrity Ascent, and Royal Caribbean International will take delivery of the game-changing Icon on the Seas late in Q4, with its revenue sailings beginning at the end of January. Looking ahead into 2024, Royal Caribbean International has recently revealed the ultimate weekend getaway, Utopia of the Seas, which will join our fleet mid-next year. Utopia will be the first Oasis-class ship that will be entirely focused on short cruises in the Caribbean, supporting our strategy of competing with land-based vacation alternatives and driving new-to-cruise customers into our vacation ecosystem as we seek to close the value gap. Demand and pricing for Utopia has far exceeded our expectations. Also, in 2024, Silversea will welcome the second in the evolution class, Silver Ray, delivering the future of ultra-luxury cruising. Demand for Ray is very strong, and it is attracting the highest rates for the brand’s Classic fleet. We continue our efforts to deepen the relationship with the customer. We are further enhancing our commerce capabilities to optimize our distribution channels, build even more customer loyalty and lower our acquisition costs. We continue to enhance our e-commerce and pre-cruise capabilities and are seeing increased guest repeat rates and spend, as well as further elevation in the overall guest experience. We will continue to excel in the core and drive business excellence in order to increase yields and capture efficiencies across our platform. Our proven formula for success remains unchanged: moderate capacity growth, moderate yield growth and strong cost control will lead to enhanced margins, profitability and superior financial performance. In conclusion, our business and our amazing team on and off the water are firing on all cylinders as we exceeded expectations in the second quarter and significantly increased our earnings and cash flow guidance for 2023. We are well on our way to achieving our Trifecta goals. Our differentiated platform that includes the best brands, fleet, destination, people and global sourcing platform is winning. And I’m very proud of our teams that go out every day to deliver the best vacations responsibly. And with that, I will turn it over to Naftali.

Thank you, Jason, and good morning, everyone. I will begin by discussing our results for the second quarter. We delivered another strong performance with adjusted earnings per share of $1.82, 17% higher than the midpoint of our May guidance. We finished the second quarter with a load factor of 105% and with net yields that were up 12.9% versus 2019, about 260 basis points higher than the midpoint of our guidance. Overall, about half of the yield growth was driven by new hardware and half driven by a significant increase in rates on like-for-like hardware despite being a bit behind on load factors. Rates were up 17% in the second quarter compared to 2019. NCC, excluding fuel per APCD increased 9% compared to the second quarter of 2019. While our costs came in consistent with our May guidance, the increase in our share price and the significant increase in our financial outlook for the year resulted in higher stock-based compensation. This cost, which contributed 220 basis points to the quarter, was offset by favorable timing that will shift into the third quarter. Our operational and commercial teams are doing an exceptional job driving strong top line growth and maintaining focus on operating expenses to expand margins. Our EBITDA margin in the second quarter has recovered to its 2019 levels and over 100% of the revenue outperformance during this quarter dropped to the bottom line, leading to significant earnings beat versus our guidance. As Jason mentioned, booking volumes since our last earnings call significantly exceeded 2019 for both North American and European consumers. Caribbean itineraries account for about 55% of our full year capacity and about 37% in the third quarter. Strong demand for Caribbean itineraries contributed to the strong performance in the second quarter and is one of the key drivers of the increase in expectations for the full year. Europe sailings account for 17% of our full year capacity and 35% in the third quarter. The acceleration in demand is resulting in an increase in our revenue expectations for European sailings. The better-than-expected performance has mostly been driven by our European customers, which underscores our nimble and global sourcing model. Alaska only accounts for 6% of our full year capacity, but represents 16% in the third quarter. We have added three additional ships to the region, with capacity up about 60% versus 2019 for this high-yielding product. Similar to the Caribbean, we have seen very strong volume trends for Alaska sailings, and load factors have been above 2019 since early this year and in line with our expectations. Now let’s turn to Slide 6 to talk about increased guidance expectations for the full year 2023. We now expect net yield growth of 11.5% to 12% for the full year, about 450 basis points increase from the midpoint of our prior guidance. About 15% of the increase is driven by the strong second quarter results, with the remainder due to a significantly better business outlook for the rest of the year. The further increase in yield expectations for the year is the result of higher pricing and further strength in onboard revenue. Both new and like-for-like hardware are driving higher pricing for our core products. Yields for both remaining quarters are expected to be up in the low teens, with third quarter yields up 13.75% at the midpoint of our guidance range and an acceleration throughout the year. Net cruise costs, excluding fuel, are expected to be up approximately 7% for the full year as compared to 2019. Our cost outlook reflects the continued benefit from all the actions we have taken over the last several years to support enhanced margins. As I mentioned before, the increase in full year 2023 costs is mainly a result of the increase in stock compensation expense. We also recently announced our return to China in spring of 2024. In anticipation of this return, we plan to increase our cost in support of the restart. As I noted on the last earnings call, full year net cruise costs also include 210 basis points of structural cost that we did not have in 2019 and mostly related to operations of CocoCay and our Galveston terminal. Our team’s focus on delivering the best vacation experiences responsibly while enhancing profitability is translating to the bottom line. For the second half of the year, 90% of the increase in revenue expectation flows through to earnings and increases our margin. We also expect record EBITDA per APCD for the year and an EBITDA margin that is an eyelash away from our previous record in 2019. So in summary, based on the current business outlook, along with current fuel pricing, currency exchange rates and interest rates, we expect adjusted earnings per share of $6 to $6.20. Now turning to Slide 7, I will discuss our third quarter guidance. Net yields are expected to be up 13.5% to 14% compared to 2019. Exceptional strength in Caribbean itineraries and accelerating demand for Europe itineraries is driving the increase in yields. NCC, excluding fuel, is expected to be up approximately 11.2%. About half of the cost increase compared to 2019 relates to structural costs, timing shift of operating expenses from the second quarter and an increase in stock-based compensation expense. Many factors contribute to variability in cost growth within quarters, and our focus is on full year cost management. With that said, we expect costs in the second half to normalize to the yearly average, with fourth quarter benefiting from a more favorable comparable mainly due to increased dry dock days in 2019. So in summary, based on current currency exchange rates, fuel rates and interest rates, we expect adjusted earnings per share of $3.38 to $3.48 for the third quarter. Turning to our balance sheet, we ended the quarter with $3.7 billion in liquidity and generated $1.4 billion in operating cash flow during the second quarter. Our liquidity remains very strong, and strengthening the balance sheet continues to be a top priority. Better-than-expected cash flow generation and our disciplined capital allocation has allowed us to accelerate reduction in leverage and debt levels with the goal of achieving investment-grade balance sheet metrics. Utilizing cash flow from operations, we repaid $1.6 billion of debt during the quarter, including $392 million of our 11.5% senior secured notes due June 2025. Also during the quarter, we settled the 4.25% convertible notes that were due in June with $337 million of cash and 370,000 shares. Then in July, we redeemed an additional $300 million of our 11.5% senior secured notes due June 2025. As a result, we only have $700 million of those notes currently outstanding. That paydown action will reduce interest expense in 2023 and beyond and contribute to further increase in earnings as we chip away at our high-cost debt. As for leverage, this year, we will have $3.2 billion of debt related to new ship deliveries that are contributing minimal to no EBITDA in 2023. When excluding this debt from the calculation, we expect our leverage ratio to be in the mid 4 times by the end of the year, a significant progress toward our goal of achieving investment-grade balance sheet metrics. As our business accelerates and generates more cash flow, we will continue to proactively and methodically pay down debt and pursue opportunistic refinancings in support of our Trifecta goals. In closing, our business continues to accelerate, and we remain committed and focused on executing our strategy and delivering on our mission while achieving our effective goals.

Hey guys, good morning. First off, congratulations on another very, very strong quarter. So Jason, as we think about the Trifecta targets, it seems to us based on the trajectory of the business there is now probably somewhat of a high probability that some of these targets could be achieved possibly a full year in advance of your current 2025 time frame. So based on the strong demand you’re seeing already for 2024, is it fair to assume that achieving some of these targets much earlier than you were expecting is a fair statement? And look, I know that’s kind of a call question, but just based on the current trends, it does just seem like you guys are on that path.

Well, thanks, Steve, and good morning, and good morning to everybody. I hope everybody is doing well. So first, I would say Steve, as we pointed out, Trifecta was, as we described it, base camp. We think there’s a lot of value to unlock here in the company as our people and our brands just continue to execute as we grow our business. And so as you pointed out, the current trends that we have been seeing, especially in the booking environment, point to many of these metrics being able to be achieved earlier than we had anticipated them to be. And of course, we believe very much as we have in the past that setting coordinates and pointing the organization to those core needs is very important to make sure that we execute on them and beyond. As we get closer to those metrics, we will certainly look to talk about what the next base camp or base camp two is that will be pointing the organization to. But as you said, when we look at these other trends, the booking environment on how we’re executing the preference for our brands, and us, again, being able to further close the gap here to what we see as really the competitive set with land-based vacation, the outlook looks really bright. And so I think we would say that these trends would point to an earlier arrival at base camp, but we’re not in a position that it’s too early for us to say exactly what that timing is going to be.

Okay. Got you. And thanks for that. And then second question, I guess, just around your booking visibility today, which seems like it’s probably as good as it’s ever been. And I guess my question is, I think historically, you’ve turned the calendar year at let's say a 55%, 60% kind of booked range. And I know it’s still early on, but based on your current marketing plans, the current strong demand that’s out there, not only from the North American side of things, but now it seems like your European customers are getting stronger. Do you expect, if we kind of fast forward to the end of December moving into January, you could turn the calendar year at a higher booked position versus where you’ve been historically?

I think in our discussion about our booking rates, especially concerning bookings for 2024, we are very confident in the demand environment, which strongly indicates good performance for that year. It's quite possible that we are in a better booked position than we have been in the past. However, our priority remains to optimize revenue. Therefore, there could be fluctuations of about 5% in our booking position as we move through different periods because we focus on maximizing revenue rather than just the volume of bookings at any specific time. Our teams have shown that, as we transition throughout the year, their use of advanced tools to manage and enhance our revenue—both from ticket sales and onboard services—is key to improving our yield profile.

Okay got you. Thanks guys, really appreciate it. Congratulations.

Great, thanks. Obviously, really strong results. Just looking at your expense guidance outside of just the compensation that’s tied to your performance, it hasn’t really changed. So I know it’s early to talk about 2024, but if your higher expense hasn’t sort of worsened over the last few quarters, does that give you the visibility that maybe 2024 expenses could look kind of like a normal year in terms of the increase year-over-year, if the outlook hasn’t been worsening for you as it maybe has for some others? Thanks.

Hi Robin, good morning. So yes, first of all, all the expected guidance that we’ve shared today is really the result of all the actions that we talked about and really our team’s exceptional job of managing expenses and expanding margin as our yield is growing. And obviously, in 2023, we were comparing to 2019, that was four years ago. So as we look into 2024, there is nothing extraordinary. There are a couple of things that are going to be a little bit structural, for example, we are opening HydoWay Beach. But generally, it should be a normal year.

Yes. And Robin, I just wanted to add to that because I do think it’s important to recognize that if you kind of string together the calls through the pandemic and all the actions that we took to position ourselves to really outperform and grow our margins, a lot of that work has really helped absorb a pretty significant inflation that we saw across a lot of the items that impact our product. And so we were able to really absorb that and still produce significant Net Promoter Score. So very, very thoughtful of not impacting the product or the experience, which could be easily done to help something in the short-term. But in the long-term, it has really paid off for us as there is clear and very strong preference for a vacation standpoint to travel with the group and the great brands that are inside of it.

That's great, thank you. I just want to clarify your mention of restarting operations in China in April 2024. Can you provide some insight into what that might entail regarding startup costs? Is there any way to quantify the scale of that? Thanks, that's all from me.

Good morning Robin, it’s Michael. I’m fortunate to be calling you from the beautiful Allure of the Seas, participating in the call using our StarLink technology. We’re currently on the President’s cruise with over 3,500 of our loyal guests and an additional 2,500 guests on this amazing voyage. While I'm in my swimwear, you can’t see that. I share this to express how wonderful it is to reconnect with our loyal guests and experience their incredible feedback and loyalty to Royal Caribbean. Regarding China, we have opened for sale and approached bringing back our employees thoughtfully over time. As we progress through 2023, we’ve accounted for the increased SG&A expenses in our forecast while also mitigating some of those costs. Looking ahead to 2024, we anticipate a full year of typical operations for a one-ship operation, supported by shared services from our Singapore office. Although it’s still early, the indicators are looking positive, and we are pleased with the bookings and our ability to scale back our teams to manage, market, and operate our China operation.

Yes. And just Robin, to your question, the increase between our May guidance and in cost and what you have today is entirely due to the stock-based compensation, which is the majority of that increase and a little bit of that China expense that Michael was talking about.

Great. Thank you.

Hey good morning everybody. An excellent quarter. So first on European consumer demand, you mentioned it several times, and it was clearly one of the surprising positive takeaways here. Just maybe if you could give us a sense of how you measure the European consumer's recovery versus how you measure the U.S. Consumers recovery. Just trying to get a sense of how far back the European consumer is so that we can kind of get a sense if there’s further recovery from that source to go?

Brad, I think I would position it less about their recovery in terms of what their willingness is to spend because their willingness to spend was very competitive with the North American consumer. I think the difference is that they were delayed and kind of activating their vacation. As we talked a little bit about on the May call, we expected Europe to be a little bit lighter versus 2019 in terms of load factor, and it came roaring back. And that’s a story of one of the North American consumer just feeling that they needed to vacation in Europe, but also the European consumer kind of was very much part of that story. So I think it’s less about what they can afford to spend or what they are spending. I think it was more that they were delayed by 45 to 60 days than what we typically would see in a normal booking window. And again, these are things that are on the margins because we were substantially booked, obviously, going into the summer for Europe.

Okay. That’s super helpful. And then on 2024, you guys have an exciting docket here with the Icon and the CocoCay expansion in China reopening. How would you sort of stack up those three things in terms of a tailwind to yield in the year of 2024 if they’re all something meaningful and eventually quantifiable? And then is there anything dilutive to yields in 2024? I mean, China, I guess, could be dilutive because it’s sort of a restart year and then Utopia is a brand new ship, but it’s in a short market. So how do we think about that? Thank you.

Hi Brandt, this is Michael. We don’t see China as being dilutive. We feel very positive about China. We certainly see Utopia as a big, strong game changer. What we’ve seen so far from our bookings, both volume and rate are incredibly encouraging. And we’ve been very thoughtful, as Jason mentioned earlier, about the strategy of putting really outstanding hardware combined with excellent destination into the short product market because it truly is the on-ramp for new to cruise and also first to brand. So our indications as it relates to the new product lineup coming online in ‘24 are exceptionally positive. And I’d also like to add that Icon and Utopia and, in fact, Wonder, when you look at this gap between land-based resorts and land-based experiences versus some of our top products, particularly these, we’re talking about, there really is no gap. The gap has been narrowed quite significantly, and we feel very positive about where we’re going to go on that journey. So as we think about 2024 and look at these products, and see what’s occurring in terms of the booking activity both from a volume and rate perspective, the excitement we see for these products, we feel very positive about their impact in 2024.

One other quick comment regarding the yield is that, in relation to our bookings, there is tremendous demand for our new ships, and Icon has likely set many records. However, it's essential to note that when we analyze our booking data, it's not solely about the new offerings; the comparable figures are also robust and on the rise. This observation includes some insights from 2023 and mostly pertains to what we anticipate for 2024.

Yes. And Brandt, I’ll just add two more things. One is, obviously, we have this year, we are not returning to normal load factors, but the first half of the year was a little bit lower. So that should also contribute to yield next year. On the other hand, we are now in the planning process for 2024, considering all the talks that we need to do next year, which could be more elevated than this year, which obviously will impact some of the costs a little bit on the yield.

Yes. And the elevation on the dry dock is just a reflection of ships that came out of COVID that had missed those windows. And so it will be a little bit more elevated in 2024, but just a point.

That’s it for me. Congrats again.

Thanks and nice to see the results. I wanted to dig into the yield upside a little bit more. I know you mentioned it was a mix of onboard and ticket, but when you think about, I think, 1Q by 4 points, 2Q beat by almost 3 points. And when you consider the volume of business kind of on the books going into the quarter, it seems to speak to price maybe on a leading-edge basis really exhibiting a nice trajectory. So curious if you could kind of comment on that and how that informs your approach to 2024 as you’re thinking about kind of finding the balance in the booking curve.

Good morning, Vince. I hope you’re doing well. As Naftali mentioned earlier, one of the main reasons for the shift from our May guidance to now has been our pricing. We originally expected the load factor for the second half of the year to normalize, but we’ve been pleasantly surprised by our ability to increase prices and see demand come in at significantly higher levels than in previous periods. This indicates a strong preference for our brands, the effectiveness of our commercial teams, and our success in keeping customers within our ecosystem. Additionally, the significant value gap compared to land-based vacations is helping us raise prices. Our average per diem for the full year is projected to increase by over double digits in the second half, reaching the low to mid-teens compared to 2019. This performance exceeds our earlier expectations and shows that even as we increase prices and take on bookings, we are not seeing a negative impact on demand. Onboard spending is another area driven by our effectiveness in streamlining the booking process for our customers. We aim to enhance the guest experience by allowing them to book activities ahead of time, ultimately giving them back valuable vacation time. We are in the early stages of improving this process and, although we still have some friction points to resolve, our teams have made significant progress. This improvement can also support a higher customer deposit balance as we facilitate onboard spending bookings.

Great. That’s really helpful. And I wanted to zoom in a little bit more on CocoCay. I think that you guys were on track to take about 2.5 million passengers there this year, kind of with a path towards $3.5 million in 2025. Curious kind of where 24 maybe falls within that window if it’s closer to 25% or 23%. And then just what you guys are seeing in terms of customer feedback around desire to repeat visits to CocoCay and maybe how you think about the decision to send Utopia and Icon to CocoCay as well?

Well, Vince, thank you for the question. I mean one of the reasons we call it Perfect Day is it really is perfect. And it is driving a lot of the demand, and people are booking the ships and the itineraries that sell to Perfect Day. It really is delivering an exceptional customer experience, and people value that immensely. And we see the repeat rates going back to Perfect Day accelerating. As we look at the volume of guest we’ve got at Perfect Day in 2023, 2024, 2025. Obviously, we’ve planned to open Hideaway Beach at the end of this year in time for Icon and Utopia; that’s going to increase our ability to add more guests to Perfect Day by about 3,000 people, and that will come online literally in December of this year. So that allows us then to continue to increase our capacity into Perfect Day. We’ve also got the Royal Beach Club in Nassau, which is moving through its various approval processes, environmental and governmental permits and what have you. That’s looking promising, and we’re planning on opening the Royal Beach Club in the summer of 2025. So when you add that experience, the Royal Beach Club, along with Perfect Day, we feel like we genuinely have the ultimate big weekend. And that’s, of course, why we’ve got Utopia coming online and going straight into the short market. So it’s a great product; it’s combined with incredible assets, the ships that we’re sailing to Perfect Day. I don’t think Perfect Day without these ships would be the complete perfect vacation, but we really do feel like we’ve got it right. We continue to focus on delivering excellent guest experiences. It’s somewhat of an obsession within the team. And of course, more recently, Celebrity announced that they’re also sailing to Perfect Day, so that’s great for the celebrity brand as well. So we see it as a great success, and we continue to refine it and develop it, and we continue to plan to bring our guests to Perfect Day.

That makes sense.

Great, thanks and congrats on another nice quarter. So maybe to elaborate on the acceleration in trends that you’re seeing in both passenger ticket and onboard spend relative to 2019. I guess how best to think about sustainability multi-year as you break down trends between new to cruise that you’re seeing versus existing cohorts? And are there any lead indicators at all that point to any future softening on any metrics?

Well, first, I think the acceleration we're observing is due to a few factors. One reason is that we're gaining a larger share of spending because we're improving the booking experience by reducing friction. This is evident in the increasing volume of guests who prefer to book directly with us online since we streamline the cruise booking process and enhance the pre-cruise experience to encourage early bookings. While part of this may be influenced by pricing, a significant factor is the smoother experience we've created and the effective tools we've implemented to simplify the booking of those experiences. This contributes significantly to the acceleration. Additionally, we believe we have the best brands, ships, and destinations that enhance the attractiveness of the vacation experiences we provide for our guests, which also plays a crucial role in this acceleration. Throughout our discussions today and in our release, there are no signs of a slowdown; instead, we see clear indicators of growth as we continue to have the capacity to raise prices. Our guidance reflects the current booking environment, and we've noticed ongoing acceleration from one period to the next. Much of what you observe can be attributed to our execution and long-term strategies rather than simply following market trends, which is important to note. I want to stress that in the booking environment, ticket sales, and onboard spending, we do not see any signs of weakness.

Matt, I’ll just add, yes. I’ll just add also, obviously, we made great progress on closing the gap to land-based vacation, but the value gap is still there, and we see this as a great opportunity to continue to grow yields. And then just taking market share from the global leisure market, right? And you can see some of that success with new to cruise; that’s really core to our strategy.

Great. And then just on the bottom line as a follow-up. So as we think about EBITDA margins multi-year, and just looking back at prior peak levels, is there any reason to consider that Trifecta plan as a ceiling? Or just any unlocks to consider, which would point to this model as accretive relative to pre-pandemic profitability levels?

Yes. So as you know, Trifecta for us, as Jason said, was base camp. And if you kind of look at the triple EBITDA per APCD, triple-digit EBITDA per APCD, which obviously is at least 100. It does have a margin expansion beyond 2019 but as we continue to grow that, we see a lot of opportunities on multiple levels, right? Growing yields, lower acquisition costs, just scaling the business as we grow and our ambitions are above 2019 levels, that’s for sure.

Yes. But I would just add, there is nothing structural that I’d say puts that at risk. I think what we need to focus on, and we know this about our business model is moderate yield growth which I would not, again, call this year moderate, but moderate yield growth, good cost control leads to expanded margins as we grow our business. Every 1% change in our yield is $110 million plus and a 1% change in our cost is about $50 million. So to grow your yields faster than you grow your costs, and you’re going to continue to expand your margins.

Well, thank you everyone for your participation and interest in the company. Michael will be available for any follow-ups. We wish you all a great day.