Royal Caribbean Group (RCL) — Q3 2023 Earnings Call Transcript

Good morning, everyone, and thank you for joining us today for our third quarter 2023 earnings call. Joining me here in Miami 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 Investor Relations website and in our earnings release. 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 third 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. Before we begin today, I would like to first acknowledge the devastating events taking place in the Middle East. The horrific terrorist attacks on Israel over two weeks ago have no place in a civilized society. The scale and the barbarity of those attacks should shock us all and brings the situation in the Middle East to a very dangerous low. We are heartbroken at the loss of so many innocent lives then and in the war that continues to this day. Our thoughts are with all who have been impacted, including many members of our own team. I would also like to recognize the incredible effort from our shoreside teams and crew aboard Rhapsody of the Seas. We have been working tirelessly with the U.S Department of State to help safely evacuate Americans from Israel. My heartfelt gratitude goes out to all involved. As relates to the impact of these events on our business, about 1.5% of our capacity in the fourth quarter had planned to visit Israel. Most of the impacted deployment was quickly adjusted, including a few sailings that were home porting in Haifa. The evacuation services of Rhapsody of the Seas were provided pro bono to the U.S government and these costs are included in our financial forecasts. Combined with canceled and adjusted itineraries in the region, for the remainder of the year, the impact amounts to about $0.05 in earnings per share. Now moving on to the business, our teams have done an outstanding job delivering on another strong quarter as we delivered a yield improvement of close to 17% and beat the midpoint of our EPS guidance by 12%. This beat is further solidifying 2023 as a banner year and positioning us extremely well for 2024 and beyond. I want to thank the entire Royal Caribbean Group team, whose enthusiasm and dedication enables us to deliver the very best vacation experiences responsibly while generating strong financial results. During the third quarter, all key itineraries exceeded our already elevated expectations as we delivered a record 2 million memorable vacations and exceptional guest satisfaction scores. As you can see on Slide 3, we had record yields for the quarter driven by new hardware, record pricing in the Caribbean and Europe, as well as onboard revenue rates that were up about 30%. While the performance of our Caribbean itineraries has been excellent throughout the year, we were particularly pleased with a double-digit yield growth achieved on our European itineraries in the third quarter. As we look to the full year, the strong performance in the third quarter and continued acceleration in the booking environment is positioning us well to deliver over 13% yield growth for the year and earnings per share that is twice our original guidance for the year. The unprecedented acceleration in demand and pricing for our leading brands, combined with stronger demand for onboard experiences, were certainly the main drivers of our outperformance. Adding to that, our strong focus on cost has been an important contributing factor to our elevated 2023 results. The healthy demand environment is very encouraging as we continue to build the business for 2024 and beyond. A year ago, we announced a 3-year financial performance program Trifecta, our teams have rallied around the Trifecta targets, focusing on generating strong quality demand, enhancing margins, building for the future, and most of all, delivering the best vacations in the world. As you can see from our results, we are well on our way to achieving Trifecta. Our proven formula for success remains unchanged. Moderate capacity growth, moderate yield growth—although I would not describe this year as moderate—and strong cost controls lead to enhanced margins, profitability, and superior financial performance. As I've said in the past, Trifecta creates the pathway back to what we internally describe as base camp. However, base camp is not our final destination, and our ambitions go well beyond it. As we think about 2024 for the Royal Caribbean Group, from a consumer demand standpoint, we look to both macro trends and data points from the millions of daily customer interactions. On a macro level, some of the economic indicators continue to provide some conflicting signals. However, when we look closer at these trends and indicators related to our customers and their related behaviors and strong propensity to cruise, we see that many of these macro indicators are less relevant to our business. We have more than 130,000 guests sailing on our ships every day, and millions more who book or engage with us throughout our commercial platforms. What we continue to see across all markets, brands, and products is an exceptionally engaged consumer that is looking to book their dream vacations with us. The positioning of our brands attracts guests across broad demographics, psychographics, and at a median household income of at least $125,000. Our customers' sentiment is bolstered by strong labor markets, high wages, surplus savings, and elevated wealth levels. Even better for us is the fact that overall spend on experiences continues to grow and is currently up 25% compared to 2019, with twice the amount spent on goods. Cruising remains an exceptional value proposition with strong demographics and secular tailwinds, allowing us to outperform the broader leisure travel industry. Our goal is to further narrow the gap to land-based vacations, as we attract even more satisfied customers to our vacation ecosystem. I believe that is why when people are raising concerns in other industries, like hotels, airlines, and real estate, our commercial apparatus is firing on all cylinders, with visits to our websites in the third quarter double that of 2019. Our travel partners are also delivering meaningfully more bookings in 2019 levels, even beating our elevated expectations. Our brand's global appeal and nimble sourcing model allow us to attract the highest yielding guests and partially mitigate the impact from the stronger dollar. Now I'll focus on 2024, which is shaping up to be another incredible year for the Royal Caribbean Group. Our capacity is growing by 8%, and our deployment across markets is relatively consistent with 2023, with slightly more Caribbean, slightly less Europe, and a return to China for the first time in 4 years. Demand for 2024 has continued to accelerate, with bookings consistently outpacing 2019 levels by a wide margin. This has resulted in a book position that is ahead of all prior years at higher rates, further positioning us for another year of strong yield and earnings growth. While still early, we anticipate making significant progress towards our Trifecta goals in 2024. Based on current fuel FX and interest rates, we anticipate earnings that will start with at least a $9 handle. Our operating platform is larger and stronger than it has ever been. With the best brands, the most innovative fleet, and destinations, and the best people. Each of our brands is the leader within their category. Royal Caribbean International dominates the contemporary market. Celebrity Cruises has redefined the premium travel space, and no one delivers ultra-luxury and expedition at sea like Silversea. By combining their unique strengths, we have created an attractive vacation ecosystem in which the sum is greater than the parts. Essentially, we are turning our delivery of a vacation of a lifetime into a lifetime of vacations. We will continue to ensure that each brand has what it needs to continue doing what it does best while leveraging our enhanced commercial capabilities to capture and keep customers in our ecosystem, from young families to empty nesters as they seek to return to us time and time again for the best vacation experiences. Our innovative new ships and onboard experiences allow us to continue to differentiate our offerings as well as deliver superior yields and margins. In August, we welcomed Silver Nova, the first of the new evolution class for our Silversea brand. In the next few weeks, Celebrity Cruises will take delivery of Celebrity Ascent, and Royal Caribbean International will take delivery of a game-changing icon of the seas later this quarter, with revenue sailings beginning at the end of January. In 2024, we plan to take delivery of Utopia of the Seas for Royal Caribbean International and Silver Ray for Silversea. With each new ship, we raise the bar in the travel industry while enhancing what our guests already know and love. Also debuting in January 2024, just in time for the arrival of Icon of the Seas, is Hideaway Beach. Hideaway Beach is our newest adult-only ultimate beachfront paradise at Perfect Day at CocoCay. Pre-cruise sales for Hideaway Beach and premium offerings are exceeding our expectations. We are further enhancing our commerce capabilities to optimize our distribution channels, build even more customer loyalty, and lower our acquisition costs. We have seen a significant increase in new-to-brand and new-to-cruise customers this year. In fact, in the third quarter, approximately two-thirds of our guests were new to cruise or new to brand, all while also doubling the repeat booking rate, indicating strong loyalty and satisfaction. We've continued to remove friction and make it easier than ever for guests to pre-book their activities, with about a third of those purchases now coming through the mobile app. In the third quarter, about 70% of guests made pre-cruise purchases at much higher APDs than in prior years. In the third quarter, customers who purchase onboard experiences before their cruise spent 2.5 times more than those who only bought once on board. As we look into 2024, we have booked over double the amount of pre-cruise revenue compared to this year with more guests engaging before their cruises and at higher prices. We will continue to excel in the core and drive business excellence in order to increase yield and capture efficiencies across our platform. Our formula for success remains unchanged. Moderate capacity growth, moderate yield growth, and strong cost controls will lead to enhanced margins, profitability, and superior financial performance. Our sustainability ambitions help inform our strategic and financial decisions on a daily basis, ensuring that we always act responsibly while achieving our long-term profitability goals. We are making progress on our See the Future commitments to sustain the planet, energize communities, and accelerate innovation. We are also progressing toward a double-digit reduction in carbon intensity versus 2019 by 2025 and are exploring multiple options for low carbon-based solutions for our existing fleet while we design the Fleet of the Future with flexibility in mind. This past quarter, we concluded a 12-week biofuel trial program in Europe, a first in the industry to cover multiple fuel types and operating areas. The trials resulted in a 20% carbon reduction while also helping to better understand supply chain dynamics. The decisions we are making now will help position us to deliver a net-zero ship by 2035. In our Achieve our Climate Strategy of Destination Net Zero, our business is performing exceptionally well and we are making significant progress towards achieving Trifecta goals. The future of the Royal Caribbean Group is bright with our strong platform and proven strategies. We are creating a lifetime of vacation experiences for our customers while also delivering long-term shareholder value that allows us to reach new financial records. With that, I will turn it over to Naftali.

Thank you, Jason, and good morning, everyone. Let me start with third quarter results. Our team delivered another strong performance with adjusted earnings per share of $3.85, 12% higher than the midpoint of our July guidance. We finished the third quarter with a load factor of 110% and with net yields that were up almost 17% versus 2019, about 300 basis points higher than the midpoint of our July guidance. Overall, about 50% of the better-than-expected yield performance was driven by European itineraries, with the remainder mainly driven by Caribbean and Alaska. Rates were up approximately 18% in the third quarter compared to 2019, and onboard APDs have been consistently higher even as load factors return to historical levels. NCC, excluding fuel, increased 10.3% compared to the third quarter of 2019, a 100 basis points lower than our July guidance. Lower operating costs, as well as favorable timing, contributed to the better-than-expected costs. Our team continues to deliver strong top line growth while maintaining focus on costs to expand our margin. We delivered an EBITDA margin of nearly 42% in the third quarter, on par with 2019 levels. Over 100% of the revenue outperformance during the quarter dropped to the bottom line, leading to higher adjusted EBITDA and earnings versus expectations. We continue to see strong demand and pricing for both 2023 and 2024 sailings. This has resulted in higher-than-expected load factors and record yields into the third quarter along with a record book position on a forward-looking basis. Now that we are in the fourth quarter, many of our ships have transitioned from their summer to their winter itineraries. In the fourth quarter, about 55% of our capacity will be in the Caribbean, 11% in Europe, and about 13% in the Asia Pacific region. The remaining capacity is spread across a number of other itineraries including repositioning, South America, and expedition cruises. Now let's turn to Slide 6 to talk about our guidance for the full year 2023. We now expect net yield growth of 12.9% to 13.4% for the full year, a 140 basis points increase from the midpoint of our prior guidance. Net cruise costs excluding fuel are expected to be up 7% to 7.5% for the full year as compared to 2019. Our cost outlook has not changed from our July guidance. We do, however, have slightly fewer APCDs due to the canceled sailings that included Israel, impacting NCCx by approximately 30 basis points. Our cost outlook reflects the continued benefit from all the actions we have taken over the last several years to support enhanced margins. We continue to expect record adjusted EBITDA per APCD for the year and an EBITDA margin that is back to our previous record in 2019. So in summary, we expect adjusted earnings per share of $6.68 to $6.63, which includes approximately $0.21 negative impacts from FX and fuel rates as well as sailings that included Israel. Now turning to Slide 7, I will discuss our fourth quarter guidance. Fourth quarter yields are expected to be up approximately 16.2% to 16.7%, driven by our incredible new hardware and a significant increase in rates for both ticket and chip board for like-for-like ships. This range also includes about 200 basis points negative impact from the elimination of the reporting lag related to Silversea. NCC, excluding fuel, is expected to be up 3.9% to 4.4%, including a 60 basis points impact from sailings that included Israel related to reduced APCDs. As for adjusted earnings per share, we expect the range of $1.05 to $1.10 for the fourth quarter. This also includes a $0.18 negative impact from FX and fuel rates as well as sailings that included Israel. Now I will share some insights for 2024, which while still early, is shaping up to be another exciting year for the company. 2024 capacity is expected to be up 8% as we introduce Icon, Utopia, and Silver Ray and benefit from a full year of Ascent and Silver Nova. Capacity growth is most pronounced in the first and third quarters due to the timing of new ship deliveries and dry docks. Our Caribbean capacity is growing about 13% in 2024 and will represent about 55% of overall deployment. We're adding a full year of Icon of the Seas and about 7 months of short Caribbean sailings on Utopia. We also expect to increase the number of guests experiencing Perfect Day at CocoCay with the addition of HideAway Beach. As a result, we expect a total of 3 million guests to experience Perfect Day in 2024, up from 2.5 million this year. European itineraries will account for 15% of our capacity in 2024. Alaska will account for about 6% and Asia Pacific itineraries will account for 10%, marking our return to China with Spectrum of the Seas in Q2 of next year. Capacity for itineraries to visit Israel account for less than 1.5% in 2024. As Jason mentioned, both our book load factors and APDs are higher than all previous years. This is despite having more short Caribbean itineraries and China, which typically book closer in. There are a few factors that are expected to influence the cadence of our yield growth throughout 2024. In addition to the typical variability driven by the timing of new ship deliveries, the return to normal load factors in the first half of the year will bolster our year-over-year yield growth in comparison to the back half. The first quarter will also benefit from the annualization of pricing power that accelerated during wave this year. Now moving to costs. Our focus remains to control costs as we seek to grow our revenue and margins. We also continue to benefit from all the actions that we have taken in the last few years to reshape our cost structure. In 2024, we expect to have double the dry dock days compared to this year because of the timing of dry docks throughout the pandemic. In addition, we are launching HideAway Beach with Perfect Day at CocoCay, while it's accretive to margin as no APCD is associated with it, further impacting cost comparisons. We expect to increase dry dock days and the opening of HideAway Beach to negatively impact NCCx by approximately 300 basis points next year. Outside of that, we expect costs to increase very low single digits consistent with our proven formula. We will provide more details on the financial impact of these items during our fourth quarter earnings call. The combination of our strong book position and an accelerating demand environment is certainly pointing to another year of solid yield growth and a step change in earnings growth as we accelerate towards our Trifecta goals. Turning to our balance sheet. We ended the quarter with $3.3 billion in liquidity. 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 the reduction in leverage and debt levels with the goal of achieving investment grade balance sheet metrics. Utilizing cash flow from operations, we repaid $775 million of debt during the quarter, including $500 million of our 11.5% senior secured notes due June 2025. In October, we refinanced our $3 billion revolving credit facility and $500 million term loan into a new $3.5 billion multi-year revolving credit facility. The successful execution of the new credit facility demonstrates the continued support and confidence in the company's financial position and credit improvement. Also in October, we issued a redemption notice for the remaining $500 million of our 11.5% secured notes due June 2025. This redemption will be funded with existing liquidity. With that, we expect to pay off over $3.5 billion of debt and reduce leverage to mid-4x by the end of the year. Debt pay down actions reduced interest expense by close to $100 million in 2023 compared to our initial expectations and contribute to further increases in earnings going forward as we chip away at our high-cost debt. Our commitment to strengthening the balance sheet is also being recognized by the credit agencies. In the third quarter, S&P upgraded our credit rating by two notches to BB- and Moody's upgraded our credit rating by one notch to B1 with a positive outlook. As the business accelerates and generates more cash flow, we'll continue to proactively and methodically pay down debt and pursue opportunistic refinancings in support of our Trifecta goals. In closing, we remain committed and focused on executing our strategy and delivering our mission while achieving our Trifecta goals. With that, I will ask our operator to open the call for a question-and-answer session.

Yes, excuse me. Hey, guys, good morning.

Good morning.

So, Jason, you essentially just provided us with some guidance for 2024, which is much appreciated. And I would also say probably much better, I think, than anybody would have expected, given the higher fuel costs and kind of those fears out there around your cost structure. So as we think about that spread between the yields and costs, I mean, normally we'd be expecting that spread to be, whatever, 200, 300, maybe 400 basis points. But you guys are on pace this year to see your yields outpace your cost by, let's call it, close to 900 basis points. So, I guess what I'm getting at here is, we think about next year, based on our math to get to that EPS number north of $9. You probably need to see that spread be pretty wide again, given the fact that Naft just talked about costs being up, let's call it 300 to 400 basis points. So saying all that another way is that, I'm guessing your yield expectations for next year must be pretty high at this point. So hopefully that will make sense.

Well, good morning, Steve. And thanks for the question. So, obviously, we are feeling very good about the business, the demand for our brands, the demand for our ships and in destinations. We're seeing that, as I noted in my remarks, not only in terms of the daily interactions with our guests, but also just the high level of booking activity. The strength we're seeing in bookings, where we have been booking at an accelerated pace, really since earlier this year. And of course, as we've been booking, not just for 2023, but we've also been booking for 2024. When we look at our book of business, you'll see a lot of strength and volume. And of course, with strength and volume allows us to continue to improve on the rate side. You combine all that with incredible hardware coming into place next year, especially Icon of the Seas, as well as more volume onto places like Perfect Day because of Hideaway, we feel very good about our yield projections for next year. Now it's still early. So we're not in a place where we're going to guide, but as our general internal ambition is always to make sure that our yields are meaningfully outpacing our costs. Most of our costs, as Naft pointed out, growth next year on a per unit basis is really just driven by additional dry dock days. And of course, Hideaway, which delivers incredible margins, as in which will improve our yield profile, but also has cost with no APCDs. So all in all, we feel very good. I think it's important to just stress that my comment on the earning side was that we expected to at least start with a nine. And not only that, we also expect to continue to improve on an ROIC basis on the overall organization.

Great, that's great color. Thanks for that, Jason. And then again, as we think about, if we got to think about next year, clearly there's a lot of disruption going on with Israel right now, and I think Naft talked about, it's less than, are you talking about that less than 1.5% of capacity for next year. But as we think about the rest of the Med, just maybe how you guys are thinking about customer demand for the rest of Europe next year. And obviously, it's probably a little bit too early to really understand that. But do you expect to see some kind of pullback, whether it's Eastern Med, Western Med, or a combination of both? Or have you pretty much kind of moved your ships and your capacity around enough where you don't think there really will be much pushback from your customer base?

Well, next year, we'll have a little bit less capacity in Europe, about half of our guests for European sailings come from the U.S and the other half come from around the world. We've commented on the 1.5%, and we'll continue to look at that. I think we need to remember we have a pretty nimble sourcing platform if we're worried about that risk. I do think it's a little bit too early in all of this to have any kind of outlook on what we're seeing or our expectations for Europe next year. But our commentary around the strength and the acceleration in demand is not just about one market. It's really about all of our markets. It's not just about one product, it's really about all of our products. Obviously, if these horrific situations continue to occur, that could potentially weigh on a consumer's psyche, but that's not something that we're seeing at this point in time. Historically, when we see that, we typically just see our guests shift in terms of where they want to go. And of course, the vast majority of our capacity in 2024 is going to be in North America.

And sorry, Jason, one more. Just to be 100% clear, your cost guidance for the remainder of this year is unchanged from an APCD, I mean, essentially, all that's happening here is just the APCDs are dropping?

That's correct. That's right.

Great. Thank you. My two questions are actually on the same two topics. One is just a circling back to changes with, I know you mentioned it's only that 1.5% that touches on. I think there are some other words a tiny bit, it's still obviously just single-digit for all the major companies. But are you seeing any ships were not necessarily your ships, but other ships moving into your markets? I know, if it's just a port of call getting dropped, you wouldn't have to redo an itinerary. But if there are ships moving in, where you have existing supply that you're seeing, any kind of impact, or would you say that you're still continuing to see demand for Europe next year at the same levels kind of regardless of what's going on with other shipments?

Yes, I would probably just start off, Robin, with how you started that off, which is at least from what we can tell, this is a pretty low single-digit percent capacity of not just us but some of our competitors, some have a little bit more than we do. I think a shift of that magnitude is pretty material. So if a ship is moving further, maybe into the eastern Med in terms of heading west, or heading into the western Mediterranean, or there's some change in the modified deployment, it's a pretty immaterial shift for the broader industry. Our commentary about first accrues first a brand, the power we're getting out of our ecosystem and our loyalty base, that's not—we are actually much, much more focused on how do we close the gap to land-based vacation than we think that things that make small ships like this would impact our business.

Okay, great. Thank you. And then just on the expense piece for next year, it was very helpful, thank you for sort of breaking out the—I don't know if there's any further breakout of the dry dock. And what that pieces of the 300 basis points, just because in some ways, the timing of that is sort of a non-recurring kind of increase. So I don't know if there's any more breakdown on a 300 basis points. And then if there's any way to sort of help quantify, I know you're not giving full-year yield guidance. But to whatever degree, there's some BPS there that have expense from HideAway. What you would expect the offsetting, I would think you would clearly be more than offsetting that. So just to sort of help investors think about what's really ongoing here, which is, I guess, probably closer to the 100 basis points range so, thanks.

Hey, Robin, it's Naftali. So just on the cost, as I mentioned, roughly 300 basis points related to dry docks and HideAway, the vast majority. So think about like 80% of it is to dry docks, and the remainder is really about HideAway. It's a nice way to ask it again, but I'll just say what Jason said, we were very excited about next year. Our formula, we always strive to drive and grow yields more than cost, and that's definitely what we're intending to do next year.

Okay, great. Thank you very much. Thanks.

Hey, Robin. I have to jump in for a second as Michael, just to update you on HideAway because I was there last weekend. I have to tell you, we are incredibly impressed. It's a spectacular, new destination for Royal Caribbean. We opened for sale for this one product about three weeks ago, and it's going gangbusters. I mean, we're delighted with the product. It's going to be really a game changer. The demand has been exceptional. We've already started pushing up the pricing for that experience. So, of course, all of that comes online with Icon of the Seas, which is by far the best selling product we've ever launched in the history of our business, and it continues to perform at an exceptionally high level. So the combo of Icon with Hideaway is really for us exceptionally exciting. And then of course, we've got Utopia going straight into the shores market to Perfect Day in the summer. That, again, is already selling at record rates, so we're pretty switched on about what's happening in the next year in '24.

Great, thank you.

Hey, good morning, everybody. Thanks for taking my question and congratulations on the strong report. I think I'll take a shot at the second part of the 2024 cost comments from you, Naft. I think when we think about very low single digits, that's pretty cut and dry, and we all know your history of what you were doing pre-COVID on the cost line. When we think about what is in there, though, right, there's China, and then there's Icon. I would think Icon is pushing it down, right? Because of all the APCDs that come along with Icon. But China, I would expect to have a rollout of more sort of cost base over there? How should we sort of think about those two factors when we try and model very low single digits?

Yes, I just think—there's other things too, right? First of all, Icon actually has a lot of venues on it. Yes, there's a lot of APCDs, but we also offer a lot of onboard experiences. You're right; China is a market that we're coming back. Obviously, we're not there today; we're just ramping up. But there's a lot of things that are going into it. And the commentary is we manage our cost across the board and we are very comfortable with the very low single digits as we go into next year.

And Brandt, it's Jason. I just want to add in. Our capacity is growing at 8% next year. And so that's certainly helping making sure we're getting more and more efficient, which is a critical objective of the organization. We are also beginning very much to benefit from new disruptive technology and employing them in different parts of our business that can lower service calls and improve process efficiencies. That's kind of an overall objective is how do we get better each and every year. That's why we believe that excluding the dry docks and Hideaway, which are structural, we will be able to continue to produce low single-digit costs—sorry, very low single digits, yes, Naft just reminded me.

Great. That’s helpful. And then just as a follow-up, the $9 starting point for the EPS figure tells us a lot, obviously. Just to get a sense of getting your guys' heads when you are in your budget process and you're thinking about that figure. Do you want to — do you think you're starting at $9 in any current economic environment? Or do you think you're starting at $9 in the current economic environment?

Yes, so I think one of the things I would say, Brandt, is that we are saying it's going to start with—that it will at least start with the $9. So I wouldn't necessarily peg it to $9; it's just that we're seeing at a nine handle, which I think is just an important thing. Obviously, it's impossible to predict what the environment will look like 6 months from now or a year from now or 5 years from now. But we have a pretty nimble platform. There is a significant value proposition or value differential to land-based vacation. Pre-COVID, we were, call it, 10% or 15%. Today, we are somewhere around 35% to 40%. So there's a lot of value for the consumer to get if there are changes in the operating theaters that we are in. I would also keep in mind that we are pretty well booked, and we will cross this year in a very strong booked position. We have— customers have already made those decisions. But I will say, which I think is an important thing when we look at the consumer, is as we're here on the call, we have thousands of people making bookings for experiences that are at least 6 to 8 months from today. They're making bookings into 2025 and they're even making bookings into 2026. So our visibility in terms of how the consumer is looking at things going forward, at least on a vacation experience on our incredible brands, is pretty good based on where the consumer is standing today.

Excellent. Thanks all.

Great. Thanks. Big picture question. Curious your perspective on the supply/demand kind of dynamic in this industry over the next few years, what you're seeing in the order book, and then on the demand side, it seems like you and some peers as well are really seeing strong performance out of the new to cruise. So what could that mean for the trajectory of demand growth in years ahead as well.

Hey Vince. Hope all is well. So on the order book side, at least what we can see, kind of 5 years out here, is the industry is going to grow on a gross basis around 4%; it could potentially be a little bit lighter if there are going to be some potential more exits over time. That's not a number that can really be changed at this point in time. We really haven't seen a lot of new orders come on the books as of late. I think we have a pretty good view on the supply side. I think when we think about the demand side, I don't think it's just new to cruise. I mean, new to cruise has been very strong; us being indexed more into the short, brings in a lot more new to cruise. But I also think the point about new to brand has really significantly grown coming out of COVID, which we think is another strength. Our point about how focused we are about getting more reps out of our guests through loyalty, through having recognition of our kind of family of brands, we think is also really strong. The last point I'll make is, I know we really focus these conversations on the industry, but I really think we need to focus the conversation on land—on overall vacation experiences. The cruise industry is a sliver of overall vacation and travel and leisure; a 1% shift towards cruise is worth—I think it's like 10 or 11 Oasis-class ships. We're focused on how do we continue to be more competitive with land. We're seeing that with the younger generations who really look at us very much similarly to how they look to go to Orlando or Vegas or skiing, et cetera. If we can close that gap, we can close half of that gap and get back to where we were; that's also worth probably about 10 Oasis-class ships. So we're heavily focused on trying to do that.

Great. Thanks. Then just digging a little bit deeper into this year on the yield side, I think you started around 2% to 4% or something like that and now you're looking for yield up about 13%. So kind of two parts. What's been the biggest positive surprise that has led to that? And then how would you slice up that 13%-ish growth in terms of new hardware contribution, CocoCay, and core price?

What you're really seeing—I mean, kind of across the board, right? Onboard spend is meaningfully higher than we expected. Demand for our new ships is certainly there, but of course that would have been in our original guidance for the year, our expectations on that. Like-for-like is up significantly. So it's not one thing; I think there's been really starting in the wave of this year. Demand for our brands has been at an exceptional level. Demand for ships going to places like Perfect Day has been at exceptional levels and has put us in a position to be able to continue to increase rate, bringing us closer to that value gap that's out there versus land-based vacation. Now I think keep in mind, like crews kind of lagged everybody else coming back from COVID. So I think we're also benefiting from that.

Hey, good morning, everyone. I was wondering if you could talk maybe a little bit about pricing trends and maybe the difference between contemporary and luxury brands and what you're seeing? Similarly, as we think about Europe and next year, I know it's only 15% of your capacity, but you're coming off a pretty strong year. Obviously, that skews a little bit more luxury. And then as we think about consumer willingness to book a European or Mediterranean cruise, any kind of thoughts as we should think about 2024 as it relates to those two sub-segments?

Sure. Well, at least in terms of what we've been experiencing is there has been strong demand on a pricing standpoint, whether it's contemporary, whether it's in the premium space, luxury, or expedition space. I think there's been a little, I would say, more elevated demand that we have seen, especially for Royal and ships that are especially going to Perfect Day have been at an elevated level. But the yield improvement that you've seen through the course of this year, which is significant has really been across all of our brands. I'd also add that our load factor expectations also rose to the course of this year. We returned to normal load factors much earlier than we had anticipated for that. You are right that on the European side, it does skew a little bit more on the premium and luxury side of things. But I think we think overall, at least what we have seen demand pattern-wise, that continues to be very strong. We typically, as we start to get towards the end of this year and early January, is when we start to really see elevation in European bookings as it gets into that 6 to 8-month booking window, which is what we have historically seen.

And I'll just add—just add something that also across the markets, what we've seen this year is pretty strong demand. Caribbean, as we said, has been strong all along, but we were very, very pleased with the summer season in Europe, right, with double-digit yield growth.

Got it. And then pivoting to China a bit. I know you don't have full capacity having a return that yet there relative to 2019, but as you think about the Baltic capacity coming off Eastern Med, is there a willingness or maybe incentive at this point to shift more of your capacity to China? And maybe can you just give an update on demand trends there?

Hey, Dan, it's Michael. We have a China product Spectrum selling out of Shanghai in April of next year. So far, the bookings, both volume and rate, are very good, much better than our 2019 performance, which, of course, was a record for the brand. So we're feeling quite optimistic about the China product. I'm not sure there's any need to shift any capacity at this point from the Baltic or from the Eastern Med. So I think we're in a good position with our China product. We'll be one of the first Western brands operating in China. The indications are very positive, so we'll see how it goes for next year.

Got it. Thank you.

Great. Thanks and congrats on another nice quarter. So, Jason, maybe on the accelerating demand, the book position and the pricing relative to prior years as you cited as we look to '24. I guess, maybe larger picture, how are you balancing pricing power relative to the multiyear market share opportunity relative to land-based alternatives? And then just in the strength in bookings that you cited, have you seen any near-term moderation to note related to the recent overseas conflicts?

Yes, sure. We feel—of course they're always getting better. We have the best kind of yield management systems and the best revenue managers in the world. They are very much looking at volume versus price. We have significantly automated that using AI and so forth to be able to make sure that we have an understanding on the elasticity and the behaviors of the consumer minute by minute. What we do try to do is obviously continue to increase price and then build volumes. Historically, there's been questions about the book position. You plan to be at the same level when you turn the year as previous years. You want to be higher, you want to be lower. The answer really is, it all depends on our ability to continue to drive pricing and then optimizing our yields. Optimizing our yields is key. Of course, and these yield management tools, we're also very focused on what we're seeing in behavior on.

Great. And then maybe just a follow-up. Naftali, on the EBITDA margin profile as we think multiyear, and just looking back to prior peak levels, how would you size up where we stand today relative to the Trifecta plan, which I think calls for low 30s? Just maybe as we think about the puts and takes as you see it today.

Yes. I think I said it in my prepared remarks, but our goal, first of all, is to obviously increase the profitability as we continue to grow the business. But this year, we will be back basically to our margin that we had in 2019, which was a record year. If you kind of do the math, we are not yet in our Trifecta goal. By the way, Trifecta for us is just base camp, right? Our ambitions are beyond that. Our ambitions are to continue to grow the margin much more than we had in 2019, and that will go through with our proven formula, right? We continue to grow the business with capacity growth, moderate yield growth, and really strong control cost controls and disciplined capital allocation; we think will deliver more margin.

Great color. Best of luck.

Thank you. We thank you all for your participation and interest in the company. Michael will be available for any follow-up. I wish you all a great day.