Royal Caribbean Group (RCL) — Q2 2024 Earnings Call Transcript

Good morning, everyone, and thank you for joining us today for our second quarter 2024 earnings call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bayley, 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 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 second 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.

Thank you, Michael, and good morning, everyone. I am proud to share our outstanding second quarter results and the continued upward trajectory of our business. As you saw in the press release this morning, our momentum continues. Demand for the incredible experiences our leading brands deliver continues to be robust. As a result, we achieved Trifecta 18 months early. We are reinstating a dividend, and we are raising our full year guidance. Less than two years ago, we announced Trifecta, a three-year financial performance program that created the pathway back to what we internally call base camp. We said we would deliver triple-digit adjusted EBITDA per APCD, double-digit adjusted earnings per share, and return on invested capital in the teens. Today, I'm delighted to share that we have achieved all three Trifecta goals on a trailing 12-month basis, 18 months ahead of schedule. In addition, our leverage is now below 3.5 times when excluding the impact of new ships that were delivered midyear. With Trifecta accomplished and our balance sheet in a strong position, we are excited to broaden our capital allocation by reinstating a quarterly dividend of $0.40 per share. Capital returns that include a competitive dividend have always been and will continue to be a key pillar of our strategy to supplement growth as we focus on delivering long-term shareholder value. I want to thank the entire Royal Caribbean Group team for their passion, dedication, and commitment. Their efforts helped accelerate our path to reaching Trifecta and will continue to ensure that we deliver the best vacation experiences responsibly while driving exceptional financial results. Trifecta is an important milestone, but we are just getting started as our ambitions go well beyond it. We are excited by the large opportunity in front of us as we seek to take a greater share from the rapidly growing $1.9 trillion vacation market. Our plan to capitalize on this opportunity is well-grounded in a set of underlying strategies, the powerful foundation of our leading global brand, and a proven formula for success: moderate capacity growth, moderate yield growth, and strong cost discipline with the best people in the world to execute it all. Now, moving on to our results. The second quarter exceeded our already elevated expectations. We have seen an incredibly robust booking and pricing environment across all our key itineraries, which is not only setting us up for success in future periods but also contributed to the outperformance in the second quarter. This, coupled with continued strength in onboard spend, which is heavily influenced by our pre-cruise commercial engine, drove the revenue and earnings outperformance for the quarter. In the second quarter, we delivered approximately 2 million vacations with exceptional guest satisfaction scores. Yields grew 13.3% compared to the second quarter of last year, which was almost 300 basis points above our guidance. The revenue outperformance combined with approximately $0.15 in favorable timing of costs resulted in adjusted EPS that was considerably higher than our guidance. Naftali will elaborate more about second quarter details and results in a few minutes. The strong demand environment is also translating into higher revenue and earnings expectations for the balance of the year. We are increasing full-year yield growth expectations by 115 basis points compared to our prior guidance, and we now expect adjusted earnings per share to grow 68% year-over-year. 2024 bookings have consistently outpaced last year throughout the entire second quarter and into July, despite the fact that we have significantly fewer staterooms left to sell, leading to higher pricing for all key products. The North American consumer, who represents approximately 80% of our sourcing this year, continues to be robust, driving strong yield growth across all key products. In addition to strength in the Caribbean, European and Alaska summer itineraries are performing exceptionally well, and we have experienced greater pricing power than expected since our last earnings call, leading to increased expectations for yield growth. Our nimble sourcing model, coupled with our brand's global appeal and leading position in their respective segments, allows us to successfully capture quality demand across the segments, sourced from new and younger consumer bases, and attract the highest yielding guests. With such strong momentum, 2024 is on track to be another exceptional year with double-digit yield growth and significant earnings growth. We now expect full-year net yield growth of 10.4% to 10.9%. Our yield outlook is driven by the performance of new and existing ships combined with our leading private destinations and a strong pricing environment, continued growth from onboard revenue, and our accelerating commercial apparatus. We increased our revenue expectations for the second half of 2024 and now expect to deliver mid-single-digit yield growth in the back half of the year, which continues to be above our typical moderate expectations. Just as a reminder, this is on top of approximately 17% yield increase versus 2019 in the back half of 2023. We also continue to expect higher margins and higher earnings with adjusted EPS expected to be between $11.35 and $11.45, and EBITDA margins expected to be over 300 basis points higher than last year. As we look ahead, we remain focused on executing our proven formula for success: moderate capacity growth, moderate yield growth, and strong cost controls, which lead to enhanced margins, profitability, and superior financial return. We continue to see very positive sentiment from our customers bolstered by a resilient economy, low unemployment, stabilizing inflation, and record high household net worth. Consumer preference continues to shift towards spending on experiences, particularly prioritizing travel. Consumers have 10% more vacation days compared to 2019, and they are using half of that increase to travel. In fact, our research suggests that consumers are spending more on travel than any other leisure category and that they intend to increase their travel spending in the next 12 months. Cruise remains an attractive value proposition, and cruise purchase intent is high and continues to strengthen. Consumer financials remain healthy across demographics. The number of baby boomers reaching retirement age is expected to grow 30% to 73 million by 2030. Based on our research, retirees take 50% more vacation time than non-retirees. The baby boomer generation also holds 50% of the $156 trillion of US wealth, and they are expected not only to spend more on travel but also to transfer $72 trillion of their wealth to other generations over the next two decades, including traveling together. We are already benefiting from that active and real-time wealth transfer through multigenerational travel across our brands. Our research shows that younger generations, millennials and younger, are also benefiting from the 10% increase in leisure time compared to 2019, and they intend to allocate more of this time on travel than any other leisure category. This attractive traveler continues to gain share within our customer base at a faster pace than any other generation. Today, one of every two customers is a millennial or younger. Their travel needs and behaviors vary across trip length and type, so the differentiated experiences offered by our incredible brands resonate extremely well with these next generations of cruisers. Our addressable market is growing, and we are attracting more customers into our vacation ecosystem. New-to-cruise customers are up double-digits versus last year, and at the same time, we are seeing stronger repeat rates. Once booked, guests are quickly engaging with us and buying significantly more onboard experiences per booking than in the second quarter of last year. Both earlier and on meaningfully higher APDs translating into higher satisfaction rates and higher onboard spend. Putting customers at the center of our orbit has been critical to our success and allows us to meet guests for all of life's moments, transforming the vacation of a lifetime into a lifetime of vacations. A key differentiator for us on this journey is our hardware, where we are constantly innovating. This quarter, we took delivery of Utopia of the Seas, the ultimate weekend getaway, positioned to be another game changer for our short Caribbean product. Our short Caribbean cruise product is an important entry point for new-to-cruise and new-to-brand, with nearly seven in ten guests following in these categories and always skewing more towards younger customers. Younger consumers find this product particularly appealing. In fact, approximately 40% of guests who follow in this demographic have indicated that they intend to book a short vacation in the next 12 months. Moreover, 90% of guests who sail on our short product cruise again, with roughly half planning to return for a longer cruise. We also launched Silver Ray, which continues to redefine the ultra-luxury segment. Since introducing Nova class last year, Silver Nova and Silver Ray have attracted a higher mix of younger guests than the rest of the fleet. We have an exciting lineup of new ships on order, including Celebrity Cruises, Celebrity Excel, which launches in late 2025, and Royal Caribbean's Star of the Seas debuting in mid-2025. The third Icon class ship is slated for 2026 and the seventh Oasis class ship for 2028. We also continue to lead the vacation industry with exciting new experiences on our ships and our portfolio of private destinations. Perfect Day at CocoCay continues to perform exceptionally well, and we are reaching important milestones on Royal Beach Club Paradise Island opening in 2025 and Royal Beach Club in Cozumel, Mexico opening in 2026. These new experiences uniquely position us to continue taking share from land-based alternatives. As we deepen our relationship with our guests, this quarter's launch of our enterprise loyalty status match program is an important step in integrating our brands, rewarding our guests for staying within our family of brands and making travel planning even more seamless. In just two months since the program launched, we have seen a significant increase in enrollment across all of our brands and positive feedback from our loyal fan base. Once customers book their dream vacation, over 90% utilize new features and enhancements on our apps. Notably, more than 70% of guests are making pre-cruise purchases before they sail, and they spend more than double compared to those who only make purchases onboard. Finally, our sustainability ambitions help inform our strategic and financial decisions daily, supporting our mission to deliver the best vacation experiences responsibly. We remain committed to our See the Future vision: sustaining the planet, energizing communities, and accelerating innovation. Our recent Maritime Decarbonization Summit onboard Utopia of the Seas underscores our commitment to reaching net zero emissions by 2050 through industry-wide collaboration. More than 30 shipowners, shipbuilders, and technology and energy providers convened to catalyze advancements in necessary technological solutions and alternative fuels. We are optimistic about this important step unifying our industry and fostering an environment for advancing quality and scalable, sustainable solutions. In summary, our business continues to perform exceptionally well, and we are very pleased with our performance, achieving Trifecta early and reinstating the dividend. This sets us up well as we seek to take share from the rapidly growing $1.9 trillion vacation market. With our strong platform and proven strategies, we are creating a lifetime of vacation experiences for our customers while delivering long-term shareholder value and strong financial results. And with that, I will turn the call over to Naftali.

Thank you, Jason, and good morning, everyone. I will start by reviewing second quarter results. Our teams delivered another strong performance that exceeded our expectations, resulting in adjusted earnings per share of $3.21. The $0.51 share outperformance compared to the midpoint of our guidance is driven by better revenue across our leading brands and key itineraries, as well as approximately $0.15 per share favorable timing of expenses. We finished the second quarter with net yield growth of 13.3%. Load factors were 108.2 and contributed approximately 300 basis points to yield growth, with the remaining increase driven by rates that were up by 10% from both new and existing hardware. OT products had double-digit yield growth with strength in close-in demand for the Caribbean and Europe that drove the outperformance in the quarter. SCC excluding fuel, increased 5.7% in constant currency. The favorable cost performance compared to our guidance is driven by favorable timing of expenses that more than offset the negative impact of stock compensation given the significant appreciation of our stock price during the second quarter. Adjusted EBITDA was $1.6 billion, and gross EBITDA margin was 38%. As Jason mentioned, we also achieved our Trifecta targets on a trailing 12-month basis as of the end of the second quarter. We delivered $113 adjusted EBITDA per APCD, 13% above our triple-digit target, mid-teens ROIC consistent with our target in the teens, and $10.08 adjusted EPS slightly above our double-digit target. Leverage was below 3.5 times when excluding the impact of new ships that were delivered midyear, and we are on track to get very close to our double-digit carbon intensity reduction target by year-end. Our 2024 booked position remains very strong across all products and markets and continues to outpace last year in both rate and volume. The Caribbean makes up approximately 55% of our capacity for the year and 42% for the third quarter. This product is booked ahead in both rate and volume, and strong yield growth is driven by new hardware and higher pricing on existing ships, supported by our private destinations. Europe accounts for 15% of our capacity for the full year and 28% during the third quarter. Europe is in a record booked position in both rate and volume, and continued strength in pricing has resulted in an increase in our revenue expectations for Europe sailings. Our summer Alaska season represents 6% of full-year capacity and 14% in the third quarter. We have increased our capacity this year as a result of upgrading the hardware in the market. Like Europe, we have seen strong demand since our last earnings call, leading to increased expectations for yield growth for this product. Now, let me talk about our increased guidance expectations for 2024. Net yields are expected to be up 10.4% to 10.9% for the full year. The increase in the guidance is driven by higher pricing for both new hardware and like-for-like, as well as onboard revenue. The yield cadence for the year is influenced by the load factor and pricing power catch-up in the first half. The timing of CocoCay's opening makes the comp easier for the first half of 2024. When adjusting for such structural changes, yield growth is just about the same amount in each quarter compared to 2019. Now moving to costs. Full-year net cruise costs, excluding fuel, are expected to be up approximately 6%. Our cost metric is up 50 basis points compared to our prior guidance and is driven entirely by higher non-cash stock-based compensation given the significant increase in the stock price since the last earnings call. We have very few dry dock days in the third quarter, but significantly more in the fourth quarter, which together with the timing of stock compensation expense, will weigh on our cost metrics for the fourth quarter. We anticipate fuel expense of $1.17 billion for the year, and we are 61% hedged at below market rates. We are raising our adjusted EPS guidance to $11.35 to $11.45. I want to provide a little more color on the progress of our earnings guidance. We are increasing guidance by $0.60 for the year. About half of the increase is driven by second quarter close-in demand and the other half is driven by better pricing and business outlook for the rest of the year. As I mentioned, we had about $0.15 cost timing in the second quarter, which is shifting into the back half of the year. Now, I will discuss our third quarter guidance. We plan to operate 13.4 million APCDs during the third quarter. Net yields are expected to be up 6.5% to 7% compared to 2023, and that is on top of a 16.7% yield growth last year. Net cruise costs, excluding fuel, are expected to be up 4.7% to 5.2%. Taking all of this into account, we expect adjusted earnings per share for the quarter to be $4.90 to $5. Turning to our balance sheet. We ended the quarter with $3.8 billion in liquidity. We have been making significant progress in strengthening the balance sheet towards our goal of investment-grade metrics. Better performance and disciplined capital allocation allowed us to reduce leverage below 3.5 times as of the end of the second quarter when excluding the impact of new ships that were delivered midyear. This level is within our target leverage range. We plan to continue to proactively pay down debt and pursue opportunistic refinancing to manage maturities, reduce interest expense, and achieve an unsecured balance sheet. During the second quarter, we paid down the remaining balance of our debt holiday that allowed us to remove any restrictions around capital return. As you saw in the press release today, we also initiated a quarterly dividend of $0.40 per share. In closing, we remain committed and focused on executing our strategy and delivering on our mission.

Good morning, everyone. Congratulations on another strong performance. Jason or Naftali, regarding the guidance for the remainder of the year, I briefly want to touch on the feedback from investors today. It seems the embedded fourth-quarter yield guidance, which I believe is around 5%, is indicating a significant sequential decline and may suggest that bookings are slowing down. I'm assuming the lower yield is largely due to you being at essentially full capacity during the fourth quarter of 2023. Can you provide any additional insights on this? Also, could you share more information about 2025 bookings and whether there have been any changes in booking patterns for next year?

Yeah. Good morning, Steve, hope all is well. So I think maybe just first starting off on the back half of the year. Obviously, our yields have grown significantly since 2019. So in the back half of the year, our yields are up 25% versus 2019. I think our commentary of strength and how we feel about the back half of the year is still very bullish. But as you mentioned, we have been ahead of the curve in terms of bringing our business back up. Our load factors relative to last year were pretty normalized in the back half of last year. So really, all the yield improvement that you're seeing in Q3 and Q4 is being driven by price. I think it signals not only the willingness to pay more but that these prices continue to increase as we build and manage demand. When we think about 2025, first, it's July, so we typically don't talk a lot about 2025. We mentioned in the release that we're now in a place where we're taking more bookings for 2025 than we are for 2024. The strength in the commentary that we talk about on pricing and pricing increases applies to 2025 and beyond. So we feel very good about our strong book position for 2025; pricing is up and increasing are the trends that we continue to see. But I think it's important to note again that load factor recovery is done. We are operating at full factors. It also needs to take into account that the yields have improved by over 25% versus 2019. So it's not necessarily a like-for-like story in the industry to point to. We feel good about 2025. The pattern shows pricing continues to accelerate, and what you're starting to see in the back half of the year is still elevated. Comparing to what we described as our formula of success, which is typically around 3% to 5%, and we're pointing to a yield profile that is at the very top end of that in Q4 and above. If we're growing our yields moderately while controlling our costs and growing our business in a disciplined way, we see significant margin accretion, and superior return and exceptional earnings growth.

And Steve, I'll just add one more thing about 2019. I said it in my prepared remarks, but also remember, in 2019, the first half had an easier comp, right, because we didn't have CocoCay open. It opened in the second half of the year, and with a lot of other structural changes, it was five years ago. It's pretty consistent through that period in terms of your growth.

Thanks for the color, guys. Second question, Jason, would be around your recent change in deployment with Ovation, essentially taking that ship out of China, homeporting it on the West Coast. We've gotten a handful of questions about this move. I think investors are concerned at this time the China market might not be as strong as what you would have previously thought, or maybe it's just the domestic market is way more profitable right now. Any thoughts there or any color around the move would be helpful. Thanks.

Hey, Steve, it's Michael. We're in the fortunate position of having very good market choices to make. I believe in the long-term potential for China has not changed at all. Spectrum, as you know, we started operating it out of Shanghai a few months ago. It's performing very well in the market, and we feel good about the China market. It still hasn't reached the levels we're seeing in the American market. Of course, this is where we've got these good choices. We have strong ambitions to grow the West Coast in the US. Considering California as the sixth largest economy in the world. Navigator, which is the ship we put in the West Coast about a year ago, has been performing exceptionally well. We faced the choice of whether to deploy Ovation into Tianjin or into California. We made the decision based upon maximizing performance, but it doesn't indicate that we're moving away from the China market. We're quite committed to the opportunity there, and we will be announcing more deployment into China in the future.

Great. Thanks, guys. Appreciate the color.

Hey, good morning, everybody. Thanks for taking my question, and congratulations on the dividend announcement this morning. So first question is on the fourth quarter, just following up on Steven's question. The 5% implied yield guidance, which I know you have tougher comps, and that's all price. Can you help us understand what the sort of how to think about the embedded like-for-like is within that? And maybe it's easier to answer. How does that compare versus the like-for-like that you generally embed in your longer-term algo?

Yes. Well, I would comment, Brandt, first, hope all is well. The like-for-like is growing faster than what would typically be in our algorithm. As new ships come on, they're meaningful, but the overall denominator is much larger. The impact on yield profile, I mean, Icon is obviously just unbelievably successful, and Utopia is crushing it. But it's a smaller percentage of our overall denominator. What you're reading into that 5% is that the like-for-like is growing. And as part of that story, it's not just ticket prices but also what's happening onboard. The power of our pre-cruise commerce engine is shifting more of that booking activity for onboard spend forward, which is leading our guests to have a fuller breadth of experiences, which increases our share of the wallet.

Great. That's super helpful. And then just as a follow-up, and I apologize for sort of a shorter-term question, but this earnings season, we have heard from some land-based hotel operators making some softer comments on pricing sensitivity. I'm curious, when you look at your 2025 bookings data, what you're seeing coming in, are you starting to see any pricing sensitivity at all forming at the lower-end itineraries, older ships, your base Royal Caribbean brand versus your other brands? Is there anything that you're seeing?

Yes. We have the opportunity to take on 25,000, 30,000, 35,000 bookings a day. You're going to see the cash register ring pretty much every second somewhere in the world on our ships. I know there might be some seeking signs of a break in the pattern, but there just isn’t. Our guests continue to book further out, and their willingness to pay more for these incredible vacation experiences continues to increase. So our pricing continues to rise into 2025 and 2026. That's not just happening at the short product; it's happening in ultra-luxury space as well. There remains a 20% value gap to land-based vacation options, and our guests receive a lot of value for their money when they travel with our brands. This value gap is potentially shielding us from some of the noise that we're hearing from land-based operators. For us, whether you're looking by product, market, ticket, or onboard payments, we see continued acceleration in pricing.

Okay. Thanks a lot. Great quarter.

You got it. Thanks, Brandt.

Thanks. So I guess it's kind of a question on strategy on a go-forward basis, and you touched on this in your opening comments, just getting back from the Utopia inaugural and from the moment you're boarding the ship to naming ceremony. I mean, it's very clear that you're targeting this kind of getaway, biggest party at sea type of focus. Can you talk about how you make decisions with allocating new hardware towards this shorter sailing that's a getaway as opposed to something more like a week-long vacation, family-oriented Icon-type experience? I imagine that the development of your private islands close to South Florida might unlock some of this. But what do you see as being a bigger driver in the years ahead?

It's a great question, and you've answered a lot of it in your question. For the Royal brand, we are a multigenerational family brand. We're fortunate that we've got the scale and the size. We've seen over the past couple of years that growth in every segment. We know that the on-ramp for cruise is the short product, something we’ve known for a long time. We changed our strategy a while ago with the development of Perfect Day CocoCay and investing in many ships for the short cruise market. We've aggregated that segment of our business significantly. The volume of new-to-cruise is significantly higher on short products than it is on longer ones for very logical reasons; it's just a much easier product to purchase. It's only a few days, and it requires less time investment for new-to-cruise guests. If we get that product right, we can stimulate a large amount of demand. What we've seen with Utopia is that it was a strategic decision to take a brand new Oasis-class ship and position it for the Port Canaveral, Orlando market, to create a drive market that's significant. Navigator, which we put on the West Coast, has been performing exceptionally well. So we faced a decision: should we deploy Ovation into Tianjin or California? We made that decision based on maximizing performance, but it doesn't indicate any move away from the China market. We're committed to further opportunities there, and you can expect announcements of more deployment into China.

And Vince, I think just to add, because I think Utopia is just a great example of our intentionality. I mean, each of our brands is hyper-focused on understanding different segments and the consumer of today and the consumer of tomorrow. Our commentary about what's happening with the younger generation—half of our guests being in that category—addresses these multiple generations, and experiences people want to collect and our commitment to meet our guests there. Whether you look at Utopia with the short or Icon on the seven, you see that in Celebrity as well. Our goal is to ensure we have an experience that matches our guests at various life stages and that leads to our overarching strategy of offering a lifetime of vacations.

Got it. That's helpful. So it sounds like families and millennials are both targets for Utopia. One question on 2025 yield setup. I think you got into this a little bit when asked for this on the 4Q like-for-like. But when you think about next year, you've another half year of Utopia, you have Star coming, you've Excel at the tail end, you've Royal Beach Club, like there seems to be a number of drivers incremental to the like-for-like that could be supportive of yield growth. And then you also mentioned the denominator is much larger now. Do you expect these other factors to be yield accretive next year in addition to like-for-like, or do you think like-for-like will still be the larger driver? How should we think about that?

Well, I think when you consider a full year of Utopia, a full year or half a year of Star will certainly contribute to our yield improvement next year, as well as like-for-like. Excel is at the very end of the year, and Royal Beach Club will be towards the back half of the year, and that will ramp up as we typically do to ensure operational excellence. I think those will be more significant drivers in 2026 than in 2025. However, new capacity does benefit us. What we're seeing in like-for-like pricing is that we expect that to be a meaningful contributor to our yields in 2025, along with onboard spend.

Great. Thanks.

Sure.

Great. Thanks, and congrats on another great quarter.

Thanks, Matt.

So Jason, with all your Trifecta targets hit, you cited today that you're just getting started. Could you elaborate on what that means in terms of global market share based on new customer trends that you're seeing today? And then Naftali, maybe just the multiyear margin opportunity. EBITDA margins exit this year, 200 to 300 basis points above 2019. Where do you see us going from here?

I think the comment on just getting started, you're all familiar with this. When we've talked about Trifecta, even internally, we talk about it as base camp. We've hit it; we announced we're hitting it, but you won't see anyone here doing victory laps. We're back to full strength, full financial health. If you just take what we've talked about with our formula of moderate yield growth, cost discipline, discipline in the growth of our business—this drives significant margin and returns. You combine that with things like the World Beach Club in the Bahamas and the Royal Beach Club in Mexico, you'll see the power of the earnings and returns in the business. When looking at what's next, it's setting ourselves up to execute on those key margin drivers. A 1% change in our yields is $120 million. A 1% change in our costs is about half of that. We continue to grow yields faster than costs; that will lead to significant margin and return. What we are chasing is how do we grab more and more share from that $1.9 trillion growing vacation market. With Icon, Utopia, Nova, Xcel, and the private destinations, what we're doing is trying to further differentiate ourselves and reel in more of those land-based consumers. If we execute that well, we can close the gap to land-based vacations, which will drive significant earnings power and returns to our shareholders.

And Matt, regarding the margin, our execution in the last two years has significantly improved our margins over 2019. This was due to our focus on our formula and continuing to see profitable growth. That doesn't change going forward. As we think about new ships, new experiences, new initiatives, our focus is on revenue growth coupled with maintaining high margins. There's a great opportunity to win share within that $1.9 trillion category. While we execute our strategy with higher margins, I return to what Jason said: 1% of net revenue yield is $120 million, while 1% of net cruise costs excluding fuel is $16 million. If we continue on this formula and grow the business, we have a runway on the margin, which also creates a lot of free cash flow; being a larger company today expands our opportunities for capital allocation as well.

Hi everyone. Thank you. To stick on that return answer you had, it's great to see that the dividend is back. As you think about additional avenues of shareholder returns, how do you think about that and how that steps up from here? Is it just a function of time? Or are you targeting additional balance sheet optimization before you start to think about maybe share repurchases and so on? Thank you.

Yes, sure. Thanks, Conor. These decisions are ultimately Board decisions. The dividend reflects that we have gotten ourselves into a position with our balance sheet and credit metrics that we've been focused on. Historically, we've used both dividends and share repurchases to return capital to shareholders. I suspect that we would focus on both of those over time. The dividend and its amount indicate that we are keeping ourselves in the 3.25 to 3.5 times debt to EBITDA zone. We have reached that on the 3.5 times side, but our goal is to maintain a competitive dividend and pursue opportunistic share buybacks over time.

I would just add that our balance sheet is in the zone we desire. There are always opportunities to manage maturities and reduce the cost of capital. We're not done with unsecuring our balance sheet, so we have some work to do. Nonetheless, we're in a very strong position and are continuing to grow the business.

Okay. That’s helpful. Sorry to ask about the 2025 bookings comment again, but how does your yield management strategy change next year relative to this year? It seems like there's more opportunity to optimize it. Did you feel like you left anything on the table given your booking curve this year wasn't what you expected for it to be?

Sure. You could see that in the guide we had in the beginning of the year to where we are today—400 plus basis points higher than our expectations. This reflects an acceleration in demand and price increase. Clearly, it seems we left some money on the table and were too booked going into WAVE. When deciding how the revenues come on, we have a sophisticated revenue management system that assesses historical trends, what's happening in the market and informs price and how much we take on. This process always keeps our book position more or less at a maximum efficiency. Our goal isn't just to tell you we're in record this or record that; our goal is to maximize our revenue, and that's what our systems do every day. It may be that we cross the year with the same book position or a bit less or more. The key focus is maximizing and optimizing our revenue.

Appreciate it. Thank you.

Sure.

Great. Thank you. Utopia looks like a great new ship, but don't mind that I'd like to ask about your next potential ship order. It's kind of a two-part question. First is, some other cruise lines have been ordering further out than we had seen before the pandemic, sometimes eight or nine years, even twelve years. Are you having to think longer-term about your order book than maybe you would have previously? Is that something you feel you're also considering, or that we may see you do? Secondly, it seems there's talk about a new ship class being smaller than the last two ship classes that you've had and that may allow you to go to some markets that can't handle the newer larger ships today. Could you help quantify for us what percent of the driving market now exists? Clearly, there are markets like Miami and New York, where you have a big driver market, but what about these other potential new port cities that you're not going to with some of your new hardware?

Hey, Robin. Thanks for the question. We have a very good line of sight on our order book that keeps us disciplined in our growth trajectory. It's essential to have lengthier terms to capture growth opportunities, and we're also designing the next classes of ships for all our brands to ensure we meet future demand. We want to attract the global market with segments we believe have long demand runways. Just remember, beyond growing, we also have older ships reaching their end of life that are in need of replacement. The new smaller ships will likely replace some of those older ships. However, they also represent a fantastic opportunity to penetrate more unique and bespoke destinations, diversifying our global footprint. Currently, we're set to go to about 1,000 different destinations with continued efforts to expand market reach.

Great. One more question, please.

Hi, good morning. With Paradise Island, how are you positioning this relative to CocoCay? Is it a different customer or similar? Are your future Paradise Island guests going to CocoCay today, or is it a different itinerary? And then a quick follow-up. Thanks.

Hi Ben, it's Michael. It's positioned as another incredible experience; it's a Beach Club experience. It's exactly what our customers are looking for when they go to the Caribbean—an experience on the beach. So it's a Royal Caribbean Beach Club. It fits well into Perfect Day, particularly for the short product market. You can spend a day in Perfect Day, and then the next day, you can enjoy a day in the Beach Club. It's perfect. We think we're going to see very strong demand for the product. We've deployed and have set our itinerary for the Beach Clubs as they come online. It'll be a combination of short and longer product options, including Perfect Day, and we expect great demand as it fits perfectly with existing offerings.

Very helpful, thank you. And in terms of pricing versus ancillary spend, how do you imagine Paradise will be different from CocoCay or similar?

In terms of spend, we think it will be very similar. There are distinctions since the Beach Club offers a full purchase experience, while at Perfect Day, there's a significant amount of the experience offered complimentary with elements available for purchase. At Perfect Day, the entire ship goes there, and guests spend the whole day. With the Beach Club, guests can choose this experience while having options at their disposal. Thus, the entry into the Beach Club will come with a ticket price.

Okay.

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