Royal Caribbean Group (RCL) — Q2 2025 Earnings Call Transcript

Good morning, everyone, and thank you for joining us today for our second quarter 2025 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 the Royal Caribbean brand. 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 outlook for 2025. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason.

Thank you, Blake, and good morning, everyone. I am thrilled to share our strong second-quarter results and updated outlook for the year. Our world-class brands and the exceptional experiences they offer continue to resonate deeply with consumers, driving both strong demand and excellent financial results. Our second-quarter results exceeded expectations, mainly driven by stronger-than-expected close-in demand, a shift in the timing of some expenses and favorability below the line that was mainly driven by the outperformance of our TUI Cruises joint venture and lower interest costs. We are also increasing our earnings guidance for the year and now expect adjusted earnings per share to grow 31% year-over-year. We are delivering exceptional value to our guests while continuously raising the bar with a powerful pipeline of industry and segment-leading new ships, a growing portfolio of meaningfully differentiated land-based private destinations, adding new experiences to our ecosystem like river cruising and deploying unmatched digital and AI innovation to enhance the guest experience and maximize margins. These key differentiators and accelerators are resulting in another significant increase to this year's earnings estimates and accelerating our path to achieving our Perfecta financial targets by 2027 as we continue to win share on the rapidly growing $2 trillion global vacation market. Like we have said before, our ambitions go well beyond Perfecta as our strategic initiatives are designed to drive significant growth for years to come. In 2028 alone, we expect significant benefits from our current strategies, which, among many others, include the launches of Oasis 7 and Edge 6 as well as full-year benefit of Icon 4, the full-year operation of Perfect Day Mexico, Royal Beach Club Lelepa at full capacity and the first complete operational year of Celebrity River. As we advance our journey to help our guests turn the vacation of a lifetime into a lifetime of vacations, we're already creating lasting memories for our growing guest base and significant long-term value for our shareholders. I want to thank the entire team here at the Royal Caribbean Group for their passion, dedication and commitment who continue to deliver the best vacation experiences responsibly every single day. Turning to our results and outlook. In the second quarter, our capacity increased 6% as we delivered over 2 million incredible vacations, a 10% increase year-over-year at high guest satisfaction scores. Net yield grew 5.2%, 70 basis points higher than our guidance that was driven by better-than-expected close-in demand across all key itineraries. Yield growth was split evenly between new hardware and the existing fleet. Load factor was 110%, 2 percentage points higher than last year, driven by contributions from new ships and improvements on a like-for-like basis across our itineraries, highlighting the continued strength in demand for our brands. We delivered adjusted earnings per share of $4.38 for the second quarter, which was 36% higher than last year and exceeded our guidance by $0.33. The outperformance was driven by better revenue, a shift in the timing of some expenses and better below-the-line performance. Naftali will elaborate more on Q2 results in a few minutes. Now I'll provide some insight into the demand environment. Bookings have accelerated since the last earnings call, particularly for close-in sailings. We continue to see engaged and excited consumers with roughly 75% intending to spend the same or more on leisure travel over the next 12 months. At the same time, more than half of consumers tell us they are booking closer to their departure date than they used to. And for the people who intend to travel over the next 12 months, the majority have not yet booked. Our book position is in line with prior years at higher APDs for both 2025 and 2026. In addition, onboard spend and pre-cruise purchases continue to exceed prior years. These trends are supported by the exceptional strength in our digital channels in terms of both cruise bookings and pre-cruise purchases. Our spectacular new ships continue to generate strong quality demand. Earlier this month, we took delivery of Star of the Seas, and I can say that she is just as impressive as we had intended. We look forward to her star-studded launch in just a few weeks. Bookings for Star of the Seas and Celebrity Xcel, which is coming in the fourth quarter, are strong in both pricing and load factor. We also recently opened the Royal Beach Club Paradise Island for sale and early demand has been incredibly strong, reinforcing our strategy of delivering exclusive destination-led experiences that elevate the vacation value proposition within our ecosystem. We conduct independent research and leverage data points for millions of daily interactions with our customers. We continue to see very positive sentiment from our customers, bolstered by strong labor markets, high wages, surplus savings and elevated wealth levels. Overall, consumers remain financially confident with 3 out of 4 indicating that they feel financially secure. Leisure and travel spend continues to grow and leisure travel continues to be the #1 category when consumers plan to increase spending over the next 12 months, outpacing dining, live entertainment, shopping and even self-care. We are also seeing strong intent across demographics, particularly among millennials and younger, who continue to represent half of our customer base. They not only express a desire to travel more, but are increasingly choosing cruise vacations as their preferred way to celebrate meaningful life moments. Roughly 7 in 10 consumers in these younger generations are also more likely to book closer to departure, reflecting a desire for spontaneity and flexibility. In addition, more than half of the millennials tell us that they are more likely to consider cruising today compared to 2 years ago, driven mainly by the attractive value proposition of cruising. Value continues to be a critical driver. Consumers consistently cite cruises as offering excellent value for money, thanks to our all-inclusive pricing, high-quality products and the unique opportunity to experience multiple destinations in a single trip. And among those who were once skeptical of cruising, a growing share now say they are more likely to consider it than they were 2 years ago. Meanwhile, repeat cruisers continue to rate cruising as the best value for their vacation spend. With brands that consistently lead in guest satisfaction and vacation options that range from weekend getaways to bucket-listed adventures on the ocean and on land, we continue to deliver on consumers' evolving expectations. Moving to our outlook for 2025. The year is on track to be another record year with net yield expected to grow in the range of 3.5% to 4%, supported by new ships, like-for-like increases and the continued success of our private destinations. Our yield guidance does not factor in a further acceleration of close-in demand within the quarter like we have recently seen. If current trends continue, it could lead to further yield growth above our guidance for the second half of the year. Full-year adjusted earnings per share is now expected to grow 31% and be in the range of $15.41 to $15.55. The improved guidance reflects our better-than-expected second quarter performance, lower-than-expected spend and continued favorability below the line for the remainder of the year. In the third quarter, we expect to grow yields 2% to 2.5% on top of an almost 8% yield increase in the same quarter last year. Our expected yield growth for the quarter is driven almost entirely by like-for-like hardware as Star of the Seas launches very late in the quarter after the peak summer season. This timing, along with the operational ramp-up period, where we purposely limit load factor to ensure an exceptional experience, impacts its contributions and creates a headwind to yield for the quarter of approximately 150 basis points. Our proven formula is working, moderate capacity growth, moderate yield growth and strong cost discipline is driving significant earnings growth, continued margin expansion and robust cash flow generation. We remain on track to achieve our Perfecta targets, a 20% compound annual growth rate in adjusted earnings per share through 2027 and a return on invested capital in the high teens. But our ambitions, as we said before, go well beyond. We are well-positioned for our most ambitious chapter yet. It will reshape the vacation landscape and expand our leadership in leisure travel. It all begins with our world-class portfolio of brands, each leading and being the champion of their respective categories, both in trust and satisfaction while meeting the evolving needs of our guests. We amplify that strength with the most innovative ships, exclusive private destinations and a connected ecosystem that makes planning and enjoying a vacation seamless and rewarding. Over the next few years, we plan to introduce 7 new ships, including Star of the Seas, Celebrity Xcel, later this year, followed by Legend of the Seas in 2026, Icon 4 and our first Celebrity River in 2027. In 2028, we'll deliver Oasis 7 and Edge 6, the next ship in the Celebrity Edge class. This steady lineup will support our moderate capacity growth, enhance our global reach and further differentiate our collection of vacation brands. On land, we're expanding our destination portfolio with Royal Beach Club Paradise Island opening in the Bahamas later this year, Royal Beach Club Cozumel at the end of 2026, then in late 2027, Perfect Day Mexico, which is approximately the size of the Magic Kingdom in Orlando, world debut. Earlier this month, we officially closed on our acquisition of the Port of Costa Maya and are now well underway in bringing this exciting destination to life. In 2027, we'll expand the reach of our Royal Beach Club Collection to the South Pacific with Royal Beach Club Lelepa. These experiences are located across key strategic markets and are engineered to generate premium yields and returns for years to come. Central to our destination strategy is a commitment to the economic development of these communities, generating thousands of jobs, championing environmental restoration, improving wastewater treatment, conserving local native plants and species, and supporting robust recycling programs as well as providing educational and training programs and infrastructure investment in roads and community centers. Our commercial flywheel is accelerating as we deepen relationships with our customers through digital innovation to remove friction, drive commercial opportunities and lower acquisition costs. Repeat bookings are meaningfully rising and cross-brand loyalty is accelerating with nearly 40% of all bookings coming from our loyalty members who spend 25% more per trip. Nearly 50% of onboard purchases are now coming through the mobile app compared to 1/3 at the end of 2023. As a reminder, customers who purchase onboard experiences before their cruise spend about 2.5 times more than those who do not buy pre-cruise. We are investing in a modern digital travel platform, infusing AI into almost everything we do and investing in enriched data to make it easier than ever for guests to book and design their dream vacations while allowing us to expand wallet share. App downloads have now surpassed 30 million and long-term adoption is increasing. We continue to invest in more commercial and experience capabilities, increasing interactions and enhancing commercial features. Looking ahead, we are incredibly energized by the momentum we are building. These ambitious initiatives reinforce our flywheel, strengthen our ecosystem and unlock powerful new pathways for long-term growth as we continue turning the vacation of a lifetime into a lifetime of vacations. I am incredibly proud of our teams at Royal Caribbean Group for their dedication and strong execution. The opportunity ahead is significant, and we're well positioned to lead the next era of leisure travel. 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. Net yields grew 5.2% in constant currency compared to the second quarter of last year, 70 basis points above the midpoint of our guidance. Yields grew across all key products and were evenly split between new and existing hardware. The yield outperformance was driven by stronger-than-expected closing demand. Onboard revenue was higher than last year across all key categories as we continue to see very engaged consumers. In the second quarter, approximately half of our onboard spend was booked before the sailing with 3 out of 4 guests making pre-cruise purchases to reserve onboard experiences. In the second quarter, we delivered 2.3 million incredible vacations, new-to-cruise or new-to-brand accounted for approximately 60% of our guests, of which more than half were millennials or younger. Net cruise costs, excluding fuel, increased 2.1% in constant currency, 180 basis points lower than our initial guidance, driven by shifting of the timing of spend that will roll into the second half of the year. Adjusted EBITDA margin was 41%, 300 basis points better than last year, and operating cash flow was $1.7 billion. Adjusted earnings per share were $4.38, 36% higher than last year and 8% higher than the midpoint of our guidance. Earnings outperformance was driven by the strong close-in demand, shifting timing of spend and favorability below the line. $0.10 per share of favorable timing of spend is expected to roll into the second half of 2025. As Jason mentioned, demand for our portfolio of brands and industry-leading experiences continues to be very strong. Bookings have accelerated since the last earnings call, particularly for close-in sailings, leading to the second-quarter outperformance. Our book load factor is in line with prior years and higher APDs. Capacity is expected to grow 6% for the full year and 3% in the third quarter. As expected, capacity in the third quarter is the lowest throughout the year and is impacted by the delivery timing of Star of the Seas in late August. Looking ahead, fourth-quarter capacity growth is expected to be 10%, benefiting from a full quarter of Star of the Seas, the launch of Celebrity Xcel and additional APCDs cure to lower dry dock days compared to '24. The Caribbean represents 57% of our deployment this year and 42% of capacity in the third quarter. Our leading hardware and private destinations strengthen our competitive position in this market with the introduction of Star of the Seas, Celebrity Xcel and the opening of Royal Beach Club Paradise Island by the end of the year. Europe will account for 15% of capacity for the year and 28% in the third quarter. Alaska is expected to account for 6% of total capacity and 13% in the third quarter. Now let me talk about our revised guidance for 2025. Our proven formula for success, moderate capacity growth, moderate yield growth and strong cost discipline is expected to drive significant earnings growth and higher cash flow generation this year. We are increasing our yield guidance for the year and now expect net yield growth of 3.5% to 4%, driven by second-quarter outperformance. As Jason mentioned, our yield guidance does not factor in further acceleration in close-in demand like we have seen recently, which could lead to more upside if these trends continue. The cadence of yield growth throughout the year, as expected, is driven by the timing of new ship deliveries and lower dry dock days in the fourth quarter. The impact on yield growth is approximately 150 basis points in the third quarter and approximately 90 basis points in the fourth quarter. Full-year net cruise costs, excluding fuel, are expected to be approximately 0.3%, 10 basis points lower than our prior guidance as we remain focused on efficiency, enhancing margins and maximizing cash flow. While we manage our costs more on a yearly basis, the cadence of our cost growth varies throughout the year. This is driven by the timing of dry docks, ship deliveries and the ramp-up of costs related to our acquisition of the Costa Maya port and other new private destinations. We anticipate a fuel expense of $1.14 billion for the year, and we are 66% hedged at below market rates. Based on our current fuel prices, currency exchange rates and interest rates, we expect adjusted earnings per share between $15.41 and $15.55. The $0.43 increase compared to our prior guidance is driven by Q2 outperformance of $0.23, taking into account $0.10 of timing shift of spend and $0.20 benefit from lower spend and below-the-line favorability for the remainder of the year. We also expect 17% growth in adjusted EBITDA and 260 basis points growth in adjusted EBITDA margin. This positions us to accelerate our cash flow generation, which allows us to continue investing in our strategic initiatives, maintaining investment-grade balance sheet metrics and expanding capital return to shareholders. Now let me comment on the third quarter guidance. In the third quarter, we expect capacity will be up 3% year-over-year and a net yield growth of 2% to 2.5%, driven almost entirely by like-for-like hardware as Star of the Seas launches very late in the quarter. Net cruise costs, excluding fuel, are expected to be up 6% to 6.5%. Approximately 230 basis points of cost growth is attributable to the timing of delivery of Star of the Seas and the cost timing shift from the second quarter. Taking all this into account, we expect adjusted earnings per share for the quarter to be $5.55 to $5.65. Turning to our balance sheet. We ended the quarter with a strong $7.1 billion in liquidity. We are in a very strong financial position and will continue to further strengthen the balance sheet. During the first half of the year, we received investment-grade ratings by all 3 major credit agencies, reflecting the strength of our financial position, consistent performance and disciplined capital allocation strategy. We are proud of the hard work that has brought us here and remain committed to maintaining the strong momentum. In addition, we amended and upsized our 2 unsecured revolving credit facilities during the quarter, bringing the combined revolving credit facilities commitments to $6.4 billion and extending the maturity of facility to October 2030. With a strong balance sheet, we are committed to investing in our growth strategies, delivering a competitive dividend yield and opportunistically buying back shares. We have very limited maturities left for this year, all related to ship amortization payments that we plan to repay with cash flow. We also expect leverage to be at mid-2 turns by the end of 2025. In closing, we remain committed and focused on our mission to deliver the best vacation experiences responsibly as we work to deliver another year of strong performance. With that, I will ask the operator to open the call for a Q&A session.

Congrats on another great quarter. So Jason, could you elaborate on the continued acceleration in demand that you cited for your brands and experiences? Have you seen any change in July booking trends? And maybe could you speak to the playbook for offense that it seems like you're laying out with investments and initiatives to stay ahead of where demand is going in that $2 trillion growing global vacation market?

Thank you, Matt. I hope you're doing well. To start, we have noticed a recent increase in close-in demand, which is somewhat unexpected. This demand surge is not limited to ticket sales; we are also observing increased onboard spending. Analyzing millions of customer spending activities daily shows we have a very healthy customer base. These customers have stable jobs, strong financial situations, and a willingness to invest in the vacation experiences they desire. Currently, all indicators regarding our customers are positive, and they are traveling globally, not only in North America but also in Europe. As we look to take proactive steps, our central focus remains on our guests. Our goal is to transition from providing a one-time vacation experience to fostering a lifetime of vacations. We aim to increase repeat business, which we are beginning to see with a rise in loyalty members now at 40%. By enhancing customer loyalty, we can improve customer lifetime value, decrease acquisition costs, and work toward bridging the gap with land-based vacations. This gap is significant, approximately $80 billion to $85 billion in the overall leisure market valued at around $2 trillion. We are pursuing this in various ways. For instance, in structural elements like expanding our fleet, we have a strong reputation for designing and building the most innovative ships in the industry. We are modernizing our fleet to ensure it meets current customer expectations while continuing to enhance our brand offerings. Our investment in destination experiences is also key, as illustrated by the development of Royal Beach Clubs, including Perfect Day Mexico, alongside our existing one in the Bahamas. This creates an appealing experience for our customers while also benefiting from high-demand destinations. We are also expanding our offerings, including the addition of river cruises in 2027 and a new hotel in southern Chile tailored for travelers to Antarctica, providing unique experiences. Moreover, we are heavily investing in our commercial operations, integrating advanced technologies like AI to manage numerous price points daily and better understand customer preferences. This enhances the customer experience, reduces friction, and improves efficiency and margins. Additionally, we rolled out brand loyalty integrations last year focused on meaningful loyalty that influences guest behavior, ensuring it adds value for customers and keeps them engaged with our brand. I've outlined our investment strategies aimed at creating structural differentiation and strengthening our market position. Our primary focus remains on closing the gap with land-based vacations, as every percentage point in this area significantly benefits the company and our shareholders.

That's great color. Maybe as a follow-up, Naftali, near term, what have you embedded for close-in demand in the back half relative to the outperformance that you saw in the first half? And then with more than 30% earnings growth now forecasted for this year, that's well above your analyst day CAGR. Just any puts and takes to consider as it relates to the phasing of investments multi-year beyond this year?

Yes. So as we said in the prepared remarks, we gave guidance based on what we've seen in terms of bookings. But as we said, we have seen acceleration. And so to the extent that there is further acceleration of the mail of closing demand, obviously, that creates an upside for the second half of the year. Also remember, we're fairly booked for the year. So we're kind of closing out a very successful year and now obviously focusing into next year towards in a couple of months. In terms of what's embedded in our plans, so as you know, we've announced Perfecta, and this is a 20% annual compounding growth of earnings through 2027. And everything that Jason just mentioned in terms of investments in ships, destinations, technology, modernization of our ships is really what's driving that moat and differentiated performance. Now this year is obviously higher than that 20% CAGR. And so this positions us very well to achieve our Perfecta targets. And so the formula is working, and that's really what we're focused on, moderate capacity growth, moderate yield growth, strong cost control that obviously drives earnings, drive cash flow and allows us to execute on our plans. One of the things that is important, and we said that also when we announced Perfecta, when we put out these targets, we did not embed any share buybacks into those plans. And so as we get the balance sheet to the range and it is already within the range, obviously, we will be focused on capital return as a supplement to that growth. And that is in the form of share buybacks, which we will opportunistically do and, of course, dividends. And we're very focused on competitive dividend. Now competitive dividend brings value to the shareholders, but obviously does not factor in into earnings per share itself. But as you kind of look at it together, that's another area of that. And at the end of it, as Jason mentioned in his prepared remarks, Perfecta is just, for us, another milestone, but definitely not our ambition. And we laid out just in 2028, tremendous tailwinds that we have from all the new ships and destinations that are coming online. So we're very much focused on building the moat and long-term shareholder value.

So Jason, I want to go back to the second half of the year guidance, which obviously, you talked a lot about, it doesn't incorporate any benefit from close-in booking momentum or kind of what you've seen in terms of onboard spend. So let me try to ask this question a little bit differently than Matt just kind of asked. But let's say, Jason, hypothetically, if close-in demand stays as strong as what you've seen recently, and it sounds like given the feedback that you guys have gotten from your customer base, that's not going to change and onboard kind of stays the same way as well. Is there a way to think about what that would mean to yields in the back half of the year? And I guess I'm probably just a little bit surprised that when you think of the third quarter, being able to grow, let's call it, 4% on a like-for-like basis when you include the Star of the Seas impact off of a plus 8% last year. To us, that's kind of impressive. But I guess what I'm trying to figure out here is what could that mean for yields if everything kind of stays status quo? Hopefully, that kind of makes sense.

Thank you for the question, Steve. If we look at the third quarter, 2023 was nearly 17% compared to last year's roughly 8% in terms of yield improvement. We have discussed what a full quarter of Star might have contributed, as the third quarter is largely influenced by like-for-like demand generation. If we observe similar patterns, we expect the latter half of the year to perform better. As Naf pointed out, we are well sold into the year, and there's always potential for improvement in load factor in the third quarter, with even greater opportunities anticipated in the fourth quarter. When making our forecasts, we aim for a balanced approach and take into account more than just a couple of months of demand data to guide our projections. We believe that demand patterns will continue to improve, though it's challenging to quantify the exact impact. If we could quantify it, we likely would have included it in our guidance. The key takeaway is that consumer demand for our brands remains strong. We are effectively managing costs and investments, which supports and differentiates our business. Achieving over 30% earnings growth year-over-year is remarkable and demonstrates our ongoing quest for improvement, as we always strive to exceed our investors' expectations. Our investments, particularly in the destination sector, have the potential to significantly enhance our earnings power in the coming years.

Okay. That's great color, Jason. And then second question, going back to Perfecta. Obviously, you've talked about how that's on track at this point. But those targets obviously end in 2027. So you mentioned all these positive things that are going to be coming online in '28 that are going to help you guys out, whether that's Perfect Day Mexico, Oasis Class, Icon river cruising, other private islands, I mean, the list kind of goes on. So I guess my question actually is, as you guys are sitting here today, should we think that 2028 could see earnings growth at least in line with your Perfecta targets? I'd probably even say maybe if not higher than that.

I appreciate you bringing this up. Many of our investments require time to design, build, and launch. When we finally roll them out, we are very mindful of the ramp-up since making a strong first impression is crucial. Looking ahead to 2028, we can expect to see impactful developments like Perfect Day in Mexico and the World Beach Clubs. Additionally, we plan to increase our operations from 2 ships in 2027 to 4 ships in 2028. While it might be premature to discuss the exact implications of this, we believe it will lead to a substantial increase in earnings potential. Furthermore, our approach to capital allocation remains focused on growing the business while also prioritizing shareholder returns through a competitive dividend and share buybacks. Any future share buyback discussions are only intended to enhance the tailwind for earnings per share growth.

You've been discussing loyalty more extensively lately, and it's clear that one of your competitors is doing the same. When we look at closing the gap with land-based competitors, it appears that a major area for improvement is in the co-branded credit card program, as well as loyalty program optimization. Could you elaborate on the opportunities in these areas and your vision for them? It seems that your credit card is not currently linked to your loyalty program, so any insight you could provide on that would be helpful.

We do have a co-branded credit card that is currently linked to our loyalty program, but it doesn't align with our goals. We are actively collaborating with our credit card provider and expect to release significant updates soon. We have access to valuable data and frequent interactions with our guests, who are sharing what matters to them. Our focus is not on business consumers but rather on establishing a relationship with guests who prioritize recognition and rewards for their loyalty and spending. We have been implementing changes in our app and loyalty program that resonate with our guests, and we're already noticing shifts in their behavior. In the third quarter, 40% of our guests were loyalty members, which highlights the importance of our loyalty initiatives. Guests want to be acknowledged not only for their current spending but also for their past contributions. It's essential that we create a consistent and rewarding experience throughout their vacation journeys, encouraging them to remain within our ecosystem. Loyalty is a reciprocal relationship; we strive to keep guests engaged and discourage them from choosing competitors, whether in cruising or on land. Our teams have done a remarkable job of delivering value and incentives to our guests, which has resulted in increased repeat interactions.

Okay. Appreciate it. And then maybe I could ask just for a clarification on the drag from the timing of Star of the Seas. So is there anything embedded in the fourth quarter from Celebrity Xcel, Star? Does anything linear from Star of the Seas there from a load factor perspective? The only reason why I ask is if you strip out a lot of the noise, I think that's kind of happening, like core pricing is actually exiting very, very strong. So I'm just trying to understand where core is versus some of these timing issues that are kind of out there.

Yes, Conor, you are correct. Most of the impact from Star is seen in the third quarter. In the fourth quarter, there are two elements to consider. First, Celebrity Xcel launches in mid-November, so it will only contribute for part of the quarter, which requires preparation. Additionally, rents have increased, similar to the situation with Star in the third quarter. It's also important to remember that last year we experienced a significant number of dry docks, which typically occur during lower-yield periods. In the fourth quarter last year, we had more dry docks compared to this year, which negatively affects yield as well. In total, we estimate this impacts us by approximately 90 basis points due to the timing of the new ships and the number of dry dock days.

Just looking at the full year guide, I mean, Q2, great results. Your commentary is very positive. Why you at the top end of the yield range? What's your change in thinking there that the top end of the yield range came down a little for the year?

Yes. I would just say, Robin, when we gave guidance last, we expanded the range. There was a lot of noise in the system geopolitically that resulted in us just widening that range to give kind of investors a sense of what that could be. Obviously, there were others in Travel + Leisure that pulled their guidance. We expanded our range just to give kind of where potential outcomes could be. So really, what you see in our range is a reflection of our historical practices. At this point in the year, we're typically plus or minus 7 points there. And that's what we provided Yes, 70 points 70 basis points.

If we consider the current situation, April has been filled with significant geopolitical events. I'm trying to understand how we should interpret your perspective, particularly on the more optimistic side compared to last quarter. It appears that some hotel companies have noted improvements in July compared to the April and May period, so I'm curious about how we should view your insights or the changes in your yield at the top end.

Yes. One difference between owning crews and hotels or airlines is the percentage of bookings we have within a given period. I don’t believe the opportunities are necessarily the same for hotels and airlines due to our current bookings for the quarter and the end of the year. However, the range I mentioned reflects a balanced forecast. If we continue to experience an increase in close-in demand, that would support a more optimistic outlook, potentially leading us toward the upper end of that range or beyond.

Yes, I don't remember the exact details, but I believe some hotel companies may have lowered their guidance in the first quarter. Regardless, we maintained our guidance and even increased it, as you may recall. We expanded our projections to consider potential geopolitical impacts and the associated uncertainties. Now, we're returning to typical operations, which is customary for us throughout the year.

And just one quick follow-up. Would you say that your onboard spend because I know some of the way it's reported can be impacted by sort of how you allocate accounting things. Just broadly speaking, is growth in onboard spend still higher than growth in ticket price? Or how should we think about that relationship?

We are observing very similar trends in ticket sales and onboard spending. Both are facing strong comparisons to previous periods, but consumer spending on the ship appears to be stronger. Additionally, we are increasingly benefiting from pre-cruise sales activities. We are still in the initial stages of effectively curating these experiences and encouraging guests to plan their vacations earlier. As I noted earlier, this typically leads to a significant increase in overall spending as guests have already taken care of their initial expenses and move on to new activities and memories they wish to create on the ship.

So the first question is on the Royal Beach Club. Maybe you could just talk a little bit about the operational expectation for that destination out of the gate. You guys gave prices out to the market a little bit ago. Wondering maybe if the feedback from the travel agent community as well as the prebookings you're seeing, if that sort of points to full utilization potential out of the gate, I know prices are dynamic. Or if that's even the goal? How should we think about the ramp-up for the destination?

Thank you, Brandt. I'm so happy you asked that question. We opened for sale a few weeks ago. Sales are very strong. Interest is very high. Our first sailing will be on December 21, which will be great timing for the holiday period. Construction is all on target. It's looking great, and we send drones over and share that with the team on a regular basis. It's really looking impressive, especially the world's largest swim-up bar. So it's going to be a winning product, a great destination, and we're very excited about what we're seeing in terms of activity. Prices start from around $139. It is dynamic because we've got a lot of capacity coming into Nassau and some days will be different from others in terms of the overall Royal Caribbean capacity in the port. So we've got dynamic pricing. We've got different packages available, and we've been extremely pleased with the sales to date. I do have to share one interesting story, which is in the first hour when we opened for sale, we sold our Ultimate Family Cabana for one day at $10,000, which was quite remarkable. And subsequently, we've sold a lot of days in the Ultimate Family Cabana at $10,000. So we really do think we've got the product right, and we think it's going to deliver very high levels of guest satisfaction. So we're excited for the Royal Beach Club Paradise Island, and we're equally excited for the Beach Club in Mexico, Lelepa and of course, the really big thing, which is, of course, Perfect Day Mexico in full year '28.

Yes. And Brandt, I want to emphasize that regarding the ramp-up, we have a well-considered approach. It's not about a lack of demand, but rather about ensuring operational excellence. Therefore, the number of people we initially onboard will be significantly lower, with gradual increases into the first quarter and then into the second quarter. We aim to provide a flawless experience in our offerings. While we could potentially generate higher profits, building trust with our customers is a top priority. Consequently, the ramp-up will be slow, as is typical when introducing any new experience, destination, or ship.

That's really helpful, both. Jason, I feel like you've discussed the strength in close-in demand from several perspectives this morning. I'm trying to reconcile two different narratives on that. Is it possible that this comes at the cost of longer-term bookings and perhaps leads to shorter booked lead times? Could this be due to factors like mix, younger consumers, or the lingering effects of tariffs and macro influences from the last few months? Or is it simply more incremental demand from that younger consumer while the bookings for '26 continue to progress as expected? I'm not sure if those two aspects are connected or if there's another angle, but I'd appreciate your insight into what you mean by that commentary.

Yes. Brandt, as I've mentioned before, we can never achieve perfect yield management. Despite all the technology we use, there is always some revenue we miss out on. Currently, our inventory is somewhat limited, and since half of our guests are millennials or younger, they tend to book trips closer to their departure dates. We also see more of our shorter offerings going to popular destinations like Perfect Day and the upcoming Royal Beach Club, encouraging bookings that are more last-minute. Regarding 2026, we're seeing results that are similar to last year but with higher rates, which indicates strong demand. Guests are willing to pay more. There are two factors at play here: one is a younger consumer base, and the other is the assurance that guests will have the vacation experiences they desire, which encourages them to thoughtfully plan their trips further in advance.

I think another factor to consider is the increase in short cruise capacity, especially related to Perfect Day. For the Royal brand, we have significant short cruise options with Utopia now operating from Port Canaveral in the 3- and 4-day market. Additionally, Wonder of the Seas, our second Oasis-class ship, will soon start sailing from Miami in the same market. Together, these two ships can accommodate around 30,000 guests a week heading to Perfect Day. This may influence how people view their booking windows, as many are inclined to make last-minute decisions to enjoy a great weekend experience, and we're seeing a lot of repeat bookings for these offerings. With the upcoming opening of the Beach Club, which enhances the Perfect Day experience, we expect this appeal to continue growing. We believe this represents an important evolution in our business.

One on Nassau quickly. You've previously given us some preliminary kind of targets or expectations for volume. But how do you think about the attach rate using Royal Nassau visitors in the denominator, if you will? Meaning is this 25% adoption, 50% adoption? And I asked this in the context of Coco is seeing 3.5 million guests or more, presumably a lot of them going to Nassau. So understanding there's a ramp kind of as you get going, just any way to frame the attach rate based on the volume numbers you've given us the last few quarters?

Yes. Our current thinking is that when we consider the volume we expect to bring to Nassau in 2026, which is around 3 million guests, and the overall capacity of the Beach Club, estimated at about 1 million, we anticipate that approximately 33% of our guests will be quite satisfied. We may see a scenario where demand exceeds supply at the Beach Club in Nassau. Therefore, dynamic pricing will be crucial for this product. We believe our projections are accurately aligned.

Understood. Very helpful. And then, Jason, you kind of made a pretty interesting comment earlier in the call. You mentioned that Costa Maya is going to be the same size as Magic Kingdom in Orlando, if I caught that right. Presumably, you meant that in terms of acreage. I mean, to the extent you have anything to share on amenities, you can kind of like flow to us, understanding this is still several years away. I don't know if that was like a little bit of metaphor or whatnot.

I think it’s important for people to understand the scale of Perfect Day in Mexico. We will host significantly fewer guests than those who visit the Magic Kingdom, as our main focus is ensuring that everyone has their Perfect Day. I encourage everyone to check out the videos we released from our event last May to see what Perfect Day Mexico will look like. It offers something for nearly everyone, whether you're interested in the largest lazy river, a Las Vegas-style beach party, or just relaxing in the sun with family and enjoying amazing pools. There will be a lot of curated experiences, organized into different neighborhoods, allowing guests to share moments with whomever they'd like. Michael and his team are dedicated to crafting that perfect day, and we have successfully done it in the Bahamas, which we will replicate in Mexico for an even larger audience. Additionally, this will expand our reach into markets like Texas, the West Coast, and the Midwest, enabling us to reduce travel costs for potential guests and increase the share of their spending that goes to us.

And more importantly, it has the world's largest umbrella.

Did 3Q have Costa Maya cost in the NCC number?

Yes, it does. And so we just closed on it. And obviously, we'll operate it for quite some time until we start development. So yes, and that's part of the headwind. We didn't really call it out in the release or in our prepared remarks, but there is an extra cost for that. And obviously, for Paradise as well as we ramp up the Beach Club to open up in December, there are some costs there with obviously no APCDs.

I wanted to unpack the river a little bit more. I know it's still a ways away, but I think at some point in the second half of this year, we have a little bit more clarity on what the itineraries and offering might look like. And as you're 90 days further into exploring what that could look like for you, any big picture thoughts on just the conviction level of getting to 35, 40 ships, river capacity to do so and being able to curate a great experience shoreside for guests when considering birthing rights, et cetera.

Thank you for the question, Vince. I wish Laura were here, as she could provide more details. I reach out to her daily to discuss how we can get as many ships up and running as quickly as possible. Our confidence comes from being operationally ready and having a strong understanding of various global destinations where we can offer an exceptional river experience. We are also pleased with the ship design, which we believe will set us apart from current offerings. This is an underdeveloped market, allowing space for growth for everyone, and we aim to enhance this experience. We are optimistic about the destination experiences that Celebrity will provide, not just aboard the ship, but also on land. What reinforces our confidence is the response we receive from customers eager to join us. The high demand we anticipate will take time for us to fulfill, so it's crucial that we meet our guests' expectations for the river experience associated with the Celebrity brand.

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