The operator welcomes everyone to the Royal Caribbean Group Third Quarter 2023 and Business Update Earnings Call and introduces the speakers. Michael McCarthy, Vice President of Investor Relations, notes that forward-looking statements will be made and discusses non-GAAP financial measures. Jason Liberty, Chief Executive Officer, will provide a strategic overview, followed by Naftali Holtz, Chief Financial Officer, who will recap the third quarter and update on current bookings. The call will then be opened for questions. Jason also acknowledges the current events in the Middle East.

The CEO of Royal Caribbean Group expresses sadness and condolences for the recent terrorist attacks in Israel and acknowledges the impact on their business. They have worked with the U.S Department of State to safely evacuate Americans from Israel and have adjusted their deployment plans. Despite these challenges, the company had a strong quarter and exceeded expectations in terms of yield and guest satisfaction. The CEO thanks the team for their dedication and looks forward to a successful 2023 and beyond.

The company had record yields for the quarter, driven by new hardware, record pricing in the Caribbean and Europe, and increased onboard revenue rates. They are on track to deliver over 13% yield growth for the year and have exceeded their original guidance for earnings per share. The strong demand and pricing, as well as cost controls, have contributed to their success. The company has a 3-year financial performance program called Trifecta, which focuses on generating strong demand, enhancing margins, and building for the future. The company's ultimate goal is to go beyond their current success and continue to improve.

Despite conflicting economic indicators, the Royal Caribbean Group is confident in the demand for their cruises in 2024. Their customers are highly engaged and have a strong propensity to cruise, with a median household income of at least $125,000. The company is also benefitting from strong labor markets, high wages, and elevated wealth levels. They are outperforming the broader leisure travel industry and are focused on narrowing the gap with land-based vacations. Their commercial platforms are performing well, with website visits doubling from 2019 and travel partners surpassing expectations.

In 2024, Royal Caribbean Group is expecting another strong year with 8% capacity growth, consistent deployment across markets, and a return to China. Bookings for 2024 are already ahead of previous years at higher rates, positioning the company for strong yield and earnings growth. The company's operating platform is at its strongest, with the best brands, most innovative fleet, and best people. Each brand is a leader in its category, creating an attractive vacation ecosystem where the sum is greater than the parts. The company will continue to leverage its commercial capabilities to capture and retain customers of all ages for the best vacation experiences.

The company has introduced new ships and onboard experiences to differentiate their offerings and increase profits. They have recently welcomed the first ship of a new class for their Silversea brand and will soon take delivery of two more ships for Celebrity Cruises and Royal Caribbean International. They plan to continue raising the bar in the travel industry and have seen a significant increase in new customers and repeat bookings. The company is also enhancing their commerce capabilities to optimize distribution channels and build customer loyalty. They have made it easier for guests to pre-book activities through their mobile app, resulting in higher pre-cruise purchases and increased spending on onboard experiences.

In 2024, we have already booked double the pre-cruise revenue compared to this year, and we are focused on increasing yield and efficiency. Our formula for success remains the same, with moderate capacity and yield growth and strong cost controls. We are committed to sustainability and are making progress on our goals to reduce carbon intensity and achieve net zero ships by 2035. Our business is performing well and we are on track to achieve our goals.

In the third quarter, Naftali Holtz reports that the company had a strong performance with higher-than-expected earnings and load factors. The increase in net yields was mainly driven by European itineraries, with the remainder coming from Caribbean and Alaska. The company also saw strong demand and pricing for future sailings, resulting in a record book position. In the fourth quarter, the majority of the company's capacity will be in the Caribbean, followed by Europe and the Asia Pacific region.

The company has updated their guidance for the full year 2023, with expected net yield growth and net cruise costs. They anticipate record adjusted EBITDA per APCD and an EBITDA margin back to their previous record in 2019. For the fourth quarter, they expect a significant increase in yields and a slight increase in NCC, excluding fuel. They also provide insights for 2024, with expected capacity growth and the introduction of new ships.

In 2024, Royal Caribbean expects capacity growth to be most significant in the first and third quarters due to new ship deliveries and dry docks. The Caribbean will account for 55% of overall deployment, with an increase in guests experiencing Perfect Day at CocoCay. European itineraries will account for 15%, Alaska for 6%, and Asia Pacific for 10%. The return to normal load factors and annualization of pricing power will drive yield growth in the first quarter. The company remains focused on controlling costs and will have double the number of dry dock days compared to this year.

The company is launching HideAway Beach with Perfect Day at CocoCay, which will positively impact margin but negatively impact NCCx by 300 basis points next year. They expect costs to increase slightly and will provide more details during their fourth quarter earnings call. The company's strong book position and increasing demand point towards another year of solid yield growth and improved earnings. The company is focused on strengthening their balance sheet and has repaid $775 million of debt during the quarter. They have also refinanced their credit facility and issued a redemption notice for their remaining 500 million of secured notes. They expect to pay off over $3.5 billion of debt and reduce leverage by the end of the year.

The company has reduced interest expenses and improved their credit rating, leading to increased earnings. They are committed to paying down debt and pursuing refinancing opportunities. The speaker also provided guidance for 2024, which is better than expected despite higher fuel costs. The spread between yields and costs is expected to be wide, leading to an EPS of over $9.

Jason Liberty, the Chief Financial Officer of Royal Caribbean, expressed his optimism about the company's future yield expectations for next year. He mentioned the high demand for their brands, ships, and destinations, which has led to increased booking activity and improved rates. With new ships like Icon of the Seas and additions like HideAway, they anticipate a strong yield profile for next year. While it's still early to provide specific guidance, their goal is to have yields meaningfully outpacing costs and to continue improving their return on invested capital. Liberty also mentioned that their earnings are expected to start with a nine and their overall ROIC is expected to improve.

The speaker discusses the potential impact of the current disruptions in Israel on next year's demand for cruises in the Mediterranean. They mention a 1.5% decrease in capacity and the potential for a shift in consumer preferences. However, they state that it is too early to predict the exact impact and that their sourcing platform allows for flexibility. They also note that demand for cruises is strong across all markets and products, and the majority of their capacity for next year is in North America.

The speaker confirms that their cost guidance for the rest of the year is unchanged and clarifies that the only change is a decrease in APCDs. Another speaker asks if they are seeing any impact from other ships moving into their markets, and the speaker responds that the shift is small and not significant for the industry as a whole.

The speaker discusses their focus on building their brand and increasing loyalty among customers, and how they do not believe that small ships will have a significant impact on their business. They also provide more information on the expenses for the upcoming year, with the majority being related to dry docks and the rest related to HideAway. They express excitement for next year and their goal to increase yields more than costs. The speaker also mentions their recent visit to HideAway and how impressed they were with the new destination.

The company has recently launched a new product that has been extremely successful and has seen high demand and pricing. The combination of this product with their best-selling one is very exciting. They also have another product launching soon that is already selling at record rates. The company is confident about their cost outlook for 2024, with expectations of very low single digits due to the launch of Icon and their return to the Chinese market. However, there are other factors to consider, such as the numerous venues offered on Icon and the potential cost increase in the Chinese market.

The company is currently ramping up and managing costs across the board. They are comfortable with low single digit costs for next year. Their capacity is growing at 8% and they are implementing new technology to improve efficiency. They are starting with an EPS figure of at least $9, but cannot predict the future economic environment. They have a nimble platform and a significant value proposition compared to land-based vacations.

The speaker discusses the current supply and demand dynamics in the cruise industry. They mention that pre-COVID, demand was around 10-15%, but now it is at 35-40%. The company is in a strong booked position for the year and has visibility into bookings for the next few years. They also mention that the industry is expected to grow by around 4% in the coming years, but there have not been many new orders recently.

The speaker discusses the supply and demand side of the cruise industry, noting that new to cruise and new to brand customers have increased since COVID. They also mention their focus on loyalty and competing with land vacations. On the yield side, they had originally expected a 2-4% increase but are now seeing around 13% growth. This is due to higher onboard spending and factors such as new hardware, CocoCay, and core price.

The demand for new ships is high, and the company has seen significant increases in both overall demand and like-for-like demand. This is due to a strong wave of demand this year and exceptional demand for the company's brands and destinations like Perfect Day. The company is also benefiting from the delayed return of cruise crews due to COVID. Pricing trends have been strong across all brands, including contemporary, premium, luxury, and expedition. The company expects continued strong demand for European and Mediterranean cruises in 2024.

The load factor expectations for the company have increased and they have returned to normal levels earlier than expected. Demand for European bookings continues to be strong, particularly in the premium and luxury market. The Caribbean has also seen strong demand, and the company is pleased with the summer season in Europe. In China, the company has a product launching in April 2022 and bookings have been better than in 2019. There is no need to shift capacity from other markets to China at this time.

The speaker from JPMorgan asks about the company's pricing strategy and how it is balancing pricing power with market share opportunities. The company's revenue managers use AI to manage pricing and optimize yields. The company is focused on driving pricing and monitoring consumer behavior in Europe. It is still early in the European season to determine any impact from recent overseas conflicts.

The speaker discusses the impact of the ongoing war on consumer behavior and the company's focus on retaining customers within their ecosystem. They also mention their goal to increase profitability and surpass their previous record margin, and thank participants for their interest in the company.

The speaker concludes the conference call by thanking the participants and wishing them a great day.

This summary was generated with AI and may contain some inaccuracies.