The conference operator, Regina, introduces the Royal Caribbean Group's second quarter 2024 earnings call and welcomes participants to the call. Michael McCarthy, Vice President of Investor Relations, introduces the other speakers and mentions that they will be making forward-looking statements. He also notes that they will be discussing non-GAAP financial measures and provides a brief overview of the structure of the call. Jason Liberty, the Chief Executive Officer, will begin the call with a strategic overview and update on the business, followed by Naftali Holtz, the Chief Financial Officer, who will discuss the second quarter results and current booking environment. The call will then be opened for questions.

The company is proud to announce their outstanding second quarter results and the achievement of their Trifecta goals 18 months ahead of schedule. They have reinstated a quarterly dividend and their balance sheet is in a strong position. The company credits their success to the dedication and commitment of their team and they are excited for the future opportunities in the vacation market.

The company has a solid plan to take advantage of the current market opportunity, with strategies focused on moderate capacity and yield growth, cost discipline, and a strong team. The second quarter results exceeded expectations, with strong booking and pricing across all key itineraries and high guest satisfaction scores. Yields grew 13.3% and adjusted EPS was significantly higher than guidance. The demand environment is expected to continue, with increased yield growth expectations for the year and strong bookings for 2024. The North American market is driving this growth.

The company is experiencing strong performance in their Caribbean, European, and Alaska summer itineraries, leading to increased expectations for yield growth. Their nimble sourcing model and global appeal allow them to attract high-yielding guests from new and younger consumer bases. The company expects double-digit yield growth and significant earnings growth in 2024, with mid-single-digit yield growth in the second half of the year. They are also expecting higher margins and adjusted EPS, and remain focused on their formula for success. Customers are showing positive sentiment, aided by a strong economy and record high household net worth.

Consumer preference is shifting towards spending on experiences, particularly travel. With an increase in vacation days and healthy financials, consumers intend to spend more on travel in the next 12 months. The baby boomer generation, expected to grow and hold a significant amount of wealth, is also contributing to the increase in travel spending. Younger generations are also prioritizing travel and make up a large portion of the customer base. As a result, the company is seeing an increase in new-to-cruise customers and stronger repeat rates.

The company has seen success in engaging guests and increasing onboard spending, thanks to putting customers first. Their innovative hardware, including the newly delivered Utopia of the Seas and upcoming ships like Celebrity Excel and Star of the Seas, are attracting younger customers. The company also continues to lead the industry with new experiences and private destinations.

The Perfect Day at CocoCay experience is doing well and there are plans to open new Royal Beach Clubs in Paradise Island and Cozumel. A loyalty status match program has been launched and has seen a significant increase in enrollment. Sustainability is a key focus for the company, with a recent summit held to collaborate on reaching net zero emissions by 2050. The business is performing well and the dividend has been reinstated.

The company had a strong second quarter, exceeding expectations and delivering an adjusted earnings per share of $3.21. This was driven by better revenue and favorable timing of expenses. Net yield growth was 13.3%, with load factors and rates contributing to the increase. OT products saw double-digit yield growth, particularly in the Caribbean and Europe. SCC increased 5.7% in constant currency, and adjusted EBITDA was $1.6 billion with a gross EBITDA margin of 38%. The company also achieved its Trifecta targets on a trailing 12-month basis.

The company's leverage was below 3.5 times when excluding the impact of new ships and they are on track to reach their carbon intensity reduction target. Their 2024 booked position is strong across all products and markets, with the Caribbean accounting for 55% of their capacity. Europe and Alaska are also performing well, with increased expectations for yield growth. The company has increased their guidance for 2024, with net yields expected to be up 10.4% to 10.9%. This is driven by higher pricing and onboard revenue. Costs are expected to be up approximately 6% for the full year, excluding fuel.

The company's cost metric has increased by 50 basis points due to higher stock-based compensation. They anticipate a fuel expense of $1.17 billion for the year and have increased their adjusted EPS guidance to $11.35 to $11.45. The increase in guidance is driven by second quarter demand and better pricing and business outlook. They expect to operate 13.4 million APCDs in the third quarter with a net yield growth of 6.5% to 7%. The balance sheet shows $3.8 billion in liquidity and a reduction in leverage to below 3.5 times, in line with their target range.

The company plans to continue paying down debt and pursue refinancings. They have paid off their debt holiday and initiated a quarterly dividend. They remain committed to their strategy and delivering on their mission. The operator opened the call for a question-and-answer session. The first question was about the guidance for the rest of the year, particularly the lower yield in the fourth quarter. The company responded that their yields have grown significantly since 2019 and they are still bullish about the back half of the year.

The company has been successful in bringing their business back up and their load factors have normalized. The yield improvement in Q3 and Q4 is driven by price, indicating a willingness to pay more. The company is seeing strong bookings for 2025 and beyond, with pricing continuing to increase. The load factor recovery is complete and yields have improved by 25% compared to 2019. The company expects significant margin accretion and return profile by growing yields moderately, controlling costs, and growing the business in a disciplined manner.

Naftali Holtz and Steve discuss Royal Caribbean's performance in 2019, noting that the first half of the year had an easier comparison due to the opening of CocoCay in the second half. They also mention structural changes that have been consistent over the past five years. Steven Wieczynski asks about the recent deployment change for Ovation, and Michael Bayley explains that it was a strategic decision to maximize performance and does not indicate a shift away from the China market.

The speaker is confident about the company's future in China and plans to announce more deployments there. They also discuss the growth of their like-for-like numbers and how it compares to their typical algorithm. The 5% implied yield guidance includes a faster growing like-for-like and the success of new ships. The pre-cruise commerce engine is helping increase onboard spending and share of wallet.

The speaker is asked about any pricing sensitivity in their 2025 bookings data, given recent comments from land-based hotel operators. The speaker responds that they continue to see strong demand and increasing pricing for their cruises, with no signs of a break in the pattern. They attribute this to a 20% value gap compared to land-based vacations, and see no signs of slowing down in pricing trends.

The speaker discusses the company's success in managing bookings and pricing for the back half of the year, with a focus on the short cruise market. They mention the development of Perfect Day, CocoCay and investments in ships to cater to this segment, as well as the company's multigenerational family brand and growth in all segments.

The volume of new-to-cruise customers is higher on shorter cruises due to the ease of purchase and less investment of time. Royal Caribbean's Utopia cruise, which offers a new Oasis class ship in the Port Canaveral market, has seen outstanding demand and high customer satisfaction. This success is expected to lead to increased repeat customers for the brand, along with the upcoming Icon and Star of the Seas cruises. Utopia is currently sailing at 132% load factor and has high customer satisfaction. The company is intentionally creating strong products to attract customers.

The speaker discusses how their brands are focused on understanding different segments and meeting the demands of both current and future consumers. They mention the importance of addressing multiple generations and experiences, and how this ties into their overall strategy of providing a lifetime of vacations. They also mention upcoming factors that could contribute to yield growth next year, such as the launch of new ships and a larger denominator.

The company has achieved their Trifecta targets, but they see it as just the beginning and are focused on continued growth. They expect to see an increase in global market share and significant margin and returns due to their formula of moderate yield growth, cost discipline, and growth discipline.

The paragraph discusses the potential for significant earnings and returns in the cruise business, particularly with the addition of land-based attractions like the World Beach Club and Royal Beach Club. The focus is on executing strategies to increase yields and control costs, as well as capturing a larger share of the overall vacation market. The company is not solely competing with other cruise lines, but also trying to attract land-based vacationers. Margins have already improved in the past 2 years and the focus will continue to be on profitable growth.

The speaker discusses the company's opportunity to win share in a $65 billion category and a $1.9 trillion market, which will lead to higher margins and increased free cash flow. They also mention the return of the dividend and potential for additional avenues of shareholder returns, such as share repurchases, as the company has achieved their balance sheet goals. The Board will make decisions regarding these forms of capital return in the future.

The company has reached their goal of having a competitive dividend and a strong balance sheet, allowing them to reinstate the dividend and continue growing the business. They plan to continue reducing their cost of capital and unsecuring their balance sheet. The company's yield management strategy will change next year as they have left money on the table this year due to an acceleration in demand and price. They have a sophisticated revenue management system and team to inform their pricing decisions.

The speaker discusses the debate over the optimal book position for their company and how their ultimate goal is to maximize revenue. They also mention the potential for ordering new ships further out and the possibility of a new, smaller ship class that could open up new markets for them. The speaker is asked to quantify the potential increase in their drive market penetration with this new ship class.

Jason Liberty, Chief Financial Officer of Royal Caribbean, is confident in the company's growth and order book. He emphasizes the importance of being disciplined in the growth of their business and taking into consideration environmental factors. The company is always designing new ships for their various brands and carefully selecting segments and deployments with long-term demand potential. Additionally, they are also replacing older ships that will eventually reach the end of their lifespan.

Royal Caribbean is planning to add smaller ships to their fleet in order to reach more unique and diverse destinations around the world. This will not only broaden their customer base, but also allow them to offer more flexible and customizable experiences for their guests. The upcoming Paradox Island Beach Club will be a similar experience to their popular CocoCay destination, appealing to customers seeking a beach experience in the Caribbean. It will be strategically positioned as an add-on to Perfect Day, providing another option for customers to enjoy during their cruise.

The speaker discusses the upcoming launch of a new product called Paradise, which will be a combination of short and long experiences and will complement the existing product Perfect Day. The pricing and ancillary spend for Paradise is expected to be similar to that of Perfect Day, but there will be some differences due to the nature of the experiences. The speaker also mentions that Paradise will have a separate ticket price for entry. The call concludes with the speaker thanking participants and offering further availability for follow-up questions.

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