管理層發言
Greetings, and welcome to the Carnival Corporation Plc Third Quarter 2024 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Beth Roberts, Senior Vice President of Investor Relations. Thank you. You may begin.
Thank you. Good morning, and welcome to our third quarter 2024 earnings conference call. I'm joined today by our CEO, Josh Weinstein, our Chief Financial Officer, David Bernstein; and our Chair, Micky Arison. Before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to the forward-looking statement in today's press release. All references to ticket prices, net per diems, net yields and adjusted cruise costs without fuel will be in constant currency, unless otherwise stated. References to per diems and yields will be on a net basis. Our comments may also reference cruise costs without fuel, EBITDA, net income, free cash flow and ROIC, all of which will be on an adjusted basis, unless otherwise stated. All these references are non-GAAP financial measures defined in our earnings press release. A reconciliation to the most directly comparable U.S. GAAP financial measures and other associated disclosures are also contained in our earnings press release and in our investor presentation. Please visit our corporate website where our earnings press release and investor presentation can be found. With that, I'd like to turn the call over to Josh.
Thanks, Beth. Before I begin, I'd like to express my support and heartfelt sympathy for all those impacted by Hurricane Helene this past week. Our thoughts and prayers are with you. With that, I'll turn to our prepared remarks. As September comes to an end and we closed out the year, I am happy to report that we are delivering well in excess of 2024 expectations. We've also built an even stronger base of business for 2025, and we're off to an unprecedented start to 2026. Our third quarter by all accounts was phenomenal, breaking multiple records and outperforming on every measure. Revenues hit an all-time high of almost $8 billion, a $1 billion more than last year's record levels. Record EBITDA exceeded $2.8 billion, up $600 million over last year and $160 million over guidance, and we delivered over 60% more net income than the year prior, achieving double-digit ROIC as of the end of our third quarter.
These improvements were driven by high-margin same-ship yield growth across all major brands, not driven by capacity growth. And it resulted in EBITDA and operating income on a unit basis of 20% and 26%, respectively, to levels we've not seen in the last 15 years. Strong demand enabled us to increase our full year yield guidance for the third time this year. And consistent with our historical emphasis on efficiency, we also improved our cost guidance, which enabled us to drive more revenue to the bottom line with around 99% of our 2024 ticket revenue already on the books were poised to deliver record EBITDA of $6 billion, almost $600 million above our prior peak and $400 million above the original guidance we set in December. ROIC is expected to end the year at 10.5%, 1.5 points better than our original December guidance and almost double last year's ending point. Looking forward, the momentum continues as we actively manage the demand curve.
At this point in time, 2025 is at historical highs on both occupancy and price. All core deployments are at higher prices than the prior year. Every brand in our portfolio is well booked at higher pricing in 2025, demonstrating the ongoing benefit of our demand generation efforts throughout our optimized portfolio. Our base loading strategy is continuing to work well, allowing us to take price, thanks to having pulled ahead on occupancy. In fact, in the last three months, our 2025 booked positions price advantage versus last year has actually widened for the full year and for each quarter individually. And with nearly half of 2025 already booked, we feel confident in maintaining our trajectory. While it's early days, the benefit of our enhanced commercial performance is carrying nicely into 2026 as we just achieved record booking volumes in the last three months for sailings that far out.
This incredibly strong book position for 2024, 2025 and 2026 drove record third quarter customer deposits towards $7 billion, and that's along with continued growth in pre-cruise purchases of onboard revenue. It's also gratifying to note that the onboard spending levels were not only up strong again this quarter. Our year-over-year improvement in onboard per diems actually accelerated from the prior quarter. In essence, all demand indicators are continuing to move in the right direction. And we have so much more in the pipeline to sustain this momentum, including the North American Premier of the highly successful Sun Princess in just a few weeks. This will be followed by the introduction of her sister ship, Star Princess, the second next-generation Princess ship coming online in a year. We also continue to invest in the existing fleet with major modernization programs like AIDA evolution expected to deliver additional revenue uplift over the coming years.
As you know, we're not just going to be buoyed by our ship. I can't wait for the introduction of our game-changing Bahamian destination, Celebration Key. It's five portals built for fun, which were opened in July 2025, but it really ramps up in 2026 when Celebration Key serves as a premium call for 19 Carnival Cruise Line Ships, and rest assured, we're already planning for our Phase 2 landside development to fully leverage the use of the four berths we're building. In 2026, there's also the midyear introduction of a two-berth pier at Half Moon Cay, our naturally beautiful and pristine Beach consistently rated among the top private islands in the Caribbean. These two destinations will be available to even our largest ships, further reducing fuel costs and our environmental footprint at the same time. Stay tuned as we'll be sharing more exciting reveals about Half Moon Cay in the next few months.
We're also stepping up our marketing efforts in the fourth quarter, which David will touch on. Our elevated marketing investment has been working as we continue to drive demand well in excess of our capacity growth with year-to-date web visits up over 40% versus 2019; paid search, up more than 60%; and natural search up over 70%. Our brands are iterating on under creative marketing and constantly finding ways to attract more attention to the amazing product and execution we already deliver on board, and it is continuing to pay off as we chip away at the unwarranted price disparity to land-based vacations. All of these activities, along with strong support from our travel agent partners, have allowed us to once again take share from land-based peers as we attract even more new-to-cruise guests. In fact, both new-to-cruise and repeat guests were up double-digit percentages over last year. Now, turning to our balance sheet.
We expect to continue on our path towards investment grade and have a clear line of sight for further debt paydown, having recently finalized our order book through 2028. We have just three ships spread over the next four years. That's one ship delivery in 2025, one in 2026, and one ship in each of 2027 and 2028. This limited order book should also position us well to continue to create demand in excess of capacity growth. Our continued focus on high-margin same-ship yield growth should deliver improving EBITDA off of this year's record levels. Of course, strong and growing free cash flow and further debt reductions provide a consistent formula for ongoing improvement in our leverage metrics and a continuation in the trajectory we have experienced already this year, resulting in a two-turn improvement in debt to EBITDA in just nine months. We have certainly come a long way in a relatively short amount of time.
In just two years, we've already more than doubled our revenue and are going from negative EBITDA to an expected all-time high of $6 billion this year. This remarkable achievement is all thanks to our global team. They continue to outperform as we progress through 2024 and they are also setting us up for a successful 2025. It is their continued execution that has put us firmly on the path to achieving our SEA Change targets. And just as important, they once again powered our ability to deliver unforgettable happiness to nearly 4 million guests this past quarter by providing them with extraordinary cruise vacations, while honoring the integrity of every ocean we sail, places we visit, and lives we touch. With that, I'll turn the call over to David.
Thank you, Josh. I'll start today with a summary of our 2024 third quarter results. Next, I will provide the highlights of our fourth quarter September guidance, some color on our improved full year guidance, along with a few other things to consider for 2025, then I'll finish up with an update on our refinancing and deleveraging efforts. Let's turn to the summary of our third quarter results. Net income exceeded June guidance by $170 million as we outperformed once again. The outperformance was essentially driven by two things; first, favorability in revenue of $40 million as yields came in up 8.7% compared to the prior year. This was 0.7 points better than June guidance, driven by close-in strength in ticket prices as well as onboard and other spending. Second, cruise costs without fuel for available lower berth day or ALBD improved slightly compared to the prior year and were nearly 5 percentage points better than June guidance, which was worth over $125 million.
The third quarter benefited from cost-saving opportunities, accelerated easing of inflationary pressures, benefits from one-time items, and the timing of expenses between the quarters. Most of the third quarter cruise cost benefits will flow through as an improvement to our full year September guidance. Per diems for the third quarter improved at least 6% versus the prior year driven by higher ticket prices and improved onboard spending on both sides of the Atlantic. At the same time, our European brands on the path back to higher occupancy levels saw outsized growth in occupancy of 5 percentage points as compared to the third quarter of 2023. For the third quarter, we reported record-setting operating results with strong demand, delivering record revenues, record yields, record per diems, and record operating income. Now, two things to highlight about our fourth quarter September guidance.
The positive trends we saw in the third quarter are expected to continue in the fourth. The yield guidance growth for the fourth quarter is set at 5% over the prior year. The difference between the yield guidance for the fourth quarter and the third quarter yield improvement of 8.7% is the result of a tougher prior year comparison as fourth quarter 2023 per diems were up over 10% versus just 5% for the third quarter of 2023. Having said that, it is great to see that we anticipate continued strong yield growth in the fourth quarter and that it is driven primarily by price. Cruise costs without fuel per available lower berth day for the fourth quarter are expected to be up 8% like first quarter of 2024, which was up 7.3%. Both quarters are impacted by higher dry dock days and higher advertising expenses planned, and we did have about $25 million of anticipated third quarter costs shift to the fourth quarter.
As I have said many times, relative to cruise cost per ALBD, judge us on the full year and not the quarters as we often see certain cost items like dry dock expense, advertising, and other items have different seasonalization between the quarters from year-to-year. 2024 is a great example of this, where cruise costs without fuel per ALBD were up 7.3% in the first quarter, essentially flat in the second quarter, improved slightly in the third quarter and are expected to be up approximately 8% in the fourth quarter. Turning to our improved full year September guidance. Net income for September guidance is set at $1.76 billion, a $210 million improvement over our June guidance. This improvement was driven by three things; first, an improvement in yields to 10.4% by flowing through the $40 million revenue benefit from the third quarter. Second, a one-point improvement in cruise costs per ALBD to approximately 3.5% from flowing through $100 million of the $125 million cost benefit from the third quarter with $25 million re-seasonalized to the fourth quarter, as I previously mentioned.
And third, a benefit from fuel pricing currency worth $70 million, the strong 10.4% improvement in 2024 yields is a result of the increase in all the component parts, higher ticket prices, higher onboard spending, and higher occupancy at historical levels, with all three components improving on both sides of the Atlantic. Now a few things for you to consider for 2025, we are forecasting a capacity increase of just 7%, compared to 2024. We are well positioned to drive 2025 pricing higher with less inventory remaining to sell than the same time last year. We are also looking forward to the introduction of our game-changing Bahamian destination, Celebration Key in July 2025. We anticipate that Celebration Key will be a smash hit with our guests and provide an excellent return on our investment. However, we do expect that the operating expenses for the destination will impact our overall year-over-year cost comparisons by about half a point.
In 2025, we are expecting 688 dry dock days, an increase of 17% versus 2024, which will also impact our overall year-over-year cost comparison by about 0.75. I will finish up with a summary of our refinancing and deleveraging efforts. With record third quarter EBITDA of $2.8 billion, our efforts to proactively manage our debt profile continue. Since June, we prepaid another $625 million of debt bringing our total prepayments to $7.3 billion since the beginning of 2023. Additionally, we successfully upsized the borrowing capacity on our revolving credit facility by nearly $500 million, bringing the total undrawn commitment to $3 billion back to its 2019 level. Furthermore, we will continue to look for more opportunistic refinancing over time. Our leverage metrics will continue to improve in 2024, as our EBITDA continues to grow, and our debt levels improve. Using our September guidance EBITDA of $6 billion, we expect better than a two-turn improvement in net debt-to-EBITDA leverage compared to year-end 2023 and approaching 4.5 times, positioning us two-thirds of the way down the path to investment-grade metrics.
Looking forward, we expect substantial free cash flow driven by our ongoing focus on operational execution and among the lowest new build order book in decades to deliver continued improvements in our leverage metrics and our balance sheet, moving us further down the road to rebuilding our financial fortress, while continuing the process of transferring value from debt holders back to shareholders. Now operator, let's open up the call for questions.
分析師問答
Our first question comes from Matthew Boss with JPMorgan. Please go ahead with your question.
Great. Thanks. And congrats on another really nice quarter.
Thanks, Matt.
So Josh, on the continued momentum, maybe could you elaborate on the stronger base of business for 2025 and the record start to 2026 that you cited? Maybe if you could touch on volume and pricing trends that you're currently seeing across regions and maybe specifically in Europe?
Sure. So I'm probably broad-based is the best way to talk about the strength and what we're seeing in 2025. The book position is higher for both North America and our European brands, and that's consistent across the quarters as well. So we're positioned very well. Our brands have been doing a great job of pulling forward the booking curve and now we get to take price, which is the goal. So it's very encouraging. We are we're about two-thirds booked when you look at next 12 months. So we're in a pretty enviable place. Matt, do you have a follow-up?
Yes, thanks. So maybe just a follow-up would be on the balance sheet. If you could speak to capital priorities from here, just given the free cash flow generation and some of the changes that you've made?
So basically, our priority one, two and three is debt reduction, where you have the goal of becoming investment grade, and we do expect to see both the reduction in our debt levels as well as the improvement in our EBITDA, achieving investment-grade metrics as part of our SEA Change program towards the end of 2026. And so we've got plenty of time to think about other alternatives beyond that.
Great. Congrats again. Best of luck.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Steve Wieczynski with Stifel. Please proceed with your question.
Yes, good morning everyone. Congratulations on a strong quarter and the outlook. Josh or David, I might have a somewhat narrowed question here. David, you briefly mentioned this in your prepared remarks. Looking at the fourth quarter yield guidance, it seems to be lower than what you indicated for the fourth quarter back in June. I'm curious if there are any factors, be it related to pricing, geography, or brand, that are showing any signs of weakness in pricing for the fourth quarter. Are you adopting a more conservative approach regarding onboard spending in the coming months?
Yes. Hi, Steve, this is Josh. I'm not entirely certain about your calculations, but there has not been any change in our fourth quarter yield expectations since we provided our June guidance. We were often questioned about our ability to break even year-over-year, especially given the exceptionally strong fourth quarter of 2023. Now we are discussing a 5% figure, and we are feeling positive about that.
Okay. I understand. Josh, I want to ask about the bookings for 2025 and 2026. You mentioned that you're already 50% booked for next year and are in a solid position for 2026. I'm curious if you feel your booking window has expanded too much. Are you getting close to a point where you might be leaving money on the table if demand stays the same from now on? Additionally, have you noticed an increase in demand for bookings, particularly for late 2025 and 2026, regarding Celebration Key?
Absolutely. The key takeaway regarding the booking curve is that our goal isn't to create a consistently increasing curve, but rather to maximize the revenue generated by the time we finalize sales. This process varies by brand and itinerary, and I can confidently say that nearly all of our brands have shown year-over-year increases, with one exception where we opted to reduce our efforts strategically to ensure we’re not missing out on potential pricing opportunities. While we are currently positioned to achieve record results, we are analyzing this closely to optimize our revenue effectively. Regarding Celebration Key, there is clear premium value that will benefit us, especially as we anticipate ramping up to around 20 ships by 2026, which is quite exciting. The positive outlook we discussed for 2024 and the first half of 2025 is unrelated to Celebration Key; instead, it stems from organic demand and our various commercial initiatives that are driving considerable revenue growth.
Got you. Thanks for that, Josh. Really appreciate it. Congrats, guys.
Thank you. Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.
Great. Thank you. I know it's too early to give guidance for 2025 but...
You're going to ask anyway.
Let me ask it this way, which I think is harmless. Given everything you're saying about the booked position for 2025 and even 2026 being at record levels, is it fair to say that you're off to a better start for 2025 than a typical year? I hope that's an innocent way to ask it. I also wanted to clarify on the expense. David, I heard you mention the $25 million of expense that was borrowed and will show up in Q4, shifting that amount. But was there a separate one-time cost savings this year that we should expect to see return in 2025? I just wanted to catch what that amount was and what it was for, if you could share that. Thank you.
Okay. So I will actually very directly answer your question. So we are starting off even better for 2025 than we did for 2024, which is shaping up to be a record year. We are higher in occupancy, and we're higher in price and the brands doing a great job of really trying to optimize that booking curve and revenue generation. So that's not guidance, but it's a point in time, and that's where we are.
Okay. Thanks.
As far as the second question is concerned, yes, there were a couple of reasons why we reduced costs by the full point of the year. One included some one-time benefits, wasn't huge, probably about $20 million of the $100 million related to some pension credits and a few other little things for the year.
Okay, Great. Thank you.
Thanks, Robin.
Thank you. Our next question comes from the line of Ben Chaiken with Mizuho Securities. Please proceed with your question.
Hi. Good morning. On the cost side, EBITDA flow-through has been stronger than expected. It was almost 60%. Costs have been better generally for the majority of the year. Can you talk about some of the cost saves, margin opportunities you're finding? Is this simply better leveraging a fleet that is now leaner subsequent to some of the asset sales over the past few years? Or is it cost that you're actively pulling out of the business or both? Thanks.
No, it's not cost that we're pulling out of the business. I mean what we're seeing is hundreds of small items across the board, across many brands, things like crew travel savings, other port savings opportunities as well as a lot of sourcing savings, cost innovation better leveraging our scale across all the brands. And that probably represented about half of the $100 million cost savings that we roll through for the full year.
Got it. That's helpful. And then I guess for Josh, higher level, you folded P&O Australia into the Carnival brand this year. I know it was somewhat smaller scale, but do you think there's other opportunities to streamline the portfolio in a similar way going forward? Thanks.
Yes. I'd never say never take things off the table. I think this is one of those decisions that just made a lot of sense and something that we felt pretty passionately about executing quickly. We'll continue to review our portfolio brand-by-brand, ship-by-ship. But right now, we feel real good about how we're entering 2025.
Thanks.
Thank you.
Thank you. Our next question comes from the line of James Hardiman with Citi. Please proceed with your question.
Hi. Good morning. I wanted to dig into some of the cost commentary you gave us, David. So 3.5% growth for this year, that seems like it's getting better, obviously, with some cost saves and maybe better inflation. I think you called out about 0.5 points next year for Celebration Key and another 75 basis points from dry docks. I guess, are there any call-outs on the other side of that equation? I don't think our starting point should be in that 5% range if we were to just take the 3.5% this year and add those 2% call-outs. Maybe talk us through sort of what the base level of inflation is as we think about 2025 and any other sort of positive factors that will help offset some of the negative ones for next year?
If you have a precise prediction for inflation over the next 15 months, please share it, as we are still trying to determine that ourselves. There remains a certain degree of inflation impacting our business, which we will factor into our guidance in December. Additionally, we are actively exploring cost-saving measures. As I mentioned in June, despite having the best cost metrics in the industry, we believe there are still opportunities to better utilize our scale, similar to what we achieved in the second and third quarters, and we will keep pursuing these. This will also be included in our guidance to help mitigate some of the inflation. However, please stay tuned. The two aspects I highlighted in my prepared remarks regarding the dry-docks and the costs associated with Celebration Key are largely settled at this point, and we wanted to emphasize those in the prepared comments.
Got it. It sounds like everything is going pretty well from a demand perspective. One question we keep receiving is about the potential for the widening conflict in the Middle East to negatively impact your business. It seems that the fact that much of that region was already vacated in 2024 might have helped. The hope was that this situation would be a benefit in 2025, but that now seems unlikely. Can you share how you expect that region to impact your business next year?
We didn’t expect conditions to improve, and we sincerely hope they don’t worsen. Our concern lies with everyone in the Middle East as we wish for peace, but our business isn't reliant on that region. It’s not a significant market for us, and we have no plans to operate there. Unless the situation escalates significantly beyond the Middle East, our ships remain flexible, and we're focused on markets that offer great potential for us.
Got it. Thanks, guys.
Thank you.
Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.
Hi guys. Good morning everyone. My first question, you talked about dry docks increasing next year. Can you give us a little more possible granularity on dry dock increases or decreases for perhaps some quarters by quarter for next year modeling purposes? Thank you.
So I don't have all that detail handy, Patrick. But if you call Beth, I'm sure she can provide that to you.
Okay. Beth, we will call you. Thank you. And then second, I see there's some news out about a new cruise pier at Half Moon Cay. Do you have any longer-term plans above and beyond just a pier for Half Moon Cay, such as water parks and the like down the road?
So, I'll say yes and no. Do we have more plans? Absolutely. Do we want a water park? Absolutely not. The difference between Celebration Key and what we're building at Half Moon Cay is that Celebration Key is really focused on being an entertainment center with five portals of fun. In contrast, Half Moon Cay offers one of the most naturally beautiful white sand beaches and crescent-shaped islands in the Caribbean. It's a true private destination that we aim to enhance. We will discuss that further in the coming months, and while I don’t want to spoil anything, there are great things in store that will make it an incredible destination for entirely different reasons.
Great. Sounds great. Thank you.
Thank you. Our next question comes from the line of Brandt Montour with Barclays. Please proceed with your question.
Good morning everyone. I appreciate you taking my questions. To begin with, we haven't really discussed SEA Change and your three-year targets. We received some updates in the recent release. My question is, Josh, with the new full-year guidance for 2024, we can calculate your progress and see the implied KPIs and costs needed to reach those targets, which suggest a tight margin between the two. This makes me think back to what you shared on Investor Day regarding sustainable per diems and costs, leading us to believe there’s potential for improvement. So, could you provide some insight into how you view the business in the current operating environment, especially in light of the positive remarks you've made today concerning those longer-term targets?
Well, I think the teams around the world are doing a phenomenal job. And if you think about – in December, we were saying up 8.5 points on percent on yields, up 4.5% cost, which gets us to 9% ROIC. And now we're seeing up almost 10.5% on yield, only up 3.5% on cost. It gets us to 10.5% on ROIC. So clearly, we're outperforming the expectations. It gets us about 75% of the way there for two of the metrics, the EBITDA per ALBD and the ROIC after one year with 2 years remaining, and carbon is progressing as expected. We're about 50% there after one year. So the teams aren't doing all those things to make targets. They're doing those things to make their guests happy and provide great business results and the outcome that’s going to be hitting those targets. Do I want to hit them early? Yes, do I want to get further than that? Absolutely. But we'll take that in stride, and we'll probably talk more when we get to December guidance, and you could put that in context where we'll end in 2025 and then take it from there.
Okay. Thanks for that. And then just a follow-up, maybe, Josh, if you could address the broader land-based leisure demand environment, what we're seeing elsewhere is not what cruise has seen, we see steady, slow somewhat softer normalization. We don't get any of that from you in your commentary today. I guess, we understand why it's happening, but if the rest of the world is narrowing a little bit toward narrowing your, let's say, your gap from the top. Do you see any of that affecting your consumers' behavior and willingness to spend and pricing sensitivity?
We are still a remarkable value to land-based alternatives. And maybe land-base is softening because we're doing better. Who knows? You have to ask them that. I can't tell you their business. But we have a tremendous value. We are doing a better job of getting our word out better marketing, more eyes on the industry, more eyes on us. Our new-to-cruise this past quarter was up about 17% year-over-year. That's not an accident. That's because our brands are really focused on driving that demand profile. So I don't have a crystal ball, and I can't tell you what the world is going to look like a year from now, two years from now. But I can tell you if we keep focusing on commercial execution and doing the right things and doing them better, then there's a long runway because the one thing that's never been a question is can we execute on board and deliver a great experience. And that's always been the case. It's just a matter of how we convince people to come with us who have never done it, and I think we're doing a good job on that.
Great. Congrats on the quarter.
Thank you. I guess, I'd be remiss if I didn't shout out the travel agents because all they do is amplify our voice in a tremendous way. And so that success that we're seeing in building that demand profile is really hand-in-hand with their success, and we appreciate their efforts.
Thank you. Our next question comes from the line of Conor Cunningham with Melius Research. Please proceed with your question.
Thank you, everyone. Referring to the comments on new-to-cruise, can you share if your 2025 bookings are indicating an acceleration in new-to-cruise and new-to-brand? Also, could you discuss the younger demographic? I believe I asked this last quarter, but it appears to be a significant long-term trend for you. Thank you.
I apologize for getting sidetracked. Regarding the demand profile for future bookings, we typically don't discuss that in advance, but we can address it when we review our results. We'll also cover the demographics of those who have sailed with us. It's important to note that our efforts to optimize and improve execution are ongoing beyond 2024. We're focused on driving demand and reaching a broad audience. With minimal capacity growth, the increase in demand will essentially reflect which customers are willing to pay the most to board our ships, and that's our goal.
Yes.
Okay.
Regarding the average age of our guests, we discussed this last quarter. If we review our brands over the past 10 to 12 years, the average age for most of them has remained relatively stable. While the repeat guests who sailed a decade ago are now 10 years older, the overall average age of our guests is still young. We're attracting a lot of new, younger individuals, and brands like Carnival Cruise Lines have an average age around 41. Millennials, currently aged 43 or 44 and younger, make up over half of the population in the United States. Consequently, Carnival has a significant portion of its guests from this demographic, given that the average age is 41 or younger.
But I would say we love boomers and we love Gen X. If you consider our portfolio approach, we have brands like Holland America and Cunard that cater to individuals with a strong income and retirement, who have plenty of time to enjoy longer cruises. We are enthusiastic about increasing our focus on the millennial generation, as we are seeing growing interest and demand from them. However, we don’t want to overlook the other generations and the offerings we have for them.
On Celebration Key, I know you've received many questions about that. It is set to open in the middle of next year. Is it generating the expected halo effect? Are people asking for it in the way you anticipated, or is there a slight variation in their requests? You mentioned that 19 ships will be visiting there. Are those ships selling out faster than you expected compared to historical trends? Thank you.
Unfortunately, since all carnival ships are currently in operation, we don't have a test case. However, we are noticing a demand for it, with people actively seeking it out. The encouraging news is that it hasn't even launched yet. We believe that interest will significantly increase once we provide the experience and demonstrate its capabilities.
Appreciate. Thank you.
Thank you.
Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hi. Good morning, everyone. Thanks for taking my question.
Hi.
Hi. I appreciate all the details so far. And it's interesting when we look across our coverage. There are some smaller pockets of weakness that consumers have started to demonstrate here and there. And this is a broadly based positive quarter and I just wanted to double-click on the issue of are there any small pockets, any areas of consumer behavior that we should just keep an eye on as we go forward that are, again, embedded in what appears to be a pretty broad-based strong quarter and outlook?
Yes. No, I appreciate the question. I guess I'm happy that I just have to say no. What we're seeing is, in fact, broad-based. We're seeing that demand for all the brands pretty much across the portfolio. What we're seeing in the booking trends that we've talked about, the onboard spending. The onboard spending levels were 7% up year-over-year. That's off the top of my head. Am I off by a point?
Something like that more than this second quarter, so…
Onboard per diems increased by 6.7% year-over-year, showing an acceleration compared to the previous year's second quarter. When considering the demand profile and the state of the consumer, it's hard to comment on macroeconomic factors due to the many changes happening globally. However, what we offer is resonating well with people, who are willing to pay and participate, which is encouraging. This aligns with our focus over the past two years on improving our services as we move forward.
Perfect. And if I can, just as my follow-up, are you able to observe or record any trade-down dynamics where part of the demand you're seeing is a consumer who's traded out of something else into a cruise vacation?
No, nothing that we've seen that says that. I mean I think it's the opposite. We're doing a better job of convincing them. This is something they want to do, not because they're trading down from something, but that they want to experience what we have to offer.
Okay. And I apologize for the questions, my ratings speech mix up.
No, no. I think they were good. They were good questions. I think they're good questions.
Very fair. Congrats on the quarter.
Yes.
Thank you. Our next question comes from the line of Jaime Katz with Morningstar. Please proceed with your question.
Hi. Good morning. I'm curious if you have any update on, I guess, the Chinese consumer? Is it trending as you would like or Asia Pacific in general? Just because the data that's been coming out of the region has been a little bit lumpy, and it was obviously something that was pretty meaningful prior to the pandemic? Thanks.
Yes. Hi, Jaime. It wasn't very meaningful for us prior to the pandemic and the grand scheme of things. It was a few percentage points of our capacity that was really dedicated to China. We have, as I've been pretty open about, I'm ecstatic that it's reopened to international cruising. I wanted to be very successful for our competitors, but it's not something that we're pursuing at this time and have not. With respect to the region overall, when it comes to Japan, Taiwan, and other regions, that's going well. People like cruising with us before, and they continue to enjoy it now.
Yes. I was just curious if there was any movement with them with outbound travel more so than anything else. As far as occupancy in the European brands, is there a little bit of room left in that for upside? Or has the gap sort of closed on that?
I mean overall, we're back to historical norms, which is a range. It's not a number. And I'd say all of our brands to varying degrees have the ability to maybe address a little higher here and there. It's not going to be a big driver of our improvement as we look forward. It's really going to be from driving price, which is where we're focused. But there's always an opportunity to make some tweaks and find some more occupancy.
And I don't think you guys had mentioned anything on any hurricane impact, but any insight to the cost of that disruption if you have it, would be helpful? Thanks.
Yes, our impact is minor compared to the overall effect on the region, which is something we should take a moment to consider. Beyond that, it translates to just a few million dollars for us, which is not significant.
Excellent. Thanks.
Thank you. Our next question comes from the line of Assia Georgieva with Infinity Research. Please proceed with your question.
Good morning guys. Congratulations on a great quarter. And I'll just delve into the few quick questions that I have. Occupancy is still not fully caught up relative to fiscal 2019. Isn't that by itself already a yield opportunity?
Yes, like I said, we operate in a range for occupancy, and we are within our range, but there's certainly the opportunity to push that a little bit more. It's just not going to be the biggest driver of how we can improve the revenue picture going forward.
I have a quick question for David. Fuel costs appear to be significantly higher than our estimates as we track 180, 380 MGO. Could this be connected to shore power availability at ports in the Baltics, Denmark, Germany, and Sweden? Is that a factor in this situation?
No, because our shore power, when we buy it, is actually not included in the fuel expense, it's included in port expenses because we purchased it at the port. So, that would not have been an impact. So, I'm not sure what you're looking at and what you're tracking. But Beth can give you some websites to look at, which maybe will improve your tracking overall.
That would be great and Beth, I'm sorry, I'll bother you on this one. And basically, my second question, given the acceleration in EBITDA generation and how far ahead you're with the SEA Change program? Is it possible at this point to order a sister ship for 2027, 2028 delivery, whether it's for a Princess brand or Carnival brand?
No, I mean, our order book is set through 2028. We feel very good about that. And as you know, we did order what we call Project ACE, which is next generation for Carnival, that doesn't start until 2029. So, the focus of all that EBITDA generation is really its cash flow and we're going to use the headroom with reduced capital expenditures to pay down debt.
So, Josh, in terms of the debt tranches, we're going after the highest cost of debt, correct?
As long as it has a good net present value, we can consider paying it down. There are many factors involved.
I was going to mention that it really comes down to three main factors we consider. The first is the cost of our debt. We currently have two issuances with double-digit rates, both of which are callable in 2025. This should positively influence our overall situation when we look at refinancing them early next year. The second factor involves our maturity towers, which are well managed through 2026. However, we will need to consider refinancing for the towers in 2027 and 2028 and will also evaluate secured versus unsecured debt, as our goal is to transition to being completely unsecured while managing this over time as we progress.
And David, that was basically my question, has cost versus secured towers. So it's a balancing act, I imagine?
Correct.
All right. Lastly, I wanted to ask about a competitor that is developing a terminal at your Galveston, Texas port. What are your thoughts on that? They already have a presence in Miami and are operating at Port Canaveral, among other locations, and they are not required to report on ROIC or other metrics. How do you feel about this encroachment?
I don't see it as an encroachment. We only represent 2% of the overall vacation market. If we’re discussing the company I believe you are referring to, their portion of the cruise market is small and still growing. As long as we effectively manage our world-class portfolio of brands, the demand profile will remain strong. However, I need to cut you off; you asked three questions when the operator mentioned only one. Sorry.
Thank you. Our next question comes from the line of Dan Politzer with Wells Fargo. Please proceed with your question.
Hi, good morning everyone. Thanks for taking my question. Josh, I want to follow up on the fourth quarter yield comment. You mentioned that there wasn't much, if any, change to your prior guidance. Considering the better performance in the third quarter, with David noting stronger close-in demand contributing to the positive results, is there any reason to think that won't continue into the fourth quarter? Or are there any short-term demand challenges or factors, like a new cycle or an election, that might be causing some additional caution?
Look, we try to give you our best estimate of what's going to happen. And do we always try to outperform? Absolutely. That's the goal. There's nothing in particular about the fourth quarter other than what you said. I mean right, the next month. A lot of attention is going to be focused on something other than what's normal. It happens every four years. So we'll see what kind of impact that has. But the business is still going strong, and we expect a lot of ourselves.
Yes. And also keep in mind, with 99% of the ticket revenue for the gear already on the books, there's not a lot left to sell, yes.
Right. No, that makes sense. And then just for my follow-up. In a couple of weeks, you're hosting some investors at Board, Sun Princess. Any way to kind of think about maybe framework and maybe kind of the key topics we should focus on? It seems like there's a lot progress on SEA Change, your Celebration Key, maybe some of these cost opportunities or savings from easing inflation. But what are the kind of the key high-level focus points we should be thinking about? Thanks.
Look, it's been about 15 months since we got together for the first time to talk about what our priorities were and announced SEA Change. And think it's a good opportunity for us to just kind of level set on where we are and everything. And hopefully, as you see it, the way we see it, which is the progress that we're making across board. We also get an opportunity to showcase the Princess brand and specifically the Sun Princess, which is just a true game changer for Princess. And I'd say for the premium market, she's a remarkable ship and the team on board does a remarkable job. And you also get an opportunity, not just to hear from me, but also from David, but you'll be able to hear from the President of that brand and to actually meet the presidents of pretty much all of our brands who will be there with us. So, good opportunity for you to get a little bit more educated and inundated by all things Carnival Corporation.
That's great. Thanks so much and congrats on a nice quarter.
Thanks a lot, Daniel.
Thank you. Our final question comes from the line of Chris Stathoulopoulos with SIG. Please proceed with your question.
Good morning. Thank you for taking my question. Josh, I would like to ask about demand but from a different perspective. When considering global travel and tourism across various segments like lodging and airlines, there appears to be a different dynamic at play regarding demand. Particularly in lodging, lower to middle-income consumers are showing some price sensitivity, while airlines are presenting a mixed picture. Cruise Lines seem to be experiencing a consistent demand and ongoing momentum. Could you elaborate on the factors contributing to this? For instance, there are elements like new-to-cruise travelers, a slower reopening of certain markets, a strong U.S. dollar, discounts compared to land-based trips, and base-loading. It would be helpful if you could provide some context regarding the demand landscape. There’s still some discussion about whether this reflects pent-up demand, which I believe might not be accurate, or if this is the expected baseline going forward. Thank you.
I completely agree that we are past the point of pent-up demand. We've been operating for over three years now, and I believe that this level of demand is decreasing. I won’t rank the different factors, but I think the entire industry is doing well with demand generation and raising awareness to attract people who may not have previously considered cruising. At our brands, we are actively improving our commercial operations by creating innovative marketing content, increasing visibility through performance marketing, and reaching out to potential customers. We are directing consumers to our trade partners and our websites, doing everything we can to spark interest, and that enthusiasm is significantly contributing to our growth.
Okay. And then as my follow-up, David, so my math here, I have about a point and a quarter on the adjusted NCCs for next year, and we can come up with our own assumptions, as you said, on inflation. But as we think about the other moving pieces here, puts and takes, on the advertising side. I know I think that's expected to be elevated in 4Q. Is there a reason? Or how should we think about next year? And do we need this level of advertising per ALBD to continue? Is it part of the base load book plan? Or can we expect that to sort of get softer, if you will, as that initiative continues to take hold? Thanks.
Yes. So the advertising as well as many other decisions are things that we really need to talk about over the next month or two in the planning process, which we're in the midst of doing. And we'll give guidance in December relative to all of those items. It would be premature for us to be making a decision today exactly what we want to do, particularly for next summer or the back half of next year in advertising. So we'll give you more insight into that in three months.
I'd just add a couple of things. One is, remember, we just talked about a record-setting 2026 booking period. So we're not just booking for the short-term. We're booking for the long-term and advertising is a combination of getting people to consider things for the longer-term and getting the ships filled as we need to in the short-term. So the metric of just looking at it on an ALBD basis is, it's useful for benchmarking, but it's not too scientific. It's really about how much bookings we want to generate and how we think we need to spend to go get it. And I think we're doing a good job. And when you do look at the rest of the benchmark basis, even though we're higher than we were back in 2019, and I think a couple of percent higher year-over-year, we're still quite a bit lower than most if not everyone. So we'll continue to be thoughtful about it and do what we think we need to do to drive the business.
Thank you. Our final question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your question.
Hi, everyone. Thank you for including me. I wanted to follow up on new-to-cruise, Josh. You mentioned that it was up 17% this quarter, compared to a 10% increase last quarter. That's a significant acceleration for a brand of your size. Can you elaborate on what contributed to that? Was there a reallocation of some of the advertising budget? Also, how do you strategically plan to increase that penetration from 2% to a larger percentage of total vacation spending? Thank you.
Yes. There isn't a single solution for attracting new-to-cruise customers. It involves a combination of improved advertising, strong performance from the trade, and better usability of our websites. I've noted that Alaska, in particular, performed outstandingly this past year, which tends to attract more new-to-cruise travelers. If you're planning to visit Alaska—which everyone should consider—the best way to truly experience it is by cruise ship. Our brands offer exceptional experiences, and we hold more permits for Glacier Bay than anyone else, along with a unique shoreside presence that can't be duplicated. This has proven to be very effective for us. I will continue to emphasize the same principles I've discussed in previous quarters, focusing on enhancing our fundamental efforts.
Thank you.
I appreciate it. Well, thank you, everybody, for joining us and look forward to talking again in a few months for those of you that I don't see next week. Take care.
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.