Carnival Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 25, 2024

Key Takeaways

  • Q2 results beat expectations with record revenues, operating income and adjusted EBITDA, driven by a 12% increase in yields and 6% higher per diems, resulting in $500 million more net income year-over-year and a $170 million upward surprise to guidance.
  • Demand remains robust with $8 billion in customer deposits, record future bookings for 2025, and continued mid-single-digit per diem growth for an eighth straight quarter, prompting a full-year guidance lift of $275 million.
  • Portfolio optimization includes sunsetting P&O Cruises Australia to redeploy vessels into Carnival Cruise Line, nine new ships added since 2019, two XL-class ships arriving in 2027-28, and the launch of the Celebration Key destination to drive incremental revenue and fuel savings.
  • Guest experience and ancillary revenue are enhanced by the fleetwide rollout of Starlink high-speed connectivity and the delivery of new ships such as Queen Anne, Sun Princess and Carnival Firenze, which have driven outsized yields and media impact.
  • Balance sheet actions generated $2 billion in cash from operations and $1.3 billion in free cash flow, with $1.6 billion of debt prepaid, $2.75 billion repriced, and $535 million of new notes issued, cutting interest expense and moving leverage toward investment-grade metrics.
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Earnings Conference Call
Carnival Q2 2024
00:00 / 00:00

There are 18 speakers on the call.

Operator

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Beth Roberts, Senior Vice President, Investor Relations.

Operator

Thank you, Beth. You may begin.

Speaker 1

Thank you. Good morning, and welcome to our Q2 2024 earnings conference call. I'm joined today by our CEO, Josh Weinstein our Chief Financial Officer, David Bernstein and our Chair, Mickey Arison. Before we begin, please note that some of our remarks on call will be forward looking. Therefore, I will refer you to the forward looking statement in today's press release.

Speaker 1

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, earnings per share, 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.

Speaker 1

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.

Speaker 2

Thanks, Beth. Inside of 2 years, we've made incredible strides in improving our commercial operations, strategically reallocating our portfolio composition, formulating growth plans and strengthening even further our global team Ship and Shore, the best in the business. Off the back of these efforts, we've closed yet another quarter delivering records, this time across revenues, operating income, customer deposits and booking levels, exceeding our guidance on every measure. Yields increased over 12% in Q2, over 1.5 points more than March guidance, as we continue to drive strong per diem growth, up over 6%. And this is on over 10% more passenger cruise days, which is a combination of capacity growth and sailing at historical occupancy levels.

Speaker 2

Our European brands experienced extraordinary yield improvement again this quarter, up over 20%, while North America continued to improve on last year's highs, up a healthy 7%. We hit record second quarter adjusted EBITDA, roughly $150,000,000 more than guidance. Encouragingly, on a per ALBD basis to highlight operational improvement and even with significantly higher fuel prices, adjusted EBITDA not only surpassed the Q2 of 2019, it was also our highest Q2 mark in over 15 years. Coupled with flat cruise costs excluding fuel on a unit basis, which David will elaborate on, we delivered $500,000,000 more to the bottom line year over year and outperformed our earnings guidance by $170,000,000 Based on continued strong demand trends, we are also taking up our expectations for the full year by $275,000,000 driven by double digit yield growth. Now this would get us to double digit ROIC this year.

Speaker 2

And while that will be a strong outcome for 2024, it is nowhere near what our business is capable of delivering. Our current booking trends are a testament to that. We are hitting records on top of previous records, which clearly tells us the strength in demand we have been building is continuing into next year and beyond. In the near term, pricing on bookings taken in the 2nd quarter has continued to run considerably higher for each of the 3rd and 4th quarters. And again, that's on top of record per diems last year.

Speaker 2

This strength has enabled us to take up yield guidance for the year by another 75 basis points. We expect to deliver consistent mid single digit per diem growth through the balance of the year, which would mark 8 consecutive quarters that we are achieving mid single digit or higher per diem improvements. Our continued focus on optimizing our yield curve is not just a near term benefit. We entered the 2nd quarter with much less 2024 inventory to sell and have been able to lean even more into future periods. Accordingly, in the last 3 months, not only did we take more bookings for post 2024 sailings than we did for in year sailings, we set yet another record for the most future bookings ever taken during the Q2.

Speaker 2

The unprecedented level of demand for 2025 sailings coupled with flat capacity growth next year translates into meaningful pricing power. And while it is still early for 2025, both price and occupancy are already ahead of where we were last year, leaving us in a position of strength with less inventory remaining for 2025. It also shows in our more than $8,000,000,000 of customer deposits, which shattered last year's record by $1,100,000,000 You have heard me say this before. This is not pent up demand. It is the compounding effect of building increased consideration in our cruise brands over time and improvement in our yield management techniques to translate that demand into higher ticket prices.

Speaker 2

And it is further evidence of the strength of our consumer. Encouragingly, we're enjoying consistent growth in both repeat guests and new guests with each segment up 10% this quarter over last year. We also continue to actively manage our portfolio to further accelerate our underlying execution improvements. As previously announced, early next year, we will sunset the P&0 Cruises Australia brand, selling the 28 year old Pacific Explorer and transferring P&0 Australia's 2 remaining vessels to Carnival Cruise Line. Of course, we will still retain our leading presence in the Australian market, carrying over 60% of all Aussie cruisers.

Speaker 2

It is a great market for us, especially since the Australian summer coincides with the Northern Hemisphere winter, enabling our seasonal ships to capitalize on 2 summer periods. And now we get to optimize our presence in this market by consolidating into Carnival Cruise Line. Not only will we gain operational, administrative and back office scale, we will ultimately have greater deployment flexibility compared to a dedicated Australian brand. At the same time, this move will further boost capacity for our highest returning brand, bringing the total to 9 new ships joining Carnival Cruise Lines fleet since 2019, including the successful shift of 3 vessels from Costa Cruises. These actions combined with the 2 XL class ships scheduled for delivery in 20272028 will grow from 29% as we continue to reshape our portfolio to maximize ROIC.

Speaker 2

Of course, our amazing destination experience, Celebration Key, purpose built for Carnival Cruise Line will soon support that growth and bolster returns through incremental revenue uplift coupled with improved fuel efficiency given its strategic location. We're introducing voyages to Celebration Key beginning in the second half of twenty twenty five and ramp up to 18 ships calling Celebration Quay in 2026. This quarter, we also delivered Queen Anne, Cunard's 4th Queen with an amazing naming celebration in Liverpool, England, Cunard's birthplace. The streets of Liverpool were walled with tens of thousands of people joining the festivities as the city of Liverpool became the ship's official godparent. It was a historic moment and the first time an entire city ever christened a ship.

Speaker 2

The event generated overwhelming coverage and as intended broke booking records on the back of it. The new Queen is a step forward in every way for Cunard, while still retaining the DNA of British elegance and refinery that the brand is known for. We enjoyed another high profile naming event for Sun Princess in Barcelona with godmother Hannah Waddington of Ted Lasso fame. Dumb Princess has had great media coverage leading up to and following the naming ceremony with particular focus on its expansive specialty dining and beverage offerings and one of a kind magic castle experience. Sun Princess, the first of its class has also been a big hit with guests as evidenced by outsized yield and high guest satisfaction scores.

Speaker 2

Last but not least, we held a naming event for Carnival Firenze in Long Beach, California, home for Carnival 2nd ship featuring fun Italian style with godfather Jonathan Bennett fresh off his Broadway stint starring in Spamalot. Welcoming fun Italian style to the West Coast generated nearly 2,500,000,000 media impressions to date and of course triggered a step up in bookings. While these amazing new ships all contributed to the strong yield improvement we generated in the Q2, even excluding them, yields on our existing fleet were up double digits, demonstrating fundamental strength on a same ship basis. In addition, we completed the rollout of StarLink this quarter, another revenue uplift opportunity and a real game changer for our onboard connectivity experience, enabling us to deliver the same high speed Wi Fi service available on land throughout our fleet. Not only does this technology provide our guests with more flexibility to stay connected, it enables our crew to stay in touch with friends and loved ones and it enhances our onboard operational systems, a win, win, win.

Speaker 2

All told, our consistent track record, our book position, our focus on commercial activity improvement, our portfolio management and the yet to be realized future benefits we'll receive from our Celebration Key destination development builds increased confidence in achieving the low to mid single digit yield growth set out in our long term targets. In fact, based on our upwardly revised guidance, we will be on average 2 thirds of the way to achieving our 3 2026 fee change targets, EBITDA per ALBD of $69 12 percent ROIC and a 20% reduction in carbon intensity after just 1 year. With 2 years remaining, it gives us even greater confidence in achieving our target. At the same time, we continue to aggressively manage down debt and interest expense, while reducing the complexity of our capital structure, which David will elaborate on. The number of actions we've taken to improve our balance sheet this quarter puts us further down the path on our return to investment grade credit ratings over time.

Speaker 2

It's hard to believe in just over a month, it will have been 2 years since I had the privilege of stepping into the role of CEO. I am very proud of all we've accomplished in such a short time. Credit for our achievements go to our global team, 160,000 strong. Everyone has worked very hard to deliver yet another strong quarter, solidifying an amazing 2024 and setting us up well to top it in 2025. Equally important, they've all had a hand in delivering amazing vacation experiences and unforgettable happiness to 3,000,000 guests yet again this quarter.

Speaker 2

To our amazing team, thank you. And of course, we couldn't do it without the support from our amazing travel agent partners and so many other stakeholders. Thanks to all of you. With that, I'll turn the call over to David.

Speaker 3

Thank you, Josh. I'll start today with a summary of our 2024 Second Quarter results. Next, I'll provide the highlight of our Q3 June guidance and some color on our improved full year guidance. Then I'll finish up with an update on our refinancing and deleveraging efforts. Let's turn to the summary of our 2nd quarter results.

Speaker 3

Our bottom line exceeded March guidance by nearly $170,000,000 as we outperformed once again. The outperformance was essentially driven by 3 things. 1st, favorability in revenue worth almost 65 $1,000,000 as yields came in up over 12% compared to the prior year. This was more than a point and a half better than March guidance driven by close in strength in ticket prices as well as onboard spending. 2nd, cruise costs without fuel per available lower birthday or ALVD came in flat compared to the prior year and were 3 points better than March guidance, which was worth over $85,000,000 Some cost savings were identified during the quarter which flowed through as improvements to our full year June guidance.

Speaker 3

However, most of the favorability in cruise costs for the Q2 was due to the timing of expenses between the quarters. And third, other operational improvements slightly offset by higher fuel prices and currency were worth $20,000,000 Per diems for the 2nd quarter improved 6% versus the prior year, driven on both sides of the Atlantic by considerably higher ticket prices and improved onboard spending. At the same time, our European brands on their path back to historical occupancy saw outside growth in their occupancy of over 10 percentage points as compared to the Q2 of 2023. Our Q2 was fantastic across the board with strong demand delivering record revenues, record yields, record per diems and record operating income. Now one thing to highlight about our Q3 June guidance.

Speaker 3

The positive trends we saw in the Q2 are expected to continue in the 3rd. Yield guidance for the 3rd quarter is set at a strong 8%. The difference between the yield guidance for the 3rd quarter and the 2nd quarter yield improvement of over 12% is simply the result of the greater occupancy opportunity we had in the Q2 2024 as we began sailing within our historical occupancy range in the second half of twenty twenty three. It is great to see that we anticipate continued strong per diem growth in the 3rd quarter, which we are forecasting will drive the majority of the 8% yield improvement. Turning to our improved full year June guidance.

Speaker 3

June guidance for net income is $1,550,000,000 an improvement over our March guidance of approximately $275,000,000 This improvement was driven by 3 things. 1st, 3 quarters of a point increase in yields to approximately 10.25 percent based on the considerably higher prices we have been seeing in booking trends so far this year and the continued strength in demand we anticipate going forward. All of this is expected to drive an increase in net revenue of about $190,000,000 2nd, as I previously mentioned, we identified cost savings that we flow through to our full year June guidance. However, they will be partially offset by higher variable compensation driven by our forecast for improved operating income. Net, we are flowing through $25,000,000 of cost savings for the full year.

Speaker 3

And third, an improvement in net interest expense of near $60,000,000 driven by our 2nd quarter refinancing, repricing and debt prepayment activities. The strong 10.25 percent 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. We recognize that even within our industry leading cost structure, there will always be cost opportunities which we can focus on and harvest over time. While we identify cost saving opportunities during the Q2, we will not stop there.

Speaker 3

We will continue our endless quest for greater efficiency in our cost structure. I will finish up with a summary of our refinancing and deleveraging efforts. During the Q2, we generated cash from operations of $2,000,000,000 and free cash flow of 1,300,000,000 dollars We took delivery of 1 spectacular new ship, Queen Anne and drew on her associated export credit facility, continuing our strategy to finance our new bill program at preferential interest rates. Our efforts to proactively manage our debt profile continued throughout the quarter. We prepaid $1,600,000,000 of secured term loan facilities.

Speaker 3

We also repriced approximately $2,750,000,000 of the same secured term loan facilities. And we issued $535,000,000 of unsecured notes due 2,030, refinancing our unsecured notes due 2026, extending those maturities and reducing interest expense. These transactions simplified our capital structure, reduced net interest expense in the 2nd quarter by $10,000,000 will reduce net interest expense for 2024 by $55,000,000 $85,000,000 on an annualized basis. Our decision to prepay $1,600,000,000 of debt during the Q2 was based on our strong liquidity, our improved financial performance and our optimism about the future. We will continue to look for more opportunistic over time.

Speaker 3

Our leverage metrics will continue to improve throughout 2024 as our EBITDA continues to grow and our debt levels improve. Using our June guidance EBITDA of 5,830,000,000 expect a 2 turn improvement in net debt to EBITDA leverage compared to year end 2023, approaching 4.5 times and positioning us 2 thirds of the way down the path to investment grade metrics. Looking forward, we expect substantial free cash flow driven by our ongoing operational execution and the lowest newbuild order book in decades to deliver continued improvements in our leverage metrics and 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 the call for questions.

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Matthew Boss with JPMorgan. Please go ahead with your question.

Speaker 4

Great. Thanks and congrats on a really nice quarter.

Speaker 5

Thanks very much, Matt.

Speaker 4

So Josh, maybe could you elaborate on the global momentum that you're seeing, notably any callouts in Europe? And then just given the booked position for 2025, which you cited as higher than 24 a year ago, How does that translate to the forward progression of pricing power and just the promotional backdrop maybe versus historical periods in your view?

Speaker 5

Sure. So global momentum, I think that's probably the key term. It is global momentum. And so we're seeing strength from our North American brands, from our European brands. You started hearing me say probably about 6 quarters ago, diversity, sometimes it helps and sometimes you got to wait a little bit, because different places come out of different situations at different times and this is the strength that we're seeing right now in this portfolio and we're really hitting it on all cylinders, which is really gratifying.

Speaker 5

North America, the booking curve is higher than it's ever been and Europe, it's highest in the last 15 years. So the teams are doing a really good job of speaking to the consumer, pricing things right and getting people on our ships and happy. As far as 2025 goes, this is the 1st year that where we currently are, where we've been able to stop firefighting in the short term while figuring out how to also extend the booking curve and trying to do both of those things at once, which is not an easy balance for revenue managers to have to do and the brands to do. So I do feel like we are firmly positioned, and although it is early days, as you heard us say on the call, being ahead in bookings and ahead in pricing is a good place to be and our team can really focus on optimizing that longer term period, which is exactly what they're doing.

Speaker 4

It's great color. Best of luck.

Speaker 2

Thank

Operator

you. Thank you. Our next question comes from the line of Steve Wieczynski with Stifel. Please proceed with your question.

Speaker 6

Hey, guys. Good morning. So Josh, look, I know it's still early on, but your commentary around 2025 bookings is really encouraging at this point. And to add on to the last question there, I mean, could you elaborate a little bit more about where you're seeing that strength in 2025? Is the strong demand pretty much across the board?

Speaker 6

Or are there certain brands or itineraries that are showing more strength versus others?

Speaker 5

Yes. At this point, I'll just tell you, it's global. It's the brands and it's the deployment. So the brands are doing an extraordinary good job of getting their messages out and getting people interested. And there's a lot of hard work behind that across the commercial space.

Speaker 5

So I wouldn't give any shout outs one way or another because we're seeing it so broadly.

Speaker 6

Okay. And then sorry, David, go ahead.

Speaker 7

Yes. So Josh also talked about the portfolio modifications we made, which should help in 2025 as well as celebration key. And keep in mind on top of that, we also don't have capacity increase next year. It's relatively flat. So I hope that should provide us with some pricing power in 2025 as we move through the booking cycle.

Speaker 6

Okay. Thanks for that, David. And then second question, bigger picture question around capital allocation. So based on how strong early demand is for next year bookings, it just doesn't seem like there's any slowdown at this point taking place. So I guess the question is, if we look out a year from now and bookings continue to look solid, your SeaChange targets are essentially in sight and you're even closer to an investment grade rating.

Speaker 6

I mean, is it fair to think you guys could be in a position to bring the dividend back to this story? I mean, just think it's another important milestone and something that investors are becoming more focused on? Thanks.

Speaker 5

I'll probably sound like a broken record here too. Right now our priority is generate all that free cash flow, pay down debt and restrengthen the balance sheet. And in that process, returning value from the debt side to the equity holders. I can't wait to have those conversations, but I'd say that's premature. We've got a lot of work to do and when we get there, you'll be the first to know Steve.

Speaker 6

Okay. Thanks, guys. Appreciate it.

Speaker 2

All right.

Operator

Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities.

Speaker 8

I have some questions on return on invested capital. First one and then I'll have a follow-up question. What kind of ballpark return on invested capital do you target for Celebration Key? I wonder if you could give us some color on that. Thank you.

Speaker 5

Yes. What we've talked about is you could almost look at this like a new build investment. And so from a new build perspective, we're looking for at least mid- to high teens, and we'd expect no less from our land based investments as well. Obviously, the beauty of Celebration Key is it will benefit across dozens of ships over time, not one new build.

Speaker 8

Okay. A follow-up question. Certainly with a new public an existing company going public in the luxury river space, they're doing 30% ROIC. Now granted it's a bit of a niche. Would you ever rule out you folks getting in that line of business?

Speaker 8

I certainly could envision seaborne river cruises being quite popular and a good crossover for your existing customers. Just some thoughts around that. Thank

Speaker 5

you. We've looked at river cruising in the past, and I wouldn't say we'll never look at it again. It's just it's a niche and it's rather small. And for something like us to move the needle, it'd have to be pretty grand. And as you've heard me say before, Patrick, I think if we focus on our brands and we focus on doing all the things that we do in the normal course better, we'll make much more of an impact on this business.

Speaker 8

Okay. Josh, I appreciate it. Thank you.

Speaker 2

Thanks, Patrick.

Operator

Thank you. Our next question comes from the line of Ben Chaikin with Mizuho. Please proceed with your question.

Speaker 9

Hey, good morning. You're 2 thirds of the way to your 20 26 targets with 2 years remaining. As you think about the remaining bridge to your targets and the toggle between costs and yields, do you feel tied to a specific yield requirement or threshold? Or is there enough opportunity in the cost side to generate the operating leverage necessary to reach your goals? And then related costs were better in the quarter.

Speaker 9

Can you maybe provide a little more greater specifics around what you're seeing or where you're getting more operating leverage than expected? And then I have one quick follow-up. Thanks.

Speaker 5

So on the first question, we're going to move forward as a company trying to focus on both certainly generating outsized revenue versus our historical norms and maintaining our cost leadership position. We set out when we set out SeaChange a basic math that would tell you from a pricing perspective after we get the occupancy back, we're looking at low to mid single digit price increases on the revenue side and that's certainly what I expect and I expect that to continue well beyond SeaChange. We also need to do a good job of managing the cost. So I don't think we have to tether SeaChange to any one particular thing. It's just doing our jobs well across the board.

Speaker 5

As far as yes, David, you want to go ahead?

Speaker 7

Yes. As far as cost is concerned, in the second quarter, remember, we did identify cost savings, but the majority of the favorability was timing between the quarters. But if you look broadly at the year, we are seeing a number of opportunities in the sourcing area, other efficiencies as well. So it is broad based. There isn't one any one particular item.

Speaker 7

Our teams are working hard all across the board and there are hundreds of cost savings items that flowed into that full year savings.

Speaker 9

Got it. And then Josh, in the quarter you announced the P&L Australia will sunset into Carnival. You still have a number of brands across geographies and customer preferences. Do you feel there are other areas of the portfolio you can streamline and realign? Thanks.

Speaker 5

Yes. P and O Cruises in Australia is a bit unique. It's a dedicated brand to a tremendous market, but it's a small market. And so the ability to really grow a single source market brand of that size is not very feasible. And so we're going to get a lot of operational synergy out of the moves that we made with P and L Australia.

Speaker 5

We've been looking at our portfolio management for the last couple of years, as you know, moving ships from one brand to another, retiring ships, formulating our growth plans. We'll continue to do that. There's nothing on the horizon, but it's something we do on a very frequent basis to try to figure out how to optimize over time. Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.

Speaker 10

Great, thanks. The commentary has been very helpful. Thanks in addressing a lot of the concerns out there, especially I think showing that slide you have showing the momentum in Q4 pricing in particular. So thanks for giving that additional clarity. Just one question.

Speaker 10

There have been some headlines out there about some of the Greek islands limiting the number of ships that might call next year. And it's not even clear whether that's official or just something that is being considered. Can you just put some context around that, whether that would just be changing itineraries to go somewhere on a Tuesday rather than a Wednesday, right, as opposed to not being able to go there at all. In other words, is there anything when we think about there's been different itinerary changes in the last year or so that so looking ahead to next year, is that anything that we should be thinking about? Thanks.

Speaker 5

Sure. So obviously, we have a great relationship with Greece and its local communities. And it's our job to make sure we're doing things sustainably. In fact, a lot of the news that's come up lately, these islands have had caps in place for many years and we work with them and we have worked with them. We'll continue to work with them as we can really figure out how to coincide with their needs as well.

Speaker 5

I mean that's our job. So I don't expect anything incredibly disruptive. We unfortunately for us, this is just par for the course, right? We do this all the time in lots of places and you've seen it work successfully in places like Dubrovnik and we'll continue to partner with local communities who want our economic benefit and move on. It's a relatively I mean, if you want context, just so you know, it's a relatively small part of our overall mix.

Speaker 5

You're talking low single digit percentages, but it's important to us and we want to show up and we

Speaker 2

want to show up well.

Speaker 10

Okay, great. Thanks. And just one follow-up. I think last quarter you might have given the different percentage growth for new to brand versus new to cruise overall. Is that something you can give a little bit more color on this quarter as well?

Speaker 10

Thanks.

Speaker 5

Sure. New to cruise was up 10%, new to brand was up a little bit less about 6%. So we're pretty much moving forward with all components. And as you heard, brand repeaters is also up 10%.

Speaker 10

Great. Thank you.

Speaker 2

No problem.

Operator

Thank you. Our next question comes from the line of James Hardiman with Citi. Please proceed with your question.

Speaker 11

Hey, good morning. Thanks for taking my question. So just a point of clarification, you talked about same ship yields being up double digits. Can you help us with how much of that is pricing? Obviously, you're getting some occupancy benefit there.

Speaker 5

And then

Speaker 12

sort of,

Speaker 11

I guess, the bigger picture question there is, you've had mid single digit per diem growth for 8 quarters. You don't think it's pent up demand. It sounds like you made that point a couple of times, Josh. When and why do you think that ultimately decelerates? Thanks.

Speaker 5

Sure. So on the same fleet, it's almost fifty-fifty between price and occupancy. It's a little bit more occupancy than price, but the per diems are there as well, which is really gratifying to see. As far as when our growth has to end, I wouldn't give you a timeline for that. I think all of the things that we've been talking about for the last 2 years are still in process And we still have a lot of room to grow and making sure we're doing the right things as far as our creative marketing to reach the right people, the performance marketing and making sure we're getting in front of the right people in the right ways, getting them to click through and book with us, book with our trade partners.

Speaker 5

The one great thing I'd say is whether it's a 25 year old ship with 2,000 guests or it's one of our newest with 5,500 guests, people love what we actually do. And we actually deliver on board and that's what gets them coming back. So I don't see a natural ending point as long as we're focused on those things.

Speaker 7

Yes. And let me add to that because we are still in tremendous value compared to land based alternatives. And so as we continue to close that value gap and raise the price, we should be able to continue the progression over time. And on top of that, keep in mind that as Josh I think mentioned on his last call, the service levels on land based resorts have deteriorated. And on our ships, we're doing a great job keeping our guest satisfaction levels up.

Speaker 7

And people it's a hassle free vacation and people love to cruise. And so we are expect to keep demand generation's efforts high and hopefully we can continue to see price improvements. And as Josh said, prices are up in 2025 in our book position and we expect to see that continue.

Speaker 11

Got it. And then sort of as a follow-up along the same lines, right, as we think about Europe versus NAA per diems? Obviously, Europe had a big occupancy tailwind in the last couple of quarters, and it seems like that is now dissipating. You've guided per diems to be up, I think, in that mid single digit range for each of the next two quarters. Any way we could sort of slice the Europe versus North America as we think about per diems?

Speaker 11

Are they pretty similar as we move forward? Or is one stronger than the other? Thanks.

Speaker 5

Sure. I wouldn't peg it in any one particular quarter, given that there's always noise in the thing that you're comparing. But I'd say that we expect both North America and EU to show up on pricing over time in the normal course. I think it's particularly gratifying, frankly, that at significantly higher per diems means it's working. And so and I'd say the same thing for North America.

Speaker 5

I mean, yes, their per diems are a little bit lower, but at the end of the day, they've recovered quicker and they're still maintaining mid single digit pricing. So I think that bodes very well for the future.

Speaker 11

Got it. Much appreciated.

Speaker 2

Thanks, James.

Operator

Thank you. Our next question comes from the line of Brandt Montour with Barclays. Please proceed with your question.

Speaker 13

Hey, good morning everybody. Thanks for taking my question and congratulations on the quarter. Josh, I was wondering maybe you could elaborate a little bit on the revenue management strategy for 2025. I know you have already. My question is more on the booking curve length, the optional booking curve length.

Speaker 13

You're ahead again on next year's booking curve. But is there a certain point where you feel like you don't want to go any further than that and it's not necessarily optimal? How do you think about that?

Speaker 5

Yes. So thank you, Brent for the congratulations. 100%, I do feel that way. But also keep in mind, we give you up a very rolled up number when we say our occupancy is X and our booking curve is the farthest out in history. When we go through this with our teams and what they do on a daily basis, it is ship by ship, sailing by sailing, brand by brand to figure out what that optimal point is.

Speaker 5

And it could very well be that over time for lots of reasons, you're not going to hear me say overall that we are increasing the booking curve, and that's okay. Our goal is not to get it as long as possible. It's to generate as much revenue as humanly possible by the time the ship leaves for sailing. And so there's a lot that goes into that mix. It's not just base loading, but what price are you base loading it at?

Speaker 5

How are you managing your metas against each other, the balconies versus the insides? I mean, so many variables go into it on a detailed basis and the output is what we talk about on this call. So the teams are very much aligned. Optimization does not mean elongation, it means optimization.

Speaker 13

That's super helpful. My follow-up is on 3 brands, Costa, Princess and Holland America. Those are 3 that we've been watching you guys talk about in your sort of improvement improving ROICs across those 3 brands. I know that you've been focused on them. How would you describe the success or versus your own benchmarks on those 3 brands improvement?

Speaker 13

And are any 3 of them outperforming the others at this point along those guidelines?

Speaker 5

Sure. Well, I'll start with the fact that every single one of them is showing significant improvement year over year in ROIC, which I'd expect. They were all coming from a different starting point back in the pre pause world. So one of them is actually above where they were, one of them is at where they were and one of them is below where they were. But I'd say it's a little bit irrelevant because of the brand that's actually higher.

Speaker 5

I expect it to be even higher because 2019 wasn't very good for them. So from my perspective, the good news in this is none of them yet are at 12% ROIC. All of them have the potential to do that and we've got plans in place for them to do that over time. So progress across the board. Excellent.

Speaker 5

Thanks so

Operator

much. Thank you. Our next question comes from the line of Connor Cunningham with Melius Research. Please proceed with your question.

Speaker 14

Hi, everyone. Thank you. Just on the I think you said 10% new to Cruise. I was curious if you could talk a little bit about just the changing demographics of your customers in general. How much is the younger demographic engaging with the product?

Speaker 14

Is there anything that they're doing different than prior generations? Thank you.

Speaker 5

Sure. Well, that's a deep question, right? So everybody is engaging differently than they did 5 10 years ago because everybody is getting more comfortable with everything digital and everything online. So that's a shift that's not just about millennials, it's about society. And when it comes to our mix, we've got brands that might be 1 or 2 years younger at average age than they were before the pandemic.

Speaker 5

We've got some that might be a year older. In the grand scheme of things, it's not a huge swing. We've got and you also got to remember with us, we've got brands that really do cater to a younger generation like a Carnival, like an AIDA and they're going to be outsized in our portfolio mix when it comes to attracting millennials. We don't just want millennials though. I can't say it strongly enough, a brand like Holland America, a brand like Cunard, it is playing in a place where they need and want people that have time and money, which generally leads to an older crowd, a crowd that has time on their hands because maybe they're not working anymore.

Speaker 5

And so I'm very happy that we're getting a broad church because we are across the board. But make no mistake, we're happy with our mix and we're happy to take many folks in the boomer generation and Gen X, Gen Y, Gen Z, you name it. So we want it all.

Speaker 14

Okay. Appreciate it. And then on the P and L Australia brand being something you sunset, just as you consolidate that into Carnival, is there any impact on the P and L or any investment

Speaker 5

needed to like during that transition time? Just curious like

Speaker 14

as it goes on, Sure. We

Speaker 5

Sure. We're going to for us, we're going to do some minimal CapEx investment primarily on the ships to get the IP stacks aligned to Carnival Cruise Line. But from a guest experience standpoint, we don't have to do much with those ships and they're great for that market. We obviously have in this particular instance because we're effectively sunsetting a brand, there are some one time costs that we're absorbing, but it's really quite small. So nothing really significant to speak of.

Speaker 7

And on the flip side, there'll be some operational efficiencies, which will also save costs on the P and L as well.

Speaker 5

Yes.

Speaker 14

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Asiya Gorgiova with Infinity Research. Please proceed with your question.

Speaker 15

Good morning. Good morning, guys. Excellent quarter. Really happy for what you have accomplished. I had 2 quick questions.

Speaker 15

The first one is more on the external or competitive environment. As David and Beth, you guys know we do this really extensive pricing surveys, which are quantitative and we've heard about 95% of the private and public companies. So we're seeing some discounting out of one of your competitors into Q4 and possibly into Q1 2025? And also seeing sort of encroaching on your territory by another brand that may be a private one. Would you, Josh, David, the best be willing to comment as to how these external pressures may carry a potential risk towards the winter season?

Speaker 5

I mean, you thanks. So thanks for the kind words for us. As you heard, we gave you our forecast for effectively for each of the quarters by giving you the Q3 and the full year. So you can see we're expecting continued progress, continued mid single digit type of price improvements over time. With respect to any one competitor in the cruise space, because you got to remember, we're not just competing with cruise companies, we're competing with vacation companies to get the traveler thinking about taking their vacation with us.

Speaker 5

None of it should be disruptive to us in the grand scheme of things. Given our size and scope, given the strength of our brands, given the continued focus that our brands have in differentiating themselves even further and providing amazing experiences, it's really our job to perform no matter what some nameless brand, which I have a feeling I know which one you're talking about, how you described it, how they choose to operate. And if we've seen this in markets all over the world. And yet here we are with record revenues, record per diems and really great momentum.

Speaker 15

Thank you, Josh. And a quick follow-up question. You described both ticket price and occupancy being tailwinds in Q2. And I think, again, with Europe being somewhat slower on the uptake in 2023, Should we expect a continued benefit from higher occupancies, especially out of the European sourced passenger in Q3? Or do we believe that going into Q4, Q1 and possibly next year, that benefit will start to subside a little bit just because of the catch up that's been going on?

Speaker 5

Yes. If you recall, last year and actually you heard David earlier on the call, we basically got back to historical occupancy levels in the second half of last year. So there's a little bit more opportunity on the occupancy side certainly in Q3 where we were a little farther behind in that range than we were by the time we got to Q4. But really, as we move forward into 2025 and beyond, we got to get the demand to keep that momentum up on the mid single digit type of price increases that we want to push for. There will always be opportunities at the fringes.

Speaker 5

But as you've heard me say before, the reason why we're not giving you guidance on occupancy with specificity is we want to make sure that our brands are doing the right thing in managing the revenue and managing the curve and not simply trying to make an occupancy target to the point or decimal point at the expense of doing something they shouldn't be doing with the pricing. So our goal is very much how do we generate the most yield over time, which is that combination of the price and occupancy and making sure we kind of nail the dismount there.

Speaker 15

And Josh, that makes total sense, especially on the occupancy guidance. I understand and appreciate it. So good luck. We're expecting great things in September.

Speaker 5

Thanks very much.

Operator

Thank you. Our next question comes from the line of Jamie Katz with Morningstar. Please proceed with your question.

Speaker 16

Hi, guys. Good morning. I have a quick question. Given that the environment has been so strong for you guys, what keeps you up at night? Is it regulatory risk?

Speaker 16

Is there some ESG risk? Is it nothing right now? Just curious to hear sort of the other side of the attack. Thanks.

Speaker 5

Listen, we got through 2020 and I got 3 kids. So not much keeps me up at night. When it comes to this, I mean, anything within our control, I feel very comfortable that the team, we can manage it all, frankly. And so I don't worry much about Black Swan because you really can't spend your life worried about Black Swan or you'll have a miserable life. So our attitude is we got to keep performing.

Speaker 5

We'll take what people throw at us and the world throws at us and we'll adapt and modify what we need to do, as needed and move on. And the greatest part about this business from that perspective is we're mobile. And when you have that mobility, it gives you a lot of flexibility to figure things out.

Speaker 16

That's all I got. Thanks.

Speaker 5

Thank you.

Operator

Thank you. Our next question comes from the line of Dan Politzer with Wells Fargo. Please proceed with your question.

Speaker 17

Hey, good morning, everyone. Thanks for taking my question. First one on Celebration Key, Josh, you mentioned you're ramping up there, 18 ships calling on port there in 2026. Can you maybe talk about the uplift that you're expecting, whether it's in the form of ticket prices, onboard spend? I know you mentioned fuel.

Speaker 17

And then to what extent is this built into those SeaChange targets, which you're already tracking well ahead of at this point? Thanks.

Speaker 5

Sure. Yes. Thanks, Dan. So you nailed the 3 components that are going to really be the things that drive the returns on Celebration Key. It's going to be incremental price because of the demand.

Speaker 5

It's going to be incremental spending on the island, which we call onboard spending in this circumstance and fuel savings because of its location. We're not breaking those out for people. But yes, to answer your question, that did factor into really 2026 benefit for us as we think through as we're thinking through that 3 year plan. It's fairly minimal for next year when it comes to the uplift because it's a fairly insignificant amount of our overall capacity that's hitting it as we ramp in starting in the second half of next year. But those were the 3 components, yes.

Speaker 17

Got it. And then just for my follow-up, in terms of cost for next year, acknowledging it's still very early, but as you think about that marketing and advertising Celebration Key starting to opening in the back end of the year, how should we kind of think about that line item relative to 2024?

Speaker 7

So it clearly is from a cost perspective, Celebration key will add cost, but hopefully and we do anticipate that it will be a great return and the benefits on the revenue and the onboard spend side and the fuel savings side. So it is we're not managing to any particular line item. We're managing to our operating income and our bottom line and we're not afraid to invest in Celebration Key to make it a great success. While we're on the cost for 2025, I guess the only other thing I'd add on that front is we do also we announced the AIDA evolution program and those ships will be going into dry dock. So we will also see an increase in dry dock days in 2025 versus 2024, which will also have a corresponding impact on cost.

Speaker 5

And ultimately though, we're doing that for the right reasons as we I think I can't remember if we talked about this on the last call or not. I think we did. Aida is one of our highest returning brands and we've gushed about them for a long time and this is going to make significant enhancements to their existing fleet, which is a great investment for us because we can get outsized returns on those investments. And then to your I think you were asking a question about advertising specifically as well. You're right, we might have flat capacity growth, but remember we're selling cruises that go beyond the current year.

Speaker 5

We're thinking well into the future as our brands do try to optimize whatever that booking curve is for that particular brand. I do not have a mandate or a cap or a floor on our spending for advertising, right? The key is what are we spending it on? How is it going to be effective? Is it going to generate not only every year as part of the planning process, but throughout the year, I'm talking to my not only every year as part of the planning process, but throughout the year I'm talking to my President to make sure we're being thoughtful.

Speaker 5

And so there's no there truly is no pre determined outcome. I think you as you've seen, we have significantly stepped up where we were before the pandemic to where we are now. It's been working. It's been helping to support the results that we've talked about today and the momentum that we've got and we'll continue to look at it critically.

Speaker 17

Got it. And then just very one last very quick clarification. David, I know you mentioned returning to IG metrics. I just want to make sure that there's no change in your goal of getting back to IG and investment grade credit rating.

Speaker 7

No. No change. We can control the metrics. We can't control the decisions of the rating

Speaker 2

agencies. Got it. Thanks so much. Thank you.

Operator

Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.

Speaker 12

Good morning, everyone. Thanks for taking my question. I wanted to follow on to that. Well, number 1, congrats on the quarter. I wanted to just follow on the last question with respect to the balance sheet.

Speaker 12

And look, I think we probably all progress through a period where we're expecting maybe a rate cut. Nonetheless, you're making some very good progress with respect to that balance sheet. Can you help us maybe shed a little light beyond just the obvious easy math around what a rate cut could or would do for you in progressing that balance sheet?

Speaker 7

Well, to start with, if you look at our whole portfolio, about I think it's at 100 basis point reduction in interest rates would benefit the back half of the year, I think was 23,000,000 dollars or for the full year, it's double that. But really, from a rate cut perspective, we're in an environment where for us we're in improving credit. And hopefully as the our interest rate our future interest rates will come down not just because of rate cuts but because of the improving credit and the lower credit spreads. And on top of that, we would expect to do some refinancings and those refinancings should drive our interest expense down. So we do have some very good opportunities that we're looking at in the future, which should be net present value positive and we'll keep evaluating that and you'll hear more about refinancing over time.

Speaker 12

Appreciate that. And if I may follow-up quickly, just going back Josh to one of the things you talked about, it's a bit more specific, performance marketing, which was I believe a relatively new initiative. Could you give us an update on where that is, how it's done, what's next, etcetera, please?

Speaker 5

Sure. So just to clarify, it wasn't a new initiative. It was just more focus and ensuring we had the right resources, the right capabilities and the right approaches. So that's I'd be shocked if we're ever at a point in time where we're not talking about performance marketing and how do we keep progressing it. I mean the world changes around us, which is going to dictate we've got to always be nimble and thinking about how do we adapt to that and to consumer and how that consumer is going to see things and digest things and making sure we're actually being as forward thinking as we can to stay ahead of that curve.

Speaker 5

So as far as how it happens, it certainly does not happen from me. It doesn't happen from a centralized corporate group in Miami because different brands are sourcing from different source markets, different segments, etcetera. So our 6 operating units really have teams that are focused on that for their brands to make sure we're doing it as optimally as we can.

Speaker 12

Okay. Thank you.

Speaker 5

Thanks. I think we've got time for one more, operator.

Operator

Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Speaker 16

I'm convinced you go in alphabetical order on these calls. I guess I wanted to ask about kind of the tension between garnering or harvesting cost savings versus reinvesting in demand creation and how you think about that? I mean, Josh, you touched on different elements of demand creation, but I mean historically Carnival has been known as kind of the cost leader. Is there an opportunity as you harvest these cost savings to kind of zap more of that gap in the marketing spend per birth that Carnival does relative to the competition and how far are you willing to go there?

Speaker 5

Yes, sure. So as you heard, so we want to continue to be the cost leader. I think they're not they don't have to be mutually exclusive though. And so we have been bringing more cost into reinvesting in the business and it's not just our marketing, it has been our marketing. I think it's what 18% per ALBD versus pre 17% to 18% per ALBD since before the pandemic.

Speaker 5

So certainly, we see the value of that. But if you think about our onboard experience and making sure we're providing amazing food alternatives and services, we're reinvesting in bandwidth. We're spending more on bandwidth than we ever have and is generating outsized returns because people love the service. It's land like. It's and it's something people are willing to pay for.

Speaker 5

So there's examples up and down the P and L where we're very happy to reinvest to drive the right behaviors to get the revenue that we're looking for. I don't have a metric. I don't have a metric that says this is how much we're going to do in any particular quarter or any particular year. I mean, clearly, our operating margin, we still got work to do. Our EBITDA margins, if we get to June guidance, it will be about a 5 point bump from last year and it leaves us a few points short of where we were in 2019.

Speaker 5

So we got more work to do and so the team is very focused on it. And that will come from both sides though to your point. It won't just be cutting costs. We got to make sure we're doing the right things to drive that revenue.

Operator

Okay. Thank you.

Speaker 5

Okay. Well, thanks everybody for joining the call today and look forward to talking to you again in September. Thank you.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

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