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Royal Caribbean Cruises Q1 2022 Earnings Call Transcript


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Participants

Corporate Executives

  • Michael McCarthy
    Vice President of Investor Relations
  • Jason T. Liberty
    President, Chief Executive Officer and Director
  • Naftali Holtz
    Chief Financial Officer
  • Michael W. Bayley
    President and Chief Executive Officer of Royal Caribbean International

Presentation

Operator

Good morning. My name is Abigail, and I will be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's Business Update and First Quarter 2022 Earnings Call. [Operator Instructions]

I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.

Michael McCarthy
Vice President of Investor Relations at Royal Caribbean Cruises

Good morning, everyone, and thank you for joining us today for our Business Update, the First Quarter 2022 Earnings Call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bayley, President and CEO of Royal Caribbean International. Before we get started, I would like to note that we will be making forward-looking statements during this call. These statements are based on management's current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning, as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change.

Also, we will be discussing certain non-GAAP financial measures, which are adjusted, as defined in a reconciliation of all non-GAAP items can be found on our website and in our earnings release available at www.rclinvestor.com. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our first quarter results and an update on our latest actions and on the current booking environment.

We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason.

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Thank you, Michael. Good morning, everyone, and thank you for joining us today. Before jumping in and talking about the exciting things happening in our business, I would like to express our deep thoughts and prayers to our 2,000-plus Ukrainian Royal Caribbean Group family members and to the citizens of Ukraine, who continue to be affected by this tragic war. We, as always, remain focused on the safety and well-being of our employees and continue to provide them with support services and financial assistance during this time of incredible hardship. We are all praying and hoping for a peaceful resolution soonest.

Now moving on to the business. Our teams have done an exceptional job getting our fleet back into service so that we can continue our mission of delivering the best vacation experiences in a responsible way. As of today, 95% of our fleet capacity has returned to service. It's incredible to think that our journey to full fleet operations will be complete in less than eight weeks when our 63rd ship, Celebrity Infinity, welcomes guests for the first time since March of 2020. Since we resumed operations, we have delivered memorable vacation experiences to over two million guests worldwide, while earning record high guest satisfaction scores. Additionally, outside of China, the vast majority of our destinations and markets are back online. I want to thank our teams, both ship and shore, for delivering on our mission so successfully.

During the first quarter, we managed through the challenges brought on by the Omicron variant that resulted in the cancellation of 57 sailings in Q1. We moderated our load factors in January and February and softened demand for future voyages. We have now sailed through these operational and short-term demand challenges caused by the variants. Over the past 60 days, demand has materially surpassed both pre-Omicron and 2019 levels. Load factors improved throughout the first quarter and we finished the month of March at a load factor of 68%. We expect our load factors to continue to build, averaging between 75% and 80% in the second quarter, and reaching triple digits by the end of the year. We continue to be thoughtful about the build of our business, being mindful of maintaining price integrity, taking advantage of high onboard spenders and, as always, focusing on the health and safety of our guests and crew. Now moving to the demand and operating environment.

We continue to see strong demand for leisure travel and cruising. The robust secular trend of experiences over things that propelled our business in the past years is now recovering towards pre-COVID levels. Consumers are now reengaging with the world, and as a result, spending on travel in 2022 is set to outpace pre-pandemic levels with consumers planning to travel more frequently. Cruise consideration is the highest it has been in two years and nearing pre-pandemic levels with the most significant recovery among those new to cruising. Consumers are in a healthy financial position strong labor markets, wage growth, and record cash savings, $4 trillion in the U.S., support spend on vacation experiences.

We are watching the high inflationary environment but so far we had not seen an impact on consumer behaviors or willingness to spend on travel in cruise vacations. Strong demand for cruise experiences continue to translate into robust onboard revenue performance for us across all categories from casino, beverage and shore excursions to Internet, retail and spa. As we mentioned in recent quarters, our investment in a new pre-cruise planning system allows guests to better plan and book their onboard experiences. As a result, we continue to see increased penetration of pre-cruise purchases, which is leading to significantly higher total spend per guest. We remain focused on continuing to innovate the vacation experience we offer. We are strategically investing in our future to maintain our strong competitive advantage, setting the foundation for a strong recovery and long-term profitable growth.

On our last earnings call, we discussed our expectations for a delayed wave period. And while it started a few weeks later than we originally expected, it is what we are seeing now. Bookings improved each week during the first quarter as the impact from Omicron faded. For the past eight weeks, bookings have been meaningfully higher than 2019 with particular strength in North American itineraries. Our largest brand, Royal Caribbean International, set two new records in March with the largest single booking day and the highest booking week in the brand's 53-year history.

We have also experienced some headwinds related to the impact from the ongoing conflict in Ukraine. Itineraries initially planned to visit Russia represent only 2% of our overall capacity and close to 10% of our European capacity. In early March, we decided to cancel calls to Russian ports, including St. Petersburg, and substituted those itineraries with other highly desirable destinations. Naturally, we saw a short-term increase in cancellations and booking hesitancy put for Baltic Sea itineraries combined with some softness in overall European demand. After several weeks of softer trends, booking volumes improved and are now above 2019 levels. However, the impact from the slowdown during a key booking period is definitely weighing on our load factors for our European sailings. While there are some headwinds in Europe, our North American-based itineraries, which account for over 70% of our capacity this year, have been trending much better with recent bookings more than 40% ahead of 2019 levels. We are also seeing an increased volume of close-in bookings as consumers seem to be making their vacation decisions closer to their sailing date.

This contributed to better-than-expected load factors in March despite the impact of the Omicron variant earlier this year. We continue to build on the demand environment for the rest of this year and into 2023. Inflation is impacting businesses across the globe, and we are no exception. As we mentioned in the last few quarters, fuel and food are categories that are most susceptible to inflation for us. The war in the Ukraine and continued supply chain constraints have further heightened those pressures. Our teams have become increasingly adept at navigating these challenges, and we have implemented several strategies to manage cost pressures while delivering the incredible product expected by our guests.

On the fuel side, we continue to optimize consumption and have partially hedged rate below market prices, which is mitigating the impact on our fuel costs. We have taken and continue to take numerous actions to reshape our cost structure with a focus on further improving our leading pre-pandemic margins. While these actions are intended to enhance our cost structure and margin profile, we do anticipate that inflationary pressures mainly attributable to fuel and food as well as transitory costs related to our health and safety protocols will weigh on our costs this year. I will now touch upon environmental stewardship. Creating a more sustainable cruise industry is a journey and every day is an opportunity to innovate and improve. Back in 2016, we announced our partnership with the World Wildlife Fund to advance our sustainability performance. This partnership pushed us to set ambitious sustainability goals in three areas: greenhouse gas emissions, sustainable food supply, and destination stewardship.

I am proud of the fantastic work achieved by our teams since we first signed the agreement with the WWF and I am pleased to announce that the Royal Caribbean Group has recently signed a new five year agreement to take our advancements to the next level. I'm also pleased that in the first quarter, we were named one of the world's most ethical companies by Ethisphere. This is the seventh consecutive year our company has been recognized, the only one in the leisure and recreational category. Furthermore, we also earned 100% rating on the Human Rights Campaign Foundation's Corporate Equality Index, which rates corporate policies and practices that relate to LGBTQ+ workplace equality. We are immensely proud of these recognitions that reflect our deep commitment to our employees and our purpose and values.

As we continue to focus on completing our return to service, we are charting our course for future growth. Combination of strong secular demand tailwinds, our leading brands, the best cruise ships in the world, our global platform, and the very best people position us exceptionally well for long-term success. It is no secret that our innovative and industry-leading ships are the foundation for creating a great vacation experience. Year-to-date, we welcomed two new ships to our fleet, Wonder of the Seas, which is the newest, largest and most innovative Oasis class vessel joined Royal Caribbean International; and Celebrity Beyond, the newest -- the revolutionary edge-class joined Celebrity Cruises just a few weeks ago. We have a long track record on delivering new and exciting experiences through new ships while achieving premium yields and profits. These ships, along with others that are set to join the fleet in the next few years, will drive differentiated vacation experiences and financial performance. We have more exciting new ships currently on order.

Construction is now underway on Royal Caribbean International's sixth Oasis class ship, which will be named Utopia of the Seas. This ship is expected to debut in the spring of 2024. We are excited that Utopia will be the first Oasis-class ship powered by LNG when she launches. Finally, the building of Royal Caribbean International's highly anticipated Icon of the Seas has reached a pivotal milestone of physical construction ahead of its fall 2023 debut. Icon will set sail next year with the latest innovations and with signature features that were reimagined by our teams in bold new ways. Stay tuned for more on that. On the destination front, we continue to make progress on the expansion of Perfect Day at CocoCay with the addition of Hideaway Beach. Hideaway Beach will make Perfect Day at CocoCay even more perfect with an entirely new experience expanding capacity to the island.

On the technology front, the team has made tremendous strides modernizing our digital infrastructure and capabilities to enhance our commercial engines and the guest experience. Our business model is incredibly strong, and we have a long track record of growing revenue, earnings and cash flow. The pandemic has taught us new ways to operate with agility, but our formula for success remains unchanged. We have the best brands, each of their segments, the most innovative fleet in the industry, exclusive destination experiences like Perfect Day at CocoCay, a nimble and effective global sourcing footprint, a leading technology platform and most of all, the very best team, both at sea and on land. Despite these challenges at the start of the year and the complex operating environment, we still expect 2022 will be a strong transitional year as we bring the rest of our fleet back up into operations and approach historical occupancy levels and return to a profit in the back half of the year.

This will set a strong foundation for our success in 2023 and beyond. With these tools at hand, I'm confident about the recovery trajectory and the future of the Royal Caribbean Group. Our people will always be our most important competitive advantage, and I'd like to thank all of them for everything they do each and every day to deliver on our mission.

With that, I will turn the call over to Naftali. Naf?

Naftali Holtz
Chief Financial Officer at Royal Caribbean Cruises

Thank you, Jason, and good morning, everyone. Let me begin by discussing our results for the first quarter. This morning, we reported an adjusted net loss of $1.2 billion or $4.57 per share for the quarter. During the first quarter, we restarted operations on two additional ships. And as Jason mentioned, we welcomed Wonder of the Seas to the Royal Caribbean fleet. We operated 7.7 million APCDs and carried 800,000 guests. Load factor on our core itineraries in the first quarter was 59%. Earlier in the quarter, our load factor was impacted by about 2% due to temporarily elevated cancellations associated with Omicron. Trends, however, improved throughout the quarter, and March sailings exceeded our initial expectations, achieving an average load factor of 68%.

We also had multiple sailings in March that operated 100% load factors in the Caribbean. As Jason mentioned, we are seeing consumers make vacation decisions closer to the sailing date, which contributed to the outperformance in March. In Q1, we saw a 4% increase in total revenue per passenger cruise day compared to the first quarter of 2019. Onboard revenue continues to perform well for us. A combination of strong consumer spending and higher pre-cruise purchase penetration is contributing to this favorable trend. Cash flow from operating ships was positive in the first quarter. Operating cash flow significantly improved throughout the quarter and approached a positive inflection point in the month of March, operating cash flow turned positive in April. We are pleased to have reached this important financial milestone and we expect that EBITDA will also turn positive from June forward.

Next, I'd like to comment on capacity and load factor expectations over the upcoming period. We plan to restart operations on all remaining ships by the end of June. We plan to operate about 10.3 million APCDs during the second quarter, and we expect load factors of approximately 75% to 80%. Our load factor expectations reflect the higher occupancy we are seeing in the Caribbean and lower expectations for repositioning voyages and early season Europe sailings. We now offer cruises in the vast majority of our key destinations once again. Australia announced the resumption of cruising in April, and our cruises are open for sale. While China remains close to cruising, we are maintaining dialogue with the local authorities regarding our return to service when China opens its borders.

We have redeployed ships planned for China to other core markets. We remain optimistic about our ability to capture long-term growth opportunities in that market. Next, I'll provide an update on the demand environment and our 2022 sailings. As Jason noted, we saw consistent improvement in bookings throughout the first quarter. And in the past eight weeks, booking volumes have been meaningfully higher than 2019. In addition, the elevated near-term cancellations experienced early in Q1 that impacted bookings have now normalized to pre-Omicron levels. While we are very pleased by the ramp-up in demand, it took a few weeks longer than expected, leading to promotional activity on some itineraries.

That being said, we remain focused on maintaining price integrity while maximizing both load factor and overall revenue. Our Shipboard revenue APDs are at record levels and are contributing to more overall revenue per guest than ever before. North American-based itinerary have been trending particularly well with load factors building nicely. Regarding our European sailings, we are now seeing improving trends with bookings outpacing 2019 levels. We did, however, lose some ground when the tragic situation in the Ukraine escalated, which is weighing on load factors for higher-yielding summer season in Europe. From a cumulative standpoint, our load factors on sailings in the second half of the year are booked slightly below historical levels with a greater mix of high-yielding suite inventory booked versus inside and outside state rooms. Our booked APDs remain higher than 2019, both including and excluding FCCs, while still early 2023 is booked within historical ranges at record pricing.

We expect sequential occupancy improvements each quarter with fleet-wide load factors reaching triple digits by the end of the year. Our customer deposit balance as of March 31 was $3.6 billion, an improvement of about $400 million during the quarter. Approximately 27% of our customer deposit balance is related to future cruise credits, which is an improvement from last quarter. To date, 56% of FCCs have been redeemed. As Jason shared, the main impact of the current inflationary environment is on our fuel and food costs. Regarding fuel, we are 55% hedged for 2022 and 25% hedged for 2023 at below market rates.

Our proactive hedging efforts help us mitigate the rate impact. We continue to actively manage our fuel consumption, and our investments in technology and systems help us reduce our emission profile and fuel's costs. In addition, the eight new vessels to join our fleet in the last 18 months are 30% to 35% more fuel efficient than older capacity. Fuel is typically just over 10% of our cost basket. So while elevated prices certainly weigh on our cost, we continue to manage consumption and proactively hedge the rate. Like other businesses, we are seeing inflation across the food basket. Our operational and supply chain teams have been navigating these pressures through long-term partnerships and contracts within our diversified supplier base that allow us to opportunistically adjust sourcing strategies as needed. We do anticipate that inflationary pressures and transitory costs related to our healthy return to service and continued safety protocols will weigh on this year's earnings.

Shifting to our balance sheet. We ended the quarter with $3.8 billion in liquidity. We have ample liquidity to allow us to continue our recovery trajectory. We're extremely focused on managing and improving the balance sheet. Our plan throughout 2022 is to continue with refinancing debt maturities and high coupon debt issued during the pandemic. In January, investors again demonstrated their support when we accessed the capital markets by issuing $1 billion of senior unsecured notes. Proceeds from the offering have been used to repay principal payments on debt maturing in 2022. February, we arranged for a $3.15 billion backstop facility to provide us flexibility in refinancing debt maturities in June 2023.

Lastly, turning to the outlook for 2022. We expect a net loss for the first half of the year and a profit for the second half. We also expect positive EBITDA starting in June. We continue to focus on bringing the fleet back to service, building our load factors and restoring profitability. When our business is fully operational, it generates attractive financial results and significant cash flow. We are pleased with the progress we are making towards the inflection points of profitability as we complete our return and build the future for the Royal Caribbean Group. With that, I will ask our operator to open the call for your questions.

Questions and Answers

Operator

[Operator Instructions] And our first question comes from the line of Steve Wieczynski with Stifel. Your line is now open.

Steven Moyer Wieczynski
Analyst at Stifel, Nicolaus

Yes. So Jason, I want to ask about the cash flow inflection point that you reached in April. And I'm wondering if you think that positive operating cash flow level should be sustainable now moving forward or do you think April was an anomaly and you might go back into a negative position until the full fleet is deployed, basically. Simplify this question, do you think outside of some crazy event or events, operating cash flow from here should remain positive?

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

I think we should just really pause and take in that statement. I mean it has been effectively over two years since we can make a statement about being cash flow positive. And so it's really great now to be in that position where we start to generate positive cash flow and positive EBITDA and then positive earnings as we get to the back half of the year. We very much think it is sustainable. Our load factors are building in accordance with our expectations. And there's been a lot of noise kind of generally in the system. There's always things that come up. But from what we can see in the day-to-day booking environment, we feel very good about the load factor build, the rate build that we're seeing. But I do think that this inflection point is a very important moment, not just for us but for the industry as we kind of get on to the other side of this.

Naftali Holtz
Chief Financial Officer at Royal Caribbean Cruises

Yes. And maybe to add, Steve. So yes, we share here that this is obviously a great inflection point. And as you -- as we go forward, obviously, there are things every quarter, interest expense timing, other timing and expenses, but this is the inflection point that we've reached here and we expect it to continue.

Steven Moyer Wieczynski
Analyst at Stifel, Nicolaus

Okay. That's a very solid positive there, guys. Second question, bigger picture question. Obviously, there's a fear out there building around a possible slowdown in the economy and a possible recession. And given what you guys have gone through with COVID and the stress it's put on your balance sheet, I guess my question is, if we do encounter some type of economic slowdown, how do you guys envision being able to navigate in an environment like that, given your current liquidity position? And maybe also remind us how you navigated through 2008, 2009.

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

So Steve, I think first, and as Naftali said in his comments, we are in a strong financial position. We're in a strong liquidity position. I first want to point out that the level of booking activity that we're seeing, the spend levels that we're seeing on the ship, we don't see anything to date that would show that there's some type of recession or recession fear weighing on the consumer. And I think a piece of that, as I said in my comments, are the trillions of dollars of cash sitting in the savings accounts and the low leverage of the customers just in North America alone. But as we've seen in the past, when there are recessionary periods, I think one of the things that's really important, and it does pain me some time to say this, but we trade still at a significant value relative to land-based vacations. So when a consumer -- let's just say, if they are feeling a level of pressure and they still need and want to go on vacations and build experiences and memories. And I think that value differential, which we are every day doing all we can to close that gap, is one in which the consumer recognizes and that tend to kind of fare well relative to other travel or consumer discretionary products during times like that.

Naftali Holtz
Chief Financial Officer at Royal Caribbean Cruises

And just to add quickly. We are in a very strong liquidity position. We're obviously in this inflection point of free cash flow -- of operating cash flows. And our focus is, as I said in my remarks, is to continue to refinance the balance sheet. And that means both refinancing of our maturities. Obviously, that creates the runway. As well as reducing the interest costs and the leverage overall. So we have a plan here in the next future to manage the balance sheet.

Steven Moyer Wieczynski
Analyst at Stifel, Nicolaus

That's great color. Thanks guys. Really appreciate it.

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Thanks, Steve. Thank you.

Operator

Operator: Our next question comes from the line of Robin Farley with UBS. Your line is now open.

Robin Margaret Farley
Analyst at UBS Investment

I wanted to ask about -- you mentioned that you lost a little bit of ground for some weeks there, even though European demand is above 2019 levels. Can you tell us how you're thinking about load factor? I mean, in normal times, you're going to be 100% full no matter what because of maximizing the variable revenue. Is this a period in Q3 with Europe where you might say, given the ramp-up, let's stay below 100%. In other words, I guess, if you could help us think about that trade-off between giving up the onboard revenue and -- but maybe potentially impacting the price of other things already booked for Europe?

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Well, I think there's a few things, I think just to comment on the Europe side. So first, I would say it is our expectation in Europe for our load factors to be lower. Some of it is very much related to price integrity, but some of it's also -- that relates to the testing requirement to come back into the U.S. for Americans. And that -- the combination of those things weighs on the consumer in terms of their travel expectations. And so as we said in our remarks, our expectation is, we're going to be building up to the back half of this year to that triple-digit mark. So our expectation is, we will have lower load factors in Q3 relative to 100%.

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

Robin, it's Michael. I just have to jump in and say that we have ships in our sailing at 100%. And we've had ship sailing at 100% now for several weeks out of the Caribbean -- into the Caribbean market and Assured product. And as we head towards Memorial Day weekend, we're going to see significant percentage of our ship sailing at 100% and greater. So Europe is one thing, but what we've seen in terms of demand in the American market for the drive-to products, which I think we have around 70% of our products drive to this year, has been really strong. And certainly, over the past several weeks, we've been delighted with the volume of bookings that we've been seeing coming in for these products has been really good.

Naftali Holtz
Chief Financial Officer at Royal Caribbean Cruises

And when we make the comments around the load factors, obviously, that's total load factor for the whole fleet, right? So that reflects the combination of the trends that Jason and Michael just shared.

Robin Margaret Farley
Analyst at UBS Investment

Okay. Great. No, that's very helpful color. And maybe just a last follow-up. Given that you're back to profitability and sort of reasonable visibility with that, is there a point when you might restart giving guidance in the next quarter or 2? Or is that something that we shouldn't necessarily expect this year?

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Well, Robert, I'll tell you, we had a meeting a few days ago with our senior leadership team. And I think my comment to them was, we have now moved from scenarios to now a forecast and because we can see that visibility and that predictability. And that's an -- it's a big statement for us, and I'm sure others, as I think Michael always remind us, but I think we're like on our 300th scenario since the start of the pandemic. So I think we are getting closer to that and our visibility within the quarter is much greater. And we do appreciate that having that visibility and predictability is important to the investment community. So I would say that we're getting close to it. And so I would wait to see what happens on the next quarter call.

Robin Margaret Farley
Analyst at UBS Investment

Okay. That;s something. Thank you.

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Thanks, Robin.

Operator

Next question is from Ben Chaiken with Credit Suisse. Your line is now open.

Benjamin Nicolas Chaiken
Analyst at Credit Suisse Group

Onboard spend continues to be particularly strong. Is this driven by a smaller number of core guests? Or is it a more kind of like widespread, structural uptick in spend that you see even as load factors filled on ships that are getting back to normal occupancy or close to it?

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

Ben, this is Michael. I think this is what looks like it could be a structural change. I mean we've now got, as I said earlier, many ships sailing at 100%, and our big Oasis-class ships have been sailing in the 80s. And our onboard spend continues to perform at the same levels. It's been really -- it's been wonderful. I think a couple of things. One is the hybrids and the investment that we made in the software for pre-cruise revenue, which continued through the pandemic, and we've really leveraged that now. And we've seen a significant increase in penetration and uptick with the pre-cruise sales. And of course, we've always said that one pre-cruise dollar gives us another $0.50 onboard spend. So we really believe we're seeing that coming through now. So it continues. And I think, one of the things that we've been focused on in terms of the volume is that relationship between ticket and onboard spend. And if you even look at our first quarter net revenue APD, it was higher than back in 2019, and we see that continuing quarter-by-quarter through this year.

Naftali Holtz
Chief Financial Officer at Royal Caribbean Cruises

Yes. And just to add to Michael's point, we also see the strength and onboard across all categories. So it's not just one category that you can draw the conclusion. It's everything, like Jason said, from spa, to retail, shore excursions, casino, food and beverage. So it seems like the consumer is really willing to spend on great experiences. And we've made all these investments that Michael mentioned to make sure that we capture that spend as much as we can as they're enjoying our cruises.

Benjamin Nicolas Chaiken
Analyst at Credit Suisse Group

And is the pre-cruise, is that like at the time of ticket purchase, you're kind of offering incremental onboard? Or is it like following up with the consumer or the customer from the time of ticket purchase up until cruise. Like can you just give a little color on how that works exactly.

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

Yes. I mean it follows ticket purchase. Since we have a commitment from a customer that they're going to sail with us, then we have a whole cadence of communication to the customer. And we use all of this software development and the improvement we've had over the years with our analytics to provide them with options and offers and promotions, etc, for onboard products. And we literally have that communication cadence in place until they sail with us. And by the way, when they're sailing with us, we continue that communication cadence as well, giving them offers and what have you. So it's really it's kind of the evolution of the sophistication of our communications in terms of the pre-cruise software.

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Yes. And Ben, I think just to jump in, I mean, we are in the early innings of this pre-cruise system. Having their commerce engine in place, having the capabilities that Michael just talked about to be able to curate the experiences or services that we can be offering to that guest through their journey from when they book a cruise, all the way through the time when they're sailing with us and being proactive about opportunities that might arise even during the voyage and being able to put that in position then in front of the customer based off of things that they may have already had planned or things that they may have done in the past, etc. That is kind of getting to that one-to-one spot of engagement is really kind of what we see as the north star here. And that's kind of what these systems in the AI and analytics and the use of data effectively is all about.

Operator

Our next question is from Dan Politzer with Wells Fargo. Your line is now open.

Daniel Brian Politzer
Analyst at Wells Fargo & Company

So the first -- I wanted to hit on, it's been -- obviously, we've seen a lot of commentary in terms of robust travel and leisure spend and demand. You guys have certainly seen that as well. How would you break that out between the new cruise customers? And are you seeing that kind of come in through longer-term bookings or short-end bookings?

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

Yes. Dan, yes, we're seeing it come through all of our customer segments. I mean, I think we commented maybe on the last call that the new-to-cruise was a little slower to return. And when we first started back in service, we did rely heavily on our loyalty customers. But that's really shifted now, and we're kind of moving back into a far more normal environment where we see our new-to-cruise returning. I mean it helps with the fact that we've got great products that really do attract new-to-cruise. We've got Perfect Day. I think even in this year, in 2022, we'll take over two million guests to Perfect Day this year alone. So the right products, the right mix of experiences, and we're seeing on new-to-cruise customers come back to us. So -- and then how they're spending is very similar. I mean things shift and change around based upon age demographics and what have you, but the kind of the product offerings that we have, that we provide to our customers and using the software and analytics seems to be really resonating.

Daniel Brian Politzer
Analyst at Wells Fargo & Company

Got it. And then I think you guys called out particular strength in North America and that customer base and maybe Europe, a little bit softer. To what extent, if any, could you maybe bifurcate that softness? Is it a reflection of kind of what's going on the geopolitical front in Europe? Or is that more related to a slowing of the consumer? Any color there?

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Yes. I think in terms of what we see, because we've seen this return in demand from Europe for our different deployments, especially within Europe. It's definitely the Ukraine that I think it really kind of weighs especially within Central and Northern Europe. Sailings inside the Baltics and the Med is, certainly, I think, of great interest. I mean they are booking. They are now booking at levels that are above '19 levels, but it is softer than what we had originally expected it would be. I think fortunately, you see the North American consumer accelerating and very much focusing on North American products, but also very much willing to go to Europe. My comment was, I think, on the psyche side, testing to get back into the U.S., which I know the cruise industry, the airline industry and other industries are trying to influence for that change. And I think that kind of last psychological point, that weighs on the consumer to kind of travel freely globally.

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

Dan, just to add to Jason's comment on the testing to return to the United States. I mean, as we know, many European countries now is stopping that requirement. So they're kind of freeing up the ability for the Europeans to travel around. And I think we're all hopeful that that's going to change fairly soon in returning to the United States.

Naftali Holtz
Chief Financial Officer at Royal Caribbean Cruises

Yes. And just to add a quick. We -- as I think we mentioned, we do see an improvement in the European bookings, but also both from volumes from the -- from North American but also from some of the closer end within the European sourcing markets. So we're definitely seeing the improvement there.

Daniel Brian Politzer
Analyst at Wells Fargo & Company

Great. Thanks guys.

Operator

Our next question is from Ryan Sundby with William Blair. Your line is now open.

Ryan Ingemar Sundby
Analyst at William Blair

Similar to Ben's question around guest spending. I just wanted to follow up on the record guest satisfaction scores. So as you start to ramp up itineraries and load factors here, do you think you'll be able to maintain that? Or is there something structural there? And then as my follow-up, if you do see satisfaction scores hold up, in the past, when you've seen a jump in that section for one reason or another, have you seen that translate into a material impact in terms of repeat selling or word of mouth referral?

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

Well, Ryan, it's Michael. I think the happy customers is a beautiful thing to have. And I think that formula has never changed. When people really have an amazing time, they go backward and as they tell their friends and families, they want to come back and repeat. And we know we've done obviously work on Net Promoter Score and repeat cruises and the correlation is relatively high. There is a relationship between Net Promoter Score and loyalty guest. So it's a winning formula. And I think that's always been one of the great things about cruise is the value proposition connected to satisfaction has always been remarkably high. So we think it's a great thing, and we're always striving to deliver the highest level of vacation that we possibly can. I think it's fair to say that in the beginning, the euphoria of excitement from primarily our loyalty guests was so incredibly high, and the crew was so incredibly happy to be back that for many months, there was just this euphoria on our ships, and I think that comes through on the Net Promoter Score. Certainly, we see those Net Promoter Scores staying at a really high level. They've started to come down a little bit as we see the volume increasing, as the load factors get to 100% and beyond and you start seeing a more normalization of those Net Promoter Scores. But I think there's just a -- I would say there's a happiness not only with our customers, but with our crew members. And that happiness, coming out of the pandemic, going on vacation, going on vacation with Royal Caribbean, reconnecting to all of those experiences that people have missed for two years. So I think that has somewhat translated into people just saying, "I'm having a fantastic time." So I think it's -- I think I would be naive to believe that these extremely high NPS scores will stay with us in the long run. But I think there's been a fundamental transformation in terms of how guests and customers are interacting with the experience, and it's a very positive thing for our business.

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

And just to add to it, when you look at it by segment, right, so you look at -- even the ultra-luxury side with Silversea, you see the luxury side with -- on the Celebrity side, it's really across all segments. You're seeing this euphoria that Michael referred to. So it's -- as Michael said, I don't think we're naive to think it's going to stay at this level, but I think we're also surprised as the mix has changed from the loyal -- very loyal to now a more first-to-cruise coming in, but those levels have continued to be exceptionally high.

Ryan Ingemar Sundby
Analyst at William Blair

Got it. Maybe if I could just squeeze one more in there. Naftali, it sounds like, you've pointed a bunch of different levers there to navigate the current fuel and food inflationary environment. Can you just talk about if you started to consider price there as a lever to help offset these pressures? And how accommodating do you think the guest would be, given that we're still -- someone in a restart mode here?

Naftali Holtz
Chief Financial Officer at Royal Caribbean Cruises

Sure. So as you can imagine, inflation or not, we try to maximize price every day. That's revenue management team's job, and that's what we do here. So we do it every day. And as you can see, the volumes are obviously picking up. You see the pricing that we command for our products. So we tried to do that -- decouple from the pressures maybe that we're seeing in the -- on the expenses side.

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Yes. I think the other thing just to add, what we do see over time, whether it's with inflation or other related activities in the macro environment is, as the consumer recalibrates its willingness to pay more for things and they see comparables and they're paying more. But there's this gravitational pull to those locations. So we do -- as Naf said, we try to maximize revenue each and every day, whether it's ticket or onboard. At the same time, what we do see, as the consumer begins to gravitate towards higher pricing, as they get calibrated to what they're paying for a hotel room or what they're paying for other services and restaurants and so forth.

Operator

Our next question is from Vince Ciepiel with Cleveland Research. Your line is now open.

Vince Charles Ciepiel
Analyst at Cleveland Research

You alluded to kind of the value of cruising versus other land-based and the goal to close the gap over time. When you look here recently, Marriott said March bookings ADR were running 12% ahead, bookings saw ADR run 20% ahead in April. Airbnb's 2Q outlook calls for ADR to run like 30% ahead. So I'm curious kind of what you're seeing in your leading-edge bookings on pricing for all future periods? Has that been accelerating through the course of the last three to four months? And as that continues to layer in, is your book position for the second half and for '23, the embedded pricing there moving higher over the last, call it, 60 days?

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Yes. I think that's -- so Vince, I think that's exactly what we're seeing. I do think that in the backdrop of this, the entire industry is coming back online at the same time. And so there's a lot of ships coming online, which I think causes a little bit of noise in the system overall. But I think we look at two things. One, we're looking real time on what people are paying. And as you noted, we're seeing those similar trends, though still at a discount to what the hotels and other operators are getting. And by operators, I mean non-cruise. And then we also look at what's happening onboard. And I think you have to look at those two things in combination, because that's how the consumer looks at their travel experience, in combination. It's not just a hotel room. It's not just an airplane seat. This is a kind of total vacation package that's kind of in their consideration. And what we talked about as it relates to onboard spend combined with the ticket, you're certainly kind of all connects to that storyline.

Naftali Holtz
Chief Financial Officer at Royal Caribbean Cruises

Yes. And then as we mentioned, obviously, as we look ahead in our book position, both for the second half and '23, we are higher without even the impact of the FCCs compared to 2019.

Vince Charles Ciepiel
Analyst at Cleveland Research

Great. And then another on costs. I'm not sure if you've mentioned this or not, but obviously, through COVID, you become more efficient, newer ships, some cost changes made even on the land side. How are you thinking about longer-term kind of nonfuel unit costs? Do you think they can get back to those 2019 levels just with everything going on right now with inflation and wages and labor, food. How are you thinking about the longer-term unit cost opportunity?

Naftali Holtz
Chief Financial Officer at Royal Caribbean Cruises

Yes. So you noted well that we had great margins before the pandemic. We had these leading margins, and our goal is to get back and beyond of those margins as soon as possible. You mentioned some of the factors. We've done a lot through the pandemic. And this is what we're working towards as soon as possible. So yes, there are some inflation -- kind of inflationary pressures, you call it, around food and fuel that we pointed out. We're seeing some stabilization, but all the things that we've done, this is definitely our goal.

Vince Charles Ciepiel
Analyst at Cleveland Research

Great. Thank you.

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Thank you.

Operator

Our next question is from Stephen Grambling with Goldman Sachs. Your line is now open.

Stephen White Grambling
Analyst at The Goldman Sachs Group

I just want to follow up on your answer there to Vince's comments on pricing onboard. I guess I would note that the hotels and others are also seeing very strong food and beverage, so I think it's kind of complementary onboard. And those are off and running also double digits up versus '19. So to make sure I heard you correctly. I think you said there's some magnitude of both of these combined, you feel like is effectively comparable to those peers? Or is the higher capacity growth across the industry driving that perhaps a little bit lower, but the overall dollars are kind of ending up in the same place?

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Yes. My point was that directionally, it's exactly what we're seeing. My comment was, in the short run, there's -- you have a lot of ships coming online, and there's different category mixes that are in play that can cause some noise as you guys are doing price checks and so forth. But what we're seeing in recent bookings, what we're seeing obviously, what our guests spend directionally is very much in line with what we're hearing from other travel providers.

Stephen White Grambling
Analyst at The Goldman Sachs Group

Got it. That's helpful. And then this may be a difficult thing to assess. But given this is the first time the entire fleet has really been shut down and restarted, is there any risk or any thoughts that we need to consider around kind of deferred maintenance capex or other onboard maintenance type costs that may need to be incurred as the whole ship fleet gets up and running over the next couple of years here?

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

Thanks, Stephen. So we hope that this will be the only time that we will see -- that we have shut down the fleet, that's for sure. And what we've done throughout, and I think we spoke about it in past quarters, is even through the pandemic and even through the shutdown, the way we laid up the ships, the way we continued to maintain them was our -- one of our key goals. So we still maintain them. The layup was such that it will help us to get the ships back quicker and without any issues. And I think we're very pleased as we're bringing the full fleet. We're not seeing something that is out of the ordinary. And that's kind of how we think about it, and we do not expect it to weigh on maintenance costs in the next couple of years.

Operator

Our next question is from Fred Wightman with Wolfe Research. Your line is now open.

Frederick Charles Wightman
Analyst at Wolfe Research

Just another one on that gap versus what you're seeing versus land-based peers. I mean, Jason, you made a comment as far as just looking to reset that. Do you feel like the current environment is a situation to where you could look to close that gap pretty materially versus land-based peers? Do you think that you want to maintain a bigger gap, just to try to get back some of that market share that you guys might have seen over the past year or 2? How are you sort of thinking about that at a high level?

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Well, we're -- like we had said earlier, we're always trying to maximize our revenue and price integrity is very much kind of important part of that. So I don't think that we're doing anything to try to kind of certainly maintain a gap. Pre-COVID, the combination of things like Perfect Day, you can add things like the edge-class ships and so forth, we saw a pretty significant reduction in that gap to land-based vacations, especially in key products like in Orlando and other products that are out there. And I think that we very much are focused on that. We have really managed to enhance the experience, both on the ship and on land based off of really tuning into the customer for us to be able to go ahead and do that. So I think that's why we are seeing similar trends. But when you look at the overall fleet as a whole and you compare those to land-based vacation in Europe or you look at a land-based vacation in Alaska or Vegas, etc, there's still that gap and there's still that opportunity that we're very honed in on. I mean, that's really where, if you saw us pre-COVID or during COVID where we have focused our energy, is less about our cruise peers, but more about how do we close those gaps to land-based vacations.

Frederick Charles Wightman
Analyst at Wolfe Research

Right. Thank you.

Operator

Our next question is from Paul Golding with Macquarie Capital. Your line is now open.

Paul Alexander Golding
Analyst at Macquarie Research

Just wanted to ask about China. I know in the prepared remarks, you commented that you're poised to reenter that market. But just wanted to ask if there was anything longer term or structural that may be shifting in terms of future plans for itinerary deployment based on the volatility we've seen in Asia in terms of reopening? And what expectations do you have in terms of a normalized period once you can redeploy ships there? And then I have a follow-up on labor.

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

Paul, this is Michael. I think we've stated previously, our strategic intent is to return to the China market. We've been in the market for over a decade. We've had some phenomenal years in the China market, and we've had a very successful operation there. The volatilities existed in all markets for the past two years, including China. I think it's regretful that the China market is still not accessible to us. And I think -- our current thinking was that '23 we would be back in the China market. I'm not sure whether that will come true or not. It could be '24. But we're ready to go, and we're looking forward to returning to the market. I think when you look at the region of Asia Pacific, it's always been a meaningful market for Royal Caribbean Group and our intention is to return to that market and to leverage the opportunities that we have. We've spent time building our brand in China. We're in our space. We're a very well-known brand, we're very liked, and we have very good consumer following with the Royal Caribbean International brand. And we think that when the market opens back up, we'll be able to reassess the market and get back to business, and that's exactly what we're thinking.

Paul Alexander Golding
Analyst at Macquarie Research

And then on the labor side, some of your land-based entertainment peers have cited waning wage increases this year as they tap international labor. I was wondering, for shoreside operations, if you're seeing a similar picture, what your thoughts are around rate increases on onshore side labor for this year?

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Well, on the shoreside standpoint, I think we're experiencing -- most of our shoreside employees are -- your sales and marketing, your accounting, your supply chain, etc. So what we're experiencing there is similar to what I think most organizations are experiencing, though I think because we wake up every day delivering the best vacations in the world, we tend to be more attractive than others in terms of attracting talent. So we're very fortunate for that. I think what people are experiencing in hotels and others in terms of that labor force, we're certainly getting 75,000 employees back up and running on our ships with a tremendous and Herculean effort by our teams. For the most part, that's been able to be managed well, and you can see that really through the Net Promoter Scores that we're seeing on our ships. We have time for one more question, Abigail.

Operator

Sir, our last question is from Ivan Feinseth with Tigress Financial. Your line is now open.

Ivan Feinseth
Analyst at Tigress Financial

Congratulations on the ongoing progress. Can you go into a little more detail about your pre-cruising planning app and what kind of things that connects to? And what are some of the things that you can do with it and how you're seeing that add incremental revenue specifically, outside of just onboard spending?

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

Well, Ivan, it's Michael. I mean the pre-cruise revenue is fundamentally about onboard spend. I mean everything that we're marketing is about the products and services that customers, consumers are purchasing. I mean, historically, when they boarded our ships, they would purchase different packages and products. Now we've, over time developed a sophistication and the ability to not only use the analytics and the information that we know about the customer to offer them products and experiences and services that we think they're going to like. And we've also been able to, over time through testing, bundle these promotional products together to not only maximize revenue but also ensure that we're delivering a great vacation experience to the guest.

So in some cases, we've got customers who prefer gaming and dining. In other cases, we've got families who prefer shore excursions. And we now have the ability to tailor our communications and our promotions to those customers based upon what we think their key preferences are. And the fact that we can start that cadence of communication after the ticket purchase gives us the time to really engage with the customers so we can start a dialogue about the kind of products and services that they want. And I think, over time, as we built this knowledge and expertise, we've become -- and to Jason's point, it really is the beginning of this journey. But I think what we've learned in this journey is, how we can offer products bundle, manage the right pricing to different customer groups and segments, and be successful with it. So we continue to see the penetration rate increasing. And obviously, the purchase is quite significant. So that's kind of the journey that we're on with this.

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Yes. And Ivan, just trying to put this into context, as everyone here who's heard us for years talk about Project Excalibur, which was our journey to take friction out of the guest experience and that has come through engagement and providing tools and technologies and app that allows you to -- whether it's booking your cruise, whether it is being able to just walk on and off of our ships in very short periods of time, on-demand services. So it's really kind of just continuing to bake out this journey of taking friction out. And what we know is that we could take friction out of the experience and the friction is also booking shore excursions and spa appointments, etc, that the guest is very much willing to spend when they're aware of what the offering is to them. The tools and technologies also allow us to be able to yield manage in real time as well, which allows us to take advantage when there are those opportunities.

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

And just to add, Ivan, I think one of the other beautiful things of this is, to Jason's point, with the development of the app, the integration between the pre-cruise and the app is very harmonious. So when we're communicating with you before you sell and you purchase various packages and products. And when you board the ship and you sign into the app, all of those products and services are made available to you. On a calendar, there's reminders, there's communication to you. So it's a very seamless process.

Ivan Feinseth
Analyst at Tigress Financial

Very good. And also, can you, let's say, proactively market both before and/or use it to proactively market both before and onboard, let's say, if there was downtime in the spa, you could...

Jason T. Liberty
President, Chief Executive Officer and Director at Royal Caribbean Cruises

Yes. Exactly.

Michael W. Bayley
President and Chief Executive Officer of Royal Caribbean International at Royal Caribbean Cruises

You're exactly right, Ivan. Yes.

Michael McCarthy
Vice President of Investor Relations at Royal Caribbean Cruises

Well, thank you for assisting, Abigail, with the call today, and we thank all of you for participation and interest in the company. Michael will be available for any follow-up you might have. I wish you all a great day.

Operator

[Operator Closing Remarks]

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