Jason Liberty
President and Chief Executive Officer at Royal Caribbean Cruises
Thank you, Michael. Good morning, everyone, and thank you for joining us today. Over the past several months, our teams have reached several very important milestones in our pursuit to quickly return our business back to 2019 financial metrics and beyond. In June, we successfully completed the return of our entire fleet into operation. This was a Herculean task by our team, and I'm so thankful and proud of our shipboard and shoreside teams who have worked so incredibly hard under unthinkable and ever-changing circumstances to execute on such a successful return to delivering the best vacations in the world. Our complete operating platform is now up and running. That platform, which includes our leading brand, the most innovative fleet in the industry, our global sourcing and technology apparatus and the best people in the world. It is now positioned to deliver the best vacations in the world responsibly and accelerate our business back to superior financial performance.
Another major milestone for the group this past quarter was that our business turned operating cash flow and EBITDA positive. During the second quarter, we achieved earlier than we had expected, positive EBITDA and operating cash flow. This achievement further strengthened our liquidity position and positions us well to continue methodically and proactively improving the balance sheet and refinancing near-term maturities as we seek to return to 2019 metrics and beyond swiftly. This outperformance in Q2 versus our expectations was driven by continued strength in our onboard revenue and accelerating load factors, which hit nearly 90% in June and delivered 82% for the quarter. This combination led us to achieving higher total revenue per guest versus 2019 levels. Our North American itineraries are now sailing at over 100% load factors, and we are building on this momentum as we expect to reach load factors in the mid-90s in Q3 and then return to triple-digit load factors globally by year-end. This will set us up very well for 2023. The combination of consumers' strong propensity to experience in travel, accelerating demographic trends, which are pulling in more bucket list and multigenerational travel, a very compelling value proposition and a strong preference for our brand is translating into strengthening demand.
Lastly, the other major milestone for the group and the industry is related to the CDC ending its program for cruise ships as we are now transitioning to the point where everyone will be able to vacation with us. As we've always said, the health and safety of our guests, crew and communities we visit are our top priority, and cruising has proven to be one of the safest environments anywhere. After two years of successfully working with us, the CDC has transitioned from enforcing protocols and policies for the cruise industry to suggestions and recommendations to be in line with the travel and tourism sector. That speaks to the great work we've done together as an industry. While we plan to continue to operate our healthy return-to-service shipboard protocols, one immediate change that I'm happy to report is that starting August 8, pre-embarkation testing for vaccinated guests on voyages of five days or less will no longer be required. This will be subject to local destination requirements, and we will continue to test all unvaccinated guests. We also anticipate in the not-too-distant future that pre-embarkation testing for longer duration voyages will be reduced. Before going into the booking commentary, I wanted to share some of the behaviors that we are actually seeing from our guests. Now keep in mind that every day, we have well over 100,000 guests experiencing and spending on our ships.
Every day, we take tens of thousands of bookings from our guests looking to travel to a wide range of destinations, anywhere from a quick weekend getaway to perfect day to a bucket list trip to the Galapagos Islands or Antarctica. Every day, we witness and engage in millions of interactions on our websites and through our call centers as guests learn about and book their dream vacations. We see a lot. Overall, we continue to see a financially healthy, highly engaged consumer with a strong hunger to dream and seek experiences, and they are willing to spend more than ever with us to create those memories. Let me give you some more concrete data points. The 100,000-plus guests that we have on our ship every day, including the 125,000 guests that are currently on our ships today, have been spending at least 30% more on board our ships across all categories when compared to 2019. These spending trends have been consistent across our customer base even as we are approaching full load factors. Approximately 60% of our guests book their onboard activities before they ever step foot on our ships. As we said in the past, every dollar guest spends before the voyage translates into about $0.70 more on the dollar when they sail with us and double the overall spending compared to other guests.
As we look into the second half of 2022, pre-cruise revenue APDs are up over 40% versus 2019 levels. The strong consumer demand in our commercial and technical capabilities are contributing to the strong performance. Our distribution channels are now fully up and running. Our websites are receiving close to double the visits compared to 2019, and we are generating record level of direct bookings. In addition, our trade partners are fully up and running and are generating bookings in excess of 2019 levels. We are also seeing in our consumer data that cruise interest is now basically back to 2019 levels as the continued easing of travel protocols and the attractive value proposition is making cruising more and more appealing. The attractive new-to-cruise segment is now returning faster with non-loyalty guests doubling in Q2 compared to Q1, and the mix is essentially on par with 2019 levels. Our attractive brands as well strategically adjusted deployment towards shorter itineraries are driving more new-to-cruise. We also continued to benefit from secular tailwinds anchored in the shift of consumer preferences from goods to experiences. And we are squarely in the experience business. Recreational services are now growing four times the rate of goods and are expected to continue to outpace 2019 levels.
Favorable demographic trends support our growth as well. More than three million adults retired during COVID, doubled than what was expected. Meanwhile, millennials are financially healthy, as they reach their peak earning years, forming households and looking for vacations with their families. These trends, combined with the emergence of more paid time off and more flexible work environments, allow guests to spend more vacation time on our cruise ships. The value proposition for cruising remains incredibly attractive and the strength of our brands and platform allows us to continue and capture this quality demand as we ramp up the business this year and build for a successful 2023 and beyond. All this quality demand is translating into strong booking activity. During the second quarter, we saw a strong demand for close in sailings, which contributed to better-than-expected load factors. Bookings for 2022 sailings averaged about 30% above 2019 levels throughout the second quarter and more recently have been up to 35%.
The second half of 2022 is booked below historical ranges, but at higher prices than 2019 with and without future cruise credits. Cancellations are at pre-COVID levels. In addition, we are now seeing the booking window starting to extend back out, providing further confidence in forward-looking business as our guests thoughtfully planned for the future. As a result, all four quarters of 2023 are booked within historical ranges at record prices with bookings accelerating every week. Our customer deposits are at record levels and over 90% of bookings made in the second quarter were new, while steady FCC redemptions continued. Inflation continues to impact businesses across the globe, and we are no exception. As we discussed before, food and fuel are the main categories for us that are susceptible to inflation. We continue to navigate those cost pressures as we seek to enhance our margin profile while delivering the incredible vacation experiences that are expected by our guests. There are some initial positive signs with respect to inflation trends in our food basket.
Our more recent month-over-month F&B inflation indicator has increased at the slowest pace thus far in 2022. This, combined with direct conversations with our key suppliers, indicate inflation levels are peaking and that we would start seeing some relief in the coming months. On the fuel side, we continue to optimize consumption and have partially hedged the rate below market prices, which is mitigating the impact on our fuel costs. As we mentioned in the last few quarters, we have taken and continue to take numerous actions to reshape the cost structure of the business to support growing margins as we execute on our recovery. We are starting to see benefits of these efforts as we ramp up the fleet to full operations. We also expect the growth in margins to accelerate in the second half and into 2023. Earlier this month, we acquired the ultra-luxury cruise ship Endeavor. Originally delivered in 2021, the ship joined Silversea Cruises expedition fleet. The ship is scheduled to begin service this November in Antarctica with bookings already commencing.
This opportunistic acquisition allows us to add capacity and capture growth opportunities in a very attractive expedition segment. Financially, it was a unique opportunity to acquire a brand-new, high-quality expedition vessel significantly below the building costs and that is fully financed through an attractive, long-term unsecured financing arrangement. We expect this transaction to be immediately accretive to earnings, cash flow and ROIC. While the last 2.5 years were certainly challenging, we have proven that our business and company are resilient. Our business is now fully back up and running, and our operating platform is larger and stronger than it has ever been. We have the best brands in their respective segments, industry-leading ships and one-of-a-kind private destinations like Perfect Day. Our diverse distribution channels and commercial capabilities allow us to reach more quality demand. Our itineraries are strategically planned to be closer to home with an emphasis on shorter itineraries that appeal to both new-to-cruise and loyal customers. Our data shows that consumers seek vacations in all economic conditions. Cruising has always been an attractive value proposition when compared to land-based vacation alternatives. And that is truer today than ever before.
Our strategy remains consistent, continue to ramp up occupancy to generate yield growth while managing costs, enhancing profitability and repairing our balance sheet. Our business has a proven track record of generating robust cash flows through various economic cycles and our platform is bigger and better than ever before. Our liquidity is strong, and we have access to capital as we look to refinance debt and improve our balance sheet. We continue to expect 2022 to be a strong transitional year as we approach historical occupancy levels. This will set a strong foundation for success into 2023 and beyond. We are also providing guidance for the third quarter for the first time since Q1 of 2020. With our stronger platform and proven strategies, I am confident about our recovery trajectory and the future of the Royal Caribbean Group. With that, I will turn it over to Naftali. Naf?