Josh Weinstein
President, Chief Executive Officer and Chief Climate Officer at Carnival Co. &
Good morning. This is Josh Weinstein. Welcome to our Third Quarter 2022 Business Update Conference Call, my first as CEO. I'm joined today telephonically by our Chair, Micky Arison; and with me here in our Miami offices, our Chief Financial Officer, David Bernstein; and our Senior Vice President of Investor Relations, Beth Roberts.
Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today's press release.
Our business continues on a positive trajectory. We've been closing the gap to 2019 as we put a stake in the ground internally and shifted from return to service to a relentless focus on return to strong profitability. The occupancy gap to 2019 has reduced from over 50 points in Q1 to less than 30 points in Q3. At the same time, our capacity in service has gone from approximately 60% in Q1 to over 90% in Q3. In fact, in the month of August, we achieved almost 90% occupancy at higher constant dollar revenue per diems despite the impact of future cruise credits. And the differential in adjusted cruise costs, excluding fuel per ALBD, has reduced from over $25 in Q1 down to $10 in Q3. As a result, we were able to generate over $300 million of adjusted EBITDA in the third quarter, overcoming a near doubling in fuel prices.
We expect these favorable trends to continue as we finish up 2022 and head into 2023. And while we expect breakeven to slightly negative fourth quarter EBITDA given the seasonality of revenues and our increasing investment in advertising to drive revenue yield in 2023, we do expect second half EBITDA overall to be positive. We've also been making strategic changes to our fleet composition that will pay dividends over time. Our global fleet of 91 ships has never been better positioned, thanks to the exiting of 23 smaller, less efficient ships and taking delivery of nine large and very efficient ships. While we'll all be four years older than we were in 2019, next year, the average age of our fleet will actually be a year younger than in 2019 at 12 years. It also means our average berth count per ship is increasing nearly 20%, the largest amongst our public peers. We expect benefits of this profile to include a fleet with 10% higher fuel efficiency, 6% more efficiency in remaining operating costs, a richer cabin mix and larger overall platforms to deliver onboard experiences and generate associated revenues.
We have also begun to address the brand portfolio to improve ROIC and drive durable top and bottom line growth. In light of the continued closure of cruise operations in China and our Costa brand's significant presence there pre-COVID, we are reducing Costa's capacity by 10% from 2019 levels, while bolstering our highly successful Carnival Cruise Line brand through the previously announced transfer of three ships, including two via our innovative Costa by Carnival initiative launching in 2023. All three ships will be placed on new itineraries, allowing Carnival to expand its drive-to cruise offering. We will continue to evaluate opportunities to further optimize our brand portfolio over time. These fleet and portfolio decisions will provide strong tailwinds. And while during the pause in operations, being nearly twice the size of the next closest cruise company was a distinct disadvantage for our cash burn, we will once again benefit from our industry-leading scale. And there are even greater opportunities ahead to drive revenue as we return to full occupancy and march towards strong profitability.
Throughout the pause, we have benefited from the dedicated support of our loyal guests. Now, as we grow capacity in 2023 and beyond, we are redoubling efforts to attract new-to-cruise guests. About one-third of our guests have historically been new-to-cruise. And as you probably know, two of the most important drivers of new-to-cruise are word of mouth and advertising. With respect to word of mouth, after the pause, we have been building back our army of advocates that leave the ships, spreading the word about the unparalleled vacation experiences we deliver day in and day out. In the third quarter alone, we carried twice the number of guests we carried in all of 2021, and over 50% more than in just the prior quarter.
On the advertising front, we've also been ramping up our efforts, having reached 2019 spend levels in just the last two quarters. In fact, until six months ago, we had spent less on advertising cumulatively over a two-year period than in all of 2019, and most of this was directed at more efficient channels like past guests. This was a conscious decision to re-prioritize our resources to withstand the pause. As our brands have now been increasing their advertising investment, we will increase awareness and consideration and actively target those new-to-cruise. While we're still carrying a higher proportion of repeat guests, we have seen an improving trend in new-to-cruise and are already two-thirds of the way back to 2019 levels. And newcomers will be absolutely thrilled once we get them on board. We are delivering a great all-inclusive vacation experience, convenient, great dining and entertainment choices, fantastic itineraries, beautiful and innovative ships and the most amazing onboard teams providing a higher level of personalized service than you can find anywhere on land or sea. Our Net Promoter Scores are telling us, we are delivering a phenomenal product. The issue is we are way too much of a value. We should not be priced at a significant discount to land, which is exactly the case today, anywhere from 25% to 50% based on itineraries. Bottom line, when it comes to generating demand and increasing our revenue profile, we can, should and will do better.
I have begun traveling to meet with each brand president and his or her commercial team to understand their strengths, capabilities and areas for improvement. We are working through their strategies and roadmaps to seize opportunities, all while taking advantage of tactics to quickly capture price and bookings in the interim.
This cuts across multiple areas of our commercial operations, driving further brand differentiation and clarity around each brand's optimal target segment; ensuring that creative marketing speaks to each brand's target audience; launching more effective digital performance marketing and lead generation approaches; a renewed focus on our trade relationships, another key driver of new-to-cruise demand; to reduce friction points and allow our travel agent partners to more efficiently secure bookings, while continuing to support internal sales as we need all sales channels to perform at a high level to be successful; improving revenue management execution as we continue to adapt to an evolving booking environment; and using data, guests and target audience insights and cross-brand learnings to aid in all of the above.
The engagement and transparency that characterize these brand sessions have been fantastic, and the sense of urgency these leaders have to drive their brands forward is real. And speaking of leaders, we actually have new leadership at the brands and throughout the organization. Since the pause began, five of our nine brands have welcomed new energetic presidents, and these brand presidents have been actively bolstering the bench below them. Additionally, I have made a half dozen changes across corporate leadership in just the last few months. It's worth noting that with the changes I've made to date, 6 of my 12 direct reports are now women. We are actively focused on diversity and inclusion, and we'll continue to invest in talent and talent management.
Now, diversity fits alongside our overall sustainability agenda, and we've been making significant progress across the board. There have probably been no greater strides than reducing our carbon intensity. Despite being over 25% larger, our carbon footprint peaked more than a decade ago. And we've set 2030 targets for carbon intensity to be 20% lower than 2019 levels. We will achieve this through technology upgrades currently being rolled out, investing in port and destination projects, even more focus on itinerary optimization and realizing the benefit of our fleet optimization efforts. While there is no silver bullet to decarbonization for our industry yet, we are committed to working towards a solution. To this end, I'm excited about three successful pilots we recently completed using biofuels in existing engines without modification.
Turning now to the current tone of business. Pricing for our 2023 book business is currently at considerably higher levels than 2019, adjusting for FCCs. And it is very encouraging that since announcing our relaxation in protocols in mid-August, we have already seen a very meaningful improvement in booking volumes. We are now running considerably higher than 2019 levels. At the same time, we have seen a notable improvement in cancellation trends. We expect these favorable trends to accelerate as the impact of our current and planned efforts will continue to materialize as we move toward our important summer season where we make the bulk of our operating profit.
When it comes to our capital structure, maintaining a strong balance sheet has always been a priority for our company. Pre-pandemic, we have been able to achieve this while investing significantly in our newbuild program, thanks to the substantial cash flow our company generated. Going forward, we are committed to using our cash flow strength to repair the balance sheet over time, and we'll be disciplined and rigorous in making newbuild decisions accordingly.
We have two ships on order in 2024 and one in 2025. We do not anticipate significant deviation in annual levels for several years. This will significantly reduce our capital commitments and set us on the path to deleveraging. We have seized the opportunity to emerge as a company that is more efficient, more sustainable and more energized for the future. We have a transformed fleet, an unmatched portfolio of well-recognized brands and unparalleled scale in an under-penetrated industry. We are strategically managing our portfolio to optimize our near- and long-term performance.
We now have a tremendous opportunity to drive revenue growth by delivering measurable pricing improvements, while returning to historically high occupancy levels over time. That opportunity will drive significant free cash flow and accelerate our path to profitability, investment-grade credit ratings and higher ROIC. In the coming months, we'll talk specifically about long-term goals and targets so that we can track progress and maintain accountability along our path. Our travel agent partners, port and destination communities, suppliers, investors, lenders and, of course, our guests are also important to our business. I plan to speak with more of our stakeholders in the coming months to gather their perspectives as we strive for continuous improvement.
I would like to end by personally thanking all of our talented and dedicated team members globally, ship and shore, for the heavy lifting it took to get us back to full operation. And now comes the exciting part. We get to take all of the creativity, agility and innovation that the team has built up in response to external factors throughout the pause and resumption of operation, and we now get to use that skill set to proactively drive our business forward and to fulfill our mission of creating happiness by delivering unforgettable and much-needed vacations to our guests.
And now, I'll turn the call over to David.