Frank J. Del Rio
President, Chief Executive Officer & Director at Norwegian Cruise Line
Thank you, Jessica, and good morning, everyone, and thank you for joining us today. I am pleased to report that we reached another significant achievement on our road to recovery this quarter, with a generation of positive adjusted EBITDA for the first time since the pandemic began.
We have been clear about our intentional and methodical return to service strategy, consistently meeting or even exceeding the operational and financial milestones we have guided to. I am encouraged by our progress as each quarter has seen substantial sequential improvement in load factor with the shortfall gap continuing to narrow versus pre-pandemic levels, while our industry-leading pricing continues to hold strong.
And while we are always looking for ways to capitalize on opportunities to accelerate our recovery, I want to reiterate that our primary focus continues to be maximizing profitability for 2023 and beyond in a sustainable banner by prioritizing our long-term brand equity and protecting our industry-leading pricing.
While the macroeconomic environment heading into 2023 remains more uncertain than usual, we see several tailwinds and catalysts to sustain our current positive trajectory as outlined on slide five.
First, the public health regulatory COVID-related protocols continue to improve. In the past 30 to 45 days alone, key countries like Canada, Bermuda, Greece and all of South America have removed COVID testing requirements for entry and many countries in Asia have begun reopening the cruise.
These developments have paved the way for us to relax our own COVID-19 protocols, allowing us to reach a wider cruising population as well as adding greater variety to high-yielding itineraries as more ports around the world become accessible to cruising.
With the public health environment improving, in September, our three brands removed mandatory vaccination requirements. And just last month, Norwegian Cruise Line took another significant step forward with the elimination of all COVID-19-related guest protocols. That means no more vaccination, testing or masking requirements on any of the lines 18 ships, except in the very few areas around the world would still have specific COVID rules.
This is a long-awaited alignment of protocols to the rest of the travel lesion hospitality industries, which reduces friction eliminates the number one reason for not booking a crews and meaningfully enhances the cruise experience for our guests.
Our sales safe program was always designed to evolve and the improvement in the public health environment along with the near elimination of intrusive protocols to remain in place allow us to uphold our number one priority of protecting the health, safety and well-being of our guests, crew and the communities we visit.
Second, while there are heightened concerns surrounding an economic slowdown in the broader marketplace, the primary target cohort of our three brands, which is more upmarket and affluent than that of the cruise industry as a whole continues to demonstrate its willingness to spend on travel and experiences.
In fact, you may have heard commentary from credit card issues this earnings season about continued strong spend on travel and experiences, especially by those in higher-income categories, reinforcing the continued strength and resilience of demand for cruising, particularly among Americans. Within the cruise industry, we believe our company is well positioned to outperform if indeed the macroeconomic environment weakens.
First, and as slide six illustrates our dominance in the upscale space, which we participate not only through our ocean and region brands, but also with our exclusive high-end ship within a ship concept on Norwegian with the Haven is significant. And while this cohort is not totally immune to economic downturns, it has been very resilient historically.
In addition, slide six also demonstrates our favorable guest demographic mix which skews towards the higher end of the income spectrum as each of our brands operate at the top of their respective industry categories. The vast majority of our guests have a net worth of 250,000 plus. Again, a more resilient cohort in the event of an economic downturn particularly if the job market remains strong and the equity markets stabilize, with over 85% of our guest sourcing coming from North America, we will also benefit in the near term given our relatively low exposure to European sourcing, where the economic environment is already challenged.
Long term, this bodes well for our business as North Americans have historically been the guests who booked the earliest, garner the highest ticket price and spend the most on board. Taken together, these factors contribute to our strong book position despite current microeconomic worries and a turbulent geopolitical environment.
Last quarter, we spoke about the two indicators in our business that we typically monitor to evaluate the extent and willingness of consumers to spend on cruise travel. The first being the booking window, which provides a peak into the consumer's psyche about the future; and the second being our onboard revenue generation, which is our best real-time now indicator. Both of these indicators continue to meet or exceed our expectations.
In fact, our onboard revenue generation continues to break records as onboard revenue per passenger cruise day was approximately 30% higher than the comparable 2019 period. In addition, our booking window in the third quarter was approximately 245 days, nearly 10% ahead of the same quarter in 2019. This is important because an elongated booking window is preferable as it provides better visibility, which allows us to increase prices sooner, while moderating marketing expense.
The last catalyst I want to touch on is our industry-leading new build pipeline outlined on slide seven, which we expect will enhance our brand profile and product offerings and most importantly, drive significant revenue, adjusted EBITDA, adjusted earnings per share and cash flow growth.
Turning to slide eight. In August, we celebrated the christening of our newest ship, Norwegian Prima in Reykjavik, Iceland, the first major cruise ship christening in this historic seafaring locale. Prima has been incredibly well-received with extremely positive feedback from the guests, travel partners, media and the investment community who have participated in the ship sailings so far.
The addition of Prima in her upcoming five sister ships, along with Ocean accuses new generation Vista class ships and Region Seven Seas Grander well without a doubt, reinforce the positioning of our brands as the leaders in providing upscale experiences in each of the major cruise categories.
Looking ahead to 2023, we have three new builds, one for each brand entering the fleet with over 5,000 additional births. These new ships are expected to attract new-to-brand guests, create excitement for our loyal pass guests and contribute significantly to top and bottom-line financial results.
With the relatively small size of our current 29 ship fleet, we are confident that we can absorb this capacity growth. Not only do we have many unserved and underserved markets around the world, but we also continue to believe that the cruise industry at large is vastly underpenetrated, especially when measured against other land-based vacation alternatives.
To put this point into perspective, as you can see on slide nine, which we provided at our investor event last month, the total number of state rooms aboard our 29 ships across our three brands is less than one-fourth the total number of hotel rooms in Orlando, Florida alone, just one city and one single country
And even if you look at the entire cruise industry, there are fewer state rooms in the global cruise fleet of over 250 ships than there are hotel rooms in the top three US cities for hotel capacity, which is Orlando, Las Vegas and Chicago. So the opportunity to grow demand is significant. And when you couple that with the supply side of the equation where we have a high degree of visibility and a limited pipeline of new ships due to shipyard constraints, the industry and Norwegian Cruise Line Holdings in particular, have a strong foundation for continued growth.
Shifting our discussions now to our bookings, demand and pricing trends. As you can see on slide 10, in the third quarter, our load factor was approximately 82%, in line with our guidance and demonstrating continued and substantial improvement over the prior quarter of 65%.
We expect load factors to continue improving sequentially to the mid to high 80% range in the fourth quarter, despite the fourth quarter historically being a seasonally lower occupancy quarter than the third quarter. And looking at our quarterly load factor in terms of the gap with 2019, third quarter occupancy was approximately 30% below the comparable 2019 period and we expect continued sequential improvement in closing this gap to about 20% during the fourth quarter. The steady occupancy ramp-up is expected to continue until we reach historical 100% plus levels beginning in the second quarter of 2023.
In terms of pricing, as you can see on slide 11, our net per diem price growth in the third quarter of 2022 when compared to the third quarter of 2019 was up approximately 5%. This is particularly impressive when considering the hit pricing took with the absence of premium-priced Baltic itineraries in the quarter due to the Russia/Ukraine conflict.
These strong results demonstrate the effectiveness of our strategy of holding firm on our core to go market strategy of market-to-fill versus discount to fill and maintaining price integrity by emphasizing high-value over low-price, which you can see on slide 12.
I've said this before, and I will reiterate again today, given its high importance, that we strongly believe that this strategy is the optimal path to continually deliver high-quality and sustainable profitability once we return to a fully normalized post-pandemic environment, which again, we expect will be in the early second quarter of 2023.
Turning to slide 13, as expected, our fourth quarter 2022 booked position, remains below that of 2019. That said, pricing continues to be significantly higher when compared to 2019 and even when taking into consideration the dilutive effect of future credit.
Dilution from future cruise credits will not carry forward into 2023 as the bonus or value-add portion of certificates issued during the pandemic will expire at year-end.
Focusing in on 2023, our full year book position is equal to 2019's record performance and our ongoing net booking pace is at the level needed to sail full beginning in the second quarter of 2023.
We believe our cumulative book position is at the optimal level when balancing our desire to encourage guests to book early in order to be approximately 65% booked by year-end for the following year while also maximizing our industry-leading pricing so as not to leave yield on the table.
This volume versus price dynamic is a delicate balance that we have fine-tuned over the years using historical itinerary specific data and our sophisticated revenue management system and is key to our success.
Pricing is also significantly higher for 2023 versus the comparable 2019 period with strength seen across all three brands. As we have said previously, pricing naturally will level off, as we fill out our book for 2023, but we continue to expect to achieve record pricing for full year 2023.
As we look to the future, our entire team is mobilized, energized and ready to flawlessly execute, our eyes are wide open, and we are preparing for multiple scenarios given the current height uncertainty in the macroeconomic environment, and we are ready to adapt and pivot if needed. Our company and our industry, has demonstrated its resilience time and again in the past. And I'm confident that if necessary, we will do so again.
We are also encouraged by the relaxation of protocols in the regulatory and public health environment, which paved the way for us to return to normal operations, and we are excited to welcome the eight additional ships to our fleet we have on order through 2027. We will continue to be disciplined and strategic as we work to set our company up for long-term success and to maximize value for all stakeholders.
I'll be back with closing comments a little later. But for now, I'll turn the call over to Mark for his commentary on our financial position. Mark?