Royal Caribbean Cruises Ltd. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Group First Quarter 2024 Earnings Call. [Operator Instructions]
Good morning, everyone, and thank you for joining us today for our First Quarter 2024 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.
Thank you, Michael, and good morning, everyone. I'm proud to share our robust first quarter results and the continued upward trajectory of our business. When we turn the page from an incredible 2023, with a record booked position for 2024 and numerous tailwinds related to the consumers' desire to vacation with us, we expect that this would be another great year.
Thank you, Jason, and good morning, everyone. I will start by reviewing first quarter results, which were significantly above our expectations.
[Operator Instructions] Our first question will come from the line of Steven Wieczynski with Stifel.
Congratulations on the solid results and outlook. So Jason, you obviously gave a lot of color around how bookings are shaping up for the rest of this year. But look, if we think about bookings for next year, I'm sure that's where a lot of investor interest levels are going to go to pretty surely. So you're just wondering what kind of color you can give us for 2025 at this point. I'm wondering if the booking and pricing strength that you're seeing today is being transferred so far into 2025?
Steve, thanks for the question. So one, I mean, all of our commentary around our bookings, the strength that we're seeing that not only relates to 2024, but also to 2025. And we're getting close to the point where we'll soon be taking more bookings for '25 than we are for 2024. And so when we look into the booking behavior, one, the booking window continues to extend. So guests are making their decisions much further out.
Okay. Got you. And then second question, probably a bigger picture question. But look, if I remember correctly, before the pandemic, you guys are always targeting, I think it was $20 a share in earnings by 2025. And look, obviously, you weren't prepared to give another long-term set of financial targets today. But I mean, look, if we start to think about your capacity yield cost algorithm, are we crazy to think that getting back to $20 even with the dilution and the higher interest cost that you guys took on during COVID, I mean, it seems like that's probably back on the horizon again. Are we kind of crazy to think that way?
Well, I won't get into how crazy you are, Steve, because that could take the balance of the call. But I think as you pointed out, which I think is an important component is we have a business that has really strong operating leverage. And what we have talked about is our formula for success, which is moderate yield growth, which clearly we haven't seen this year. We don't see that last year. We've seen elevated yield growth.
Your next question comes from the line of Ben Chaiken with Mizuho.
It sounds like demand is accelerating. It would be great to hear any color on demand for Paradise Island. And then I guess related, can you talk to about how you're differentiating the destinations from a marketing perspective of CocoCay, and then Paradise Island, Cozumel or maybe by ship class. Just any nuances you would call out? Like is this a CocoCay returning customer or a different person?
Ben, it's Michael. I mean, when we think of the Beach Club portfolio that we're planning on developing along with Perfect Day, they're incredibly complementary destination experiences, and they fit really in the sweet spot of the -- of our demographics and really in terms of what our guests are seeking looking for when they go on a Caribbean cruise, they really knock it out of the park in terms of satisfying that demand, that need.
Yes. And Ben, I just want to add -- I had it in my remarks. I think one of the incredible things that we're seeing out of destinations like Perfect Day, and we'll see this in the world of Beach Club in Nassau, is how it's drawing in new-to-cruise and millennials. So my comment that 1 and 2 of our guests -- 1 out of 2 of our guests are millennial or younger. To me, it's a very powerful statement.
Ben, not to continue on this, but to add to Jason's comments, Utopia is not by accident, Utopia is sailing out of Port Canaveral. It will be going to Perfect Day, it really is another product that's squarely in this competitive space of land-based vacations, and we're seeing huge demand coming for this product. And you think about the combination of a 3-, 4-day product like Utopia going to Perfect Day, and then in '25, it will go to Perfect Day and the Beach Club that's really a phenomenal game changer, and it really is drawing in a huge amount of new-to-cruise and it's beautifully positioned in Canaveral right -- fundamentally in Orlando.
Got it. And just a very quick follow-up on Paradise. I think, Jason, you mentioned 25,000 guests to Nassau. Am I interpreting that correct that this could be a kind of like a revenue generated for not just your cruise guests, but also other people who were going to Nassau or [indiscernible] ?
No. No, it's primarily for the Royal Caribbean brand. Our other brands will be have access to it, but the broader cruise market would not have access to the Beach Club.
But the beautiful thing is that the Royal Beach Club in Paradise Island is positioned pretty much at the entrance to Nassau. I think the point is, is that on a given day, there's 25,000 to 30,000 cruise guests coming in on multiple different cruise brands. And of course, when they sail into Nassau, the only thing they're going to see is the Royal Caribbean Royal Beach Club, which is going to be absolutely stunning. And they will be unbelievably jealous knowing that they can't go there.
Your next question comes from the line of Matthew Boss with JPMorgan.
And congrats on another nice quarter.
Thank you.
So Jason, coming off strongest WAVE season in history, could you elaborate on the continued near-term strength you have cited in April, both from demand and pricing, maybe if anything, by region. And to your comments earlier, how best to think about your market share opportunity in this $1.9 trillion growing global vacation market? And then just for Naftali, just as we think about the underlying guidance rate, where are you more confident today as we think about the back half, maybe relative to 3 months ago?
Sure. Well, thanks for the question, Matt. First off, I think just -- I mean, WAVE was absolutely exceptional. It was -- it's kind of mid-teens better than what we saw in the previous year. Interesting enough, though, April was almost double that in terms of the level of demand that we were seeing. So that's why when I talk about demand is accelerating, it's not just what we saw when we last spoke to everybody in early February. It's not just when we updated at the end of February. But that acceleration has picked up the speed. And of course, at this point, we only have about 12% load factors left to build for the year. And so that will provide opportunity for us to a degree this year. But what that, I think, means in terms of the opportunity into 2025 and beyond is very appealing.
Matt, it's Naf. Just to add one other thing to Jason, also if you kind of look at '19 versus we are today, we have been taking share again. You don't have to believe much. And as Jason said, 1% is 11 Oasis-class ships, that's it's a pretty significant rise. But we've continued to focus on it and make progress there.
Congrats. Best of luck.
Thank you.
Your next question comes from the line of Sharon Zackfia with William Blair.
I think on the last call, you had talked about 80% of passengers being North American this year. I'm just wondering if there's any update on that, if there's any change. And then as we think about next year, kind of where would you expect North America to go? It's kind of been unusually large the last few years, and if we see kind of China or Europe ramp-up in the passenger base? How do we think about that impact on onboard revenue?
Yes. Well, thanks for the question, Sharon. I hope you're doing well. So I think just starting off, we need to just to frame that we have global brands, not nationalistic brands, and these global brands are supported by a very significant commercial apparatus with leading yield management tools and teams around the world. And so the sourcing is really a reflection of the demand patterns that we see to optimize our ultimate revenue.
Jason, can I ask a follow-up? The 1 out of 2 passengers being millennials at this point. Do you find that, that customer is more inclined to pre-book onboard versus kind of their elders like me? Or is it -- are you seeing pre-booking success kind of across the demographic gamut?
I mean, it skews a little bit younger, but I think Sharon, one, if we can pick any positiveness out of COVID, was that the consumer, a young or middle aged, et cetera, got very used to booking and buying things online. We also really improved our ability to take friction out of the booking experience for ticket price as well as the booking experience for onboard by curating, taking a lot of steps out of the process, et cetera. And that's really what is driving that better behavior. The installation of a proper commerce system that we can yield manage, that we can curate. We're still very in the early innings on is really what's benefiting that.
Your next question comes from the line of Brandt Montour with Barclays.
So maybe for Michael, China restarted this month, I was wondering if you could give us maybe even qualitatively a sense of sort of initial load factors, initial pricing or initial expected onboard spend. Obviously, you can't give us that specifically, but just sort of better or worse than you were forecasting. And clearly, the follow-up is you decided to take Ovation there next year. That's obviously a good sign. But why Ovation, I think that comes out of Alaska and Australia, why that ship and why not a ship necessarily out of the Caribbean or somewhere else?
Brandt, yes, good question. I think the fact that we've already deployed a second ship into the China market gives you an indication of how well the first ship is doing in the China market. So we're pleased with Spectrum bookings. Our comparison, of course, is back in 2019, which we've used a lot over the last couple of years.
Okay. That's really helpful. And then maybe one for Naf. The higher guidance for the year helps bring credit metrics, at least in our model, perhaps a little closer to IG, perhaps a little earlier than we had before. And so I guess, maybe it's worth you refreshing us on what you think the Board needs to see to reestablish capital returns? And if today's report maybe help that picture at all.
Yes. So just on the balance sheet. So you're right. Obviously, with the acceleration of performance, we're focused on basically 3 things, right? We're focused on reducing leverage. And I said in my prepared remarks, we will -- we expect to get to below the 3.5x leverage by the end of the year. So that's very positive. Obviously, we continue to pay down debt. EBITDA increases are helping with that leverage. So we're feeling pretty good about that.
No, I was just going to say, obviously, you're getting to base camp and getting to those metrics as an important line for us and as well as for our Board in terms of consideration of capital returns. But I would just point to that pre-COVID, we certainly -- that was very much part of our formula was having a competitive dividend and also buying back shares opportunistically.
Your next question will come from the line of Robin Farley with UBS.
One clarification on your really excellent guidance. It sounded like you were suggesting that there were some fall Red Sea cruises that are still on your schedule. But did I understand your comment to mean that if they were to change, that's already factored into your guidance. So if we see that -- see any changes in those, it wouldn't change your guidance? I just want to make sure I understood that part of your commentary, right?
Yes, Robin. That's correct.
Okay. Great. And then just my other question is on capacity and capacity growth. And you mentioned that moderate capacity growth has been your goal. Others out there -- some have been more aggressive lately with ordering ships out into the future. And I wonder if you could just give us your thoughts on whether you feel that, that changes anything with availability of slots at shipyards? Or if that changes in any way what you have been thinking about capacity or would think about needing to do in the future?
Sure. Robin, so first, I think it's important that when we talk about our order book, these are ships that are actually on order. We're not talking about options. We're not talking about slot reservations. We're talking about things on order. And of course, we don't have any orders going out to, I think, 2035 or 2036 at this point in time. What we do subscribe to is that we are -- we believe that we are in the right -- that we are in segments that have a lot of growth potential to them. We believe we have the right brands in those segments. And we believe that we should be moderately growing our brands over time.
I guess maybe to clarify, do you feel that you would need to order ships more than 5 years in advance in the current environment? Or is that sort of 5 to 6 years out?
Yes. I think it depends on the circumstances. We've ordered -- I mean, Icon was being designed and in terms of obviously, COVID delayed some of those orders. But somewhere typically in that kind of 5- to 6-year range is where you make those orders. But keep in mind, and that's what I think my comment is, is that doesn't mean you don't have options and you don't have slot reservations and so forth that you could also -- which is why we typically order in that kind of 5- to 6-year type of range. We don't announce things unless they are fully contracted, and we know the price and we have the financing in place.
We have time for one more question.
Our final question will come from the line of Vince Ciepiel with Cleveland Research.
Great. Earlier in the call, there was some commentary on loyalty. And I just wanted to get your sense for what you're seeing within that across your brands and varying products. What you see in terms of overlap of customers? And then maybe finally, within that, have you ever thought about getting into river cruising, thoughts on that segment of the market? And is there much overlap with your current customer base?
Yes. Well, first, just to kind of build off of what I had said earlier is we have been very thoughtful about having the right brands in the right segments. And we have done such an incredible job at delivering a vacation of a lifetime. And we're focused on making sure we're set up to deliver a lifetime of vacations. And our guests, there is overlap between Royal and Celebrity and Royal and Silversea and vice versa, because you could have a set of grandparents on Silversea that next month are going on a cruise with their kids and grandkids on the Royal Caribbean brand. That happens all the time.
I will now turn the conference back over to Naftali Holtz, CFO, for closing remarks.
Well, thank you all for your participation and interest. Michael will be available for any follow-up. We wish you all a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.