Josh Weinstein
President, Chief Executive Officer and Chief Climate Officer at Carnival Co. &
Good morning. This is Josh Weinstein. Welcome to our Fourth Quarter 2022 Business Update Conference Call. I'm joined today by our Chair, Micky Arison; 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 to accelerate on an upward trajectory, as we rapidly close the gap to 2019. In fact, we are already exceeding 2019 revenue per diems and we're gaining momentum on our return to strong profitability. Taking a step back, this year, we've completed a monumental 18-month journey and with our scale, what we believe to be the world's largest start-up, returning 90 ships to service, reboarding over 100,000 team members and restarting our unmatched portfolio of eight private islands and port destination, plus our unrivaled land-based footprint in Alaska and the Yukon, all while welcoming back nearly 9 million guests. For that, I sincerely thank our global teams around the world for the ingenuity and sheer determination it took to see that through to completion.
Throughout 2022, we have aggressively built occupancy from a 50-point gap in the first quarter to less than 20 points in the fourth quarter. We achieved this on growing capacity as we returned another 35% of our fleet to service in 2022, reaching 99% of our 2019 capacity levels during the fourth quarter. And on top of this, our constant dollar revenue per passenger cruise day was 2% higher than 2019's record levels for the full year and 4% higher in the fourth quarter, overcoming the dilutive effect of future cruise credits. Without this impact, each would have been 2 points higher. And in the process, we sustained record-breaking onboard revenue per diems significantly higher in 2019.
We're also not losing sight of our cost base as we've worked through our restart and continue to absorb and mitigate the impacts of the high inflationary environment we've all been living in. We reduced the increase in adjusted cruise costs excluding fuel per ALBD in constant currency from up 25% in Q1 to up 11% in Q4. We've also significantly ramped up our advertising and sales support to drive future demand. Thanks to this and the hard work of our amazing trade partners, our percentage of first-time guests has continued to sequentially improve, closing the gap to 2019 levels. And we've been working smarter with our shoreside teams headcount already having been significantly reduced from 2019 levels for some time now.
We delivered stunning new flagships for five of our brands, including Carnival Celebration, AIDAcosma, Costa Toscana and Discovery Princess as well as our first luxury expedition ship, the finest in the world, Seabourn Venture. All of these ships were purpose-built to generate higher returns. We broke ground on a new exclusive destination, Grand Bahama Port which will be a game changer for Carnival Cruise Line, while at the same time, benefiting more than ever from our existing private islands and unique port destinations, which captured 6 million visits from our guests and all while working to minimize our environmental impact with a 7% reduction in carbon intensity, a 30% reduction in food waste and 290 million less single-use items compared to our baseline. Most importantly, we are back to doing what we do best, delivering millions of unforgettable and much-needed vacation experiences to our guests.
And we are truly a global company with 45% of those guests sourced outside of North America in 2019. In fact, we practically carried more people outside the U.S. than any of our peers carried in total. We believe that having the number one or two brand in each of the largest cruise markets such as North America, the U.K., Germany, Australia, Italy, France and Spain, is the foundation of our portfolio strategy and allows us to tailor our experiences and offerings to those specific source markets, enabling us to generate stronger brand loyalty and gain greater penetration and profit.
In this current environment, though, there are two factors that have had an outsized impact on our results and uneven reopening of cruise travel around the world in the aftermath of COVID and the more direct impact the war in the Ukraine has had on European countries. While all of our brands are on an upward trajectory, the pace of the recovery has trailed for those brands most heavily exposed to these factors. In 2019, one-third of our non-North American guests, 2 million people came from Australia, Asia and The Baltics. The vast majority of these guests were sourced through Costa and Princess, representing 40% of Costa's guests and 25% of Princess' guests.
At this point in time, Australia's reopening is where North America was a year ago and Japan is closer to two years behind. The lagging reopening of these markets has triggered multiple changes in deployment and guest sourcing approaches as we anticipate the impact will continue to be felt particularly for the first half of 2023. Of course, China also has yet to reopen. Given Costa's significant presence in Asia with five ships planned to operate their year-round pre-pause, we've taken actions to rightsize the Costa brand with the removal of another two smaller, less efficient ships from the Costa fleet. This is in addition to the previously announced three ships transferring to our highly successful Carnival Cruise Line brand. This positions Costa well with a competitive fleet with closer to home deployments focused on its core markets in Continental Europe. We have already been encouraged by the recent strength in booking volumes for the Costa brand. In fact, last month, Costa's booking volumes in these core markets were above 2019 levels for the fourth quarter of 2022 and the first quarter of 2023 as they navigate a closer-in booking curve.
The war in the Ukraine remains concerning for us all and especially those in the affected regions. Given the closer proximity for both Costa and our German brand, AIDA, the war and associated impacts have weighed heavily on consumer confidence in those regions, resulting in greater uncertainty and closer-in booking patterns. To help manage, we've made strategic deployment decisions leaning into more itineraries that home port where the guests originate as well as shorter duration cruises, helping us to reduce the friction of air travel, lower the overall cost and facilitate a closer-in booking environment. We believe this positions us well to attract more new-to-cruise guests and make us even more of a value proposition versus land-based alternatives by bringing our ships closer to where our guests live.
We have furthered our fleet optimization efforts again this quarter, bringing the cumulative number of ship dispositions since the pause in 2016 [Phonetic] when coupled with the delivery of larger, more efficient ships, including the successful introduction of Carnival Celebration last month and the addition of Arvia for P&O Cruises just last week, this will result in nearly a quarter of our fleet consisting of new capacity. This fleet transformation resulted in an 8 percentage point increase in balcony cabins along with a tremendous increase in available real estate onboard to deliver even more differentiated onboard experiences and generate associated revenues contributing to durable revenue growth going forward.
We will also benefit from lower ship level unit costs that help to mitigate inflation with 9 percentage points higher fuel efficiency and 6 percentage points greater efficiency in remaining operating costs. Our revenue generation will also benefit from the launch of Carnival Vanuatu's fun Italian style in New York. The program is off to a great start, having been met with strong demand and high prices, building confidence and prospects for this creative initiative.
Overall, in 2023, we'll have just 3% capacity growth compared to 2019, while still retaining the excitement and demand from 12 [Indecipherable] delivered to 2020. And thanks to portfolio optimization efforts, our capacity growth is weighted towards three of our highest returning brands, Carnival Cruise Line, AIDA and P&O Cruises [Phonetic] U.K. There is no doubt 30-year assets will hold dividends along our path to strong profitability as we build demand and generate higher revenue yields over time.
Having said that, brand by brand, there is high-capacity growth that we are managing in 2023. In this transition year, P&O Cruises is absorbing 40% more capacity than 2019, thanks to Iona and Arvia. AIDA has 20% more capacity at the start of the year. Costa will have significantly more capacity in its core markets versus 2019 as the full benefits of our fleet optimization program won't be completely felt until 2024 and Princess will source more heavily than ever before from North America, given its source market disruptions.
As I mentioned on the previous call, to help support this growth and to drive overall revenue generation has actively been working with each brand on their strategies and roadmaps. As a result, I've authorized our brands to take a significant step up in advertising activities, including a nearly 20% increase in our investment this past quarter over 2019 to elevate awareness and consideration and to drive demand for both the near and the longer term. This should be particularly impactful with those new to cruise, where we draw about one-third of our guests as we position to take share from land-based alternatives.
We are capitalizing on the 25% to 50% value gap to land-based alternatives that frankly should not exist, with new marketing campaigns to communicate our significant value advantage to land-based alternatives, including newly launched digital creators from several brands. We plan to continue these increased investments in advertising as we head into next year to promote a strong wave season where we captured disproportionately higher bookings for the year, particularly our important summer season.
Having been in paused datas [Phonetic] for the better part of two years, we are also rebuilding top-of-funnel demand through the army of advocates coming off our ships every day, recommending our cruise vacations, a renewed focus on our trade relationships and a growing sales force.
On the revenue management side, we are ensuring that each brand is utilizing pricing philosophies to maximize revenue from launch to sailing and sharing best practices across brands. Our teams are focused on higher value-add from bundled packages supported by a market [Indecipherable] approach and consistently capturing incremental revenue streams from many initiatives such as more robust cabin upgrade programs. While building back demand and enhancing our yield management tools and strategies, we are optimizing the combination of occupancy, ticket and onboard to deliver revenue to the bottom line, in the near-term while maintaining price integrity for the long term.
Given the close-in nature of the booking curve from the disruption caused by the Omicron variant earlier this year and the friction from protocols in effect to the bulk of the year, most brands have leaned heavily into opaque distribution channels like our friends and family rates, which allow us to achieve higher occupancy and result in onboard revenue while still preserving pricing power over time as they are rates that are not offered in the general marketplace. These channels are beneficial in reaching higher occupancy levels and higher onboard revenues, particularly for our North American brand.
Booking volumes have already strengthened following the relaxation and protocols, cancellation trends are improving globally and we have seen a measurable lengthening in the booking curve. This applies across the board. Since the start of the year, our EA brands have pushed the booking curve out and narrowed the gap by more than a month, while our North American brands have pushed the curve out and narrowed that gap by two months, now nearing 2019 lead times.
We enjoyed a strong response to our recent Black Friday and Cyber Monday activities and the momentum has continued into December, building our base occupancy and marking an early start to a strong wave season ahead. It is important to recognize much of the first half of 2023 was booked prior to the relaxation in protocols. And in actuality, many of these first half cruises are still implementing certain more restricted protocols given the itinerary profiles consist of lengthier exotic deployment, including our long-awaited return to world cruises and long winter deployments for our European brands operating from colder climates. And much of this relies heavily on long-haul flights, which are not conducive to a closer-in booking environment.
Nonetheless, we expect our first quarter occupancy gap to 2019 to be reduced even further and on higher net per diems on our way to historical occupancies in the summer. This bodes well for 2023 overall as we expect more markets to open for cruise travel, protocols to continue to relax, our closer to home itineraries play out and our brands continue to hone all aspects of their revenue-generating activities. And as we continue to invest to build demand, we are positioned to pull back on promotions and opaque channels to drive meaningful ticket price improvement over time.
On a complementary basis, our industry-leading operating costs and fuel consumption per ALBD set us up to effectively deliver more of this revenue to the bottom line. Normalizing for 2019 fuel price and currency changes which provides a better sense of the strength of the underlying fundamentals of the business and our progress, we expect adjusted EBITDA per ALBD to reach 50% of 2019 levels in the first quarter of 2023, with sequential quarterly improvement as we progress through 2023 that should rival 2019 levels by the end of the year.
Turning to capital expenditures, we actively managed down our spend by over $500 million during 2022 and we've taken a hard look at 2023 and beyond and reshaped investment spending by $300 million annually for a cumulative reduction of $1.7 billion. We have reprioritized project lists and hurdle rates to reflect the current environment, while absolutely maintaining our commitment to excellence in compliance, protecting the environment and the safety and well-being of our guests, team members and communities we serve.
Going forward, we are committed to using our expected cash flow strength to repair the balance sheet over time and will be disciplined and rigorous in making new build decisions accordingly. We have just four ships on order through 2025 plus our second incredible Seabourn luxury expedition ship to be delivered in 2023. This is our lowest order book in decades. We don't expect any new ships in 2026 and anticipate just one or two new builds each year for several years thereafter.
Turning back to our operating performance, we are effectively addressing near-term challenges in the post-pause transition with higher first quarter net per diems expected and have been reshaping our portfolio to drive revenue growth as we return to historically high occupancy levels and delivering measurable pricing improvements over time.
We are fast tracking our momentum by investing in marketing and sales support to effectively communicate the amazing vacation experiences we deliver day in and day out, offering an unparalleled level of convenience and personalized service and at way too good of a relative value to land-based alternatives at every price point from mass contemporary to ultra luxury. Overall, we remain focused on driving revenue growth that hits the bottom line and accelerating our return to strong profitability. And over time, this revenue generation, our industry-leading cost base and our more focused capital expenditure profile will support significant free cash flow and propel us on the path to deleveraging investment-grade credit ratings and higher ROIC.
This has been a truly remarkable year and we have come a long way in an incredibly short amount of time. These efforts highlight what we've always known, our people are our greatest asset. And now they are armed with an even greater skill set build up over the last few years, creativity, agility and perseverance that will help push us forward. We're looking forward to 2023 and our positioning for our first strong wave season in four years, enabling us to deliver a strong summer period where we generate the bulk of our operating profit for the year.
With that, I'd like to turn the call over to David.
