Carnival Co. & Q1 2022 Earnings Call Transcript

There are 7 speakers on the call.

Operator

Good morning and welcome to our business update conference call. I'm Arnold Donald, President and CEO of Carnival Corporation and PLC. Today, I'm joined telephonically by our Chairman, Mickey Arison our Chief Financial Officer, David Bernstein and Beth Roberts, Senior Vice President, Investor Relations. We'd like to thank you all for joining us this morning. Now before I begin, please note that Some of our remarks on this call will be forward looking.

Operator

Therefore, I must refer you to the cautionary statement in today's press release. Prior to getting into the details of the update, I just first want to say my heart goes out to all those affected by the invasion of Ukraine. I know thousands of members of our Carnival family are directly impacted and have loved ones in the area. We along with the rest of the world are praying for a peaceful resolution. Now concerning our business, we're well on our way back to full cruise operations with Three fourths of our capacity have been resumed guest operations and a plan to return the balance of the fleet for the summer seasons.

Operator

And while the conversation around COVID-nineteen is greatly reduced, we still have to and are successfully actively managing. Our enhanced protocols have helped us become among the safest forms of socializing and travel with far lower incident rates than on land. In fact, we have carried more than $2,000,000 since resuming guest operations. Our guests are enjoying great vacations and we are enjoying historically high guest satisfaction scores. Of course, we have not lost sight of our highest responsibility and therefore our top priority, which is always compliance, environmental protection and the health, safety and well-being of everyone, our guests, the people in the communities we touch and serve and of course our Carnival family, our team members Shipboard and Shoreside.

Operator

I'd like to start today by sincerely thanking our Carnival team members for their significant contributions which collectively have gotten us to where we are today despite a multitude of challenges. Through their collective efforts, so far, we successfully returned 64 shifts to guest operations enabled over 70,000 crew members to return to work happy, healthy and vaccinated through our team's considerable efforts to secure and distribute vaccines. We opened our 8 owned and operated private destinations and port facilities, which about half of our guests have experienced since resuming operations Princess Key, At Moon Key, Grand Turk, Mahogany Bay, Amber Cove, Cozumel, Santa Cruz at Tenerife and Barcelona. And most importantly, delivered 2,200,000 joyful vacations and counting. At the same time, We also managed down operating costs, reducing our monthly adjusted EBITDA losses by 40% since mid-twenty 20, completed a continuous stream of capital raising exceeding $29,000,000,000 refinanced more than $9,000,000,000 of debt, improving interest rates, amended over 100 different lender agreements and successfully addressed our maturity tower out through 2024.

Operator

All of which culminated in a consistent liquidity position exceeding $7,000,000,000 an integral part of reinforcing stakeholder confidence. At our scale, the sheer volume of these accomplishments is no small feat, yet these challenging operational deliverables were achieved while encountering strong headwinds like Delta, Omicron, complex constraining and constantly changing regulations and protocols and more recently the very troubling invasion of Ukraine, all of which undermined consumer confidence and generated greater friction on cross border travel, labor, supply chain, itinerary planning and more. Now concerning the invasion of Ukraine. For the 4.6% of our capacity that was expected to call on Russian ports in the remainder of the year, We have decided to totally withdraw from Russia and have found attractive alternatives. That said, San Petersburg was a marquee port for us.

Operator

And while there have been times where we were unable to offer search high unit itineraries, in this instance, The close in nature of the deployment change does lead to some regional disruption in recent booking patterns. Now while the invasion has added some volatility to our business and does impact consumer confidence, with 50 years under our belt, We have successfully managed through a plethora of headwinds like spikes in fuel prices, the Gulf War, Arab Spring, September 11, Ebola, Zika, SARS, MERS and more. And once again, The mobility of ships continues to be an asset. Time and time again, we have seen guests travel through challenges. In fact, Carnival Cruise Line turned 50 this month and recently enjoyed its 3 best weeks of bookings since resuming operations.

Operator

As we previously disclosed, we had experienced an impact on booking patterns more broadly at the start of our fiscal year due to the omicron variant. Despite Omicron, guests carried grew by nearly 20% in the Q1. Of course, albeit less than we would have otherwise achieved without the elevated cancellations which occurred in part due to a higher incidence of pre travel Positive COVID test results as well as the difficulties that many prospective guests experienced obtaining timely tests. Moreover, there was just an overall impact Omicron had on our society over the course of our Q1. However, we did maintain price as we said we would.

Operator

And we fully expect an extended wave season. In fact, we're already achieving occupancies in the month of March that are nearing 70% with more than 40 sailings exceeding 100 percent occupancy, a testament to the underlying demand for crews and closer in nature of booking patterns. Concerning recent fuel prices, it's certainly not the first time we've seen a dramatic spike in fuel prices. Helping to address that, We aggressively manage our consumption and we are stepping up our efforts to further reduce consumption. Now historically, we have not used fuel derivatives.

Operator

And while there is an optics benefit of smoothing earnings, over time prices have gone up and they've also come down. But there is an economic cost to derivatives. Over the past few years, we're very glad not to have speculated with few derivatives because there would have been a further drain on cash. With our proactive efforts to reduce our carbon footprint since 2007, We have reduced our unit fuel consumption nearly 30% and carbon intensity nearly 25% through 2019. And thanks to accelerated efforts across the board, upon reaching full fleet operations, we anticipate that we will achieve a further 10% reduction in unit fuel consumption and 9% reduction in carbon intensity as compared to 2019.

Operator

In fact, we've been working hard to resume operations not only a strong operating company, but a more sustainable, better all around company. We made further strides toward those efforts again this quarter. During the quarter, we enhanced our fleet optimization efforts, delivering 3 new ships, Costa Tuscana, Aida Cosma and Discovery Princess bringing the total to 9 larger more efficient ships delivered since 2019. Moreover, we've announced the removal of an additional 3 smaller less efficient ships, bringing the total to 22 ships to be removed from the fleet also since 2019. The accelerated removal of these less efficient ships has lowered capacity growth to 2.2% compound annually from the previous 4.5% through 2025, which should enable us to capitalize on pent up demand on intentionally constrained capacity.

Operator

The fleet optimization effort will also foster higher revenues Tunings as well as generating a 5% reduction in ship level unit cost excluding fuel going forward, enabling us to deliver more revenue to the bottom line. Upon returning to full operations, nearly a quarter of our capacity will System of newly delivered ships, expediting our return to profitability and improving our return on invested capital. Again, we have long since recognized the importance of reducing our carbon footprint, having peaked our absolute carbon emissions more than a decade ago. And we are continuing to innovate to effect change. Aida Prima will become our 1st ship to pilot Battery Power, enabling her to optimize the efficiency of the engines while at sea, reducing emissions.

Operator

We also signed groundbreaking agreements through CityAir Eco Spray to partner in the production of green bio LNG generated from waste sources. In addition, We continue to invest to drive energy efficiency, rolling out our 4th in a series of 23 ships with innovative air lubrication which reduces drag on the hull and generates nearly 5% reduction in carbon emissions. We've also taken strides to reduce our impact climate change and mitigate climate risk in our business. We are working toward full adoption of the recommendations of the Task Force on Climate Related Financial Disclosures, that's TCFD and have begun by reinforcing our strong governance framework with Maya assuming the role of Chief Climate Officer and with the formation of our Strategic Risk Evaluation Committee to further support climate related strategic decision making and risk management processes. Having broadened our commitments to ESG With the introduction of our 2,030 sustainability goals and our 2,050 aspirations, we are tracking ahead on both our important food waste and single use plastic reduction efforts.

Operator

And we are nearing completion on the rollout of more than 600 food waste biodigesters across our fleet, the most advanced technology of its kind. We believe We have clearly maximized our return to service and we have positioned our company well to withstand volatility on our path to profitability. Throughout the pause, we have been proactively managing to resume operations as an even stronger and more efficient operating company to maximize cash generation and to deliver double digit return on invested capital over time. Again, Our cash flow will be the primary driver to return to investment grade credit over time creating greater shareholder value. There have been multiple demonstrations of the resilience of the human spirit and the resilience of our business.

Operator

It is heartening that our company can be a part of bringing our guests much needed social enjoyment with family and with friends along with the excitement of experiencing new destinations and cultures all dearly missed throughout the pandemic. I referenced Carnival Cruise Lines celebrating 50 years. 50 years frankly seems such a short time ago that Ted Arison started Carnival Cruise Line and along with Mickey built the modern day cruise industry, bringing joy for millions upon millions of guests and creating hundreds of thousands of jobs with all that means in creating better quality of life around the world. Of course, it cannot have been done without the overwhelming support from everyone. So once again, thank you to our valued guests.

Operator

Thank you to our travel agent partners. Thank you to our home port and destination communities. Thank you to our suppliers and other many stakeholders. And of course, thank you to our shareholders, bondholders, banks and the export credit agencies for your continued confidence in us and for your ongoing support. And again, I would like to thank our team members for their dedication, their commitment and their outstanding execution.

Operator

We are excited to welcome everyone back on board. With that, I'll turn the call over to David.

Speaker 1

Thank you, Arnold. I'll start today with a review of guest cruise operations along with a summary Of our Q1 cash flows. Then I'll provide an update on booking trends and finish up with adjusted EBITDA And net income expectations. Turning to guest cruise operations. During the Q1 2022, We restarted 10 additional ships resulting in 60% of our fleet capacity in guest cruise operations For the whole of the Q1, this was a substantial increase from 47% During the Q4 2021, as of today, 75% of our fleet capacity has resumed guest cruise operations.

Speaker 1

Agility to continuously adapt to the ever changing landscape Has been one of our greatest strengths during the pandemic. In the Q1, we continued to demonstrate this skill As we adjusted restart dates to optimize our guest cruise operations and we now expect each brand's full fleet to be back In guest cruise operations for its respective summer season where we historically generate the largest share of our operating income. I am happy to report that just last week, we announced plans for our Australia Start commencing at the end of May after the government advised that cruising would be permitted beginning in April. For the Q1, occupancy was 54% across the ships in service. We never expected to achieve our historical 100 plus percent occupancies for the Q1 Since many of these sailings were confirmed just a number of months before departure, which resulted in less than the normal booking lead time.

Speaker 1

However, we had anticipated 1st quarter occupancy would exceed a 58% achieved in the Q4 of 2021. We started the quarter with over 55% cabin occupancy booked for the Q1 And expected to improve upon that during the quarter. However, during the Q1 2022, As a result of the omicron variant, we experienced an impact on bookings for near term sailings Including higher cancellations resulting from an increase in pre travel positive test results, Challenges in the availability of timely pre travel tests and the disruption that Omicron caused on Society during this time. All of this inhibited our ability to build on our cabin Occupancy book position for the Q1 2022 during the Q1, resulting in Occupancy for the Q1 2022 at 54% being lower than the 58% occupancy We achieved in the Q4 of 2021. Despite all that, during the Q1, We carried over 1,000,000 guests, which was nearly a 20% increase from the Q4 2021.

Speaker 1

Once again, our brands executed extremely well with net promoter scores continuing at elevated levels compared to Pre COVID scores. Revenue per passenger day for the Q1 2022 Increased approximately 7.5% compared to a strong 2019 despite Our lucrative world cruises and exotic voyages being shelled this year. Our revenue management teams held on price when we Once again, our onboard and other revenue per diems were up significantly in the Q1 2022 Versus the Q1 2019, in part due to the bundled packages as well as onboard credits utilized by guests From cruises canceled during the pause. We had great growth in onboard and other per diems on both sides of the Atlantic. Increases in bar, casino, shops, spa and Internet led the way on board.

Speaker 1

Over the past two and a half years, We have offered and our guests have chosen more and more bundled package options. In the end, We will see the benefit of these bundled packages in onboard and other revenue. As a result of these bundled packages, the line between passenger ticket and onboard revenue is blurred. For accounting purposes, we allocate the total price paid by the guests between the two categories. Therefore, The best way to judge our performance is by reference to our total cruise revenue metrics.

Speaker 1

On the cost side, Our adjusted cruise costs without fuel per available lower birthday or ALBD as it is more commonly called For the Q1 2022 was up 25%. I did say adjusted cruise costs and not net cruise cost, a term we had previously used. The calculation of adjusted cruise costs and net cruise costs are the same. However, we felt the new name were appropriately lined up with our other non GAAP measures of adjusted net income And adjusted EBITDA, which are also referenced in our business update press release issued earlier this morning. The increase in adjusted cruise costs without fuel per AOBD is driven essentially by 5 things.

Speaker 1

First, the cost of a portion of the fleet being in paused status. 2nd, restart related expenses. 3rd, 15 ships being in dry dock during the quarter, which resulted in nearly double the number of dry dock days during the Q1 Versus the Q1 2019. 4th, the cost of maintaining enhanced health and safety protocols and finally inflation. Remember that because a portion of the fleet was in paused status during the Q1 and the higher number of dry dock days, We spread costs over less ALBDs.

Speaker 1

I did want to point out that in the Q2 of 2022, we expect a further 24 ships to enter dry dock as part of our resumption of cruising ramp up, Optimizing our drydock schedule while the ships are not in service and ensuring that the ships look great when they welcome their first Guests back on board. This will again result in a doubling of the drydock phase during the quarter compared to 2019, Which will impact adjusted cruise costs without fuel per AOBD during the Q2. We anticipate That many of these costs and expenses driving adjusted cruise costs without fuel per ALBD higher will end during 2022 and will not reoccur in 2023. As a result of all of the above, We expect to see a significant improvement in adjusted cruise costs excluding fuel per ALBD From the first half of twenty twenty two to the second half of twenty twenty two with a low double digit increase Expected for the full year 2022 compared to 2019. Next, I'll provide a summary of our Q1 cash flows.

Speaker 1

We ended the Q1 2022 with $7,200,000,000 in liquidity versus $9,400,000,000 Looking forward, we believe we remain well positioned given our liquidity. The change in liquidity during the quarter was driven essentially by 4 things. First, an improved negative adjusted EBITDA Of $1,000,000,000 due to our ongoing resumption of guest cruise operations despite the impact of the omicron variant. We had thought adjusted EBITDA was going to improve more. But as I said before, the omicron variant Inhibited our ability to grow occupancy during the quarter, which limited the improvement in adjusted EBITDA.

Speaker 1

2nd, our investment of $400,000,000 in capital expenditures net of export credits 3rd, $500,000,000 of debt principal payments and 4th, dollars 400,000,000 of interest expense during the quarter. Now let's look at booking trends. Since the middle of January, we have seen an improving trend in booking volumes For future sailings, recent weekly booking volumes have been higher than at any point since the restart of guest cruise operations. During the Q1, we increased our booked occupancy position for the second half of twenty twenty two, Albeit not at the same pace as a typical wave season due to the omicron variant. As a result, the cumulative advanced book position for the second half of twenty twenty two is at the lower end of the historical range.

Speaker 1

However, we believe we are well situated with our current second half twenty twenty two book position Given the recent improvement in booking volumes coupled with closer in booking patterns and our expectation for an We continue to expect that occupancy will build throughout 2022 And return to historical levels in 2023. And importantly, I am happy to report That prices on these bookings for the second half of twenty twenty two continue to be higher with or without Future cruise credits are more commonly called FCCs normalized for bundled packages as compared to 2019 sailings. Our cumulative advanced book position for the first half of twenty twenty three continues to be at the higher end Of the historical range also at higher prices with or without FCCs normalized for bundled packages as compared to 2019 Teen sailings is a tough comparison as that was a high watermark for historical yields. I will finish up with our adjusted EBITDA and net income expectations. We all know that booking trends are a leading indicator of the health of our business with improved recent booking trends leading the way, Driving customer deposits higher, positive adjusted EBITDA is clearly within our sights.

Speaker 1

Over the next few months, we expect ship level cash contribution to grow as more ships return to service And as we build on our occupancy percentages. However, as I've already said, Adjusted EBITDA over the first half of twenty twenty two has been or will By the restart related spending and dry dock expenses as 39 ships over 40% of our fleet We'll have been in dry dock during the first half of fiscal twenty twenty two. Given all these factors combined, We expect monthly adjusted EBITDA to continue to improve and turn consistently positive at the beginning of our summer season. We continue to expect a net loss for the Q2 of 2022 on both a U. S.

Speaker 1

GAAP On adjusted basis. However, we expect the profit for the Q3 of 2022. For the full year, we do expect a net loss. Looking to brighter days ahead in 2023, With the full fleet back in service all year, 8% more capacity than 2019 An improved fleet profile with nearly a quarter of our capacity consisting of newly delivered ships, Continuing momentum on our outstanding net promoter scores and occupancy returning to historical levels, We are looking forward to providing memorable vacation experiences to nearly 14,000,000 guests and generating potentially Greater adjusted EBITDA than 2019. And now, I'll turn the call back over to Arnold.

Operator

Thank you, David. Operator, please open the call for questions.

Speaker 2

Thank PLC. And we'll proceed with our first question on the line from Robin Farley with UBS. Go right ahead.

Speaker 3

Great. Thank you. Good morning. I have one revenue and one expense question. For expenses, you talked about I think up 20 this is the non fuel expense, up 25% in Q1 and sort of up low double digits For the year, so if that's kind of up 11% or 12% for the year, it sounds like it would be close to Flat with 2019 by the end of this year.

Speaker 3

So I wanted to make sure we're thinking about those numbers right. And your Comments included the idea that with the ship sales, you'll have a 5% reduction in operating expense ex fuel In 2023 versus 2019, so I know you're not sort of giving full guidance for 2023, but is that the way to think about non fuel expense Being kind of flat by the end of this year and then kind of down 5% next year. That's the expense question. And then on the revenue side, Obviously, lots of positive news about the incremental volume build. I wonder if you could comment a little bit more specifically on sort of European itineraries versus the rest, which I just to think about How price may be holding up outside of Europe?

Speaker 3

And then also how the incremental European cruises, you might have a lot at high prices From kind of the last 12 months that had been shifted there for the summer, but maybe how that incremental European demand is looking in terms of price impact. Okay. Thank you.

Operator

Hi, Robin. Good morning to I'll have David comment a little bit on both. But directionally on the cost question, As he articulated, we had a lot of capacity out in dry dock, etcetera. So we're doing Stuff over a smaller number of birds in terms of looking at the cost increases and we have lots of one time costs and so on. So we're not giving guidance for next year.

Operator

But as he indicated as you look through the second half of the year and see how the cost Increases will be softer. We're pointing in the right direction. And we've done a lot of things going forward including with the change in the fleet with the specific part of our capacity 25% being new ships which are inherently more efficient, but also all the active management things we've done with the existing fleet, preexisting fleet, exiting less efficient ships and so on. And then shoreside as well. We're doing a number of things to offset inflation and to just make ourselves a better company from a cost a structure standpoint.

Operator

So David, I'll let you comment on the cost and then we can get back to the revenue. David, go ahead.

Speaker 1

Yes. So directionally Robin your math is correct. I mean, overall speaking, to get back to a low double digit for the year, you do have to Sort of get directionally towards that flattish area by the end of the year. But let's I'll remind you of one thing that I've said many times before. Costs do vary by quarter because of a variety of Things, dry dock, advertising, etcetera.

Speaker 1

So as Arnold said, we're not giving guidance for 2023. And overall, he mentioned all of the, I guess, tailwinds that help us Achieved improved operating costs and adjusted cruise costs for 20 20 3, I will also mention that we have 8% more capacity, so we get leverage versus 2019. We also get some shoreside SG and A leverage. But I will remind you, it is 4 years of inflation that is the headwind. So That is a challenge.

Speaker 1

And so we will do everything we can to properly manage the costs for 2023, But it is a little bit premature for us to give guidance at this point.

Operator

Thanks, Dave. Do you want to start on the revenue, David? And now I

Speaker 1

Yes. So on the revenue side, what's interesting when you look at all of the different We had mentioned the uptick in recent booking volumes and we're Truly seeing that uptick across all the different itineraries, whether it be in the Caribbean, in the Med And also even parts of Northern Europe. The exception of course is we did have as Arnold said in his notes, I guess 4.6% of our capacity for the remainder of the year, that's actually 3.8% for the whole year, touched John went to St. Petersburg. And we did, I guess, change we moved 2 ships and we changed The attractive itineraries for the remaining ships that are in the Baltic to go to other ports.

Speaker 1

So we have We have seen the bookings for those ships impacted. But remember, it's early days and we just made the Changes to those itineraries. So we've got to get the message out. But for all of the rest of the itineraries Across the board, whether they be in the Med, East, West Med, Caribbean and other parts of the world, we are seeing good Solid booking trends at good solid pricing. We mentioned that our revenue management teams are holding pricing, and we are seeing good volume.

Speaker 1

I will point out that for the 2nd bookings for the Q2, we've even seen volumes that exceeded The 2019 levels, which I guess is not surprising from the perspective that we have more inventory to sell for the And quarter than we did for 2019, but it's great that the demand is there and we are seeing the volume. And as Arnold indicated in his notes, in the month of March, we are seeing occupancies Approach 70% and we even had, I think he said 40 voyages where occupancy exceeded 100 We expect to exceed 100%. So I think we are well positioned around the globe and we'll also work very hard To get those remaining itineraries booking again now that we readjusted them with other attractive ports. No, that's

Speaker 3

That's great. Thank you. I think that commentary addresses so much of what investors have been concerned about. And then just to clarify, did I mishear when I thought I heard you say 5% reduction in operating expense ex fuel by 2023 versus 2019. Did I was that Is that not with that 5%?

Speaker 1

Yes. So Arnold had indicated that 5% was in ship Operating expenses and that's on an apples to apples basis putting everything else aside as a result of the fleet optimization. Just looking at a comparison to 2019. Of course, there's Yes. Changes in itineraries is also which impact that.

Speaker 1

There's inflation which impacts that. There's other cost savings that we're working hard. That was just the fleet optimization portion. And that was obviously a great tailwind to help us reduce costs As we go into 2023.

Speaker 3

Great. Thank you very much. Thanks.

Operator

Thanks, Robin.

Speaker 2

Thank you. We'll proceed to our next question on the line from Steve Wieczynski from Stifel. Go right ahead.

Speaker 4

Hey, guys. Good morning. So I want to ask about onboard revenues and I think there's a fear now that consumers Might start pulling back on spending given whether it's higher fuel prices or other economic headwinds that might be out there. So given you guys have Real time data in terms of onboard spend. Have you guys seen anything over the last couple of weeks that would make you believe the consumer might be starting to slow Once they come on board.

Speaker 4

And I guess is there have you seen any difference in spending patterns across your different geographies?

Operator

Haven't seen any particular slowdown or anything like that in terms of onboard spend. It's been very strong. It's continued to be healthy. Around the world it's been up everywhere. So don't see major distinctions from one geography to the next.

Operator

As we get to full occupancy and we carry more kids in the summer that kind of thing, can see the kind of per diems maybe will change a little bit. But overall, the spending is significantly up and has continued to be so far.

Speaker 4

Okay. Got you. Thanks for that Arnold. And then second question would be around the liquidity position. And It looks like you burned around $700,000,000 a month in the Q1.

Speaker 4

And I guess, with some disruptions around Omicron and now the war and fuel, Just maybe wondering at what level liquidity you would start to get I don't know if I'd use the word uneasy. And I guess a better way to ask that question might be, do you see anything on the horizon that would make you believe that you might need to increase your liquidity base moving forward?

Operator

We've had good liquidity through this period. We will obviously continue to monitor. But as we move ahead and get more of our ships sailing and are able to generate obviously more revenue and more customer deposits etcetera. At this stage, we feel we're in good shape on liquidity and see that going forward. If something changes, of course, obviously, we'll reported at that time.

Operator

But right now we feel good about our liquidity position. Okay. Got you. Yeah, go ahead David. Go ahead David.

Speaker 1

Can I just say, first of all, the one thing on the onboard revenue, the only thing I want to add that Arnold didn't mention is we have been raising price onboard? There's been there is strong demand. And obviously, with the environment being what it is, there's been an opportunity to raise Opportunity to raise price and we've been capturing that opportunity. And as far as the liquidity, I guess, The two things that we continue to think about in addition to what Arnold mentioned is we think about refinancing our 2L notes, which are Still out there. And of course, we have $3,000,000,000 of maturities in 2023 that we think about what is the optimal Time to refinance that.

Speaker 1

But other than that, I just want to add those concepts as we think through those in the ensuing And quarters ahead.

Speaker 5

Okay. Got you. Thanks guys. Appreciate it. Thanks Steve.

Speaker 2

And we'll get to our next question on the line from the line of James Heideman with Citi. Go ahead.

Speaker 5

Hey, good morning. Thanks for taking. A couple of my questions on the pricing front. So you guys spoke to revenue Your cruise day being up 7.5%, I think that number for the November quarter was plus 4, which is obviously encouraging, right? I think the concern was that pricing benefited from the fact that these cruise ships weren't full and that The last whatever 20% to 30% of the rooms would come in at a discount.

Speaker 5

And so we couldn't really take that pricing Strength to the bank, but this is a sample of 2 obviously. That pricing actually accelerated As the ships got more full from 4Q to 1Q. So maybe speak to how we should contextualize these pricing numbers? Is there any reason to think that those will come in a bit as we get the last call it 30% Of occupancy? Or is there the opportunity for that to continue to accelerate?

Operator

We're certainly thanks for your question first of all. We're certainly We're going to continue to work hard to make certain the prices hold and accelerate. And we'll have to see in the end where We're managing yield and so we want to optimize occupancy and price. Right now there's lots of The demand, we obviously will be ramping up our advertising and promotional efforts as time goes on to we have increased already, but it's still well below where we were in 2019. We've gotten smarter and more efficient in how we do that.

Operator

And so we want to create more demand and keep it going. But as you've heard from what we've reported so far, Pricing is strong and we've been able to maintain price. David, I don't know if you want to add any more color.

Speaker 1

Yes. The only thing I wanted to add To what Arnold said is, James, you really need to think about it a little bit differently because you're Sort of saying, well, when the last 30% comes in, it doesn't the last 30% isn't going to come in at the last second. Remember that for the last few quarters, the booking window has been much shorter. And so when we think about the future and We said we don't expect to get to historical occupancy levels until 2023, but we do expect to see an Proving level of occupancy every quarter as we go forward. And one of the reasons is because for 2023 looking out today, we've got A much fuller booking curve.

Speaker 1

We'll manage pricing the way Arnold described along that booking curve and we'll get to our historical occupancy levels. And we're being very careful in the short term where the booking curve is shorter to manage that appropriately. We're driving demand, as Arnold Mentioned with the advertising, although advertising these days seems to be the mix of advertising has changed Tremendously and will continue to evolve. So think of it in terms of booking curve and with the longer booking curve towards next year, We can get to those occupancy levels because there's a lot of demand out there. People want to cruise.

Speaker 1

We have a great product. We're still a good value compared to land based alternatives, although we're trying to make it a bit less of a value As we move forward and to raise prices, Arnold indicated.

Speaker 5

That's really helpful. And then along those same lines, everybody wants to Pair sort of your pricing strength to your competitors as we look versus 2019. Are there any sort of major differences You would call out that make those comparisons not really apples to apples. Obviously, you have, I guess, A, more of a global consumer base, right? And I don't know if there are any major differences between sort of the U.

Speaker 5

S. Customers And sort of worldwide. And then the other piece is just maybe a bit more of a mass market customer. And so how do we think about The potential for growth out of those contingencies?

Operator

First of all, your instincts are right. It is apples and oranges. There are a number of differences, Not the least of which is we're on different fiscal quarters and so even the month You have timing then you also obviously in addition to that is cabin mix, It's itinerary mix as you mentioned composition of the European itineraries. And right now you have Big itinerary changes because a lot of our lucrative itineraries which would be similar for some of the others perhaps But we may have more of it in terms of world cruises and more exotic cruises and so on and so forth. But anyway all those things are different.

Operator

When we try our best to kind of normalize all that which is extremely difficult to do and try to match up month by month. When we've done that, we see that we're doing as well off and in some cases better than the others. In the recent times, one has done better on price, but at the same time, they've not done as well on occupancy. And so in the end, we don't see a big performance difference on that when we try to match it up. But it is apples and oranges.

Operator

David, I don't know if you wanted to add any other thoughts. Yes. I mean,

Speaker 1

add some clarity to that. So remember, one of our competitors Had a lot less occupancy than us during the Q4 period, which probably leads to more balcony cabins And at a higher price as part of the overall mix. And also some of our competitors, one of them was not carrying any kids Because of the vaccine requirements and kids are at a lower price. So as a result of that too, That affects the overall position. Arnold mentioned the itinerary differences.

Speaker 1

But what we did We lined up the month October, November December and we can do that internally for ourselves compared to Our competition. And so, if we try to also balance, remember, occupancy, there's two sides to the equation, there's price And occupancy. And the best way to balance that out is to look at the gross revenue per ALBD as opposed to the Gross revenue per PCD, because I will tell you, if all I did was sell 1 penthouse Sweet. On one ship and didn't sell anything else, my per PCD would be incredibly high. But when you balance it all out, The revenue per ALBD reduction, because of course the occupancy was down in all Three companies.

Speaker 1

We're the same within 2 percentage points. So the reduction in revenue per ALB deal with a 2 percentage points difference between all three companies. And so I think we are, Yes. As Arnold said, we're doing better than some and we're well positioned and looking forward to, as I said, 2023 And providing 14,000,000 memorable vacation experiences to people around the globe.

Speaker 5

That's really good color. David Arnold, thank you. Okay. Thank you.

Speaker 2

I will proceed with our next question on the line From the line of Assia Georgieva with Infinity Research. Go right ahead.

Speaker 3

Good morning. It's mind boggling how many refinancings You guys did. So David a question to you. How should we model interest expense going forward? I think you probably have hit The lowest line fruit at this point.

Speaker 3

Do you expect that there could be further significant savings on interest expense Into the back half of the year and possibly 2023?

Speaker 1

Yes. So in terms of interest We did give a forecast in the business update, which was $1,500,000,000 and it was the same interest Expense forecast we gave back in December. So that is our forecast for the full year, 20 22. We do have the opportunity as I mentioned before to refinance the 2L notes at Some point in the future. And we'll carefully look at that opportunity and that might provide some interest savings over time.

Speaker 1

But on the flip side, we're all watching the Fed and there is the possibility for rates to move up. So at this point, it is a little premature to forecast 2023. If you know exactly what the Fed is going to do and all, Let me know, but it is difficult. But it's going to be in that neighborhood plus or minus as you think

Speaker 3

The Fed hasn't called me today. So I don't know what the latest thinking is. Can I ask a couple of one question revenue in itinerary related? It's great news that Australia Is opening up. And obviously, that will be more helpful during the winter season, 2022, 2023.

Speaker 3

Given that Spirit will be permanently based in the U. S, are you thinking of adding another Carnival ship So that you have a little bit more scale as opposed to just one ship. And do you think that China is an opportunity that might Come online within the current fiscal year.

Operator

Well, first of all, we're delighted to see that The Australian government is not extending the ban on cruises beyond the April 17 date. And we've already announced As you are aware, P&0 Australia is going to start sailing late May in Australia. And so we're happy to We'll be bringing joyful cruise vacations to Australians again and giving people who want to cruise in Australia the opportunity to do so. So we're excited about that. China, we'll have to see how things pan out there.

Operator

Right now, it's still Not practical. And as we've always said with China, when we're able to do it profitably, we'll do it. And when we can't, we won't. And so we continue to work with authorities there and other places that are still not yet quite open to eventually get it open for crews in a way that makes sense for everyone. So that's that.

Operator

The Fed hasn't called me today either by the way.

Speaker 4

But I would say that. Delightful.

Operator

But I would say Overall, things are really looking good. I mean, we're 75% of the ships are now sailing. Whether we'll put another ship into Australia for the Carnival brand, that's a decision to be made over time. But almost certainly given The demand in Australia historically for the various brands, it would not be illogical to think at some point Once things are up and going again, Carnival would have an even greater presence. So but at this point, we don't have any specific plans.

Operator

Right now, we'll see how things pan out.

Speaker 3

Thank you, Arnold. And thank you, Yes, David, I'm sorry.

Speaker 1

The only thing I just wanted to remind everybody is that, remember CC Carnival Cruise Lines moved out 6 ships. So during the pause in guest cruise operations and so as a result of that, as Arnold said, We'll relook at it, but everything needs to be re examined to make sure we optimize the cash flow and profitability of Carnival Cruise Lines.

Operator

And by the way

Speaker 3

And also we have some time before their season, right? So There's still a few months to go.

Operator

Yes. And Carnival is doing so well. I mean, it's led the way period. In terms of occupancy, it's been strong yields. We've had unbelievable bookings The past few weeks wave level bookings in the Carnival brand in the last few weeks here and it's super positive for the brand and a good hopefully leading indicator for the overall industry.

Speaker 3

It does seem that wave season is being And that and I imagine it's not just the pause or the slowdown because of Omicron, But also because people have been cooped up for 2 years and might be taking a little bit longer to make those decisions Given uncertainty, COVID or geopolitical, so hopefully, we'll continue to see a greater booking volume Over the next weeks.

Operator

Absolutely. Yes, there's no question consumer confidence uncertainty driven by All the various dynamics COVID, the invasion in Ukraine all that. But clearly there is momentum.

Speaker 3

Great. Thank you so much. Thank you both.

Speaker 1

Thank you.

Speaker 2

We got our next question on the line From the line of Stuart Gordon with Berenberg. Go right ahead with your question.

Speaker 6

Just a couple of points of interest. The first one is on the drydock days. Could you just give some color on sort of the number of days That you're expecting in the first half of twenty twenty two versus twenty nineteen, perhaps also full year if you have it. And then how that should shape up for 'twenty three? I'm assuming you're putting through a lot of drydock days that will therefore not be required next year.

Speaker 6

And just the second is on the omicron impact. What was the damage to Vincent from cancellations due to Omicron, if you could give us some flavor on that. Thank you.

Operator

Yes. I'll take the second part and let David tell you about the drydock days. In terms of Omicron as we said in the opening comments, it clearly had an effect on Sumer confidence and it caused disruption. People Either were testing positive, so they couldn't cruise or they weren't able to get timely tests. And then there was just the overall Yes.

Operator

Impact on society and uncertainty and uneasiness that Omicron created. It's tough to quantify it and isolate it to say this was all Omicron This was something else. But the bottom line is it had an impact. It had an impact on wave and which is why we Feel partly why we feel now we have an extended wave season and are seeing that rebound now. But we did get through it.

Operator

We got through it and just as we got through Delta and how there's lots of momentum and things are clearly pointed in the right direction. So go ahead David on the dry dock days.

Speaker 1

Yes. So the dry dock In the Q1, we have 2 73 days versus 1 In the Q2, there's 399 days versus 184 days in 2019. For the full year this year right now, the plan is 802 dry dock days. We have some additional dry docks in the Q4. I only have at the moment the first Half of 2023, by the way, most of the many of the dry docks are usually either the first half or the fourth quarter, but the first half It's down to in 23, 2 72 days.

Speaker 1

So probably be some more in the 4th quarter, but you can see the number of dry dock days will be significantly less. 802 is An unusually large number. I don't think we've ever exceeded. I think something in the range of $550,000,000 was probably the largest number we ever had. But as I mentioned in my notes, we're bringing back the ships.

Speaker 1

We're optimizing it. The ships are not in service. And we want to make sure the ships look great when the guests get back on board. And of course, we are cleaning the hulls, Because I will tell you, you get those holes clean and it is incredibly much more efficient from a fuel perspective. So we are optimizing the situation.

Speaker 1

I don't have the full year 2019 at my fingertips. I do apologize. But perhaps Beth can get back to you On that one.

Speaker 6

No, that's very helpful. Could I just circle back to the first question? I mean, Would it be fair to say though that if we were to see another variant that each iteration of the variant delta to omicron You're A, recovering faster, but B, also seeing less of an impact because I think human nature is we're getting more used to it. Would that be a fair observation at least?

Operator

I think we'll have to see what happens with the variance. But clearly society is better prepared. There's better understanding of Transmission of epidemiology of everything. More people are vaccinated. That's the biggie, of course.

Operator

And people and fewer and fewer people are Really sick from whether it's omicron or the B variant of omicron or whatever. And so the focus is shifting more to where it should be, which is hospitalizations are worse, long term effects are worse. And as long as I think Society doesn't see a huge ramp up in that from some variance then you're absolutely right. People are learning how to live with it and live with it safely and comfortably. And of course, our protocols have been served us very well.

Operator

We on the ships, we are far better than the equivalent incidents on land, partly because of The testing, the vaccinations, all the other protocols and we have in place. And so we're amongst the safest forms of socialization there is. And we've learned a lot about how to manage. And so through Delta, through Omicron, through all those, we have had much lower incidents than what you would find on land and have gotten pretty adept at serving the best ownership of public health and dealing But overall society is getting used to it. And as long as hospitalizations don't ramp up or worse, Then you would think the trend you're seeing today will continue.

Speaker 6

Great. Thanks so much.

Speaker 1

Remember the test is much more available. That will be very helpful as well, because in the Q1 that was a big issue for us, The testing study.

Speaker 6

Yes. Understood. Thank you very much.

Speaker 1

Thank you.

Speaker 2

We'll get to our next question.

Operator

This will probably be the last question. Okay. Thank you. Okay.

Speaker 2

Very good. So we'll proceed with our final question from the line of Fred Wightman with Wolfe Research. Go right ahead.

Speaker 1

Hey, guys. Good morning. I was hoping you could give a little bit more detail on the Sailings where you are seeing occupancy over 100%. It sounds like that might be mostly concentrated in the Carnival brand, but are those largely South Florida departures? Are you seeing Pretty broad based strength in terms of where those are located or home porting.

Speaker 1

Anything else to add would be great.

Operator

Definitely more North American oriented, not only the Carnival brand. I think the better characterization would be kind of traditional itineraries that People have been used to and so in a number of cases, of course, we've had to alter itineraries, because destinations weren't available or they had protocols etcetera that made it difficult to take guests there and what have you. But overall, I think the most important aspect of that is you're talking a lot of failings at 100%, which is showing that things is definitely coming back. And that we have the ability to sail at 100% with protocols and still serve sell in the best Public health with really good outcomes from a health and safety standpoint. So that's I would characterize it.

Operator

There's still a lot of destinations elsewhere that have restrictions. There's protocols on the regulatory you have 9 brands all over the world. There's all kinds of regulations and protocols not just in home markets, but in destination markets that we have to deal with. And all of that creates challenge. But it's becoming less and we are moving towards full occupancies over time and having all of the ships sailing.

Speaker 1

Makes sense. And a housekeeping question. When you guys are making comments about forward earnings commentary for the back half of this year and then into 2023, are you just assuming the current spot Fuel price, are you looking at the forward curve there? I'm assuming that that's Yes. So our commentary was very broad.

Speaker 1

I do assume that fuel will be better than the current spot price, but the commentary is pretty broad And we're not giving specific guidance. So while fuel price matters to the bottom line, It's still depending on the price. It's there's a wide range where we're still within the guidance we gave Of a profit and a loss. Okay. Thanks guys.

Operator

Thank you all. Operator, thank you very much. But everyone, thank you. We appreciate your interest in us. We're very excited about welcoming people back on board.

Operator

Again, our heart goes out to all of those impacted by the Ukraine invasion. And but we're looking forward to Peace there and brighter days ahead. Thank you.

Speaker 2

Thank you very much. That does conclude the call for today. We thank you for your participation. We disconnect your lines. Have a good day, everyone.

Earnings Conference Call
Carnival Co. & Q1 2022
00:00 / 00:00