Josh Weinstein
President, Chief Executive Officer and Chief Climate Officer at Carnival Co. &
Good morning. This is Josh Weinstein. Welcome to our First Quarter 2023 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. Consistent with our last business update, we remain on an upward trajectory as we further close the gap to 2019. We are still experiencing a record wave season, which started early, gained strength and has extended later into the year. We expect these favorable trends to continue based on the traction we're making to our ongoing efforts to drive demand globally. In the first quarter, we outperformed our guidance on all measures, revenue costs, adjusted EBITDA and earnings while overcoming over $30 million in headwinds from fuel price and currency since our prior guidance. Thanks to the dedicated efforts of our 160,000 amazing team members around the world. We had sequential improvement in our occupancy gap to 2019 from 19 points in Q4 to 13 points in Q1 on increasing capacity, which is now above 2019 levels. We anticipate being just 7 points or less away from 2019 occupancies in the second quarter, well on our way to historical occupancies this summer. Equally important, we also drove ticket prices higher and continued to throttle back on our opaque channels, while also maintaining outsized onboard revenue growth. But we have not lost sight of the cost side of the business. We are working hard to mitigate four years of inflation, while still reinvesting in advertising and sales support to build future demand.
We did update our cost guidance, primarily to reflect decisions taken during the quarter that have increased our costs, but will produce greater EBITDA and adjusted free cash flow, which David will elaborate on. We remain nimble and continue to aggressively seek opportunities to accelerate our path back to strong profitability. For the year, we're expecting adjusted EBITDA of $4 billion at the midpoint. The gap to 2019's record $5.5 billion of adjusted EBITDA is being driven primarily by two items. First is our 2023 occupancy gap to 2019, which we expect to be behind us as we cycle through this year. As we discussed on the last call, this results primarily from longer duration exotic voyages early in the year that we did not fill given the disparate [Phonetic] COVID protocols to land-based alternatives were in place during most of the booking window for these voyages as well as close-in deployment changes and the slightly delayed, but improving European recovery trajectory. Second is a drag due to fuel prices and currency changes compared to 2019. In actuality, the strength of our demand generation resulting in elevated per diems and our fleet optimization efforts has helped us to mitigate four years of significant cost inflation, which of course will continue to work to offset even further. On a per ALBD basis and holding fuel price and currency constant to 2019 levels, we were roughly 60% back to 2019 EBITDA in our first quarter better than our expectations to be halfway back. We expect to be two-thirds of the way back in our second quarter as we progress back to levels that rival 2019 as we exit the year. Each point of net yield improvement results in $170 million to the bottom line in 2024. With our continuing demand generation seeing us close the occupancy gap entirely and allowing us to pull back further opaque channel activity, we are well positioned to continue to drive ticket prices higher and more than offset the drag from fuel price and currency over time. To that end, wave season has been phenomenal. It started early with record Black Friday booking volumes and has continued to build. We achieved our highest-ever quarterly booking volumes in our company's history, and we actually had our best weekly booking volume for this wave the last week in February.
And the good news is that strength in bookings has continued into March, supporting our revenue expectations for the remainder of the year. Of course, we're working very hard to do even better. In North America, our Carnival brand continues to propel us forward, breaking new booking records every single week in January and February. Booking volumes for our North American brands have been running in excess of record 2019 levels for the last six months. And booking lead times are now back to peak levels. Demand for our European brands has strengthened more recently and is catching up to the U.S. market in the recovery cycle. Demand trends are improving across all regions as we exit the winter period and home heating concerns abate. In fact, booking volumes reached a record for our European brands as well evidencing strong closing demand and producing a continued lengthening in the booking curve.
As we previously noted, Australia is about a year behind the U.S. in terms of the recovery cycle. And while Asia is still about two years behind, we successfully resumed operations there with the ships now in Japan and one in Taiwan, beginning this summer. Turning to China, the country still has not reopened to international cruise travel, which accounted for one million of our guests pre pause and was a significant presence for Costa. To address this, we leaned into the mobility of our assets by leveraging our scale as we capitalized on the strength of our brand portfolio while building alternate deployments for the remaining Costa fleet. The actions we've taken to right-size the Costa brands are working. Following the transfer of Venezia to our highly successful Carnival Cruise Line brand, the launch of Fun Italian Style has received strong support and is already reaching nearly 100% occupancy level for the third quarter.
And with strengthening demands, Costa will be able to enter its remaining idle capacity at a faster pace. Overall, with normalized onboard protocols, we are on an even playing field to land-based alternatives, enabling us to close the unprecedented and unwarranted 25% to 50% value gap to land-based offerings over time. We are well positioned to capture incremental demand given our high satisfaction and low penetration levels. We are capitalizing on pent-up demand for cruise vacations, building on our large base of loyal guests as we work to increase awareness and consideration among new to cruise guests. This has been helped by the ongoing efforts of our travel agent partners who remain a critical source for new to cruise guests. I am delighted to say that the trade is showing a fantastic rebound in its recovery with us this past quarter with several of our brands trade activity exceeding 2019 levels as we support our trade partners with increased training and engagement.
And our investment in advertising and sales support is clearly paying dividends. For example, we've been upsizing our U.K. TV presence for P&O Cruises, the brand synonymous with cruising in the U.K.. Not only has P&O Cruises been enjoying a measurable increase in brand awareness as a result, but the brand has also experienced record bookings over the last three months. This is not surprising given the high correlation between TV advertising awareness and propensity to book in the U.K. The awareness of P&O Cruises has been amplified with the unprecedented and well-publicized naming [Phonetic] Arvia in Barbados less than two weeks ago. The amazing event featured our fabulous godmother, Nicole Scherzinger, chart-topping U.K. singer Olly Murs and the Incomparable Prime Minister of Barbados, Mia Mottley. Arvia is taking the brand forward with new guest experiences like the industry's first 3D submarine escape room [Phonetic] and it's got over 30 dining and bar outlets.
We have a measured 4.5% capacity growth compared to 2019, while still retaining the excitement from 14 newly delivered ships representing nearly 25% of our capacity. And importantly, our growth is weighted towards three of our highest returning brands, Carnival Cruise Line, AIDA and P&O Cruises U.K. following our portfolio and fleet optimization efforts. As mentioned on previous calls to help support this growth and drive overall revenue generation over time, I've actively been working with each brand on their strategies and roadmaps to ensure they have clearly identified target markets, capacity that is appropriately sized to the market potential, demand generation capability to hone in on the target market at the lowest possible acquisition cost and deliver an amazing guest experience onboard to drive net promoter scores and resulting advocacy higher.
These efforts are well underway. We have or are in the process of refreshing segmentation research across all major source markets to confirm and resize our target audiences by brand Postbox. Our brands have identified clear differentiators, and we are leveraging these insights to fine-tune each brand positioning and marketing efforts to attract new to cruise guests and increase loyalty. For example, we've developed a new brand affinity partnerships like Porsche Club of America and Princess, which is an efficient way to drive new to cruise demand through a brand that will resonate with its target guests. We have launched new marketing campaigns across multiple media channels including new national and homeport-driven regional television in most major markets to increase awareness. And we have leaned into digital media with emphasis on video for enhanced storytelling.
In fact, AIDA's new wave campaign Better Together has had 86 million views on TikTok and counting. We are redesigning websites to increase online traffic, improve conversion and achieve higher pre-cruise onboard sales. We are refining our onboard apps to increase communication and engagement as well as capturing incremental onboard revenue. We are refining our digital performance marketing efforts, continuously fine-tuning search engine optimization and testing new lead-generation approaches with impressive results. As just two examples, Holland America was recently named to the top 100 fastest-growing digital brands and Costa has driven an over 40% increase in lead generation in just the last six months.
Our web visits are up 35% over 2019, which is multiples of our measured capacity growth. And our guests that are new to brand already reached 90% of 2019 levels in the first quarter. These are testaments to the success of our investments in advertising and sales support and in fact we're bolstering our sales and service support to address the increased volume and reduce call times resulting from all of the above. We are sharpening our revenue management tools to drive incremental revenues through increased bundled package offers and new upgrade programs. We're also opening deployments further in advance and testing and learning pricing strategies to support earlier occupancy builds and to push the booking curve out further. We are actively reducing already low cancellation levels through changes to deposit policies and new fare structures, and we are using guest insights and sharing cross-brand learnings to aid in everything we do. We all have a sense of urgency to further our brand efforts to drive net yield improvement and while it's working, we recognize these efforts build over time.
To aid in these efforts, we also have an opportunity to further leverage and monetize our industry-leading land-based assets in the Caribbean and Alaska. In the Caribbean, we are building on our strategic advantage with a meaningful expansion of Half Moon Cay, which is consistently voted best private island. And of course, we're also developing our largest Caribbean destination yet our Grand Bahama Port. It's being designed to deliver wow factors tailored to Carnival Cruise Lines guests to drive higher revenue yields and margins. Importantly, this development is strategically located to deliver a wide array of lower fuel consumption itineraries, furthering our carbon reduction efforts. And in Alaska, we have an unmatched strategic footprint across hotels, rail and motor coaches to deliver unique land-sea packages of a lifetime as well as the most itineraries, by far, featuring the iconic Glacier Bay.
Turning to our capital structure, we've completed two more export credits this quarter bringing the total remaining available to $3.2 billion. The export credits are not only an attractive way to fund new ships, but they also serve to effectively roll debt that's maturing at attractive rates. In fact, the majority of export credits coming due in the next few years will be replaced by new export credits available to be drawn. As a result, we expect export credits to remain a similar portion of our debt structure at preferential low- to mid-single-digit interest rates. We also proactively address the renewal of our revolving credit agreements. The creative forward start revolver allows us to retain the benefits of $2.9 billion of liquidity until August of 2024 and provides an 18-month window to build on the current commitment of $2.1 billion. Hats off to David and our treasury team.
We remain disciplined in making capital allocation decisions including new builds. We have our lowest order book in decades, with just four ships on order through 2025 and there will be none in 2026, plus our second incredible luxury expedition ship for Seabourn to be delivered later this year. Following a strong and prolonged wave season, customer deposits are running up double-digits, contributing to adjusted free-cash flow, turning positive this quarter and for the full year. We are set up for a structurally higher growth in customer deposits going forward, as we benefit from increasing demand and increases in our bundled package offerings and pre-cruise sales. While we'll always look at opportunistic refinancing opportunities with adjusted free cash for the year expected to be positive, our revolver renewal behind us, more committed export credit financings in hand, our reduced capex profile going forward and over $8 billion of liquidity, we believe we are well positioned to pay down near-term debt maturities from excess liquidity and have no intention to issue equity. And with our industry-leading cost structure, we are well positioned to bring incremental revenue to the bottom line. We are focused on durable revenue growth, margin improvement and driving EBITDA per available berth day higher to propel us on the path to de-levering investment-grade credit ratings and increase ROIC. Over time, we expect the enterprise value for our company to shift from debtholders back toward equity holders.
I can't end the call without once again praising our travel agent partners for their unwavering support and our team members ship and shore who work so hard every day to fulfill our mission of creating unforgettable happiness by providing extraordinary cruise vacations to our guests, while honoring the integrity of every ocean we sail, place we visit and life we touch. Our company is powered by our best-in-class people something, for which I'm incredibly thankful.
With that, I'd like to turn the call over to David.
