Carnival Corporation

Good morning, everyone, and welcome to our Business Update conference call. I'm Arnold Donald, President and CEO of Cornable Corporation and PLC. Today, I'm joined telephonically by our Chairman, Mickey Arison, as well as David Bernstein, our Chief Financial Officer, and Beth Roberts, Senior Vice President, Investor Relations. 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. Therefore, I must refer you to the cautionary statement in today's press release. Excitedly, we are on a path to return to full fleet operations, and we are very happy to continue to welcome our loyal guests back on board, as well as to welcome new guests. And we're working diligently to have offerings that serve all of our guests in a way that is compliant in the home ports and destinations we touch while serving the best interests of public health. So far, we've announced the resumption of operations for 42 shifts across eight of our nine brands by fiscal year-end. And that represents over half of our fleet capacity returning to guest cruise operations. And this includes what we expect to be a very successful relaunching of cruising in the U.K. later this week with P&O Cruises Britannia and sailing once again from the United States on Carnival Horizon over the 4th of July. In fact, Carnival Horizon will be joined by nine other ships restarting in the United States by the end of August. We're evaluating additional deployment options throughout the fall and winter period with a focus on maximizing future cash flow while delivering a great guest experience in a way that, of course, serves the best interest of public health. Again, our highest responsibility and, therefore, our top priority is always compliance, environmental protection, and the health, safety, and well-being of our guests, of the people in the communities we touch and serve. And of course, our Carnival family, our team members shipboard and shoreside. We continue to work toward resuming operations also in Australia and Asia. And while we can't predict the pace of the ramp up to full fleet operations, we continue to expect full operations well before our important summer season next year. In the near term, we will be impacted by physical distancing requirements on a portion of our cruises, which limits our historically high occupancy level. And also near term, we'll be impacted by restricted deployment options as not all of the 700 ports we visit are receiving guests just yet. As more people receive vaccines as treatments continue to advance, and as mitigation of the spread of the virus continues, Current restrictions, of course, will also evolve. And we're confident we will eventually be able to sail without these restrictions. Throughout this pause, we have been proactively managing to resume operations as an even stronger operating company. Our strategic decision to accelerate the exit of 19 ships has lowered our capacity growth to roughly 2.5% compounded annually from 2019 through 2025. That's down from 4.5% pre-COVID. Moreover, we have opportunistically rebalanced our portfolio through the SHIP access as well as the SHIP transfer and a modification to our new bill schedule. a combination of which will transfer 8,000 birds from our continental European brands to America's favorite cruise line, Carnival Cruise Line, to optimize the current environment, maximize cash generation, and improve our return on invested capital. While overall fleet capacity growth is constrained, we will benefit from an exciting roster of new ships spread across our brands to capitalize on the pent-up demand and drive even more enthusiasm, excitement, and demand around our restart plan. Nearly every brand will soon have a new ship welcoming guests for the first time, beginning with our namesake brand, Carnival, introducing the new Mardi Gras. Now, it's no small task to successfully address the challenge of honoring the original Mardi Gras, the ship that began the advent of our corporation and has been said the advent of modern-day cruising. But the new Mardi Gras does just that. Recently featured on Good Morning America, Mardi Gras has many features, including the first-ever roller coaster at sea. And trust me, I know from personal experience it is indeed a thrill to ride. Premium brand Holland America will introduce the new Rotterdam, sister ship to the very successful Coney's Dam and New Stock Dam. Princess will welcome guests aboard another new medallion-class ship, Enchanted Princess. And ultra-luxury brand Seabourn will welcome Seabourn Venture with its world-class expedition team and spectacular 360-degree view submarines. For the UK, we enjoyed a phenomenal virtual zany ceremony for Iona. Iona's inaugural sailing will be August 7th. For Germany, we will introduce LNG-powered Aida Cosma, sister to the also highly successful Aida Nova. And for Southern Europe, Casa Firenze and LNG-powered Casa Toscana will replace the exit of several lefty fisherships. We enjoy a structural benefit to revenue from these exciting new ships due to the richer mix of premium price balcony cabins, which will increase six percentage points to 55% of our fleet in 2023. And we will achieve a further structural benefit to unit costs as we introduce these new, larger, more efficient ships, coupled with the 19 ships leaving the fleet, which were among our least efficient. Again, the combination of which will generate a 4% reduction in ship level unit costs and a 3% reduction in unit fuel consumption going forward, enabling us to deliver more revenue to the bottom line. Moreover, we've continued to find efficiencies across our existing fleet to reduce our costs further, as well as planning for streamlined shoreside operations as we ramp back up to full fleet operations. Our advertising efforts continue to evolve with heavy utilization of direct mail and other lower-cost channels, such as digital and public relations-driven earned media, as compared to higher-cost traditional channels. In fact, we have outstanding public relations opportunities coming up, such as the 50-year anniversary for both our namesake brand, Carnival Cruise Line, and the origin of our corporations. Also, we celebrated the 25th anniversary for our AIDA brand. AIDA initiated an exclusive cooperation with Germany's number one newspaper in conjunction with the Jubilee and their return to service. The sweepstakes went viral, creating continuous news and onboard content that captured front-page news, both print and online. Of course, we always leverage the excitement of our new bills to draw media attention. So just a couple of weeks ago, the arrival of Mardi Gras into the U.S. and Port Canaveral attracted extensive media attention. And just last month, our virtual naming ceremony that I mentioned earlier for P&O UK's Iona captured record-breaking media coverage, receiving billions of media impressions, far exceeding the reach of any prior UK naming event. Meanwhile, despite our minimal advertising spend, we continue to experience an acceleration in booking trends globally, including capturing significant latent demand for our new sailings opening this summer. The strong initial demand has affirmed confidence in our future and indicates the potential for pricing strength over time. Also, we see the potential for improved EBITDA in 2023 compared to 2019, driven primarily by the revenue growth from the introduction of new ships, along with the potential for higher revenue yield given pent-up demand and the benefit of a richer mix of premium cabins, coupled with structurally lower costs from the replacement of smaller, less efficient vessels with larger, more efficient vessels. And at the same time, we are working aggressively to lower interest costs. I want to acknowledge your David Bernstein and our entire financing for their very successful efforts in helping us to manage the balance sheet. As we said in our press release this morning, the company successfully refinanced a $2.8 billion term loan and an annual future interest savings of over $120 million. This is the first of many opportunistic refinances that we expect to undertake. Also importantly, we've continued to make advancements in our sustainability efforts. In fact, earlier this week, we published our 2030 sustainability goals and our 2050 sustainability aspirations, which you can find in the press release issued earlier this week and online at our sustainability website. www.carnivalsustainability.com. A key focus of those sustainability efforts is our continued emphasis on the important issue of carbon emission reduction. As we previously shared, our absolute level of carbon emissions peaked in 2011. That's despite over 20% capacity growth since that time. And it will remain below those levels. as we capitalize on our industry-leading efforts to develop and roll out new technology. This includes examples such as shore power. Over 40% of our fleet is capable of plugging in while in port, and liquefied natural gas. We have 11 LNG ships either currently in the fleet or under construction, which will power nearly 20% of our total fleet capacity by 2025. In addition, 77 of our ships are fitted with advanced air quality systems, which benefit our overall emissions profile. And we will continue to aggressively explore new technologies as we work toward net zero emissions over time. During this pause, we have made continuous improvements in other environmental, social, and governance areas. We consider food waste another important place to focus our efforts. Food production, much of which is wasted, is among the largest contributors to global warming. Now we've taken measures to dramatically reduce our per person food waste and have made good progress toward our initial goal of reducing our food waste by 30% by 2022. Among many efforts to honor our commitment to reduce our impact on the environment, we are installing food waste adjusters on board our fleet where needed. These units will help to mitigate the risk of any non-food waste discharge. And we are honoring our commitment to diversity and inclusion. Now, we already have a diverse workforce with our crew hailing from nearly 150 countries. In addition, half of our operating companies are led by women executives. We've been recognized by Forbes as America's best large employers, as well as America's best employers for diversity, and America's best employers for women. We were named the Glassdoor Employees' Choice Award winner in 2021, recognizing the company as one of the best places to work. But we are still striving for diversity at all levels and in all areas of our greater enterprise. Therefore, we are working proactively to engineer diversity through our recruiting and development efforts. And we're also striving for greater inclusion, where every employee feels they have the opportunity to make the contribution they want to, to be recognized or rewarded for those contributions, and to realize their individual career aspirations. Agility has been a key strength over the last 15 months. We expect the environment to remain dynamic as we roll out our fleet while continuing to adapt to an ever-changing situation. So we're working aggressively to return our fleet against operations as quickly as practical while still serving the best interests of public health. With the aggressive actions we've already taken, optimizing our portfolio and reducing capacity, we are well positioned to capitalize on pent-up demand and to emerge a leaner, more efficient company, reinforcing our global industry-leading position. We have secured sufficient liquidity to see us through to full operations. And once we return to full operations, our cash flow will be the primary driver to return to investment-grade credit over time, creating greater shareholder value. Throughout these challenging times, we have received overwhelming support. So once again, thank you to our valued guests. Thank you to our travel agent partners. Thank you to the port communities for continuing to work with us to prepare for a successful restart around the world. Thank you to the governments and health agencies in numerous countries and states who have partnered with us to vaccinate so many of our thousands and thousands of crew members. Thank you to our other many stakeholders for their ongoing support. Thank you to the dedicated members of our Carnival family, Shipboard and Shoreside, who have worked tirelessly to get us to this turning point in our global restart effort. And, of course, thank you to our lenders and investors for their continued confidence in us and in our future. We can't wait to welcome everyone back on board. With that, I will turn the call over to David.

Thank you, Arnold. I'll start today with an update on booking trends. Then I'll provide our monthly average cash burn rate, along with a summary of our second quarter cash flows, and then finish up with some insights into our financial position. Turning to booking trends, our booking volumes have been very strong given the circumstances and are clearly improving. Volumes for all future cruises during the second quarter 2021 were 45% ahead of booking volumes during the first quarter. The increase was driven by both close-in bookings associated with the recent restart announcements, as well as strong booking volumes for 2022. This is a clear demonstration of the pent-up demand for cruises, as well as the long-term potential for the market. Just as positive, our cumulative advance book position for the full year 2022 is ahead of a very strong 2019 which was at the high end of the historical range. I would like to point out that our booking volumes and book positions are very encouraging given that they were achieved with minimal advertising and promotional activity. Pricing on our full year 2022 book position is higher than pricing on bookings at the same time for 2019 sailings driven in part by the bundled pricing strategy for a number of our brands, but excluding the dilutive impact of future cruise credits, or more commonly known as FCCs. This is a great achievement, given pricing on bookings for 2019 sailing is a tough comparison, as it was a high watermark for historical yields. Over the past year or so, 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 revenues. I just want to remind everyone that due to the pause in guest cruise operation, the company's current booking trends are being compared to booking trends for 2019 sailing and not the prior year. Now let's look at our monthly average cash burn rate. For the first half of 2021, our cash burn rate was $500 million per month, which was better than the previous forecast of $550 million. The improvement was mainly due to the timing of cash receipts from ship sales just before the end of the second quarter and some other small working capital changes. During the third quarter, we are forecasting positive cash flow from the 27 ships that will have guest cruise operations during the quarter. However, keep in mind that many of those ships do not begin operations until late in the quarter. As a result, the available lower birthdays or AOVDs as they are more commonly called for the third quarter will only be 3.8 million. However, As we have previously discussed, not all these ALBEs will be sold for our third quarter cruises. Despite the forecasted positive cash flow from guest cruise operations, we are anticipating an increase in the third quarter monthly cash burn rate versus the first half of 2021 because of several good news positive factors. First, Restart expenses are accelerating as we have announced 42 ships will be in guest cruise operations by November 30th, our fiscal year end. Second, capital expenditures will be higher driven by the restart. And third, we have a number of progress payments on future new builds, which are timed to be paid during the third quarter. All of these expenditures have been anticipated and given the announced restart, many of them are now occurring in the third quarter. Because of the difficulty in projecting the timing between the quarters of all the restart expenses and capital expenditures, as well as the exact amount of revenue associated with third quarter guest cruise operations as a result of the atypical short booking window, given that these cruises were now so close to departure, we will not be providing a forecast of the third quarter monthly average cash burn rate. For those of you who are trying to model our future results, don't forget that margins on these third quarter cruises will be less than our normal margins, given the lower level of occupancy that is anticipated during the third quarter. However, with $9.3 billion of cash and short-term investments on our balance sheet, we believe we have enough liquidity to get us back to full guest cruise operations in the spring of 2022. Next, I'll provide a summary of our second quarter cash flows. During the second quarter, our total cash burn was $1.5 billion. simply our monthly average cash burn rate of $500 million per month times three. And we used an additional $1 billion of cash primarily for debt principal payments. This was somewhat offset by a $300 million increase in customer deposits. During the second quarter, customer deposits on new bookings exceeded the impact of refunds driven partially by the receipt of payments from guests for cruises sailing in the current quarter. This is a welcome milestone and truly a sign that we are now solidly on the road to full resumption of guest cruise operations. Finally, I will finish up with some insights into our financial position. As I said before, we believe we have sufficient liquidity to get us back to full guest cruise operations. Therefore, we are focused on pursuing refinancing opportunities to extend maturities and reduce interest expense. During the second quarter, three European export credit agencies, SACE, Hermes, and Invera, provided approval in principle to Debt Holiday II for the deferral of approximately a billion dollars of principal payments that would have otherwise been due over a one-year period. These transactions should be completed during the third quarter. The deferred principal payments will instead be made over the five-year period following the completion of the transaction, extending the maturity profile of these loans. I want to thank everyone involved in these transactions for the support that they have demonstrated toward the company. In addition, last month we repriced our $2.8 billion term loan B. It was an incredibly successful transaction. It was well oversubscribed, which is unusual in the term loan B market. The U.S. dollar portion of the term loan B facility now has an interest rate of LIBOR plus a margin of 3%, which is 4.5 percentage points less than the LIBOR margin was before repricing. The Euro portion of the term loan facility now has an interest rate of URIBOR plus a margin of 3.75%, which is 3.75 percentage points less than the URIBOR margin was before repricing. This was the largest repricing change of a term loan ever achieved by any company in the Term Loan B market and will reduce our future annual interest expense by over $120 million per year. Clearly, this transaction is an affirmation from investors on our bright future and their confidence in our management team. As we look forward, given how supportive the debt capital market investors and commercial banks have been, we will be pursuing additional refinancing opportunities to meaningfully reduce our interest expense and extend our maturities over time. And now, I'll turn the call back over to Arnold.

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

Absolutely. We'll now begin the question and answer session. If you would like to register for a question, press the 1 followed by the 4 on your touch-tone phone. You'll hear a three-tone prompt to acknowledge your request. If your question has been answered and you'd like to withdraw your registration, press the 1 followed by the 3. Once again, ladies and gentlemen, press the 1 followed by the 4 now to register for a question. Thank you. Our first question comes from the line of Robin Farley with UBS. Please go ahead.

Great. Thanks. Good morning. I wanted to ask about your comment on pricing for 2022 cruises being ahead, excluding future cruise credits. It seems like if future cruise credits are about 15% of bookings and maybe only a 20% discount on average, that it would basically be kind of a low single-digit impact to your pricing. So I guess my question is, the checks that we do is showing very strong pricing for 22, and a lot of that's probably the bundling impacting that. But if you included that sort of 3% impact or so from future cruise credits, would pricing not be up versus 19 levels for 2022? And then sort of part B of that question is just given that, you know, you expect ships to be in service, all ships by the spring, you know, maybe potentially not all at 100% occupancy yet at that point. Does that give you the ability to have a little more price if the sort of lowest 10% of cabins on the ship don't get filled.

Thanks. Thank you, Robin. Good morning. I'll let David add some detail, but generally the pricing environment, as you point out, is strong in terms of the fleet returning. Yes, we're planning to have the fleet sailing before next summer, the full fleet. Of course, we have to see what evolves around the world. There's still pockets of and large pockets of still serious challenges with COVID-19. So we'll have to see how all that unfolds. But we expect to have the fleet sailing in full prior to next summer. And the pricing environment is strong. David?

Yes. So, Robin, when you think about 2022, as Arnold said, the environment is strong. But remember, we only have a portion of of 2022 on the books. So the FCC rebookings represent a meaningful part of the overall bookings for 2022. And as a result of that, you're seeing that in the short term, you mentioned 3%. The number is actually larger than that impact at the moment, given the number of bookings we have. The other thing to keep in mind is that there were a lot of rebookings into 2022 from 2021. As we did pause and cancel some cruises, we rebooked people at the same price in 2022. So the impact for the FCCs is a bit larger than what you had indicated. However, I will say, as we continue to book the remaining portions of 2022. Those FCC rebookings will become a smaller and smaller portion of the total. And I do expect that when all is said and done, the FCC impact will just be a few percentage points on the ultimate final yield for 2022.

No, that's very helpful. Thanks. And so understanding the timing of that, right, that the FCC portion will kind of move down as more new bookings are taken, is it reasonable to think that you're pricing when – because right now what you have on the books you mentioned is the rebooked, a lot of rebooked and a lot of FCC. As those portions move down as a percent of total – Is it reasonable based on the strength that you're seeing in new bookings coming in that price will be ahead of 2019 levels next year?

So, you know, we're not really – it's early days, and we're not in a position to give guidance. But as Arnold said, you know, the pricing environment is very strong. Our brands have done a lot to raise price over time. There's a lot of pent-up demand out there. And we feel very good about our overall position. Booking volumes, as we said, have been increasing. And so all the signs point in the right direction. But I do think it's premature for me to give guidance at this point.

Okay. No, great. Understood. Thank you all. I'll hop back in the queue for my other questions.

Thanks. Thanks, Robin. Thank you, Ms. Farley. And up next, we have a question from the line of Steve Wachinski with Stifel. Please go ahead, sir.

Hey, guys. Good morning. So first question would actually be a clarification. And I guess I think I – well, I feel like I'm hearing you guys a little bit two different ways. And what I mean by that is when you guys talk about getting your full fleet back in operation by the spring of 22, does that mean the actual number of ships in operation, or does that mean – all of your ships are going to be operating at normal capacity levels. I think there's some confusion out there with a lot of investors that we are talking to.

Okay, thanks for the question. First of all, definitely we hope to have all of our ships in and are planning for that. But we also are optimistic that we can be at capacity at that point in time. But we've got many months to go here to see. But we're hopeful that we'll be sailing, you know, at that capacity, um, over the full fleet.

Okay. Gotcha. Second question.

Steve, if I could add one thing, I will point out the fact that, you know, um, we have a number of voyages, uh, different cruises out there and, and keep in mind that the voyages that we have that are for vaccinated guests, there are no, uh, social distancing requirements, uh, or capacity requirements on those voyages. So just keep that in mind as you kind of round out and project the future.

Okay, gotcha. Thanks, David, for that. And then second question, I guess, you know, just maybe if you can give us an update on where you guys are with the state of Florida and the governor at this point. Obviously, I think there's, you know, a little bit of confusion out there as well in terms of, you know, the way he wants kind of the state to work versus, you know, you guys wanting, you know, most of your passengers and crew to be vaccinated and Can you just kind of give us an update in terms of where you guys are at this point?

Sure. First of all, we're really looking forward to welcoming our guests on board. We, as you know, have had a few sailings over in Europe during this pandemic, but it's really exciting for us and our people to be looking across, not only here in Florida, but we have The Vista starting on July 3rd in Galveston. The Breeze on July 15th in Galveston. Carnival Miracle on July 27th in Seattle. Mardi Gras will start selling along with Horizon. Horizon starting on the 4th, Mardi Gras on July 31st in Florida. And then all of our other brands around the world. So it's just a really busy time and an intense time and an exciting time. And, of course, there's a lot of noise. You know, there's lots of different jurisdictions and different perspectives on how things should go. So where we are is that, you know, we're looking forward to welcoming our guests on board. We'll continue to be in dialogue with the governor's office. We continue to be in dialogue with the CDC. You know, as you know, there's the court ruling that affected the conditional sale order. And that's through, still in place, the conditional sale order from CDC through July 18th. And at this point, we were prepared to sail under that order with primarily vaccinated cruises. There will be unvaccinated people on those cruises, not 100% vaccinated. And so we're very optimistic and working very hard to ensure that we can try to make everyone happy but we are welcoming our guests on board Horizon July 4th in Florida.

Okay, gotcha. David, can I ask you one quick housekeeping question? I guess you talked about, I think you said you were expecting 3.8 million ALBDs in the third quarter. And based on what you guys have announced today, I'm not sure you're going to answer this, but is there any way to help us think about maybe what the fourth quarter would look like as well?

Yeah, I don't have that calculation handy with me, Steve, but if you call Beth, I'm sure she can provide it to you.

Okay, great. Thanks, guys. Appreciate it. Thank you.

Thank you for your question. And up next, we have a question from the line of James Hardiman with Wedbush Security. Please go ahead, sir.

Hey, good morning. Thanks for taking my call. So, David, you sort of opened the door. Good morning. This idea that obviously the voyages that have 95% plus vaccinated, you don't have the social distancing requirement or the capacity requirements. But if you don't have that, you do. Can you maybe walk us through, at least based on what you currently know, obviously the fluid situation, what you expect your mix of both of those categories to be? and how we should think about the occupancy ramp within ships that do not meet that vaccination hurdle.

So it's very difficult to give you, you know, an exact mix of what we expect going forward because, you know, this gets into the evolution of COVID and the mitigation process. You know, we're very clear and we're out there with all the cruises. We've recently announced what each ship will be and how it will work. But as we go along, we do expect things to continue to evolve and change. And everything's been evolving in a very positive way, and we're hopeful that that continues. And so that should put us in a better situation in the days and weeks and months ahead. So because it is difficult to project, you know, it's very hard for me to answer that question with great detail. But my expectation is that we will be able to have higher and higher occupancy levels over time. And, you know, there are a lot of projections out there that talk about potentially 70% of the globe getting vaccinated, you know, by some point in early 2022 if If that's the case, then a lot of these protocols potentially can start to be removed. And we'll just have to see how things progress over time. As Arnold mentioned in his prepared remarks, agility has been one of the greatest things that have gotten us to this point, and we are going to have to remain agile to try to react to the circumstances moving forward.

I think I just would like to reinforce what David is saying, is that things are moving in a positive direction. It's probably going to be a little choppy around the world. We're a global business, and it's probably going to be a little choppy. So we've said for quite some time the rest of 21, early 22, will be a transition period. But we're on the path to getting to a great place the world is. with the vaccines, the various vaccines, the advancements and treatments, et cetera. But it could be choppy. But by 22 and beyond, hopefully, with the advancements in science, we'll be in a position to be able to sail, as one of the people asked, you know, full occupancy and full fleet.

That's really helpful. And then another question. I did. It's similarly difficult to quantify with any specificity, but if I think about spring of 2022 being some return to normality, I think one of the most difficult issues in terms of valuing your company and other accrued companies is just sort of figuring out what the balance sheet looks like at that point. So I guess are we any closer to figuring out when we'll get back to maybe a cash flow break-even number? I get that there's going to be some incremental restart costs here in the near term, but is there any call you can give us, any way to think about cash flow break-even or sort of an interest expense number once we're on the other side of this?

Yeah, so the difficult part, remember so many variables that we just talked about. But if we do get back in the spring of 2022, we have the full fleet back in operation, we're able to get to more normal type occupancy levels, then we should be, have significant positive EBITDA uh, particularly in the summer months of, uh, 2022. And, and we'll move forward from there. Um, so I feel like we're in, it's very hard to project from where we are today with five ships in operation to 95 ships in operation next spring. We have 90 ships in our fleet today, but remember we have, uh, five more, uh, new builds coming. That'll be back in service. So we'll have 95 ships in operation next spring. And we do expect at some point during that process to get into a positive EBITDA. But with the seasonality of our business and a lot of the other restart expenses that we mentioned, it's difficult to project the exact month where EBITDA goes positive or cash flow goes positive. But we're very hopeful. The spring isn't very far away, and we're looking forward to – to that. And keep in mind that, you know, if you look at our historical results, everybody has always seen that the third quarter is our strongest quarter. If you actually add in the month of May, the four months, May through August, represent just a third of the calendar year, but it represents two-thirds of our EBITDA, or our operating profits. So we are focused on getting the full fleet back in service by next spring in order to capture a great summer of 2022.

Got it. I think that makes sense. And just to clarify, we should not be then, based on everything you just said, assuming that you get to that break-even level significantly before that spring of next year. It's tough to say at this point.

Well, I wouldn't say – I'm not giving guidance because it's tough to say because of so many other factors with restart expenses and everything else involved. It is tough to say.

Okay. Fair enough. Thanks, guys. Thank you.

Thank you for your question. Just as a note to all the audience on hand, remember if your question has been answered, press the 1 followed by the 3 button. Up next, we have a question from the line of Jamie Katz with Morningstar. Please go ahead.

Hi, good morning. I actually want to take a short version of James' question. We have some visibility into what capital markets look like right now, and you have been able to refinance some of this debt. And so as we think about the full year, is there a way that we should think about debt service costs if you are able to make the changes that you would like to make.

So I do apologize, but you broke up for me about halfway through the question. So I do apologize if you could repeat it. I'm not sure why.

Sure. No problem. I said, you know, since we know what debt capital markets look like right now and the ability to refinance has been, you know, fairly easy, I guess. Is there a way that we should be thinking about debt service costs for the current year, given that you probably have some intended plans for refinancing over the last six months of 2021?

So if you're talking about interest expense, the interest expense, our current forecast is $1.6 billion. for 2021. Last quarter, I think I had said $1.7 billion. So we do expect a decrease as a result of our refinancing efforts. And I think if you look at the principal repayments in the business update, we did give the principal repayments. But keep in mind, that those principal repayments were prior to what we expect to close in the third quarter, which is the billion dollar debt deferral with the Dead Holiday II. So those numbers will come down as well.

Right. And then I know the U.S. is really leading the way out of the COVID period. But if you have any color on European or Asia Pacific demand, I would love to hear that at this time. Thanks.

Yeah, so just in general in terms of the environment, obviously the U.S. is ahead of many places, although there are pockets in Europe that have done well as well with vaccines. And, again, we encourage everyone to get a vaccination is the best way to keep yourself safe and your loved ones safe. And so in that regard, you know, there is more movement here in the U.S. from an environment standpoint collectively, although there are good pockets up in Europe and elsewhere. I'll talk about Asia and Australia, and then I'll let David comment on the general booking situation abroad. But Asia and Australia, in particular China and Australia, are still pretty much on lockdown when it comes to travel. And so we continue to be in constant dialogue with the appropriate players there. And, you know, eventually it will open up and we'll be ready to go when it does. Dave, you wanted to give some comments on the booking?

Yeah, so I guess the best way to phrase it, you know, we said that, The 2022 book position was ahead of a very strong 2019, and that's actually the case both for our NAA brands as well as our EA brands. So, you know, we are, as Arnold indicated, we are seeing good, strong bookings on both sides of the pond as things continue to rebound.

Thank you. Thank you.

Thank you for your question. Up next, we have a question from the line of Patrick Scholes with Truist. Go ahead.

All right. Good morning, everyone. Good morning, Patrick. Good morning. For the salines in 3Q and 4Q, can you give us an update on that? limitations on occupancy and or what occupancy you are targeting for those ships? Thank you.

Sure. So broadly right now, as David mentioned earlier, for those sailings that are under one part of the additional order for primarily vaccinated people, the way things are today, they're aren't any restrictions. There's no physical distancing, etc. And so we are slowly ramping up our occupancy on sailings of that type to, first of all, give our crew a chance to get oriented because we are still having enhanced protocols on board from a crew management standpoint and other things. And so You know, those cruises at that point in time can get pretty close to full occupancy by that point in time. To the extent we have cruises, and we do have some outside the U.S. and other places that are under a separate set of protocols because they have a lot of unvaccinated people on board. then there, you know, some of their occupancies are going to be limited by the physical distancing requirements as long as they persist. And, again, that can all change and evolve as community spread lessens and herd immunity increases. And so it's a hodgepodge. And at this point, as David already kind of referenced, it's hard to predict exactly, you know, where we're going to be. on those because we have to look at the specific itineraries, the destination requirements, the home port requirements, and what the environment is at the time. Now, we're all pretty optimistic right now, and hopefully that trend will continue. So directionally, we think we'll be moving more to higher and higher occupancy and therefore occupancy, but we're not forecasting at this point. David?

Okay. You know, I think that was well said, Arnold.

Okay, just I guess to think of a starting point for the limited capacity that did go out last quarter, what was the occupancy on that?

So it was very limited. There were like 440,000 ALBDs. There was one ship that started in March, and then there were four other ships that started in May. The occupancy started, they improved as the quarter went on. And we were seeing ships that were, you know, at 50% or above by the end of the quarter. But you do have to understand the background because I'll give you a great example. One of the ships for AIDA was sailing in the Canary Islands. And so the Germans that went on the ship, because of the restricted travel requirements in Germany, the people had to quarantine when they came home. But then once the quarantine and the travel restrictions started to reduce, you know, you started to see better and better occupancies and better and better cash flows on the ship. So while we did invest early on, we did see positive cash flows on the ships later in the quarter. So we were very pleased with the overall experience.

Yeah, and we proactively managed on the occupancies early on because, again, we had at that case, you know, we had extensive protocols, universal testing, enhanced medical screen, physical distancing, mask wearing, enhanced sanitation, enhanced air handling. So it was a whole lot of different protocols. And so initially on those we really were pretty stringent and, you know, really tap down the occupancy on ourselves.

We're expecting to see better occupancies as time goes on for all the reasons that we talked about.

Sure. Great. Thank you. That makes sense. And certainly good luck for Sir Lane Florida coming up. So thank you.

Thank you.

Thank you for your question. And up next, we have a question from the line of James Ainley with Citi. Please go ahead.

Yeah. Good morning, everybody. Thanks for taking my question. Good morning. Morning. I'm interested in just digging into your ESG commitments a bit more, the kind of 40% reduction in carbon emissions by 2030. Can you just flesh out a bit more about the tools and mechanisms you need to get there and And can you help us with what the potential cost implications might be? And I'm thinking maybe you might need to buy carbon credits and things like that. So any color on that would be very helpful.

Sure. We've been on a concerted march on reduction of carbon emissions for some time. And we've already effected a 30% reduction since our baseline of 2006. And we achieved that a number of different ways. from more basic things like, you know, just really being rigorous and tuning our engines and carefully planning itineraries and so on to, you know, much more investment required, you know, oriented ways of lighting schemes and technologies and handling waste and density on the ships. And then, of course, we made a hard commitment early before there was even infrastructure in place on liquefied natural gas. So we were the first with an LNG ship with our IEDA brand. We did that. Frankly, we made the commitment to do that. We weren't even sure how we were going to fuel the ship. But we had time during the construction phase and whatnot to work out a deal with Shell. And now we've got infrastructure in place. And as I said, we have 11 ships in total now. either sailing or under construction. As you know, LNG is the cleanest burning fossil fuel. It also gives us a 20% smaller footprint from a carbon emission standpoint. And so those are the ways we have gotten there and plan to get there. But ultimately, our goal is a net zero emission platform over time. And to do that, we're going to have to have science and technology work with us in the form of better combinations of lithium ion battery technology, fuel cell technology, biofuels, et cetera. But we are on a hard march, and we have a line of sight for the 40% reduction. We're going to need some technology advancements to get to the net zero. I hope I answered your question.

Yeah, thanks. So the LNG ships, on their own, how much of that 40% reduction will come from them on their own?

Well, as I said, we're already at 30. So as we move forward, we'll continue with new ships inherently are more efficient because everything is engineered from day one to be that way. But the LNG ship will represent, once we get to the 11th one, about 20% of our fleet. So it will be a significant contributor to us being able to achieve and hopefully beat the 40% target.

Okay, great. Thank you.

Thank you.

Thank you once again. And we now have a question from the line of Greg Badashikanyan from Wolf Research. Please go ahead.

Hey, guys, it's actually Fred Whiteman on for Greg. As we think about the possibility that the full fleet is back in the water next summer, David touched on some of the seasonality considerations, just looking at the third quarter specifically. Should we expect some yield headwinds just from reduced access to international travel, or do you think that we could be in a more normalized sourcing and deployment mix by then?

Again, we're not trying to give any guidance or anything at this point. But what I would say is that we've exited 19 ships, or will. And so, as I said in the remarks earlier, that's a significant reduction in capacity. Now, we are adding new ships, which we're very excited about. And therefore, we'll get to capacity comparable to what we had in 2019 eventually. But the reality is that we're at a much lower growth rate as an industry and as a company than we were before with a lot of pent-up demand. Keep in mind by next spring, a lot of repeat cruisers still may not have had the opportunity to cruise again. and we have a huge base of repeat cruisers across our various brands. And so there will still be a considerable pent-up demand that has been largely unsatisfied at that point in time, and that's the environment that we're anticipating we'll be operating in. But we aren't going so far as to try to predict beyond. David, I don't know if you wanted to add any comments.

Yeah, no, the only other thing that I'll add is on travel restrictions, you know, travel restrictions are being reduced and changed every day. So, you know, the summer of 2022, I mean, we're talking, you know, 11 months away, 11, 12 months away. So there's a lot of opportunity as things continue to evolve and improve. to see, you know, many if not most or all of those restrictions disappear before the summer of 2022. I know I've booked my cruise in the summer of 2022. I expect to go to Turkey, Greece, and Italy, and I'm really looking forward to it and looking forward to reduced travel restrictions.

And David definitely gets the... friends and family premium. Exactly. No big price for David.

Good.

Sorry to hear that for you, David.

Thank you. And up next, we have a question from the line of Ali Nakvi with HSBC. Please go ahead.

Hi. Thank you for taking the question. I just wanted to ask, in terms of your views on leverage longer term, would you look to deploy equity to maybe increase the pace to get to investment grade?

Real quickly, look, we have good liquidity in place now, we feel, to get us back to full sailing of the fleet. Cash generation is the way, and cash maximization is. is the way we're going to accelerate repayment of debt. We're going to do some refinancings to lower the interest burden along the way. But basically, that's the path we're on right now.

Understood. And do you have a view as to what happens to pricing when the sort of pent-up demand for cruising normalizes? Does that happen in 2023 or beyond that?

I think for our plans, as I said on the call, we were on a, a growth trend of 4.5% pre-COVID through 2025 with the moves we've taken and the new bills we already have coming in. We'll bet a growth rate annualized of 2.5%. So that's a much lower growth rate. And I think that, again, continued pent-up demand. People have spent a lot of time in isolation and lockdown, people really want to experience things. I think that's going to last a while. And so we're, you know, obviously it's hard to predict the future, but we're logically optimistic that it will be a good environment for some years coming here.

And this is Barakat.

So operator, given the time, we'll take one more question.

Thank you, sir. Ann. The final question, therefore, comes from the line of Sharon Zaxia with William Blair. Please go ahead.

Hi. I'm convinced you guys go in alphabetical order, so next time we could reverse and do the Zs first. But I guess I just wanted to clarify something, David. The CapEx for the year, are you raising the expectation, or is it just weighted to the second half of the year in timing?

Oh, it's... weighted to the second half of the year timing. We have, because as part of during the pause, we delayed a lot of dry docks. We have quite a few ships going into dry dock in the second half of 2021. And so you will see capital associated with those ships. And so that the timing is weighted towards the second half.

Perfect. And then one other question. This may be hard to ascertain just given the bundling aspect of what's being offered, but what is the appetite or what are you seeing in pre-booking for onboard spending?

So the trends, you know, when you try to dissect them, you know, we're seeing similar trends to what we have seen historically on the onboard spend side. But it is, as you say, it's very, very difficult because, and I'm talking about people who are not booking the bundled packages. When you talk to the various brands around the globe, they are still pushing, as they always have, other onboard packages and things associated with the cruise and no significant changes in that front.

Okay, thank you.

Okay, thank you, everyone. Really appreciate your time. It's a great feeling to have an expanded opportunity to welcome guests on board here in the coming months, and we're very excited about it. But thank you very much. Thank you, operator.

Thank you. And that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Thank you once again. Have a great day, everyone.