Carnival Corporation

Greetings and welcome to the Carnival Corporation and PLC's conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Beth Roberts, Senior Vice President, Investor Relations. Thank you, Beth. You may begin.

Thank you. Good morning and welcome to our first quarter 2025 earnings conference call. I'm joined today by our CEO, Josh Weinstein, our Chief Financial Officer, David Bernstein, and our Chair, Mickey Arison. Before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to the forward-looking statement in today's press release. All references to ticket prices, yields, and cruise costs without fuel will be in constant currency unless otherwise stated. References to yields will be on a net basis. References to cruise costs without fuel, EBITDA, net income, and ROIC will be on an adjusted basis unless otherwise stated. All of these references are non-GAAP financial measures defined in our earnings press release. A reconciliation to the most directly comparable U.S. GAAP financial measures and other associated disclosures are also contained in our earnings press release and in our investor presentation. please visit our corporate website where our earnings press release and investor presentation can be found. With that, I'd like to turn the call over to Josh.

Thanks, Beth. Once again, we delivered a fantastic quarter, this time hitting first quarter high watermarks for revenue, EBITDA, EBITDA per ALBD, operating income, and customer deposits. Net income came in more than $170 million better than guidance as we outperformed across the board, led by incredibly strong demand throughout our portfolio. We achieved a robust 7.3% yield increase, smashing our yield guidance on top of last year's 17% yield improvement. Both ticket and on board equally outperformed on very strong close-in demand, which speaks to the strength of our consumer. Unit costs also came in better than expected, mainly due to timing between the quarters. This resulted in a near doubling of operating income for the quarter and EBITDA that reached $1.2 billion, approaching a 40% year-over-year increase. Operating margins and EBITDA margins each improved over 400 basis points year-over-year, with both of these now surpassing 2019 levels. For the full year, and despite heightened macroeconomic and geopolitical volatility since providing our December guidance, we are taking up yields by half a point to 4.7% based on our strong first quarter results while affirming yield expectations for the remainder of the year. In addition, David and our finance team stepped up our refinancing efforts, which will bring another approximately $100 million to the bottom line this year alone. Combined, this successful execution has enabled us to take up our earnings guidance for the year by $185 million. 2025 remains on track to be another very strong year for our brands, with yield growth far outpacing historical growth rates and nicely exceeding unit cost growth, delivering approximately $600 million incrementally to the bottom line, more than a 30% improvement from 2024. And that is essentially on flat capacity growth. Achieving our March guidance will also result in reaching both of our 2026 sea change financial targets one year early, with ROIC hitting 12% and EBITDA per ALBD more than 50% higher than just two years ago, taking each of these two metrics to levels not seen in the better part of 20 years. At the same time, we're also closing in on our 2026 greenhouse gas target, with an over 19% reduction in carbon intensity compared to 2019. We're generating demand well in excess of our very limited inventory remaining, which has been driving strong pricing for the remainder of the year while also building demand for future years. In fact, we're at historical high prices across all core programs for 2025 and all quarters of the year, while booking volumes for 2026 sailings and beyond taken during the first quarter, also reached an all-time high. We were very well positioned going into Wave this year, and we exited with over 80% of the year on the books at higher prices and with a booking curve that is still the farthest out on record. We have no plans to let up anytime soon. As we foreshadowed on the last call, we kicked off new marketing campaigns across all major brands during Wave season, to fuel more broad-based consideration for cruise travel and keep the strong momentum going. Costa kicked up the volume at the San Remo Music Festival, among Italy's most renowned music events, which was watched by over two-thirds of Italy's television audience, featuring a live performance onboard Costa Toscana. Carnival Cruise Line was also a standout at the Oscars, selected along with a few other household names, for a themed promo honoring stunt performers and featuring a daring skydive into a pool onboard Carnival Celebration. Of course, Carnival Cruise Line has clearly amped up the volume around Celebration Key, which was showcased while lighting the iconic New Year's Eve ball drop in Times Square and continued through the Super Bowl in New Orleans, featuring our celebrity chef partners Emeril Lagasse and Guy Fieri, as well as brand ambassador, Shaquille O'Neal. These two events alone captured over 5 billion impressions across paid, earned, and owned media. And Carnival's adorable wave campaign, Flip, Lost in Paradise, was a hit, getting huge cut through with marketing KPIs up across the board. If our marketing team managed to get that kind of traction around what is still computer-generated animation, I look forward to four months from now when all five portals built for fun at Celebration Key are open for our guests and can be showcased. We're on track for our July opening and executing our ramp up plan into the fourth quarter as our team settles into these new operations and focuses on delivering the kind of phenomenal experience our guests have come to expect from our exclusive destinations. Relax Away Half Moon Key is also on schedule for the second half of 2026. We've already begun to increase our marketing around this enhanced and rebranded jewel in the Caribbean. And we'll have more to come on our plans to increase awareness and consideration for our brands as we leverage our underexposed portfolio of Caribbean destinations. Turning to Alaska, We just announced an expansion and renovation project to Denali Lodge, one of our nine owned and operated hotel properties, building on this unmatched strategic advantage for Holland America and Princess Cruises. Enhancements will include the addition of 120 new guest rooms and suites, room remodelings, additional food and beverage venues, and improvements to public spaces and nature trails. Our brand's land-sea packages are a huge draw for new-to-cruise guests and truly the best way to experience the greatness of Alaska. We also just completed the first of seven AIDA ships to undergo our AIDA Evolution Program. AIDA Diva is now sailing from Rome, having just returned from a seven-week dry dock with many added features that our German guests have come to love on AIDA's newer vessels. This includes over half a dozen new bar and dining venues, new suites, and equipment upgrades to enhance fuel efficiency. Aida Luna will start her evolution later this year, followed by Aida Bella and Aida Mar in 2026. We also further progressed on optimizing our portfolio. Just this month, we completed the sunsetting of our P&O Cruises Australia brand by folding its two remaining ships into Carnival Cruise Line. We also consolidated our Seabourn fleet with a sale of Seabourn Sojourn. While we were not actively looking to sell the ship, the offer was in the best interest of our shareholders. The sale leaves Seabourn well positioned with a phenomenal fleet of three ultra-luxury ocean vessels and two recently launched ultra luxury expedition ships, which comprises one of the most modern fleets in the industry at an average age of just over seven years. Now turning back to the business, and as you can see from our first quarter outperformance, onboard spending and booking levels, we have proven to be incredibly resilient to the volatility around the globe. Having said that, Even with our resilience and strong visibility, given that so much of 2025 is already on the books, we aren't taking the current backdrop lightly. We will be working hard to achieve these results. Thankfully, our team is nimble and agile. Characteristics, as you know, we honed so well over the first half of this decade, leaving us better positioned to manage through whatever comes our way. We have strong, well-recognized brands that are number one or two in every major market for cruise, often tailored specifically to phenomenal national markets such as the US, Germany, and the UK, markets that are deep and under-penetrated. We are delivering amazing vacation experiences every day in a time when people all over the world are placing increasing importance on experiences, particularly those spent with friends and family. And on top of that, we are still a ridiculously amazing value compared to land-based alternatives. While we have been chipping away at the price gap to land-based alternatives, the price to experience ratio of cruising versus those other options remains massively disproportionate. While somewhat frustrating, and while still a big opportunity over the coming years, this huge value for money is also truly a strength when people are looking to make their vacation dollars go even further. And it's about to get even better with the opening of Celebration Key, our marquee port in the Caribbean, which will give our guests yet another reason to come cruise with us. We have been making huge strides on rebuilding our financial fortress as we close in on investment grade leverage metrics. We have well managed near term maturity towers and no new ships for delivery in 2026, which gives us a good amount of headroom to continue paying down debt. In fact, we have just three ships on order over the next four years. further supporting our ability to reach investment grade leverage metrics within 2026. Simply put, we are well positioned for the future and are pushing forward with intention. I'll end by saying thanks to our travel agent partners, loyal guests, investors, destination partners, and other stakeholders who have contributed greatly to our results. And of course, A special thank you to each of our team members for driving out performance once again. But most important for our long-term success, thank you to each and every team member for delivering unforgettable happiness to our guests by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sail, place we visit, and life we touch. With that, I'll turn the call over to David.

Thank you, Josh. I'll start today with a summary of our 2025 first quarter results. Next, I will provide some color on our improved full-year March guidance. Then I'll finish up with an update of our refinancing and deleveraging efforts. Turning to the summary of our first quarter results. Net income exceeded December guidance by more than $170 million as we outperformed once again. The outperformance was essentially driven by three things. First, favorability and revenue worth $98 million as yields came in up over 7% compared to the prior year. This was 2.7 points better than December guidance driven by both close-in strength in ticket prices and strong onboard spending. Second, cruise costs without fuel per Available Lower Birthday, or ALBD, were only up 1% compared to the prior year. This was 2.4 points better than December guidance and was worth $65 million. The favorability and cost was mainly due to the timing of expenses between the quarters. We did find some permanent savings, which flowed through to the full year, which I will touch on later in my remarks. And third, favorability and interest expense of $13 million was driven by our refinancing efforts during the quarter. Yield improvement in the first quarter versus the prior year was driven by improvements on both sides of the Atlantic from higher ticket prices and improved onboard spending. The improvement in ticket prices was broad-based across all core programs. The improvement in onboard spending, which accelerated from last quarter, was also broad-based as all categories of spending were meaningfully higher. Continuing the trend from last year, our European brands continue to help perform year-over-year on both price and occupancy. Customer deposits at the end of the first quarter were up over $300 million versus the prior year, driven by both improved ticket prices and increased pre-cruise onboard sales. Next, I will provide some color on our improved full-year March guidance. March guidance net income of approximately $2.5 billion is a $185 million improvement over December guidance. The improvement was essentially driven by two things. Our first quarter favorability and yield flowed through to the full year, improving our full year yield guidance by half a point to 4.7% versus the prior year. And our refinancing efforts during the quarter allowed us to lower our full-year interest expense guidance by $100 million. I did want to point out that absolute cruise costs excluding fuel are expected to be slightly less than December guidance. As I previously indicated, we did find some permanent savings during the first quarter, which flowed through to the full year. However, those savings were partially offset by higher dry dock costs because of a couple of unplanned dry docks and charter hire costs associated with the sale of one of our vessels during the month of March. While charter hire costs increase cruise costs, they are offset by lower depreciation expense. With absolute cruise costs slightly better, the change in cruise costs without fuel per ALBD is 3.8% for March guidance. which is simply the math of spreading lower cruise costs over the revised AOBDs, which changed from December guidance because of a couple of unplanned dry docks in 2025. All of this results in $6.7 billion of EBITDA, a nearly 10% improvement over 2024, virtually all of which was driven by same-store revenue growth as our capacity is essentially flat year over year. Now I'll finish up with an update of our refinancing and deleveraging efforts. During the quarter, we refinanced $5.5 billion of debt, which is 20% of our total debt, with three very successful transactions. These transactions included our highest coupon debt instruments and delivered an incremental $145 million in annualized interest expense savings. We have been opportunistically reducing interest expense while simplifying our capital structure and managing our future debt maturities. Today, our average cash interest rate is down significantly at just 4.6%. Over the last 12 months, we reduced our secured and senior priority guaranteed debt by approximately $4 billion with more reductions to come. Our near-term maturity towers are well managed with just $1.1 billion of debt maturities for the remainder of 2025 and $2.7 billion for the full year 2026. During the first quarter, we reduced debt by another half a billion dollars, ending the quarter with $27 billion of total debt. With the benefit of well-managed near-term maturity towers and improved leverage metrics, over the remainder of this year and through 2026, we expect to opportunistically execute the rest of our current refinancing plan, prepaying debt, further simplifying our capital structure, optimizing our future debt maturities, and further reducing our interest expense. For the two-year period of 2025 and 2026, this refinancing plan, combined with our strong and growing cash flow and just one new bill being delivered over this time, has the potential to reduce debt by nearly $5 billion from where we ended 2024. And let's not forget that we ended 2024 over $8 billion off the January 2023 peak. Looking forward, we expect our leverage metrics to continue to improve as our EBITDA continues to grow and our debt levels continue to shrink, increasing our confidence in achieving investment grade leverage metrics in the short term as we move further down the road, rebuilding our financial fortress, while continuing the process of transferring value from debt holders back to shareholders. Now, operator, let's open the call for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask that you limit yourselves to one question and one follow-up. Thank you. Our first question comes from the line of Ben Chaikin with Mizuho Securities. Please proceed with your question.

Hey, good morning. Thanks for taking our questions and for all the helpful commentary. I think it would be great if you could provide some more color on maybe how we're trending since the 4Q period. Anything notable regarding changes to the consumer demand trends? I know that you noted not being immune from the macro, which I guess shouldn't be a surprise, but just maybe some more color on what exactly that means. And then one quick follow-up. Thanks.

Good morning. Good morning, Ben. Thank you for acknowledging we do live on planet Earth. So, you know, look, Wave was a success, right? I mean, we set a record for bookings for further out years. We came into Wave at historic occupancy and price. We used that to our advantage. We took price, and we're well set up for the rest of the year. Hence, not only did we, you know, pretty much smash Q1 on the yields, but we maintained yield guidance for the rest of the year over 4%. So I think we feel real good about how we've been tackling things and our brands are doing a good job.

Got it. That's very helpful. And then just to clarify maybe some of David's comments. You know, you beat the 1Q, you smashed the 1Q, to your point, by $165 million, raised the guide, at least from what we can tell, by around $100. Our take from your comments is that the net yield outlook for quarters two through four is the same. I think costs were actually slightly lower, per David's comments, but the net cruise cost higher because of lower ALBDs from the dry docks. I guess, what was the ALBD impact, if I got that right? And then I hate to be overly granular, but does the $165 beat in one queue versus the $100 million flow through driven entirely by the lower LBD dry dock dynamic? Or is there anything else that you would flag? Thanks a lot.

So the flow, first of all, the flow through to the year was a combination of two things. It was the yield that flowed through from the first quarter, which was a $98 million, as well as $100 million of interest expense. And the total improvement for the year, I think, was $183 million. Yep.

I guess I was referring to EBITDA. Sorry, the 165.

Yeah, so the EBITDA is just basically the net income less the interest.

Yeah, I mean, Ben, the short answer is the yield flowed through for the year. The cost was mostly timing, which is why you don't see the full amount from Q1 going into the full year. We did reduce our absolute cost in a couple of ways, you know, a few tens of millions of dollars. but because of the reduction in ALBDs because of the extra dry docks, it basically covers it up.

Okay, got it. That's very helpful. Thanks for clarifying.

Sure. Thank you.

Thank you. Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.

Great. Thanks very much. Obviously, a lot of concern among investors because of some airline commentary and last night a hotel data point. So, you know, great news, too. to raise guidance, you know, mostly by the Q1B when we look at the yield. And just given how you talked about the close-in being strong and onboard being strong, does that suggest that you're not raising the next three-quarters yield because, you know, you want to be cautious, obviously, given the environment, but there would be that potential if your expectations for the close-in were and onboard are still what they were three months ago, that there's, you know, potential upside to that guide? Is that the way to think about the rest of the year?

Yeah, look, I mean, the strength of Q1 was pretty fantastic, and that was driven by both the close-in demand on the ticket and just tremendous onboard spending. We're talking about, you know, 10% growth year over year for the first quarter, which is actually an acceleration, of onboard spend trends versus year-over-year growth from the fourth quarter. And frankly, the onboard spend that we've seen in the first couple of weeks of March hasn't slowed down. So we do feel good about the strength of our consumer. I mean, clearly, I just want to, you know, recognize that there's just a lot of volatility in the backdrop. And with news cycles comes volatility. We feel good about our guidance. We feel good about our ability to deliver it. We always want to outperform. Brands work on that day in and day out. Certainly don't promise anything other than we're going to do our best.

Great. Thank you. And then maybe just as a quick follow-up. Just if there's a way to maybe quantify with the expense, obviously you said some of it was because of the ALBD. Is there a way to think about either the dollar amount of sort of ongoing structural net cruise cost expense reduction and also excluding from that the higher charter costs from the seaborne ship, right, because that's just sort of shifting from sort of temporarily, not really structural costs. So how should we think about additional dollar amounts of structural costs, excluding that and excluding, you know, if we think of the aggregate dollar amount, then the ALBDs in the denominator won't matter. Thanks.

Yeah, so the 65 million of cost in the first quarter, we said most of it was timing, but probably about a third of it was permanent cost savings. And we're always looking for ongoing cost savings. We do have the lowest, the best cost structure in the industry, but we don't stop there. We keep on finding ways to improve over time. And we'll do that this year and next year and beyond.

Okay, great. That was totally clear. Thank you. Thanks.

You're welcome.

Thank you. Our next question comes from the line of Steve Wisinski with Stifel. Please proceed with your question.

Hey, guys. Good morning. And congrats on the first quarter. So, Josh, I want to ask, you know, about bookings that you're taking in right now for 2026. And I know it's still a little bit early on, but just wondering if you're seeing any, you know, what we would call kind of material differences in bookings for 2026 by, you You know, or maybe if you're seeing customers, you know, book, but maybe they're not pre-booking on board as much or they're taking lower cabin categories. I mean, just trying to make sure there isn't anything you're seeing right now, you know, as we look further out that would be concerning to you guys.

Yeah, of course. Thanks, Steve. Thanks for the compliment. No, I mean, I guess the short answer is no. There's nothing that I'd say on a brand-by-brand basis was raised, anything of interest to talk about. And, you know, I love the fact that we can say that, you know, we can walk and chew gum at the same time and finish out 25 and still, you know, ground ourselves with a good foundation for 26. And I think with a, you know, record book position at higher prices, that's exactly what the teams are doing.

Okay, gotcha. Makes sense. Sounds good. And then the second question, it's going to be kind of somewhat the same question that Robin asked. I just want to ask it a little bit differently. But, you know, you beat the first quarter by – I think it was 270 basis points on the yield side of things. So, you know, I guess as we think about the, and we can see your second quarter guidance now. So if we think about the back half of the year, if, you know, if the consumer stays status quo, there's no change in onboard close in remains strong. I'm guessing there's probably upside to your back half guidance. I'm just trying to ask that question maybe a little bit differently.

Just to be clear, just to be clear, if our onboarding remains real strong and our closing demand remains real strong, then, yeah, I think you're right.

Okay. That's all I needed to hear. Thank you very much.

Thanks, Steve. Thank you. Our next question comes from the line of Brandt Montour with Barclays. Please proceed with your questions.

Good morning, everybody. Thanks for taking my question, and I'll echo the congratulations on the first quarter and raising the four-year guide. My question is a permutation of something you may have already gotten. I hope not. But, you know, Josh, you guys see a lot of different consumers, and you see a lot of different areas of the world and how, you know, the behavior that those consumers can evolve with the current macro backdrop we're in. I'm curious if you're seeing any sort of relative differences between onboard and consumer booking behavior between Europe and America, as well as between drive-to and fly-to.

Got it. So, morning, Brent. So, you know, we've been talking for a long time about the strength of the portfolio and the portfolio approach that we have. And, you know, it's going to sound like a broken record, but as I've been saying probably for the last, six quarters now, Europe has been driving things forward real nicely, and that has continued. That's not a surprise for us because of the whole structural way that we were amping up everything since a couple of years ago. So that's remained consistent, which doesn't mean that North America is not performing. It just means that our European brands are outperforming the outperformance we got on this side. So I feel pretty good about that. I'd say, you know, consumers, whether you are low-end, middle-of-the-road, high-end, luxury, every person is different, right? And every person is going to internalize the backdrop of what they're dealing with differently and make their choices. And our portfolio approach works incredibly well against that backdrop.

Thanks for that. And then just a quick follow-up. You know, if... Let's say that, you know, no one has a crystal ball. Let's say the consumer slows further. And if there's a slowdown in bookings industry-wide, or let's just even say away from you, how do you perceive the industry's current willingness to sort of hold price or act more rationally than it has in the past?

Look, I'll speak for myself. I will not speak for the industry. Other than to say I think the industry overall is on good, solid ground. Got great leaders at those operations that are doing real good things for the industry as well as their brands. And we're increasing consideration, increasing demand, which is a great thing for everybody. With respect to us, you know, we're executing on the things that we've been talking about for years. It's resulted right now in us being better booked than, you know, pretty much we've ever been. We have great visibility. Not that much to go in this year. onboard spends we pull forward, which is enhanced visibility versus prior periods. And we in particular, we have no capacity growth, right? So we are in a fairly enviable position, I think, that even new builds are great, but we can do a lot with what we've got. And having only one ship coming this year, none in 2026, one in 27, I mean, that for us That's a fantastic roadmap for success, so we're looking forward to it.

Thanks a lot. Congrats again on the quarter.

Thank you.

Thank you. Our next question comes from the line of James Hardiman with Citigroup. Please proceed with your question.

Yeah. I guess tying this all up, outside of bookings and onboard spend, which you've talked about, are there any other forward indicators that you think – might be a good indicator of your consumer sentiment or whether how they are respect to making payments for their trips or how many are buying travel or insurance or any, what any of those indicators are showing.

Yeah, James, you're going deep. Um, no, nothing, nothing out of the ordinary that would trigger flags. Um, cancellations are, are fairly consistent. So there's, there's really nothing else that we'd probably put on the table to talk about as a, Um, anything of a significance.

Fair enough. And, um, with the 12% RSC insight, uh, can you give us any indication on what you think the long-term opportunity is there specifically and how you guys think about the return profile for celebration key and their other sort of non-shift investments? Are there any other investments that we should be thinking about that are significantly ahead of the, your, your corporate average?

Well, I think overall we feel real good about the progress we've been making on the returns that we're generating. I certainly don't view and never did view 12% as an ending point. So mid-teens is certainly realistic and certainly what we'll be shooting for. The things that are going to drive it are really the continuation of doing our jobs better across the brands in the commercial space, watching the cost like we always do as a low-cost industry leader, And being able to lean into the investments that we're making around Celebration Key, Relax Away, and doing some other things with positioning of some of the destinations that we currently own, which are phenomenal. And on top of that, you know, aside from the moderate, I'd say modest capacity growth we have, we are investing in ourselves in other ways. We've talked about AIDA Evolution, for example. I think I said it in my prepared remarks, which, you know, you take one of the most successful brands in the world, and you reinvest in them in their existing capacity to add revenue opportunities, cabins, that's going to serve us incredibly well, as is the investments we're making in Alaska to delight our guests and really cement our strategic advantage even further on our land-sea packages and what we have to offer in Alaska. So I think that we're in a pretty strong place.

I guess just really quick off of that, delivering your targets so early, any indication when we might get new long-term outlooks?

Man, I love that you've been asking that. So I think we've got to get to the targets, not just, you know, forecast them. So, you know, my expectation would be we'll be talking about our next set, hopefully, in, you know, early 2026. But that's, you know, we've got to deliver.

All right.

Thanks a lot, guys. Thank you.

Thank you. Our next question comes from the line of Patrick Scholes with Truist Security. Please proceed with your question.

Great. Thank you. Good morning, everyone. I want to follow up on the comment in here in the press release about not being completely immune from the heightened economic geopolitical volatility since given your guidance in December. Regarding that volatility, have you actually seen the volatility have any impact on booking pace as the quarter progressed?

Yeah, well, we certainly saw ups and downs. I mean, we see ups and downs every year, so that's not terribly surprising. It all came out to the bookings we were able to make at the pricing that we wanted to make and sets us up, as we talked about, in a really good position. And at the end of the day, people just need to be getting used to the new normal, which is exactly what's happening. You know, as a matter of fact, last week, you know, bookings, you know, nicely ahead year over year. And not everything is the end-all be-all for year over year, but it's what we talk about publicly. And particularly, you know, to the point people were asking about close-in, our close-in bookings last week for the second quarter, for literally sailing in the second quarter, we don't have that much to go. And the booking volume and pricing was just off the charts. So, you know, we just got to, you know, Let the world progress. We'll take what we want to take as we go and carry out the year.

Okay, thank you.

Thank you. Our next question comes from the line of Jamie Katz with Morningstar. Please proceed with your question.

Hey, good morning. I want to talk a little bit about the cadence of costs over the rest of the year. I think there were set to be higher dry docks in both Q2 and Q3 this year. As we think about the arc of expenses, can you help us flow through whether those are more equal or if maybe that is more weighted to Q2, those dry docks?

Thanks. As I had indicated on the December call, we had expected that both the second and third quarter costs would be up a little bit more than the full year, and that the fourth quarter would be up a little bit less than the full year. And nothing's changed since then.

Okay. And then as we think about the lengthening of the booking curve, I'm just trying to triangulate what the visibility looks like now relative to the past. I think historically it used to be that you guys were booked maybe like 50% to 70% out for 2Q and then maybe 30% to 50% out for Q3. Has that decoupled a little bit and moved a little bit higher just so we could have more certainty on what the rest of the year looks like?

Yeah, all of those numbers that I used to give, for the current quarter and the next three, we are above the top end of all of those ranges. And so as a result, as Josh said, we're about 80% booked for the remainder of this year. If you took the top end of all the ranges, you would get an average of 70 for the rest of the year. So we're at the top end of all, over the top end of all the ranges.

Excellent. That's really helpful. Thank you.

Thank you. Our next question comes from the line of Connor Cunningham with Milius Research. Please proceed with your question.

Hi, everyone. Thank you. You've been super clear on the strength of bookings, but I wanted to just maybe come back to the levers that you have if things did weaken. You talked about how you would work to achieve a lot of these results that are kind of flowing through. And again, that doesn't seem like it's a demand problem, but like at the end of the day, If things were to weaken, what cost levers do you think you have right now that could be low-hanging fruit if things were to deteriorate on some level? Thank you.

Well, good morning. The best lever we probably have is if the world takes a turn, we don't hedge. And because we don't hedge on commodities, generally speaking, commodities turn with that world. And so there's a natural hedge in our business by the basis of how we run it. Look, we clearly can do a lot of things if we really choose or need to do that. Our first goal is to deliver the results that we want to deliver because we think that's the right thing for the business, right? The guest experience that we want to give, the investments that we want to make for the long term, not just for the short term. But everything is always looked at pretty critically to decide, you know, what makes sense in the current environment because the world does change. And we've clearly got room, should we need to, to make a lot of changes depending on what that circumstance could be.

Okay. And then I think a big part of the plan this year and over the next couple of years as supply is a little bit limited for you guys has been to push marketing spend and to drive an improved revenue quality and so on. So could you just talk a little bit about how that strategy is playing out right now? It seems like it's working, but I just the two levers that I think from a revenue management standpoint are just like inventory and marketing. So if you could just, you know, talk about the balance of those two going forward, that'd be helpful. Thank you.

Yep. No, thanks very much. Yeah. We've, we've talked about it. We've, we've strategically been changing our, our investment approach when it comes to things like advertising, we're spending much more on a per unit basis than we, we did back, you know, you know, five, six years ago. And still, again, a good amount less than many others in the vacation and leisure space. We think we're getting the balance right. As far as, you know, is it working? You know, look, first quarter just ended. Our yields over the last two years are up 24%. I think that's probably a pretty good indication that it is working. And also that you don't need new builds to drive that demand, because the vast majority of our brands don't have any. So that same ship sails, if you will. And that goes to how we manage the curve on the yields, the advertising that we do, both the creative top of funnel type of things, and then the digital performance, our relationships with the trade, and then delivering on board. And I think the brands are doing an incredible amount of work to make that happen. And I do think advertising helps unlock that. And so we have unleashed it while maintaining the cost structure that we think is appropriate.

Appreciate it. Thank you.

Thank you.

Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.

Hi, good morning. And well done all around. I wanted to just bring forth a debate that we have a lot. And is there any evidence that is shareable around any of the bookings from consumers trading down, right? We assume that there's some trading down to the value of a cruise versus the much more expensive hotels, particularly domestically, and potentially some that are maybe priced out of a cruise that may be at a different end of the spectrum. Is there anything that we can discuss or unpack there?

So I think there's two separate questions. So first the concept of quote trading down to a cruise I'd look at it differently I'd say that we have a tremendous price to experience ratio compared to land And people recognize that value more and more if they're looking to make the dollar go further And even though it pisses me off when you know We look at the price gap because there's so much opportunity for us that I'm excited about in those types of times That is a huge strength that we have because we can outperform the experience we give for the price that we charge compared to land. And the fact that we're carrying more new to cruise than we ever have. New to cruise, the growth rate for Q1 alone was significantly multiple times higher than the growth rate on the capacity. So it's working. As far as trading down within cruise, there's nothing that we see because our brands have a pretty good mix within themselves to be able to cater to people at lots of different price points. You know, we talk about Carnival a lot, and people have concerns about Carnival because of X, Y, Z and consumer. Keep in mind, Carnival's got suites on eight days, which are very different from inside cabins on three-nighters. So we have a lot of product to be able to source lots of folks brand by brand up and down the price points.

I'll apologize for the word choice about trading down. I appreciate that.

Thank you very much.

Okay. My quick follow-up is that the sale of the Seabourn ship at a gain, can you just elaborate on the reasoning behind that and the timing of it? Just a little insight. Thank you.

Yeah, yeah. I mean, it's actually pretty simple. We got a cash offer that when I looked at that offer versus what I thought the impact would be for that ship over an appropriate amount of time and what the impact would be on the rest of that fleet and its ability to manage its yields, it was a decision that was in the best interest of the shareholders. It's as simple as that. Nothing's for sale. We don't have a for sale sign up. But if people are approaching us unsolicited for offers, I'll listen. And if it's the right thing to do for the shareholders, then we'll do it. And that doesn't happen very often, but that was one of these cases.

Appreciate it. Thanks very much.

Yeah, I'll just say Seaborn is a phenomenal brand. We are talking about one of the youngest fleets around the world, Ultra Luxury, and they are going gangbusters. So the yields are up nicely. There's nothing wrong other than the fact that somebody made us an offer that we couldn't refuse.

Got it. Thanks a lot.

Thanks. Thank you. Our next question comes from the line of Matthew Boss with J.P. Morgan. Please proceed with your question.

Great, thanks. So Josh, close in demand off the charts, no slowdown in onboard spend in the last few weeks. It seems like the near term is crystal clear. So maybe multi-year, could you elaborate on new customer acquisition that you're seeing across the portfolio, maybe tied to the new marketing that you cited and walked through, and just structural improvement opportunities that you see across your brands given the portfolio approach that you have?

Yeah, so with respect to guest composition, it's actually a pretty interesting place now, right? Because effectively, with no growth on the horizon, every brand has the same capacity that they have year over year, which means we're not trying to fill new capacity and cast the net wider for purposes of just needing more bodies. And so the idea of first-time cruisers, brand switchers, and loyalists it really becomes a dynamic of who's willing to pay the most to get on the ship. And so, yes, we have been ramping up first timers, which I think is a testament to the brand strengths and the marketing that they've been doing and the experiences that they give. Ultimately, though, ultimately, it's going to really be a matter of getting that optimal mix based on the price points and what generates the most revenue. I think it's also useful over the next couple of years. It's extreme slowdown for us in capacity growth, but the industry overall is slowing its growth rate. So I think that certainly doesn't hurt us. It helps us. With respect to your second question, could you just elaborate a little bit more on what you were thinking?

Yeah, just with the new marketing, what you're seeing in terms of new customers as well as brands that maybe haven't returned to 2019 metrics, just the next leg of opportunity that you have relative to maybe others in the industry if we remain at robust levels?

Yeah, you know, our brands are on a spectrum from having recovered past 19 levels to not yet there. Some of that has to do, as you've heard me say in the past, with what their 19 levels were to begin with. And so we're not patting ourselves on the back in some cases because they exceed the 2019 levels because they should have been higher then and they are now with plenty of runway. I would say the vast majority of our brands have, if we boil it down to Roic, the vast majority of our brands have multiple points in the medium term that they're going to be able to take advantage of. And primarily, that's going to be due to continuation on the improvement we've been making on the revenue side. And that's what the trajectory is for those brands. They are making jumps by leaps and bounds, and they've got a lot more to go. And I am excited about that.

Great. And then, David, maybe just to switch gears, on your goal to return to the Fortress balance sheet, how are you thinking about capital allocation priorities beyond debt pay down as you approach investment grade metrics?

So as Josh said before, the immediate debt pay down is priority one, two, and three. But as I had indicated in my remarks, we're talking about potentially a $5 billion additional pay down. And when you start thinking about 2026, we should be beyond investment-grade metric leverage And so as a result of that, we'll be, you know, not only are we investing in ourselves and all the examples that Josh gave, but, you know, we will be considering other priorities. And we'll be talking about that as we move forward into 2026 and beyond.

Great. Congrats on the continued momentum.

Thank you.

Thank you. Our next question comes from the line of Lizzie Dove with Goldman Sachs. Please proceed with your question.

Hi there. Thanks so much for taking the question and congrats on a great Q1. I guess going back to luxury for a second, you have Seabourn, you have Cunard. Obviously, the last few weeks we've had mixed commentary from other cruise companies about luxury. Curious just to zoom in on that, anything you would kind of flag there and what you're seeing on the luxury trend specifically?

Yeah, morning, Lizzie. Nothing interesting to talk about, I don't think. As you heard me say, Seabourn's been making great progress year over year, as has Cunard. So, yeah, I'm sorry. I guess the answer's no. Short and sweet.

That's great to hear. And I guess totally switching gears for a second, I'll ask about Celebration Key. I mean, you're now through most of wave season. curious just what you've been seeing there, how much the kind of consumer reception has been to the marketing you put around that, whether you're still on track to kind of open right at the end of summer, just any updates you can give around that would be helpful. Thanks.

Yep. Thanks. Yep. No, first of all, from an operational standpoint, everything is proceeding exactly on track and the teams are doing a phenomenal job, not only in the finishing up of the construction, but in the the massive undertaking that is training and getting ready on the land-based operations themselves to be able to deliver the experiences that we want to deliver. We are seeing the premiums that we expected to see when we started this project a long time ago. And so things are progressing, honestly, exactly as planned, which is a shout-out to the teams for doing all the right things.

Great. Thank you.

Thanks, Lucy.

Thank you. Our next question comes from the line of Vince Sepia with Cleveland Research. Please proceed with your question.

Thanks. I wanted to lean a little bit more into the land there. When would you expect the celebration key to kind of be, you know, peak noticeability in your booking surge in light of how that Carnival product books the opening and awareness of the island. And then additionally, you know, I know this is the new part of your land portfolio, but you have quite a sizable footprint already. I know there's expansion with, I think it's Half Moon Cave Pier, an investment into the Alaska part of the portfolio. How are you thinking about your opportunity in the land stuff in years ahead?

Yeah, thanks. Thanks, Ben. So a bunch of questions there. So As far as the impact of Celebration Key, I think it's pretty fascinating. We're still in make-believe land, right? So everything we're putting out on the marketing side really is in the imagination. And I think that coupled with, as you said, the primary tenant there is going to be Carnival Cruise Line, a huge amount of which is short cruises, three-, four-, five-nighters that have a much shorter window than booking on the sevens and eights. means that we haven't seen, by any stretch of the imagination, we haven't seen the full impact. Carnival hasn't seen the full impact on the benefits. And I do think the ability to leverage it in operations and generate content and guest experience with our guests, with the trade, is going to be a springboard forward. which is a great thing for Celebration Key. We easily see a path where by the end of the decade, what was about six and a half million gas going through our Caribbean footprint in 2024 could be upwards of 11 million, which is a phenomenal thing. And I think the thing that we're learning, which we haven't really benefited from in full, is how we position, how we brand and position our our destinations themselves, to make them part of the consideration set of the consumer. Because historically, it's very much been about just the cruise and the brand, and then delight them when they're in our destination. But we have the ability to make it a driver for taking the cruise to begin with. And so we're starting to lean into that, obviously, with Celebration Key, and we're going to do more of that. And Celebration Key is something that You know, when we open, that's just phase one. And we've got plans that will take us to the end of the decade to be able to, you know, significantly increase that throughput, which, as I mentioned, helps us drive that gas count up to about 11 million. With respect to Alaska, look, if you haven't been there, I strongly suggest you've got to do it by cruise. And if you do it, you have to do a cruise land-sea package because that is the greatest way to see the great states. And it is a strategic advantage that we do have given the scope of our operations in Alaska. And we're going to continue to lean into that because it is one of the most popular itineraries and programs that we have in the whole portfolio.

Great. I wanted to sneak one more in. You mentioned a little bit earlier on the European business. In the travel industry more broadly right now, there's a lot of talk on inbound, outbound for the U.S. And I know that you source a fair amount of your European brands in Europe, and I would imagine a lot of the North American brands heavily over indexed to North American guests. But anything that you've seen in your data on any shift in flow of inbound interest to the U.S., and if that at all is a big part of your business?

I guess I'll answer it in reverse. Is it a big part of our business? It's not a huge part of our business. We strategically try to put our ships where our guest base is. I think in the volatility that we talked about in the first quarter, certainly Canada was swept up in that now for us that's that's three to four percent of our business just to put it into context but clearly we read that you know everybody reads the news and we're not we're not immune from from from that dynamic but but going back to to the strategy by being able to target specific countries with specific brands that cater to their needs and preferences and position them where people can get to drive if they want to It's a recipe for success for us in this environment. Great, thanks. Operator, we have time for one more.

Thank you. Our final question comes from the line of Chris Stafalopoulos with SIG. Please proceed with your question.

Good morning, Josh, David, team. Thanks for taking my question. So I'm going to close it out. I'll keep it to one and hopefully try to, I guess, consolidate here the questions around demand because I think It's the questions I'm getting here. You know, investors are trying to tease out the health of the consumer and whether any weakness at this point is localized to a specific consumer demographic or region. So if we use the airlines here as a proxy, there was a comment earlier on the call. Last week, U.S. domestic basic economy, close-in weakness, exact opposite of what you're seeing here. What is similar, it sounds like premium international markets, uh, uh, demand somewhere. So as we look across your brand scale from contemporary premium luxury, and we adjust for mixed ships, uh, the earlier question, a question on regional source, uh, travelers, is there anything, uh, that is different or unique with the pace of bookings or onboard spend, uh, at this point?

So I guess consolidated question. The short answer is no. Just keep in mind, airlines come out with a lot of commentary. We are different from airlines and even different from hotels. We don't rely on business. Business travel is not part of our portfolio. So it is about the consumer. And good times and bad times, people take vacations. The unemployment rate in this country and the developed countries that we really source from are fantastically low. So does it mean that people want to think hard about how they spend their vacation dollar? Absolutely. Is it more important when times are stressful that they get away and take a vacation? Does it mean more to them? Absolutely. And I think we've learned that, you know, since the turn of this decade, how much importance people place on it. So, you know, I think we are resilient and we'll continue to work hard to deliver, so. Since you said it was one question, thank you for doing what I asked. I think we'll end it there. So thanks, everybody, and talk to you next quarter.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.