Royal Caribbean Cruises Ltd.

Good morning. My name is Shelby and I'll be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's Business Update and Second Quarter 2021 Earnings Call. All participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. I would now like to introduce Chief Financial Officer, Mr. Jason Liberty. Mr. Liberty, the floor is yours.

Thank you, Shelby. Good morning, everyone, and thank you for joining us today for our business update and second quarter earnings call. Joining me are Richard Fain, our Chairman and Chief Executive Officer, Michael Bailey, President and CEO of Royal Caribbean International, and Michael McCarthy, our Vice President of Investor Relations. During this call, we will be referring to a few slides which have been posted on our investor website www.rclinvestor.com. Before we get started, I would like to refer you to our notice about forward-looking statements, which is on our first slide. During this call, we will be making comments that are forward-looking. These statements do not guarantee future performance and do involve risks and uncertainties. Examples are described in our SEC filings and other disclosures. Please note that we do not undertake to update the information in our filings as circumstances change. Also, we will be discussing certain non-GAAP financial measures which are adjusted as defined, and a reconciliation of all non-GAAP historical items can be found on our website. Richard will begin the call by providing a strategic overview and update on the business. I will follow with a recap of our second quarter results, and then I will provide an update on our latest actions and on the current booking environment. We will then open up the call for your questions. Richard.

Good morning everyone and thank you all for joining us on the call today. You all know it's been almost a year and a half since the onset of the pandemic and it's certainly been a difficult time. We've been in a virtual standstill for this long period and there's no business school that has a course in how to succeed in business with zero revenue. Fortunately, our people have responded well to these unprecedented challenges and I'm very proud of the progress that they have produced. Today, we're reporting another painful set of financial results, but we're also reporting on the dramatic progress on the restarting of our operations and the continued strength in the demand environment for our leading brands. Most importantly, we have already restarted almost half of our capacity, and we're bringing more online as we speak. Our protocols appear to be working very well, which gives us and our guests comfort about the safety on board. Lastly, bookings are remarkably strong, especially for 2022. I would like to address these three issues in order. First, I want to talk about the process of restarting. Second, our operational protocols and their impact. And then lastly, come back to our booking outlook. Now, starting with the process of resuming operations, It seems like only yesterday that people were asking me if I thought cruising would restart by December. Suddenly, we have half of our ships sailing on revenue cruises. We know that it's going to take us a while to return to full normalcy. But while people are emerging from their isolation, it's literally going to take them a while to feel totally comfortable. We believe that the best way to get them comfortable is to demonstrate just how well the process works. We call that the flywheel effect. Once we get the vast majority of our fleet back online and thousands of people sailing safely, it will make even more people feel comfortable doing the same thing. Once the flywheel starts spinning, it keeps spinning and the machinery keeps getting more powerful. Now, some of you have asked why we were the first to restart in the States and how we've gotten our ships operating so quickly. The answer is simply that we started earlier and we have the very best people in the business who have been very aggressive in implementing the new protocols. We started preparing before we had official word that we would be allowed to sail, but at a point where we thought the approval was inevitable and our people have worked hard and diligently to make sure that our ships could be back in the water quickly. Also, thanks in large part to the vaccine rollout, society has been progressing faster towards normalcy, which has maximized the pace of our recovery. In this accelerated return to service, the health and safety of our passengers and crew remain a top priority. For every ship that we restart, we have committed to three pillars. First, ensuring our ship experiences are as safe or safer than the shoreside equivalents. Second, meeting and exceeding our exacting pre-pandemic expectations, especially in regard to guest experience. And three, doing so in a financially prudent manner. Now, turning to the second item on my list, I think it's important to talk about the safety protocols related to COVID. As you all know, our goal from the beginning of the pandemic has been to make cruising not just as safe as comparable land vacations, but safer. We believe that the unique attributes of the cruise ship could allow us to control the environment to an unusual extent. We can ensure a level of vaccinations and testing that would be impossible for most other places to even contemplate. Specifically, we require 100% of the crew to be fully vaccinated. And we require the bulk of our guests to be fully vaccinated as well. The only exceptions are children under 12 And in Florida, a minor number of people who choose not to get vaccinated. Excluding Singapore, which is a special case, an average of 92% of the people on board our ships in July were fully vaccinated. And this number is likely to rise going forward. The idea is to limit the spread of COVID-19 aboard our ships. We all know it's impossible to eliminate cases on board a ship totally, just as it's impossible to eliminate cases on land. But the steps that we are taking are designed to prevent the isolated cases from becoming an outbreak. And it seems to be working. We have had people test positive, but because almost everyone around them is vaccinated, they've remained isolated cases. That's the goal. rare individual cases, and no significant spread. Repeat this with a few hundred thousand or million cruisers, and that creates the trust that will drive our resurgence. Now the Delta variant is problematic for everyone, but even this looks manageable by our extensive protocols. It's too early to draw definitive conclusions, but the vaccines are the ultimate weapon, and they work. Our experience shows that while there are breakthrough cases aboard, the vaccines help keep them contained. In fact, and I thought this was quite unusual, in most of our positive cases, even the cabin mate of the infected individual has tested negative. But in light of the Delta variant and other variants, we have recently strengthened our protocols further. Even more testing and even more people required to be vaccinated than we had in June and July. We have gone from cruises being a source of concern to cruises being an exemplar for how to deal with COVID-19. I'm thrilled that we're making this dream a reality. So that brings us to how our customers are responding. And fortunately, that outlook is good. Our guests are eager to cruise again. We had hoped that there would be pent-up demand for cruises, but even we were surprised by the level that we're seeing. We are also encouraged by the improvements we're seeing more broadly across the travel industry. Cruise consideration remains high among active cruisers, and it's steadily increasing among non-cruisers. It is clear people are eager to travel, to take a vacation, and we are ready to make their vacation dreams come true. Jason's going to speak more about our booking trends in a moment. Now, we all know it's going to take some time for the situation to settle. There's still a lot of confusion in the marketplace, and that definitely hurts the next few months or so. In addition, people usually book their cruise vacations well in advance. It will take some time for us to catch up with the bookings that we didn't arrange or we didn't get up until now. But if we only obsess about the present, We will fail to prepare for the future. We must keep our eye firmly on that future that we can see is coming. We need to prepare ourselves for it. So we are focusing our thoughts, our efforts and our plans on that future. While the third and fourth quarter of this year will continue to be painful. It's booking generally in line with our return to service and occupancy ramp up expectations. due mainly to the timing of the ramp up in service and the abnormal booking window, we don't expect 2022 to be a normal year. However, we are seeing rapid and steady progress towards normalcy starting in the spring and summer of next year. One important additional point is that we are not only in the business of delivering the best vacations possible, but also doing it sustainably. The company's commitment to corporate stewardship remained a priority even during our return to service. Despite pandemic headwinds, the company has made tremendous progress across environmental, social, and governmental governance focus areas. Some of the key achievements include a 35% reduction in our greenhouse gas emissions from our 2005 baseline. We removed 60% of single-use plastics from our supply chain. Sixty percent of our ships are equipped with emissions purification systems that remove 98 percent of sulfur oxides, and our newest ships are equipped with selective catalytic reduction, which reduces NOx emissions. We've reduced waste to landfill by 85 percent from our 2007 baseline. And we've also completed the introduction of over 2,000 certified tours and three assessments by the Global Sustainability Tourism Council. One interesting point is that our wind farm that spans 20,000 acres in northern Kansas has 62 turbines with a total power generation capability of 200 megawatts. It's now been operational for more than a year. It will annually generate 760,000 megawatt hours of carbon-free energy. saving some 500,000 tons of carbon. And to put it in perspective, it's the equivalent to the energy use of about 60,000 homes. These are just a few of the many initiatives underway at the company, and I've only focused here on the area of the environment. Our press release covered other initiatives in accordance with our mantra of continuous improvement, We will continue to elevate and introduce new initiatives to improve all of our ESG efforts across the board. The last 16 months have cost much pain and much suffering, but the tide is clearly turning. I'd like to thank our board of directors for their support and dedication. I also want to thank our partner organizations and communities for staying the course and preparing for this future. But most of all, I want to thank the men and women of the Royal Caribbean Group for their tireless efforts under the most challenging of circumstances. Their dedication to seeing us through this black swan event in the best way possible is nothing short of extraordinary. So I look forward to some of your days ahead. And with that, I'll turn it back to you, Jason.

Thank you, Richard. Before I start, like Richard, I also want to thank our teams across the whole enterprise for their tireless dedication to rapidly bringing our fleet back into service in a safe, healthy, and financially responsible manner. This has been accomplished through impressive interdepartmental collaboration, many, many sleepless nights, and for that we are really forever grateful. I will now turn to discuss our performance for the second quarter. This morning, we reported an adjusted net loss of $1.3 billion, or a loss of $5.06 per share for the second quarter of 2021. While these losses are incredibly painful, the second quarter was a turning point for the company on multiple fronts. First, we welcomed an additional 10 ships back into service after 15 months of minimal cruise activity. Second, we took financing actions to reduce our negative carry and began our journey back to an unencumbered and pre-COVID balance sheet. And third, we saw a significant increase in booking activities that resulted in a large increase in our customer deposits. As we shared this morning, our customer deposit balance as of June 30th was $2.4 billion, which was about 30% higher than the balance at the end of the first quarter. And as of today, our customer deposit balance is $2.5 billion. At this point, a little over 35% of our customer deposit balance is associated with FCCs compared to about 45% at the time of our last call, signaling continued strong demand. On the liquidity front, we closed the second quarter with $5 billion in liquidity. As you all know, we pride ourselves on having industry-leading brands with a world-class and highly innovative fleet and a history of strong financial discipline and performance. These assets and attributes have been instrumental in helping us raise more than $13 billion in new capital since March of last year. During the second quarter, we continued our efforts to manage and improve our balance sheet. And to that end, we successfully issued $650 million of senior unsecured notes at four and a quarter percent and used those proceeds to redeem seven and a quarter percent Senior secured notes in full. This will generate approximately $17 million of cash savings annually beginning in 2022. We are delighted with the current momentum and the restart of our operations in the United States and around the globe. The environment remains fluid, and for this reason, we are not providing a cash burn estimate or the related offsets generated by revenue and new customer deposits. I will highlight that the burn rate for the ships that are kept in layoff is expected to be consistent with our previous expectations. Now, as it pertains to our debt maturities, our scheduled debt maturities for the remainder of this year and 2022 are $21 million and $2.2 billion. I will now update you on capacity and the booking environment. After more than a full year of painful financial losses, a never-ending roller coaster of ups and downs, and regarding the timing of our return to service, multiple liquidity actions, and very little cruise capacity, we are now finally bringing our fleet back into service and are already welcoming thousands of guests back on board each week. In fact, we are thrilled to have welcomed more than 136,000 guests on board our five brands during the first half of the year. The pace of which our teams have been able to bring ships out of Leia and ready them for guests is nothing short of incredible. It is amazing to think that at the end of April, we only had four ships delivering incredible vacations across our five brands. But as we sit today, there are guests sailing on 29 of our 60 ships in the Caribbean, Europe, Asia, Alaska, Iceland, and the Galapagos. We are also in the process of ramping up seven more ships to begin welcoming guests this month. As a result, we anticipate having about 65% of our fleet in service at the end of the third quarter and approximately 80% of the fleet back in operation by the end of the year. When considering our plans to ramp up capacity, the one area we continue to watch is the Asia Pacific region. And for purposes of our return to service planning, we have been cautious. Now I'll give you an update on bookings. Bookings are still below 2019 levels due in part to our reduced capacity for 2021 and the fact that many failings were announced very close in with little time to build business. However, the gap narrowed further during the second quarter and we received about 50% more bookings in Q2 than during the previous three months with trends improving one month to the next. By June, we were receiving about 90% more bookings each week when compared to Q1, with bookings for 2022 practically back to 2019 levels. As it relates to the Delta variant, we have mainly seen small variations with closer in bookings and markets with high case counts. However, July was our second highest booking month of the year, and bookings for 2022 are strong. We are particularly encouraged by the continued strong demand for the important spring and summer months. The health and safety of our guests and crew is our number one priority. And as such, our startup strategy incorporates low initial occupancies to give the crew the opportunity to seamlessly implement the new protocols and facilitate amazing vacations in this new and constantly changing environment. After each ship gets a few voyages under their belt, our plan is for our load factors to steadily increase from one month to the next. This is evident in our fleet where several of our ships are now sailing with more than 50% load factors. Overall, the booking activity for 2021 sailings is consistent with our expected capacity and occupancy ramp up at prices that are higher than 2019. We are also seeing record net promoter scores as well as record onboard revenue for the ships that have resumed service. This is very encouraging as we are not only seeing pent up demand for cruises, but we are also seeing pent up demand for our onboard revenue experiences. Guests are really enjoying our shore excursions, casinos, spas, and restaurants after spending a year in isolation. We are also seeing an increased demand for our wifi services as more and more consumers have flexibility to take vacations and work remotely. Looking further forward, We continue to be impressed by the demand and pricing we are seeing for 2022 salons. It is still a bit early in the booking window to provide too much color for next year, but I will share that our book load factors continue to be well within historical ranges at prices that are up nicely versus 2019, including the dilutive impact of FCCs. While we were still in the early stages of the planning cycle for 2022, we do expect lower than average load factors for the first quarter, as several ships will still be in ramp-up mode after having recently returned to service. That being said, the first quarter is booked within historical ranges. In addition, load factors are at the higher end of historical ranges for the back half of the year, with Q3 currently in a particularly strong position. Underpinning this is a strong customer deposit profile for 2022. Customer deposits for 2022 are significantly higher than same time in 2019. This demand and booking profile is quite encouraging considering that we have only been spending about a quarter of our typical sales and marketing spend. We are also optimistic that a number of larger macro indicators will provide further tailwinds to our future demand. Increased vaccination rates around the globe, sharp increases in consumer confidence, and significant increases in personal saving rate versus the same time two years ago. I will close by saying that we are thrilled for the flywheel to be spinning at such an accelerated pace. We have been dreaming of this moment for more than 16 months, and it's finally here. We feel very optimistic about our future and are thrilled to see more and more guests in the United States and around the globe enjoy incredible vacations onboard our ships. And with that, I will ask Shelby to open up the call for a question and answer session.

As a reminder, if you would like to ask a question, please press star followed by the number 1 on your telephone keypad. We do ask that you limit yourself to one question and one follow-up. We'll pause for just a moment to compile the Q&A roster. Your first question is from Steve Wisinski of Stifel.

Yeah, hey, guys. Well, excuse me. Good morning. I'm not sure if this is going to make sense or not, but is there any way you can help us think about the ship economics today? And I guess what I'm trying to understand is, given the higher cost that you guys are taking on, whether that's COVID protocols or lower capacity levels, et cetera, if you looked at a ship today and the ships that have been sailing for the last, say, the last four or five weeks, are these itineraries still you know, losing money? Or have you gotten to the point where some of these ships are actually, you know, cash flow or EBITDA break even? Yeah. Hey, Steve. Good morning.

So what we're finding is really after a few weeks of getting these ships up and running, you know, we're getting to occupancy levels in which, you know, the ships are accretive to our overall cash position. And as was commented in Richard's remarks, we're really focused on those three pillars of making sure that our guests and crew are safe, making sure that the guest experience is exceptional. And you can hear that in very high net promoter scores. And the third is that we're being very responsible on a financial standpoint as we bring up the ships. And so for us, you know, it really, a few weeks after We're up and running. We're seeing it being accretive to us on the cash position.

Okay, understood. And then let me ask this maybe a little bit of a different way. But if you stay on the path that you are right now, and let's say the variant stuff doesn't take you guys down at all, but then you get, let's say, 80% of your capacity back in service by the end of the year. I mean, is there any way you can help us think about when the overall company might be able to get to that, you know, very important break-even level, whether that's in terms of EBITDA or free cash flow, just because, you know, I think investors are, you know, continue to be concerned about potential, you know, raises down the road if something doesn't go right.

Sure, sure. Very fair question. And And, of course, it is very kind of early. But based off of what we're seeing, the ramp up of our business, I think we see ourselves being a cash flow positive in about six months as we ramp up the business. And keep in mind, when we say 80% of the fleet is back up and running at the end of the year, some of those ships are just going to be returning into service. And there's a ramp-up period for those. But more or less, we kind of see ourselves about six months out from that break-even point on a cash flow standpoint.

Okay. That's perfect. Thanks, guys. Appreciate it. Thanks, dude.

Your next question is from Robin Farley of UBS.

Thanks. I had a similar question about the cash flow break-even you mentioned sort of after a few weeks. If we put a number on it, does that mean that you're finding cash flow break even in the sort of 40 or 45 percent kind of occupancy level? Is that kind of how we should think about, you know, where the occupancy level needs to be? And then my other question, and I hate to be so short-term focused, but I know that investors are very focused on, you know, the comment and the release about the near-term being impacted by Delta. And I know you quantified that July was still the second highest month of the year, so I guess that means sort of down sequentially a little bit from June, which June was 90% better than Q1. I guess I don't know if you – do you feel that the impact of that has sort of stabilized at that level, that as you're moving into August here, that August would be similar to July, I guess sort of directionally, maybe just to give investors a little bit of comfort about the direction that things are headed? Thanks.

Okay, I'll jump on the first one, and I think Michael will hop on just in terms of thoughts on the variant. But Robin, as we've been saying for some time, and I think you hit kind of the midpoint of that, is a ship is accreted to us around that 35 to 50 percent mark, and obviously the newer, larger ships are closer to the 35 percent. older, smaller ships are closer to that 50%. And so that 40% to 45% occupancy range is where also kind of considering our return to service costs and so forth is where we see those ships being agreed to us. And I'll pass it over to Michael to talk a little bit about the Delta variant.

Yeah, Robin, in terms of Delta from the perspective of the customer and the booking environment, I think I would say in the last two weeks, we've seen very positive growth in demand. As we moved through the spring with vaccinations and as we announced return to service and as customers saw our ships return, we really did enter into a very positive booking environment. And I think over the last two weeks, the positive environment continues, but it hasn't been at such a trajectory as it was. It's really short term. When you look into 22, we see no material impact at all on the increases in bookings for 22. So I think customers, consumers now see this for what it is. It's a blip and a bump. I think we feel encouraged by the protocols that we've got in place, as Richard mentioned in his opening comments. we've been very encouraged to see that when we do have a positive COVID case on board our ships, um, we very quickly, uh, contact trace test. And what we find is that very often you may have a COVID positive, either from a vaccinated or unvaccinated guest, and there'll be in the very same room with somebody who's vaccinated and they test negative. So the vaccines are really working. I think, uh, vaccination population, so to speak, as Richard mentioned. I think in the month of July, our ship sailed with around 92% of the entire community vaccinated. And in the month of July, we were still accepting kids from the age of 12 to 16 who were vaccinated. Starting on August the 1st, that number has dropped down because our policy requires you to be vaccinated 12 and up. So I think the good news is, if there is good news with the Delta variant, is that people are becoming far more accustomed to this. If you've got a highly vaccinated population, there's minimal impact. And I think increasingly as our ships sail, as we encounter this, we communicate, we're very transparent. The feedback we get from our customers is, recognition and relief that this is very contained and something that's going to pass.

Great. That's all super helpful. Thank you. Just one final thing and then I will totally hop off. I don't know if you have any comments to share about. We hear about steel prices moving up so significantly and just had a question about your ship orders, your new build orders. I assume that the price is locked in so that a higher steel price would would be borne by the shipyard, not by Royal, or would that be an opportunity to maybe renegotiate and extend some delivery dates? I'm just trying to think about how these higher steel prices may be impacting your order book, and then I'm totally off. Thank you.

Hey, Robin. As it relates to on the steel side, it really does not have an impact on our order book or on our costs. There is inflation in there. Typically also, just so you know, when we order ships, typically the yards also lock in their purchase of steel and fix those prices. So there's not really an impact there. Quite frankly, we're excited about the new capacity that's coming on. When you look at the cabin configuration, the opportunity for onboard revenue, the fuel efficiencies, the positive impact on the environment, that these ships are able to bring to us. We're looking forward to get those ships online. The reality of it is, as the investment community knows, they're going to be eight to ten months delayed from when we had originally expected to take them on.

Okay, thank you.

Thanks, Rob.

Your next question is from Greg Badishkanian of Wolf Research.

Hey, guys. Good morning. It's Fred Whiteman. I'm for Greg. Richard, in your prepared remarks, you talked about 22 still not being a normal year, but continuing on that recovery towards more normalcy in the spring and the summer. Can you just sort of touch on how you guys see home market travel relative to international travel evolving into next year? Do you think we could see North American customers make up a big chunk of sort of European departures? What are the puts and takes there?

Sure. I think we were cautious not to try and make too many predictions about the way this goes. Clearly, today, countries are doing more local. So you see a tremendous growth, actually, it's surprising, in domestic travel and domestic, particularly domestic air and other domestic travel as opposed to international travel. But the other thing that we've seen in this is how quickly it all changes. Uh, and we've, I mean, if you just look at this, um, we've gone from people wondering whether we're going to be back in service at all this year to half our fleet back in, in a matter of weeks. I mean, it's, it's, it's kind of happening so quickly. And I think we see the same sort of thing is tremendous, um, restrictions on international travel today. But at the same time that the US decided to extend its, you saw the UK releasing restrictions, and you're seeing in Europe. So I think the vaccine is the game changer here. And it is working and as as it becomes more, more and more people are getting it. And you've seen a bit of an upturn already in the unvaccinated getting vaccinated. But you're also seeing it working in Europe. So just a few weeks ago, Europe was way behind the curve on vaccinations. And they've ramped up to now they're equal or in many cases ahead of the U.S. Australia and New Zealand, which initially focused, in fact, much of Asia, which initially focused not on vaccines but on isolation and having domestic travel being the key. have shifted, and while they're low on vaccinations compared to the U.S. and Europe, they're rapidly fixing that. So I think it's an uncertain period, but I think what we would expect is for months now we will see restrictions and people staying closer to home, but I think there is a yearning to get out there And once the vaccines get out there once this, they get more widely distributed, you'll see more international travel. So that takes a while and international travel also tends to book further in advance. So you would expect international travel for the first quarter to be a lot of that to be arranged already. So the fact that we haven't been booking it means that the first quarter is going to be weak on that count. But I think as we're looking further in the year, we're seeing people really expect things to be back to normal, and we're seeing international travel back to normal. And so once we get into the spring and summer, we're really very encouraged by what we're envisioning.

That makes sense. And there was also a comment made about cruise consideration picking up among non-cruisers. Could you maybe put some numbers around that and just give some thoughts on how you see new to cruise returning?

Hi, Fred. It's Michael. Just to add a comment to Richard's response on international travel, I think one thing that's just important to note is that we've always had a significant international sales and marketing presence in pretty much all of the key markets globally. So we've, you know, we have that benefit and we've always utilized that strength in normal times and in challenging times as well. So, you know, whether it's in Australia or Asia Pacific or throughout Europe, we've always had significant presence and we've always been able to drive significant demand from those, those markets and particularly drive to markets, which, uh, you know, it's, it's been very helpful. Um, sorry, what was the second question? I lost my train of thought then.

Just, uh, new to cruise, new to cruise.

Yeah. I think, I think when we look at all of our stats that I'm not going to give you the numbers, cause honestly I cannot recall them, but, um, You know, we've been tracking since the beginning of this consumer sentiments across different segments and categories. You know, what you see, which is very logical, is the pandemic has raged and vaccines have become prevalent. You know, you see consumer confidence increase. You see travel hesitancy decrease. You see cruise hesitancy decrease. And we've seen improvements across all of these different segments and particularly for new to cruise. So if you look at new to cruise view of cruising today versus when we were in the depth of the pandemic, it's remarkably improved and it continues its upward journey. So we do think, and to Richard's point and Jason's point about the flywheel, you know, the more we have our ships in operation, the more customers that sail with us and have an amazing vacation, And the more that we operate, then we believe that we'll see new to cruise come back fairly quickly.

Great, thank you. You're welcome.

Your next question is from Jamie Cat of Morningstar.

Hi, good morning. Thanks for taking my questions. I'm hoping you'll talk a little bit about what your expectations for marketing and selling expenses are for the rest of the year. I'm wondering mostly if we think those should remain depressed given the pent-up demand that still exists out there, or if there is a specific positive ROI opportunity to entice more new to crews back to the market.

Great question, Jamie. Our marketing teams have really been kind of more watching the timing of when we want to employ our sales and marketing activities. It's less about the overall amount. Our expectation is that we will ramp up our sales and marketing engine to harvest as much quality demand as we possibly can because we think that there's opportunity for it to be even stronger. And so what I would say is overall, you should expect that we're going to to spend closer back to the levels that we were before on the sales and marketing side when the timing is right. What we are seeing, as you can see here, is demand for the future periods is exceptionally strong. And so our teams are always very kind of thoughtful about that. But we are generating demand not just for 2022. We're also generating demand for 2023 and even a little bit for 2024 for BrandTech SilverSafe.

Jamie, let me just jump in for a second. I think we're feeling pretty optimistic about the opportunity that's in front of us. When we think about our marketing investment, marketing activity and spend over the past several months, all the way through this year, we've reduced it incredibly. And yet, the demand that we've seen coming through the door has been really strong. So, you know, we've seen demand almost at the same level as 19, and it continues. And yet, ironically, our investment has been remarkably low. So, we are thinking that as we move through into September, and of course, we're mindful of the Delta variant, that when we really do go to market, we think that there's going to be significant opportunity for us. we're quite thoughtful about this. And one of the things that we're very thoughtful about, of course, is pricing. And we're already seeing that not only are people spending up, but we're seeing that in our onboard spend. So I think Jason commented earlier that we've been incredibly encouraged by the spending onboard our ships that we've already started operating. In fact, the numbers have been very impressive. We think that there's an opportunity coming, and I think when we really go to market in a positive way as we move into the fourth quarter, we're encouraged by what we think is going to happen in terms of demand.

Okay. There was some commentary on the booking curve, and it actually sounded to me like directionally it might be lengthening despite the fact that it's probably still shorter than it was. pre-pandemic. Is there any color you can add on that? Thank you.

So I think that was, you're probably referring to my comment. And that also actually ties in a little to the previous question. I think actually the booking curve has shortened because we don't have, we didn't have the wave period this year that would have given us a base for 2022 and even in 2023. And so I think if anything, it's actually gotten shorter because of the uncertainty and because of the fact that this is only ramping up very quickly. Our objective is to get it back. The longer booking curve is helpful to us. It's also helpful in our yield management models. And so we want that to happen. And yes, we will be investing in marketing. That's one of the things marketing does do. So even though demand has been pretty good, we're never satisfied with demand. And if we can ramp up more demand, and particularly on short notice, so we will have a period where we have to fill in the short term as well as generate the long term. The other thing that is relevant, you asked about first-time cruisers. or rather people who haven't cruised before, there's no question that that is a real opportunity for us that we want to be exploiting going forward.

Just to add to it, well, as Richard commented on average, the booking window has contracted a little bit as, of course, we're launching sailings and we're selling very short in. One thing that's very clear, which of course is helping extend the booking window, is demand for the peak summer period of time is really exceptional. And it's clear that customers want to make sure, as they've kind of compromised this summer, they certainly compromised last summer, but especially for family holidays, multi-generational travel, you're certainly seeing customers kind of lock themselves in for that period.

Thank you. That's really helpful.

Your next question is from Sharon Zaxia of William Blair.

Hi, good morning. I wanted to follow up on the pricing dynamic for onboard activities. Have you started to take pricing on some of those excursions or the bar or spa? And how are you seeing customer elasticity of demand there?

Yeah. So just overall, you know, our pricing for many things on board is dynamic. We're also being thoughtful about it as our guests are returning. What you're really seeing is it's not just about price. It's really just the volume or the willingness for them to take more money out of their wallets to enhance their overall experience. And so it's not just one thing. We're really seeing it across all of our onboard activities. As well as, you know, on the pre-crew side, as they're planning their vacation experiences, they're being really thoughtful to make sure that it's a very kind of well-baked and meets their very high expectations in which we're delivering for them. And so it's really, you know, I think, you know, if you look over what we saw last quarter, look at what we're seeing here in the month of July, you know, the APDs we're seeing are almost double what we have seen in previous periods of time. And that is not only a record, but I think it's an indicator of the level of wealth and demand and thirst for experiences.

That's really helpful, Jason. And are you seeing that skewed disproportionately the U.S. passengers? Excuse me. Or are you seeing that pretty globally across nationalities?

Hi, we're seeing it globally. I think it's occurring all over the world, and certainly with our American guests, you can really see it. So it's across all of our customers.

Thank you.

Your next question is from Ben Chaykin of Credit Sleeve.

Hey, how's it going? You gave some color on capacity and then, Jason, you alluded to it on Steve's question, I believe. But for 4Q, I guess since you gave some color around 80% of the fleet being back, can you just maybe high-level talk about how you're thinking about total APCDs? So, again, I know 80% of capacity. I think you meant that in ships, so like units, for any help on APCD side.

Yeah, well, we can kind of work a little bit offline on terms of the APCD side. It's a little bit fluid because in some cases we have test sailings and so forth, so it's not necessarily a meaningful metric or measure to put out there. But we're 65% of our capacity. We expect to

similar, they're ramping themselves up.

And it's a little bit why when we talk about, you know, 2022 not being a normal year is because ships are ramping themselves up, especially in the first quarter. And then, you know, the fleet is kind of back up and running and we expect to be generally normal here as we kind of get through that ramp up activity.

Gotcha, that's helpful. And then one more, if I missed it, I apologize. I think you said, if I caught you correct, I think you said six months until you're kind of in that break-even timeframe for the company overall. Do you think you're in a reasonable liquidity position at this point for that?

Well, we think we're in a strong liquidity position, and we are very focused on our journey to get back to our pre-COVID balance sheet and unencumbered balance sheet, and those are the activities that you're seeing us do. And I think the other thing to keep in mind is, you know, our collections, right, in terms of customer deposits are meaningfully increasing. And so that's kind of another kind of positive layer to, you know, our ability to be generating positive cash flow.

Okay, cool. I appreciate it. Thanks. Thanks, Ben.

Your next question is from Stephen Grambling of Goldman Sachs.

Hi, thanks. I guess just a follow-up on one of your comments about the customer deposits. That obviously has been coming back quickly. Should we anticipate that that should be linear? Is there any kind of seasonality to think through in the back half of this year and early next year?

Hey, Stephen. Well, there's always a level of seasonality. Just, you know, obviously as you're taking on bookings for more of the peak periods of time, there's a rise on the customer deposit side of things. So I think there's a level of that. But for here, for the most part, what we're just seeing is a very steady, but I think quantum step change each month as we're starting to sell cruises for the future. And a lot of it's just tied to the announcements. And so like the announcement yesterday from Royal, that starts really the flywheel spinning for those ships. And I would tie more towards those announcements and and that ramp up beginning, you know, based off of that. And when you think about it, 80% of our bookings are new bookings, right? And about 20, a little bit less than 20% are FCCs or lifts and shifts. And that is, you know, we see each time we announce a ship coming online and the timing of that, you know, that's resulting in our customer deposit balance, you know, rising.

Hi, Stephen. It's Michael. I'd just like to to add to Jason's comment. It's kind of a big deal when we do make the announcements on return to service and confirm ships deployment, sailing dates, and what have you. We literally have hundreds of thousands, if not millions of customers who are simply waiting for the confirmation. When we last announced our return to service confirmation, I think it was at the beginning of June, that's when we saw a really significant increase in bookings. And I think the announcement that we made yesterday should also receive a significant amount of interest. We get a lot of questions from our customers. If you go on social media, people are waiting. They're waiting for the confirmation. And yesterday we gave confirmation on the remaining fleet. So we feel quite optimistic about that.

That's great, Keller. And maybe one other follow-up, and I may have missed this in some of your intro remarks, but how has your expectations around breakeven and occupancy levels changed for the ships that have gone out? It looks like the pricing, especially since you've only had a couple of weeks to get some of these ships up and running, is pretty impressive. So has your thought around the kind of ship-level breakeven evolved? Thanks.

Yeah, well, certainly our break-even level has gotten a little bit better because, as you said, Stephen, whether it's 2022 or 2021 or is sailing next week, the APDs are higher. And the higher APDs are obviously will impact the load factor that's necessary in order for them to be break-even on a cash position. And so, again, I mean, I think it just kind of shows overall the encouragement that what you see in terms of the guests that are sailing with us, the number of guests that are sailing with us, it is very in line with how we're looking to ramp up the ships, albeit at higher prices than we had anticipated. Thanks.

Good luck with getting the rest of the ships out. Thank you.

Your next question is from Asiya Georgieva of Infinity Research. Good morning, guys.

This might be more of a question for Michael. I wonder with the difference in loosening travel restrictions in Europe versus North America, have you seen more of a mixed change towards European passengers versus what would be domestic passengers? And if we can parse it a little bit further down with our, you know, home in the Sunshine State and some of the legal issues there, Are there fewer Floridians that are traveling than you would normally expect?

I think as we look, I think all of our ships and brands face a fairly dynamic changing environment where rules, regulations, legislation, as we know, has shifted and changed. What we've seen in terms of demand is really reflected in the commentary that we've already provided, which is with significantly less marketing investment, the demand has been surprisingly strong. You know, there's puts and takes throughout all of that landscape, but At a higher level, demand is strong. I think for products that are closer to home, demand is even stronger. Different countries within Europe have gone through their own journey with COVID. So it's a more complicated environment in Europe, ironically, than it is in the United States, even though in the United States we have to deal with various issues associated with legislation, et cetera. So I think, I'm not sure if I'm really answering the question clearly to you, but I think as we move through this, what we've been surprised with is the strength of the demand. And I think that's reflected in the numbers that we have. So I'm not sure if I've answered the question clearly for you, but it's kind of a complicated, it's a complex landscape, but the bigger picture view of this is very positive.

Well, because it is pretty complicated. And as you mentioned, in Europe, first of all, different jurisdictions, different countries have been changing, loosening restrictions, adding on not lockdowns, but additional testing, vaccination requirements. So it seems that it's very fluid all the time. And I wonder whether for Q1... given that it's not going to be a great quarter, some of that might be because of difficulty for Europeans getting to Florida, let's say, or to any sort of Caribbean embarkation ports. That might be affecting some of the expectations that you have for that quarter?

No, I'll just jump in there. I don't think that's really... There's lots of things that I think affect our point of view on the first quarter. First is just the timeframe and booking window. Second is just the ramp up of our ships in terms of expectations going from their starting position and wrapping themselves up. And I think some of it is a little bit kind of a cautious outlook when we kind of consider the Asia-Pac side, especially the Australia-New Zealand side, which that's kind of the period of time which those ships typically operate. I think just more in general demand in our key markets like North America and Europe and UK and so forth. I'm sure all that will play a little bit into what you're saying, but it's not, I think, right now at the heart of our commentary for the first quarter.

Yeah, I think also... Just jumping on that as well, I mean, traditionally our Q1 bookings tend to be closer in home market activity anyway. I mean, Q1 has never been a high international travel market for any of our brands or products. Typically, as you move into the peak summer, that's when you really see a lot of people traveling across continents and what have you. It's less so during the Q1 period on a traditional basis anyway.

Thank you so much, Michael and Jason. Again, this has been very difficult, not only from a virus perspective, but also from a regulatory perspective. So I appreciate the commentary.

Thank you. Shelby, we have time for one more question.

And your final question is from Vince Seifel of Cleveland Research.

Hi, thanks for taking my question. I want to do, you know, big picture thinking about the longer term opportunity for the business, despite maybe some near term noise and restart costs. But on the other side of all this, it sounds like pricing is really good and curious how you think about the margin opportunity, any learnings coming through COVID to make you more efficient And then I think there's been some changes within the fleet that should improve efficiency as well. So how are you thinking about that opportunity?

Well, I think I'm very pleased with the question because that's really where the opportunity lies. We tend to be very focused on the short term, and that's only appropriate. In the last year and a half, it's been maniacally focused on the short term. on getting the ships back in the service, on protocols, on regulation, et cetera. And I think your question is very focused on the same sort of thing we've begun to focus on as we come back. So there are a series of things. The most important is to reestablish the credibility of cruising in the consumer's mind. And I think that you are seeing is happening nicely, and we're very optimistic about the direction that that will go, both for experienced cruisers and for new cruisers, and we need to develop both of those markets. We're also seeing, as we normally do, a tremendous interest in the new ships that we have coming and the revitalization of ships that we've had, and we're seeing that in our forward bookings, we're seeing that in our ramping up. And many of the changes that we've made have enhanced our onboard revenue capabilities, et cetera. And lastly, there's the operating efficiency. We spent a lot of time during this period focusing on ways that we can operate more efficiently, better use of technology, better cost control capabilities, better ability to generate onboard revenue, and efficiencies from new technology. So all of those things are very much working in our favor. And we think as we're looking forward, those will put us back on the trajectory that we were prior to the pandemic.

Okay. Thanks, Vince. Thank you for your assistance today, Shelby, with the call today, and we thank you all for your participation and ongoing interest in the company. Michael will be available all day for any follow-ups you might have, and from all of us, we wish you a very great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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