Royal Caribbean Cruises Ltd.

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's fourth quarter full year 2022 and business update 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 Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.

Good morning, everyone, and thank you for joining us today for our fourth quarter and full year 2022 Business Update Conference Call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer, Naftali Holtz, our Chief Financial Officer, and Michael Bailey, President and CEO of Royal Caribbean International. Before we get started, I'd like to note that we will be making forward-looking statements during this call, These statements are based on management's current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change. Also, we will be discussing certain non-GAAP financial measures which are adjusted as defined in a reconciliation of all non-GAAP items, can be found on our website and in our earnings release available at www.rcinvestor.com. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our fourth quarter and full year results and an update on our latest actions and on the current booking environment. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason.

Thank you, Michael, and good morning, everyone. Before getting started, and on behalf of the entire Royal Caribbean Group organization, 100,000 proud, I want to express how happy we are that our business has returned to normal. In fact, as you saw in the release this morning, our business is accelerating. So let me get into the detail and start off by talking about the fourth quarter and the full year, 2022. As highlighted on slide 6, 2022 was a challenging but successful transitional year as we returned our business to full operations and delivered memorable vacations to 6 million guests. As you can see on slide 7, during the fourth quarter, demand for our brands accelerated. We delivered a record 1.8 million vacations, achieved a 95% load factor, and successfully returned to Australia for the first time in three years. Pricing for our vacation experiences was higher than record 2019 levels when we operated with normalized occupancy, and guest satisfaction scores were exceptional. Adjusted EBITDA and adjusted loss per share were above our expectations and at the high end of our guidance. It is incredible to consider that just one year ago, we were in the midst of Omicron, we were still returning our ships to service, and we were sailing at load factors below 60%. Our fourth quarter results clearly demonstrate that we are back, back to usual occupancy, back to our full addressable market, back to EBITDA and cash flow profitability, back to providing full-year guidance, and most importantly, back to delivering a record number of incredible vacations on the most innovative fleet in the industry. We finished 2022 on a high note, and are entering 2023 with the full strength of our operating and commercial platforms. Our strong book position, along with the normalization of the booking window, provides the visibility needed for us to resume annual guidance, which is in line with our trifecta program. I am incredibly thankful and proud of everyone at the Royal Caribbean Group for executing so well on our mission of delivering the best vacation experiences responsibly and building the foundation for our future growth. There has been a lot of talk about the state of the consumer, so I want to share what we are seeing from daily interactions with consumers who are either booking their dream vacations or who are currently sailing on one of our amazing ships. Overall, we continue to see robust demand from financially healthy, highly engaged consumers that are excited to sail on our brands. Secular tailwinds continue to benefit us as consumer preferences shift from goods to experiences. Entertainment and travel spend remain strong, and the job market continues to show resilience. Consumer sentiment has improved, and banks have recently reported healthy savings and continued resilience in credit card spending. Our addressable market is larger than in 2019 and continues to grow. Our products appeal to a broad range of vacationers, with everything from a short getaway to perfect day to a luxury world cruise. Cruising remains an exceptionally attractive value proposition, and as I have said in the past, it is too attractive, and we are working very hard every day to close that gap. Growth in cruise search has outpaced general vacation searches, resulting in double the number of visits to our websites compared to 2019. Our brands are attracting new customers into our vacation ecosystem and with fourth quarter new to cruise and new to brand mix above 2019 levels. We are constantly enhancing our commercial capabilities so we can further capture quality demand. Approximately 60% of our guests book some of their onboard activities in advance of their cruise, representing double-digit growth in pre-cruise purchase penetration when compared to 2019 at significantly higher rates. As we have said before, every dollar a guest spends before the cruise translates into about 70 cents when they sail with us and over double the overall spending when compared to other guests. Our guests are now engaging with us to book onboard activities much earlier than in 2019. So far, guests booked on 2023 sailings purchased onboard experiences an average of more than two months earlier than in 2019. This translates into more revenue, stickier bookings, and happy guests. Now I'll provide some insight into the demand environment and what can only be described as a record-breaking wave season. As you can see on slide eight, bookings outpaced 2019 levels by a very wide margin throughout the fourth quarter, with particularly strong trends during cyber weekend. We expected a strong wave season, but what we are currently experiencing has exceeded all expectations, even when considering our capacity growth. As a result, and as highlighted on slide nine, the seven biggest booking weeks in our company's history all occurred since our last earnings call. Our commercial apparatus is full speed ahead, and all channels are delivering quality demand above 2019 levels. Our direct-to-consumer channels continue to perform exceptionally well, as a combination of consumer preference for digital engagement and our enhanced capabilities is supporting record-level bookings. We are also encouraged that our strong base of loyal travel partners continues to recover and is supporting our brands with bookings above 2019 levels. As always the case, trends vary by region. We are seeing particularly strong booking trends for North American-based sailings, which account for nearly 70% of our capacity this year. From a cumulative standpoint, these itineraries are now booked at the same load factor as they were in 2019 and at higher prices. Our 2023 European sailings are booked within historical ranges at better rates with recent bookings outpacing 2019 levels. We expect almost 80% of our guests to come from North America as we continue to see particularly healthy demand from that region. Our global brands appeal and nimble sourcing models allow us to continuously shift sourcing to the highest yielding guests. I will now comment on our outlook for 2023. In 2023, we expect to deliver amazing vacation experiences to over 8 million guests at record yields as we deploy our best-in-class fleet across the best global itineraries. The wrap-up of our load factors in 2022, coupled with a higher and improving pricing environment, is positioning us to fully recover our yields beyond 2019 levels in the first quarter, which is another important milestone, and then ramp up further to record levels as we return to historical load factors in late spring. Our strong yield growth outlook is driven by the performance of our new hardware, strong demand for our core products, and continued growth from onboard revenue areas. This year, we expect to increase capacity by approximately 14% compared to 2019, with eight new ships already introduced since 2019 and three more set to be delivered this year. Each of our wholly owned brands will welcome a new vessel in 2023. Silver Sea will welcome Silver Nova, the first of the Evolution class. Celebrity Cruises will welcome the fourth Edge Series ship, Celebrity Ascent. And Royal Caribbean International will take delivery of Icon of the Seas, marking the first new ship class for the brand in nine years. which is sure to set a new standard for vacation experiences. In addition to our incredible new vessels, we plan to launch Hideaway Beach in the fourth quarter of 2023, an adult-only neighborhood making Perfect Day at Coco Cay more perfect and increasing capacity in the island to 13,000 visitors daily. Our journey to deepen the relationship with the customer will continue in 2023. We will further enhance our commerce capabilities to optimize our distribution channels, build a deeper connection with guests, and lower customer acquisition costs. We will also further enhance our e-commerce and pre-cruise capabilities and focus on increasing our guest repeat rate and spend. We will continue to excel in the core and drive business excellence in order to increase yields and capture efficiencies across our platform. Our teams have been working closely hard for over two years to reshape our cost structure and abate what would have otherwise been at least a 25% increase in non-fuel costs per APCD when compared to 2019. Net cruise costs, excluding fuel, is expected to grow 4.75% to 5.75% versus 2019. That's versus a three-year benchmark that includes a period of significant global inflation. Our cost outlook for the year includes approximately 210 basis points from lingering transitional costs such as crew movement and additional structural costs such as full-year operations or perfect day at Coco Cay and our new Galveston terminal. Our teams have been committed to controlling costs and enhancing profitability while focusing on delivering the best guest experience. We continue to expect the business to accelerate and allow us to deliver record yield and adjusted EBITDA in 2023. Our proven formula for success remains unchanged. Moderate capacity growth, moderate yield growth, and strong cost controls leads to enhanced margins, profitability, and superior financial performance. Our ESG ambitions help inform our strategic and financial decisions on a daily basis, ensuring that we always act responsibly while achieving our long-term profitability goals. In 2023, we will continue active efforts towards our target of reducing carbon intensity by double digits by 2025. We also expect to deliver on significant milestones in our decarbonization pathway, including the advanced technologies on our new ships, while also investing in retrofitting our existing fleet with emission-reducing technology and programs. We will utilize tools to expand supplier diversity and improve our ability to build an inclusive network of suppliers. We will further focus on improving diversity, equity, and inclusion, and ensure our employees are physically and mentally healthy. To wrap up, 2023 sets the foundation for our trifecta program. Our people are committed to our mission of delivering the best vacations responsibly and doing so while achieving our trifecta goals. In 2023, we will be hard at work executing on our strategic pillars, focusing on deepening customer relationships, delivering the best hardware and destinations, and excelling in the core. The future of the Royal Caribbean Group is bright. I am confident in our growth trajectory and our ability to deliver on our near-term and long-term goals, as well as to reach new financial records. And with that, I will turn it over to Naf. Naf.

Thank you, Jason, and good morning, everyone. Let me begin by discussing our results for the fourth quarter. As you can see on slide 10, we reported a net loss of $500 million or loss per share of the $1.96, an adjusted net loss of approximately $300 million or per share of $1.12. The results were above our expectations and the high end of our guidance range. Total revenue was $2.6 billion, operating cash flow was $600 million, and adjusted EBITDA was $409 million, again, above our expectation and guidance. Fourth quarter outperformance was a result of continued strong demand for our brand's vacation experiences, strong close-in bookings at higher prices, and continued strength of onboard revenue. Better cost management and favorable timing of expenses across several categories, lower fuel rates, lower customer acquisition costs, and lower interest expense also contributed to the financial results. We finished the fourth quarter at 95% load factor, with big December holiday sailings at 110%. Load factors varied by itinerary, with the Caribbean averaging 100% and both late-season Europe and Australia, which opened in Q4, at just under 90%. Total revenue per passenger cruise day was up 4.5% in constant currency compared to the record fourth quarter of 2019. Net yield was down 7.4% in the fourth quarter compared to 2019, a significant improvement for the 14% decline in Q3 and above our expectation. 2022 closed out as a successful transitional year, and we generated $8.8 billion of total revenue, $712 million of adjusted EBITDA, and almost $500 million of operating cash flow. I'll now provide an update on our 2023 business. Let's start with capacity. Our overall capacity for 2023 will be about 14% higher than 2019. Nearly 70% of our 23 capacity will sail on North America based itineraries. About 17% will be in Europe and close to 10% will be in the APAC region. The remaining capacity will operate in a number of other regions, including South America and Antarctica. From a cumulative standpoint, our book load factor remains well within historical ranges, and we have meaningfully narrowed the gap to 2019 levels. Overall, our North America-based itineraries, many of which visit the amazing perfect day at Coco Cay, are booked in line with 2019 for the full year and are ahead for Q2 forward at better rates. Sailings in Europe are booked within historical ranges and are catching up. We have seen improved booking trends for these itineraries so far in WAVE, particularly from the US and the UK. We expect the improvement to continue, supported by our global sourcing model. Constant currency net yields are expected to be higher than 2019 in all four quarters, with more growth for Q2 through Q4, when load factors return to normal. The return to yield growth in the first quarter marks a significant point in our recovery and highlights the resilience of our company, the strength of our brands, and the consumer's desire to spend on our amazing vacation experiences. As of December 31st, our customer deposit balance was $4.2 billion, which is about $400 million higher than our balance at the end of the fourth quarter in 2019. Shifting to Costs Our teams continue to demonstrate the ability to manage cost pressures while staying focused on our mission of delivering incredible vacation experiences to our guests. Net cruise costs, excluding fuel, per APCD increased 3.9% as reported and 4.7% in constant currency compared to the fourth quarter of 2019. Net cruise costs for the fourth quarter included $1.23 per APCD or 100 basis point impact of transitory costs related to our health protocols and lagging costs relating to fleet ramp up and crew movements. We expect these transitory costs to substantially dissipate as the majority of our crew has returned and protocols have eased. Our teams have been working constantly for over two years on reshaping our cost structure through operational and distribution efficiencies and leveraging group scale. We continue to see the benefits further materialize in 2023 to partially mitigate continued inflationary pressures. Regarding fuel, fuel rates are coming off the highs of last year. We continue to improve consumption and have partially hedged the rate, which is helping us mitigate the volatility and cost of fuel expense. As of today, fuel consumption is 55% hedged for 2023 and 10% for 2024. As highlighted on slide 11, we are resuming annual guidance for the first time in three years as we have more visibility into our book of business and the year ahead. We expect net yield growth of 2.5% to 4.5% for the full year. The underlying yield improvement is driven by the performance of new hardware, strong demand for our core products, continued growth from onboard revenue areas, and it also accounts for lower expected low factors versus 2019 levels. We expect yields to ramp up as we return to historical load factors in late spring, such that we achieve record yields and revenue throughout the year. Net cruise costs, excluding fuel, are expected to be up 4.75 to 5.75% for the full year as compared to 2019. Our cost outlook reflects our culture of continuous improvement and innovation. Now let's remember that we are comparing cost figures to a three-year-old benchmark, including a period of high global inflation. The expected NCCX also includes 210 basis points of lagging transitory and structural costs. Inflationary pressures and supply chain disruptions continue to put pressure on costs across many categories, including food and beverage, airfare, and short-sighted human capital. our teams continue to find creative ways to manage through inflation and increase profitability. Lastly, costs in the first half of the year are also burdened by more dry dock days during the second half of the year. Fuel expense is expected to be approximately $1.1 billion for the year, and we are 55% hedged at below market rates. Based on current fuel pricing, currency exchange rates, and interest rates, we expect records adjusted EBITDA and adjusted earnings per share of $3 through $3.60. Now turning to slide 12, I'll provide some color on first quarter capacity and guidance. We plan to operate about 11.2 million APCDs during the first quarter with low factors at 100%. Let me break down first quarter capacity expectations a little more. During the quarter, Approximately 80% of our capacity will operate from North America, mostly sailing to the Caribbean. This is higher than in the first quarter of 2019, particularly for short Caribbean sailings. We have added more capacity in the region to capitalize on the incredible perfect day at Coco Cay, which was not yet open three years ago. 10% of our capacity is in Australia. Close to 5% is in Asia. and the remainder spread across multiple other itineraries. Based on currency exchange rates, fuel rates, and interest rates, we expect adjusted loss per share of $0.65 to $0.85. Net yields are expected to be up 1% to 2% versus 2019 in constant currency. We are excited to finally recover our yields to record 2019 levels and continue to work hard at further growing our yields and revenues as occupancy level normalizes. On the cost side, overall, we expect our net cruise costs, excluding fuel, to be up approximately 8.5% compared to 2019. Similar to the full year guidance, the first quarter carries 320 basis points of transitory costs, structural costs, and timing of expenses that are weighing on NCCX when compared to the first quarter of 2019. Shifting to our balance sheet, We ended the quarter with $2.9 billion in liquidity. Our liquidity remains strong, and we are focused on expanding our margins to further enhance EBITDA and free cash flow. Our ultimate goal is to return the balance sheet to an investment-grade profile. During the fourth quarter, we repaid $600 million of debt maturities and closed on the refinancing of $2 billion of secured and guaranteed debt previously due June 2023. Additionally, in January, we successfully extended $2.3 billion of our existing Revolver credit facility commitment to April 2025. Our access to capital remains strong, and our execution and performance resonate with our investors and financial partners. We will proactively and methodically continue to manage near-term maturities and improve the balance sheet. For 2023, our scheduled debt maturities are $2.1 billion, made up of predominantly ECA debt amortization, which we expect to pay down with cash on hand and cash flow generated from operations. Our business continues to accelerate, and we expect to grow yields and control costs, such as we achieve record yields and adjusted EBITDA in 2023 as we regain the tremendous profitability of our business. Our strong book position and enhanced commercial capabilities provide further visibility into 2023 and remain committed and focused on executing our strategy and delivering our mission while achieving the trifecta goals. With that, I will ask our operator to open the call for a Q&A session.

At this time, if you would like to ask a question, simply press star, then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. We ask that you please limit yourself to one question and one follow-up. Our first question comes from the line of Steve Wisinski with Steeple. Please go ahead.

Hey, guys. Good morning, and very solid results here. So, look, you're back to guiding the way you used to guide before COVID, which should tell us that your visibility is as good as it's probably ever been, or I should say back to normal. So, You know, my question is, look, historically you've turned the year, let's call it 55% to 60% booked. And I first want to understand maybe kind of where you stand right now in terms of that booked position versus historical levels. And then, you know, it does seem based on your current strong visibility that if your customer base stays pretty much status quo, it would seem to us that your EBITDA for this year would not just exceed 2019 levels, but, I mean, pretty well exceed 2019 levels. I just want to understand if that's fair and your guidance maybe incorporates some conservatism around maybe consumer trends. Hey, Steve.

Thank you for your questions. I would first start off and say that on a book position standpoint, we're now an eyelash away from our historical load factors or book position. But we also expect our load factors as we got it to be a little bit lower until we get into the spring. And that's why on the Q1, our load factors. So when you adjust for our expectations on load factors, we're in a very strong book position and at rates that are considerably higher than what we saw in 2019. I think our teams have put together a forecast that we believe is achievable, and it is based off of what we believe is very strong visibility on the revenue side as well as our ability to manage our cost structure. We do expect to exceed handsomely our EBITDA that we generated in 2019, and clearly we see patterns continuing to accelerate in the way that they are, there's certainly opportunity for us to have a better outcome for the year. But I think we're thoughtful in just how we've always been. We're very thoughtful in how we guide. We're thoughtful in how we're seeing these different products and markets operate. And so we feel really strongly about 2023. And quite frankly, we feel very strongly when we consider the acceleration towards trifecta.

Okay, gotcha. Thanks for that. And then second question would be around the transitory costs. And, you know, I would assume that most of these costs are kind of hitting your, you know, the other operating and SG&A lines. But, you know, look, I would assume by the time we get to the third quarter, maybe fourth quarter, the majority of those headwinds should be gone. And by the time we get to 24, all those costs should be gone. I just want to make sure that, you know, I'm kind of thinking about that the right way.

Hey, Steve. Yes, that's exactly right. And you can see that we've made progress. every quarter, and we expect that to dissipate as we progress throughout the year.

Yeah, and I just want to add, because I know it was in our remarks, but we're a little bit of a different organization than we were in 2019. We have a full year of Perfect Day now. We have things like Galveston. We've also shed some businesses like Azamara as an example. And so I think when you step back and you see that you know, our costs are basically up mid single digits versus 2019. And 210 basis points of that are the structural and some transitory, you kind of get into like a 3% or so cost increase versus 19. What it shows is that what we were saying during the pandemic about us getting into our wedding weight has really helped us absorb a very high inflationary environment that we've all experienced during 2019, and that is really the result of incredible effort by our brands and our shared service areas who really put the time and the work in while not impacting the guest experience.

Gotcha. Thanks, guys. Appreciate it. Congratulations. Thanks, Steve.

Your next question comes from the line of Robin Farley with UBS. Please go ahead.

Great, thanks. Just wanted to get a little bit more of a split in your yield guidance between the occupancy and the revenue per day piece of it, just thinking about the occupancy issue sort of going to cure itself, and I guess would think about that price increase as something that would carry forward into 2024, unless you think that some of that pricing, you know, that there's a trade-off to get back to full occupancy. So just trying to think about how much of the yield increase that you're guiding to really money occupancies back, you know, implies a greater price, a greater yield increase for, you know, going forward. Thanks.

Yeah. So, hey, Robin. So first for the full year, obviously many moving pieces as we are again comparing a three-year benchmark. And as Jason said just a minute ago, we're obviously different. So we exited some ships, some brands. We added Galveston. We have direct contribution now from Perfect Day at Coco Cay. All of it is slightly negative to yield, but overall, obviously very, very important to us. The majority of the benefit that you see on the yield side is from new hardware. We also put that hardware on the best itineraries. They have more onboard revenue opportunities. And the rest is like for like that is up despite the fact that, as you mentioned, the load factors are much lower than what we had in 2019. For Q1, if we adjust for the load factor difference, yield would have been around mid-single digits, so it's obviously more impactful for Q1.

Okay, great. That's helpful. Thanks. And then maybe just sort of a follow-up to that is, you know, one of your trifecta goals is that sort of EBITDA per birth that you've given as a long-term goal. Is there any kind of ballpark EBITDA per birth that you might give sort of a range for 23? Just thinking about, you know, obviously a lot of the EBITDA versus 19, you know, would clearly be above given the 14% capacity growth. So if we just think about the possibly not per birth basis. Just kind of wondering how recovered you may be in 23 versus 19. Thanks.

Yeah. And so, Robin, just we've obviously we've moved now to start to guide back to what we were doing in 2019 to make sure we create comparability. We clearly believe that our EBITDA is going to be up and our EBITDA per birth is on its way getting back to those record levels, which is really just being impacted by fuel prices. But that's really where we're very focused because we believe one of our paths to getting to ROIC in the teens is obviously focusing on improving our margins across all of our brands. And so that's how we've guided for 2023, and the focus is very heavy internally on us improving those margins.

Okay, great. Thank you. Thank you.

Your next question comes from the line event CPL with Cleveland Research Company. Please go ahead.

Thanks for taking my question. Helpful commentary there with the onboard bookings in advance and especially strong results here in 4Q despite you continuing to close that. occupancy gap versus 2019. So curious how you're thinking about that onboard per passenger cruise day throughout the course of this year. As you fill out the interior shift, I imagine there's maybe a little bit of a mix headwind there, but can these onboard levels remain elevated? And secondarily to that, the ticket component, how would you expect that to evolve through the course of this year?

Hi, Vince. It's Michael. If you remember when we first started coming out of the pandemic and we saw this really strong, robust onboard spend, we wondered how long it would last for. And, you know, we had different theories about that. It's just continued to strengthen. And I think, you know, all of the investments we made during the pandemic with Hybris and our pre-crew software and our capabilities with the web, really has changed this needle, and we just continue to see incredible strength with the onboard spend, and the number continues to improve. So the pre-cruise penetration is now above 60%. We've now got 25% of activity occurring on our app, which is something new over the past couple of months. We've made multiple changes to the software and our capabilities to communicate with the customer pre-cruise and on-cruise. and the response has been extremely positive. So we see a great deal of strength. We're very pleased with the performance, and we think it's going to continue all the way through this year and into 24.

Yeah, I just want to just add on a few things. Obviously, as we add more thirds and fourths, that can weigh a little bit on the average APD on the onboard side. But I think what's important to point out is that the strength and onboard and the spending, as Michael mentioned, One is obviously the consumer or our addressable consumer is healthy, is sitting on a lot of savings, is searching for experiences and creating memories with their friends and family. But our ability to get the consumer to book earlier is really the main force behind why we're seeing an increase in onboard activity. So a healthy consumer certainly helps. Their desires and interests certainly help, but also allowing them to effectively get at least a day back of their vacation by allowing them to plan what they want to do on the ship as well as shore excursions. It's certainly creating a great tailwind for us. And on the ticket side, we expect our ticket yields to continue and APDs to increase. There's a little bit of always that how we package and how we do things can lead a little bit more into ticket or a little bit more onto onboard depending on how it is with the brand. And also one of the – I think the other drivers on the ticket and onboard side is just whether it's through e-commerce and other things. We're taking more and more friction out of the acquisition experience or how the customer shops. And that's also allowing them to get the exact vacation of choice that they're looking for and on the platform or the channel of choice that they choose to go through.

That's helpful. And maybe taking a step back, a bigger picture question, if you look at the order book for industry supply growth, Looks like kind of this 4% to 5% range in 23 and 24, but then falls off in 25 and 26. So can you remind us the timeline around new ship builds? Is that decel in 25 into 26 pretty set? And your take on what decelerating industry supply growth might mean for the broader pricing picture?

Well, I certainly don't know the plans of our competitors on a new building standpoint. As we had kind of noted in our release, how we expect our business to grow next year by about 10%, then about 5%, and then about 6% respectively. And I think the first thing to point out is that's not just one brand and one market and one destination. So this really reflects our three goals. wholly owned brands and how they're going to grow in their different segments and also for these ships to be in different parts of the world. If you look at the order book, you do see, as you get into 27 and 28, a lighter order book. We believe at Royal Caribbean that the addressable market is underpenetrated, especially in all the different markets that we operate. We are We worked very hard to create global brands that attract guests from all over the world and, of course, to build the revenue management systems to effectively harvest that quality demand. And we think that apparatus more than supports our expected supply growth over the coming years.

Hey Vince, it's Michael. I just have to add one little comment here talking about new ships coming online. Obviously we opened up the sale icon of the seas a few months ago and that ship literally has been the best selling product in the history of our business and has been absolutely outstanding in terms of the demand and the pricing that we're generating for that product. And in fact, It's really driving a great 24. I mean, we never talk about 24 at the beginning of 23, obviously, but 24 is looking very healthy. And a big driver of that is Icon. We've had some remarkable stats coming out of Icon. Just one little nugget that gets me very excited is it's only one category of room, but the ultimate family townhouse that we sell on Icon, which is a three-story building, experience in our new suicide venue for younger families is already 55% sold for 2024 at an average price of $75,000 a week. So you can just get a feel of the kind of demand that's being generated by these new products. And obviously, we're very excited with what we're seeing with ICON and that new class, which Jason mentioned this is the first time Royal Caribbean International has had a new class of ship in nine years, and we are delighted with the performance so far.

Well, we'll save you a cabin, Vince. Don't worry.

Got to start saving for that. Appreciate it.

Thanks.

Your next question comes from the line of Brandt Montour with Barclays. Please go ahead.

Hey, good morning, everybody. First off, congratulations on this really important milestone. So my first question is on wave season, by all accounts, in your account this morning, wave season is going really well. Volumes seem to be pretty consistent week over week, month over month. Jason or anyone, if you could just expand a little bit more on the behavior you're seeing within the bookings, any differentiation between brands or any pricing sensitivity sort of forming at either at the lower end with your older fleet shifts or at the higher end suites? and things that were pricing much better last year going into this year.

Well, thanks, Brent. First, I mean, I don't say this lightly, so it's wonderful to say, but we're really seeing these very strong wave trends across all of our brands. And you see an elevated amount of demand coming from North America. And we have been very happy to see over the past two or three weeks that elevated demand now move into Europe as well. We have been very happily surprised by how strong we're seeing the consumer plan their vacation travel and to see that our booking window is now within a couple weeks of what it has normally been. And that includes a lot of acceleration for short closing products, especially as we've increased more of our three-, four-, and five-night products is really encouraging overall. So I wish I could say it's different. Well, actually, I don't wish I could say. I should say that it's different from family to ultra-luxury or to Expedition, but we're really seeing this across all of our brands really strong. And we've seen markets, like, for example, like Northern Europe, now begin to move into a much stronger place I also just add is demand, as you probably have seen in other travel products, for North Americans to go to Europe has been exceptionally strong. And so we're now seeing that take over here in the cruise space.

Just to add one comment on the demand from North Americans, we've also seen strong demand coming out of the Latin American markets for the European product, which has surprised us, but obviously we're taking advantage of that. But it's pretty much across the board that we're seeing the strength in the consumer, and it's across so many of our markets, which is really healthy to see.

That's great. Just to follow up on both of those comments, it sounds like US into Europe and the UK, as you called out, are where you're most excited, even if it's the Europe end market. in terms of the consumer that you sell to and that European consumer that you sell to that might not be as good as a consumer right now for you, are they accelerating too, you know, sort of against their own comparables?

Yeah, they are. And I think the other thing that has been, that we've seen through the course of this wave is our ability to raise prices at the same time. So the demand is that strong that we're able to raise price across these different products and really not seeing a pullback from the consumer as we continue to do so. And that is really a reflection of what we've seen since our last earnings call, or really since the announcement of the protocol is being dropped, just acceleration and the propensity to cruise across all three categories of new to cruise, first to brand, first to cruise. has returned, and in many cases, is better than what we saw pre-COVID.

Thanks for the call. Congrats again. Thank you.

Your next question comes from the line. Benjamin Shakin with Credit Suite. Please go ahead.

Hey, how's it going? Maybe I missed it, but the guide implies some net yield growth through the year, clearly. Is this simply occupancy improving, or is the revenue per passenger cruise day also expected to improve? And I guess I ask that in the context of what sounds like better pricing in the last few weeks and months.

Yeah. Hey, Ben, it's not. So it's both. And, you know, you can see the acceleration into business. Obviously, with the normalizing of the occupancy levels and the continuous strength of pricing.

Gotcha. That's really helpful. And then on Cocoa K, are you still seeing the same or similar pricing premiums to the Cocoa K itineraries as you did in 2019? And then longer term, should we assume that you make further buildups in other locations that are similar to Cocoa K? And if so, how do you think about that opportunity while also bringing down Harbridge?

Hey, Ben, it's Michael. I think the answer to those questions is yes and yes. I mean, you know, we ironically opened Cook OK in 2019, and it was just a huge success. Now, of course, it's really doing an amazing job, and the demand for that product is exceptionally high. have a significant increase in our overall capacity that we bring into Coco Cay. I think for this year, 23, we'll be bringing 2.5 to 3 million guests to Coco Cay. And the demand not only is there from a volume perspective, but the rate is there. And that rate has been going up, again, in a very healthy way. And it's the same with the spend for the products and experiences on Perfect Day. We've seen a great demand and a lot of resilience as the prices go up. So it's a hit and it's very successful. We are opening Hideaway Beach on the fourth quarter of this year in preparation for Icon of the Seas. It'll be arriving also towards the end of the fourth quarter. And of course that Hideaway Beach will allow us to bring an additional 3,000 people to Perfect Day. So Our capacity will be approximately 13,000 people a day. And yes, we have an appetite for other such ventures. And as soon as we're ready to make any announcements, we will. But clearly from our perspective, we think this is a really, it's a wonderful part of the product experience. And our guests clearly demand this type of experience that we can now give them. So our intention is to continue to grow this business. piece of the experience for our guests.

So let me just add one other thing, which is the financial returns associated with CocoCay and the like are exceptionally high and are significantly above our target returns. So this should be accretive to profitability and obviously to EBITDA, and those are the type of investments that we obviously want to continue to make.

Gotcha. And just one quick follow-up. Those numbers are on Hideaway Beach, 3,000 a day. Is that incremental to the 2.5 to 3 million at CocoCay, or is 2.5? Yes. Yeah, that's incremental. Great. Thank you.

Your next question will come from the line of James Hardiman with Citi. Please go ahead.

Hey, good morning. Thanks for taking my question and congrats on a great quarter and some really important benchmarks here. I wanted to dig in a little bit on Europe and Asia. Obviously, a year ago, wave season, it was obviously marred by the Russia-Ukraine conflict. Being such a global brand, you guys do what you do. You adjust. It sounds like both in terms of the destination markets as well as sourcing customers, things are getting better. I guess my question is on Europe, is there still a lingering impact of that conflict in your business that, you know, who knows what's going to happen with that conflict, but that could ultimately be a positive for next year? And it's sort of similar question with China. I'm assuming there's not much of a benefit yet from sort of the zero COVID policy going away there. But is there any way to sort of quantify or even anecdotally speak to, you know, what sort of a drag that is on your business that could potentially open up for you next year?

So I'll just, I'll start on the Europe one and Michael can then take China. You know, first off, I think the consumer, the impact on the Ukraine, Russia, I think comes to us in two ways. One of which is a little bit of a deployment impact and, you know, we're not able to go more east into the Baltics because of the very unfortunate conflict that continues on. And then obviously there's some impact on the European consumer because of energy prices. That I think is the impact that hopefully will evaporate over time. But their propensity to cruise, their desire to go on a vacation experience is high. The value proposition for the cruise, as I noted in my remarks, That gap is still very significant. It's too significant as we look to try to close that. But I think that's really where you see the effect. The consumers desire to go, or European consumers desire to go to the Nordics, desire to go to the Western Med, Eastern Med, which is really kind of fully open to them to experience. That demand is there. I just think that they continue to probably be a little bit more pinched, because of the increase in energy prices and how that's impacted their economy. With that, I'll let Michael comment on China.

Hey, James. Yeah, on China, obviously the environment's improved significantly from what we've been told by our China team. So things have started to normalize, and they seem to have got over that very difficult period. There's currently two impediments to the China cruise market opening up. a ban technically on cruising and group travel in China, and also there's a requirement from the Japanese that Chinese tourists have to test and potentially could be quarantined. We understand that both of these conditions will drop away at some point during this first half. That's what we've been led to believe, and we believe that that's going to happen. As soon as those two conditions change, then obviously the market will reopen, and we're thinking that it'll be late 23. And we're kind of thinking that 24, probably realistically, the China market will be back. But obviously, that's based upon how we understand and see the situation currently.

Yeah, I was just going to, and clearly, you know, China was a very high yielding, highly profitable market for us. And as that market comes back online, you know, we're very optimistic about um, how that can either further propel, um, the opportunity for us. And I would just comment in the, in the context of trifecta, um, we, we, we didn't contemplate China in that consideration, um, as it has not turned itself back on.

And it's also not, uh, obviously incorporating our this year results as well. Got it.

All, all really helpful. And then, um, By way of follow-up here, I mean, you've talked a couple times, I think, about closing that gap to land-based vacation. I thought the commentary about cruise search outpacing general vacation searching seemed relevant. Maybe speak to that. Do you think that gap has gotten as big as it's going to get, and maybe you closed that gap this year? Obviously, you have much more insight into your own business than into land-based vacation, but maybe sort of updated thoughts there.

Yeah, I don't know. I don't think we're going to close that gap in 2023. I'm encouraged by the ability now for us to increase our pricing even more, which I think will give us the opportunity to close that gap. I'm excited about what we're seeing in the onboard side, which also helps us close that gap. But that gap, which used to be 20%, is now in the 30%. zone, um, relative to pre COVID, which was around the 20% mark. Um, but we do think that that there's a lot of runway for us. Um, and, and that's, you know, that just, I think through great execution, um, aware, just broader awareness of our brands and the cruise and the cruise complex that we see now is being appreciated more and more by our guests helps us lead to getting a better pricing and which helps us lead that, you know, to that closing that gap. What we're not interested in is the gap closing just because their pricing could potentially go down. We want to elevate ourselves up to that level, and we think that's definitely something that's in our capabilities to do so.

Got it. Thanks, and good luck the rest of the way, guys.

Thanks, James.

Your next question comes from the line of Daniel Pulitzer with Wells Fargo. Please go ahead.

Hey, good morning, everyone, and congrats on a nice quarter. So first I want to just touch on the cost. It sounds like you're going to exit 2023, you know, more in line with their historical levels. As you get to 2024, and I know it's still early days, are there any kind of one-time items that we should be thinking about that could impact your algorithm, that kind of 1% to 2% cost increase? And, you know, whether it's China relaunching or land-based destinations or any technology initiatives?

Yeah. Hi. Good morning, Dan. So, you know, as we said, our formula is moderate capacity growth, moderate yield growth, strong cost control, and obviously you have some moving pieces here in the first quarter and throughout the year. But this is kind of where we're marching towards, so our expectation is to get back to that formula.

Got it. And then I guess for my follow-up on TUI, Can you just talk a little bit more about the ramp there? I know that there's a big European piece, and it sounds like things are moving along. But how should we think about that contribution, you know, ramping over the course of 2023, given that it was a big piece of that adjusted EBITDA in 2019?

Yeah, so that continues. You know, we're very happy with TUI and their performance. It's been a very successful year. cruise brand. Their recovery is well underway. They've been positive operating cash flow in EBITDA for several quarters now. They're very strong occupancy levels and pricing. So we expect this to continue to recover towards 2019 levels and beyond.

Yeah, the only thing I would add is, you know, for TUI Cruises and Hoplite Ward Cruises, just similar to all of us, they still have some some negative carry to burn off as well. And I think, you know, there, there are a few years from, from being at a place where they're contributing at the same level to us as they were in 19. But, but that's, you know, it's, I think it's a very short duration as they, as they are, have been really effectively managing the business. They really have been outpacing. I think there's just a broader cruise world and getting their business back up and running and, and profitable and generating positive cash flow. But like all of us, they have some negative carry they're going to have to burn off.

Got it. Thanks so much.

Your next question will come from the line of Patrick Schultz with Truist Securities. Please go ahead.

Hi. Good morning, everyone. Good morning. Good morning. First, this actually is just a model and clarification question. On your percentage guidances, to grow off of versus 19 for the net yields and the various cruise costs. Are those apples-to-apples-based numbers, basically the reported numbers that you had back in 2019, are those the numbers we should be growing off of, or is there any adjustments in there that might make those percentages different than, okay, all apples-to-apples?

No adjustments. Those are apples-to-apples, and obviously we gave you the color of all the moving pieces.

Okay, thank you. And then a different question here. With the increase in direct business, you know, do you see that disproportionately going to any types of destinations such as Caribbean or perhaps higher end Alaska or Mediterranean? You know, any differentiation between those?

Well, you know, Clearly, on direct business, the shorter the product, the higher the percentage, and that's just more because the consumer is comfortable and understands the complexity or the lack of complexity on the short product. The further, typically, the consumer goes or the higher end that it goes typically requires they're more comfortable going to our travel partners. We have really tried hard to be just kind of a channel of choice And, of course, the consumer has become a little bit more digitally minded through COVID because they were buying a lot of stuff online, as we all know. And as they now shift to experiences, they're comfortable in different channels. And some of those digital platforms are through us, and some of those digital platforms are through our travel partners. But that's typically how you would see it is the shorter and closer, the higher.

Yeah, no, that I understand perfectly. But as far as any changes since pre-COVID, have you seen a greater acceleration in sort of direct booking to higher end or perhaps a greater acceleration?

It's really across the board. The consumer at all different levels have gotten more comfortable using digital commerce to make their purchases. And that is whether you want to look at Royal or Celebrity or Silversea or TUI, That's what we have been consistently saying.

Okay. Thank you for the caller. I'm all set.

Operator, we have time for one more question.

Our final question will come from the line of Fred Weidman with Wolf Research. Please go ahead.

Hey, guys. Thanks for squeezing us in. I just want to make sure I understood the equity investment line commentary. Are you guys saying to just take a haircut to what you guys did in 19, but it'll be relatively similar from a seasonality perspective, or were you trying to say something else?

No, I think if you go through the guidance and our expectations of what we provided, you know, our expectations, obviously, it's going to be lower than 2019 because what Jason mentioned is the negative carry. So they continue to recover.

Okay, and then there was a comment that 4Q new to cruise was above pre-COVID levels. I'm just curious when you look at what you have on the books for 23, does that percentage continue to improve? And could you give us a sense for order of magnitude?

Yeah, well, just our general commentary on wave, what's driving that strength is new to cruise and new to brand. And so that mix is not only similar, but it's better on than what we saw take place in the fourth quarter. So, you know, we feel that propensity to cruise. And by the way, I think one thing that's important on the new to cruise stat, especially relative to 19, is because we don't have China in the mix of our business. Pretty much every Chinese consumer back in 19 was a new to cruise consumer. So that really talks about the strength of the North American and European consumer and their interest in to go on a cruise for the first time or to go on to one of our brands for the first time.

Perfect.

Thank you.

Okay. We thank you all for your participation and interest in the company. My code will be available for any follow-ups. I wish you all a great day.

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