Royal Caribbean Cruises - Q2 2023

Transcript

Operator (participant)

Good morning. My name is Regina. I will be your conference operator today. At this time, I'd like to welcome everyone to the Royal Caribbean Group second quarter 2023 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 this session, you'll need to press star one on your telephone keypad. I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.

Michael McCarthy (VP of Investor Relations)

Good morning, everyone. Thank you for joining us today for our second quarter 2023 earnings call. Joining me are Jason Liberty, our Chief Executive Officer, Naftali Holtz, our Chief Financial Officer, and Michael Bayley, President and Chief Executive Officer 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'll be discussing certain non-GAAP financial measures, which are adjusted as defined, and a reconciliation of all non-GAAP items can be found on our website and in our earnings release, available at www.rclinvestor.com. Unless we state otherwise, all metrics are on a constant currency adjusted basis. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our second quarter and an update on our latest actions and on the current booking environment. We will open the call for your questions. With that, I'm pleased to turn the call over to Jason.

Jason Liberty (Chairman and CEO)

Thank you, Michael. Good morning, everyone. I'm thrilled to share with you this morning our strong second quarter results and another step change in the trajectory of our business. You may recall that we doubled our revenue yield guidance and increased our earnings expectations by 40% in May on the heels of a record wave period that drove strong booking momentum for our brands. Well, as we shared in this morning's press release, it got even better since then. The combination of strong preference for our leading brands, numerous consumer tailwinds, and the attractive value proposition of cruise contributed to strong and accelerated demand for our vacation experiences. Our brands continue to excel, and we not only delivered another outstanding quarter that significantly exceeded expectations, but are also increasing our full-year earnings guidance by another 33%.

I'm thrilled to share that we are now expecting double-digit yield growth for the full year and low teens growth rate for the remaining quarters. I want to thank the entire Royal Caribbean Group team for delivering another outstanding quarter. Their passion, dedication, and commitment allow us to deliver the very best vacation experiences responsibly while generating strong financial results. Last year, we laid out Trifecta, which set clear and ambitious targets. We have made tremendous progress towards those goals and now expect to achieve record EBITDA per APCD and record return on invested capital this year. We are well on our way to achieving Trifecta as we continue to execute on our strategies. As highlighted on slide three, we delivered another outstanding quarter that exceeded expectations.

The robust demand environment we reported back in May continued throughout the second quarter and translated into strong booking volumes at meaningfully higher prices. During the second quarter, we delivered a record 1.9 million memorable vacations at exceptional guest satisfaction scores. We achieved record yields that were 12.9% higher than 2019. Strong close-in demand, higher pricing, and continued strength of onboard spend drove the revenue outperformance. While the Caribbean remains a standout performer this year, we were particularly pleased with the strength and quality of close-in demand for European itineraries. This acceleration of demand for Europe contributed to the better-than-expected yield performance for the quarter. Our continued focus on enhancing margins and our disciplined capital allocation resulted in more than 100% of the revenue outperformance flowing to the bottom line.

We had record adjusted EBITDA and cash flow in the quarter and achieved significantly better than expected earnings. Booking volumes since our last earnings call have continued to accelerate, both for 2023 sailings and even more so for 2024, as the majority of the bookings we are currently taking are for next year sailings. The North American consumer remains incredibly strong, and volumes from European consumers looking to book their summer vacations accelerated. The strength of our brands and quality of our vacation experiences, combined with the value proposition of cruise, is translating into double-digit yield growth expectations versus 2019 for the year and low teens growth rate for the second half of 2023. Our load factors are now back to normal, so the incredible yield growth is driven by strengthened pricing and onboard spend for both new and like-for-like hardware.

While it's still too early to provide any specific color for next year's outlook, clearly, the very healthy demand environment we are seeing is quite encouraging. There has been a lot of talk about the state of the consumer, and I want to share what we are seeing from millions of daily interactions with our customers. Sentiment remains strong and is bolstered by strong labor markets, high wages, and excess savings. Our customers remain engaged and eager to vacation and build memories with us as they continue to shift preferences towards experiences over goods. Over the last few months, experience spend was up 25% compared to 2019, and double that of spend on goods. Despite this increase, spend on experiences remains lower than the long-term trend line, implying a multiyear catch-up opportunity.

Our vacation platform is appealing to a broad range of vacationers, and our addressable market continues to expand as we benefit from favorable demographics and wealth trends. In the second quarter, the % of guests who were either new to brand or new to cruise surpassed 2019 levels by a wide margin, and we have seen post-cruise repeat booking rates nearly double 2019 levels. While we have made positive strides in narrowing the gap to land-based vacations over the last several months, cruising remains an exceptional value proposition, allowing us to outperform broader leisure travel as we seek to further close the gap to land-based vacations, drive better revenue, and welcome even more happy customers. Future cruise consideration is near all-time highs and a contributing factor to a doubling in website visits compared to 2019.

Our travel partners are now fully back up and running and delivering more bookings than they did in 2019. Our improved commercial capabilities have allowed us to capture this quality demand and expand our share of the guest wallet. In the second quarter, about two-thirds of our guests booked some of their onboard activities in advance of their cruise, translating into incremental spend once on board. While we have made a significant leap, we are still in the early innings of our journey, we continue to add new features and capabilities to our app and commercial engines. One thing is clear: our guests continue to spend more on their vacation experience, and our teams continue to deliver strong guest satisfaction and Net Promoter scores.

The robust demand we see for our products is bolstered by our industry-leading brands, innovative hardware, enhanced destination offerings, nimble global sourcing model, and strong execution by our teams. New hardware has been a great differentiator for us, allowing us to drive quality demand and attract new customers into our vacation ecosystem. In 2023, we take delivery of three new ships that support our strategy and will deliver premium yield in 2024 and beyond. This month, Silversea welcomed Silver Nova, the first of the new Evolution class. Later this year, Celebrity Cruises will welcome Celebrity Ascent, and Royal Caribbean International will take delivery of the game-changing Icon of the Seas late in Q4, with its revenue sailings beginning in the end of January.

Looking ahead into 2024, Royal Caribbean International has recently revealed the ultimate weekend getaway, Utopia of the Seas, which will join our fleet mid-next year. Utopia will be the first Oasis-class ship that will be entirely focused on short cruises in the Caribbean, supporting our strategy of competing with land-based vacation alternatives and driving new-to-cruise customers into our vacation ecosystem as we seek to close the value gap. Demand and pricing for Utopia has far exceeded our expectations. Also, in 2024, Silversea will welcome the second in the Evolution class, Silver Ray, delivering the future of ultra-luxury cruising. Demand for Ray is very strong, and it is attracting the highest rates for the brand's classic fleet. We continue our efforts to deepen the relationship with the customer.

We are further enhancing our commerce capabilities to optimize our distribution channels, build even more customer loyalty, and lower our acquisition costs. We continue to enhance our e-commerce and pre-cruise capabilities and are seeing increased guest repeat rates and spend, as well as further elevation in the overall guest experience. We will continue to excel in the core and drive business excellence in order to increase yields and capture efficiencies across our platform. Our proven formula for success remains unchanged. Moderate capacity growth, moderate yield growth, and strong cost control will lead to enhanced margins, profitability, and superior financial performance. In conclusion, our business and our amazing team on and off the water are firing on all cylinders as we exceeded expectations in the second quarter and significantly increased our earnings and cash flow guidance for 2023. We are well on our way to achieving our Trifecta goals.

Our differentiated platform that includes the best brands, fleet, destination, people, and global sourcing platform is winning, and I'm very proud of our teams that go out every day to deliver the best vacations responsibly. With that, I will turn it over to Naftali. Naf?

Naftali Holtz (CFO)

Thank you, Jason, and good morning, everyone. I will begin by discussing our results for the second quarter. We delivered another strong performance with adjusted earnings per share of $1.82, 17% higher than the midpoint of our May guidance. We finished the second quarter with a load factor of 105% and with net yields that were up 12.9% versus 2019, about 260 basis points higher than the midpoint of our guidance. Overall, about half of the yield growth was driven by new hardware and half driven by a significant increase in rates on like-for-like hardware despite being a bit behind on load factors. Rates were up 17% in the second quarter compared to 2019. NCC, excluding fuel per APCD, increased 9% compared to the second quarter of 2019.

While our costs came in consistent with our May guidance, the increase in our share price and the significant increase in our financial outlook for the year resulted in higher stock-based compensation. This cost, which contributed 220 basis points to the quarter, was offset by favorable timing that will shift into the third quarter. Our operational and commercial teams are doing an exceptional job driving strong top-line growth and maintaining focus on operating expenses to expand margins. Our EBITDA margin in the second quarter has recovered to its 2019 levels, and over 100% of the revenue outperformance during this quarter dropped to the bottom line, leading to significant earnings beat versus our guidance. As Jason mentioned, booking volumes since our last earnings call significantly exceeded 2019 for both North American and European consumers.

Caribbean itineraries account for about 55% of our full-year capacity and about 37% in the third quarter. Strong demand for Caribbean itineraries contributed to the strong performance in the second quarter and is one of the key drivers of the increase in expectations for the full year. Europe sailings account for 17% of our full-year capacity and 35% in the third quarter. The acceleration in demand is resulting in an increase in our revenue expectations for Europe sailings. The better-than-expected performance has mostly been driven by our European customers, which underscores our nimble and global sourcing model. Alaska only accounts for 6% of our full-year capacity, but represents 16% in the third quarter. We have added three additional ships to the region, with capacity up about 60% versus 2019 for this high-yielding product.

Similar to the Caribbean, we have seen very strong volume trends for Alaska sailings, and load factors have been above 2019 since early this year and in line with our expectations. Now, let's turn to slide six to talk about increased guidance expectations for the full year 2023. We now expect net yield growth of 11.5%-12% for the full year, about 450 basis point increase from the midpoint of our prior guidance. About 15% of the increase is driven by the strong second quarter results, with the remainder due to a significantly better business outlook for the rest of the year. The further increase in yield expectations for the year is the result of higher pricing and further strength in onboard revenue. Both new and like-for-like hardware are driving higher pricing for our core products.

Yields for both remaining quarters are expected to be up in the low teens, with third quarter yields up 13.75 at the midpoint of our guidance range, an acceleration throughout the year. Net cruise costs, excluding fuel, are expected to be up approximately 7% for the full year as compared to 2019. Our cost outlook reflects the continued benefit from all the actions we have taken over the last several years to support enhanced margins. As I mentioned before, the increase in full year 2023 costs is mainly as a result of increase in stock compensation expense. We also recently announced our return to China in spring of 2024. In anticipation of this return, we plan to increase our cost in support of the restart.

As I noted on the last earnings call, full year net cruise costs also include 210 basis points of structural costs that we did not have in 2019, mostly related to operations of CocoCay and our Galveston terminal. Our team's focus on delivering the best vacation experiences responsibly while enhancing profitability, is translating to the bottom line. For the second half of the year, 90% of the increase in revenue expectation flows through to earnings and increases our margin. We also expect record-adjusted EBITDA or APCD for the year, and an EBITDA margin that is an eyelash away from our previous record in 2019. In summary, based on the current business outlook, along with current fuel pricing, currency exchange rates, and interest rates, we expect adjusted earnings per share of $6.00-$6.20.

Turning to slide seven, I will discuss our third quarter guidance. Net yields are expected to be up 13.5%-14% compared to 2019. Exceptional strength in Caribbean itineraries and accelerating demand for Europe itineraries is driving the increase in yields. NCC, excluding fuel, is expected to be up approximately 11.2%. About half of the cost increase compared to 2019 relates to structural costs, timing shift of operating expenses from the second quarter, and an increase in stock-based compensation expense. Many factors contribute to variability in cost growth within quarters, our focus is on full-year cost management. With that said, we expect costs in the second half to normalize to the yearly average, with 4th quarter benefiting from a more favorable comparable, mainly due to increased dry dock days in 2019.

In summary, based on current currency exchange rates, fuel rates, and interest rates, we expect adjusted earnings per share of $3.38 to $3.48 for the third quarter. Turning to our balance sheet. We ended the quarter with $3.7 billion in liquidity and generated $1.4 billion in operating cash flow during the second quarter. Our liquidity remains very strong, and strengthening the balance sheet continues to be a top priority. Better than expected cash flow generation and our disciplined capital allocation has allowed us to accelerate reduction in leverage and debt levels, with a goal of achieving investment-grade balance sheet metrics. Utilizing cash flow from operations, we repaid $1.6 billion of debt during the quarter, including $392 million of our 11.5 senior secured notes due June 2025.

During the quarter, we settled the four and a quarter convertible notes that were due in June with $337 million of cash and 370,000 shares. In July, we redeemed an additional $300 million of our eleven and a half senior secured notes due June 2025. As a result, we only have $700 million of those notes currently outstanding. That paydown actions will reduce interest expense in 2023 and beyond and contribute to further increase in earnings as we chip away at our high-cost debt. As for leverage, this year, we will have $3.2 billion of debt related to new ship deliveries that are contributing minimal to no EBITDA in 2023.

When excluding this debt from the calculation, we expect our leverage ratio to be in the mid four times by the end of the year, a significant progress toward our goal of achieving investment-grade balance sheet metrics. As our business accelerates and generates more cash flow, we will continue to proactively and methodically pay down debt and pursue opportunistic refinancings in support of our Trifecta goals. In closing, our business continues to accelerate, and we remain committed and focused on executing on our strategy and delivering on our mission while achieving our Trifecta goals. With that, I will ask our operator to open the call for a question and answer session.

Operator (participant)

At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. We ask that you limit yourself to one question and one follow-up, then reenter the queue for any additional questions you may have. Our first question comes from the line of Steven Wieczynski with Stifel. Please go ahead.

Steven Wieczynski (Managing Director and Senior Equity Analyst)

Yeah. Hey, guys. Good morning. First off, congratulations. Another, you know, very, very strong quarter. Jason, as we think about these Trifecta targets, you know, it seems to us, based on the trajectory of the business, there now is probably somewhat a high probability that some of these targets could be achieved, you know, possibly a full year in advance of your, you know, your current 2025 time frame. Based on the strong demand you're seeing already for 2024, is it, you know, is it fair to assume that achieving some of these targets, you know, much earlier than you were expecting is a, you know, is a fair statement?

look, I know that's kind of a quasi 2024 guidance question, but based, you know, just based on the current trends, it does, you know, just seem like you guys are on that path.

Jason Liberty (Chairman and CEO)

Well, thanks, Steve, and good morning to everybody. Hope everybody's doing well. First, I would say, Steve, as we pointed out with Trifecta, Trifecta was, as we described it, as base camp. You know, we think there's a lot of value to unlock here in the company, as our people and our brands just continue to execute, as we grow our business. You know, as you pointed out, you know, the current trends that we have been seeing, especially in the booking environment, you know, points to many of these metrics being able to be achieved earlier than we had anticipated them to be.

Of course, we believe very much as we have in the past, that, you know, setting coordinates and pointing the organization to those coordinates is very important to make sure that we execute on them and beyond. As we get closer to those metrics, you know, we will certainly look to talk about what's the next base camp or base camp two that, that we'll be pointing the organization to. As you said, when we look at these, at the trends, the booking environment, how we're executing, the preference for our brands, and us again, being able to further, you know, close the gap here to what we see as really the competitive set with land-based vacation, you know, the outlook looks really bright.

You know, I think we would say that it looks, you know, these trends would point to an earlier, arrival at base camp. We're not in a position yet. It's too early for us to say exactly what that timing is gonna be.

Steven Wieczynski (Managing Director and Senior Equity Analyst)

Okay, gotcha. Thanks for that. Then second question, you know, I guess just around your, your booking visibility today, which seems like it's, it's probably as good as it's ever been. I guess my question is, you know, I think historically you've turned the calendar year, let's say, at, you know, a 55%-60% kind of booked range. I know it's still early on, but based on your, you know, your current marketing plans, the current strong demand that's out there, not only from the North American side of things, but now it seems like your European customers are getting stronger.

You know, do you expect, you know, if we kind of fast forward to the end of December, moving into January, that you could turn the calendar year at a higher book position versus, you know, where you've been historically?

Jason Liberty (Chairman and CEO)

Well, I think what obviously, in our commentary about, you know, how us being. you know, how we're booked, you know, ahead on rate and volume, in our booking environment especially. Most of these bookings are relating to 2024. We feel really strong or really good about the demand environment. That very much points to 2024. What I would say is, it is very possible that we're in a more or a more booked position than we have been in the past. I would just.

I mean, we've said this in the past, you know, our goal is to optimize revenue, and so, you know, you could be plus or minus 5% on a book position standpoint as we kind of cross periods, 'cause we're looking to optimize revenue, not just optimize how much you have on the books at a certain point in time. I think our teams have demonstrated, even as you see as we cross the year here, our ability to utilize what we would say are state-of-the-art tools, to manage and optimize our revenue, not just on ticket, but also on onboard, is what's helping us, you know, helping us lead to optimizing our yield profile.

Steven Wieczynski (Managing Director and Senior Equity Analyst)

Okay, gotcha. Thanks, guys. Really appreciate it. Congratulations.

Jason Liberty (Chairman and CEO)

Yeah. Thanks, Steve.

Operator (participant)

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

Robin Farley (Managing Director and Senior Equity Analyst)

Great, thanks. Obviously, really strong results. Just looking at, you know, your expense guidance, outside of just the, you know, the compensation that's tied to performance, it hasn't really changed, it looks like, despite a lot of, you know, higher expense out there in general. I know it's early to talk about 2024, but if your higher expense hasn't sort of worsened over the last few quarters, does that give you the visibility that maybe 2024 expense could look kind of like a normal year in terms of the increase year-over-year, if the outlook hasn't been, you know, worsening for you as it, as it maybe has for some others? Thanks.

Naftali Holtz (CFO)

Hi, Robin. Good morning. First of all, all the, you know, the expense guidance that we've shared today is really the result of all the actions that we talked about and really our team's exceptional job of managing expenses and expanding margin as our yield is growing. Obviously, you know, in 2023, we were comparing to 2019. That was four-years ago. As we look into 2024, there is nothing that is extraordinary. There are a couple of things that are going to be a little bit structural. For example, we are opening Hideaway Beach, generally, it should be a normal year.

Jason Liberty (Chairman and CEO)

Robin, I just wanted to add into it, 'cause I do think it's important to recognize if. You know, if you kind of string together the calls, you know, through the pandemic and all the actions that we took to position ourselves to really kind of outperform and to grow our margins, a lot of all that work really helped absorb the vast majority of a pretty significant inflation that we saw across a lot of the items that impact our product. So we, you know, we were able to really absorb that and still produce significant Net Promoter scores.

You know, very, very thoughtful of not impacting the product or the experience, which, you know, could be easily done to help something in the short term, but in the long term, it has really paid off for us as there's clear and very strong preference on a vacation standpoint to travel with the group and the great brands that are inside of it.

Robin Farley (Managing Director and Senior Equity Analyst)

That's great. Thanks. Then just one clarification on you mentioned, you know, restarting China in April of 2024. You know, obviously some startup costs to that. Any way to sort of quantify the magnitude of that? Thanks. That's it for me.

Michael Bayley (President and CEO)

Good morning, Robin. It's Michael. I happen to be very fortunate today because I'm calling you from our beautiful Allure of the Seas, sitting in our conference room, using our Starlink technology to video conference with my colleagues and participate in the call. We're on the president's cruise. We have over 3,500 of our loyal guests, along with 2,500 other guests on this great voyage. I'm actually sitting here in my swimwear, but you can't see that. I have to tell you that.

Only to say that it's just an amazing thing to be back with our loyal guests on the product and the brand. It's quite amazing when you kind of immerse yourself with the customer, the kind of incredible feedback they give you and the loyalty that so many of our guests have for Royal Caribbean. It's really a beautiful thing. On China, we've opened for sail. We had a kind of a thoughtful process as it relates to bringing back our employees over time. As we move through 2023, we obviously take on more SG&A expense, and we have accommodated that in the forecast, obviously, and we also mitigated some of that expense.

As we look into 2024, it'll be a full year of typical operations for a one-ship operation with a lot of shared services provided by our Singapore office. I can tell you that It's early days yet, but the signals look pretty positive. We feel good about what we're seeing in terms of bookings, and we feel pretty comfortable with our operations and how we scale back our teams to sell and market and operate our China operation.

Naftali Holtz (CFO)

Yeah, just, Robin, to your question, you know, the increase between our May guidance and in costs and what you have today is entirely as a result of the stock-based compensation, which is the majority of that increase, and a little bit of that China expense that Michael was talking about.

Robin Farley (Managing Director and Senior Equity Analyst)

Great. Thank you.

Naftali Holtz (CFO)

Thanks, Robin.

Operator (participant)

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

Brandt Montour (Director and Senior Equity Research Analyst)

Hey, good morning, everybody, an excellent quarter. So first on European consumer demand, you mentioned it several times, and it was clearly one of the surprising positive takeaways here. Just maybe, if you could give us a sense of how you measure the European consumer's recovery versus how you measure the U.S consumer's recovery index to 19. Just trying to get a sense how far back the European consumer is so that we can kind of get a sense if there's sort of further recovery from that, from that source to go.

Jason Liberty (Chairman and CEO)

Yeah, Brandt, I think I would position it less about their recovery in terms of what their willingness is to spend, because their willingness to spend was very competitive with the North American consumer. I think the difference is, is that they were delayed in kind of activating their vacation. You know, they were, as we talked a little bit about on the May call, you know, we expected Europe to be a little bit lighter versus 19 in terms of load factor, and it came roaring back. That's a story of one of the North American consumer just, you know, feeling that they needed to for certainly vacation in Europe, but also the European consumer kind of was very much part of that story.

I think it's less about what they can afford to spend or what they are spending. I think it was more that they were delayed by, call it 45 to 60 days than what we typically would see in a normal booking window. Again, these are things that are on the margins, 'cause we are, you know, we were substantially book, obviously, going into the summer for Europe.

Brandt Montour (Director and Senior Equity Research Analyst)

Okay, that's super helpful. On 2024, you guys have an exciting docket here with the Icon and the CocoCay expansion in China reopening. You know, how would you sort of stack up those three things in terms of a tailwind to yield in the year of 2024 if they're all something meaningful, eventually quantifiable? Is there anything dilutive to yields in 2024? I mean, China, I guess, could be dilutive. 'cause it's sort of a restart year, and then Utopia is a brand-new ship, but it's in the short market. How do we think about that? Thank you.

Michael Bayley (President and CEO)

Hi, Brandt, it's Michael. We don't see China as being dilutive. We feel very positive about China. We certainly see Utopia as a big, strong game changer. What we've seen so far from our bookings, both volume and rate, are incredibly encouraging. We've been very thoughtful, as Jason mentioned earlier, about the strategy of putting really outstanding hardware combined with excellent destination into this short product market because it truly is the on-ramp for new to cruise and also first to brand. Our indications as it relates to new product lineup coming online in 2024 are exceptionally positive.

I'd also like to add that Icon and Utopia, and in fact, Wonder, when you look at this gap between land-based resorts and land-based experiences versus some of our top products, particularly these products we're talking about, there really is no gap. The gap has been narrowed quite significantly, and we feel very positive about where we're gonna go on that journey. you know, as we think about 2024, as we look at these products, as we see what's occurring in terms of the booking activity, both from a volume and rate perspective, and the excitement we see for these products, we feel very positive about their impact in 2024.

Jason Liberty (Chairman and CEO)

Yeah. One other just quick comment on the yield side of things. This just goes into the booking commentary. You know, clearly there's incredible demand for our new ships and, you know, Icon, you know, will certainly break and has broken, I think, probably every record in the book. I think it's important when we look at the data inside of our bookings, that it's not just the new hardware. The like for like is also very strong and growing, and that commentary, as I said, is, you know, some of it is 2023, or what we have left to book. Most of that commentary really relates to 2024.

Naftali Holtz (CFO)

Yeah, Brandt, I'll just add two more things. One is, obviously we have this year, we are now returning to normal load factors, the first half of the year was a little bit lower, that should also contribute to yield next year. On the other hand, we are now in the planning process, obviously, for 2024, we're considering all the dry docks that we need to do next year, that could be more elevated than this year, which obviously will impact some of the cost and a little bit on the yield.

Jason Liberty (Chairman and CEO)

Yeah, and the elevation on the dry dock is just a reflection of ships that came out of COVID that had missed those windows. So it will be a little bit more elevated in 2024, but just a point.

Brandt Montour (Director and Senior Equity Research Analyst)

Great. That's it for me. Congrats again.

Operator (participant)

Your next question comes from the line of Vince Ciepiel with Cleveland Research Company. Please go ahead.

Vince Ciepiel (Senior Research Analyst and Partner)

Thanks, nice to see on the results. I wanted to dig into the yield upside a little bit more. I know you mentioned it was a mix of onboard and ticket, when you think about, I think 1Q beat by 4 points, 2Q beat by almost 3 points, when you consider the volume of business kinda on the books, you know, going into the quarter, it seems to speak to price maybe on a leading-edge basis, really exhibiting a nice trajectory. Curious if you could kinda comment on that and how that informs kind of your approach to 2024 as you're thinking about kinda finding the balance in the booking curve.

Jason Liberty (Chairman and CEO)

Hey, Vince, good morning, and hope you're doing well. As Nathan commented in his opening remarks, as we look at, you know, what kinda drove or one of the key drivers of the difference from the May guidance till today is really all price, right? You know, load factor for the back half of the year, you know, we had expected to be unnormalized. I think what has been a surprise to us has just been our ability to continue to raise price and demand continuing to come in at higher levels, significantly higher levels than we have seen in previous periods.

I think it just talks to, I think, one, just preference for our brands, I think how well our commercial teams have been executing, and also keeping our customers more and more in our ecosystem has been a huge tailwind for us. I think that, that kind of just broader combination of things when you add that to, you know, just the value gap to land-based vacation is driving our ability to raise prices. You know, as we, as we said earlier, you know, our APDs for the full year are up over double digits. For the back half of the year, you know, they're gonna be in the low to mid-teens in terms of rate increase relative to 2019.

That is significantly better than we had anticipated when we gave guidance earlier this year. It's really a reflection of even as we take on the bookings and as we increase pricing, we're not really seeing that point where prices is impacting our demand. Then the other component of this is just onboard spend, which is obviously a combination of, to a degree, of price, but really the main driver of that has been our ability to be much more effective, to curate and take friction out of the process for our customers to book their activities on the ship. Of course, there are great commercial reasons of doing that. There's also an incredible guest experience benefit of doing that.

As you know, our ultimate goal here is to try to give a day back to our guests who come on our ships, instead of them having to spend a day booking their restaurants and booking their spa appointments and shore excursions, they're able to do that ahead of time. We are really in the early innings of that, especially curating. There's still a lot of friction points for us to resolve, but our teams have really just done an exceptional job of moving that forward, which you can also see, supporting an even a more elevated customer deposit balance as we're able to take on those onboard spend bookings.

Vince Ciepiel (Senior Research Analyst and Partner)

Great. That's really helpful color. I wanted to zoom in a little bit more on CocoCay. I think that you guys were on track to take about $2.5 million passengers there this year, kinda with a path towards $3.5 million in 2025. Curious, kinda where 2024 maybe falls within that window, if it's closer to 2025 or 2023. Then just what you guys are seeing in terms of customer feedback around desire to repeat visits to CocoCay and maybe, you know, how you think about the decision to send, you know, Utopia Icon to CocoCay as well.

Michael Bayley (President and CEO)

Well, Vince, thank you for the question. I mean, one of the reasons we call Perfect Day, "Perfect Day," it really is perfect. It is driving a lot of the demand, and people are booking the ships and the itineraries that sail to Perfect Day. It really is delivering an exceptional customer experience, and people value that immensely. We see the repeat rates going back to Perfect Day accelerating. As we look at the volume of guests who've got a Perfect Day in 2023, 2024, 2025, obviously, we've planned to open Hideaway Beach at the end of this year in time for Icon and Utopia. That's gonna increase our ability to add more guests to Perfect Day by about 3,000 people, and that'll come online literally in December of this year.

That allows us then to continue to increase our capacity into Perfect Day. We've also got the Royal Beach Club in Nassau, which is moving through its various approval processes, environmental and governmental permits, and what have you. That's looking as if it's promising, and we're planning on opening the Royal Beach Club in the summer of 2025. When you add that experience, the Royal Beach Club, along with Perfect Day, we feel like we genuinely have the ultimate big weekend, and that's, of course, why we've got Utopia coming online and going straight into the short market.

It's a great product. It's combined with incredible assets, the ships that we're sailing to Perfect Day. I don't think Perfect Day without these ships would be the complete perfect vacation, but we really do feel like we've got it right, and we continue to focus on delivering excellent guest experiences. It's somewhat of an obsession within the team. Of course, more recently, Celebrity announced that they're also sailing to Perfect Day, that's great for the Celebrity brand as well. We see it as a great success, and we continue to refine it and to develop it, and we continue to plan to bring our guests to Perfect Day.

Vince Ciepiel (Senior Research Analyst and Partner)

That all makes sense.

Michael Bayley (President and CEO)

Thank you.

Naftali Holtz (CFO)

Thank you.

Vince Ciepiel (Senior Research Analyst and Partner)

Yeah. Thank you.

Operator (participant)

Your next question comes from the line of Matthew Boss with J.P. Morgan. Please go ahead.

Matthew Boss (Managing Director and Senior Equity Research Analyst)

Great, thanks, and congrats on another nice quarter.

Jason Liberty (Chairman and CEO)

Thank you.

Matthew Boss (Managing Director and Senior Equity Research Analyst)

Maybe to elaborate on the acceleration in trends that you're seeing in both passenger ticket and onboard spend relative to 2019, I guess, how best to think about sustainability multi-year as you break down trends between new to cruise that you're seeing versus existing cohorts? Are there any lead indicators at all that point to any future softening on any metrics?

Jason Liberty (Chairman and CEO)

Yeah. Well, thanks, Matt. Well, first, I would say that I think the acceleration that we're seeing is on a few points. One, I think we're getting more share of the wallet, because, you know, we're helping, you know, better kind of curate and take friction out of the experience. You can see that in just the volumes of guests that are willing to book directly with us online, or because we're able to curate the actual cruise booking. Also all the things that we're doing pre-cruise to get them to book ahead of time.

A lot of it, some of it is price-driven, but a lot of it is just the friction that we've taken out of it and the commercial tools we've put in place to, you know, make it easier for them to book those experiences. I think that's a big kind of part of the acceleration. The other part, I think, of the acceleration is that, you know, we have, you know, we really do feel that we have the best brands, the best ships, the best destinations, kind of in play here, which we think is really excelling or accelerating the preference for the vacation experiences that we're offering to our guests. I think that's also a very important thing.

Really, in everything that we've talked about today and what we said in our release, in the storyline, there are no indicators of softness. There's really only indicators of acceleration in what we're seeing as we continue to have the ability to raise pricing. Of course, when we put out our guidance, it's really based off of what we're seeing today in the booking environment. Of course, you know, we've seen a continued set of acceleration from period to period. I think just, you know, I think a lot of what you're seeing is execution, and I think a lot of what you're seeing is long-term strategies coming into play, versus, you know, just, you just kind of necessarily riding the market. I think that's important.

I just want to emphasize, at this point, whether it's in the booking environment, on the ticket side, whether it's on the onboard side, we don't see any indicator of weakness.

Naftali Holtz (CFO)

Yeah, Matt, I'll just add.

Matthew Boss (Managing Director and Senior Equity Research Analyst)

Yeah, go ahead.

Naftali Holtz (CFO)

Yeah, I'll just add also, you know, obviously we made great progress on, closing the gap to, to land-based vacation, but the value gap is still there, and we see this as a, as a great opportunity to continue to grow yields. Just taking market share from the global leisure market, right? You can see some of that success with new to cruise, you know, that's really core to our strategy.

Matthew Boss (Managing Director and Senior Equity Research Analyst)

Great. Just on the bottom line as a follow-up so as we think about EBITDA margins multi-year, and just looking back at prior peak levels, is there any reason to consider the Trifecta plan as a ceiling or just any unlocks to consider, which would point to this model as accretive relative to pre-pandemic profitability levels?

Naftali Holtz (CFO)

Yeah. As you know, Trifecta for us, as Jason said, was base camp. If you kind of look at the triple EBITDA or APCD, triple digits EBITDA or APCD, which, you know, obviously is at least 100, it does have a margin expansion beyond 2019. As we continue to grow that, we see a lot of opportunities on multiple levels, right? Growing yields, lower acquisition costs, you know, just scaling the business as we grow, and our ambitions are above 2019 levels, that's for sure.

Jason Liberty (Chairman and CEO)

I would just add, there is nothing structural that I'd say puts that at risk. I think what we need to focus on, and we know this about our business model, is moderate yield growth, which I would not again call this year moderate, but moderate yield growth, good cost control, leads to expanded margins as we grow our business. You know, every 1% change in our yield is $110 million+, and a 1% change in our cost is about $50 million. You grow your yields faster than you grow your costs, and you're going to continue to expand your margins.

Matthew Boss (Managing Director and Senior Equity Research Analyst)

Congrats again.

Operator (participant)

I'll now turn the call back over to Naftali Holtz, Chief Financial Officer, for closing remarks.

Naftali Holtz (CFO)

Well, thank you everyone for your participation and interest in the company. Michael will be available for any follow-ups. We wish you all a great day.

Operator (participant)

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