Royal Caribbean Cruises - Earnings Call - Q2 2025

Executive Summary

• Strong beat on EPS and slight revenue miss: Q2 Adjusted EPS was $4.38 vs S&P Global consensus of ~$4.08* (beat by ~$0.30) on $4.538B revenue vs ~$4.549B* (slight miss), driven by stronger close-in demand, lower costs (timing), and below-the-line favorability (TUI JV, lower net interest). Q2 revenue/EBITDA actuals vs estimates: $4.538B vs ~$4.549B*, Adj. EBITDA ~$1.851B vs ~$1.744B*.
• Guidance raised again: FY25 Adjusted EPS increased to $15.41–$15.55 from $14.55–$15.55 prior; Net Yields now +3.5–4.0% (as-reported); NCC ex-fuel ~+0.5% (as-reported) vs prior.
• Q3 setup: Management guides Q3 EPS $5.55–$5.65, below current S&P Global consensus of ~$5.68* due to a ~150 bps yield headwind from late-quarter delivery/ramp of Star of the Seas and cost timing (+230 bps to NCC ex-fuel growth).
• Demand and commercial engine remain catalysts: Bookings accelerated since last call, close-in strength, digital channels driving pre-cruise purchases; management emphasizes loyalty, AI-driven pricing/personalization, and destinations as structural growth drivers.

Note: Items marked with * are S&P Global consensus values.

What Went Well and What Went Wrong

What Went Well

• Close-in demand strength and onboard monetization: Net yield beat vs guidance on stronger close-in demand across products; onboard/pre-cruise spend exceeded prior years with higher participation/prices.
• Margin expansion and cost control: Adjusted EBITDA margin reached 40.8%, up ~300 bps YoY; NCC ex-fuel growth was 180 bps better than guidance due entirely to timing shifts into H2.
• Strategic pipeline traction: Bookings for Star of the Seas and Celebrity Xcel “performing extremely well”; Royal Beach Club Paradise Island early demand “very robust,” reinforcing destination-led strategy. CEO: “We are well on our way to achieving our Perfecta financial targets by the end of 2027.”.

What Went Wrong

• Q3 EPS guide below Street: Midpoint $5.60 vs S&P Global consensus ~$5.68*, reflecting ~150 bps yield drag from late Star of the Seas delivery and intentional ramp constraints, plus cost timing shifting into Q3.
• Cost cadence headwinds near term: Q3 NCC ex-fuel growth guided +6.4%–6.9% as-reported (incl. ~230 bps from Star delivery and Q2→Q3 cost timing), a sharp step-up vs Q2.
• Fuel and FX sensitivity persists: Q3 fuel expense guided at $298M with 64% hedged; FY25 fuel $1.143B, 66% hedged—still a notable P&L lever if prices move; 10% fuel change = ~$15M in Q3 sensitivity.

Transcript

Blake Vanier (VP)

Good morning, everyone, and thank you for joining us today for our second quarter 2025 earnings call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer, Naftali Holtz, our Chief Financial Officer, and Michael Bayley, President and CEO of the Royal Caribbean brand. 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, and a reconciliation of all non-GAAP items can be found on our investor website and in our earnings release. 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, the current booking environment, and our outlook for 2025. We will then 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, Blake, and good morning, everyone. I am thrilled to share our strong second quarter results and updated outlook for the year. Our world-class brands and the exceptional experiences they offer continue to resonate deeply with consumers, driving both strong demand and excellent financial results. Our second quarter results exceeded expectations, mainly driven by stronger-than-expected close-in demand, a shift in the timing of some expenses, and favorability below the line that was mainly driven by the outperformance of our two cruises joint venture and lower interest costs. We are also increasing our earnings guidance for the year and now expect adjusted earnings per share to grow 31% year over year.

We are delivering exceptional value to our guests while continuously raising the bar with a powerful pipeline of industry and segment-leading new ships, a growing portfolio of meaningfully differentiated land-based private destinations, adding new experiences to our ecosystem like river cruising, and deploying unmatched digital and AI innovation to enhance the guest experience and maximize margins. These key differentiators and accelerators are resulting in another significant increase to this year's earnings estimates and accelerating our path to achieving our Profecta financial targets by 2027 as we continue to win share on the rapidly growing $2 trillion global vacation market. Like we have said before, our ambitions go well beyond Profecta, as our strategic initiatives are designed to drive significant growth for years to come.

In 2028 alone, we expect significant benefits from our current strategies, which, among many others, include the launches of Oasis 7 and Edge 6, as well as full-year benefit of Icon 4, the full-year operation of Perfect Day Mexico, Royal Beach Club Lalapa at full capacity, and the first complete operational year of Celebrity River. As we advance our journey to help our guests turn the vacation of a lifetime into a lifetime of vacations, we're already creating lasting memories for our growing guest base and significant long-term value for our shareholders. I want to thank the entire team here at the Royal Caribbean Group for their passion, dedication, and commitment, who continue to deliver the best vacation experiences responsibly every single day.

Turning to our results and outlook, in the second quarter, our capacity increased 6% as we delivered over 2 million incredible vacations, a 10% increase year over year at high guest satisfaction scores. Net yield grew 5.2%, 70 basis points higher than our guidance that was driven by better-than-expected close-in demand across all key itineraries. Yield growth was split evenly between new hardware and the existing fleet. Load factor was 110%, two percentage points higher than last year, driven by contributions from new ships and improvements on a like-for-like basis across our itineraries, highlighting the continued strength and demand for our brands. We delivered adjusted earnings per share of $4.38 for the second quarter, which was 36% higher than last year and exceeded our guidance by $0.33. The outperformance was driven by better revenue, a shift in the timing of some expenses, and better below-the-line performance.

Naftali will elaborate more on Q2 results in a few minutes. Now I'll provide some insight into the demand environment. Bookings have accelerated since the last earnings call, particularly for close-in sailings. We continue to see engaged and excited consumers, with roughly 75% intending to spend the same or more on leisure travel over the next 12 months. At the same time, more than half of consumers tell us they are booking closer to their departure date than they used to, and for the people who intend to travel over the next 12 months, the majority have not yet booked. Our booked position is in line with prior years at higher APDs for both 2025 and 2026. In addition, onboard spend and pre-cruise purchases continue to exceed prior years. These trends are supported by the exceptional strength in our digital channels in terms of both cruise bookings and pre-cruise purchases.

Our spectacular new ships continue to generate strong quality demand. Earlier this month, we took delivery of Star of the Seas, and I can say that she is just as impressive as we had intended. We look forward to her star-studded launch in just a few weeks. Bookings for Star of the Seas and Celebrity Xcel, which is coming in the fourth quarter, are strong in both pricing and load factor. We also recently opened the Royal Beach Club Paradise Island for sale, and early demand has been incredibly strong, reinforcing our strategy of delivering exclusive destination-led experiences that elevate the vacation value proposition within our ecosystem. We conduct independent research and leverage data points from millions of daily interactions with our customers. We continue to see very positive sentiment from our customers, bolstered by strong labor markets, high wages, surplus savings, and elevated wealth levels.

Overall, consumers remain financially confident, with three out of four indicating that they feel financially secure. Leisure and travel spend continues to grow, and leisure travel continues to be the number one category when consumers plan to increase spending over the next 12 months. That is outpacing dining, live entertainment, shopping, and even self-care. We are also seeing strong intent across demographics, particularly among millennials and younger, who continue to represent half of our customer base. They not only express a desire to travel more, but are increasingly choosing cruise vacations as their preferred way to celebrate meaningful life moments. Roughly 7 in 10 consumers in these younger generations are also more likely to book closer to departure, reflecting a desire for spontaneity and flexibility.

In addition, more than half of the millennials tell us that they are more likely to consider cruising today compared to two years ago, driven mainly by the attractive value proposition of cruise. Value continues to be a critical driver. Consumers consistently cite cruises as offering excellent value for money, thanks to our all-inclusive pricing, high-quality products, and the unique opportunity to experience multiple destinations in a single trip. Among those who were once skeptical of cruising, a growing share now say they are more likely to consider it than they were two years ago. Meanwhile, repeat cruisers continue to rate cruising as the best value for their vacation spend. With brands that consistently lead in guest satisfaction and vacation options that range from weekend getaways to bucket list adventures on ocean and on land, we continue to deliver on consumers' evolving expectations.

Moving to our outlook for 2025, the year is on track to be another record year, with net yield expected to grow in the range of 3.5%-4%, supported by new ships, like-for-like increases, and the continued success of our private destinations. Our yield guidance does not factor in a further acceleration of close-in demand within the quarter like we have recently seen. If current trends continue, it could lead to further yield growth above our guidance for the second half of the year. Full-year adjusted earnings per share is now expected to grow 31% and be in the range of $15.41-$15.55. The improved guidance reflects our better-than-expected second quarter performance, lower-than-expected spend, and continued favorability below the line for the remainder of the year. In the third quarter, we expect to grow yields 2-2.5% on top of almost 8% yield increase in the same quarter last year.

Our expected yield growth for the quarter is driven almost entirely by like-for-like hardware, as Star of the Seas launches very late in the quarter, after the peak summer season. This timing, along with the operational ramp-up period, where we purposely limit load factor to ensure an exceptional experience, impacts its contributions and creates a headwind to yield for the quarter of approximately 150 basis points. Our proven formula is working: moderate capacity growth, moderate yield growth, and strong cost discipline is driving significant earnings growth, continued margin expansion, and robust cash flow generation. We remain on track to achieve our Profecta targets: a 20% compound annual growth rate in adjusted earnings per share through 2027 and a return on invested capital in the high teens. Our ambitions, as we said before, go well beyond. We are well positioned for our most ambitious chapter yet.

It will reshape the vacation landscape and expand our leadership in leisure travel. It all begins with our world-class portfolio of brands, each leading and being the champion of their respective categories, both in trust and satisfaction, while meeting the evolving needs of our guests. We amplify that strength with the most innovative ships, exclusive private destinations, and a connected ecosystem that makes planning and enjoying a vacation seamless and rewarding. Over the next few years, we plan to introduce seven new ships, including Star of the Seas, Celebrity Xcel later this year, followed by Legend of the Seas in 2026, Icon 4, and our first Celebrity River in 2027. In 2028, we'll deliver Oasis 7 and Edge 6, the next ship in the Celebrity Edge class. This steady lineup will support our moderate capacity growth, enhance our global reach, and further differentiate our collection of vacation brands.

On land, we're expanding our destination portfolio with Royal Beach Club Paradise Island, opening in the Bahamas later this year, Royal Beach Club Cozumel at the end of 2026, and in late 2027, Perfect Day Mexico, which is approximately the size of the Magic Kingdom in Orlando, will debut. Earlier this month, we officially closed on our acquisition of the port of Costa Maya and are now well underway in bringing this exciting destination to life. In 2027, we'll expand the reach of our Royal Beach Club collection to the South Pacific with Royal Beach Club Lalapa. These experiences are located across key strategic markets and are engineered to generate premium yields and returns for years to come.

Central to our destination strategy is a commitment to the economic development of these communities, generating thousands of jobs, championing environmental restoration, improving wastewater treatment, conserving local native plants and species, and supporting robust recycling programs, as well as providing educational and training programs and infrastructure investment in roads and community centers. Our commercial flywheel is accelerating as we deepen relationships with our customers through digital innovation to remove friction, drive commercial opportunities, and lower acquisition costs. Repeat bookings are meaningfully rising, and cross-brand loyalty is accelerating, with nearly 40% of all bookings coming from our loyalty members who spend 25% more per trip. Nearly 50% of onboard purchases are now coming through the mobile app, compared to a third at the end of 2023.

As a reminder, customers who purchase onboard experiences before their cruise spend about two and a half times more than those who do not buy pre-cruise. We are investing in a modern digital travel platform, infusing AI into almost everything we do, and investing in enriched data to make it easier than ever for guests to book and design their dream vacations while allowing us to expand wallet share. App downloads have now surpassed 30 million, and long-term adoption is increasing. We continue to invest in more commercial and experience capabilities, increasing interactions and enhancing commercial features. Looking ahead, we are incredibly energized by the momentum we are building. These ambitious initiatives reinforce our flywheel, strengthen our ecosystem, and unlock powerful new pathways for long-term growth as we continue turning the vacation of a lifetime into a lifetime of vacations.

I am incredibly proud of our teams at Royal Caribbean Group for their dedication and strong execution. The opportunity ahead is significant, and we're well positioned to lead the next era of leisure travel. With that, I will turn the call over to Naftali. Naf?

Naftali Holtz (CFO)

Thank you, Jason, and good morning, everyone. I will start by reviewing second quarter results. Net yields grew 5.2% in constant currency compared to the second quarter of last year, 70 basis points above the midpoint of our guidance. Yields grew across all key products and were evenly split between new and existing hardware. The yield outperformance was driven by stronger-than-expected close-in demand. Onboard revenue was higher than last year across all key categories as we continue to see very engaged consumers.

In the second quarter, approximately half of our onboard spend was booked before the sailing, with three out of four guests making pre-cruise purchases to reserve onboard experiences. In the second quarter, we delivered 2.3 million incredible vacations. New to cruise or new to brand accounted for approximately 60% of our guests, of which more than half were millennials or younger. Net cruise costs, excluding fuel, increased 2.1% in constant currency, 180 basis points lower than our initial guidance, driven by shifting of timing of spend that will roll into the second half of the year. Adjusted EBITDA margin was 41%, 300 basis points better than last year, and operating cash flow was $1.7 billion. Adjusted earnings per share were $4.38, 36% higher than last year and 8% higher than the midpoint of our guidance.

Earnings outperformance was driven by the strong close-in demand, shifting timing of spend, and favorability below the line. $0.10 per share of favorable timing of spend is expected to roll into the second half of 2025. As Jason mentioned, demand for our portfolio brands and industry-leading experiences continues to be very strong. Bookings have accelerated since the last earnings call, particularly for close-in sailings, leading to the second quarter outperformance. Our book load factor is in line with prior years and higher APDs. Capacity is expected to grow 6% for the full year and 3% in the third quarter. As expected, capacity in the third quarter is the lowest throughout the year and is impacted by the delivery timing of Star of the Seas in late August.

Looking ahead, fourth quarter capacity growth is expected to be 10%, benefiting from a full quarter of Star of the Seas, the launch of Celebrity Xcel, and additional APCDs due to lower dry dock days compared to 2024. The Caribbean represents 57% of our deployment this year and 42% of capacity in the third quarter. Our leading hardware and private destinations strengthen our competitive position in this market with the introduction of Star of the Seas, Celebrity Xcel, and the opening of Royal Beach Club Paradise Island by the end of the year. Europe will account for 15% of capacity for the year and 28% in the third quarter. Alaska is expected to account for 6% of total capacity and 13% in the third quarter. Now, let me talk about our revised guidance for 2025.

Our proven formula for success, moderate capacity growth, moderate yield growth, and strong cost discipline is expected to drive significant earnings growth and higher cash flow generation this year. We are increasing our yield guidance for the year and now expect net yield growth of 3.5%-4%, driven by second quarter outperformance. As Jason mentioned, our yield guidance does not factor in further acceleration in close-in demand like we have seen recently, which could lead to more upside if these trends continue. The cadence of yield growth throughout the year, as expected, is driven by the timing of new ship deliveries and lower dry dock days in the fourth quarter. The impact on yield growth is approximately 150 basis points in the third quarter and approximately 90 basis points in the fourth quarter.

Full-year net cruise costs, excluding fuel, are expected to be approximately 0.3%, 10 basis points lower than our prior guidance as we remain focused on efficiency, enhancing margins, and maximizing cash flow. While we manage our costs more on a yearly basis, the cadence of our cost growth varies throughout the year. This is driven by timing of dry docks, ship deliveries, and the ramp-up of costs related to our acquisition of the Costa Maya port and other new private destinations. We anticipate a fuel expense of $1.14 billion for the year, and we are 66% hedged at below-market rates. Based on our current fuel prices, currency exchange rates, and interest rates, we expect adjusted earnings per share between $15.41 and $15.55.

The 43% increase compared to our prior guidance is driven by Q2 outperformance of $0.23, taking into account $0.10 of timing shift of spend and $0.20 benefit from lower spend and below-the-line favorability for the remainder of the year. We also expect 17% growth in adjusted EBITDA and 260 basis point growth in adjusted EBITDA margin. This positions us to accelerate our cash flow generation, which allows us to continue investing in our strategic initiatives, maintaining investment-grade balance sheet metrics, and expanding capital return to shareholders. Now, let me comment on third quarter guidance. In the third quarter, we expect capacity will be up 3% year over year and a net yield growth of 2%-2.5%, driven almost entirely by like-for-like hardware as Star of the Seas launches very late in the quarter. Net cruise costs, excluding fuel, are expected to be up 6%-6.5%.

Approximately 230 basis points of cost growth is attributable to the timing of delivery of Star of the Seas and the cost timing shift from the second quarter. Taking all this into account, we expect adjusted earnings per share for the quarter to be $5.55-$5.65. Turning to our balance sheet, we ended the quarter with a strong $7.1 billion in liquidity. We are in a very strong financial position and will continue to further strengthen the balance sheet. During the first half of the year, we received investment-grade ratings by all three major credit agencies, reflecting the strength of our financial position, consistent performance, and disciplined capital allocation strategy. We are proud of the hard work that has brought us here and remain committed to maintaining the strong momentum.

In addition, we amended and upsized our two unsecured revolving credit facilities during the quarter, bringing the combined revolving credit facilities commitments to $6.4 billion and extending the maturity of one facility to October 2030. With a strong balance sheet, we are committed to investing in our growth strategies, delivering a competitive dividend yield, and opportunistically buying back shares. We have very limited maturities left for this year, all related to ship amortization payments that we plan to repay with cash flow. We also expect leverage to be at mid-to-turns by the end of 2025. In closing, we remain committed and focused on our mission to deliver the best vacation experiences responsibly as we work to deliver another year of strong performance. With that, I will ask the operator to open the call for a Q&A 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 re-enter the queue for any additional questions you may have. Our first question will come from the line of Matthew Boss with JPMorgan. Please go ahead.

Matthew Boss (Equity Research Analyst)

Thanks, and congrats on another great quarter.

Jason Liberty (Chairman and CEO)

Thank you.

Matthew Boss (Equity Research Analyst)

Jason, could you elaborate on the continued acceleration in demand that you cited for your brands and experiences? Have you seen any change in July booking trends? And maybe, could you speak to the playbook for offense that it seems like you're laying out with investments and initiatives to stay ahead of where demand is going in that $2 trillion growing global vacation market?

Jason Liberty (Chairman and CEO)

Sure. Thanks, Matt, and I hope you're doing well. I think just to first start off.

One of the things that we have seen of late is just this kind of overall acceleration in close-in demand, which is a little bit different. We've seen close-in demand acceleration, but we have seen that kind of further shift in behavior, which I commented is not something we typically contemplate in our forward-looking guidance. It's not just on the ticket side. It's also what we're seeing on onboard spend. Holistically, as we get to see millions of spending activities per day, we see a very healthy customer. When we dig into that customer, they have great jobs. They have strong balance sheets, and they're confident in spending and making sure that they're receiving the vacation experience that they're looking for. Again, I think all turns are green on the customer at this point in time. They're traveling all over the world.

We're seeing that not just in North America, but we're also seeing that in European travel activity. I think as we think about going on the offense, I think first just grounding that ultimately what we're trying to do and what we always do is we orbit ourselves around our guests, around our customer. We focused on this. I know it's a tagline of going from a vacation of a lifetime to a lifetime of vacations, but it's very important for us as we think about how do we increase our repetition with our customers. You're already starting to see signs of that offense coming forward here with an increase in the number of loyalty members that are sailing with us that has now inched up to 40%.

We're trying to increase repetition, which ultimately leads to an increase in lifetime value of the customer, lowers our acquisition cost, and positions us to close the gap further to land-based vacations. We are chasing closing that gap. You'd say the industry is probably around $80 billion-$85 billion on the $2 trillion leisure market that is out there. We're doing that in several ways. Obviously, when you look at it on structural items like ships, we're excelling in the core. We're investing and growing our fleet. We have, I think, a very clear reputation of designing and building the most innovative ships, and not just the industry, but also in our respective segments. We're continuing to grow our brands. We're modernizing our fleet so those ships are highly competitive and are in line with what the customer of today is looking for. We are meaningfully investing in destination experiences.

We have three announced Royal Beach Clubs. We have one announced Perfect Day Mexico that we're building in addition to the one that we have in the Bahamas. Again, meeting our customers, what they're looking to do. We're able to do that not just by benefiting from the volume, but also enhancing the guest experience as those destinations tend to be the highest-rated destinations that are out there. We're also expanding the experiences that we're delivering, right? You can see that in the addition of River in 2027, and also even in the hotel that we're building in the southern part of Chile, which creates differentiation in anyone who's looking to visit Antarctica. Lastly, all around this is heavily investing in our commercial apparatus, right? It's what is interacting with our guests each and every day.

We're utilizing disruptive technology like AI and other tools to be able to manage 15 million price points a day and to be able to listen to what our customers are looking for and curate what our customers are looking for that are relevant to them. That enhances the experience for them, takes friction out of the experience, and also allows us to be more efficient and gain more margin. The other thing I would just add is, obviously, last year, we rolled out our integration across our brands on loyalty. We are focused on loyalty that matters, loyalty that really impacts guest behavior. It has to be something that they appreciate and it keeps them inside of our ecosystem.

I just kind of laid out, if you were to look at where we're investing in terms of especially what we've announced, that's what we're doing in order to make structural differentiation, deepen our moats. Continue to lead. Again, ultimately, our focus is not what's happening on the cruise competitor side. Our focus is on how do we close that gap to land-based vacation because every 1 percentage point is worth a tremendous amount of money to the company and to our shareholders.

Matthew Boss (Equity Research Analyst)

That's great, Collar. Maybe as a follow-up, Naftali, near-term, what have you embedded for close-in demand in the back half relative to the outperformance that you saw in the first half?And then with more than 30% earnings growth now forecasted for this year, that's well above your analyst, Dave Caker, just any puts and takes to consider as it relates to the phasing of investments multi-year beyond this year?

Naftali Holtz (CFO)

Yeah. Hi, Matt. As we said in the prepared remarks, we gave guidance based on what we've seen in terms of booking. As we said, we have seen acceleration. To the extent that there is further acceleration of the close-in demand, obviously, that creates an upside for the second half of the year. Also, remember, we're fairly booked for the year. We're kind of closing out a very successful year and now, obviously, focusing into next year in a couple of months. In terms of what's embedded in our plans, as you know, we've announced Profecta, and this is a 20% annual compounding growth of earnings through 2027.

Everything that Jason just mentioned in terms of investments in ships, destinations, technology, modernization of our ships is really what's driving that moat and that differentiated performance. Now, this year is obviously higher than that 20% CAGR. This positions us very well to achieve our Profecta targets. The formula is working, and that's really what we're focused on: moderate capacity growth, moderate yield growth, strong cost control that obviously drives earnings, drives cash flow, and allows us to execute on our plans. One of the things that is important, and we said that also when we announced Profecta, when we put out these targets, we did not embed any share buybacks into those plans. As we get the balance sheet to the range, and it is already within the range, obviously, we will be focused on capital return as a supplement to that growth.

That is in the form of share buybacks, which we will opportunistically do. Of course, dividend. We're very focused on competitive dividend. Now, competitive dividend brings value to the shareholders, but obviously does not factor into earnings per share itself. As you kind of look at it together, that's another area of that. At the end of it, as Jason mentioned in his prepared remarks, Perfecta is just, for us, another milestone, but definitely not our ambition. We laid out just in 2028 tremendous tailwinds that we have from all the new ships and destinations that are coming online. We're very much focused on building the moat and long-term shareholder value.

Matthew Boss (Equity Research Analyst)

Great, Collar. Best of luck.

Operator (participant)

Our next question comes from the line of Steven Wieczynski with Stifel. Please go ahead.

Steven Wieczynski (Managing Director)

Yeah. Hey, guys. Good morning.Jason, I want to go back to the second half of the year guidance, which obviously you talked a lot about. It doesn't incorporate any benefit from close-in booking momentum or kind of what you've seen in terms of onboard spend. Let me try to ask this question a little bit differently than Matt just kind of asked. Let's say, Jason, hypothetically, if close-in demand stays as strong as what you've seen recently, and it sounds like, given the feedback that you guys have gotten from your customer base, that's not going to change, and onboard kind of stays the same way as well, is there a way to think about what that would mean to yields in the back of the year?

I guess I'm probably just a little bit surprised that you think about the third quarter being able to grow, let's call it 4% on a like-for-like basis when you include the start of the season impact off of a plus 8% last year. To us, that's kind of impressive. I guess what I'm trying to figure out here is what could that mean for yields if everything kind of stays status quo? Hopefully, that kind of makes sense.

Jason Liberty (Chairman and CEO)

Yeah. Thanks for the question, Steven. Of course, even if you look at the third quarter, I'm doing this from memory, but I think 2023 was close to 17%, and last year was close to 8% on a yield improvement standpoint.

We tried to articulate if you had a full quarter of Star, what that would have looked like for us, as all the Q3 is being driven by like-for-like demand generation. The answer is that if we see similar patterns, the answer is that the back half of the year will be better. As Naftali just commented, we are very well sold into the year. There is always the opportunity, as we think about even in the third quarter, a couple of points of moat factor that we still have left to build. There is opportunity there, and then that opportunity would be larger in the fourth quarter. We typically, when we think about our forecast, do try to do a 50/50 forecast.

Also, when we put a forecast together, we typically want to look more than just a couple of months of demand points to kind of set that going forward. We do see similar demand patterns. The answer is it's better stuff to actually quantify. If I could have quantified it, then we probably would have put that into our guidance for the year. I think the main takeaway is that the consumer is strong. There is strong demand for our brands. I think we have a very strong handle on cost and on our capital, on where we are investing. I think it is very clear where that is, and it is there to not just support the business, but to continue to differentiate the business. Thirty-plus % earnings growth year over year is pretty spectacular, I think.

It is just another, I think, testament to how we keep finding opportunities to do better. We are never satisfied, as our investors are never satisfied, I am sure. We are always looking to do more. I think all these investments that will play itself out here over the coming years, especially on the destination side, really has an opportunity to have a really significant step change in earnings power.

Steven Wieczynski (Managing Director)

That is great, Collar, Jason. Second question, going back to Profecta. Obviously, you have talked about how that is on track at this point. Those targets obviously end in 2027. You mentioned all these positive things that are going to be coming online in 2028. They are going to help you guys out, whether that is Perfect Day Mexico, Oasis Class Icon, River Cruising, other private islands. The list kind of goes on.

I guess my question actually is, as you guys are sitting here today, should we think that 2028 could see earnings growth at least in line with your Profecta targets? I would probably even say maybe if not higher than that.

Jason Liberty (Chairman and CEO)

I appreciate you pointing it out. Obviously, a lot of these investments take time to design and build and bring them online. Of course, when we bring these things online, we are very thoughtful in the ramp-up because we only have one chance, as my mom said, you only have one chance to make a good impression. On somebody. We're really thoughtful about that. I think to your point, when you look into 2028 and you see basically, I mean, we've all seen the power of Perfect Day in the Bahamas. Wait until we see Perfect Day Mexico come to life and the Royal Beach Clubs come to life.

Now we have River. Of course, we ramp up from two ships in 2027 to four ships in 2028. Of course, it's probably too early to talk about exactly what that all means, but it should result in a significant step up in earnings power as we think about that. None of that, of course, takes into account when we think about capital allocation. Naf mentioned us, obviously not significantly. I mean, we first, of course, are investing in growing our business, but we take very seriously shareholder returns through a competitive dividend and buyback shares. Any share buyback consideration is not something that is contemplated, which will just be another, I think, significant tailwind to earnings per share growth.

Steven Wieczynski (Managing Director)

Okay. Thanks, Jason. Appreciate it.

Operator (participant)

Our next question comes from the line of Conor Cunningham with Melius Research. Please go ahead.

Conor Cunningham (Director)

Hi, everyone. Thank you.

Just on loyalty, you've been talking about it a lot more, and obviously, one of your competitors is speaking about it a little bit as well. When we're talking about closing the gap to land-based competitors and whatnot, a big gap, I think, is on the co-branded credit card program and then maybe the loyalty program optimization in general. If you could just talk about the opportunity set there and how you envision it. I don't think your credit card is tied to your loyalty program currently, so if you could just talk about that a little bit, I think that could be helpful.Thank you.

Jason Liberty (Chairman and CEO)

Sure. We do have a co-branded credit card. It is tied today to our loyalty program, but not in the way that fits our ambition.

We're very closely working with our co-branded credit card provider, and I think you're going to see something very meaningful coming out of that very, very soon. At the end of the day, we have this great opportunity that we sit on a lot of quality data. We have a lot of interactions with our guests. Our guests are telling us what are important to them. We don't have a business consumer here, right? We don't have that frequency of a business consumer in the world of you earn and you burn. You earn on the business side. You burn on the consumer side. Our guests are very focused on recognition and also being incentivized for the spend and the loyalty that they provide.

I mean, if you've spent time in our app and if you've spent time seeing how we're interacting with our guests, especially in the loyalty program side, we are very tuned into and have a lot of plans on what are things in which our guests or our brands feel is of value to them that would result in them behaving even more loyal to us. We've already seen a shift of a couple of months just in their behavior with us, which is why there was a 40% of our guests in the third quarter that were loyalty members. Loyalty, I think, is very important. I think people want to be recognized. They want to not just be recognized for their spend today, but recognized for all that they have done in the past.

We need to make sure we're creating an environment across our brands to make sure that in their lifetime of vacation, that we have the right vacation experience that is relevant to them and that they're benefiting from continuing to stay inside of our ecosystem. At the end of the day, I look at loyalty as I look at loyalty with our employees and everyone else, it's a two-way street. Our guests should feel that they always want to stay inside of our ecosystem. If somebody goes outside of our ecosystem to another cruise competitor or to somebody else on land, then we should look at that as a fail. I think our teams have done such an exceptional job at engaging and putting things in front of our guests that they value and incentivizing them, which is now resulting in even more and more repetitions with our guests.

Conor Cunningham (Director)

Okay. Appreciate it. Maybe I could ask just for a clarification on the drag from the timing of Star of the Seas. Is there anything embedded in fourth quarter from Celebrity Xcel, Star? Is there anything linear from Star of the Seas in there from a load factor perspective? The only reason why I ask is if you strip out a lot of the noise, I think that's kind of happening. Core pricing is actually exiting very, very strong. I'm just trying to understand where core is versus some of these timing issues that are kind of out there. Thank you.

Jason Liberty (Chairman and CEO)

Yeah. You're right, Conor. Most of the impact of Star is really in the third quarter. In the fourth quarter, we have two things that I pointed out. One is Celebrity Xcel starts in mid-November. That's obviously just mid-quarter. You have that, and you have to get it ready.

Obviously, ramp her up. Similar to what happened with Star in the third quarter. Also recall that last year, we had a pretty heavy dry dock year. We usually take our dry docks in the lower yielding periods. Last year, in the fourth quarter, we had more dry docks than this year. That is actually a drag on yield as well. Together, we quantify that as roughly 90 basis points between timing of new ships as well as dry dock days.

Conor Cunningham (Director)

Thank you. Appreciate it.

Operator (participant)

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

Robin Farley (Managing Director)

Great. Thank you. Just looking at the full year guide, I mean, Q2, great results. Your commentary is very positive.

Why at the top end of the yield range? What is your change in thinking there that the top end of the yield range came down a little for the year? Thanks.

Jason Liberty (Chairman and CEO)

Yeah. I would just say, Robin, when we gave guidance last, we expanded the range. There was a lot of noise in the system geopolitically that resulted in us just widening that range to give kind of investors a sense of what that could be. Obviously, there were others in travel leisure that pulled their guidance. We expanded our range just to give kind of where potential outcomes could be. What you see in our range is a reflection of our historical practices. At this point in the year, we are typically plus or minus seven points there. That is what we provided. Seventy points. Seventy basis points.

Robin Farley (Managing Director)

If we think about that, obviously, in April, it is a very active sort of geopolitical headlines all going on. I guess I am just trying to think how we should interpret how you are feeling at the sort of most optimistic end versus a quarter ago because it seems like some of the hotel companies have called out things improving in July relative to where they were in that sort of April, May period. Just trying to think how we should view your commentary or your yield change at the top end.

Jason Liberty (Chairman and CEO)

Yeah. One of the differences between cruise and hotel and even airlines is just what percent booked we are within a period.

I do not think it is in terms of the opportunity, it is probably not necessarily the same on hotel and airlines because of how sold we are in the quarter and how sold we are for the end of the year. As I said, with that range, that range is a reflection of a 50/50 on our forecast. There could be, if you want to take the optimistic side, if we continue to see strengthening in close-in demand, that would be likely the optimistic side of why it could be towards the top end or better.

Naftali Holtz (CFO)

Yeah. I do not recall exactly, but I think most of the, some of the hotel companies also may have reduced their guidance in the first quarter. Regardless, we kept it the same. We actually increased it, if you recall.

We really widened this to account for the geopolitical outcomes, the noise that was there, and the outcomes it could have. Really, now we are just going back to normal, right? This is typically what we do through the year.

Robin Farley (Managing Director)

Thank you. Just one quick follow-up. Would you say that your onboard spend, because I know some of the ways it is reported can be impacted by sort of how you allocate accounting things, just broadly speaking, is gross onboard spend still higher than gross ticket price, or how should we think about that relationship? Thanks.

Jason Liberty (Chairman and CEO)

I would say that we are seeing very similar trends on ticket as well as on onboard. Obviously, both of them are competing against very significant comps.

What we are seeing in terms of where the consumer is spending while they are on the ship looks very similar, except that it is stronger. We are also benefiting that every day we get more and more pre-cruise sales activities. We are still in the very early innings of being effective in curating that and getting our guests to book to plan their vacation experiences earlier and earlier. As I mentioned in my comments, you then typically see a significant increase in overall spend because they basically have paid that bill, and they moved on to new activities and new memories they want to create on the ship.

Robin Farley (Managing Director)

Great. Thank you.

Operator (participant)

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

Brandt Montour (Director and Equity Research)

Good morning, everybody, and thanks for taking my question. The first question is on the Royal Beach Club.

Maybe you could just talk a little bit about the operational expectation for that destination out of the gate. You guys gave prices out to the market a little bit ago. Wondering maybe if the feedback from the travel agent community as well as the pre-bookings you are seeing, if that sort of points to full utilization potential out of the gate, I know prices are dynamic. Or if that is even the goal, how should we think about the ramp-up to the destination?

Michael Bayley (President and CEO)

Thank you, Brandt. I am so happy you asked that question. We opened for sale a few weeks ago. Sales are very strong. Interest is very high. Our first sailing will be in December the 21st, which will be great timing for the holiday period. Construction is all on target. It's looking great.

We sent drones over and shared that with the team on a regular basis. It was really looking impressive, especially the world's largest swim-up bar. It's going to be a winning product, a great destination, and we're very excited about what we're seeing in terms of activity. Prices start from around $139. It is dynamic because we've got a lot of capacity coming into Nassau, and some days will be different from others in terms of the overall Royal Caribbean capacity in the port. We've got dynamic pricing. We've got different packages available, and we've been extremely pleased with the sales to date. I do have to share one interesting story, which is in the first hour when we opened for sale, we sold our ultimate family cabana for one day at $10,000, which was quite remarkable.

Subsequently, we've sold a lot of days in the ultimate family cabana at $10,000. We really do think we've got the product right, and we think it's going to deliver very high levels of guest satisfaction. We're excited for the beach club in Paradise Island, and we're equally excited for the beach club in Mexico, La Lepre, and of course, the really big thing, which is, of course, Perfect Day Mexico in full year 2028. Yeah. Brent, I just want to add, in terms of on the ramp-up side, we have a very, I think, thoughtful formula for this where it's not about a question of demand. It's a question of operational excellence. It will be, in terms of the actual number of people we take, meaningfully less as we start, and then build up into the first quarter and then into the second quarter.

We want to make sure the experience is flawless in what we're doing. While we could probably make more money, the trust that we establish with our customers is a high priority. It will be a slow ramp-up like they typically are in any new experience or destination or ship that we bring online.

Brandt Montour (Director and Equity Research)

Thanks for that. That's super helpful, both. A second question. Jason, I feel like you covered the close-in-demand strength from a number of different angles this morning. I'm struggling between two different narratives on that. One is that maybe at the expense of longer-term bookings and potentially compressing booked lead times? Would that be sort of a function of either mixed younger consumer or residual effects from the tariffs and the macro impacts of the last few months?

Is it just, again, more incremental demand that you're seeing from that younger consumer, and at the same time, you're seeing 26 bookings sort of plow along as planned? I don't know if those two things are, if there's a third. If you can help me sort of understand what you guys are trying to get at with that commentary.

Jason Liberty (Chairman and CEO)

Yeah. Brent, as I've said this in the past, we never get our yield management perfect. Even with all the technology, there's always money we leave on the table. I think one of the things, the reality of what we have left to sell is little. I think because half of our guests are millennials or younger, there is a reality that they do book closer in.

We have more of the shorter product going to great places like Perfect Day and soon Royal Beach Club, which will have them lean a little bit more closer in. In my remarks, just commentary around 2026, we're in line with same time last year at higher rates. I think that should give you an indication that demand is actually quite healthy and is keeping pace, and guests willing to pay more is certainly there. I think it's really two different things. I think it is a little bit of a younger consumer. The second piece of it is that confidence and making sure that people are getting the vacation experiences that they want, that people are willing to plan thoughtfully out into the future. Great.

Michael Bayley (President and CEO)

I think also, this might click in.

I think also another consideration is the increase in the short capacity that we've seen, particularly that goes to Perfect Day. For the Royal Brand, we have a lot of short cruise capacity. We've got Utopia now sailing out of Port Canaveral in the three and four-day market, and now Wonder of the Seas, so the second Oasis-class ship, will be starting soon out of Miami doing the same thing. Those two ships alone, in terms of just volume, is around 30,000 guests a week just on those two ships that are going to Perfect Day. I think that also is beginning to skew how people perceive their booking window because it's kind of a great weekend. We call it the big weekend, and people just decide later on to jump on board and have a great time. We see a lot of repeat on those products as well.

It's a great weekend. When we open up the beach club, which complements Perfect Day, that big weekend is getting even bigger. We think that that's part of kind of the evolution of the business.

Brandt Montour (Director and Equity Research)

Great. Thanks, everybody.

Michael Bayley (President and CEO)

Thank you.

Operator (participant)

Our next question comes from the line of Benjamin Chaiken with Mizuho. Please go ahead.

Benjamin Chaiken (Equity Analyst)

Hey, good morning. Thanks for taking my question. One on Nassau quickly. You've previously given us some preliminary kind of targets or expectations for volume, but how did you think about the attach rate using Royal Nassau visitors in the denominator, if you will? Meaning, is this 25% adoption, 50% adoption? I ask this in the context of CocoCay seeing three and a half million guests or more, presumably a lot of them going to Nassau.

Understanding there's a ramp kind of as you get going, just any way to frame the attach rate based on the volume numbers you've given us the last few quarters?

Michael Bayley (President and CEO)

Yeah. I think our current thinking is when you look at the volume we're going to bring in 2026 into Nassau, which is give or take around 3 million guests, and the overall capacity of the beach club will be around give or take a million, then you're looking at 33% of our guests we think will be more than happy. I mean, I think what we may experience is more demand than supply. With the beach club in Nassau, we're going to have to, and obviously, that's why dynamic pricing is going to play a very important role in that product. We think we've got the numbers perfectly right.

Benjamin Chaiken (Equity Analyst)

Understood. Very helpful.Then, Jason, you kind of made a pretty interesting comment earlier in the call mentioning that Costa Maya is going to be the same size as Magic Kingdom in Orlando, if I caught that right. Presumably, you meant that in terms of acreage. I mean, to the extent you have anything to share on amenities, you can kind of float to us, understanding this is still several years away. I don't know if that was a little bit of a metaphor or whatnot.

Jason Liberty (Chairman and CEO)

I think it is in terms of the actual footprint of Perfect Day Mexico. I think it's to have people understand ultimately the scale of what's going to be there. Of course, we're going to deliver that with much, much fewer guests than the guests that visit the Magic Kingdom, right? Because we're super focused on that everybody has this perfect day.

I would very much point everybody to just go on to YouTube and watch the videos that we put out from our event in last May on what Perfect Day Mexico is going to look like. It delivers a perfect day. I think, for pretty much everybody, whether you're looking to go down the world's largest lazy river, whether you're looking for kind of that Vegas beach party, just some fun in the sun, relaxation. Family and incredible pools, and so forth. There's so much that's going to be done. It's curated like we do very well on our ships into different neighborhoods so people can kind of experience with who they would like to experience that with. That's what we do, right? I mean, Michael and his team are heavily focused on designing that perfect day.

We clearly deliver that in the Bahamas, and we're going to do that in Mexico for even more people. Lastly, I'll just say, I mean, it also opens up this incredible catchment area or deeper into markets like Texas and the West Coast. Even the Midwest will be able to lessen where they spend their share of wallets on potential air travel and other travel to shift it to make it more affordable for them and potentially more wallet share for us.

Michael Bayley (President and CEO)

More importantly, it has the world's largest umbrella.

Benjamin Chaiken (Equity Analyst)

That's definitely important. Did REQ have Costa Maya cost in the NCC number?

Naftali Holtz (CFO)

Yes, it does. We just closed on it. Obviously, we'll operate it for quite some time until we start development. Yes, that's part of the headwind. We didn't really call it out in the release or in our prepared mark, but there is extra cost for that.

Obviously, for Paradise as well, as we ramp up the beach club to open up in December, there are some costs there with obviously no APCDs.

Operator (participant)

Our final question will come from the line of NCPO with Cleveland Research Company. Please go ahead.

Vince Ciepiel (Senior Research Analyst)

Thanks. I wanted to unpack River a little bit more. I know it's still a ways away, but I think at some point in the second half of this year, we have a little bit more clarity on what the itineraries and offering might look like. As you're 90 days further into exploring what that could look like for you, any big picture thoughts on just conviction level of getting to 35-40 ships, river capacity to do so, and being able to curate a great experience shoreside for guests when considering berthing rights, etc.?

Jason Liberty (Chairman and CEO)

Yeah. Thanks for the question, Vince.

I wish Laura was here because she could probably talk a little bit about it more in detail. She would also tell you that I bother her every single day on how do we get as many ships up as soon as possible. That's not just a reflection on us now getting comfortable with it operationally, having a very strong idea of all the different destinations, not just in Europe, but around the world where we can go out and deliver this incredible river experience. We're pretty well baked with the ship design, which we are very confident will be a meaningful differentiator to what is currently available out there. There's a lot of space. This is, we think, a very under-penetrated marketplace. There's room for everybody to grow and grow successfully, but we're going to elevate this.

I would say that we feel very good about the destination experience that Celebrity is going to offer here, not just on the ship itself, but also on land. I think it's just, I'm probably more focused on how do we get it done faster. Our teams are being very thoughtful about that. It's going to be, I mean, a great vacation experience for our guests. I think the last point I just want to make about what brings such confidence is, when we announce this and we kind of get our customers coming forward with wanting to be on it as soon as possible and us starting to kind of build up lists of customers who want to go on, it will take us a long time to satisfy that level of demand. We want to make sure that we can deliver these experiences to our guests.

We have to challenge ourselves, not just because we can make some more money on it, but we need to meet that demand for our guests who are looking to have that river experience from our Celebrity brand.

Vince Ciepiel (Senior Research Analyst)

Great, thanks. One other just kind of housekeeping question. Thinking about CapEx, $5 billion for the year, I think one-sixth of it's non-new build with some Costa Maya in there as well. When you think about the Perfecta plan, is that $5 billion a good annual number to use for 2026 and 2027 and a similar mix of non-new build and new build as we're thinking about the path ahead?

Naftali Holtz (CFO)

Yeah. We're not providing guidance, obviously, for the next couple of years. On the ship-building side, it really depends on the ship deliveries. This year, we have two fairly large ships, right, both Star of the Seas and Celebrity Xcel.

You can go and see kind of what 2026 and 2027 are. They're only one ship right there. On the non-ship CapEx, there are a couple of elements there. Obviously, we'll provide more guidance as we get closer to 2026. We have kind of our core investments in maintenance and other initiatives. They're typically very stable in a way. You have the destination, so that ramps up depending on the year. This year, obviously, is Paradise. Next year, we'll have Cozumel and Costa Maya. Obviously, 2027 will be heavily on Costa Maya. We have modernization programs, and there are other elements to make sure that we are getting through to Perfect and kind of our long-term targets. I think the most important thing is the company now is very large. We're generating a lot of cash flow.

Jason Liberty (Chairman and CEO)

Even after CapEx, we have excess cash flow that obviously will be focused on making sure that the balance sheet is intact and then supplementing all that growth with capital shareholder returns.

Vince Ciepiel (Senior Research Analyst)

Thanks, Matt. Great.

Operator (participant)

I will now turn the conference back over to Naftali Holtz, CFO, for closing remarks.

Naftali Holtz (CFO)

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