Carnival Corporation (CCL) Q3 2023 Earnings Call Transcript

Carnival Corporation  (NYSE: CCL) Q3 2023 Earnings Call dated Sep. 29, 2023

Corporate Participants:

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Analysts:

Steven M. Wieczynski — Stifel Nicolaus Capital Markets — Analyst

Patrick Scholes — Truist Securities — Analyst

Brandt Montour — Barclays — Analyst

Robin Farley — UBS — Analyst

David Katz — Jefferies — Analyst

Daniel Politzer — Wells Fargo Securities — Analyst

Jaime M. Katz — Morningstar, Inc. — Analyst

Assia Georgieva — Infinity Research — Analyst

Matthew R. Boss — J.P. Morgan — Analyst

Conor Cunningham — Melius Research — Analyst

Christopher Stathoulopoulos — SIG — Analyst

Presentation:

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Good morning. This is Josh Weinstein. Welcome to our Third Quarter 2023 Earnings Call. I’m joined today by our Chair, Micky Arison; our Chief Financial Officer, David Bernstein; and our Senior Vice President of Investor Relations, Beth Roberts.

Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to the cautionary statement in today’s press release. Another quarter and another set of milestones and records. This quarter, we reached net income well in excess of $1 billion and EBITDA well over $2 billion. We also achieved revenue, adjusted EBITDA and adjusted net income that all exceeded the high end of our June guidance range with constant currency adjusted cruise costs in line with expectations.

Furthermore, customer deposits and booking volumes both important forward indicators hit record levels for the third quarter. Thanks to the efforts of our amazing team, ship and shore, we exceeded the midpoint of our adjusted net income guidance by $175 million this quarter. The outperformance was driven by strength in demand for our brands with both our North American and European segments equally outperforming expectations. The result was yields that were higher than anticipated that exceeded 2019’s strong levels and that reached an all-time high.

On the European front, occupancy came in better than anticipated for Costa and AIDA with both brands hitting 119% occupancy in all. [Phonetic]. Not to be outdone, P&O Cruises achieved its highest occupancy in over a decade despite a 40% capacity increase from 2019. And as for pricing, our third quarter per diems were 5 points higher than 2019, also hitting record levels and more than overcoming the absence of St. Petersburg, which was among our highest yielding itineraries and weighted to the third quarter. Normalizing for this impact, we estimate per diem growth would have been up about 7 points, which is consistent with each of the first two quarters and our upwardly revised fourth quarter guidance, which David will elaborate on.

Essentially, we’ve consistently been delivering pricing, well in excess of 2019 levels, while closing the occupancy gap by 11 points over the course of the year. Continued strength in demand has allowed us to take-up our expectations for full year per diems by a full point. This is a meaningful accomplishment given how much of fiscal 2023 was already behind us. At the same time, we’re working to stay within our narrowed cost guidance range, while managing down interest expense as we accelerate our deleveraging plan. The higher revenue alone more than offset the recent spike in fuel prices, which is currently forecasted to step-up by 20% heading into our fourth quarter.

I would note that while we have experienced volatility in fuel prices before, there’s only been one other period in the last 15 years that our fuel price has reached this level. In this case, changes in fuel prices and FX rates combined are $130 million drag compared to June guidance and mask much of our significant underlying business improvements that is delivering an additional $200 million-plus to the bottom-line for the second half of the year. As a result, we still expect our 2023 adjusted EBITDA to be $4.1 billion or more, which is well within our prior guidance range, and we are raising our net income expectations for the year.

As I’ve done in the past, to give you a sense of how we’re faring operationally without noise from fuel price or currency rates and without the benefit of increased capacity, I’ll share our EBITDA per ALBD progress holding fuel price and currency constant to 2019 levels. We reached 59% of 2019’s levels in the first quarter, 73% in the second quarter, 90% in the third quarter, which was better than the 85% we expected, and we are striving to hit 2019 levels in the fourth quarter. Of course, in reality, we’re not ignoring the impact fuel is having on our business. In fact, it’s been a focus for years.

We continue to work aggressively to manage fuel costs the best way possible by consuming less. Heading into 2023, we already had the most fuel-efficient fleet of our public peers by a wide margin and we’re looking to widen that gap. We’re on track to achieve a step change reduction in fuel usage and results in carbon intensity in 2023 with fuel consumption per ALBD nearly 16% lower than 2019, even better than the 15% we had anticipated. I know this is stating the obvious, but not only is this effort benefiting our bottom-line by hundreds of millions of dollars, it’s also better for the environment and something we’ll keep pushing on for 2024 and beyond.

Speaking of ’24, I’m still pleased with our revenue trajectory heading into next year. Our brands have been working aggressively to build a strong base of business as we position for further revenue yield improvement next year. We’re now significantly ahead of same time last year by about 10 points and well ahead of where we were in 2019. In fact, we already have less inventory remaining for sale than same time last year, despite 5% more capacity and sailing with occupancy at historical levels.

Our book position is as far out as we’ve ever seen it with our European brands booking cruise now essentially back to 2019 levels and our North American brands exceeding historical highs. And importantly, we’ve been able to achieve this 10 point occupancy advantage at higher ticket prices versus same time last year. By all accounts, it’s a great start to 2024. While we see no signs of demand slowing for our brands, at some point, booking volumes for 2024 will recede as we simply run out of inventory to sell.

Now we appreciate there are heightened concerns around the state of the consumer as of late. But the fact is, we just haven’t seen it in our bookings or our results. And we believe consumers are continuing to prioritize spending and experiences over material goods. And the vacation value we offer will continue to resonate with those seeking more for their vacation dollars. As you know, we have been leaning into that message given the unprecedented and unwarranted value to land-based vacation alternatives.

Further, our revenue base is recurring with over half our guests being repeat cruisers. It’s visible with well over 50% of the next 12 months booked at any given time and it’s predictable with 40% of our onboard revenues now pulled forward by pre-cruise sales, which is an 11 point increase over 2019. How is all this trending by region? Well, North America consistently remained strong with Carnival Cruise Line, our highest returning brands continuing to outperform. Accordingly and due to our portfolio optimization efforts, two-thirds of our capacity growth next year is weighted to Carnival Cruise Line.

And while our European brands were on a delayed trajectory for reasons we’ve discussed at length, they are world class brands in fantastic markets that we are dedicated to for the long-term. So it is incredibly gratifying to see them progressing so nicely and now keeping pace with the improving trends we’ve seen for our North American brand. In fact, in Q3, each of our Continental European brands, AIDA and Costa, delivered higher yields in 2019, again overcoming the outsized [Technical Issue] from the absence of calls [Technical Issue].

And finally, there’s Australia. I am pleased to say that with the recent lifting of protocols in Australia, like the U.S., they too saw spike in bookings in response to the great news. Our demand generation efforts are clearly working across all regions, as you can see in our results, our forward guidance, our book position and our booking trends.

We are also seeing other positive forward indicators that suggest we’re continuing to generate healthy demand. First time cruisers reached 170% of prior year levels in the third quarter. In fact, we’ve taken well over 2.5 million guests on their very first cruise so far this year. Web visits are running at 135% of 2019 levels, paid search is at 150% and natural search is at 185%. Suffice it to say, all are consistently running at multiples of our capacity growth. The effects of our myriad of commercial enhancement activities will compound over time and our ongoing investments in advertising and lead generation should keep that funnel of demand building.

We’re also creating excitement around our new ships and new destinations. This quarter, we welcomed our second ultra-luxury expedition ship, Seabourn Pursuit. Pursuit marries the same yacht-like small ship experience Seabourn guests have come to expect with an unparalleled range of expedition activities and expert 24-person expedition team and unique features like custom-built submarines. We are looking forward to showing her off later today at her inaugural stuff in Miami. And we are about to embark on a drumbeat of news around our new destination in Grand Bahama Celebration Key expected in the second half of 2025.

Just yesterday, Carnival Cruise Line announced the opening of hundreds of sailings to Celebration Key ultimately across 18 different ships departing from eight different home ports. You’ll have to stay-tuned for more details on this amazing destination and a fantastic experiences our guests can expect. But what I can say today is that not only will Celebration Key deliver Carnival’s patented brands of fun, its strategic location close to so many of our home ports is also designed to advance our fuel and carbon reduction efforts. It’s truly a win-win-win for the environment, for our guests and for our guests and for our great hosts, the people of the Bahamas.

Turning to the balance sheet. We have been actively managing down our debt and reducing interest expense. With improving performance, positive cash flow and $5.7 billion of liquidity, we anticipate ending the year with debt just under $31 billion, already over $4 billion off the peak and counting. I’ll take the opportunity to remind those naysayers that as we stated six months ago, this debt reduction happened without issuing incremental equity. That said, we recognized we still have a ways to go to reach investment-grade leverage metrics in 2026.

The strong demand we’re seeing certainly builds confidence in our return to meaningful free cash flow generation and our reduced newbuild pipeline should amplify that opportunity. Once again, I attribute the outperformance this quarter to our greatest assets, our people, our shipboard team members who are consistently exceeding our guests’ expectations, our shoreside team that support the ships, generate strong demand and attract new to cruise guests along with our travel agent partners, and of course, support from all of you, our investors, our loyal guests and our many other stakeholders.

I think I can speak on behalf of all 160,000 team members when I say that it is a privilege to work at a company whose purpose and mission is to deliver unforgettable happiness to our guests by providing them with extraordinary cruise vacations, while honoring the integrity of every ocean we sail, place we visit and life we touch. It motivates us to do our jobs well and responsibly and will help us keep our strong momentum as we head into 2024.

With that, I’ll turn the call over to David.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Thank you, Josh. Before I begin, please note all of my references to ticket prices, net per diems, net yields and adjusted cruise costs without fuel will be in constant currency unless otherwise stated. I’ll start today with a summary of our 2023 third quarter results. Then I’ll give some color on our 2023 full year September guidance. Next, I will provide a recap of our 2024 cumulative advanced booked position along with a few other things to consider for 2024. And then I will finish up describing our financial position.

As Josh indicated, our third quarter adjusted net income exceeded the midpoint of our guidance by $175 million as we outperformed our June guidance. The improvement was driven by three things. First, $90 million of favorability in revenue from higher ticket prices as net per diems were up almost 5%, nearly a point better than the midpoint of our June guidance range, while our brands outperformed on occupancy, achieving 109% for the quarter. In fact, third quarter revenues of $6.9 billion were a record and net yields were once again positive as compared to 2019.

Second, we had $40 million of favorability in net interest expense. A successful refinancing gave us the runway to call $1.2 billion of our highest cost debt. And we prepaid an additional $1.1 billion of debt, which reduced interest expense during the quarter. Additionally, we had $900 million of customer deposit reserves return to the company during the quarter, generating additional interest income and higher overall interest income rates than forecasted also contributed to this favorability.

And third, $45 million of favorability in fuel consumption, depreciation and income taxes drove this final piece.

Next, I will give some color on our 2023 full year September guidance. For the full year 2023, we now expect the midpoint of our adjusted net loss guidance to be $100 million, an improvement of $75 million versus the midpoint of June guidance. Despite the unfavorable net impact of higher fuel prices and currency costing $130 million in the fourth quarter.

So our full year September guidance includes over $200 million of actual and forecasted improvements driven by two things. First, over $150 million of higher revenue for the full year. On the pricing front, we now expect net per diems to be up approximately 7% for the full year 2023 compared to a strong 2019, which is one point higher than the midpoint of our previous guidance range. The fourth quarter is expected to build on our third quarter improvement. In the fourth quarter, we now expect net per diems to be up 7% to 8% resulting in a net yield forecast up over 5%.

The improvement in net per diems versus our previous guidance is driven by passenger ticket revenue on both sides of the Atlantic. We do see a continuation of the strong onboard and other revenue trends we have been experiencing given the strength we’re seeing in the consumer onboard our ships, included in our previous guidance. The third quarter trends were very similar to the first half of 2023 and we are forecasting fourth quarter to be similar as well.

And second, $80 million of favorability in net interest expense as the benefits of our deleveraging efforts will continue into the fourth quarter. Furthermore, we do expect adjusted cruise costs without fuel to be at the high end of our previous guidance range, but somewhat mitigated by the favorability in fuel consumption, depreciation and income tax expense.

Turning to our 2024 cumulative advanced booked position. The cumulative advanced booked position for the full year 2024 is well above the high end of the historical range at a higher prices than 2023 levels. This aligns with the company’s yield management strategy to base load bookings, lengthen the booking curve and optimize net yields.

And now a few things to consider for 2024. We are forecasting a capacity increase of 5% compared to 2023. We are expecting to deliver strong 2024 net yield improvement as compared to 2023 with occupancies forecasted to return to historical levels for the full year 2024. We are well positioned to drive 2024 pricing higher with less inventory remaining to sell than the same time last year despite a capacity increase of 5%.

While the occupancy opportunity will drive favorable revenue trends, let’s also remember to model its impact on costs. For example, a 5 to 6 percentage point increase in occupancy could drive adjusted cruise costs without fuel up 1 to 2 percentage points in 2024 as compared to 2023. In addition, in 2024, we are expecting 580 drydock days, an increase of 18% versus 2023, which will also impact our year-over-year cost comparisons. We expect these cost increases and decelerating inflation, but nevertheless inflation will be somewhat mitigated by economies of scale from our capacity growth and various cost optimization initiatives.

I will finish up describing our financial position. We are accelerating our debt repayment efforts and aggressively managing down our interest expense. In just six months, we reduced our debt balance by over 10% or nearly $4 billion off the peak from the first quarter 2023. We are on a path to end the year with less than $31 billion of debt, which is over $2.5 billion less than I forecasted six months ago during our March conference call.

Our third quarter successful refinancing was priced at the lowest interest rate given to any cruise company in almost two years. This refinancing which stretched out maturities along with our optimism about our future and the return of customer deposits reserves gave us the confidence to accelerate our debt repayment. Our maturity towers have been well managed through 2025, which has $2 billion of debt maturities next year and only $2.2 billion in 2025. In addition, because of our actions, our debt portfolio is 80% fixed and our average interest rate is approximately 5.5%. And looking forward, I expect substantial increases in adjusted free cash flow in 2024 and beyond through durable revenue growth to drive down our debt balance on our path back to investment-grade.

Before I turn the call over to the operator, let me remind you to visit our website for our third quarter earnings press release and presentation.

Now operator, let’s open up the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Steve Wieczynski with Stifel. Please proceed.

Steven M. Wieczynski — Stifel Nicolaus Capital Markets — Analyst

Yeah. Hey guys, good morning, and congrats on the solid quarter and outlook as well. So look, Josh, I know you don’t want to give 2024 guidance yet and I’m not even sure you’re going to give guidance in December or hold off until March like you did this year. But based on what you’re seeing today — and David did give some color in his prepared remarks around the booking and pricing environment which both seem very strong into next year. I mean, as we start to think about ’24 from a high level perspective, is there anything you could kind of help us with in terms of maybe how you’re thinking about those per diems? And look, it sounds like you have a pretty good handle on the pricing side I think at this point, but is the onboard side still present probably the biggest headwind or unknown at this point as you kind of think about the way next year might shape up?

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Good morning, Steve. Thanks for the very first call being about 2024 and guidance that we haven’t given. Let me start with what you said about onboard. I think the encouraging thing about onboard is if you look at what the consumer has been spending with us over the last three quarters and what we projected in the fourth quarter, it hasn’t gone down. So comps might go up and down percentage-wise a bit here and there because of what the world looked like back in 2019 as a percentage quarter-over-quarter. But literally, they’re spending the same amount today that they were three quarters ago. And we haven’t seen that slow down. So that’s very encouraging and that’s part of what gives us confidence when we say we’re feeling pretty good about our business in light of whatever is going on in the macro economy.

With respect to our booked business being 10 points ahead at higher pricing does give us a good amount of manoeuvrability to really deliver on the yields next year, which is what we expect to do. We’re not giving guidance yet, so we’re not going to get into the nuts and bolts. But I’m comfortable that we’re on the right path.

Steven M. Wieczynski — Stifel Nicolaus Capital Markets — Analyst

Okay. Thanks for that. And I knew you probably can give a very detailed answer there, but I thought I’d try anyway. So if you liked that question for ’24, I’m going to try and ask another one, see if I can get something on the other side of the equation, and that’s the cost side, which David you mentioned — I think you said kind of a 1% to 2% increase in costs for a 5% to 6% increase in load factors. So we just kind of assume you get back into that 106%, 107% range next year coupled with the pretty material increase in drydock days which you guys have communicated before. As we think about next year, I know you’re probably not going to give a detailed answer here either, but should we be thinking about costs kind of up in that low, call it, a 2% to 3% kind of increase next year? Is that too high or is that too low? I guess, that’s what I’m trying to figure out.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Yes, that’s another good try. How about this. If we think about 2024, what are the tailwinds and what are the headwinds. So overall, as we look at 2024, we’ve got a good amount of momentum going. First of all, we’re starting from that normalized or elongated booking curve, best booked position in our history. The things that we have been doing to try to generate incremental demand and incremental pricing evidentiary says it’s working with 7 points higher per diems pretty much consistently throughout this year as we close the occupancy gap. We expect to be back to full year occupancy, as you were pointing out.

The power of our portfolio approach, I don’t want to discount. We’ve been talking about this for many quarters. And what used to be a concern around Europe should now be some applause and congratulations for our European brands who are really coming on to be able to say that our Continental European brands hit positive yields versus ’19 this summer is fantastic given where they were a year ago and despite all the concerns that have been raised about our European brands and our approach to being dedicated to particular market that we feel very strongly about.

We expect that will continue, because as you know, in the first half of next year, our European brands did have a lot of work to do to claw back and get to where they were. At the same time, we’re doubling down on Carnival Fun Italian Style with the second Costa ship coming over to Carnival. The trade has been rebounding tremendously. Our first timers are really driving our growth, which is another testament to all the commercial work that our team is doing. So there’s a lot of positivity on the table here.

Now what’s the minuses. Of course, we still don’t have itineraries that were impacted by the Ukraine war. We don’t expect that to come back in 2024, but I think we’ve proven we know how to move our assets around and put them where they are best positioned to serve us well. China is still a question mark for the industry. And we certainly hope that that unfolds the way people are planning outside of Carnival Corporation.

David mentioned inflation, it is decelerating, absolutely. But it’s still inflation that’s decelerating. So we’ll have to see how that plays out. We’re obviously heads down with our brands planning through 2024 and figuring out exactly how we can mitigate cost increases, which we do all the time. And we’re actually in the planning phases right now for 2024. We’re going through in detail all of the activities that are going to be beneficial for us. The occupancy will be a cost, the drydock days will be a cost, and David tried to quantify those for you. And we’ll have to see what happens with the macro environment and how we play. So there’s a lot in both directions. I feel very good about the positive.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Yeah. And the only thing I’ll add to what Josh said, and he went through some of the puts and takes on costs on the drydock days that’s probably going to add three quarters of a point to maybe one point to our overall cost structure. And on the capacity increase, remember, pre-pause we used to say that the new ships were 15% to 25% more efficient on the operating costs excluding fuel than the existing fleet. But remember, we did have it. And so if you do the math, that probably would get you about a 1% reduction from economies of scale on the old basis. But remember, our existing fleet has been optimized. And as a result of that, it’s probably less than 1% on the operating costs or the ship operating costs for the capacity increase.

So put all those puts and takes together, we’re not prepared. We’re not giving guidance at this point. And in fact, I will say that we’re going to be spending the next month with all of our brands going through their plans, better understanding everything. And hopefully by at some point during the fourth quarter, we’ll have a better idea as to the overall direction of the cost structure for 2024.

Steven M. Wieczynski — Stifel Nicolaus Capital Markets — Analyst

Okay, guys. Thank you very much. I won’t ask another question on ’24 and I’ll stop there. Thank you very much.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Thanks, Steve.

Operator

Our next question comes from Patrick Scholes with Truist. Please proceed.

Patrick Scholes — Truist Securities — Analyst

Hi, good morning. Can you hear me okay?

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Yes. Hi, Patrick.

Patrick Scholes — Truist Securities — Analyst

Okay, great. Good morning. Let’s talk a little bit about fuel. I know in the — I believe in the past when fuel costs have spiked you — I believe you may have instituted a fuel surcharge to your customers. I believe one of your competitors is actively considering doing a fuel surcharge this time around. Is that something you might consider as well? Thank you.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Yeah. It’s certainly not off the table, we wouldn’t take anything off of the table. It’s not something we’re planning to implement in the near-term, although that could certainly change. There are certainly considerations that have to be made about what’s the norm in society, what’s the expectations of our customer. Obviously, you don’t go retroactively too, so you’re talking about forward bookings. And so — but I wouldn’t take anything off the table.

I would reiterate though even a fuel surcharge is temporary. And really, the one thing that we can do no matter what come hell or high water is use less, and that’s where our focus is. And we estimate it saved us about $375 million on the bottom-line this year versus what our profile looks like in 2019 because of all those efforts.

Patrick Scholes — Truist Securities — Analyst

Okay. And then one more question, Josh, similar regarding fuel and this is a sort of high level question here. Why is it you folks don’t hedge? One of the pushbacks I get from long-only investors is they don’t like the day-to-day volatility in the stock when oil gets volatile and also the volatility in earnings. There is certainly a possibility that yeah, I understand that hedging does have a real dollar cost to it, but if it brings in a long-only investor base, it may actually be worth it long-term for the stock. Just talk to me about why you folks sort of pulled out or not hedging when competitors do it? Thank you.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Sure. Well, I’d start by saying the same thing as a surcharge, which is we don’t take anything off the table, including hedging. We only get the question when fuel prices spiked though. We never get the question when it’s not, when it’s going the other way. So I do think that there is a little bit of a — it’s not a question of hedging, it’s do you — are you putting wagers on that are either going to benefit you or not depending on the environment.

I’d buy the volatility part. I mean, we’ve done empirical studies like everybody else. The last time we did one, it only added about 1% to the share price because even though it might take away day-to-day volatility, when you look at the long-term value of the firm, ultimately, it doesn’t make a dent in the grand scheme of the cash flow generation discounted back, etc. So it is a consideration, the volatility, as is the cost of any kind of hedging program. So we’ll continue to look at it, but thus far, when we’ve laid out all the pros and the cons, we haven’t been there. But I wouldn’t say that that has become our answer forever, that’s just where we are now.

Patrick Scholes — Truist Securities — Analyst

Understood. And I completely get when fuel prices go down, nobody ask questions like this. So thank you. I’m all set.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Thanks, Patrick.

Operator

Our next question comes from Brandt Montour with Barclays. Please proceed.

Brandt Montour — Barclays — Analyst

Hey, everybody. Good morning. Thanks for the question. So first, I wanted to talk a little bit about the bookings commentary. Josh, you sounded very bullish on what you guys have gotten done so far for ’24. And I’m just — you used the term base loading, you gave us some great data points on where you sit now versus ’19 and the volume trajectory, etc. And I guess the question, just sort of qualitatively, do you think that you had to give up some price to do that? Do you feel good about what you had to give up on price to do that or just maybe open the hood a little bit and talk qualitatively about the revenue management strategy and success there?

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Sure. So this is absolutely part of the plan. By pulling — we were able to pull forward 10 points and at higher prices. Now if you think about what does that mean are we sacrificing price? When you look at the pricing that was in place by the time we got to this booked position last year, our pricing is very nicely higher. And so the point is you manage the bookings by pulling the volume forward, you avoid the discounting at the end and that’s how it’s been playing out. So we’re very encouraged.

Brandt Montour — Barclays — Analyst

Okay. That’s great. And then one more pricing question, but just more of a regional breakout. You mentioned that European per diems were now positive this summer. And I guess the question is — the way I would ask it is, does that mean that sort of 40% or whatever your capacity in the Continental brands, which is something like that, 40% of your capacity should see or should be on its way to closing the gap versus what you think what North America is currently doing index to ’19? That to me would be a material tailwind. Is that the way you see it?

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Well, I’ll look for David to give the exact percentage of our European brands. But ultimately, yeah, we’re quite encouraged that they’re going to be making up big chunks of revenue yield performance because they didn’t have that ability to do so in the first half of this year. But the fact that we’re here in this summer and their yields are positive I think is a good testament to their trajectory.

David is looking for the capacity number for you.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

All of our European brands, including the U.K. is 38% of our capacity this year, but the Continental European brands is less than that. I’ll calculate that in a second. Go ahead.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Probably closer to 25%.

Brandt Montour — Barclays — Analyst

Okay. But the per diem recovery comment was about Continental or all of Europe?

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Well, the per diems were — the yield comments were specifically about this summer. And Costa and AIDA, I would say, I can fill in the blank. The other big player in our European segment is obviously P&O Cruises. They had a 40% capacity increase this year. And so I can’t say that their yields were higher, but I can tell you that their occupancy is back and they are well on their way and that’s absolutely as expected.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Yeah. And Continental European brands are 26% in ’23.

Brandt Montour — Barclays — Analyst

Great. Thanks, all.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Sure.

Operator

Our next question comes from Robin Farley with UBS. Please proceed.

Robin Farley — UBS — Analyst

Great. Thank you. Two questions. One is just coming back to the comments about ’24 yield, and I think the comment was strong yield improvement. And I know there’s a glossary of David Bernstein adjectives for slightly in strong and things in previous years. So I don’t know if you could just remind us what strong is implied? And I mean just the math of your occupancy recovering if you get back to your full occupancy being 6 to 7 points and then price on top of that. I mean, it seems like it has to be at least a high-single-digit yield increase year-over-year. I don’t want to put numbers in your mouth, but maybe you could help us think about David’s glossary there?

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

I don’t have David glossary, I just told you strong.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

So I’m going to stick to that. But I would say, a combination of getting back for full year to historical occupancy levels as well as price increases will go in — both things will go into what we will be looking for as far as yield improvement versus 2023.

Robin Farley — UBS — Analyst

Okay, all right. And then also I wonder if you could — I know you just sort of soft launched part of the sort of Celebration Key. Can you talk about — it sounds like you’re not giving out what the cost and amenities will be yet, sort of the timeframe for when we might hear about the costs and amenities that I think investors sort of well understand how some other private islands have been real drivers of onboard spend and ticket price. And so it would be great to sort of get more of those details for your new island. Thanks.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Sure. So if this will be ongoing, I would expect, give or take, in another month we’ll start coming out with even more. I’m happy to tell you though, when it comes to how we’ll be able to monetize the private island in addition to the premium that we will be getting on the ticket side for such an amazing experience, the standards for any type of private destination F&B, cabana rentals, other experiences. And so more will come, but that’s all in the plan.

Robin Farley — UBS — Analyst

Okay. All right, great. Thank you.

Operator

Our next question comes from David Katz with Jefferies. Please proceed.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Hello?

David Bernstein — Chief Financial Officer and Chief Accounting Officer

David, you there?

David Katz — Jefferies — Analyst

Apologize. Left on mute. Thanks for taking my questions. Josh, what I wanted to just talk about for a minute is not so much this quarter, next quarter, but I’d love an update and some updated perspectives around things that you are focused on to just improve operating execution in a broader sense. Are there potentially low-hanging fruit or things that you can change, some of which you talked about at the Analyst Meeting a while back? Thank you.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Yeah. I’ll give you an overall, which is I don’t think that there’s anything revolutionary here. It is simply continuing to do our jobs better brand-by-brand. And you know we’ve highlighted, for example, Carnival Cruise Line and just the amazing results that they’ve had quarter-over-quarter. Other brands are catching up and they’re doing that because they are focused on their revenue management techniques, they are focused on delivering the experience onboard, they are focus on their performance marketing and generating more leads to generate more bookings, positioning themselves appropriately in the market. So all of those things are incrementally helping piece-by-piece. And that’s the kind of effort that we need from our brands and their teams to be focused on all aspects of that commercial business. And so we’ll continue to focus on that so that they continue to focus on it as well.

And so on the revenue side, I feel like we’re making good momentum. On the cost side, there will always be opportunity for us to do better. David mentioned that we’ll only maybe get a little bit of scale benefit from the newbuilds and that’s certainly true that are coming in. But there’s always opportunity to look for efficiency and leverage scale on the existing fleet and how we do our purchasing, how we benchmark against each other to find ways to do things more efficiently on the ships, source more efficiently, scale will increase because frankly speaking we’re going to be carrying a lot more guests next year than we did this year and than we did in 2019 and that gives us more opportunity to leverage scale. So I’m pretty encouraged that up and down the P&L there will be opportunities.

David Katz — Jefferies — Analyst

Got it. And if I can just follow-up on one specific area, you talked about performance marketing I believe at the Analyst Meeting a bit also. And where is that? And what opportunities still lie ahead to drive revenue and profit there?

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

I think it’s fair to say that as technology advances and our teams are better able to utilize that, there’s more and more opportunity to be very surgical about the guests that we’re looking for and how to get them and their eyes looking at us and looking at our websites, pointing them to travel agents, whatever that might be. So I’d say that that’s pretty early days. And even though we’ve made some pretty marked improvement when it comes to some of the stats that we’re showing you as some indicators and we really don’t talk about things like conversion rate or things like that. We’re very encouraged by the progress and there’s certainly a lot more room to run.

David Katz — Jefferies — Analyst

Noted. Thanks very much.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Thank you.

Operator

Our next question comes from Dan Politzer with Wells Fargo. Please proceed.

Daniel Politzer — Wells Fargo Securities — Analyst

Hey, good morning, everyone. Thanks for all the detail thus far. First question, onboard spend, it looks like it declined a little bit in terms of the pacing relative to 2019. Is that a function of mix in terms of more European or is that more inside cabins? If you can just talk about the real-time trends there. And along with that, are there elements on your booking — in terms of pre-bookings that you can maybe accelerate that going forward?

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Yeah. So on the onboard spend, I was — I think I tried to say this, maybe I didn’t say it the right way. But generally speaking, the onboard spend levels haven’t slowed down. When you think about the state of the consumer and you think about where were they in the fourth quarter of last year, first quarter of this year, second, third quarter, they’re spending the same. So we haven’t seen a slowdown in the profile of the consumer as far as — so even though we had a lot more thirds and fourths, for example, over the summer, the spending per person per day didn’t slow down.

As far as how that compares to 2019, I will tell you, there is a lot in 2019 that’s different from today. From the way we do our bundling, from the sentiments of the consumer, from where we take them. We didn’t have St Petersburg, for example, in the third quarter of this year. That is by far got to be one of the top, if not, the top onboard spending itineraries because of all the shore excursions that get generated got generated. We didn’t have that and yet we still performed at that high level. So it’s a little hard with a four year gap to be that specific about trends. I’d be more focused on the trend that our consumer is not slowing down.

Daniel Politzer — Wells Fargo Securities — Analyst

Got it. That’s helpful. And then just for my follow-up, in terms of the EU emissions, there is a new tax coming on in terms of metric tons that are emitted. Can you — is there any way to quantify that as we think about it for ’24, ’25, ’26 just given that, I think it’s in progressive tax?

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Yeah. So for 2024 at today’s current prices and given our itineraries and everything and our fuel consumption expectations, we’re talking approximately $75 million for the full year 2024, which does represent 40% of what the total will be at some point in the future as the percentages go up to in 2025 and ’26. But keep in mind that the tax is based off of fuel consumption. And so depending on what our itineraries are in 2026, all of the fuel conservation and consumption improvements we have over time, we are looking to hopefully mitigate those numbers as we move forward.

Daniel Politzer — Wells Fargo Securities — Analyst

Got it. And is that going to flow through, in terms of the P&L, the fuel line or is it going to be grossed up? That’s it from me. Thank you.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Yeah. That will be as part of our fuel expense line in the P&L.

Daniel Politzer — Wells Fargo Securities — Analyst

Got it. Thanks so much.

Operator

Our next question comes from Jaime Katz with Morningstar. Please proceed.

Jaime M. Katz — Morningstar, Inc. — Analyst

Hey, good morning. I’m hoping we can stay on Europe. Under separate cover this morning, I think there was a press release on Costa and the new campaign that you guys are doing there. And there were some commentary around consumer behavior and the economic environment, and I’m wondering if you could just share any of the key takeaways maybe that you have extracted around the European consumer for us.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Yeah. So Costa is one of those brands that’s really on the rebound. And we’re really proud of Mario Zanetti, the President and his whole team have been accomplishing and will continue to. Their research based on their market and the segment that they’re trying to hit in their market was all about experiences and leaning into particular messaging and particular ways to convey it, because the product for Costa is already fantastic.

So it’s always a matter of how do we then convey that messaging, the right way to the right people so that they’re going to understand, want to pay to get onboard and then spend that money onboard. So there’s actually a lot of work that the Costa team and some external help put in to make sure that we’re marrying those things up together and this will be the output. So I’m very excited about that trajectory.

Jaime M. Katz — Morningstar, Inc. — Analyst

Okay. And I think earlier you had mentioned that there were a number of new consumers coming into the brands, and I’d be curious if you guys can break out maybe the demographics. Are there significantly more younger consumers? Does that provide a better lifetime value for the business? How should we think about that? Thanks.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

So I don’t have that data certainly at the ready. If we can kind of give you some more color, I’ll ask Beth try to do that for you and she can circle back up with you. But this — from my perspective, the efforts about in part the advertising, in part just being up and sailing again so you get your repeaters getting off the ship and telling their friends and family how amazing it is, simply attracts newcomers.

And so what’s quite encouraging is the fact that our loyalists have been consistent over the last four quarters. And all of that growth that we’ve been seeing has been coming from first to cruise or first to brand, means that those activities are really starting to pay off. And we think that there is — if you think about the cruise industry in the context of the vacation industry, we’re casting in that in a really big ocean. So that bodes very well for us.

Operator

Our next question comes from Assia Georgieva with Infinity Research. Please proceed.

Assia Georgieva — Infinity Research — Analyst

Good morning, guys. Congratulations on a great quarter and really nice outlook both for Q4 and the upcoming year. I had a couple of questions for Josh. Ticket has become a more reliable gauge. And now that we have gone into full recovery mode, the entire fleet is sailing. Onboard while strong, should be less of a consideration or should we also think of the elongated booking curve offering these 40% of pre-cruise bookings and wallets being replenished? Again, it’s something that would provide even greater stability.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Sure. I think — so first of all, thank you for the comments. Certainly the onboard component of our increases over the past several quarters has been outpaced by the improvement that we’re seeing in the ticket. And so, I think to your point, whereas the onboard component was a larger piece of our outperformance overall on net per diems, really what we’ve been able to see is the ticket prices really coming on, which is encouraging.

The fact though that again in ultimate terms the onboard spending has remained constant in absolute levels gives us a lot of confidence that we’re doing the right things and we’re providing the right options for our guests to spend on experiences. And so I think it’s actually a very good mix. And the ability for us to pull forward more onboard spending, as you mentioned, the 40% of our onboard spend pull forward, while that’s a huge increase of 11 points, it was below 30 points back in 2019, that means there’s still an awful lot of room to continue to do that. And so I think those components are very nice.

Assia Georgieva — Infinity Research — Analyst

Great. And maybe two very quick questions, probably more for David. Should we expect about $4 billion to $5 billion a year of debt repayments to get to investment-grade by year end ’26?

David Bernstein — Chief Financial Officer and Chief Accounting Officer

So we haven’t given detail by year, but what we have talked about is by 2026 combination of the improving EBITDA and the debt reduction program, you’re going to see investment-grade type metrics in 2026. Remember that in 2024, we do have three ships for delivery. And so there probably will be less debt reduction in ’24 than in ’25 and ’26 whereas in ’25 we only have one ship and in ’26 we don’t have any ships on order. So just keep that in mind as you build through the math throughout the years.

Assia Georgieva — Infinity Research — Analyst

It seems that that reduction would accelerate over the years?

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Correct.

Assia Georgieva — Infinity Research — Analyst

Okay. And David, just one other quick question, if I may. Net cruise costs ex-fuel are at somewhat elevated levels relative to history. And I think having the restarts, having somewhat lower occupancies that you are building on, especially at some of the European brands during the winter months, so that makes sense. But excluding the drydocks which are coming up in 2024, do you expect that cadence of percentage increase in net cruise costs ex-fuel to decelerate?

David Bernstein — Chief Financial Officer and Chief Accounting Officer

So let’s keep in mind, the 2023 numbers are being compared to 2019. So that is four years, not one. And so when we get to 2024, we’re going to go back to the year-over-year comparisons, it’s just one year. And so the expectation would be, it’s only one year of inflation as opposed to four years of inflation. So keep that in mind as you go through and think about 2024.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

I think it’s fair to say yes. The answer is yes. We don’t expect anything on a year-over-year like we’ve had this year in the 11%, absolutely.

Assia Georgieva — Infinity Research — Analyst

Okay. Thank you so much. I really appreciate the answers.

Operator

Our next question comes from Matthew Boss with J.P. Morgan. Please proceed.

Matthew R. Boss — J.P. Morgan — Analyst

Great, thanks. So Josh, maybe could you elaborate on recent underlying demand trends in North America versus Europe, more so the continued momentum that you’re seeing through September that you cited? I guess, what are you seeing if you break it down between loyalists relative to new to cruise then just initiatives in place to retain these new customers that you’re seeing?

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

So I can’t — I don’t have any data about what the breakdown is for the bookings of September based on first timers or loyalists. But what I can tell you is that this — I think it’s probably important to put into context, we’ve talked about wave and we’ve talked about how wave was the longest wave in history. And I’m not sure when we’re ever going to call it, because we broke the record in Q1, we then broke that record in Q2, which never happens. We just hit a record in Q3. And when you look at the first four weeks of September, actually we’re up very nicely as well and it’s also being driven by the European brands. North American is positive, but the European brands are really coming on as we expected our portfolio to do.

And so it hasn’t slowed down in September. We attribute that to all the good work that our brands have been doing that we’ve been talking about and the inherent pent-up demand that we can still tap. And the encouraging thing is, because of that trajectory with new to brand and indeed new to cruise, it means we’re effectively back to normal from that perspective and we can really focus on optimizing the revenue and the yields. So it hasn’t stopped.

Matthew R. Boss — J.P. Morgan — Analyst

Great. And then David, just to circle back on the puts and takes around costs, there seems to be heightened sensitivity. So 1% to 2% core cost growth, if I heard it right, plus drydocks, I think you said three quarters of a point to one point. But then the offset or partial offset as economies of scale and the reorganization efficiency, I think you said maybe around a point of opportunity. So if you net these items, my math it’s about 2% total cost increase. Any items that I’m missing here just to maybe clarify some of the puts and takes there?

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Inflation year-over-year. Whatever inflation turns out to be for ’24 versus ’23.

Matthew R. Boss — J.P. Morgan — Analyst

Okay, okay. That’s helpful. Thanks.

Operator

Our next question comes from Conor Cunningham with Melius Research. Please proceed.

Conor Cunningham — Melius Research — Analyst

Hi, everyone. Just a quick one on the consumer. I’m just curious if there’s really been any change in bookings. I realize that you’ve talked about demand being quite strong and so on, but there’s obviously a heightened concern around the consumer in general. Are you seeing any trade-down effect or change in length or maybe even like pre-booking for onboard spend? I’m just trying to understand if there’s been any changes at all. I realize that customer deposits are at records, but just curious there. Thank you.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Sure. No, we’re trying to say it plainly as we can. We just have not seen any sign of slowdown. The only slowdown we see is as we are running out of inventory, it has to slow down. That’s it. So we feel quite good.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

For 2024 that is, but we have lots of cruises open for ’25 and ’26. And so there’s lots of people are booking way ahead.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

I think we’ve got time for one more, operator.

Operator

Our next question comes from Chris Stathoulopoulos with Susquehanna. Please proceed.

Christopher Stathoulopoulos — SIG — Analyst

Good morning, everyone. Thanks for squeezing me in here. Josh, on the cost to cruise and the new advertising strategy campaign announced today, how do you see that evolving over time? And should we expect this enhanced messaging or advertising to extend to other brands as we work through to see change? Thank you.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Sure. So first, the answer is, no. This is very much bespoke for Costa and their Southern European guest base and who they’re trying to reach. So certainly not. And as far as how this folds out, I mean, this is going to work its way into Costa’s general themes, it already does. As I said, marry what they already do onboard. So this is just trying to make sure that it’s communicated the right way and more to come.

Christopher Stathoulopoulos — SIG — Analyst

Thank you.

Josh Weinstein — President, Chief Executive Officer and Chief Climate Officer

Sure. With that, I’d say, thanks everybody, and looking forward to talking to you next quarter.

Operator

[Operator Closing Remarks]