Categories Consumer, Earnings Call Transcripts

Carnival Corporation (CCL) Q4 2021 Earnings Call Transcript

CCL Earnings Call - Final Transcript

Carnival Corporation (NYSE: CCL) Q4 2021 earnings call dated Dec. 20, 2021

Corporate Participants:

Arnold W. Donald — President and Chief Executive Officer

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Analysts:

Steven M. Wieczynski — Stifel Nicolaus Capital Markets — Analyst

Robin Farley — UBS — Analyst

Jaime M. Katz — Morningstar, Inc. — Analyst

Patrick Scholes — Patrick Scholes — Analyst

Benjamin Chaiken — Credit Suisse — Analyst

Assia Georgieva — Infinity Research — Analyst

Paul Golding — Macquarie Capital (USA), Inc. — Analyst

Vince Cipiel — Cleveland Research — Analyst

Ryan Sundby — William Blair — Analyst

Presentation:

Arnold W. Donald — President and Chief Executive Officer

Good morning, and happy holidays everyone. Welcome to our business update conference call. I’m Arnold Donald, President and CEO of Carnival Corporation and PLC; and today I’m joined telephonically by our Chairman, Micky Arison; as well as by David Bernstein, our Chief Financial Officer; and by Beth, Robert Vice President, Investor Relations. Thank you all for joining us this morning.

Now before I begin, please note that some of our remarks on this call will be forward-looking, therefore I must refer you to the cautionary statement in today’s press release. What a difference a year made. We are clearly on our way back to full cruise operations with with 50 ships now serving guests as we end the fiscal year, and that’s up from just one ship, one short a year ago. We’ve already returned over 65,000 crew members to our ships and thus resuming operations, over 1.2 million guests and counting and still we are [Phonetic] Now we’ve achieved that while delivering an exceptional guest experience with historically high net promoter scores. These are strong accomplishment, especially in light of the uncertainty we faced just one year ago when vaccines were not yet available and effective protocols to mitigate the spread of the virus were still evolving.

Today, our team members and the vast majority of guests have received vaccines and many have received boosters. We have [Indecipherable] the effective protocols for COVID-19 and its very enabling occupancy to progress toward historical lows. In fact, occupancies at our Carnival Cruise Line brand which currently operates and generates that are most similar to its normally [Indecipherable] generates are now approaching 90% and that’s after the impact of the variants on near-term book. Again, Carnival Cruise Lines continues to outperform with both occupancy and price.

Even at this early stage, as a company, we are now generating meaningful cash flow at the ship level to date and growth, helping to fund startup costs for the remaining fleet. Total customer deposits have grown by over $1.2 billion from the prior year alone as our book position continues to build and to strength. Importantly, we ended the year with $9.4 billion of liquidity and as essentially the same liquidity level as last year, but with significantly improved cash flow generation ahead, as the aforementioned ship operating cash flows and [Indecipherable] continue to build, with 68% of our capacity now in operation and the remainder planned by spring, we are well positioned for our important summer season, where we historically have the lion’s share of our operating profit.

Throughout 2021, we said that we expected the environment to remain dynamic and it certainly has. Of course, [Indecipherable] has been a key strength of ours and we continue to aggressively manage to optimize given this ever changing landscape as we have demonstrated through the Delta variant and now with Omicron, we have navigated near term operational challenges. While the variants and their corresponding effect on consumer confidence have created some near term booking volatility, out book position has remained resilient. And in the case of Delta variant, already recovered. Importantly, these variants have not had a significant impact on our ultimate plan to return our full fleet to guest operations in the spring of 2022.

It is clear we have maximized our return to service in 2021 and we have positioned the company well to withstand the potential volatility on our path to profitability. At the same time, we have not lost sight of our highest responsibility and therefore our top priorities, which is always compliance, environmental protection and the health, safety and well-being of everyone, that’s our guests, the people in the communities we touch and serve, and of course, our Carnival family, our team members shipboard and shoreside. And to that end, we’ve achieved many important milestone along the way in our return service, or events, broadening our commitments to ESG with introduction of our 2030 sustainability goals and our 2050 aspiration, and that’s building on the successful achievement of our 2020 goal, increase our ESG disclosure by incorporating SASB be and TCFD framework in our sustainability report, bolstering our compliance efforts with the addition of a new Board member with valuable compliance experience, a strong addition to our Board of Directors and our Board Compliance Committee, improving our culture through emphasizing essential behaviors and incorporating them into our ethos [Phonetic] through training and development and through every day real time feedback, as we are already amongst the most diverse companies in the world with a global employee base representing over 130 countries.

We’re focusing our efforts on diversity and inclusion at every level and in all areas of our operation. And of course, there are many more operational milestones, such as reopening our eight owned and operated private destinations and port facilities, Princess [Indecipherable] Mahogany Bay, Amber Cove [Indecipherable] Santa Cruz de Tenerife and Barcelona, all delivering an exceptional experience to over 630,000 of the 1.2 million guests that’s resuming. Welcoming nine new more efficient ships across our world-leading brand, including Mardi Gras powered by LNG. Mardi Gras is nothing short of a gamechanger for our namesake brand Carnival Cruise Line, premium brand Holland America introduced the new Rotterdam, sister ships to the very successful Koningsdam and Nieuw Statendam.

Princess welcomed guests aboard her new Medallion class ship Enchanted Princess and we’ll welcome another new Medallion class ship the Discovery Princess early next year and ultra-luxury brand Seabourn. We welcome Seabourn Venture with its world-class expedition team and it’s spectacular 360 degree view submarines.

For the U.K., we successfully introduced Iona, also powered by LNG. For Germany, we shortly take delivery about six LNG powered ship AIDAcosma system to the also highly successful AIDAnova. And for Southern Europe, Costa Firenze and LNG powered Costa Toscana will replace the exit of several less efficient ships. Now these new ship Mardi Gras, Iona, Costa Toscana have joined AIDAnova and Costa Smeralda to be the only and with the addition of AIDAcosma shortly. The only six large cruise ships in the world currently powered by LNG, demonstrating our leading edge decarbonization efforts.

Now while the utilization of LNG is a positive step with the environment, so LNG is inherently 20% more carbon efficient. It is not our ultimate solution. We have announced our net zero aspirations by 2050. Now where there is no known answer to zero carbon emissions in our industry at this time, we are working to be part of the solution. We have and expect to continue to demonstrate leadership and executing carbon reduction strategy. We are focused on decreasing our unit fuel consumption today, reducing even the need for carbon offsets. Our decarbonization efforts have enabled us to peak our absolute carbon emissions way back in 2011, and that’s despite an approximately 25% capacity growth since that time. And while today based on publicly available information, we believe we are the only major cruise operator to peak our absolute emissions, our entire industry is moving in the right direction. And as a company with a 25% reduction in carbon intensity already under our belt, we are well positioned to achieve our 40% reduction goal by 200 and are working hard to reach that deliverable ahead of schedule.

Now in addition to our cutting edge LNG efforts, we have many other ongoing efforts to accelerate decarbonization. To name just a few, they include itinerary optimization and technology upgrades to or existing fleet and an investment of over $350 million in areas such as air conditioning, waste management lighting, and of course, the list goes on. We are actively increasing our shore power capabilities. Greater than 45% of our fleet is already equipped to connect the shore power and we plan to reach at least 60% by 2030.

Now we helped develop the first port with show power capability for cruise ships, leading to the development of 21 ports to date and counting. We are focused on expanding shore power to our high value ports around the world, that includes Miami; Southampton, England; and Hamburg, Germany. So ultimately achieve net zero emissions over time, we are investing in research and development, partly on projects to evaluate and pilot maritime skill battery and fuel cell technology and working with Classification Societies and engine manufacturers to assess hydrogen, methanol as well as bio synthetic fuels, as future low carbon fuel options for our cruise ships. Also, these efforts combined with the exit of 19 less efficient ships are forecasted to deliver upon return to full operation a 10% reduction in unit fuel consumption on an annualized base. Now that’s a significant achievement on our path to decarbonization.

Our strategic assist to accelerate the exit of 19 ships vessels with a more efficient and a more effective fleet overall and it’s lowered our capacity growth to roughly 2.5% compounded annually from 2019 through 2025, now that’s down from 4.5% annually pre COVID. While capacity growth is constrained, we will benefit from this exciting roster of new ships spread across our brand and they even to capitalize on the pent-up demand and drive even more enthusiasm around our restart plans. A enjoy a further structural benefit to revenue from these enhanced guest experiences, new ship, due to the richer mix of premium price balcony cabins, which will increase 6 percentage points to 55% of our fleet in 2023.

Now of course, as we mentioned before, we’ve also achieved a structural benefit to unit costs as we deliver these new, larger, more efficient ships, coupled with the exit of 19 less efficient ships, it will help generate a 4% reduction in ship level unit cost going forward, enabling us to deliver more revenue to the bottom line. Upon returning to full operation, nearly 50% of our capacity will consist of these newly delivered, larger, more efficient ships, expediting our return to profitability and improving our return on invested capital. Now we are clearly resuming operation as a more efficient operating company, and we’ll use our cash flow strength to reduce our leverage on our path back to investment grade credit.

Last quarter, we discussed the initial impact of the Delta variant. We indicated we saw an impact on near-term booking volumes in the month of March. Booking volumes have since accelerated sequentially and returned to pre-delta levels in November. And as we said we would, we maintain price despite the disruption, achieving 4% higher revenue per passenger cruise day in our fourth quarter than in the fourth quarter of 2019. In fact, the Carnival Cruise Line brand where we as I mentioned are able to offer more comparable itineraries to those in 2019 experienced its second consecutive quarter of double-digit revenue growth for the year, while improving occupancy with nearly 60% of its capacity returned to serve. Now that’s a testament to the fundamental strength in demand for our cruise product, especially when you consider this was accomplished without the benefit of a major advertisement.

We expect to build on this momentum with the brands announcement just last week on its Funderstruck campaign, engineered to highlight the joy and following of our Carnival Cruise. That advertising campaign is launching over the holiday, including the activations on Christmas Day and Times Square on New Year’s Eve, in time for our [Indecipherable] something that’s very present in the news today, Omicron there. We have also experienced some initial impact on near-term bookings, although difficult to measure. That said, we have a solid book position and intensely constrained capacity for the first half of 2022. With the existing demand and limited capacity, we remain focused on maintaining price. Bookings continue to build for the remainder of 2022 and well into 2023, and we are achieving those early bookings with strong demand. In fact, pricing on our book position for the back half of 2022 improved since last quarter, and that’s despite the Delta variant.

The current environment while challenging, has improved dramatically since last summer. And as the current trend of vaccine rollout and advancements in therapies continues, it should improve even further by next summer. So looking forward, we remain on a path to consistently deliver and slow from operations during the second quarter 2022 and generate profit in the second half of 2022. Importantly, we believe we have the potential to generate higher EBITDA in 2023 compared to 2019, given despite our modest growth rate, additional capacity and our improved cost structure. Throughout the pause, we have been proactively managing to resume operations as an even stronger and more efficient operating company, to maximize cash generation and to deliver double-digit return on investment.

Once we return to full operations, our cash flow will be the primary driver to return to investment grade credit over time, creating greater shareholder value, and we continue to move forward in a very positive way. And for that, I again express my deepest appreciation to our Carnival team members, both shipboard and shoreside, who consistently go above and beyond. I am very proud of all we’ve accomplished collectively to sustain our organization through these challenging time and I’m very humbled by the dedication I’ve seen from our teams throughout. Of course, we couldn’t have done it without the overwhelming support from all of you. So once again, thank you to our valued guest. Thank you to our travel agent partners. Thanks to our home port and destination communities. Thank you to our suppliers and other many stakeholders. And of course, thank you to our investors for your continued confidence in us and for your ongoing support. Once again, we can’t wait to welcome everyone back on board.

With that, I will turn the call over to David.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Thank you, Arnold. I’ll start today with some color on our positive cash from operation followed by a review of guest cruise operations along with a summary of our fourth quarter cash flow, then I’ll provide an update on booking trends and finish up with some insights into our financial position.

Turning to cash from operation. I am so happy to report that our cash from operations turned positive in the month of November, ahead of our previous indication, driven by increases in customer deposits and other working capital changes. We all know that booking trend are a leading indicator of the health of our business with solid fourth quarter booking trend leading the way, driving customer deposits higher, positive EBITDA is clearly within our site. Over the next few months, we expect ship level cash contributions to grow as more ships return to service and as we build on our occupancy percentage. However, cash from operations and EBITDA over the next few months will be impacted by restart related spending and dry-dock expenses as 28 ships, almost a third of our fleet will be in dry-dock during the first half of fiscal 2022. Given all these factors combined, we expect both monthly cash from operations and monthly EBITDA to consistently turn positive during the second quarter of fiscal 2022. So 2022 will be a tail to hear. While we expect the net loss for the first half of 2022, it makes me feel so good to say we expect the profit for the second half of 2022.

Now let’s look at guest cruise operation. During the fourth quarter, we successfully restarted 22 ships. During the month of December, we will restart an additional seven ships, so we will be celebrating on New Year’s Eve with over two thirds of our fleet capacity in service. Our plans call for the remainder of the fleet to restart guest cruise operations by spring, putting us in a great position for our seasonally strong summer period. For the fourth quarter, occupancy was 58% across the ships in service and that was a 4 point improvement over the 54% we achieved last quarter during the peak summer season despite the slowdown in bookings just prior to the fourth quarter from the Delta variant.

During the fourth quarter, we carried over 850,000 guests, which was 2.5 times the number of guests we carried in the third quarter. Our brands executed extremely well with net promoter scores continuing at elevated levels compared to pre-COVID scores. Revenue per passenger cruise day for the fourth quarter 2021 increased 4% compared to a strong 2019 despite the current constraints on itinerary offering. Once again, our onboard and other revenue per diems were up significantly in the fourth quarter 2021 versus the fourth quarter 2019, in part due to the bundled packages as well as onboard credit utilized by guests from cruises cancelled during the [Indecipherable]

We had great growth in onboard and another per diems on both sides of the Atlantic. Increases in bar, casino, shops, spot, and Internet led the way onboard. Over the past two years, we have offered and our guests have chosen more and more bundled package options. In the end, we will see the benefit of these bundled packages and onboard and other revenue as we did during the second half of 2021. As a result of these bundled packages, the line between passenger ticket revenue and onboard revenue is blurred. For accounting purposes, we allocate the total price paid by the guests between the two categories. Therefore, the best way to judge our performance is by reference to our total cruise revenue metrics.

For those of you who are modeling our future results based on our planned restart schedule for fiscal 2022, available lower berth days or ALBDs as they are more commonly called, will be approximately $78 million. By quarter, the ALBDs will be for the first quarter $14.1 million. For the second quarter, $17.8 million. For the third quarter, $23 million even. And for the fourth quarter, $23.1 million.

Fuel consumption will be approximately 2.9 million metric tons. The current blended spot price for fuel is $563 per metric ton. I did want to point out that due to the cost of a portion of our fleet being in pause status during the first half of 2022, restart related expenses, the cost of maintaining enhanced health and safety protocols and inflation, we are projecting net cruise costs without fuel per ALBD in 2022 to be significantly higher than 2019 despite the benefit we get from the 19 smaller less efficient ships leaving the fleet. Remember that because a portion of the fleet will be in pause status during the first half, we are spreading costs over less ALBDs. We do anticipate that most of these costs and expenses will end with 2022 and will not reoccur in fiscal 2023. In addition, we expect depreciation and amortization to be $2.4 billion for fiscal 2022, while net interest expense without any further refinancings is likely to be around $1.5 billion.

Next, I’ll provide a summary of our fourth quarter cash flows. During the fourth quarter 2021, our liquidity, increased by $1.6 billion to $9.4 billion at the end of the fourth quarter from $7.8 billion at the end of the third quarter. The increase in liquidity was driven by the $2 billion senior unsecured notes we issued in October to refinance 2022 maturities. The $360 million customer deposit increase added to the total. This was the third consecutive quarter we saw an increase in customer deposits. Completion of a loan we previously mentioned, supported by the Italian government, with some debt holiday principal refund payments added another $400 million. Working capital and other items net contributed $300 million. All these increases totaled $3.1 billion, which was somewhat offset by our cash burn of $1.5 billion. Simply, our monthly average cash burn rate of $510 million per month times 3. it should be noted that our monthly average cash burn rate for the fourth quarter 2021 was better than planned, driven by lower capital expenditures.

Turning to booking trends. Our cumulative advance book position for the second half of 2022 and the first half of 2023 are at the higher end of historical ranges and at higher prices compared to 2019, with or without FCC’s, but normalized for bundled packages. This is a great achievement given pricing on bookings for 2019 sailings is a tough comparison as that was the high watermark for historical yield. Booking volumes for the same period during the fourth quarter of 2021 were higher than the third quarter. During the fourth quarter 2021, we significantly increased our advertising expense compared to the third quarter in anticipation of the full fleet being in operation in the spring of 2022, generating demand and allowing us to improve pricing on our book position. However, the fourth quarter advertising expense is still significantly below our spending in the fourth quarter 2019.

Finally, I will finish up with some insights into our financial position. What a difference a year makes except for our liquidity. As Arnold indicated, we entered 2022 with $9.4 billion of liquidity, essentially the same liquidity level as last year, but with significantly improved cash flow generation ahead as ship operating cash flows and customer deposits continue to build. Through our debt management efforts, we have refinanced $9 billion to date, reducing our future annual interest expense by approximately $400 million per year and extending maturities, optimizing our debt maturity profile. With our 2022 maturities already refinanced, we do not have any financing needs for 2022. However, we will pursue refinancings to extend maturities and reduce interest expense at the right time. Given our long history of positive strong resilient and growing cash flows, unlike many other industries, in 2023 our focus will shift to deleveraging, driven by cash from operations. We expect to return to investment grade credit over time, creating greater shareholder value.

And now, I’ll turn the call back over to Arnold.

Arnold W. Donald — President and Chief Executive Officer

Thank you, David. Operator, please open 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

Hey guys, good morning, and happy holidays. So I just want to be clear about the near-term booking pressure due to Omicron. And is it — it fair to say that the booking pressure is really just around bookings for the first half of of 2022? And what I’m trying to get at is we want to be sure that that booking weakness hasn’t started to impact further out bookings and I know it’s — it’s hard to understand which way Omicron might go. But would you expect these similar path that you witnessed around Delta, meaning bookings slowed and then rebounded very quickly as that fizzled out and got out of the media?

Arnold W. Donald — President and Chief Executive Officer

Hey, good morning, Steve, and happy holidays to you. I think we have the experience that I shared in my opening remarks about the Delta variant. We recovered in November completely from that. We’ll have to see how this plays out. I think the great news is it appears to date from scientists around the world and medical experts that while this particular variant is highly infectious, it seems to have less damaging effects on people that have contracted, especially those who are vaccinated and we encourage everyone to be vaccinated, everybody to get their boosters. We have very effective protocols. And so again, I think our actual performance and we had these protocols in place as you will recall, even before they were vaccines we had effective protocols with sailors in Europe. So we’re amongst the safest form of socializing and travel that, that there are.

And so to your question on the bookings. At this point, we have not seen any major impact on the second half of ’22, ’23 bookings, as for us even to quantify any impact, although we’re kind of a reflection of overall consumer behavior globally. So we’re sure we’ve had some impact. We do see some, a little spike in near term cruise cancellations, but the booking patterns are strong and we have not at this point seen anything and based on limited experience of the Delta variant how this one seems to be playing out, well, at this time not anticipating it. I hope that answered your question.

Steven M. Wieczynski — Stifel Nicolaus Capital Markets — Analyst

Yeah, that’s great color. I appreciate that. And then second question is probably for David. But, David, you guys have refinanced over, I think — I think you said the number is $9 billion so far. And I’m wondering how much more you think is available to refinance over the next six to 12 months and maybe help us understand that you talked about interest cost for ’22 being around $1.5 million and what that number might actually look like by the time we get to next year? And I’m not trying to get more — I’m not here trying to get more detailed guidance from you guys, I’m just trying to understand the magnitude of of how much more you really could go from here?

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Sure. So Steve, if you look at our capital structure, the biggest piece that high interest rate, that are the two well notes that we did in 2020 and those have high 9s or low ’10s in terms of interest expense. So there is an opportunity there to do refinancing of those notes and we’ll look for the right time to consider doing that, during 2022, and that could on that few billion dollars that’s outstanding that could lower interest expense even further. But we did give the forecast is what the guidance at $1.5 billion and depending on the timing of any refinancing and the exact interest rate on what we refinance, there should be a considerable amount of savings going forward. And of course, keep in mind that as Arnold indicated, we do expect that we believe we have the opportunity for higher EBITDA in 2023 as compared to 2019, and that should begin to drive debt down in 2023, our overall debt levels and correspondingly drive interest expense. So it’s a little premature to give guidance, but we do expect lower interest expense in 2023.

Steven M. Wieczynski — Stifel Nicolaus Capital Markets — Analyst

Okay, great. Thanks, guys. Appreciate it. Happy holidays again.

Arnold W. Donald — President and Chief Executive Officer

Happy holidays.

Operator

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

Robin Farley — UBS — Analyst

Great, thank you. So on your commentary that pricing for second half of ’22 has gone up over the last quarter and realizing of course that Q1 of ’22 is still challenged, can you give us some color, is there affirming point sometime during Q2 where you see that sort of the near-term impact sort of stopping and things being firm? Is it from sort of May forward or is there a firming point or is it even earlier that may potentially where, where you’re seeing that the bookings and pricing moving up that you are seeing the second half, but where you can kind of see that point in Q2 where it’s firming? Thanks.

Arnold W. Donald — President and Chief Executive Officer

Okay. Dave, you want to take a first shot.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Yeah, sure, no problem. So listen, a lot of the, the reason we’re focused on the back half of the year and we’ve talked about the comparisons in the back half and also the first half of 2023 is because you’re talking about apples and apples comparison is relatively speaking, because the whole fleet is an operation, the itineraries that we’re running or looking are similar to the itineraries that we ran in 2019. So it’s an apples-to-apples comparison and you can see what the the booking trends, the pricing trends look like. If you look at the first half of 2022, remember this is apples and oranges. In 2019, we had World Cruises, we had long exotic voyages. Our whole fleet was in operation. That’s not true for the first half of 2022. So on an apples-to-apples basis, the comparison does look nearly as good as when you get down to the detail itinerary level, and at the detail level we’re very pleased with pricing. I mean, just to give you some comparisons. I mean, look at the fourth quarter. Our total cruise revenue yield per PCD was up 4%, and so overall we’re we’re very, very pleased with the pricing that we’re seeing for the whole year. It’s just, it’s an apples and oranges for the first half.

Robin Farley — UBS — Analyst

Okay, understood. Thank you. And, and then just for my other question. Your commentary about expenses was very helpful, thinking about, there are some non-recurring higher things in 2022 and you said most of those won’t recur in ’23, and I realize it’s the way too early for you to sort of give an expense guidance number in 2023, but is it reasonable to think that the improvement inefficiencies from having sold those 19 ships that the expense per unit savings from that would more than offset the inflation piece, which you know, the inflation piece may be recurring but whereas all the other sort of restart and the pause status all of those expenses. Once those are gone, is it reasonable to think that you’re — that the savings from this less efficient ships being gone would more than offset any inflation? Thanks.

Arnold W. Donald — President and Chief Executive Officer

Hey Robb — Robin, thanks for the question, and happy holidays to you. Obviously, we can’t forecast what inflation is going to be in all that and I know you understand that. But what we can tell you is that exiting the ships and the other efficiencies that we are managing to, as I said in my opening comments, put us in a fundamentally lower cost basis and we’ll have to see what happens with inflation and so on. But clearly, whatever revenue way would it generate and prices look strong now, more of it will fall to the bottom line because of that. But I wouldn’t want to try to predict inflation r anything, but we we know we’re coming out leaner and more efficient and we’ll be better positioned and we’re expecting to be in position to deliver more EBITDA in ’23 that we did in ’19.

Robin Farley — UBS — Analyst

Great. Understood. Thank you, both.

Arnold W. Donald — President and Chief Executive Officer

Thank you.

Operator

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

Jaime M. Katz — Morningstar, Inc. — Analyst

Hi, good morning. Thanks for taking my questions. I would like to hear a little bit about the timing of marketing spend over the course of the next year. My guess is that it might be more front-end loaded given the uncertainty around the first half? And then if you have any comments on the supply chain and what you guys are seeing from a procurement perspective? It would be very interesting to hear that given all of the publicity around such issue in the news. Thanks.

Arnold W. Donald — President and Chief Executive Officer

Okay. Sure. On the marketing spend, first of all, again, we’re very pleased with the results we’ve been able to enjoy, especially with the Carnival brand where the itineraries are more comparable to what they normally would be pre-COVID without any advertising are very limited. So as we get ready for wave, we are launching campaigns across the brands in anticipation of wave still less spend than we had say in previous years pre-COVID, but a significant ramp-up from, from where we are. And we’re being very diligent as [Indecipherable] we talked about in looking at how to effect that spend for the greatest impact. So we’ve got more efficient and the spend we believe as well. So we are starting to ramp up. But again, the full fleet won’t be sailing until sometime in the spring or what I would, obviously we’re looking for bookings now in second half of ’22 and beyond. So a lot of spend is for that. But we’ll ramp up and judge as we go, what seems to make the most sense and what’s really going to drive guest behavior.

In terms of the supply chain and sourcing question, we’re global, we source from all over the world. There’s lots of dynamics everywhere. We’ve had single challenges, issue challenges at times with provisions or procuring particular services in a particular area, but overall we’re able to sail in a great way for the gas where the guests are having a great time in a way that is compliant and very much in the best interest of public health and so we’ve been able to manage, manage through. Any other color you want to add David on, on either point.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

No, I think you hit the points well. I just did want to add one point, I was on mute, apologize, when Robin is the question about the cost. I just wanted to point out to everybody that by the time we get to 2023, remember there’s four years of inflation there between ’23 and 2019. So just keep that in mind, in addition to the other comments and Arnold made about cost for 2023.

Jaime M. Katz — Morningstar, Inc. — Analyst

Thank you, guys. Enjoy your holidays.

Arnold W. Donald — President and Chief Executive Officer

Hey, you enjoy yours. Thank you.

Operator

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

Patrick Scholes — Patrick Scholes — Analyst

Great, thank you everyone. I wonder if you can just help me clarify sort of apples-to-apples on your commentary on booking and you said advanced bookings for the second half of ’22 and the first half of ’23 are now at the higher end of historical ranges. Previously, of course, you had just talked about the second half of next year. When you’re talking about the advance bookings for second half of 2002 and the first half of ’23, is that — is that a combined ’22 and ’23 together? Or is that for both periods separately? I’m just try to apples-to-apples to what you said just the single period last time. Does that makes sense?

David Bernstein — Chief Financial Officer and Chief Accounting Officer

It got like.

Arnold W. Donald — President and Chief Executive Officer

Yeah, go ahead. David. Go ahead.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Yeah, and so when we, with reason we labeled the period separately is because we looked at each individually and each one was at the higher end of the historical range, both it individually.

Patrick Scholes — Patrick Scholes — Analyst

Okay. And then, okay so we’re going to look individual. I want to be clear here, apples-to-apples you had said previously back half of next year was at a new historical high, meaning new historical high, but now it’s at the higher end. With that, is it fair to assume that it’s not — those bookings for the second half of next year are not quite as high as you had said last quarter, I am I interpreting that correctly? Thank you.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Yeah, you are interpreting that correctly. But by the way, nobody really wants to be breaking new records on the advance booking curve because if you want to properly — the goal is to maximize the pricing and maximize the revenue when the ships sale. So historically, you know, if you’re in that grade of book position, it’s time to raise price, go down the booking curve. You don’t need to be, therefore, and if I told you that we were sold out for the back half of 2022 at this moment in time, you tell me we did manage it properly. We left money on the table. So it’s not shocking that we pulled back a little bit and we raised price and you saw a slowdown in the booking trends.

Patrick Scholes — Patrick Scholes — Analyst

Fair enough. I appreciate the the color on that. Thank you.

Operator

Our next question comes from Ben Chaiken with Credit Suisse. Please proceed.

Benjamin Chaiken — Credit Suisse — Analyst

Hey, how is it going. Another apples-to-apples question. Does this, forgive me, does this, when you guys give the forward commentary on pricing, does this adjust for the 19 ships removed or is it just a gross bookings versus gross bookings previously? If I didn’t make sense I can try a different way. Meaning, did that capture the mix shift, I guess or not?

David Bernstein — Chief Financial Officer and Chief Accounting Officer

So essentially, we’re just looking at the fleet in 2019 that existed in all of the bookings and so we don’t subtract out ships that left the fleet. We’re not doing consistent fleet. We’re doing today’s fleet versus the fleet we had for 2019 sailings. So, yes, there is some benefit to, as Arnold said, the newer ships will get a better price point, better mix of cabins and other things and so that is benefiting the price over time. But, and they’re also more cost efficient and they generate significantly more EBITDA as well. So all — you’re seeing all of that flow through in the booking trends and ultimately flow through the cash flow and P&L.

Arnold W. Donald — President and Chief Executive Officer

The other thing [Speech Overlap] another variable or itineraries, and so we don’t adjust for itineraries either in certain itineraries or more higher yielding than others and so on and so forth. But those are normal variances that happen year-to-year.

Benjamin Chaiken — Credit Suisse — Analyst

Got you. That totally makes sense. Thank you. And then I guess just one other. You guys mentioned several times bundled packages. I guess, are you seeing and or kind of early in the the return to cruise, but are you seeing passengers have an additional wallet once on board as well, like at our incremental opportunities to standards?

Arnold W. Donald — President and Chief Executive Officer

Absolutely, we are seeing higher spending levels on board. There’s no question about that. In some cases bundling is contributing to that. We’ve always done each brand is different and over time there’s always been some bundling, there seems to be even more of it currently than it h as been in the past and it appears that when you have these bundled packages, that overall you end up getting greater yield because there is additional spend. But right now, there is also, I’m sure just this pent-up demand where people are anxious to go out and experience things and have a good time and that’s also showing up on board revenues right now, which are a very strong.

Benjamin Chaiken — Credit Suisse — Analyst

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

Assia Georgieva — Infinity Research — Analyst

Good morning. I had a couple of questions. Arnold, you mentioned in the prepared remarks that the Carnival brand is already at 90% occupancy, which is fantastic news. Given that we have the restart dates for all the ships at this point, they are pretty much fixed. So we can be hopeful that there might be upside from higher occupancy levels. Should we think that the Princess might be next brand that is getting to levels somewhat closer to the Carnival brand and possibly Costa? Is that a fair way to look at? Can I get my upside from occupancy?

Arnold W. Donald — President and Chief Executive Officer

Yeah, thanks for the question. I think first of all, we’ve had a number of ships on the Carnival brand, even had a 100% occupancy and the trend there is very good. But again, those itineraries are most comparable to the itineraries that existed pre COVID, and so you have very similar itineraries going on and just great execution by by the Carnival team. In terms of which brand is next, that’s pretty complicated. As we bring ships back, we don’t bring them back right away anywhere near 100% occupancy and so you have to look at the proportion of ships returning to service and when they return to service. And then you have to look at the itineraries. We also have different protocols around the world. We have a number of European sailings that still have social distancing or physical distancing requirements and that halves the occupancy in the 60% to 80% range depending on itinerary and the ship and so on. So there are a lot of variables here and we just have to see what the situation is around the speed of ramp up and what the required protocols are and which itineraries we’re going to need to bring the ships back into. With the plans we have, we can kind of predict, but this is a very dynamic situation and has been. Our team has been really able to adapt to and execute well. Overall, the trend as positive. And the brands will get to where they need to, to be given their particular circumstances, but the trajectory — overall trajectory despite the shits and the staffs and the speed bumps and pot holes are so on and so forth and detours, the overall trajectory is positive. Thank you.

Assia Georgieva — Infinity Research — Analyst

You gave me such a great segue into my second question because you mentioned the itineraries probably three or four times in the — I understand that Australia and New Zealand has basically been closed for the winter season. For instance, couldn’t do for a long voyage the summer I think partly because of Australia-New Zealand being such an uncertain embarkation point at this point. And then referencing, again itineraries and the new LNG ships coming in, Costa Diadema have to replace Costa Smeralda in South America because we don’t have enough access to or reliable access to LNG facilities. Would you, given that you are the only cruise company, large cruise company that is operating LNG ships, would you have to participate in building out the infrastructure at places such as Brazil, for example?

Arnold W. Donald — President and Chief Executive Officer

Yeah, I think we have a strong partnership with Royal Dutch Shell in terms of LNG infrastructure access, etc., and then obviously we go beyond that relationship to secure what we need. But is — when we built the first ship — when we started to build and there was no infrastructure and so we made a commitment early because of our commitment on environmental front and, and now we’re very excited to to have the six ships with another five coming. So again, you may have to adjust in the moment here or there or whatever, but overall we see clear line of sight on the infrastructure to support good yielding itineraries that are exciting for our guests with our LNG powered ships. And then if absolutely necessary, the ships can use alternative fuel source, obviously. But our intention and purposes, because we’ve built them as LNG powered ships to use LNG.

Assia Georgieva — Infinity Research — Analyst

So would you need to put this a bit further. I’m sorry.

Arnold W. Donald — President and Chief Executive Officer

No go ahead, you’re follow-up. We have to participate and help fund or something, the establishment of the infrastructure. We don’t anticipate that until — we don’t anticipate having to put capital in ourselves to help establish the infrastructure, we don’t. We think there are plenty of players in that part of the business to do that. Timing may be a little off here or there, but we don’t see a need at this point for us to commit our capital to building LNG infrastructure in ports.

Assia Georgieva — Infinity Research — Analyst

Okay, great, thank you so much and I’m really glad you have made such a commitment to a cleaner environment. So I appreciate that. A great holiday season from me as well.

Arnold W. Donald — President and Chief Executive Officer

Hey, thank you, thank you. Same to you.

Operator

Our next question comes from Paul Golding with Macquarie Capital. Please proceed.

Paul Golding — Macquarie Capital (USA), Inc. — Analyst

Thanks so much. So, I had a quick question on just structural evolution of the marketplace. David, I think you had mentioned earlier about the mix shift increasing a bit sequentially towards higher-end state room mix. And I’m wondering if that’s something that beyond the current order book you’re looking to do more long term because you see higher propensity to spend. Should we expect as far as thinking, once we’re in a clearer yield environment should we expect just continued increase in higher end state room mix? And then I have a follow-up on inflation.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Sure. So, I think what Arnold in his prepared remarks talked about, I think it was 5 percentage points higher, a 5 percentage or 6 percentage points higher balcony cabins and so the mix of balcony is — that’s in our fleet, in the future is higher than the mix historically. A lot of that has to do with the way in which we build ships and to design new ships, we’ve been able to get effectively more balcony cabins on each and every ship which will hopefully we believe will drive yields in satisfaction levels of our guests. I don’t think you’re going to see for the ships we have on order through 2025, it’s all well said. We’re beginning to start thinking about future new builds and we’ll analyze that based off of customer trends and desires and we’ll work those into the plans and you can be sure we’ll be thinking about that and making sure that we optimize the return on invested capital over time as a result of what we do.

Paul Golding — Macquarie Capital (USA), Inc. — Analyst

Great. And then on the cost side, as we think about your commentary on inflation, your thoughts on 2022, fuel cost. Should we start thinking more about weather hedging is going to play a role here again for for your team versus what was previously not a robust hedging program on your side in the fuel space?

Arnold W. Donald — President and Chief Executive Officer

We historically haven’t hedged. And at this point in time if that changes, we’ll let you know. But it should — historically we haven’t hedged. We have felt that over time that all takes care of itself and we have some natural hedges with the portfolio we have and revenues and costs and different currencies around the world. I know you’re talking about fuel price hedging. But I’m just saying, other than that we really typically don’t hedge.

Paul Golding — Macquarie Capital (USA), Inc. — Analyst

And other than the LNG nothing meaningful on mix shift between bunker and NGL and going into the [Speech Overlap]

Arnold W. Donald — President and Chief Executive Officer

There is no question that over time we’ll see lower ratio of NGL given the fact we’re bringing in LNG and we have advanced air quality of systems on the ships, etc. So the combination of LNG and extended use of events or a quality systems, we should see a lowering of the requirements on NGL as we — as we go forward. David, you want to add any additional color.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

No, I think that’s says it well. My blended fuel average for ’22 reflected probably a 10-point drop in the NGL mix from ’21 to ’22.

Paul Golding — Macquarie Capital (USA), Inc. — Analyst

Great, thanks so much for that color, and happy holidays.

Arnold W. Donald — President and Chief Executive Officer

Hey, happy holidays for you too.

Operator

Our next question comes from Vince Cipiel with Cleveland Research. Please proceed.

Vince Cipiel — Cleveland Research — Analyst

Thanks. I wanted to follow up on occupancy. I think you mentioned that August was about 59%. So it looks like it was pretty stable throughout your fiscal 4Q. Definitely appreciate that it’s a dynamic situation that you alluded to. But how are you thinking about that occupancy build throughout 2022? Do you anticipate it’s more linear or more inflecting in the second half? Kind of what’s built into the budget as it relates to your profitability assumptions?

Arnold W. Donald — President and Chief Executive Officer

So I’ll start just with an overall comment that clearly the occupancy trend is, is really positive. Now when you look at the that comparison you just made, there are a lot of dynamics in that. For example, we brought on, as David mentioned, I think in some of his comments, 22 ships or something and obviously when you bring the ships on, they’re not initially at full occupancy, that’s on purpose as we bring them in, and so that — that average is down — your occupancy. So what we’re looking at overall for occupancy trends are where you have comparable itineraries and ships that have been sailing for a while. What’s happening with occupancy on those ships and that’s a very positive message. So you, you have a number of things waiting for those occupancy numbers, David?

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Yeah, so the — the other thing, keep in mind that affected the fourth quarter was the Delta variant in the month of August impacted bookings, many of which might have been for the fourth quarter, and as a result of that we had hoped to have higher occupancy in the fourth quarter, but that between the Delta variant and everything else and a few itinerary changes that we had, we were very pleased with the overall 39%. Looking forward, I will say it’s very difficult to predict exactly by month or by quarter what the occupancy is going to be. We’re in a good position — book position and we’re expecting overall the trend to be positive and to see increasing occupancies throughout 2022. But I think it’d be premature for us to give some sort of guidance.

Arnold W. Donald — President and Chief Executive Officer

Okay, Operator, we have time for one more question.

Operator

We have a question from our Ryan Sundby with William Blair. Please proceed.

Ryan Sundby — William Blair — Analyst

Yeah, hi, thanks. I had a question around operating procedures. It seems like proof of vaccination and major test results have been a really effective tool for the industry to certainly non adhere. And I guess given more breakthrough cases really around, in a all live experiences in the past month or so, is that still an effective tool going forward? And when do you need to start considering acquiring a booster, which I think a market like France is now recurring.

Arnold W. Donald — President and Chief Executive Officer

Yeah, hey thanks for the question. I think overall we continue to be informed by, again the scientists around the world and medical experts and of course, we continue to act in compliance whatever the rules are in destinations and home ports that we’re operating. But the bottom line is that this is a dynamic situation in the markets where we are requiring vaccine required testing everywhere, we acquired vaccines in most places. And we’re encouraging boosters. Of course, our crew is vaccinated and over 10,000 of them have already received boosters and will be continuing with that. They are tested very frequently, the crew is. And then those protocols have worked and have helped us be amongst the safest forms, as I mentioned before, of socializing and travel of any in the travel and leisure sectors. So they have worked and they are continuing to work. So we’ll see how it plays out. We’ll follow the science and obviously we’ll be in compliance. But right now we are sailing with confidence. As you noted, there are going to be some cases. There is a far lower incidents of cases right now in cruise and in society at large, and we want to work to continue to ensure that that’s the case. And when there are cases, the risk of propagation or spread of the virus is, has been very effectively controlled to date. And as long as that continues to be the case, we’ll continue to sail with confidence. But we will adjust and adapt to what we need to. And I think the most important thing is where we have had cases, in most instances they’re either asymptomatic or minor symptoms. We have not had lots of cases where people have to be hospitalized or are worse and I think that’s important, and that’s also increasing trend in society at large, and hopefully that trend will continue.

Ryan Sundby — William Blair — Analyst

[Indecipherable] Thanks.

Arnold W. Donald — President and Chief Executive Officer

Thank you. Obviously, that was the last question Okay. Hey, look, everyone, thank you. Really appreciate your engagement. Please have a safe and joyful holiday and we look forward to talking with you guys at the next business update. So thank you very much.

David Bernstein — Chief Financial Officer and Chief Accounting Officer

Happy holidays everyone.

Operator

[Operator Closing Remarks]

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