Carnival Corp

NYSE:CCL

Earnings Call Analysis

Record-breaking revenue and strong demand drive exceptional performance

In the latest earnings call, the company reported record-breaking revenues, operating income, and customer deposits. Yields increased over 12% year-over-year, surpassing previous guidance. European brands showed over 20% yield improvement, while North American brands saw a 7% rise. For Q3, the yield guidance is 8%. The full-year net income guidance was raised by $275 million, expecting a net income of $1.55 billion, driven by double-digit yield growth. Operational improvements and effective cost management have further strengthened the balance sheet, putting the company on track to meet its financial targets for the year.

Exceptional Q2 Performance

In the recent earnings call, the company reflected on an outstanding second quarter, achieving record figures across revenue, operating income, customer deposits, and booking levels. Revenue grew significantly, with yields up by over 12%, surpassing the March guidance by 1.5 percentage points. The company's continued focus on increasing ticket prices and onboard spending drove this success. European brands saw a remarkable 20% yield improvement, while North American brands saw a healthy 7% increase【4:2†source】【4:3†source】.

Optimistic Full-Year Guidance

Looking forward to the full year, the company has revised its net income guidance upward to $1.55 billion, reflecting a $275 million increase from earlier projections. This optimism is grounded in continued strong booking trends, higher anticipated yields, and improved operational efficiencies. The guidance anticipates a 10.25% improvement in 2024 yields driven by higher ticket prices, increased onboard spending, and higher occupancy rates. Additionally, net interest expenses are expected to drop by $60 million due to refinancing and debt prepayment activities【4:1†source】【4:2†source】.

Ongoing Focus on Cost Efficiency

The company is unyielding in its pursuit of cost-saving opportunities. In the second quarter, cost savings of $85 million were identified, largely due to timing differences in expenses. Part of these savings was reinvested in the business to drive further revenue growth. The focus remains on maintaining flat cruise costs per available lower berth day (ALBD) while enhancing the onboard experience through better services and amenities【4:1†source】【4:2†source】.

Refinancing and Deleveraging Efforts

In the second quarter, the company generated $2 billion in cash from operations and $1.3 billion in free cash flow. They prepaid $1.6 billion of secured term loans and issued $535 million in unsecured notes due in 2030. These actions have reduced net interest expenses and simplified the capital structure. The company aims for a 2-turn improvement in net debt-to-EBITDA leverage by year-end 2024, positioning itself closer to an investment-grade credit rating【4:4†source】【4:6†source】.

Positive Booking Trends for 2025

The booking trends for 2025 are particularly strong, with prices and occupancy rates already exceeding those of the previous year. Notably, the company has seen a significant increase in future bookings, setting records in the second quarter. This robust demand is reflected in customer deposits surpassing $8 billion, an increase of $1.1 billion from last year. The company remains focused on optimizing its yield curve to sustain mid-single-digit per diem growth【4:2†source】【4:8†source】.

Strategic Brand and Portfolio Adjustments

The company is also making strategic adjustments to its brand portfolio, including the decision to sunset the P&O Cruises Australia brand. This move will consolidate operations under Carnival Cruise Line, which is expected to lead to greater operational efficiency and increased capacity. The introduction of Celebration Key and the acquisition of new ships will bolster the company's offerings and fuel further growth. These initiatives are expected to enhance overall returns and expand Carnival Cruise Lines' capacity by about 50% over 2019 levels by 2028【4:8†source】【4:4†source】.

Earnings Call Transcript 2024-Q2

[Operator]

Greetings, and welcome to the Carnival Corporation & plc's conference call. [Operator Instructions]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Beth Roberts, Senior Vice President, Investor Relations. Thank you, Beth. You may begin.

[Beth Roberts, executive]

Thank you. Good morning, and welcome to our Second Quarter 2024 Earnings Conference Call. I'm joined today by our CEO, Josh Weinstein; our Chief Financial Officer, David Bernstein; and our Chair, Micky Arison.

Before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to the forward-looking statement in today's press release. All references to ticket prices, net per DMs, net yields and adjusted cruise costs without fuel will be in constant currency unless otherwise stated. References to diems and yields will be on a net basis. Our comments may also reference cruise costs without fuel, EBITDA, net income, earnings per share, free cash flow and ROIC, all of which will be on an adjusted basis unless otherwise stated.

All these references are non-GAAP financial measures defined in our earnings press release. A reconciliation to the most directly comparable U.S. GAAP financial measures and other associated disclosures are also contained in our earnings press release and in our investor presentation. Please visit our corporate website where our earnings press release and investor presentation can be found. With that, I'd like to turn the call over to Josh.

[Josh Weinstein, executive]

Thanks, Beth. Inside of 2 years, we've made incredible strides in improving our commercial operations, strategically reallocating our portfolio composition, formulating growth plans, and strengthening even further our global team ship and shore the best in the business. Off the back of these efforts, we've closed yet another quarter delivering records. This time across revenues, operating income, customer deposits and booking levels, exceeding our guidance on every measure. Yields increased over 12% in Q2, over 1.5 points more than March guidance as we continue to drive strong per diem growth, up over 6%, and this is on over 10% more passenger cruise days, which is a combination of capacity growth and sailing at historical occupancy levels.

Our European brands experienced extraordinary yield improvement again this quarter, up over 20%, while North America continued to improve on last year's high, up a healthy 7%. We had record second quarter adjusted EBITDA, roughly $150 million more than guidance. Encouragingly, on a per ALBD basis to highlight operational improvement and even with significantly higher fuel prices, adjusted EBITDA not only surpassed the second quarter of 2019, it was also our highest second quarter mark in over 15 years, coupled with flat cruise costs, excluding fuel, on a unit basis, which David will elaborate on. We delivered $500 million more to the bottom line year-over-year and outperformed our earnings guidance by $170 million. Based on continued strong demand trends, we are also taking up our expectations for the full year by $275 million, driven by double-digit yield growth.

Now this would get us to double-digit ROIC this year. And while that will be a strong outcome for 2024, it is nowhere near what our business is capable of delivering. Our current booking trends are a testament to that. We are hitting records on top of previous records, which clearly tells us the strength and demand we have been building is continuing into next year and beyond. In the near term, pricing on bookings taken in the second quarter has continued to run considerably higher for each of the third and fourth quarters. And again, that's on top of record per diems last year. This strength has enabled us to take our yield guidance for the year by another 75 basis points. We expect to deliver consistent mid-single-digit per diem growth through the balance of the year which would mark 8 consecutive quarters that we are achieving mid-single-digit or higher per diem improvements.

Our continued focus on optimizing our yield curve is not just a near-term benefit. We entered the second quarter with much less 2024 inventory to sell and have been able to lean even more into future periods. Accordingly, in the last 3 months, not only did we take more bookings for post-2024 sailings than we did for in-year sailings, we set yet another record for the most future bookings ever taken during the second quarter. The unprecedented level of demand for 2025 [indiscernible], coupled with flat capacity growth next year, translates into meaningful pricing power. And while it is still early for 2025, both price and occupancy are already ahead of where we were last year, leaving us in a position of strength with less inventory remaining for 2025. It also shows in our more than $8 billion of customer deposits, which shattered last year's record by $1.1 billion. You have heard me say this before. This is not pent-up demand, it is the compounding effect of building increased consideration in our cruise brands over time and improvement in our yield management techniques to translate that demand into higher ticket prices and it is further evidence of the strength of our consumer.

Encouragingly, we're enjoying consistent growth in both repeat guests and new guests with each segment up 10% this quarter over last year. We also continue to actively manage our portfolio to further accelerate our underlying execution improvements. As previously announced, early next year, we will sunset the P&O Cruises Australia brand selling the 28-year-old Pacific Explorer and transferring P&O Australia's 2 remaining vessels to Carnival Cruise lines. Of course, we will still retain our leading presence in the Australian market, carrying over 60% of all Aussie cruisers. It is a great market for us, especially since the Australian summer coincides with the Northern Hemisphere winter, enabling our seasonal ships to capitalize on 2 summer periods. And now we get to optimize our presence in this market by consolidating into Carnival Cruise Line. Not only will we gain operational, administrative and back-office scale, we will ultimately have greater deployment flexibility compared to a dedicated Australian brand.

At the same time, this move will further boost capacity for our highest returning brand, bringing the total to 9 new ships joining Carniable Cruise Line fleet since 2019, including the successful shift of 3 vessels from Costa Cruises. These actions, combined with the 2 XL class ships scheduled for delivery in 2027 and 2028 will grow Carnival Cruise Lines capacity by about 50% over 2019. By 2028, the Carnival brand will represent 37% of our portfolio, up from 29% as we continue to reshape our portfolio to maximize ROIC. Of course, our amazing destination experience, celebration key purpose built for Carnival Cruise Line will soon support that growth and bolster returns to incremental revenue uplift coupled with improved fuel efficiency given its strategic location. We're introducing voyages the celebration key beginning in the second half of 2025 and ramp up to 18 ships calling Celebration Key in 2026. This quarter, we also delivered Queen [indiscernible], Cunard's fourth Queen with an amazing naming celebration in Liverpool, England Cunard's birthplace. The streets of Liverpool were wall with tens of thousands of people joining the festivities as the city of Liverpool became the ships official godparents. It was a historic moment and the first time an entire city ever [indiscernible].

The event generated overwhelming coverage and as intended, broke booking records on the back of it. The new Queen is a step forward in every way for Cunard, while still retaining the DNA of British elegance and refinery that the brand is known for. We enjoyed another high-profile naming event for [indiscernible] Princess in Barcelona with Godmother Hanna Waddington of [indiscernible]. [indiscernible] Princess has had great media coverage leading up to and following the naming ceremony with particular focus on its expansive specialty dining and beverage offerings and one-of-a-kind Magic Castle experience. [indiscernible] Princess, the first of its class has also been a big hit with guests as evidenced by outsized yields and high guest satisfaction scores.

Last but not least, we held a naming event for Carnival [indiscernible] in Long Beach, California, home for Carnival second ship featuring fun Italian style with Godfather, Jonathan Bennett, [indiscernible] Broadway [indiscernible] starring and [indiscernible]. Welcoming fun Italian style to the West Coast generated nearly 2.5 billion media impressions to date, and of course, triggered a step up in bookings. While these amazing new ships all contributed to the strong yield improvement we generated in the second quarter, even excluding them, yields on our existing fleet were up double digits demonstrating fundamental strength on a same ship basis. In addition, we completed the rollout of Starlink this quarter, another revenue uplift opportunity and a real game changer for our onboard connectivity experience, enabling us to deliver the same high-speed WiFi service available on land throughout our fleet.

Not only does this technology provide our guests with more flexibility to stay connected. It enables our crew to stay in touch with friends and loved ones, and it enhances our onboard operational systems, a win-win-win. Also, our consistent track record, our book position, our focus on commercial activity improvement, our portfolio management and the yet to be realized future benefits will receive from our Celebration key destination development, build increased confidence in achieving the low to mid-single-digit yield growth set out in our long-term targets. In fact, based on our upwardly revised guidance, we will be, on average, 2/3 of the way to achieving our [indiscernible] targets. [indiscernible] per ALBD of $69, 12% ROIC and a 20% reduction in carbon intensity after just 1 year with 2 years remaining it gives us even greater confidence in achieving our targets.

At the same time, we continue to aggressively manage down debt and interest expense while reducing the complexity of our capital structure which David will elaborate on. The number of actions we've taken to improve our balance sheet this quarter puts us further down the path on our return to investment-grade credit ratings over time. It's hard to believe in just over a month, it will have been 2 years since I had the privilege of stepping into the role of CEO. I am very proud of all we've accomplished in such a short time. Credit for our achievements go to our global team, 160,000 strong. Everyone has worked very hard to deliver yet another strong quarter, solidifying an amazing 2024 and setting us up well to top it in 2025. Equally important, they've all had a hand in delivering amazing vacation experiences and unforgettable happiness to 3 million guests yet again this quarter. [indiscernible] to our amazing team, thank you. And of course, we couldn't do it without the support from our amazing travel agent partners and so many other stakeholders. Thanks to all of you. With that, I'll turn the call over to David.

[David Bernstein, executive]

Thank you, Josh. I'll start today with a summary of our 2024 second quarter results. Next, I'll provide the highlights of our third quarter June guidance and some color on our improved full year guidance. Then I'll finish up with an update on our refinancing and deleveraging efforts. Let's turn to the summary of our second quarter results. Our bottom line exceeded March guidance by nearly $170 million as we outperformed once again. The outperformance was essentially driven by 3 things: first, favorability in revenue worth almost $65 million as yields came in up over 12% compared to the prior year. This was more than 1.5 points better than March guidance, driven by closer strength in ticket prices as well as onboard spending. Second, cruise cost without fuel per available lower birthday or ALBD, came in flat compared to the prior year and were 3 points better than March guidance which was worth over $85 million. Some cost savings were identified during the quarter, which flowed through as improvement to our full year June guidance. However, most of the favorability in cruise cost for the second quarter was due to the timing of expenses between the quarters.

And third, Other operational improvement slightly offset by higher fuel prices and currency were worth $20 million. Per diems for the second quarter improved 6% versus the prior year driven on both sides of the Atlantic by considerably higher ticket prices and improved onboard spending. At the same time, our European brands on their path back to historical occupancy saw outside growth in their occupancy of over 10 percentage points as compared to the second quarter of 2023. Our second quarter was fantastic across the board with strong demand, delivering record revenues, record yields, record prelims and record operating income. Now one thing to highlight about our third quarter June guidance. The positive trends we saw in the second quarter are expected to continue in the third. Yield guidance for the third quarter is set at a strong 8%. The difference between the yield guidance for the third quarter and the second quarter yield improvement of over 12% is simply the result of the greater occupancy opportunity we had in the second quarter 2024 as we began sailing within our historical occupancy range in the second half of 2023.

It is great to see that we anticipate continued strong premium growth in the third quarter, which we are forecasting will drive the majority of the 8% yield improvement. Turning to our improved full year June guidance. June guidance for net income is $1.55 billion, an improvement over our March guidance of approximately $275 million. This improvement was driven by 3 things: first, [indiscernible] increase in yields to approximately 10.25% based on the considerably higher prices we have been seeing in booking trends so far this year and the continued strength in demand we anticipate going forward. All of this is expected to drive an increase in net revenue of about $190 million.

Second, as I previously mentioned, we identified cost savings that we flow through to our full year June guidance. However, they will be partially offset by higher variable compensation driven by our forecast for improved operating income. Net we are flowing through $25 million of cost savings for the full year. And third, an improvement in net interest expense of $60 million, driven by our second quarter refinancing, repricing and debt prepayment activities. The strong 10.25% improvement in 2024 yields is a result of the increase in all the component parts, higher ticket prices, higher onboard spending and higher occupancy at historical levels with all 3 components improving on both sides of the Atlantic. We recognize that even within our industry-leading cost structure, -- there will always be cost opportunities, which we can focus on and harvest over time. While we identify cost savings opportunities during the second quarter, we will not stop there. We will continue our endless quest for greater efficiency in our cost structure. I will finish up with a summary of our refinancing and deleveraging efforts.

During the second quarter, we generated cash from operations of $2 billion and free cash flow of $1.3 billion. We took delivery of 1 spectacular new [indiscernible] and drew on her associated export credit facility, continuing our strategy to finance our new build program at preferential interest rates. Our efforts to proactively manage our debt profile continued throughout the quarter. We prepaid $1.6 billion of secured term loan facilities. We also repriced approximately $2.75 billion of the same secured term loan facilities. And we issued $535 million of unsecured notes due 2030, refinancing our unsecured notes due 2026, extending those maturities and reducing interest expense. These transactions simplified our capital structure reduced net interest expense in the second quarter by $10 million will reduce net interest expense for 2024 by $55 million and $85 million on an annualized basis.

Our decision to prepay $1.6 billion of debt during the second quarter was based on our strong liquidity, our improved financial performance and our optimism about the future. We will continue to look for more opportunistic refinancings over time. Our leverage metrics will continue to improve around 2024 as our EBITDA continues to grow and our debt levels improve. Using our June guidance EBITDA of $5.83 billion, we expect a 2-turn improvement in net debt-to-EBITDA leverage compared to year-end 2023, approaching 4.5x and positioning us 2/3 of the way down the path to invest in grade metrics.

Looking forward, we expect substantial free cash flow, driven by our ongoing operational execution and the lowest new build order book in decades to deliver continued improvements in our leverage metrics and balance sheet, moving us further down the road to rebuilding our financial fortress while continuing the process of transferring value from debt holders back to shareholders. Now operator, let's open the call for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Matthew Boss with JPMorgan.

[Matthew Boss, analyst]

And congrats on a really nice quarter. So Josh, maybe could you elaborate on the global momentum that you're seeing, notably any call outs in Europe? And then just given the booked position for 2025, which you cited as higher than '24 a year ago, -- how does that translate to the forward progression of pricing power and just the promotional backdrop maybe versus historical periods in your view?

[Josh Weinstein, executive]

Sure. So global momentum, I think that's probably the key term. It is global momentum. And so we're seeing strength from our North American brands, from our European brands, as you started hearing me say probably about 6 quarters ago. Diversity sometimes it helps and sometimes you got to wait a little bit because different places come out of different situations at different times, and this is the strength that we're seeing right now in this portfolio, and we're really hitting it on all cylinders, which is really gratifying. North America, the booking curve is higher than it's ever been. In Europe, its highest in the last 15 years. So the teams are doing a really good job of speaking to the consumer, pricing things right and getting people on our ships and happy.

As far as 2025 goes, this is the first year that -- where we currently are, where we've been able to stop firefighting in the short term while figuring out how to also extend the booking curve and trying to do both of those things at once, which is not an easy balance for revenue managers to have to do and the brands to do. So I do feel like we are firmly positioned and although it is early days, as you heard us say on the call, being ahead in bookings and ahead in pricing is a good place to be, and our team can really focus on optimizing that longer-term period, which is exactly what they're doing.

[Operator]

Our next question comes from the line of Steve Wieczynski with Stifel.

[Steven Wieczynski, analyst]

So Josh, look, I know it's still early on, but your commentary around 2025 bookings is really encouraging at this point. And -- to add on to the last question there. I mean, could you elaborate a little bit more about where you're seeing that strength in 2025? Is the strong demand pretty much across the board or are there certain brands or itineraries that are showing more strength versus others?

[Josh Weinstein, executive]

Yes. At this point, I'll just tell you, it's global. It's the brands and it's the deployment. So the brands are doing an extraordinary good job of getting their messages out and getting people interested. And there's a hard -- a lot of hard work behind that across the commercial space. So I wouldn't give any shout-outs one way or another because we're seeing it so broadly.

[Steven Wieczynski, analyst]

And then, sorry, David go ahead.

[David Bernstein, executive]

Yes. So Josh also talked about the portfolio modifications we made, which should help in 2025 as well as celebration key -- and keep in mind, on top of that, we also don't have capacity increase next year. It's relatively flat. So I hope that should provide us with some pricing power in 2025 as we move through the booking cycle.

[Steven Wieczynski, analyst]

Okay. And second question, a bigger picture question around capital allocation. So based on how strong early demand is for next year bookings, it just doesn't seem like there's any slowdown at this point taking place. So I guess the question is, if we look out a year from now, and bookings continue to look solid. Your [indiscernible] targets are essentially in sight, and you're even closer to an investment-grade rating. I mean is it fair to think you guys could be in a position to bring the the dividend back to this story. I mean, I just think it's another important milestone and something that investors are becoming more focused on.

[Josh Weinstein, executive]

Yes. I probably sound like a broken record here, too. Right now, our priority is generate all that free cash flow, pay down debt and restrengthen the balance sheet. And in that process, returning value from the debt side to the equity holders. I can't wait to have those conversations, but I'd say that's premature. We've got a lot of work to do. And when we get there, you'll be the first to know Steve.

[Operator]

Our next question comes from the line of Patrick Scholes with Truist Securities.

[Charles Scholes, analyst]

I have some questions on return on invested capital. First one, and then I'll have a follow-up question. What kind of ballpark return on invested capital do you target for celebration key. I wonder if you could give us some color on that.

[Josh Weinstein, executive]

Yes. What we've talked about is you could almost look at this like a new build investment. And so from a new build perspective, we're looking for at least mid- to high teens, and we'd expect no less from our land-based investments as well. And obviously, the beauty of celebration key is it will benefit across dozens of ships over time, not [indiscernible] build.

[Charles Scholes, analyst]

Okay. A follow-up question. Certainly, with a new public -- new -- an existing company going public in the luxury river space, they're doing 30% ROIC. Now granted, it's a bit of a niche. Would you ever rule out you folks getting in that line of business? I certainly could envision seaborne river cruises being quite popular and a good crossover for your existing customers. Just some thoughts around that.

[Josh Weinstein, executive]

We've looked at River cruising in the past, and I wouldn't say we'll never look at it again. It's just -- it's a niche, and it's rather small and for something like us to move the needle and have pretty pretty grand. And as you've heard me say before, Patrick, I think if we focus on our brands and we focus on doing all the things that we do in the normal course better will make much more of an impact on this business.

[Operator]

Our next question comes from the line of Ben Chaiken with Mizuho.

[Benjamin Chaiken, analyst]

You're 2/3 of the way to your 2026 targets with 2 years remaining. As you think about the remaining bridge to your targets and the toggle between costs and yields do you feel tied to a specific yield requirement or threshold? Or is there enough opportunity on the cost side to generate the operating leverage necessary to reach your goals? And then related costs were better in the quarter. Can you maybe provide a little more -- greater specifics around what you're seeing or where you're getting more operating leverage than expected? And then I have 1 quick follow-up.

[Josh Weinstein, executive]

So on the first question, we're going to move forward as a company trying to focus on both, certainly generating outsized revenue versus our historical norms and maintaining our cost leadership position. We set out when we set out [indiscernible], a basic math that would tell you from a pricing perspective after we get the occupancy back, we're looking at low to mid-single-digit price increases on the revenue side, and that's certainly what I expect, and I expect that to continue well beyond SeaChange. We also need to do a good job of managing the cost. So I don't think we have to tether see change to any one particular thing. It's just doing our jobs well across the board. As far as -- yes, David, do you want to go ahead?

[David Bernstein, executive]

Yes. As far as cost is concerned, in the second quarter, remember, we did identify cost savings, but the majority of the favorability was timing between the quarters. But if you look broadly at the year, we are seeing a number of opportunities in the sourcing area, other efficiencies as well. So it is broad-based. There isn't one -- any one particular item. Our teams are working hard all across the board, and there are hundreds of cost savings items that flowed into that full year savings. .

[Benjamin Chaiken, analyst]

Got it. And then, Josh, in the quarter, you announced the [indiscernible] Australia will sunset into Carnival. You still have a number of brands across geographies and customer preferences. Do you feel there are other areas of the portfolio you can streamline and realign.

[Josh Weinstein, executive]

Yes. P&O Cruises in Australia is a bit unique. It is a dedicated brand to a tremendous market, but it's a small market. And so the ability to really grow as a single-source market brand of that size is not very feasible. And so we're going to get a lot of operational synergy out of the moves that we made with P&O Australia. We've been looking at our portfolio management for the last couple of years, as you know, moving ships from 1 brand to another retiring ships, formulating our growth plans. We'll continue to do that. there's nothing on the horizon, but it's something we do on a very frequent basis to try to figure out how to optimize over time. .

[Operator]

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

[Robin Farley, analyst]

The commentary has been very helpful in addressing a lot of concerns out there, especially, I think showing that slide you have showing the momentum in Q4 pricing in particular. So thank you for giving that additional clarity. Just -- just one question. There have been some headlines out there about some of the Greek Islands limiting the number of ships that might call next year. It's not even clear whether that's official or just something that is considered. Can you just put some context around that, whether that would just be changing [indiscernible] to go somewhere on a Tuesday rather than a Wednesday, right, as opposed to not being able to go there at all. In other words, is there anything when we think about there's been different actuary changes in the last year or so that -- so looking ahead to next year, is that anything that we should be thinking about?

[Josh Weinstein, executive]

Sure. So obviously, we have a great relationship with Greece and its local communities. And it's our job to make sure we're doing things sustainably. In fact, a lot of the news that's come up lately, these islands have had caps in place for many years, and we work with them, and we have work then we'll continue to work with them as we can really figure out how to coincide with their needs as well. I mean, that's our job. So I don't expect anything incredibly disruptive. We -- unfortunately, for us, this is just par for the course, right? We do this all the time in lots of places, and you've seen it work successfully. -- in places like Dubrovnik, and we'll continue to partner with local communities who want our economic benefit and move on. It's a relatively -- I mean, if you want context, just so you know, it's a relatively small part of our overall mix. You're talking low single-digit percentages, but it's important to us, and we want to show up and we want to show up well.

[Robin Farley, analyst]

Okay. Great -- and just one follow-up. I think last quarter you might have given different percentage growth for new-to-brand versus new to cruise overall. Is that something you can give a little bit more color on this quarter as well.

[Josh Weinstein, executive]

Sure. New to cruise was up 10%, new to brand was up a little bit less about 6%. So we're pretty much moving forward with all components. And as you heard Brad repeaters is also up 10%. .

[Operator]

Our next question comes from the line of James Hardiman with Citi.

[James Hardiman, analyst]

Question. So just a point of clarification, you talked about same ship yields being up double digits. Can you help us with how much of that is pricing? Obviously, you're getting some occupancy benefit there. And then sort of, I guess, the bigger picture question there is you've had mid-single-digit per diem growth for 8 quarters. You don't think it's pent-up demand. It sounds like you made that point a couple of times, Josh. When and why do you think that ultimately decelerates?

[Josh Weinstein, executive]

Sure. So on the same fleet, it's almost 50-50 between price and occupancy. It's a little bit more occupancy than price, but the premiums are there as well, which is really gratifying to see. As far as when our growth has to end, I wouldn't give you a time line for that. I think all of the things that we've been talking about for the last years are still in process, and we still have a lot of room to grow and making sure we're doing the right things as far as our creative marketing to reach the right people, the performance, marketing and making sure we're getting in front of the right people in the right ways, getting them to click through and book with us, book with our trade partners. The one great thing I'd say is whether it's a 25-year-old ship with 2,000 guests or it's one of our newest with 5,500 guests, people love what we actually do. And we actually deliver on board and that [indiscernible] coming back. So I don't see a natural ending point as long as we're focused on those things.

[David Bernstein, executive]

And let me add to that because we are still in tremendous value compared to land-based alternatives. And so as we continue to close that value gap, and raise the price, we should be able to continue the progression over time. And on top of that, keep in mind that as Josh, I think, mentioned on the last call, the service levels on land-based resorts have deteriorated. And on our ships, we're doing a great job keeping our guest satisfaction levels up. And people -- it's a hassle free vacation and people love to cruise. And so we expect to keep demand generation efforts high and hopefully, we can continue to see price improvements. And as Josh said, prices are up in 2025 in our book position, and we expect to see that continue.

[James Hardiman, analyst]

Got it. And then sort of as a follow-up along the same lines, right, as we think about Europe versus NAA per diems. Obviously, Europe had a big occupancy tailwind in the last couple of quarters. And it seems like that is now dissipating, you've guided per diems to be up, I think, at that mid-single-digit range for each of the next 2 quarters. Any way we could sort of slice the Europe versus North America as we think about per diems, are they pretty similar as we move forward or is 1 stronger than the other?

[Josh Weinstein, executive]

Sure. I wouldn't peg it in any one particular quarter given that there's always noise in the thing that you're comparing. But I'd say that we expect both North America and EU to show up on pricing. -- over time in the normal course. I think it's particularly gratifying, frankly, that the EU brands not only were able to actually catch up on the occupancy, but to do so at significantly higher per diems means it's working. And so -- and I'd say the same thing for North America. I mean, yes, they're for deems are a little bit lower. But at the end of the day, they've recovered quicker, and they're still maintaining mid-single-digit pricing. So I think that bodes very well for the future. .

[Operator]

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

[Brandt Montour, analyst]

Congratulations on the quarter. Josh, I was hoping maybe you could elaborate a little bit on the revenue management strategy for '25. I know you have already. My question is more on the booking curve length, the optimal booking curve length, you're ahead again on next year's booking curve. But is there a certain point where you feel like you don't want to go any further than that and it's not necessarily optimal. How do you think about that?

[Josh Weinstein, executive]

Yes, yes. So thank you, Brandt, congratulations. The 100%, I do feel that way. But also keep in mind, we give you up a very rolled-up number when we say our occupancy is x and our booking curve is the farthest out in history. When we go through this with our teams and what they do on a daily basis, it is ship by ship sailing by sailing brand by brand to figure out what that optimal point is -- and it could very well be that over time for lots of reasons, you're not going to hear me say overall that we are increasing the booking curve. And that's okay. Our goal is not to get it as long as possible is to generate as much revenue as humanly possible by the time the ship leaves for sailing. And so there's a lot that goes into that mix. It's not just base loading, but what price are you base loading it at? How are you managing your matters against each other, the balconies versus the inside. I mean, so many variables go into it on a detailed basis. And the output is what we talk about on this call. So the teams are very much aligned. -- optimization does not mean elongation, it means optimization. .

[Brandt Montour, analyst]

That's super helpful. My follow-up is on 3 brands. Costa, Princess, and [indiscernible] America. Those are 3 that we've been watching you guys talk about in your -- in sort of improving ROICs across those 3 brands. I know that you've been focused on them. How would you describe the success or versus your own benchmarks on those 3 brands improvement? And are any 3 of them outperforming the others at this point along those guidelines.

[Josh Weinstein, executive]

Sure. Well, I'll start with the fact that every single 1 of them is showing significant improvement year-over-year in ROIC, which I'd expect. They were all coming from a different starting point back in the pre-pause world. So one of them is actually above where they were. One of them is at where they were and one of them is below where they were. But I'd say it's a little bit irrelevant because of the brand that's actually higher. I expect it to be even higher because 2019 wasn't very good for them.

So from my perspective, the good news in this is none of them yet are at 12% ROIC. All of them have the potential to do that, and we've got plans in place for them to do that over time. So progress across the board.

[Operator]

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

[Conor Cunningham, analyst]

Just on the -- I think you said 10% new to cruise. I was curious if you could talk a little bit about just the changing demographics of your customers in general. How much is the younger demographic engaging with the project or product? Is there anything that they're doing different than prior generations?

[Josh Weinstein, executive]

Sure. Well, that's a deep question, right? So everybody is engaging differently than they did 5 and 10 years ago because everybody is getting more comfortable with everything digital and everything online. So that's a shift that's not just about millennials, it's about society. And when it comes to our mix, we've got brands that might be 1 or 2 years younger average age than they were before the pandemic. We've got some that might be a year older. In the grand scheme of things, it's not a huge swing. We've got -- and you also got to remember with us, we've got brands that really do cater to a younger generation like a carnival, like in [indiscernible] and they're going to be outsized in our portfolio mix when it comes to attracting millennials. We don't just want millennials. So I can't say it strongly enough, a brand like Holland America, a brand like Cunard, it is playing in a place where they need and want people that have time and money, which generally leads to an older crowd or crowd that has time on their hands because maybe they're not working anymore. And so I'm very happy that we're getting a broad church because we are across the board. But make no mistake, we're happy with our mix, and we're happy to take many folks in the boomer generation and Gen X, Gen Y, Gen Z, you name it. So we want it all. .

[Conor Cunningham, analyst]

Okay. Appreciate it. And then on the P&L Australia brand being [indiscernible] this -- as you consolidate that into Carnival, is there any impact on the P&L or any investment needed like during that transition time? Just curious like as it goes away, is there potentially cost headwind associated with it.

[Josh Weinstein, executive]

Sure. We're going to -- for us, we're going to do some minimal CapEx investment primarily on the ships to get the IT stacks aligned to Carnival Cruise Line. But from a guest experience standpoint, we don't have to do much with those ships, and they're great for that market. We obviously have, in this particular instance because we're effectively sunsetting a brand. There are some onetime costs that we're absorbing, but it's really quite small. So nothing really significant to speak of.

[David Bernstein, executive]

And on the flip side, there will be some operational efficiencies, which will also save costs on the P&L as well.

[Operator]

Our next question comes from the line of Assia Georgieva with Infinity Research.

[Assia Georgieva, analyst]

Excellent quarter. Really happy for what you have accomplished. I had 2 quick questions. The first one is more on the external or competitive environment. As David and [indiscernible], you guys know we do this really extensive pricing surveys, which are quantitative, and we follow about 95% of the private and public companies. So we're seeing some discounting out of one of your competitors into Q4 and possibly into Q1 2025 and also seeing sort of encroaching on your territory by another brand that may be a private one. Would you, Josh, David, the best be willing to comment is to how these external pressures may carry a potential risk towards the winter season?

[Josh Weinstein, executive]

I mean you -- so thanks for the kind words for us. As you heard, we gave you our forecast for -- effectively for each of the quarters by giving you the third quarter and the full year. So you can see we're expecting continued progress, continued mid-single-digit type of price improvements over time. With respect to any one competitor in the cruise space because you got to remember, we're not just competing with cruise companies. We're competing with vacation companies to get the traveler thinking about taking their vacation with us. None of it should be disruptive to us in the grand scheme of things. Given our size and scope, given the strength of our brands, given the continued focus that our brands have in differentiating themselves even further, and providing amazing experiences. It's really our job to perform no matter what some nameless brand, which I have a feeling. I know which one you're talking about, how you described it, how they choose to operate. And if we've seen this in markets all over the world. And yet here we are with record revenues, record for deems and really great momentum.

[Assia Georgieva, analyst]

And a quick follow-up question. You described both ticket price and occupancy being tailwinds in Q2. And I think, again, with Europe being somewhat slower on the uptake in 2023. Should we expect a continued benefit from higher occupancies, especially out of the European source passenger in Q3 or do we believe that going into Q4, Q1 and possibly next year, that benefit will start to subside a lot, but just because of the catch-up that's been going on.

[Josh Weinstein, executive]

Yes. If you recall last year, actually you heard David earlier on the call, we basically got back to historical occupancy levels in the second half of last year. So there's a little bit more opportunity on the occupancy side, certainly in Q3, where we were a little farther behind in that range than we were by the time we got to Q4. But really, as we move forward into 2025 and beyond, we got to get the demand to keep that momentum up on the mid-single-digit type of price increases that we want to push for. There will always be opportunities at the fringes. But as you've heard me say before, the reason why we're not giving you guidance on occupancy with specificity is we want to make sure that our brands are doing the right thing in managing the revenue and managing the curve and not simply trying to make an occupancy target to the point or decimal point at the expense of doing something they shouldn't be doing with the pricing. So our goal is very much how do we generate the most yield over time, which is that combination of the price and occupancy and making sure we kind of nail the dismount there.

[Assia Georgieva, analyst]

And Josh, that makes total sense, especially on the occupancy guidance. I understand and appreciated. So good luck, we're expecting great things in September.

[Operator]

Our next question comes from the line of Jamie Katz with Morningstar.

[Jaime Katz, analyst]

I have a quick question. Given that the environment has been so strong for you guys. What keeps you up at night? Is it regulatory risk? Is there some ESG risk? Is it nothing right now. Just curious to hear sort of the other side of the [indiscernible].

[Josh Weinstein, executive]

We got through 2020, and I got 3 kids. So not much keeps me up at night. When it comes to this, I mean anything within our control, I feel very comfortable that the team we can manage it all, frankly. And so I don't worry much about Black Swan because you really can't spend your life worried about Black swan or you'll have a miserable life. So our attitude is we got to keep performing. We'll take what people throw at us and the world throws at us, and we'll adapt and modify what we need to do. as needed and move on. And the greatest part about this business from that perspective is we're mobile. And when you have that mobility, it gives you a lot of flexibility to figure things out.

[Operator]

Our next question comes from the line of Dan Politzer with Wells Fargo.

[Daniel Politzer, analyst]

First one on Celebration Key. Josh, you mentioned you're ramping up there, 18 ships calling on port there in 2026. Can you maybe talk about the uplift that you're expecting, whether it's in the form of ticket prices, onboard spend? I know you mentioned fuel and then to what extent is this built into those sea change targets, which you're already tracking well ahead of at this point?

[Josh Weinstein, executive]

Sure. Yes. Thanks, Dan. So you nailed the 3 components that are going to really be the things that drive the returns on celebration key. It's going to be incremental price because of the demand. It's going to be incremental spending on the island, which we call onboard spending in this circumstance. And fuel savings because of its location. We're not breaking those out for people. But yes, to answer your question, that did factor into really 2026 benefit for us as we think -- as we're thinking through that 3-year plan. It's fairly minimal for next year when it comes to the uplift because it's a fairly insignificant amount of our overall capacity that's hitting it as we ramp in starting in the second half of next year. But those were the 3 components, yes.

[Daniel Politzer, analyst]

Got it. And then just for my follow-up, in terms of costs for next year, I'm acknowledging it's still very early. But as you think about that marketing and advertising component on the one hand, you don't have a ton of capacity growth -- but with Celebration key, starting to opening in the back end of the year, how should we kind of think about that line item relative to 2024?

[David Bernstein, executive]

So it clearly is, from a cost perspective, celebration key will add costs, but hopefully, and we do anticipate that it will be a great return and the benefits on the revenue and the onboard spend side. and the fuel savings side. So it is -- we're not managing to any particular line item. We're managing to our operating income and our bottom line and we're not afraid to invest in celebration key to make it a great success. While we're on the cost for 2025, I guess the only other thing I'd add on that front is we do also -- we announced the [indiscernible] Evolution program, and those ships will be going into dry dock. So we'll also see an increase in dry dock days in 2025 versus '24, which will also have a corresponding impact on cost.

[Josh Weinstein, executive]

And ultimately, though, we're doing that for the right reasons as we -- I think I can't remember if we talked about this on the last call or not. I think we did. AIDA's is one of our highest returning brands, and we've gushed about them for a long time, and this is going to make significant enhancements to their existing fleet, which is a great investment for us because we're going to get outsized returns on those investments. And then to your -- I think you were asking a question about advertising specifically as well. You're right, we might have flat capacity growth. But remember, we're selling cruises that go beyond the current year. We're thinking well into the future as our brands do try to optimize whatever that booking curve is for that particular brand. .

I do not have a mandate or a cap or a floor on our spending for advertising, right? The key is what are we spending it on? How is it going to be effective? Is it going to generate incremental and outsized revenue whatever that initiative might be in the marketing space. And we go through those plans with our brands, not only every year as part of the planning process, but throughout the year, I'm talking to my presidents to make sure we're being thoughtful and so there's no -- there truly is no predetermined outcome. I think you -- as you've seen, we have significantly stepped up where we were before the pandemic to where we are now. It's been working. It's been helping to support the results that we've talked about today and the momentum that we've got, and we'll continue to look at it critically.

[Daniel Politzer, analyst]

Got it. And then just very one last very quick clarification. David, I know you mentioned returning to IG metrics. I just want to make sure that there's no change in your goal of getting back to IG, an investment-grade credit rating. .

[David Bernstein, executive]

No change. We can control the metrics, and we can't control the decisions of the rating agencies.

[Operator]

Our next question comes from the line of David Katz with Jefferies.

[David Katz, analyst]

I wanted to follow on to that. Well, number one, congrats on the quarter. I wanted to just follow-on on the last question with respect to the balance sheet. And look, I think we probably all progressed through a period where we're expecting maybe a rate cut. Nonetheless, you're making some very good progress with respect to that balance sheet. Can you help us maybe shed a little light beyond just the obvious easy math around what a rate cut could or would do for you in progressing that balance sheet?

[David Bernstein, executive]

Well, to start with, if you look at our whole portfolio, about 15% of our debt profile is variable rate debt. So -- as you saw in the earnings release, I think it's at a 100 basis point reduction in interest rates would benefit the back half of the year, I think it was $23 million or for the full year, it's double that. But really, from a rate cut perspective, we're in an environment where for us, we're an improving credit. And hopefully, the -- our interest rate -- our future interest rates will come down, not just because of rate cuts because of the improving credit and the lower credit spreads. And on top of that, we would expect to do some refinancing and those refinancings should drive our interest expense down. So we do have some very good opportunities that we're looking at in the future, which should be at present value positive, and we'll keep evaluating that, and you'll hear more about refinancing over time.

[David Katz, analyst]

I appreciate that. And if I may follow up quickly. Just going back, Josh, to one of the things you talked about, it's a bit more specific performance marketing, which was, I believe, a relatively new initiative. Could you give us an update on where that is, how it's done, what's next, et cetera, please?

[Josh Weinstein, executive]

Sure. So just to clarify, it wasn't a new initiative. It was just more focused in ensuring we had the right resources, the right capabilities and the right approaches. So that's -- I'd be shocked if we're if we're ever at a point in time where we're not talking about performance marketing and how do we keep progressing. I mean the world changes around us, which is going to dictate. We've got to always be nimble and thinking about how do we adapt to that and to the consumer and how that consumer is going to see things and digest things and making sure we're actually being as forward-thinking as we can to stay ahead of that curve.

So as far as how it happens, it certainly does not happen from me. It doesn't happen from a centralized corporate group in Miami because different brands are sourcing from different source markets, different segments, et cetera. So our 6 operating units really have teams that are focused on that for their brands to make sure we're doing it as optimally as we can.

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

[Operator]

Our next question comes from the line of Sharon Zackfia with William Blair.

[Sharon Zackfia, analyst]

I'm convinced you're going alphabetical order on these calls. I guess, I wanted to ask about kind of attention between garner and our harvesting cost savings versus reinvesting in demand creation and how you think about that? I mean, Josh, you touched on different elements of demand creation. But I mean, historically, Carnival has been known as kind of the cost leader. Is there an opportunity as you harvest these cost savings to kind of set more of that gap in the marketing spend per birth that Carnival does relative to the competition? And how far are you willing to go there?

[Josh Weinstein, executive]

Yes. Sure. So as you heard -- so we want to continue to be the cost leader. I think they're not -- they don't have to be mutually exclusive though. And so we have been bringing more cost into reinvesting in the business. And it's not just on marketing. It has been on marketing. I think it's what, 18% per ALBD versus pre 17% to 18% per ALBD since before the pandemic. So certainly, we're -- we see the value of that. But if you think about our onboard experience and making sure we're providing amazing food alternatives and services. We're reinvesting in bandwidth. We're spending more on bandwidth than we ever have, and it's generating outsized returns because people love the service. It's land like -- it's -- and it's something people are willing to pay for. So there's examples up and down the P&L, where we're very happy to reinvest to drive the right behaviors to get the revenue that we're looking for. I don't have a metric. I don't have a metric that says, this is how much we're going to do in any particular quarter or any particular year.

I mean clearly, our operating margin, we still got work to do. Our EBITDA margins, if we get to June guidance, it will be about a 5-point bump from last year and it leaves us a few points short of where we were in '19. So we got more work to do. And so the team is very focused on it. And that will come from both sides. So to your point, it won't just be cutting costs. We got to make sure we're doing the right things to drive that revenue.

Well, thanks, everybody, for joining the call today and look forward to talking to you again in September. Thank you.

[Operator]

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.