Carnival Corp

NYSE:CCL

Earnings Call Analysis

Company Sets New Records, Eyes Margin Growth

The company delivered an exceptional finish to the year, with consecutive record-breaking quarters in revenue, bookings, and customer deposits, while also surpassing occupancy levels beyond 101% in North America and Europe. Occupancy and pricing are set for continued growth, with strong bookings at higher prices for the first half and peak summer periods. Additionally, the company onboarded over 3.5 million first-time cruise guests and looks forward to further expanding its fleet with several new ships on the horizon. Investments in advertising have paid off, yielding significant increases in web traffic and search visibility, which is expected to maintain. Strategic cost management and margin improvement efforts are underpinned by the guidance of over $5.5 billion in EBITDA for 2024, a substantial 30% increase from 2023, with a 4-point margin rise and a 9% ROIC.

Record EBITDA and Net Income Growth

The company is on track to achieve record EBITDA of over $5.5 billion for 2024, representing a robust 30% increase from 2023. This impressive growth is a testament to their successful financial strategy and operational efficiency. Additionally, the company has forecasted a significant net income for 2024 at approximately $1.2 billion—a clear indicator of strong performance and an optimistic future outlook.

Commitment to Cost Management and Technological Investments

Despite facing higher cruise costs ex fuel due to closing the occupancy gap and other factors, the company is actively mitigating inflation through cost optimization initiatives. Investments in technology, such as the rollout of Starlink across the fleet and the implementation of the centralized maritime asset strategy (MAS), are expected to generate substantial long-term cost savings and efficiency gains. While the P&L benefits will ramp up in the coming years, these steps underline the company's proactive approach to balance short-term costs with long-term profitability.

Net Yield Improvement and Operational Efficiencies

With a focus on enhanced guest experience and revenue growth, the company has achieved an almost 8% increase in net yields compared to 2019. Looking forward, they expect to build upon this with an additional net yield improvement of approximately 8.5% for the full year 2024, contributed by higher ticket prices, increased onboard spending, and improved occupancy. The forecasted growth is supported by a capacity increase of 5.5% as well as stronger ticket pricing facilitated by reduced inventory relative to the prior year.

Fuel Efficiency and Environmental Initiatives

The company continues to make strides in fuel efficiency, cutting fuel consumption per available lower berth day (ALBD) by an additional 4% on top of a significant reduction achieved since 2019. This focus not only positions the company as an industry leader in fuel efficiency but also contributes to lower greenhouse gas emissions, advancing its environmental commitments. The company has managed to lower its absolute emissions by over 10% from the 2011 peak.

Interest Costs and Debt Management

With an average interest rate of just over 5.5%, the company has successfully driven $200 million in interest savings compared to previous forecasts. Their debt maturity profile is well-managed, with refinancing strategies in place to replace higher-cost debt with more favorable terms. These financial maneuvers demonstrate their prudent approach to leverage and commitment to improved solvency.

Guidance for 2024 and Future Goals

The company's guidance for net revenue per diem and cost impacts reveals a deliberate strategy for managing expenses while maximizing revenue opportunities. They anticipate a 4.5% increase in cruise costs without fuel per ALBD for 2024, driven by four factors including inflation, occupancy changes, dry dock days, and delivery of new ships. The cost increases for the first quarter of 2024 are expected to be particularly high, driven mainly by the greatest improvement in occupancy and seasonality of costs for that period. The rest of the year is anticipated to see an average cost escalation around 3%, underscoring the dynamic nature of the company’s financial forecasting and resource allocation.

Earnings Call Transcript 2023-Q4

[Beth Roberts, executive]

Good morning. This is Beth Roberts, SVP Investor Relations. Welcome to our Fourth Quarter 2023 earnings conference call. I'm joined today by 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 cautionary statement in today's press release. All references to ticket prices, net per diem, net yields and adjusted cruise costs without fuel will be in constant currency unless otherwise stated.

References to per diems and yields will be on a net basis. Our comments now also reference cruise costs without fuel, EBITDA, net income, net loss, 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 measure 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]

Thank you, Beth. It's safe to say we ended the year on a high note and closed another quarter with record revenues, record booking levels and record customer deposits. In fact, we consistently set records in all 4 quarters this past year. We also achieved per diem EBITDA and net income for the fourth quarter that all exceeded the high end of our September guidance range with cruise cost ex fuel in line with expectations.

Fourth quarter yields continued on a positive trajectory. Significantly higher than a very strong 2019 and even higher than we had anticipated and enabled us to overcome 4 years of high cost inflation to deliver per unit EBITDA that eclipsed 2019 holding fuel and currency constant.

It was encouraged to see both North American and European brand occupancy levels exceed 101% in the fourth quarter. with per diems for our North American brands up double digits over 2019, and our European brands just shy of a double-digit increase. We delivered for deal improvements of more than 7 points for the full year with even stronger acceleration in Q4 and while closing the double-digit occupancy gap at the start of the year to reach historical levels for the second half of 2023. An absolute spending on board was consistent across all 4 quarters as we drove improvement in ticket prices.

We delivered $85 million more to the bottom line in the fourth quarter than forecasted, which pushed us through to positive adjusted income for the year. Strong EBITDA and cash from operations also propelled us on our journey to reduce the debt load necessitated during the post operations.

We made debt payments of $6 billion this year alone. And we still have well over $5 billion of liquidity, on top of strong and improving cash flow, which will contribute to further debt reduction over time.

All of this leaves us firmly placed on our path back to achieve investment grade leverage metrics by 2026. And most importantly, our brands delivered happiness to over 12 million guests this year. Laying the foundation upon which all of our SeaChange margins are built.

Turning to bookings. We reached an all-time high in booking volumes for the 2 weeks around Black Friday and Cyber Monday and ended the year in the best booked position we have ever seen on both price and occupancies setting 2024 off to an amazing start. We now have nearly 2/3 of the business on the books for 2024 and at considerably higher prices.

And during the fourth quarter, we essentially maintained the significant occupancy advantage we have built for 2024 going into the quarter, while improving year-over-year price position of our booked business even further. At this point, much of the first half is already behind us, with approximately 85% of the business on the books, we've essentially closed with double-digit occupancy gap to historical levels on higher capacity and at higher prices.

For our peak summer period, all major products are better booked at higher prices benefiting from improving trends in both occupancy and price during the fourth quarter.

Our yield management strategy, the baseload bookings has clearly set us up for another record year. And again, we have seen no sign of our business slowing. The book position for our North American brands remains as far out as we have ever seen and well ahead of last year at pricing that is considerably higher.

Our European brands just delivered record fourth quarter booking volume at considerably higher prices and with a booking window now fully back to historical norms. As expected, our European brands are poised to become an even greater contributor to our 2024 operating improvement.

At the same time, we are continuing to pull forward onboard revenue through bundling and pre cruise sales. This strategy, coupled with even more features onboard our newer shifts for our guests to enjoy positions us well for further onboard revenue growth next year.

Volatile we expect occupancy for the full year to return to historical levels on 5% higher capacity while delivering nicely higher per dam building on this year's record results. In 2023, we captured over 3.5 million new-to-cruise guests and remain well positioned to continue to take share from land-based alternatives. In other words, we are gaining momentum in our ability to close the unwarranted value gap to land-based alternatives. And to aid in that effort, we can further chances of the fact that while many land-based alternatives have pulled back on service levels. We still deliver incredible service to our guests, thanks to our amazing crew. This pairs exceedingly well with the expansive amount of guest-pleasing amenities offered on board our newer fleet.

In fact, while almost 4 years have passed since the pause in our operations. Our fleet actually came out of the fog a year younger through our fleet optimization efforts. This past year alone, we benefited from 3 fantastic new ships. Including Carnival Celebration and P&O Cruises, Arbian, both of which are flagships for their respective brands yet leverage our scale as the 7 and 8 vessels in our popular and exceptionally efficient series of XL class ships, and we welcome seaborne Pursuit, our second expedition ship. Seaborne has truly raised the bar for expedition cruising in extreme luxury.

And while not technically new, Carnival Cruise Line also welcome Carnival Venecia into its fun Italian-style platform via the transfer from Costa and it has been going gangbusters. It's the biggest example yet of how we leverage our scale and we'll be doubling down when we bring over her sister ship Carnival Forenza in 2024.

Looking forward, this year is set to match the excitement level with the introduction of Carnival Jubilee a new icon for Carnival Cruise Line and which no doubt will be the pride of Texas as she has her inaugural home in Galveston. The innovative sub-princess the first of its class and a real game changer for Princess. And Queenan, a new flagship for Cunard and its first new ship in 14 years. With all of these additions, roughly 30% of our capacity will be newly delivered ships.

We also made meaningful headway on other strategic asset projects. We began construction on celebration e which will be the largest and closest exclusive destination in our destination portfolio and a real game changer for Carnival Cruise Line. We'll bring 18 Carnival ships departing from 9 home ports to Celebration Key. And while we are still about 1.5 years from go-live, we are already ramping up the awareness and the excitement around this fantastic destination.

We've also started the process for a significant upside in guest traffic at Half Moon Cay our exclusive and beautiful pristine island destination in the Bahamas with the creation of a pure side berth that can accommodate even our largest vessels. We've begun work with our Grand Bahamas shipyard partners, on the construction of 2 floating dry docks, one of which will have the largest lifting capacity in the World. This will result in significant benefit in the future as we reduce travel time, preserve revenue days, and, at the same time, reduce our fuel consumption.

As you know, we've also been investing more in advertising over the last 18 months, and it has definitely paid off with elevated awareness and consideration for our brand and record booking levels and revenue results.

In fiscal 2023, our web visits were up over 35%. Our paid search was up roughly 50% and our natural search was up almost 75%, all many, many multiples of our 5% capacity growth.

In the fourth quarter, we carried more new-to-cruise, and more new-to-brand guests than we did in the fourth quarter of 2019. Given our success on generating demand at this point in time, we plan to maintain a similar level of advertising on a unit basis in 2024 compared to 2023, optimizing around each brand. This will help us continue to build demand and bookings well outside of the current year.

We're working aggressively to keep our strong momentum going through waves and beyond. Just to list a few examples, Costa recently launched spectacular new campaign in its core markets, focusing on moments, where guests are less species. Poland America launched a sequel to its highly successful time of your life campaign and AIDA just kicked off its new campaign experience yourself differently in conjunction with the holiday Carnival will launch a new marketing campaign highlighting celebration key in time for P&O Cruises new campaign, holiday like never before, launches Christmas Day in the U.K. and Cunard has planned to welcome fit for our Queen introduce Queenan early next year, which is short to capture huge fanfare. We've been talking about upping our game across the commercial space and we've made good progress. Of course, we're not done. And as you'd expect, we never will as there is always room to improve.

There's much more to come as we roll out advancements to our yield management tools and lead generation techniques continue to invest in sales and sales support and build on already strong relationships with our trade partners.

Turning to costs. As we previously indicated, unit cruise cost ex fuel for 2024 are expected to be higher than inflation due to the impact of closing the occupancy gap and the higher volume from dry dock [indiscernible] . David will walk you through in more detail.

With that said, we have been working aggressively to mitigate inflation through our cost optimization initiatives, including leveraging our scale. In some cases, we're investing today for future benefits. Just to cite a couple of examples of initiatives underway, we're essentially complete with the rollout of Starlink across the fleet. This will produce more than a 20% reduction in cost per megabit in 2024 and significantly increased our bandwidth pipeline, resulting in both better guest experience and higher onboard revenues, a clear win-win. And with our new vendor-neutral platform, we are positioned to quickly capture cost savings in future years.

We've also launched our maritime asset strategy transformation for what we refer to internally as MAS. MAS is a centralized system developed to optimize the management of equipment and machinery across all brands and all of our ships. MAS will allow us to leverage spare parts more effectively across the entire fleet and optimize our maintenance schedules and practices, all of which will strengthen our efficiency and reduce unplanned maintenance over time.

While we won't see the P&L benefits from MAS this year as we ramp up implementation in 2024, we expect a multiyear benefit well in excess of $100 million that really begins to ramp up in 2026. All of the efforts we're making to drive revenue and manage costs are expected to lead to a 4-point margin improvement in 2024.

We're guiding to record EBITDA of over $5.5 billion which is 30% higher than 2023. Thanks to a strong second half of 2023, we're already tracking ahead of our plan to achieve fee change, our 3-year financial targets calling for the highest ROIC and EBITDA for ALBD in nearly 2 decades, and our 2024 guidance delivers another step change toward these deliverables. EBITDA for birthday is expected to be up by more than 25% over our target starting point, hence, more than halfway to the 50% increase expected in our SeaChange targets.

Today's guidance will also deliver 9% ROIC, a 4-point increase from the starting point of our target. This leaves just 1.5 point annual increases in 2025 and 2026, to hit our 12% target. Not surprisingly, our brand dedicated to a single market, Carnival, AIDA and P&O Cruises in the U.K. are again leading the charge with the highest ROIC levels in the company.

And with regard to our greenhouse gas target included in our 2026 echange program, our GHG intensity in 2024 is expected to be just shy of the 20% reduction from 2019 or targeted. It is worth noting, this was a 2030 goal we had already pulled forward by 4 years. We have been and continue to work aggressively to reduce our environmental footprint and fuel costs at the same time. This deep commitment has not only resulted in industry-leading fuel efficiency, it has also resulted in lower absolute GHG emissions. Our absolute emissions are over 10% lower than the 2011 peak and that's despite capacity growth of 30% since then.

Last year, we also exceeded our industry-leading shore power capability goals. We are ahead of the curve and now have twice as many ships capable of shore power than there are ports around the world available to plug in.

Again, I credit all of these important achievements to our people, ship and shore. Collectively, they continue to outperform, allowing us to make good headwind on our SeaChange target. We're poised for another step change in operating improvement this year with nearly 2/3 of the business on the books at considerable higher prices, ongoing momentum from improvements across the commercial space, the amazing vacation experiences we deliver day in, day out at way too good of a relative value to land-based alternatives and an even greater experience gap, all while growing onboard revenues and managing costs. All of this combined sets us up well to deliver another year of record revenues and record EBITDA.

Our cash flow strength, coupled with excess liquidity, the return of credit card reserves in a few weeks and the lowest order book in decades will allow us to continue to actively manage down debt and aggressively reduce interest expense over time. To allow also for pellets, our path to deleveraging, investment-grade credit rating and higher ROIC. I remain confident in our continued execution with an unparalleled portfolio of best-in-class brands and amazing fleet that just keeps getting better and better, and our greatest assets are people.

This has been a truly remarkable year, and we've come a long way in an incredibly short amount of time. I would like to thank our team members, ship and shore the best in all of travel and leisure for delivering unforgettable happiness to over 12 million guests this year by providing them with extraordinary cruise vacations. For honoring the integrity of every ocean we sail, place we visit and life we touch. And thank you for the strong support from our travel agent partners as well as our loyal guests, destination partners, investors and many other stakeholders.

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 2023 fourth quarter and full year results. Next, I will provide a recap of our refinancing and deleveraging efforts during 2023. And finish off with some color on our 2024 full year and first quarter December guidance.

Our fourth quarter bottom line exceeded the better end of our guidance range as we outperformed our September guidance. The $85 million improvement was driven by favorability in revenue from higher ticket prices as net per diems were up over 10%, and Three points better than the midpoint of our September guidance range. In fact, fourth quarter revenues of $5.4 billion were a fourth quarter record and net yields were up nearly 8% as compared to 2019, a great way to close out the year and another indication that we do not see a slowdown in our consumers.

For the full year, thanks to the tremendous efforts of our team members, ship and shore, we closed the books on 2023 with positive adjusted net income. That is a party from our March guidance as we delivered over $550 million to the bottom line, which was partially offset by a drag of fuel price and currency exchange rates of over $100 million.

The improvement was driven by delivering a 7.5% increase in net revenue per diem versus 2019, which was over double the 3.5% midpoint of our March guidance while closing the double-digit occupancy gap at the start of the year to reach historical occupancy levels.

Absolute spending per diems on board were consistent across all 4 quarters as we drove improvements in ticket prices on both sides of the Atlantic and ended the year with net yields of nearly 1% over 2019.

Next, I will provide a recap of our refinancing and deleveraging efforts during 2023. As Josh indicated, our full year 2023 strong EBITDA of $4.2 billion and strong cash from operations of $4.3 billion, propelled us on our journey to pay down debt and reduced the debt effort necessitated by the pause in guest cruise operations.

During 2023, we made debt payments of $6 million and ended the year with just over $30 billion of debt which is $3 billion better than we forecasted just 9 months ago during our March conference call and almost $5 billion of the first quarter peak, transferring enterprise value from debt holders to shareholders.

During 2023, we proactively addressed our debt profile as we successfully started our refinancing and deleveraging program. We accelerated our debt repayment efforts and aggressively manage down our interest expense.

In 2023, we effectively stretched out a 2025 maturity on favorable terms by replacing it with a $1.3 billion term loan B facility to 2027 and a $500 million offering of senior secured notes in 2029. This refinancing, along with our optimism about our future and the return of customer deposit reserves gave us the confidence to accelerate our debt repayment by calling $1.2 billion of our highest cost debt.

In addition, we opportunistically prepaid $2.8 billion of additional debt for a total of $4 billion of debt repayments, including the $1.2 billion of debt cost.

Our credit card processes returned to us $800 million of credit card reserves and we now expect an additional $800 million to be returned this current quarter, representing substantially all of the remaining credit card reserves at year-end.

We took actions in both 2022 and early in 2023 to increase the fixed rate percentage of our debt portfolio to over 80%, up significantly from our 58% fixed levels at the end of 2021, which provided us protection from rising interest rates.

Our overall average interest rate is just over 5.5%. All these actions to address our debt profile alongside our improved business performance, drove $200 million of interest savings compared to our March guidance.

Our maturity towers have been well managed in 2026 with just $2.1 billion of debt maturities next year, $2.2 billion in 2025 and $3.2 billion in 2026. And looking forward, we will continue to evaluate refinancing opportunities and opportunistically prepay additional debt. So in 2024, we will be replacing higher cost fixed rate debt with lower-cost export credit financing as we take delivery of ships during 2024.

Our leverage metrics will also continue to improve throughout 2024 as our EBITDA continues to grow.

Now turning to our 2024 full year December guidance. We are forecasting a capacity increase of about 5.5% compared to 2023. We are expecting to deliver strong 2024 net yield improvement with our guidance forecasting an increase of approximately 8.5% for the full year 2024 when compared to 2023. And that is on top of our improved 2023 results where we delivered a 7.5% increase in net revenue per diem versus 2019.

The strong improvement in 2024 net yields is a result of the increase in all the component parts, higher ticket prices, higher onboard spending and higher occupancy with all 3 components improving on both sides of the [indiscernible] .

We are well positioned to drive 2024 ticket pricing higher with significantly less inventory remaining to sell as the same time last year despite a capacity increase of over 5%. Occupancy for the full year 2024 is on track to return to historical levels.

Keep in mind, 2019 was a high watermark occupancy. For 2024, we forecast to be well within our historical occupancy range as we balance pricing value to optimize total revenues and achieve record deals.

Now turning to costs. cruise costs without fuel per available lower bird may or ALBD, is currently expected to be up approximately 4.5% for 2024 versus 2023.

Broadly speaking, there are 4 main drivers of the cost change. First, our forecast is for decelerating inflation but nonetheless, inflation with an average 3.5% increase across all our cost categories globally. Second, with occupancy returning to historical levels, the impact on cost should be 1.5 to 2 percentage points higher in 2024 as compared to 2023. Third, in 2024, we are expecting 586 dry dock days, an increase of 14% versus 2023, which is expected to impact of overall year-over-year cost comparisons by about 3/4. And four, countering these headwinds, we expect these cost increases will be somewhat mitigated by a couple of points, given the economies of scale of our capacity growth which is enhanced by taking delivery of larger, more efficient ships, along with various other cost optimization initiatives.

Fuel consumption per ALBD is expected to decrease another 4%, and that is on top of the 15.5% reduction achieved from 2019 to 2023. And that impact of fuel price and currency is expected to favorably impact 2024 by $90 million with lower fuel pricing favorable by $94 million while the change currency exchange rates slightly goes the other way.

And finally, a few things to note about the outsized increases in the first quarter 2024. A higher net yield guidance for first quarter 2024 of 16.5% versus the full year, 8.5% is driven by the larger improvement in first quarter occupancy.

It's not to get that we did not reach historical occupancy levels until the second half of 2023. So there is much more occupancy-driven net yield opportunity in the first half.

On the cost side, the higher cruise cost without fuel per available lower berth day guidance for the first quarter of 2024 and 9.5% is driven by 4 main factors. First, the largest improvement in occupancy will occur in the first quarter. And while it drives greater yield increases in the first quarter, it also drives greater cost increases, which means a total of 3% to 4% cost drag in the quarter.

Second, while dry dock costs impact our full year guidance, the seasonality of dry dock costs in the first quarter 2020 as compared to the prior year drives a cost increase of about 1.5 points for this quarter.

Third, the seasonality of advertising expense and a variety of other expenses between the quarters differs in 2024 as compared to 2023, which will put a total cost increase of approximately 3 points into this quarter. Advertising alone is 1 of the 3 points.

And fourth, like the full year inflation mitigated by economies of scale from our capacity growth, along with various other cost optimization initiatives. Given the higher first quarter cruise costs without fuel for available lower berth day, the implied guidance for the cost in the second to the fourth quarter is approximately 3%.

In summary, putting all these factors together, our net income guidance for the full year 2024 is approximately $1.2 billion with EBITDA forecasted at $5.6 billion a significant improvement from 2023. For those of you who are modeling the EPS, let's not forget that when you calculate diluted EPS, you need to add back the $94 million of interest expense related to the company's convertible notes, our improved financial results and our successful refinancing and deleveraging efforts in 2023, along with our 2024 December guidance leaves us firmly placed on our path to achieve our 2026 SeaChange goal, moving us further down the road to rebuilding our financial fortress and delivering long-term shareholder value.

And now, operator, let's open up the call for questions

[Operator]

[Operator Instructions] Our first question comes from Steve Wyszynski with Stifel.

[Steven Wieczynski, analyst]

So Josh or David, if we think about the yield guidance for the year, just based on the fact that your occupancy should return to somewhat normal levels. And then pricing has momentum at this point? It seems to be pretty strong or healthy across the majority of your geographies. It seems like that plus 8.5% yield guidance might end up being somewhat conservative when we have this call a year from now.

So I guess the question is, can you give us a little color about the -- more of the makeup of the -- of your yield forecast? And it seems like you might be taking a somewhat conservative view around onboard trends and then potentially underestimating the opportunity around taking close-in pricing.

[Josh Weinstein, executive]

Steve, happy holidays to you, too. So I hope you're right, and I look forward to the call in a year. Look, we've given our good faith estimate on how we're seeing the world right now. We come in with a good amount of visibility because of how well booked we are. And as you said, we have seen accelerating momentum in the volume and the price. So we're very pleased with the trajectory that we've been seeing.

Obviously, this is also before Wave. We do have a little bit of a disadvantage of doing this in December versus end of January into February. So all I can tell you is we've baked in what we see, and we always want to outperform. I mean, obviously, that's a given. So I think the best thing I can tell you is we'll talk in March with wave under our belt. Having said that, Wave hasn't ended since last year. So we'll continue to ride as long as we can.

[Steven Wieczynski, analyst]

Let me ask that a different way then, Josh. So if we think about what you guys are embedding in terms of onboard. Is it fair to assume you are being pretty conservative with the way onboard should shake out in '24? Basically, meaning you potentially could see a little bit of a slowdown in onboard or are you still guys kind of assuming that onboard remains as robust as it has been?

[Josh Weinstein, executive]

We're coming off a great performance when it comes to onboard, and we expect our onboard per diems to be increasing in 2024 versus 2023. Brands are doing a real good job of pulling forward more spend, providing differentiated experiences. So we absolutely expect an increase in '24 versus ' 23.

[Steven Wieczynski, analyst]

Okay. Got you. And then real quick, one more question, if I could. David, in terms of the cost, you gave some pretty good color around the impact to everything that's going into the first quarter and why it's so high -- as we think about the rest of the year, the cadence of costs, I think you said, if we think about the third -- the second quarter through the fourth quarter, those should all be around 3%. I just want to make sure I heard that right. And if there is anything in 2Q through 4Q that we should be thinking about that might move one of those quarters one way or the other?

[David Bernstein, executive]

Yes. No. So I was not trying to give individual guidance for each quarter. What I was trying to do is say that the 3 quarters collectively together would average 3%. We will see some year-over-year differences versus 2023. A great example of that is that the dry dock days will be down in second quarter, but they'll be up in forth.

So there will be differences. There's also advertising, seasonalization differences and other things. So I was not trying to say 3% every quarter, just 3% on average for the 3.

[Operator]

Our next question comes from Brad Montour with Barclays. .

[Brandt Montour, analyst]

So Josh, you gave us an update on the SeaChange long-term targets and the drastic improvement towards that target that you've made so far in '23 and then '24 expected. And I guess fuel has been a nice tailwind. If you take fuel out and maybe just focus on your yield growth target within '24 guidance, is that in line with your internal expectations for that 3-year ramp? Or how do you think about it?

[Josh Weinstein, executive]

Yes. I think it's fair to say that when we talked about it in June for the first time and we laid out what will it take? We talked about the fact that -- getting back to historical occupancy we expect pretty much all of that in '24 versus where we were in '23. And that's as far as we can tell, that's exactly how it's going to play out.

And on top of that, we predict price -- we estimate pricing to be up low to mid-single digits every year, '24, '25, '26. And so we feel like we are -- we entered the year a little bit ahead given how we ended the second half of 2023, and we'll keep pushing forward.

[Brandt Montour, analyst]

Okay. Great. And then you said you were 2/3 booked for '24 that struck me is incredibly impressive. I mean if you could give us a sense of what that would have been in prior years, but also the crux of the question is, that base-loading strategy -- do you think that impacted your pricing meaningfully versus what it would have been if you had just kept the sort of historical booking curve? And as you go into January and wave season -- you've never been this book. So has that changed your strategy with pricing as you move through wave?

[Josh Weinstein, executive]

So this is playing out as we would expect it to play out by pulling forward all the volume, it gives us better control over our pricing environment and our ability to keep pricing at an elevated level. And so it's literally playing out as it should. .

This is -- we are 10 points higher than we were when we entered the Q1 of '24, 10 points higher year-over-year. It's higher than 2019 as well. Which was a of -- which is a very long normalized booking window. And it's important that we do that, right? I mean, let's keep in mind, being 10 points above last year is good progress, but we expect to end our occupancy significantly higher than last year. So that's all feeding into the strategy. And pricing is playing along. As I tried to say in my notes, I'm not sure how clear it was. When we entered the fourth quarter of this year, we were about 10 points higher than prior year in the occupancy position and prices were higher. As we made our way through the quarter, we've managed to pretty much keep that occupancy advantage and prices on everything that's booked is now considerably higher. So it is working the way we anticipated.

[Operator]

Our next question comes from James Hardiman with Citi.

[James Hardiman, analyst]

So I'm going to ask, I think, Steve's question in a slightly different way. There was a lot of conjecture that you would only give first quarter guidance, similar to last year. Obviously, your peers are at a bit of an advantage because they get that first month of wave as they try to assess what the demand environment looks like. .

Obviously, you gave us the full year guide anyway as we interpret that guide then take us through that thought process and whether or not that plays into sort of your level of conservatism being effectively ahead of wave?

[Josh Weinstein, executive]

Yes. Well, we are effectively back to normal. This is what we used to do before the last few years, and I think it was quite important that we get back into this cadence.

Now good news, we are highest book we've ever been. So we do have more visibility than even we had before 2020. So I think that's setting us up well to be able to be in a pretty good position to give you this preliminary guidance for 2024.

Obviously, we have -- I have high expectations in my brands and what I expect them to achieve, including during wave. And you got to remember, the whole focus of wave this year, we have the benefit of being able to focus on different things. last year in Wave, a lot of what we were trying to accomplish and our brands we're trying to accomplish was just filling the ships because we were in such a different position from an occupancy perspective. This time, we actually get to go through wave and really be more strategic in how we are trying to advance the needle, not just on the short term, but on the longer term. So I think it sets us up well.

And I keep asking David to change the fiscal year-end and like can we please start on January 1, like everybody else. But apparently, that's a lot of work. So we're not going to do that.

[James Hardiman, analyst]

Got it. And then there was a comment in the prepared remarks about not only are you seeing better new-to-cruise numbers but better new-to-brand numbers relative to 2019. Josh, you talked about having confidence in your brands, but that latter point seems like a big one, right? So much of the conversation just seems to be about the cruise industry. But maybe talk to what you think might be a Carnival specific story as in terms of improving consideration among people that are already into cruising.

[Josh Weinstein, executive]

Yes. I think our brands are doing phenomenally in really understanding who that target audience is and how to speak to them with their creative marketing. And then on the performance side, just making sure that, that consideration and awareness gets converted into bookings.

So we gave -- I said in my prepared remarks, we've got several campaigns that are either started or about to start. We've got a few examples you can click through on the prepared materials of slides that have been put up. They're doing a great job at captivating the market. And I think getting cut through not just with new-to-brand and new-to-cruise on the value that we have. And it's -- unfortunately, for us, as much as we've improved on the pricing front in 2023, it's still a big gap versus land. So all of those things are wind at our backs, and I expect more of that over time.

[Operator]

Our next question comes from Jamie Katz with Morningstar.

[Jaime Katz, analyst]

I'm hoping you can talk a little bit about changes to the sourcing strategy. I know it shifted back a little bit more to North American cruisers and the last couple of years. But given the strength in the European market or the fact that they might be closing the gap, should we expect that to move back to a normal mix?

[Josh Weinstein, executive]

Well, Jaime. So I think we should kind of take a step back and think about our portfolio and how we operate. We've got dedicated brands to European markets with P&O Cruises in the U.K., and AIDA and Germany, Costa, not just for Italy, but really Italy, Spain and France. And all of those are either the biggest in their market or the second biggest in the case of Costa across the Mediterranean. And we didn't deviate from our strategy when it comes to our dedicated market brands. And so they have continued to view those markets as the right thing to be in, in the long term, and we absolutely support that. And we're starting to see the strength of that really come through as we've started talking about the last few quarters. .

With respect to our North American brands, Carnival has been and will continue to be America's cruise line, and they're knocking the cover off the ball. And there hasn't been that much dramatic change when it comes to sourcing for Holland America and Princess other than the fact that for Princess, they had so much sourcing that was really geared towards markets that have been slow to open in Asia, et cetera.

So we've repositioned. We've done a bit of that. But I think we are very well positioned to take the strength of the European consumer and the U.K. consumer and continue to ride that into 2024.

[Jaime Katz, analyst]

Okay. And then there was a lot of positive commentary obviously, on this call. So I'm curious if there's anything left out there that concerns you that you would like to share with the audience?

[Josh Weinstein, executive]

No. Great question. No. Thank you.

[Operator]

Our next question comes from Patrick Scholes with Truist.

[Charles Scholes, analyst]

Good morning, everyone. Josh, I am not going to ask you if you were planning on touching fuel this time, but I...

[Josh Weinstein, executive]

Thank you, Patrick.

[Charles Scholes, analyst]

Sometimes you should listen to it sometimes not, but are. I want to hear from you what trends of late, especially around Black Friday, Cyber Monday, you've seen with new-to-cruise, is that becoming a larger part of the booking mix? And if so, what would be the impact on your margins? I imagine new-to-cruise typically -- call the 800 number of books direct, which probably saves you travel agency commissions. Can you just talk about those trends and the potential impact on revenues and costs?

[Josh Weinstein, executive]

Thank you. So candidly, I don't have -- literally for the period that you're referencing the Cyber Monday and Black Friday. I don't have a breakdown of new-to-cruise versus new-to-brand versus brand loyalists. I do have the fourth quarter, obviously, which includes some of that where our new-to-cruise is obviously up significantly year-over-year, 51%. And so that is part of the strategy, right? taking -- that sale -- pardon, I'm sorry, that was a sale. But taking a greater share of folks who have never cruised before is part of the strategy to increase overall demand, get them in our pipeline and allow us to raise pricing over time for, frankly, everybody.

With respect to what's the most cost efficient. Obviously, coming direct on the web is always going to be the most cost effective. I wouldn't make a categorization though that new-to-cruise comes in a particular way. Because it really depends on the characteristics of the new-to-cruise guests themselves, what brand it is, what's the itinerary length et cetera.

Now clearly, a lot of new-to-cruise will over-index on the shorter cruises because they're trying it out for the first time, and that lends itself to maybe also a younger crowd, which is more comfortable just playing around on the net and doing things direct. But I mean, frankly speaking, historically, and I expect this to continue, our trade partners are absolutely critical in driving new-to-cruise to us. And we've relied on them for decades to do that, and we will rely on them for decades more. And they have done a great job of really catching up to where we've been in the curve. And year-over-year, they're showing great strength as well.

[Operator]

Our next question comes from Robin Farley with UBS.

[Robin Farley, analyst]

Great. I wanted to circle back to your yield guidance and just looking at the recovery in occupancy to previous levels being maybe 600 to 700 basis points kind of implies that your per diem guidance is maybe less than 2% growth. So I just -- I don't know if I'm doing the math wrong there, if there's any thing to clarify.

And then also, you've talked about the price on the books for next year being considerably higher, but your yield guidance for the year, it's just nicely higher. Which think the David Bernstein glossary is like -- would be a deceleration in...

[Josh Weinstein, executive]

I'm laughing at the glossary. Yes, I keep going, Robin.

[Robin Farley, analyst]

Be if I'm interpreting glossary correctly, I think that implies sort of a deceleration in the price there. So just -- is that just because the onboard growth rate, while up is lower, and so that brings like considerably a higher price to just nicely higher yield? Or maybe my glossary definition is wrong, but maybe you could help us with that and with the math on the per diem [indiscernible].

[Josh Weinstein, executive]

Thanks, Robin. Well, actually, David said it in the prepared remarks, I thought he said it pretty well. So David, do you want to repeat what you said? .

[David Bernstein, executive]

Yes. So keep in mind that 2019 was the high watermark for occupancy. And we look back to like 2005 and the historical occupancy levels were in the range of 104% to 107%. So what we're saying is we will be solidly back to historical occupancy levels, but we weren't saying we're going to be back to the high watermark of 2019. So keep that in mind.

The other thing about the considerably higher versus the nicely higher. Keep in mind that last March when we gave guidance, we had thought that our expectation for per diem increases was about 3.5%, and we wound up 7.5%. And so we saw some very strong pricing in the back half of the year. And as a result of that, on a year-over-year comparison basis, a book position may be considerably higher. But what we're looking to see is at least nicely higher pricing on a per diem basis built into our guidance. So when you put those 2 factors together, hopefully, you can understand how we built our guidance.

[Josh Weinstein, executive]

Yes. And the thing I'd add -- let me just add one thing, Robin, which is, our focus is on generating the most revenue possible when that ship leaves on its crews. And that's going to be a combination of optimizing that price and occupancy relationship. So there's no magic to getting back to 2019 high watermark of 107%. And we play in the fringes, we play in that 104% to 107% to make sure that when you combine that ending point along with the pricing, it's the happiest we can be.

[Robin Farley, analyst]

I understood that occupancy, right, that you don't manage to a certain occupancy once you're in that range. But just that the price comment -- that you're -- what you're saying on the books being considerably up versus the nicely up, does seem to imply that you would be expecting a deceleration from current levels. And so I mean, maybe the answer is you're just being conservative, but I just -- if that's correct in interpreting considerably moving to nicely as being a lower rate of growth. So that's -- I guess that's what I'm trying to clarify.

[Josh Weinstein, executive]

So one thing to stress, right? We just came out with the fourth quarter, which everybody is glossing over real quick, but it was up 10.5 points in price. That's what we're going to lap when we get through 2024. If you think about our booked business, we have the most to go in the fourth quarter, not surprisingly, so far as the stout.

So as we build towards that and we cycle through the first quarter and the second quarter, we're the most booked, we just have to fill and get over a larger hurdle, which we expect to do. But we have to take that whole thing into the equation when we're giving full year guidance.

[Robin Farley, analyst]

That makes perfect sense. And then just one last clarification. On your SeaChange on the expense side, you've talked about the 3-year being up low single digit in like '24, '25, '26 each year. This year up -- or 2024 guidance up 4.5%, probably above low single-digit kind of implies very low expense growth in '25 and '26. Is that how we should think about?

In other words, there's not a change in your -- the 3-year average would be up low single digit, even though it's up a bit more in '24 than that would suggest. And again, possibly you're just being conservative, but I don't know if you had a thought on how we should think about how much better that would be -- would have to be in '25 and '26 to keep your SeaChange expense target?

[David Bernstein, executive]

Sure. So when we were presenting our SeaChange program, I guess, it was in June, we were talking about the fact that low single digits, but I did say we'd have some outsized impacts in 2024 due to occupancy, both on the yield and on the cost. So the 4.5%, I also had indicated that occupancy would probably cost 1.5 to 2 points this year. So we are in that low single digits equation that was built into the model.

So I feel like we are very well positioned. And as Josh indicated, we're ahead of where we expected to be on our way towards achieving those targets.

[Josh Weinstein, executive]

I would say, Robin, I didn't get to the call without you trying to get ahead of '24 guidance and looking at '25.

[Operator]

Our next question comes from Dan Politzer with Wells Fargo.

[Daniel Politzer, analyst]

I just actually wanted to touch on the fourth quarter a little bit more. The uptick in revenues on pricing certainly was impressive. Can you maybe unpack that a little bit more? I mean, was that really just Carnival centric line? Or was it Europe or North America more broadly? Or was this alternatively related to your strategy of more base loading and maybe benefiting from some of the compression we've seen?

[Josh Weinstein, executive]

This was portfolio wide. So we're very pleased with where we where we headed into the fourth quarter. David, I don't know if you want to give any color.

[David Bernstein, executive]

Yes. No, I mean, you're right. It was all brands, and we saw strength in bookings. And our brand did a great job yield managing the revenue and taking price up. And so as a result of that, you saw the end result. .

[Daniel Politzer, analyst]

Got it. And then Grand Bahama, I know you started to talk a little bit more about that. Are there any parameters you can give us there in terms of capacity per day, amenities, the CapEx or return profile you're looking at? And also, I know you started to see some booking activity that's going there. Are you receiving premiums on those bookings? I think you mentioned like hundreds of sailings in the release.

[Josh Weinstein, executive]

Yes, let me start with that. We have -- it's tiny in the grand scheme of things still. I mean, because you're talking about Carnival Cruise Line, which doesn't -- has a lot of short programs, et cetera, that don't really start booking. So it's a tiny amount now. We'll give color as we get through 2024 in that respect. So we'll come back to that.

With respect to your other points, we've said this is a big investment. This is $0.5 billion type of investment. And we can do that, obviously, in 2025, we only have 1 chip, and we have none in 2026. So we think this is the right way to optimize our resources and really benefit the Carnival brand and you've heard us say, 18 ships from day 1. So we are very, very excited about that.

I don't want to get ahead. I really want to do a good job of disciplining myself to not get ahead of Christine Duffy, who really wants to and should talk about what this experience is going to be like and more to come in 2024. And I can't wait for you to listen to Christine and hear all about it.

[Daniel Politzer, analyst]

Got it. And then just if I could squeeze in one quick housekeeping. Panorama, that was, I think, out of service a little bit in the fourth quarter and in the first quarter. Is there any way to just quantify the impact of that?

[Josh Weinstein, executive]

In the grand scheme of things, it's probably a couple of pennies.

[David Bernstein, executive]

Between like maybe one penny in the fourth quarter and a couple in the first.

[Josh Weinstein, executive]

Frank, we have time for one last question.

[Operator]

We have a question from Assia Georgieva with Infinity Research.

[Assia Georgieva, analyst]

Congratulations guys on a great Q4. So happy that we're back to looking at deals as opposed to per diems in the 10.5% was a great metric, but the 7.8%, I liked better. I apologize. But again, I wanted just to finally get back to where we're looking at the more usual metrics.

Given that we have a very healthy outlook, in terms of yields in Q1 and Q2. Dry docks, I think, I at least understand well, so we have a good view into EBITDA throughout the year. David, would you mind taking us through sort of the debt and interest expense burdens that you maybe trying to modify including as part of the SeaChange program by fiscal year-end 2024?

[David Bernstein, executive]

Sure. So to start with -- you saw our interest expense guidance in the press release. It was close to $100 million less than 2023. And keep in mind that while we did pay down quite a bit of debt. The average balance for the year is for 2024 is probably like $2.5 billion less than 2023. So that will lower interest expense by $200 million. But also keep in mind that we have less cash on the books. And with declining interest income rates, that probably is offsetting the savings by about $100 million. So that's why it's a net decline of about $100 million in interest expense on a year-over-year basis. .

Looking at the debt level, I actually said this in my notes, in 2024, we are looking at about -- I think it's $2.1 billion of scheduled maturities but we will be replacing that debt with the $2.3 billion of export credits that we take on. So -- but in addition to that, we have built in some prepayments of debt into our guidance. And as I said, we are evaluating that. So we do expect to see debt to go down in 2024. However, we do expect to see strong deleveraging from a metrics perspective because our EBITDA grows substantially. So our debt-to-EBITDA will also improve.

[Assia Georgieva, analyst]

Makes perfect sense. And just as a quick follow-up, before I ask my second question, if I may. Would we be looking at the refinancing as opposed to repayment?

[David Bernstein, executive]

So we are looking at both. As far as -- we expect to continue to prepay debt and to continue the deleveraging. But on top of that, we also expect to look at some potential refinancing, which really would drive the interest cost down. And so we'll see how what opportunities are presented to us in 2024. And if it makes sense, we'll take advantage of them.

[Assia Georgieva, analyst]

Sounds great. And so if I can ask my second question, and I don't think anyone has touched on this. Given geopolitical pressures and we are comparing -- used to be comparing 2023 to 2019 when we have St.Petersberg, which clearly, the Eastern Baltics have been kind of off the books. Now we have an issue with the Middle East and [indiscernible] , I believe, is in the Persian Gulf. But will be one of the ships that will have to come back to Europe and going through a stride that is has been targeted by Yemeni military [indiscernible] . Any thoughts on this or...

[Josh Weinstein, executive]

Obviously, our first priority is going to be safety. And we -- that's already on our on our radar screen, and we've got mitigation plan should we need it. But keep in mind, this is months away. And so we'll do the right thing. But there's always something I hate to say it that way, but there is always something and our brands. .

[Assia Georgieva, analyst]

I've been around long enough, 26 years. So there is always something, Josh, I agree .

[Josh Weinstein, executive]

All right. I think with that, we do have to end it, but I'd say happy holidays to everybody, and thank you very much. Have a good new year. .

[Operator]

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day. Thank you.