Royal Caribbean Cruises Ltd

NYSE:RCL

Earnings Call Analysis

Royal Caribbean Anticipates Record 2024 Earnings

Royal Caribbean had an exceptional 2023, surpassing their January expectations with net yields up 15.5% from 2019, yielding profits that doubled their guidance. They achieved high guest satisfaction, with rebookings at twice the rate of 2019, and are close to reaching their Trifecta financial targets. They are on track for a record-breaking 2024 with a 40% projected earnings growth and yields expected to increase by 5.25% to 7.25%. Their new ships and expanded destinations are expected to drive performance and grab market share from land-based vacations.

Revolutionary Launch Fuels Record-Breaking Performance

The Royal Caribbean Group has grabbed headlines and the industry's attention with the launch of Icon of the Seas, a game-changing ship that kicked off its first revenue voyage to exceptional acclaim. Dubbed a 'revolutionary product,' Icon represents the company's commitment to delivering top-tier family vacations, a significant stride in its mission. The company saw a banner year in 2023 with a surge in net yields up by 15.5% compared to 2019, and profits soaring with an adjusted EPS more than double the January guidance. These robust performances have aptly set the stage for an even more promising 2024, underpinned by strong bookings that outpaced the previous year across all key products at higher rates, hinting at a record-breaking start.

Future Trajectory: Earnings Growth and Bright Prospects

Looking ahead, the future shines brightly for Royal Caribbean, buoyed by entry into 2024 with the strongest books in the company's history, comprehensive plans for further innovation, and stronger customer engagement strategies. Their key metrics radiate potential, with an expected year-over-year earnings growth of 40%, while forging ahead towards meeting and surpassing the 'Trifecta' goals a year ahead of schedule. These bold targets are supported by the addition of three new ships — Icon of the Seas, Celebrity Ascent, and Silver Nova — that not only enrich the customer experience but are at the forefront of yielding gains and overall profitability. Plans for 2024 exhibit a confident prediction of yield growth between 5.25% to 7.25%, indicating another year of momentous success.

Strategic Expansion and Enhanced Customer Engagement

As part of its strategic expansion, the company adds HideAway Beach at Perfect Day at CocoCay, set to magnify its capacity to over 3 million guests annually. This move, complemented by advanced digital engagement platforms and pre-cruise booking capabilities, aims to deepen customer relationships and optimize revenue. Continued investments into modern digital platforms are expected to reduce friction in the booking process further, inevitably leading to an expansion of the wallet share. Royal Caribbean is already witnessing a surge in onboard purchases through the mobile app, with around 40% of its 2024 pre-cruise revenue booked, underscoring a positive customer spending trend.

Q1 2024 Projections Point to Strong Yield and EPS Growth

For the first quarter of 2024, the company forecasts a stellar yield growth of approximately 15% driven by full load factor recovery and solid pricing trends. This growth appears set to deliver an adjusted earnings per share of $1.10 to $1.20. A notable facet of this optimistic outlook is the synergy of new itinerary additions and robust booking factors globally, keeping pace with record-setting trends from the previous year. The concerted effort to manage debt maturities and refine the capital structure has streamlined the balance sheet, culminating in reduced leverage to approximately 4x total debt to adjusted EBITDA. The focus is on continuing this downward trend to reach mid-3x by end of 2024, in addition to targeting investment-grade metrics.

Commitment to Investment-Grade Metrics and Sustainable Practices

Royal Caribbean's strategic framework, fondly termed 'Trifecta,' drives the company towards ambitious yet attainable goals, primarily focusing on delivering shareholder returns, outstanding guest experiences, and reducing environmental footprint. The company's progress in achieving its Trifecta goals exemplifies its commitment to a disciplined approach to capital allocation and a drive towards investment-grade metrics. Moreover, the guidance provided for 2024 takes into account the potential for marketplace uncertainties, mitigating concerns about the perfection of conditions and underscoring the company's preparedness for overcoming operational challenges.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to the Royal Caribbean Group Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Michael McCarthy, Vice President, Investor Relations. Please go ahead.

[Michael McCarthy, executive]

Good morning, everyone, and thank you for joining us today for our fourth quarter and full year 2023 earnings call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bayley, President and CEO of Royal Caribbean International.

Before we get started, I'd like to note that we will be making forward-looking statements during this call. These statements are based on management's current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change.

Also, we will be discussing certain non-GAAP financial measures, which are adjusted as defined, and a reconciliation of all non-GAAP items can be found on our Investor Relations website and in our earnings release. Unless we state otherwise, all metrics are on a constant currency adjusted basis.

Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our fourth quarter the full year 2023, an update on the current booking environment and our outlook for 2024. We will then open the call for your questions.

With that, I'm pleased to turn the call over to Jason.

[Jason Liberty, executive]

Thank you, Michael, and good morning, everyone. Before getting into the details, I would like to take a moment to reflect on last week's monumental launch of our new ship, Icon of the Seas. Every once in a while, a revolutionary product comes along that resonates so strongly and makes such a widespread impact that if forever changes the status quo. For the vacation industry, that product, Icon of the Seas debuted last week to incredible fanfare.

Our mission at the Royal Caribbean Group is to deliver the best vacation experiences responsibly and Icon is going to deliver the best family vacation on the planet with her incredible experiences and amazing crew. I'm absolutely thrilled that after years, planning and anticipation, Icon finally welcomed her first revenue guests on board this past weekend.

With the phenomenal guest engagement and word of mouth from this ship, along with our landmark sports partnership with InteraMiami and football Goat, look forward to making millions of vacation memories for our guests in the years ahead. A big thank you to our incredible team who worked relentlessly over 7 years, dreaming, innovating and flawlessly delivering, Icon of the Seas.

So now let's talk about 2023 and 2024. 2023 was an exceptional year fueled by unmatched demand for our brands, as you see on Slide 5. Net yields were up 15.5% compared to 2019, more than 3.5x our January expectations, and we delivered margins that were back to record 2019 levels. Our net income exceeded our January expectations by about $1 billion, resulting in adjusted earnings per share more than double our January guidance. We continued our focus on reshaping the cost structure across the operating platform, leading the durable margin expansion, which is expected to continue to provide operating leverage as we grow the business.

Innovation is core to our company's DNA. And in 2023, we continue to direct that Innovate Spirit, not only to our new ships and destinations, but also to an amazing guest experience at all points in the vacation journey. We received exceptionally high guest satisfaction scores and attracted a record number of both new and loyal guests who are rebooking at twice the rate we were seeing in 2019. The robust performance in 2023 significantly accelerated our trajectory towards our Trifecta goals with EBITDA per APCD and ROIC on the cusp of our targets. We also continued to invest in the future while making significant progress in strengthening the balance sheet towards our targets of investment-grade metrics.

The year ended on an incredible note with revenue yield of nearly 18% in the fourth quarter and 2024 is in the strongest book position in the company's history, from both a pricing and volume standpoint. I'm incredibly thankful and proud of everyone at the Royal Caribbean Group for executing so well and doing so while achieving strong financial results and propelling our future growth.

Momentum continues in 2024 with a record-breaking start to the wave season. Bookings have consistently outpaced last year across all key products at much higher rates. In fact, the 5 highest booking weeks in our company's history all occurred since the last earnings call. As a result, while our capacity is up 8.5% year-over-year, we have less inventory available to book in 2024 than we did a year ago for 2023 and half is may state rooms left in Q1.

Our commercial apparatus is full speed ahead, and all channels are delivering quality demand above 2023 levels. Our direct-to-consumer channels continue to perform exceptionally well as consumer preferences for digital engagement and our ongoing investment and enhanced capabilities is supporting record-breaking bookings. Our travel partners are also delivering meaningfully more bookings than last year and beating our elevated expectations.

We continue to see particularly healthy demand from North America where about 80% of our guests will be sourced this year. Our brands, global appeal and nimble sourcing model allows us to attract the highest-yielding guests by positioning our ships in multiple markets across the world. Our brands lead in their respective segments and are very successful at capturing quality demand across sectors and sourcing from new consumer bases.

If you think about consumer demand for 2024 and beyond, we look to both macro trends and data points for millions of daily interactions with our customers. We continue to see a very positive sentiment from our customers bolstered by strong labor markets, high wages, surplus savings and elevated levels. Year-over-year growth in spend on experiences is double on goods and cruising remains an exceptional value proposition or penetration, higher consumer consideration and high purchase intent. We see an exceptionally engaged consumer base across markets, brands and products. People are looking to book their dream vacation with us and continue to spend at elevated levels.

Consumers are engaging and booking their vacations earlier, 70% book at least one of their onboard activities pre-cruise at higher APDs and onboard spend continues at record levels and at higher rates. This positions us very well to outperform the broader travel industry and now were the pricing gap to land-based vacation. We continue to attract new customers into our vacation ecosystem and deliver the best vacation that our guests are highly satisfied and continue to rebook and return to our brands and our products.

2024 is shaping up to be a record-breaking year with 40% earnings growth as our progress continues on an accelerated path towards achieving our Trifecta goals. As you can see in our release today, we expect to achieve several Trifecta targets in 2024, a full year earlier than previously anticipated.

As I said in the past, Trifecta creates the pathway back to what we internally describe as base camp. And while an important milestone, it is not our final destination and our ambitions go well beyond it.

As highlighted on Slide 6, in 2024, we expect to grow capacity by 8.5% with the introduction of Utopia of the Seas and Silver Ray in the first full year of service of the 3 incredible ships that joined our fleet during 2023. Icon of the Seas, Celebrity Ascent and Silver Nova. New ships not only elevate our vacation experiences and draw new customers to our brands, but they also provide yield tailwinds and enhance overall profitability.

In 2024, we expect yields to grow 5.25% to 7.25%, driven by the performance of our entire fleet, new and existing ships combined with our leading private destinations and strong commercial apparatus. Loders and rate growth, together with continued focus on margins, and disciplined capital allocation are expected to drive record earnings that grew 40% year-over-year, getting us very close to our Trifecta targets.

Our proven formula for success remains unchanged. Moderate capacity growth, moderate yield growth and strong cost controls lead to enhanced margins, profitability and superior financial performance.

Our operating platform is stronger than ever. We have the leading brands in their respective segments, the best people and the best and most innovative fleet and destinations. We remain focused on delivering a lifetime of vacations for our guests and a long-term value for our shareholders. We are leading the vacation industry and creating exciting new product experiences which in 2024 include game-changing ships and the expansion of our highly rated destination, Perfect Day at CocoCay. Our new ships are performing exceptionally well. And while we always expect to see strong trends when we introduce new ships. Icon of the Seas is definitely living up to her name and has taken things to a whole new level in every way.

Demand and pricing for Icon has been incredibly strong. This we are also thrilled to take delivery of the 6 Oasis-class ships, Utopia of the Seas, which will set the stage for ultimate weekend getaway.

Lastly, we will take delivery of Silver Ray, the second ship in the evolution class, redefining ultra-luxury cruising. Silver Ray will debut in the Mediterranean this summer before transitioning to winter season in South America. New ships and their incredible innovative experiences further accelerate our efforts to steal market share from land-based vacations.

We completed the expansion of HideAway Beach at Perfect Day at CocoCay, just in time to welcome Icon on the Seas, upsizing the benefit of this strategic asset. HideAway Beach is our newest adult-only ultimate beachfront paradise at Perfect Day at CocoCay, which expands our capacity on Island to over 3 million guests annually.

About 2/3 of World Caribbean International Caribbean guests will visit Perfect Day at CocoCay this year, allowing us to deliver high satisfaction scores and higher margins across the fleet.

Our journey to deepen the relationship with the customer continues this year. We will further enhance our commercial capabilities to optimize distribution channels, build even more customer loyalty and lower acquisition costs. The outsized increase in our onboard revenue over the past couple of years has been fueled by new capabilities introduced to make it easier for guests to pre-book onboard experiences. We will continue to enhance those capabilities in 2024.

About 1/3 of onboard purchases are now coming through the mobile app, and we already have about 40% of our pre-cruise revenue booked in 2024 as compared to 2023. As a reminder, customers who purchase onboard experiences before their cruise spend about 2.5x more than those who do not buy pre-cruise. We will remove friction by investing in a modern digital travel platform, making it easier than ever for guests to book their dream vacations by allowing us to expand wallet share. We will also continue driving business excellence to increase yields and capture efficiencies across our platform. Our teams are committed to controlling costs and enhancing profitability while focusing on delivering the best guest experiences and doing so in a responsible way.

Our sustainability ambitions held to form our strategic and financial decisions daily, ensuring that we always act responsibly while achieving our long-term profitability goals. Making progress on our see the future commitment to sustain the planet, energize communities and accelerate into. We wrapped the year on track to keep our carbon intensity reduction targets, and we are entering 2024 well beyond the halfway mark. To make this possible, we continue to accelerate innovations like the first methanol capable tri-fuel engine that we expect to debut on the celebrity Excel in 2025.

Every new ship represents an advancement in our energy transition efforts. The game-changing Icon of the Seas exceeds industry standards for energy efficiency by 24%. Icon and the recently launched Silver Nova also allow us to take advantage of new technologies such as innovative waste-to-energy systems on board.

By consistently using our latest ships to pilot new technologies, we can validate the decisions we are making now to help position us to achieve our Destination net-zero target by 2050.

To wrap up, the future of the Royal Caribbean Group is exceptionally bright. With our strong operating platform and proven strategies, we are creating a lifetime of vacation experiences for our customers will also deliver long-term shareholder value that allows us to reach new financial records. We are well positioned for continued growth in 2024 and beyond.

And with that, I'll turn it over to Naftali. Naf?

[Naftali Holtz, executive]

Thank you, Jason, and good morning, everyone. Let me start by reviewing fourth quarter results. Our teams delivered yet another strong performance with adjusted earnings per share of $1.25, about 15% higher than the midpoint of our October guidance. All key products exceeded expectations, delivering double-digit yield growth in the fourth quarter. Net yields were up almost 18% compared to 2019, and that would have been 20%, if not for the 200 basis point drag from eliminating the reporting lag to Silversea. Load factors were at 105% and rates were approximately 19% with significant growth for both ticket and onboard revenue.

Net cruise costs, excluding fuel, increased 6.7% compared to the fourth quarter of 2019. Since our last earnings call, the stock price appreciated over 50% and added 250 basis points to stock-based compensation expense versus our prior guidance. Excluding the increase in stock-based compensation, our costs came in, in line with expectations.

Our focus on enhancing profitability allowed us to deliver 30% adjusted EBITDA margin in the fourth quarter ahead of '19 levels. We also utilized excess cash flow to pay down debt and lower interest expense, consistent with our Trifecta.

2023 was an exceptional year, as you can see on Slide 5. We generated almost $14 billion of total revenue, [ $4.5 ] billion of adjusted EBITDA and $4.4 billion of operating cash flow. Net cruise excluding fuel, increased 7.9% compared to '19. NCCx approximately 65 basis points higher costs related to increase in stock-based compensation versus our prior guidance.

Our cost performance reflects the continued and durable benefit from all the actions we have taken over the last several years to support enhanced margins. Our proven formula for success also drove $6.77 in adjusted earnings per share that were more than twice our initial expectations in January.

Now switching to our 2024 outlook. I will start by taking you through capacity and deployment for the year. For the full year, our capacity is expected to be up 8.5% compared to 2023. This year, we have almost twice as many dry dock days compared to '23, reducing APCD growth by 1% and resulting in a more pronounced capacity growth in the first and third quarter. APCDs are expected to grow around [ 10% ] in the first and third quarter, 5% in the second quarter and 8% in the fourth quarter.

2024 has consistently been in a strong booked position. And as Jason mentioned, the year is off to a very strong start with a record wave. As a result, both rates and volume are currently booked significantly ahead of the same time last year. All key products, including the Caribbean, Europe, Alaska and Australia, are mostly ahead of last year. The Caribbean represents just over 55% of our deployment this year, following a 13% increase in capacity year-over-year. The growth is due to the additions of Icon of the Seas and Utopia of the Seas combined with celebrities upsized summer program.

Supporting this increase in capacity is the addition of HideAway Beach at Perfect Day at CocoCay. Our Caribbean programs are booked nicely ahead of last year in both rate and volume. Well, bookings and pricing for Icon can only be described as iconic and Utopia is demanding significant price premiums in short Caribbean market. We are also very pleased with the trends we are seeing on existing hardware.

Europe accounts for around 15% of our capacity following a 7% reduction year-over-year. At the time of our last earnings call, we were in the process of altering itineraries for European Mediterranean sailings that were previously expected to visit Israel, and we have since redeployed all ships with coals to Israel.

Regarding the situation in the Red Sea, the safety of our guests and crew is a top priority, and we are constantly monitoring the situation. We only have a handful of repositioning cruises scheduled in the region this year and have already rerouted one of our Silversea ships and have contingency plans for a couple of others in the spring.

Regarding demand for Europe product more broadly, bookings were softer for the impacted itineraries for a few weeks last October, but rebounded relatively quickly and are now significantly higher than same time last year. As a result, our European sailings are booked nicely ahead of last year.

We are also very pleased with the trends we are seeing on other North American itineraries. Alaska has been performing particularly well from both a rate and volume standpoint. Alaska accounts for 6% of full year capacity and 15% in the all-important season. While our capacity for Alaska is only up slightly this year, we have made exciting changes to our Alaska deployment. For the first time, celebrity will offer incredible Alaska vacations on an edge-class ship, Celebrity Ascent. And Silversea's Neareship, Silver Nova will also sale Alaska.

Asia Pacific will account for 10% of our capacity. We are seeing strong pricing demand trends for both Asia and China as we return to China with Spectrum of the Seas in the second quarter.

Taking all this into account, if you turn to Slide 7, you will see our guidance for 2024. This will be the second full year on our path towards our Trifecta goals, and our results remain ahead of track. Net yields are expected to be up 5.25% to 7.25%, and that's following an exceptional 2023 that saw double-digit yield growth that only accelerated as the year progressed. While the 2023 comparable set a high bar, full year yield growth is being fueled by our incredible new hardware, higher load factors, higher pricing, the expansion of Perfect Day at CocoCay and further advancements in our commercial capabilities.

Now moving to costs. Our focus remains to enhance margins as we continue to grow the business. Full year net cruise costs, excluding fuel, are expected to be up 3.75% to 4.25% to approximately 315 basis points impact from increased dry dock days and the operations of HideAway Beach. The majority of our dry docks are in late first quarter and early second quarter, which will mostly weigh on our first half costs. The remaining dry docks will be in the fourth quarter.

We anticipate a fuel expense of $1.16 billion for the year, and we are 61% hedged at below market rates. This year, we'll also see introduction of the EU and scheme, which will apply to 40% of our European itineraries related emissions, and we do not expect this to significantly weigh on earnings. Based on current fuel prices, currency exchange rates and interest expense, we expect a record adjusted earnings per share of $9.50 and $9.70.

turning first quarter guidance as summarized on Slide 8. In the first quarter, about 73% of our capacity will be in the Caribbean, 18% in Asia Pacific, and the remaining capacity is spread across a number of other itineraries, including South America and Expedition Cruises. Book load factors and rates are at record levels and are both up significantly versus same time last year.

As you can see from our guidance, we expect significant yield growth for the first quarter, driven by full load factor recovery and the annualization of the strong pricing trends, which began at the end of the first quarter of 2023. Net yields are expected to be up approximately 15% for the first quarter with both Caribbean and Australian itineraries driving the growth out.

Net cruise costs, excluding fuel, are expected to be up in the range of 7.1% to 7.6%, and include 380 basis points impact from increased dry docks and costs related to opening HideAway Beach. We also have approximately 200 basis points of in the first quarter related to the start-up of Icon as well as higher load factors as compared to Q1 2023. Taking all this into account, we expect adjusted earnings per share for the quarter to be $1.10 to $1.20.

Turning to our balance sheet. We ended the quarter with $3.1 billion in liquidity. During the fourth quarter, we refinanced our revolving credit facilities and term loan and repaid the remaining $500 million of our 11.5% senior secured notes. We settled our 2.875% convertible notes in November by utilizing $225 million of cash and issuing just under 147,000 shares. We made significant progress during 2023, strengthening the balance sheet towards our Trifecta goal of investment-grade metrics. Better performance and disciplined capital allocation allowed us to accelerate reduction in leverage to around 4x total debt to adjusted EBITDA at year-end when excluding the impact of new ships that were delivered mid-year.

We will continue to proactively pay down debt and pursue stick refinancings and expect to further reduce leverage to close to mid-3x by the end of [ 2024 ]. Our priorities to address debt remain unchanged, managing debt maturities, reducing interest expense and remaining restriction on capital allocation and towards a fully unsecured balance sheet.

In closing, we remain committed and focused on executing our strategy and delivering on our mission while achieving our Trifecta goals. Trifecta created a pathway back to base camp. And while an important milestone is not our final destination as our ambitions go well beyond it. The combination of our book position and an accelerating demand environment is certainly pointing to another strong year of yield growth and a step change in earnings growth.

With that, I will ask our operator to open the call for a question-and-answer session.

[Operator]

[Operator Instructions] Our first question comes from the line of Steven Wieczynski with Stifel.

[Steven Wieczynski, analyst]

Congratulations on a strong 2023 and the launch of Icon. So as we think about your guidance for this year, specifically thinking about yields, just wondering if you could break down that yield guidance a little bit for us. Essentially, just trying to figure out what you guys have included in the terms of things like core pricing, your occupancy ramp, obviously, you've got new hardware in CocoCay as well. And then maybe how you're thinking about onboard yields this year? And then finally there, maybe help us think about the cadence of yield for this year as this guide might make some believe there's a potential for slowing in the back half of the year, but I would assume that's just more lack of visibility and tougher comps with load factors.

[Jason Liberty, executive]

Well, thanks, Steven, and good morning, everybody. I think you pointed to a lot of things there. So first, obviously, 2023 was an incredibly strong year on both a ticket on board standpoint. Q1, the strong yield, as Naf commented, is driven by having a kind of full period with the pricing that we saw in the ramp-up starting in the middle of the first quarter of last year and then the recovery of the load factor. There is nothing that we see in the booking environment or onboard spend that point towards acceleration. And so -- our formula for success, which is moderate yield growth and good cost control is very much how we see Q2 forward. And -- but when we look at things, whether it's the new hardware, whether it's like-for-like, whether it's onboard spend, all those things are pointing north on a positive basis in terms of what we're seeing in the booking environment. And I think that's -- there shouldn't be any concern at this point in terms of when we see that there's any slowdown occurring in our business Q2 forward.

[Steven Wieczynski, analyst]

Okay. Got you. That makes sense. And then Jason, as we think about our Trifecta goals, you're essentially not off 2 of those goals this year with a strong possibility that you're third Trifecta goal getting north of $10 a share in earnings is probably a very high probability based on what words now based on what you're seeing right now. So Jason, I know you talked about Trifectting what you call base camp. But I guess the question is, where do you guys go from here? I mean if Trifecta goal R&D base camp, do you start to think about introducing at some point, something that moves you well beyond base camp? And then maybe help us think about the return to investment grade and you and your agency partners are thinking about that time line as well?

[Jason Liberty, executive]

Sure. Well, I'll let Naf take the investment-grade question. We are an organization I think that does really well with kind of 2-, 3-year targets. And we can see that obviously here when we consider Trifecta, getting the hearts and minds of our organization. It really focusing on delivering strong returns for our shareholders. And also an incredible guest experience while also lightening our impact on the planet all these things are so heavily in the consideration of what we do each and every day. As we get closer to achieving Trifecta, we will await what's the next program financial performance program that we're going to put out there that we think is important not just to make sure management is focused on what it is we're looking to achieve, but also to make sure everybody understands where we're navigating to. But if you just run the math on moderate yield growth, good cost control while we moderately grow our business while continuing to invest in destinations and so forth. That math will tell you that we're in a -- we will be in a very strong financial performance on an earnings basis, ROIC basis as well as a margin base. And all those things, I think, are really important as we consider how disciplined we have been on capital and also will be in the consideration set as we think about returning capital to shareholders as we 0 in on getting to investment-grade metrics. But I'll here for Naf to talk about investment grade.

[Naftali Holtz, executive]

Thanks, Jason. Steve,so on the balance sheet, part of Trifecta is getting back to investment-grade metrics, and we're really focused on that. And as you could see in our -- and we've announced for the results last -- in 2023, we made significant progress in that direction. We lowered our cost of capital. We repaid roughly $4 billion of debt with excess cash flow because as we saw the performance accelerate our formula of just being disciplined around capital allocation allowed us to pay down debt faster than we thought. And we'll continue to do that this year. And in my remarks, I said that we'll be very close to the leverage levels that we have in the targets.

In addition to that, we also want to unsecure the balance sheet, and that will come as some of the notes that we had to issue, either secured or guaranteed, have the opportunity to refinance those or pay them down. With regards to the rating agencies, we're very close contact with the rating agencies. We were very pleased with the credit upgrades that rating upgrades that we had last year. We are focused on making sure that we have the balance sheet, we are comfortable operating under, and that's really where the goals are. And then we'll continue to be in close contact with the agencies as we make progress on that, but we're not focused necessarily on the ratings really on the metrics there.

[Operator]

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

[Robin Farley, analyst]

I wanted to ask, you alluded to potential changes with some of the itineraries in the Red Sea. Is it fair to say that your guidance stay your EPS guidance for '24, already includes what you think you may have to do in terms of rerouting anything that would be transiting there? I wonder if you can help us quantify what kind of -- if there's downside that's really baked into your EPS guidance for that? And then I do have a follow-up, but I'll start with that one.

[Jason Liberty, executive]

Yes. Well, thanks for the question, Robin. And I think just as we talk about how we guide, our guidance does not plan for perfection. And so when we consider things like the Red Sea and there are things that come up from time to time within the course of your -- we very much kind of take those kind of things into account. And so I don't think we think the handful of sailings that will sail through -- we're expecting the sail through the Suez is something that's going to impact our guidance at this point in time. And I think that's how we just generally set up our guidance to not plan for perfection.

[Robin Farley, analyst]

Okay. Perfect. And then I don't know if you have any initial thoughts on potential tax changes in the global minimum tax and how that might impact you given your incorporation and your itineraries and kind of tax saving that you may be able to do to mitigate that?

[Naftali Holtz, executive]

Robin, so yes, the global minimum tax is obviously out there and it's been there for quite some time. If we -- so we continue to evaluate it and if we do nothing, that doesn't really impact us until 2026, so important. And of course, we believe that we can do with some mitigations -- mitigate a majority of that impact. So that's kind of on that.

[Operator]

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

[Brandt Montour, analyst]

Congrats on the results this morning. So the first one is given the European slowdown in bookings that you saw in sort of November, which is great to hear that, that came back. But taking into account the seasonality of Europe and thinking about yields for the back half or sort of for the balance of this year that's baked into your full year guide. Is it fair to assume that the yield growth cadence for the balance of the year will sort of correlate with the quarters that are strongest in the Caribbean, right, given you have HideAway Beach and Icon on sailing there. Just anything else you can help us to think about how that cadence will progress.

[Jason Liberty, executive]

Well, one, we're very happy that the demand for Europe came back and we saw this acceleration soon after our last call. I really don't think anybody should be reading into any concern around Q2 going forward in terms of any kind of slowdown. We're seeing an acceleration in pricing and volumes from all of our key markets for all of our key deployments. And obviously, the first quarter is higher because we talked about with load factor the normalization of rate. So I would just leave it that. We expect Q2 forward, continue to be strong and our yields to grow across like-for-like new hardware onboard, et cetera.

Of course, we are lapping, as you commented, Brandt, on some very high comps year-over-year. And I think that's an important line to appreciate.

[Brandt Montour, analyst]

Okay. Great. That's helpful. And then my second question is on the book position. Record book, the commentary, obviously upbeat in your release in your prepared remarks. Are you willing to sort of give us a sense for how much of the first half or the full year is booked at this time and how much different that is year-over-year? And to the extent that you don't want to answer that, I would also just be curious if you want to refresh your sort of philosophy on the optimal curve, right? And if you're at that point where you wouldn't want to become any more booked unless you leave money on the table or how you're thinking about that revenue management strategy?

[Jason Liberty, executive]

Well, I'll start off with the latter. I mean, I think on an optimal curve, the answer is we always get it wrong. It's -- there are always estimates. We do not give out the percent booked that we're in, but it is meaningfully higher, obviously, than last year for sure and also versus our highs in 2019. We have installed very yield management systems, those yield management systems have -- we've obviously seen them perform exceptionally well in 2023 and what we're now seeing here in 2024 through WAVE, and they continue to allow us to get more and more share of the wallet. And also taking those practices in which we also saw this last year and feeding them into our onboard activities, our pre-cruise activities is also something why -- I think as we look at the 2023 results and what we're seeing in the 2024 estimates on the top line is what's causing just, I think, continued outperformance.

[Naftali Holtz, executive]

Yes. Just one other comment, not just on the volume, but also the pricing. Obviously, we are on more booked versus last year on the volume but also on the pricing level as well. So we're very encouraged where we are.

[Operator]

Your next question comes from the line of Matthew Boss with JPMorgan.

[Matthew Boss, analyst]

Congrats on another great quarter. So 2-part question. Jason, when you talked about taking things to a whole new level, could you size up where you stand today versus the larger total addressable market share opportunity? And maybe you see it on cruise and just the multigenerational customer base that you're attracting? And then for Naftali, maybe just best to think about the breakdown of the 4% cost guide this year and multiyear what you see as the right run rate for costs going forward?

[Jason Liberty, executive]

Yes. Well, I'll start off, Matt, by -- I think it's important to understand what our orientation is. Our orientation is experiences. We keep trying to advance experiences that our customers are not only do they desire, but they're also willing to pay for. And so when you have an experienced mine focus, obviously, there are a lot of things that we're adding on to our ships. I think Icon is an incredible example of the dreaming and the delivery of experiences for multigenerational travel. But you also see those, for example, in Silver Nova and what that does for the ultra luxury space in terms of the dreaming and innovating to deliver those ranges that our guests seek and are willing to pay for. You see that also extend into the destination and what we're doing in the private island space, whether it's HideAway that we just announced, we had the World Beach Club, into those. And we continue to think about and dream about other opportunities that are there.

Our goal is to keep our customers and our ecosystem. And we're building, as I mentioned in my notes, a travel platform on a technology basis that make sure that our guests through loyalty as well as experiences stay within that ecosystem. That all kind of comes into continuing to grow what we believe are the best brands in each of the segments and invest in those experiences for us to deliver each and every day.

[Michael Bayley, executive]

Matthew, it's Michael. Just to add some comments to Jason. There's quite a big differentiation before between the addressable market for traditional cruise in the addressable market for land-based vacations when you consider and all of those different land-based options. We really believe that with ships like Icon and Perfect Day, HideAway Beach, the coming of Roll Beach Club in '25. Utopia coming straight into the short product market, it's a perfect day. We are really kind of transcending and moving particularly the Royal brand from that traditional cruise space where the addressable market is big, but smaller than the land based. And we feel that now beginning to really attract a lot of demand from those land-based options with better quality product, more exciting products and great price points. So I think we feel there's a big opportunity with the addressable market, particularly as it relates to what we've done with kind of reaching the brand and becoming acutely cost on the multi-generational family and particularly with the kind of new products that we're introducing now. And I think Icon really is a great example of that. We've never seen such incredible demand reaction and pricing power that we've seen with a new product that we've introduced. It's really been phenomenally successful.

[Naftali Holtz, executive]

Matt, so on your question on cost, so this year, we gave the guidance of 3.75% to 4.25% cost growth. And I think it's just important, obviously, I mentioned it in my remarks that there's 300 basis points throughout the year impact from both increased dry dock days and also the operations of HideAway Beach that while he is very accretive to margin, just does not have ABCD. So -- so that's the reason. But I think if you put that into context of all the things that we have done over the last couple of years and our really relentless focus on enhancing margins and controlling cost is really coming into play as we continue to grow the business.

For the cadence of the year, we have more cost in the first half of the year because we have most of our dry docks really in the last -- latter part of the first quarter and early in the second quarter, and that will weigh on cost. Also, I mentioned in the first quarter, we have specifically for that quarter more impact from starting Icon of the Seas just catching up in the load factor, but obviously, it normalizes throughout the year. And the second half will benefit from those lower dry dock days and also the addition of Utopia, which will add APCDs to the half part of the year. But all in, we're very pleased with how we've really in a durable way enhancing margins that will help us as we continue to grow the business and create operating leverage.

For the term, our formula really remains unchanged. Moderate capacity growth, moderate yield growth, strong cost control really leads to enhanced financial returns. And the formula is basically we got to grow yields, faster than we grow our cost and that will enhance margins, more cash flow and more earnings.

[Operator]

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

[Conor Cunningham, analyst]

Just keeping with the FEMA on cruisers land. In the context of moderate yield. There seems to be an argument that you can make that actually should be a little bit higher given you're going to close the gap to land based. Can you just level set on where you sit on the discount versus land-based right now? And then how we get back to kind of the pre-COVID levels, I think that's been like 15% historically. So if you could just talk about that, that would be great.

[Jason Liberty, executive]

So obviously, last year, we talked around having a 40% to 45% gap to land-based vacation. Our yields in 2023 rose 13.5%. Our APDs were up, I think, 16%. So we've obviously made a dent into that. And this year, we expect obviously to make a further dent that. We are obsessed about really not -- it's much less about what's happening in the cruise space. It's more about how do we close that gap. How do we compete with land-based vacation. And we can see in the consideration how much cruise has moved into the average consumer's consideration for travel. So our focus is on that, how do we close that gap. And really how do we make sure going back ecosystem, which I think land-base does very well, is how do we make sure that focus on a vacation of a lifetime evolves into a lifetime of vacation. And I think the commentary about the return, what we're getting from our customers that repeat rate has now doubled, shows that what we're doing in delivering the best vacations in the world. What we're doing to incentivize through loyalty to keep our customers and our ecosystem. And really leveraging our house of brands, that are the best in each one of their segments is really starting to create another wave of demand. And we think land-base does this really well. We're focused on doing this obviously exceptionally well.

And when you think about what we're doing on the destination side with -- perfect Day as an example, when you look at Icon, you can see in that how it's an extremely competitive product. We would probably argue even a better product to what's happening on land. And that's by us continuing to dream and innovate and deliver on that, that's going to chip away further and further into that value gap to land-based vacation.

[Conor Cunningham, analyst]

Super helpful. And then you mentioned the digital investments and increased direct bookings. Can you just talk about how that's evolved over the past few years? And how we continue to kind of increase the direct booking channel going forward?

[Jason Liberty, executive]

Yes. Well, it's less about the shift from direct or through our travel partners. We are really channel agnostic. What we want to do is whether it's -- we want to show up on how our guests want to shop and book of cruise. And we want to take as much friction out of that experience as we possibly can. Sometimes that leads them through our digital channels like the web or our app. Sometimes it has them call our call centers. And of course, that very much takes them to our travel partners who do an exceptional job, helping guests identify and have the experiences that they want to do. So we're very agnostic about it. But we also recognize that the customer expects very little friction in their shopping experience. So we spent a lot of time figuring out not only how to be easier to do business with, but also how to use technology like AI and so forth to curate and put those experiences in front of the guests and the way in which they want to consume them. I think we're getting better and better at that every day. But I would -- it's a journey. When I feel we're heading to the fourth or fifth inning, I find now we're back in the first inning as the consumer continues to evolve and just the technology that's available to do it so fully is growing stronger and stronger every day.

[Naftali Holtz, executive]

Yes. And just one other thing to add is also it allows us to make sure that the customer gets the vacations they want. So some of the meaningful progress we've seen and we also noted in the last couple of earnings calls, just the ability to buy and design your vacation ahead of time through pre-cruise. And as Jason mentioned also in the remarks, it also leads to great financial success as people are booking their vacations, and they get on board and they spend 2.5x more than those that have in pre-cruise.

[Operator]

Your next question comes from the line of Vince Ciepiel with Cleveland Research.

[Vince Ciepiel, analyst]

I wanted to dig a little bit more into the Icon. You keep talking about how taking things on a new level. Curious kind of how it compares to what you saw with a new class? You think about Oasis 15 years ago, Quantum 10 years ago. How does this launch compare in terms of reception to the customer, the travel agent community, the national coverage that you've been getting, your approach to marketing? And do you think that, that's sustainable as you move into Utopia and Star in the next 12 to 18 months?

[Michael Bayley, executive]

Vince, thank you very much for that question. I've been waiting for about 20 minutes to talk about Icon. I mean first of all, Icon is a product in terms of the design and the focus on multigenerational family and the evolution from Oasis-class. I think what we've created really is a game-changing hit. I mean it really is working with customer demographic and it's really working with our target market. I think if you've got an exceptional product that people really are impressed with, then you kind of -- you're almost there. And we feel like we've really achieve that with Icon. It's Epic. And you combine that with Perfect Day in the opening of HideAway Beach. We have a product and a vacation experience for a multigenerational family that truly is the best in the world, and we've made that statement. It's the best family vacation in the world. So you've got to have that foundation. But I would say that in comparison to previous first-in-class launches, Icon has knocked this just out of the park. We've never seen the response that we've seen with Icon. It's been genuinely unbelievable from every single metric that you would want to look at. The bookings have been phenomenally strong. The rate has been unbelievable. The appreciation product has been high. The interest from the trade partners, from the consumer, from destinations. We've never seen the kind of response that we've seen with icon of the Seas. The employee response, the crew response when we opened up and we had our first shakedown cruises has been unbelievable. We really feel as if this product is absolutely right on the mark and the response has been phenomenal.

When we look at the metrics and we have all of these metrics where we compare class, Icon has doubled or tripled the response. So volume was x percent with the first-in-class with Oasis. With Icon, it's been 3x better than Oasis was. Rate has been really high. But when you compare rate with Icon versus first-in-class in our previous launches, it's double or triple. It's been phenomenal in terms of the overall performance. And the same seems to be true with the onboard product itself. We do feel that Icon with Perfect Day stands shoulder to shoulder with Orlando and Las Vegas, except that we've got both. We've got the gaming and we've got everything that the kids would want to do have a great vacation. So we feel like we've got it perfectly right. And I think when you look at the lineup that we have for Royal, particularly with the opening of the Royal Beach Club in '25, the introduction of utopia in the 3- and 4-day market out of Poken Avril to Perfect Day, we see exactly the same kind of response with Utopia in terms of volume and rate performance versus traditional first-in-class 3- and 4-day products.

We feel like we -- going back to my earlier comments, we feel like we've started this transition from being a traditional cruise vacation to being a world-class multigenerational family option that stands shoulder to shoulder with Orlando and Las Vegas and any land-based destination experience that you could mention. We feel like we're right there, with Icon, with Utopia, with Perfect Day. And of course, it's a journey that we're on in terms of introducing these new exciting products year-over-year. And thank you for asking that question. It's very much appreciated.

[Vince Ciepiel, analyst]

Absolutely. So when you layer in this, it sounds like new hardware is kind of firing at a cylinder that you haven't seen before. You have the discount to land based, and then you have kind of a multiyear stretch of pretty muted industry supply. Is there any reason to think that yield growth couldn't be at more elevated levels on a multiyear stress than what you've seen historically?

[Michael Bayley, executive]

Well, I'm the brand guy. So I've got to tell you, yes, we live in a very optimistic world, and we are extremely excited with the product and the brand that Royal Caribbean International has now become yes, I see plenty of upside. Naftali, Jason, they have a slightly different perspective, but I can tell you, we're very excited with the lineup that we've got coming, and we feel unbelievably proud of the performance of Icon to date. So yes, I see a lot of upside.

[Jason Liberty, executive]

Yes. And just -- I mean, I think we're all extremely optimistic on the very strong quality demand that we continue to see. And I wouldn't want to leave the call with anybody thinking that we are not very optimistic about Q2 and beyond. I know Q1 is very high in terms of the overall performance. But the bookings, the level of onboard spend activity is exceptionally strong. And so I know that there's -- I can just talk about the questions, there's some focus on that. But that it should only be focused on the opportunity in front of us.

[Operator]

Our final question comes from the line of Jamie Rollo with Morgan Stanley.

[Jamie Rollo, analyst]

Just one sort of follow-up really on Icon, Michael, I wish you like, I guess. Just given the figures you gave then, how has that changed the way you think about ordering new ships new ships and also some of the older ships in the fleet? I mean, is this an opportunity to really press your foot down and accelerate this sort of new class ship? Or are you going to sort of carry on perhaps to see as you were before?

[Michael Bayley, executive]

Yes. We see the huge opportunity with the direction that we've taken in terms of this combination of phenomenal land-based curated destination experiences like Perfect Day, the Royal Beach Club in Nassau and Icon class. So think our direction, our mindset is very much focused on the future and further development of that kind of product experience that we know absolutely resonates with customer.

[Jason Liberty, executive]

Yes. And Jamie, I think just to add, we are very purposeful in our actions. We're very purposeful in the segments in which we are operating in. We think we operate in segments where the level of quality demand significantly outpaces the current supply. There's obviously constraints inside the yards in terms of the ability for anyone to grow at a fast pace. But we expect in the future to continue to invest in our business. We expect to continue to invest, as Michael said, in destinations and also in the growth of our fleet. But it's going to stick generally to that formula of moderate yield growth, good cost control and moderate capacity growth over time.

[Jamie Rollo, analyst]

I'm just surprised you given what you've seen, which sounds much better than expectations are not changing anything even for the existing ships? Is there nothing you might be doing with some of the vision or Radiant class ships or maybe putting some of the successful features of Icon on some of the sort of maybe quantum or class anything there?

[Jason Liberty, executive]

Yes, we're always modernizing. We have coming up and the actions we took on Oasis. Some of the learnings on Icon is going to be in the modernization of a law of the Seas. We're always updating our ships to make sure those ships stay relevant. It doesn't move like the CapEx number potentially or maybe it's not as exciting today as we're talking about Icon and HideAway, et cetera. But we're always investing and being a lot of the learnings. Or not just on an experience standpoint, but also on a sustainability standpoint so that our fleet stays relevant and competitive.

[Operator]

I'll now turn the call back to Naftali Holtz, CFO, for any closing remarks.

[Naftali Holtz, executive]

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

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.