Viking Holdings Ltd
NYSE:VIK
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Earnings Call Analysis
Q3-2024 Analysis
Viking Holdings Ltd
In the third quarter of 2024, Viking Holdings Ltd reported remarkable financial performance. Total revenue increased by 11.4% year-over-year, reaching nearly $1.7 billion, primarily due to higher revenue per Passenger Cruise Days (PCDs). Adjusted gross margin also saw significant growth, increasing 12% to approximately $1.1 billion. This led to a 11% rise in net yield, now at $576. The period showed a notable recovery from a reported loss of $1.2 billion in the same quarter of the previous year, now reflecting a net income of $375 million. This strong performance underscores Viking's effective operations and market positioning despite previous challenges.
Viking's operational metrics highlight a robust demand for its cruise offerings. For 2024, 95% of capacity PCDs are fully booked with $4.6 billion in advance bookings, representing a 14% increase over the prior year. The company is also seeing impressive performance for 2025, with 70% of its planned capacity sold and advance bookings at $4.3 billion—up 26% compared to the same point in 2023. Notably, both river and ocean segments showed strong occupancy rates of 95% and 94% respectively, reflecting a solid booking strategy and customer demand.
Viking's financial health is further illustrated by its balance sheet. As of September 30, 2024, the company held cash and cash equivalents amounting to $2.4 billion, alongside an undrawn revolver facility of $375 million. The net debt stood at $3 billion, allowing for an improved net leverage ratio of 2.4x, an enhancement from 3.0x noted earlier in the year. The company anticipates committed capital expenditures of $850 million for 2024 and $770 million for 2025, primarily geared towards expanding its ocean fleet. These strategic investments signal Viking's confidence in its growth trajectory in the cruising segment.
Viking continues to capitalize on its market presence, recently expanding its offerings to cater to Asian guests, recognizing the potential in underserved markets. In particular, the enhancement of itineraries tailored to Asian clientele is aimed at tapping into a growing segment of the cruise market. Additionally, the company is pursuing new delivery options, including four Ocean ships scheduled for delivery in 2030 and beyond. This comprehensive growth strategy is supported by Viking's acclaimed brand reputation, further solidified by being rated #1 for oceans, rivers, and expeditions in the Conde Nast Traveler Readers' Choice Awards for two consecutive years.
Looking forward, Viking is optimistic about its prospects. The company expects to maintain its momentum into 2025, with significant advance bookings already recorded. The adjusted Earnings Per Share (EPS) is established at $0.89. Plans are in place to grow average ticket prices, with a target yield increase between 7% and 11% based on current booking trends, reflecting positive demand forces at work despite fluctuating market conditions.
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Good morning. My name is Paul, and I will be your conference operator today. At this time, I would like to welcome everyone to Viking's Third Quarter 2024 Earnings Conference Call. As a reminder, this call is being recorded. [Operator Instructions] Thank you.
I would now like to turn the program to your host for today's conference, Vice President of Investor Relations, Carola Mengolini.
Good morning, everyone, and welcome to Viking's Third Quarter 2024 Earnings Conference Call. I am joined by Tor Hagen, Chairman and Chief Executive Officer; and Leah Talactac, Chief Financial Officer. Also available during the Q&A session is Linh Banh, Executive Vice President of Finance.
Before we get started, please note our cautionary statement regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release as well as in our filings with the SEC.
The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We may also refer to certain non-IFRS financial metrics, which are reconciled and described in our press release posted on our Investor Relations website at ir.viking.com.
Tor and Leah will provide a strategic overview of the company, a recap of our third quarter results and an update of the current booking environment. We will then open the call for your questions. To supplement today's call, we have prepared an earnings presentation that will also be available on our Investor Relations website following this call.
With that, I'm pleased to turn the call over to Tor.
Thank you, Carola, and good morning, everyone. I will start today's call highlighting a few performance indicators for the quarter, which has been remarkably strong.
As you can see on Slide 3, we reported a great third quarter results with our consolidated net yield up 11% from the prior year. Additionally, we continue to experience strong demand for our Core Products with 95% of our 2024 capacity and 70% of our 2025 capacity sold as of November 3, 2024. I believe that this booking position reflects how well our products resonate with our target consumer.
To this end, today, I want to take the opportunity to talk a little bit more about our ability to generate demand, which is fueled by our top-rated and well-defined product, effective cross-selling practices, strong brand recognition and the singular sales and marketing approach.
Now if we look at the next slide, I want to start by highlighting the scale and reach of our operations. We sailed across 5 oceans, 21 rivers and the 5 great lakes, offering our guests unforgettable experiences in over 85 countries and across all 7 continents. What sets us apart is that we achieved this global presence under a single brand, Viking, [indiscernible] excellence in all 3 categories of the cruise industry: Ocean, River and Expedition. Each of our products consistently reflects the high standards of the One Viking brand. This allows our marketing efforts and strong brand loyalty to drive growth across all our offerings. And while I mentioned that our top-rated product continues to fuel demand, it is immensely gratifying to see this excellence consistently being recognized.
If you follow me on the next slide, you will see that for the second year in a row, Viking was rated #1 for oceans, #1 for rivers and #1 for expeditions by Conde Nast Traveler in their 2024 Readers' Choice Awards. This achievement marks the first time that a travel company has won these 3 categories in back-to-back years. These awards are particularly meaningful because they are voted by our guests, which means that they reflect our team's hard work, passion and dedication to excellence. These levels of guest satisfaction are gratifying for many reasons, but one of them is that they increase brand loyalty.
If we move to Slide 6, you can see that our repeat guest percentage has steadily increased over time from 27% for the 2015 season to 53% for the '24 season to date. Moreover, in the graphs at the bottom of the slide, you can see that we leverage this strong brand loyalty for future product launches. Over 60% of our bookings for each of the inaugural seasons for Viking Ocean, Viking Expedition and Viking Mississippi were made by past guests. These trends show that our guests trust Viking to deliver the best-in-class travel experiences, whether it be new [ itineraries ] for [indiscernible] they love or completely new offerings. In summary, One of the benefits of our single brand is our ability to effectively cross-sell across our product offering to our loyal customer base.
Moving to Slide 7. For the past 27 years, we have built a single brand that is highly recognized by our target markets around the world. Today, we are the leading brand in North America outbound river market and in the luxury ocean market. As of the third quarter of 2024, we had 92% of total U.S. brand awareness for river cruises and 80% for luxury ocean cruises. With a single brand, our strong brand awareness drives growth for all our products. Our brand message is clear and we can streamline and leverage our sales and marketing efforts.
Now as I mentioned earlier, Viking operates globally. This past quarter, I traveled to Egypt and China, and I would like to share some updates on these unique regions. First, let's focus on Egypt on Slide 8. Just a couple of weeks ago, I was in Luxor for the naming of our 2 newest vessels for the Nile River, the Viking Hathor and the Viking Sobek. These beautiful ships can accommodate 82 guests each, and I believe that they offer the most elegant way to navigate the Nile. This addition brings our Egypt count to 6 ships, and we have 4 more under construction to be delivered by 2026.
Although Egypt represents a small portion of our total capacity in the low single digits for 2025, it is a destination of great interest for our guests. For example, our 12 Night Pharaohs and Pyramids itinerary offers our guests a fascinating and culturally rich experience that garners demand and strong yields. We are frankly very pleased to be able to offer this highly distinctive product.
This quarter, I also traveled to Shanghai. If you now flip to the next slide, you will see that as it pertains to China and the Asian market in general, we have adopted a unique approach rooted in a couple of core principles which include destination-focused experiences and single language environment on board. So let's begin by addressing our ocean cruises in Asia for English-speaking guests. In September, we celebrated our return to China with Viking Yi Dun, offering exclusive tenders and access to rarely visited destinations. China is a fascinating country, and our guests can now explore its coastline with the same level of comfort that have been provided on our ocean offerings. This marks the start of an exciting journey for us, and we plan to expand this program in 2025 with new itineraries that include Japan.
In addition, we are expanding our ocean cruises to better serve our Asian guests. We believe that the Asian market has been historically underserved by the cruise industry. To this end, we will provide culturally rich experiences on a product tailored specifically to our Asian guests' preferences and language.
And lastly, since 2016, we have offered river cruises in Europe for Chinese guests. These itineraries feature curated excursions [indiscernible] adapted to their taste and the fully Mandarin-speaking crew. Currently, we operate 4 dedicated vessels for these experiences. While the products I've highlighted represent only a very small portion of our overall portfolio. They are very appealing to our target demographics and play an important role in our long-term growth strategy.
Now shifting gears and turning to Slide 10. During this quarter, we completed a secondary offering of 34.5 million shares on behalf of TPG Capital and CPP Investments at a price of $31 per share. As you can see on this slide, this event slightly changed the ownership composition, increasing the institutional flows. We appreciate all who participated in the offering and the continued interest and support in our company. We have much to be proud of in this quarter, and we look forward to our continued success and growth.
With that, I will turn to Leah to discuss our financials.
Thank you, Tor, and good morning to everyone. We are pleased to have reported a very strong third quarter. On a consolidated basis, total revenue in the quarter increased 11.4% year-over-year to almost $1.7 billion, mainly due to higher revenue per PCDs. Adjusted gross margin increased 12% year-over-year to $1.1 billion, resulting in a net yield of $576, 11% higher than the third quarter of 2023. We believe this to be quite remarkable because, as I have mentioned before, 2023 was already a very good year for us.
Vessel expenses excluding fuel per capacity PCDs increased 2.5% this quarter compared to the same time last year but remained almost flat on a year-to-date basis. This quarter's year-over-year increase was mainly due to repair and maintenance costs. These expenses can vary between quarters depending on the fleet needs and other factors.
Adjusted EBITDA for the third quarter totaled $554 million, improving more than $73 million when compared to the same time last year. This significant year-over-year increase was driven by higher revenues per PCDs in both the river and ocean segments. The adjusted EBITDA margin was 50.4% for the third quarter and 37.6% for the last trailing 12 months.
Net income for the third quarter of 2024 was $375 million compared to a loss of $1.2 billion for the same period in 2023. The net income for the third quarter of 2024 includes a loss of almost $19 million from the revaluation of warrants issued by the company due to stock price appreciation. In comparison, the third quarter of 2023 includes a loss of $1.5 billion from the impact of the Series C preference shares and an additional $73 million loss due to the revaluation of warrants. Excluding the warrants loss, adjusted net income attributable to Viking Holdings Ltd for the third quarter of 2024 was $394 million.
Adjusted net income attributable to Viking Holdings Ltd represents net income or loss excluding certain items that we believe are not part of our primary operating business and do not reflect future earnings performance. This metric served as a numerator for calculating our adjusted EPS, which we introduced this quarter. Adjusted EPS was $0.89.
Before moving to our reportable segments, I would like to highlight that year-to-date, our adjusted gross margin increased 12.3% year-over-year to $2.6 billion and our net yield was $556, 7.5% higher than the same period last year.
Now I will briefly discuss our 2 reportable segments, River and Ocean. Unless noted, I will be referring to year-to-date metrics or 9 months ended September 30, 2024. For the River segment, our capacity PCDs are relatively flat year-over-year. Although during the third quarter, we took delivery of the Viking Hathor, a beautiful vessel that started sailing the Nile by the end of August. Adjusted gross margin grew 12.1% year-to-date to $1.2 billion and net yield was $546 up more than 13% year-over-year driven by strong demand for our European itineraries. Occupancy was 95.3% for the 9-month period.
For Ocean, capacity PCDs increased 7.2% year-over-year, mainly due to the delivery of the Viking Saturn in April of 2023 and the addition of the Viking [indiscernible] in September of 2024. Occupancy for the period was 95%. Adjusted gross margin increased 11.7% year-over-year to $1.2 billion. And net yield was $533, up 4% compared to the previous year.
Now let's move to the balance sheet. As of September 30, 2024, we had total cash and cash equivalents of $2.4 billion and an undrawn revolver facility of $375 million. Our net debt was $3 billion. And to this end, our net leverage improved from 3.0x as of June 30, 2024, to 2.4x as of September 30, 2024. As of September 30, deferred revenue was $4 billion.
Also on Slide 14, you can see our current bond maturity outlook, which has not changed since we last reported, with 1 bond maturity due in May 2025 and all other maturities in 2027 and beyond.
With this, I'd like to confirm our debt amortization for 2024 and 2025. As of September 30, 2024, the scheduled principal payments for the remainder of 2024 are $53 million and $462 million for the full year 2025. From a committed capital expenditure perspective and for the full year 2024, the total expected committed ship CapEx is about $850 million or $440 million net of financing. And for the full year 2025, the total expected committed ship CapEx is about $770 million or $150 million net of financing. The main drivers of the quarterly increases in total committed ship CapEx for both 2024 and 2025 are related to changes in the Ocean fleet.
With that, I'll turn it back to Tor to review our business outlook, including our booking curves.
Thanks, Leah. Let's now dive into the booking curves, which are all as of November 3, 2024.
On Slide 16, we show our consolidated metrics for our core products. As you can see, 95% of our 2024 capacity PCDs is already booked and we have sold $4.6 billion of advance bookings. This is 14% higher than the 2023 season at the same point in time. These metrics are very similar to what we shared last quarter with the 2024 capacity mostly sold out. I will note, as we approach the end of the calendar year, we might experience a few cancellations which is normal. While we typically resell these rooms, the last minute prices may be lower than the original rates, causing the full year advance bookings to slightly change.
Now moving to 2025. The figures look very encouraging. Our capacity is increasing by 12%, and we are already 70% booked with $4.3 billion of advance bookings. These are 26% higher than the 2024 season at the same point of time in 2023. This metric is higher than what we shared last quarter, mainly due to strong demand, but also due to a slightly easier comparable. Last year, we saw some volume slowdown in October due to the conflict in the Middle East. Aside from this, reality is that we are achieving very strong bookings for 2025, and we are very pleased with it.
On the next slide, you will see our curves for the Ocean cruises. This is Slide 17. I will start with the green line which shows the bookings for 2024. Overall, we have sold $1.9 billion of advance bookings, which is 15% higher than last year at the same point in time. Notably, our operating capacity is up 6% year-over-year, and we have already sold 94% of the capacity. I will also note that we are very pleased with the 2024 rates, which was $661 compared to $614 last year.
If we now look at the blue line, you will see booking trends for the 2025 season. We have sold about $2 billion in advance bookings, which is 30% higher than last year at this point in time. Our operating capacity is up 18% year-over-year and 74% of the 2025 capacity is already sold. Regarding the rates, they equaled $753 compared to $680 for the 2024 season at the same point in time.
Now if we move to Slide 18, you will see curves for the River cruises. I will start with advance bookings for 2024, which is the green line. As you can see, we have sold more than $2.3 billion in advance bookings, which is 14% higher than last year. Our operating capacity for River is up 4% year-over-year. So we're having a great year with 96% of the 2024 capacity already sold and with rates that are equal to $759 compared to $689 in 2023. Like Ocean, we have very little to sell for 2024 and our teams are now focused on 2025 and beyond.
Now looking at the blue line, these are the advanced bookings for the 2025 season. As you can see, we have sold about $2 billion in advance bookings, which is 22% higher than the 2024 season at the same point in time. Our operating capacity for the River is up 7% year-over-year and 67% is already sold. In summary, these are very good trends for 2025 with rates equal to $856 compared to $819 in 2024.
Overall, we are very pleased with all these metrics which are advancing in line and, in some cases, even exceeding some of our expectations. Now Leah will add some color to our order book and capacity.
Thank you, Tor. Moving to our order book and capacity updates. During the month of October, we took delivery of the Viking Sobek. As Tor just mentioned, this is an 82-guest vessel that is sailing on the Nile River in Egypt. In October, we also exercised our options for Ocean ships XIX and XX, which are both scheduled for delivery in 2030. These ships are similar in size, accommodating about 998 guests each. And lastly, we entered into an option agreement for 4 additional Ocean ships that, if exercised, will be delivered in 2031 and 2032, 2 each year. These cruise ships will be built by the Fincantieri shipyard, which has delivered the entire Viking Ocean fleet.
As you can see, there is a lot going on at Viking, and we are thrilled to share news on further growth. As we continue to deliver strong financial results, we remain equally committed to providing unforgettable experiences for our guests. This balance is key to our long-term success and sustainable growth.
With this, I conclude our prepared remarks. I'll now turn it back to the operator to take questions.
[Operator Instructions] And the first question today is coming from Matthew Boss from JPMorgan.
Great. And congrats on another nice quarter. So Tor, maybe to kick off, any notable changes in forward demand indicators or the consumer backdrop today? And if you could just elaborate on the shift that you cited in focus for 2025 to capitalizing on your well-defined product.
I think we don't see any surprises. I think we have had solid long-term plan. And so far, we're coming in according to our plans is really what I can say. And the second part of your -- I'm not sure I got that [indiscernible]. So please repeat.
So for 2025, in the release, you talked about capitalizing on your well-defined product and shifting your focus to that. So maybe just as we think about the '25 booking curves, how you're thinking about things.
Well, I think the way we started Viking, we said we think there's an unserved market for elderly people who have lots of experiences and would like to be on nice ships. And I think that's what we continue to deliver on. As you know, many of our guests have been on other cruise ships and found that nice. But as we have a few key points in our product offering, we are proud we don't allow children onboard, and I think that's a very strong point. We don't have a casino, so we don't have the noise that goes with that. And we don't like the nickel and dime people.
I think those are very strong points when it comes to even experienced cruisers who can be on great ships, which produce lots of profits and lots of noise. But when they come in a Viking ship, they can really relax. And I think that's a product that we are working on. We also -- for new generation ships, we are looking at hydrogen fuel cells and so forth so it can be as environmentally friendly as we can. And that will happen 2 ships from now.
Great. And then maybe, Leah, if you could just elaborate on the composition of 2025 pricing, maybe specifically how trends are relative to your plan. Or how best to think about River up mid-single digits on high single-digit capacity versus Ocean up low double digits on high teens capacity.
Yes. I think we've said it before. As the booking curve evolves, we do -- we have been able to achieve mid- to high single digits. I think from a full year basis, that remains our expectation, is that as the year continues to sell, that would be where we would kind of expect things to land.
The next question is coming from Steve Wieczynski from Stifel.
Congrats on a very solid quarter. So as we look at your booking curves into '25 and with you guys now being almost 70% sold for next year. Just trying to understand how you view your -- what we would call kind of your optimal booked position. And I guess what I'm trying to understand is maybe how that 70% booked position would look more on a historical basis. And are you guys getting to the point where you're maybe booking too much too far in advance? And I hope that makes sense.
Yes. That makes sense, Steve. And I think that was what we had started to introduce in the last quarter -- in last quarter's call, is that given that this year was an election year and there is some short-term volatility as it relates to that, we had started to kind of accelerate the booking curve. But having said that, it is quite accelerated. We are more accelerated this year than what we had been prior to COVID. And I think you will start to see some normalization of that moving forward.
So asking a little bit differently, if we're sitting here a year from now, I would assume 70% -- you probably wouldn't be 70% booked for '26. Is that fair to think about it that way?
It's a balance -- yes, it's a balance between what yield you would like to achieve and also how further out you want to be booked as well. So for -- looking forward a year from now, we could be a little bit less sold. But again, that really depends on how we see things playing out. And those are one of the leverages that we have in terms of -- that's the benefit of our strong bookings, right? Because you can start to see where -- how demand is shaping, and then we also -- since we are a marketing company as well, we are able to throttle up or throttle down demand based on how we market.
Okay. Got you. And then second question, if I could. And I'm not sure you're going to answer this. But obviously, for '25, you're very well booked out at this point. If we started to think more about 2026, I guess I'm trying to understand is have you basically got your customer base to essentially now book further out to capture the best itineraries, cabins, whatever you want to think about it?
So I guess what I'm trying to understand is, if we think about where you're booked today for 2026, is it stronger than where you would have been booked historically at this point in time?
So our focus remains on finishing 2024 strongly and also making sure that 2025 is in good shape. Having said that, our guests do -- they're older, they do like to plan. They do know that we sell out. And so there are going to be certain segments of them that are more keen to book early to make sure that they either have the itinerary they want, the cabin that they want. And also, our pricing reflects that we like to make sure that the people who book early also are -- have the best deal. So it's a combination of many factors. But again, our focus isn't closing out 2024 strongly and then also making sure that '25 is in good shape.
The next question will be from Robin Farley from UBS.
Just looking at your booked revenue per cruise day for next year. And a quarter ago, that had been at a 10% growth rate. Now it's at a 7% growth rate. And I think you guys have been very clear that, that 10% growth rate would move down. I'm curious, now that we're at this point in where the year is booked at that 70% rate, should that 7% growth rate move up? Or should we still expect it to potentially move down slightly from that plus 7%? Or since you are booked further in advance than you typically are, is there a chance that 7% moves up? How should we think about that number?
Robin, I mean, I think at the end of the day, our goal, as Leah just mentioned, is to continue to grow capacity, which you can see our order book and also, from a yield perspective, grow in the mid- to high single digits. And we can see that for '24 and '25, we've been able to achieve that thus far. So that remains our goal. Obviously, as you know, we don't give guidance. But where we stand today with 70% booked for 2025 at rates that are 7% higher with a 12% capacity increase, we feel pretty good about that.
Okay. And then maybe I'd ask with Egypt which, given how far you book in advance, that a lot of this year maybe would have been booked already before October of last year and so maybe actually the year ahead becomes a tougher year in terms of comparisons there in terms of what ends up being on the books for '25. Is there anything that you would quantify since your Nile river ships are probably at lower than what would be a normal occupancy rate? Is there anything you'd quantify to sort of say, the impact of Egypt on 2025 could be x percent in yield, the typical definition including occupancy?
That is actually a great question. Egypt, we feel very good about that product. It's a great experience. It's actually one of our highest rated NPS scores. That being said, as a percentage of capacity, Egypt is a couple of percentage points. So although it is a great itinerary with great yields, some small movements there won't move the needle that much. But that being said, your point is very well taken. We do agree. Egypt generally sells out very quickly.
And if I may add, when we were there about a month ago, and I mean, the ships we have in Egypt are by far the best on the river. So we are continuing to build. And I think everybody is very impressed with the product, and we will continue to build. There are very good economics. So it's small, but very interesting.
The next question will be from Andrew Didora from Bank of America.
Tor, I think you mentioned in your prepared remarks that you've seen a little bit of a slowdown due to the conflict in the Middle East. Can we dig into that a little bit more? Is this -- do you see this mostly in Egypt? Is this what drove some of the '24 cancellations? Or were you seeing it in 2025 bookings? Just curious if you've seen any sort of recovery to trend or if you're still seeing weakness there.
Seen the booking curve for the [indiscernible], you see it's a slowdown around this time a year ago. But I don't think it has been -- it has recovered quite well since then, I would say. So it's a concern, but I would say that people who travel there are not worried about security or anything like that. We feel very safe. In Egypt there, and I think we're all set. So I think this will be a good product for the long term.
Okay. Got it. And then I guess we've seen and heard some pretty positive commentary from airlines just about the health of the transatlantic business. How many customers book their airfare with you? And should we expect any potential cost pressure from this as we think about the bridge going from gross revenues to net revenues for you in 2025?
As you can imagine, I mean, I think given our demographic, a good amount of our guests do book air through us. I think the ability to have a package travel itinerary with one place, it speaks to our core consumer base. That being said, I mean, I think you can see that in our yields. Our yields will, of course, reflect the cost. I know our curves only show revenue. But as you look through our financials -- and you can see that for Q3, our yields are up for the third quarter by 11%. So the team is managing through this. And from our perspective, we're managing through this well, which is reflected in the yields.
The next question will be from Patrick Scholes from Truist Securities.
I want to ask a very similar question to what I asked last quarter. And this is related to what I would call a high-class enviable problem, that being you're quickly improving and arguably soon to be underlevered balance sheet. Tor, do you have any further thoughts or updates on the eventual perhaps return of capital from that balance sheet?
So I think -- go ahead, Leah.
Yes. So this was directed at Tor, but I -- this is a question that comes up fairly often for us. And overall, we're committed to a balanced capital allocation framework. As you know and as we've said before, maintaining a large cash reserve on the balance sheet acts as a buffer, particularly against unpredictability in today's economic environment. So a big cash reserve provides a strong financial safety net that ensures that we have stability and flexibility. One of our top priorities is to reinvest the cash in the business so that we can generate strong returns.
So also a strong cash balance, make sure that we are ready for an acquisition if the right opportunity presents itself. And as we've said before, our guiding principles when it comes to investing in the business or any future acquisitions is that it's scalable , it is margin accretive and then it's also complementary to the brand and it's within the brand ethos. So we believe that this strategy reflects our long-term perspective. we are not currently contemplating a dividend or share buybacks, but there could be an option in the future to return capital to shareholders.
Okay. Can I ask a follow-up question?
Sure.
From hearing your response, is it fair to assume that over the long term, you would like to take a more conservative stance? And this is kind of what I heard from your answer than your public competitors. When I think about public competitors sort of targeting during normal times, steady-state time sort of 2 to 3.5x net debt to EBITDA. But certainly, this has been an industry that has seen periods of extreme volatility. Is it fair to assume that you would like to take a more conservative stance than sort of those historical ranges from your peers? And not to put words in your mouth, but just curious.
I think what we have not really -- we haven't provided any targets for ourselves as we are in a period of growth. As we take advantage of opportunities, our leverage could go up and down. And I think our focus is really to make sure that the cash is reinvested within the business to generate shareholder returns.
The next question is coming from Conor Cunningham from Melius Research.
Maybe just following up on that question specifically. So you exercised some options for ocean cruises. Just is the opportunity still much better at Ocean and River than it is outside of your core business? Just trying to understand, we talked a lot about, during the IPO process, of beyond the Viking core. Just curious on where things stand in terms of evaluating opportunities outside of cruising in general.
Sure. So our primary focus is taking delivery of our ships on order between now and 2030. You can see that we have a pretty attractive growth profile when you look at our committed ship. But given the growing addressable market and demand for cruising more broadly, we do see significant white space to continue sourcing and increasing penetration from our primary markets. That's the English-speaking North American as well as the U.K. and Australia and New Zealand. As we know, cruise penetration in the U.S. is only 4%.
Having said that, Tor did speak about what we are expanding upon in China. So we are back in China with English-speaking guests. And in addition to that, we also see opportunity to expand our appeal to other Asian markets. So those are our current priorities. But we do know that we have a strong brand, and that brand is a trusted brand that our past guests would be quite happy to support any meaningful new products that we enter into the market and as well as we are able to attract new to brand quite well as well.
Okay. That's helpful. And then maybe a bit of a hypothetical. I think you have 6 vessels in Russia and 1 in Ukraine that obviously have been impacted by the conflict there. Can you just talk about if that war were to end, how quickly you could bring that back online, what you would think that would look like? And maybe any contribution that, that market had pre the conflict in general?
I think with this one, Tor would say one of his favorite cruises of all times is in Russia. So it is unfortunate that we aren't able to operate there. That being said, we have 5 ships that operate in Russia plus 1 that operated in Ukraine. I think if we were to be able to operate again, which is our hope, I think we would be able to put those ships back into operation relatively quickly. That being said, these are not longships. These are ships that we have refurbished over the years. I think they were built from many decades ago. They do contribute to EBITDA pre the conflict, of course, but it is not at the same margins as our longship. That being said, there's definitely upside there if we're able to operate in that area again.
The next question will be from Dan Politzer from Wells Fargo.
First, I wanted to touch on Ocean. Specifically for 2025, you're sitting at 74% booked. Your gross pricing is tracking up around 11%. Now this pretty much similar to where your pricing was tracking when you were 33% booked 8 months ago. So I'm just trying to better understand this strength in pricing relative to 2024. What exactly is driving that? Is it mix or specific itineraries you'd highlight? Or alternatively, is there just been implicit expectation that this does end up mean reverting kind of back the 2024 levels?
So for oceans, I think one of the things that we have to keep in mind, and we discussed this last quarter is for 2024, given where we were with deployment. We had 1 world cruise. It sold out really quickly. So we did decide to add a second world cruise. That did impact our '24 yields, which is what we see thus far. And you can see that in the curves. For 2025, though, we have -- we looked at deployment again, and we decided to do 1 world cruise. So some of that difference in yield increases or price increases is related to how we set our deployment at the end of the day. Obviously, we are quite happy with where we are for oceans, being that far sold for 2025, 74% sold at pricing up 11%. So we're in a good spot.
Got it. And I wanted to ask the capital allocation question maybe a bit differently. Obviously, there was a secondary offering in September. I recognize you want to have some dry powder. But as it relates to the sponsors, they still own about 40% of the stock. When you think about that coming to market at some point, do you maybe think about returning capital to shareholders within that same vein relative to the secondary offering or sponsorship versus open market purchases? Or do you view those two things separately?
I think we are at a place where are -- we do feel that there are opportunities for both organic and inorganic growth. So at this time, there are no contemplated share buybacks in either option. And I think that we do have an attractive growth profile. We do have pretty strong growth plans, and we remain committed to deploying our cash to make sure that there is return to the business.
[Operator Instructions] The next question is coming from Stephen Grambling from Morgan Stanley.
I want to clarify some of your comments on the -- I think, it's gross margin earlier. If we think about the commissions line specifically, is that something that we should be anticipating that you'll see some leverage on or helping to drive overall gross margin expansion? Is there other mix shifts that we should be thinking through as we look longer term?
Yes. So the line item in our financials is commissions and transportation. So it's both commissions plus, for the most part, air cost. I think as we grow our business, our focus is yield. As we've discussed in the past, we are all inclusive. Our pricing is meant to to be one number that our guests are aware of when they book the cruise with us. We don't believe a nickel and diming, et cetera. Of course, we do have ancillary revenue, which we've been able to improve upon over the years.
From what we've seen thus far, our guests do you want to add -- pre and post, they do want to add optional shore excursions. And that, of course, helps with yields as well. So some of our margin expansion will definitely come from those areas. But I think purely from looking at one line item, that's difficult to see. The other areas that we can see margin expansion, of course, is in SG&A. So as we continue to grow the business, that is one area that we can see that we can leverage our marketing as we continue to grow capacity.
Fair enough. And maybe one other quick follow-up. Just you mentioned having cash available potentially for M&A, and you gave your strategic framework there a little bit. But are there any business models tangentially that you would outright shy away from for any reason, whether it's volatility or other frameworks that you have in place?
I don't know, Tor, if you have any perspective on that. I think that we feel that it's back to like what can the brand support and what's complementary to the brand. Because at the end of the day, whatever we may acquire or whatever we may expand our products to has to be within the brand framework. But Tor, I don't know if you have any particular...
I think that's -- of course, one may look at a thing or two. But we are so sure that the one brand that we have is one of the reasons for our success. So it will take a lot of effort to go outside that. And I'd also say able to have -- we're not that [indiscernible] management. We're well enough for what we're doing. But at the moment, you start to diversify, you tend to [ catch ] your energies. So we should be very careful about that. At some time, we will do it, but I think we'll be very careful.
And the next question will be from Meredith Jensen from HSBC.
I was hoping you might speak a little bit more. You touched on the excursion opportunity, and just discuss a little bit the purchasing trends that you're seeing versus the past and sort of how it's varying by product and geography. And maybe as a second part, if you could talk to the partners on the ground you work with and how that may evolve over time to help support growth of the excursion business.
Sure. So I think from an optional shore excursion perspective, we've been able to grow there. Our guests definitely, if they've been to Venice before, they've done the walking tour. They've seen the city. They may want to augment their experience and do something different. We see that in many cities across the world. And the trend has continued to stand. And another area where we see potential is pre and post land excursions. So this is adding a pre or post before or after your cruise, so 2 or 3 nights in Paris, for example, or in Prague. And so we do see our guests offer those excursions as well with us.
So the trends continue to hold. And I think as we look forward, our operations team combined with our marketing team is looking at ways to provide even a better experience. So how else we can package our cruises, offer pres and posts, offer optional shore excursion that will augment the experience. Because from our quality scores, we do see that guests that purchase those items with us do generally rate slightly higher, and we're already rated quite high.
Great, Linh. One quick addition. I know in the past, the Ocean cruise total ticket price would be higher given it's, on average, more days than River. And I know you don't vary itinerary all that dramatically. Maybe excluding the world cruise, is that sort of the same pattern of 11 days for [ cruise ] and 8 days for river? Or is there some variation we might look to?
That's pretty consistent. I think as we look forward, Ocean cruises is about 10 to 11 nights on average, and for rivers, it's 7 to 8. So that stayed pretty consistent.
There were no other questions at this time. I would now like to hand the call back to Tor Hagen, Chairman and CEO at Viking Cruises for closing remarks.
Well, I want to thank everyone for joining in, in today's call. Of course, we have been quite pleased with the results and I hope you will [ share ] in them. And we're also pleased with the outlook. So it's -- I appreciate all the attendance here, and we look forward to many good calls like this. I thank you for your support and the interest in Viking. I wish you a great day. Thank you.
Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.