Earnings Call: Q3 2021

Sep 24, 2021

Good morning, everyone, and welcome to our business update conference call. I'm Arnold Donald, President and CEO of Carnival Corporation and Plc. Today, I'm joined telephonically by our Chairman, Mickey Arison as well as David Bernstein, our Chief Financial Officer and Roberts, Senior Vice President, Investor Relations. Thank you all for joining us this morning. Now before I begin, please note that Some of our remarks on this call will be forward looking. Therefore, I must refer you to the cautionary statement in today's press Strelief. We are absolutely thrilled to be back doing what we do best, delivering amazing memorable vacation experiences to our guests. Our team members are overjoyed to be back on board and it shows. Our guests are having Small Time. Our onboard revenues per guest are off the charts, and our net promoter scores have been exceptionally Strong. I've had the pleasure of visiting a number of ships in recent weeks, both here in the U. S. And abroad. And I can tell you, The ship looks spectacular and the crew has an amazing energy. There is such an incredible spirit on board. Our protocols have been working well, beginning with a seamless embarkation experience and have enabled us to build occupancy levels at a significant pace as we return more ships service. Our brands executed extremely well in this initial phase of our return to service, particularly given significant restrictions on international travel, hampering our ability to offer our normal content rich deployment options as well as the operating requirements Stictions that limit our normally high occupancy levels. Our itinerary planners came up with creative deployment alternatives. Our marketing department made them accessible with little investment. Our yield managers priced them appropriately to achieve occupancy targets very close in and coupled them with bundled packages to drive exceptionally strong revenue onboard. And despite all the additional protocols, our crew delivered an amazing guest experience. The combination of which enabled us to deliver cruise vacations at scale while producing significant cash from these restricted voyages. Now while we normally don't disclose this level of information, we try to find a way to give you a sense of why we're viewing the restart as hugely successful beyond the enthusiasm of our guests and crew and the unprecedented net promoter scores. It became complicated because most of our voyages, while cash flow positive, are programs that could not be compared to 2019, and in most cases, will normally be priced lower than the 2019 alternatives. So for example, in the We're only able to offer scenic cruises without any ports of call, and that's our version of staycation, which were not comparable in ticket prices to peak season Mediterranean or Baltic sailing offered in the summer of 2019. That said, Even with occupancy limitations, these cruises generated cash for our stakeholders. They supported a return for our workforce L. S. And they successfully served guests, resulting in high satisfaction levels. Now at Carnival Cruise Line, And where we were able to offer more comparable itineraries to 2019, our revenue per diems were up 20% compared to 2019, and that's inclusive of the impact of incentives from previous cancellations, and that's despite the close in nature of the book. In fact, Carnival Cruise Lines restarted more shifts out of the United States than any other cruise Brand, and still achieved occupancy above 70%, all of which combined to generate an even greater cash contribution. Clearly, Carnival Cruise Line is a brand that continues to outperform. While the Delta variant and its corresponding effect Sumit Confidence has certainly created a myriad of operating challenges for us to navigate the near term and has led to some booking volatility in August. To date, it has not had a significant impact on our ultimate plan to return our full fleet to guest operations in Spring of 2022. On our last quarterly business update, we said that we expected the environment to remain dynamic and it certainly have. Of course, agility has been a key strength of ours over the last 18 and we continue to aggressively manage to optimize given this ever changing landscape. In fact, while by design, We're not yet at 100 percent occupancy. We have individual sailings with over 4,000 guests. To date, we have carried over 500,000 guests this year already. And on any given day, we are now successfully carrying around 50,000 guests and expect that number to continue to rise as we introduce more capacity and as we increase occupancy over the coming months. The delta variant has clearly impacted our protocols, which will continue to evolve based on the local environment. In markets like the U. S. Where case counts are higher. We've taken swift actions to reinforce our already strong protocol, such as additional testing Firements and indoor mask requirements with all U. S. Sailings operating under the CDC's vaccination requirements. Our protocols go above and beyond the terms of conditional sale order and are much more rigorous than comparable land based Alternatives. Again, our highest responsibility and therefore our top priority is always Compliance, Environmental Protection and the health, safety and well-being of everyone, our guests, the people and the communities we touch Serve and of course, our Carnival family, our team members, Shipboard and Shoreside. The Delta variant has also created some disruption in our supply chain, impacted the timing of opening for some destinations and created a heightened level of CME that has been reflected in the broader travel sector and in our own booking trends. We quickly adjusted our deployment to push out the start date on a few select voyages. With some of our more exotic winter deployments like our popular world cruises, we rebooked guests Star 2023 departures. Effectively, we've managed our near term capacity to optimize the current environment, just as we indicated we would. The modifications we've made to the pace of the role of our fleet will optimize our cash position in the near term. Looking forward, we continue to work towards resuming full operations in the spring in time for our important summer season where we make the lion's share of our operating profit. Of course, we have ample liquidity to us through to full operation. And we continue with a prudent focus on cash management to ensure we have flexibility under a multitude of scenarios. The current environment, while choppy, has improved dramatically since last Summer, and it should improve even further by next summer if the current trend of vaccine rollout and advancements in therapies continues. For instance, Just like the U. K, where vaccination rates are already higher, consumer confidence remains strong and we are seeing strong momentum. So far, We've announced the resumption of guest cruise operations for 70 1 ships through next spring, and that's across 8 of our 9 brands. We're evaluating the remaining shifts through next spring with a continued focus on maximizing future cash flow, while delivering a great guest experience in a way that serves the best interest of public health. Importantly, even at this very early stage of our rollout, our shifts are generating positive cash flow. Based on our current rollout, we expect cash from operations for the whole company to turn positive at some point early next year. Looking forward, we believe we have the potential to generate higher EBITDA in 2023 compared to 2019 given despite our modest growth rate, additional capacity in our improved cost structure. As further insight into booking trends, we are well positioned to build on a solid book position and intentionally constrain capacity for the remainder of twenty twenty one and into the first half of twenty twenty two. With the existing demand and limited capacity, we are focused on maintaining price. Even recently, with heightened uncertainty from the Delta Centimeters affecting travel decisions broadly. We continue to maintain price. We have also opened bookings earlier for cruises in 2023, and we're achieving those early bookings with strong demand and good prices. And based on that success, we've begun to launch 2024 sailings even earlier. In fact, these efforts contributed to the $630,000,000 increase in guest deposits, Steel. Our long term guest deposits, and that's deposits on bookings beyond 12 months, are 3 times historical levels, driven in part by our proactive efforts to open more inventory for sale in outer years. Now we expect positive to continue to grow through the restart as we return more shifts to service and as we build occupancy levels. Again, these favorable trends continue despite dramatically reduced advertising expense. We continue to focus our efforts on lower cost channels, like direct marketing to our sizable past guest database of over 40,000,000 guests and earned media as we build on our multiple new ship launches and restart news flow. Of course and most importantly, We are delivering on our guest experience. Word-of-mouth remains the number one reason people take their first cruise. And as I mentioned, Our net promoter scores are well above historical levels across our ships that have returned to service so far. During the quarter, We furthered our strong track record of responsibly managing the balance sheet. We completed 2 refinancing transactions among other Spirits, resulting in a meaningful reduction in annual interest expense. We have many more opportunities for refinancing ahead and are working through them at an Cipay. Also importantly, we have continued to make advancements in our sustainability efforts. Last week, we published our 11th annual report, Sustainable from Ship to Shore, which can be found on our sustainability website, www.carnivals plsustainability.com. In the report, we build on the achievement of our 2020 goals by sharing more details on our for 2,030 goals and our 2,050 aspirations. The report shares additional light on the 6 focus areas that will guide our long term sustainability vision, including climate action, circular economy strength. Sustainable tourism, health and well-being, diversity, equity and inclusion and biodiversity and Conservation. Now these areas align with the United Nations' Sustainable Development Goals. Climate action is a top sustainability focus area. We are committed to decarbonization, and we aspire to be carbon neutral by 2,050. As we have previously shared, despite 25% capacity growth since that time. Our absolute carbon emissions peaked in 2011 and will remain below those levels. We are working toward transitioning our energy needs to alternative fuels and investing in new low carbon technology. Now because of the pause in guest cruise operations, the 2020 sustainability performance measures are not comparable to prior year data. That said, there is a lot of valuable information on the progress we've made in our sustainability journey despite what was an incredibly Challenger. We were clearly among the most impacted companies by COVID-nineteen, and I'm very proud of all we've accomplished collectively to sustain our organization through these challenging times, including all we did for our loyal guests, all we did for our other many stakeholders and all we did for each other within our Carnival family. In many regards, I believe our collective response to the pandemic is strong testimony to the sustainability of our company. For that, I again express my deepest appreciation to our team members, both shipboard and shoreside, who consistently went above and beyond. I am very humbled by the dedication I've seen these past 18 months. Of course, we couldn't have done it without the overwhelming support from all of you who are listening on this call, all of our Stakeholders. So once again, thank you to our valued guests. Thank you to our travel agent partners. Thank you to all the many communities and governments that facilitated getting our crews vaccinated. Thank you to our suppliers and our other many Stakeholders. And of course, thank you to our investors for your continued confidence in us and for your ongoing Support. We continue to move forward in a very positive way. Throughout the pause, we've been proactively managing to resume operations as an even stronger operating company. Our strategic decision to accelerate the exit of 19 Ships, thus this was a more efficient and effective fleet and has lowered our capacity growth to roughly 2.5% compounded annually from 2019 through 2025 and that's down from 4.5% pre COVID. We've opportunistically rebalanced our portfolio through the ship access as well as the future ship transfer, any modification to our new build schedule to optimize our asset allocation, maximize cash generation and improve our return on invested capital. While capacity growth is constrained, We will benefit from an exciting roster of new ships spread across our brands, enabling us to capitalize on the pent up demand and drive even more enthusiasm and excitement around our restart plan. And we will achieve a structural benefit to unit cost in 2023 as we introduce these new larger and more efficient ships, coupled with the 19 ships leaving the fleet, which were among our least efficient. With the aggressive actions we've already taken, optimizing our portfolio and reducing capacity, we are well positioned to capitalize on pent up demand and to emerge a leaner, more efficient company, reinforcing our global industry leading position. We have secured sufficient liquidity to see us through to full operation. Once we return to full operation, Our cash flow will be the primary driver to return to investment grade credit over time, creating greater shareholder value. Again, Thank you for your support, and we can't wait to welcome everyone back on board. With that, I'll turn the call over to David. Ellison. Thank you, Arnold. I'll start today with a review of our guest cruise operations along with our 3rd quarter Then I'll provide an update on booking trends and finish up with some insights into our refinancing activity. Turning to guest cruise operations. It feels so great to be talking about operations Solutions. We started the quarter with just 5 ships in service. During the Q3, we successfully started ships across 8 of our brands. We ended the quarter with 35% of our capacity in service. Our plans call for another 27 ships to restart guest cruise operations during the Q4 the month of December. So on New Year's Day, we anticipate celebrating with 55 ships or nearly 65% of our fleet capacity back in service. For the Q3, occupancy was 54% across the ships and service. Our brands Securities. We executed extremely well. Occupancy did improve month to month through the quarter and in the month of August, C. Occupancy reached 59% from 39% in June 51% in July. Occupancy for our North American brands reflects our approach of vaccinated cruises, which for the time being does limit the number of families with children under 12 that can sail with us. Occupancy for our European brands reflects capacity restrictions, such as social distancing requirements for our Continental European brands and the 1,000 person cap per sailing for some of the quarter in the U. K. For the full Q3, our North American brands occupancy was 68%, while for our European brands, occupancy was 47%. Revenue per passenger cruise day for the Q3 2021 increased C. Many of the higher yielding destination rich itineraries offered in 2019. As Arnold indicated, Our guests are having a phenomenal time and our net promoter scores have been incredibly strong. As always, happy guests seem to translate into improved onboard revenue. Our onboard and other revenue per diems were up significantly in the third Q1 2021 versus the Q3 2019, in part due to the bundled packages as well as stadiums on both sides of the Atlantic. Increases in bar, casino, shops, spa and Internet led the way on board. Over the past 2 years, we have offered and our guests have chosen more and more bundle package options. In the end, we will see the benefit of these bundled packages in onboard and other revenue as we did During the Q3 2021, as a result of these bundled packages, the line between passenger ticket revenue categories. Therefore, the best way to judge our performance is by reference to our total cruise revenue metrics. As we previously guided, the ships in service during the Q3 were in fact cash flow positive. They generated nearly $90,000,000 of ship level cash contribution. This was achieved With only a 2 month U. S.-based restart during the Q3 as our North American brands began guest cruise operations in early July. We expect the ship level cash contribution to grow over time as more ships return to service and as we build on our occupancy percentages. For those of you who are modeling our future results. I did want to point out that due to the cost of a portion of our suite being in paused status during the first half of twenty twenty two, restart related expenses And the cost of maintaining enhanced health and safety protocols, we are projecting ship operating expenses in 2022 For available lower birthday or per ALBD as it is more commonly called, to be higher than 2019 despite the benefit we get from the 19 smaller less efficient ships leaving the fleet. Remember that because Portions of fleet will be in paused status during the first half, we are spreading costs over less ALBDs. We do anticipate that most of these costs and expenses will end with 2022 and will not reoccur in fiscal 2023. Now let's look at our monthly average cash burn rate. For the Q3 2021, our cash burn rate was $510,000,000 per month, which was better than our previous guidance and was in line with the $500,000,000 per month for the first half of 2021. The improvement versus our guidance was due to the timing of capital expenditures, With the timing of certain capital expenditures now shifting to the 4th quarter, the company expects its monthly Other good news positive factors impacting the 4th quarter are restart expenditures. C. And given the announced restarts, many of them are now occurring in the 4th quarter. Also, during the Q4, we are forecasting positive cash flow from the 50 ships that will have guest cruise operations during the quarter. And ALBDs for the 4th quarter are expected to be 10,300,000, which is approximately 40 7% of our total fleet capacity. Now turning to booking trends. Our booking volumes for the all future cruises during the Q3 2021 were higher than booking volumes during the Q1. That C. We ended higher booking levels than the 2nd quarter, but we didn't manage to achieve that because of lower booking volumes in the month sales. When the delta variant impacted travel and leisure bookings generally. The impact on bookings C. In August, we've mostly seen our near term sales. However, the impact quickly stabilized in the month of August and in recent weeks, We have started to see a welcome uptick in booking volume. Our cumulative advanced book position for the second half of twenty twenty two is ahead of a very strong 2019 and is at a new historical high. Pricing on our second half 2022 book position is higher than pricing on bookings at the same time for 2019 sales. Driven in part by the bundled pricing strategy for a number of our brands, but excluding the dilutive impact C. Of future cruise credits or more commonly known as FCCs. If we were to include the dilutive impact C. Of future cruise credits, pricing on our second half twenty twenty two book position is now in line with pricing At the same time for 2019 sailing, this improved position is a result of positive pricing trends we have seen during the Q3. This is a great achievement given pricing on bookings for 2019 sailings is a tough comparison as that was the high watermark for historical yields. Finally, I will finish up with Some insights into our refinancing activity. We are focused on pursuing refinancing opportunities to extend maturities and reduce interest expense. To date, through our debt management efforts, we have reduced our future annual interest expense by over $250,000,000 per year. And we have completed cumulative The $4,000,000,000 extension results from 3 things. First, the July refinancing of 50% of our first lien notes were $2,000,000,000 2nd, the completion of the European Debt Holiday amendments, which deferred 1 point $7,000,000,000 of principal payments. The deferred principal payments will instead be made over a 5 year period beginning in April 2020 C. 2. And 3rd, the extension of a $300,000,000 bilateral loan with 1 of our banking partners. As we look forward, Given how supportive the debt capital market investors and commercial banks have been, we will be pursuing additional refinancing opportunities to Thanks, David. Operator, please open the call for questions. Thank you. And PL. You will hear a 3 tone prompt to acknowledge your request. PL. And our first question is from the line of Steve Wieczynski with Stifel. Please go ahead. Securities. Hey, guys. Good morning. Good morning, Arnold. Good morning, David. Good morning, Steve. Good morning, Steve. So, Arnold, in your prepared remarks, I think I heard this right, but you talked about how you're expecting 2023's EBITDA should be higher than 20 nineteen's EBITDA. And look, I understand there's new net capacity in there that's going to help drive part of that EBITDA. But can you also help us maybe think about at a higher level, what some of your longer term assumptions are in order to get To that EBITDA level meaning, how are you guys thinking about whether it's the pricing environment, load factors, Anything else you would point out that could kind of bridge that gap? Sure. I'll make some comments Systems. And then give David a chance as well. By 'twenty three, again, if things continue to trend the way they're going, We should have the full fleet out. We'll have, as you mentioned, additional capacity with these exciting new ships more efficient. We've got Cost infrastructure improvements, we're coming out leaner with better cost structure. We're more efficient on the ships, both from a fuel standpoint, as well as an operating standpoint. In addition to that, we expect to be back at Occupancy levels, more comparable to historical or potentially even better, given the fact that While there will be some capacity growth at that point in the industry, it's going to be well below the capacity growth that would have occurred absent the pandemic. Go ahead, David, any additional comments? Yes. I'll just point out a few things. So the 19 ships Between the 19 ships that left the fleet, which Arnold indicated are smaller, less efficient ships C. And all the new capacity coming in, we certainly have a much richer cabin mix on board the vessels. I think we had indicated The cabin the balcony cabin mix was about 6 percentage points higher. So that does give us the opportunity to generate more revenue. The combination of the ships we said before, those leaving the fleet and the new builds give us a unit cost at The ship operating level, a 4% reduction. On the fuel consumption, just the Change in the fleet that I described is 3%. In total, it is a 10% capacity increase, net of the ships that left the fleet. So with all of the pent up demand and all of the things, the revenue management things, the bundle packages that we're offering, which is C. In 2023 compared to 2019. Okay, great. That's great color. Thanks guys. And then second question, As we start to think about 2022, is there any way for you to help us think about how 'twenty two is sold at this point? I guess what I'm trying to understand is How much of your capacity is actually available for sale at this point? And then how you think about opening up more capacity for 'twenty Without ultimately impacting your pricing ability. So Go ahead, David. Yes, happy to. C. So for all intents and purposes, I think in most cases, we have announced the restart date for 71 ships That is the 95 that will be in the fleet in the spring of 2022. But even though ships where we have not announced the restart date, in most cases, we have Sealed the inventory for the dates that we don't expect to sale and we are only selling at this point the dates that C. We do anticipate sailing. We just have not made the formal announcement on the remaining 24 chips. But those will be forthcoming in the days weeks ahead. So what is out there today? More or less give or take there may be Some changes, a little bit on the margin, but more or less what's out there today is what we're selling. We talked about the back CAF for the year being at a new historical high in terms of the book position. And we were very pleased with that. People are booking further out and so we're seeing the benefit of that. The first half of the year, the only reason we Sampson. While we are very pleased and look at the first half of the year and for the voyages that we're selling, We feel they're at the high end of the historical booking curve. The reason for the apples and oranges comparison is In the first half, we're not running most of the world cruises and all the long exotic voyages. And they tend to book much further out because So if we gave you the numbers, it would be an apples and oranges comparison. But it is fair to say C. We feel very comfortable with the pricing and the book position for the first half of twenty twenty two. But Steve, as I said in the prepared comments too, we will have but we're planning to have the full fleet on in Time for the summer season when we make the bulk of our profits. So for the second half of twenty twenty two, We're looking to be in that full force. Go ahead. You had an added comment? Steve, if you just we 47% of our capacity will be sailing in the I should yes, of our capacity will be sailing in the 4th quarter. We end the calendar year, we said with nearly 65% of our capacity. So during the first half of the year, we're going to go from somewhere around 60% on December 1 up to 100 Depending on the exact ramp up of the capacity. But to be clear, so if I'm going to make this up. Let's take a random let's take the Carnival Conquest, I'm going to make a ship up here. For the second half of next Let's look at the second half of next year. Are you selling 100% of that capacity today or Are you still kind of holding back some of that capacity because you don't want to try to get up to that 100% level and hopefully that makes sense? Yes. No, we're not For future voyages out there because obviously, we're nowhere near selling Not yet. Obviously, if we did, we would have under priced it. We're not restricting the capacity that we're selling for the back half of twenty twenty C. There's no reason to ask. Okay. Got you. Thank you, guys. Appreciate it. Thanks for the color. All right. Stay safe, Matt. Our next question is from the line of Robin Farley with UBS. Please go ahead. Great. Thank you. I wanted to clarify your commentary on the expenses. I know you mentioned some expenses next year obviously would not be recurring, The capacity out of service, the restart costs, and then maybe the piece that it is would be the enhanced protocols. So, if you Looked at only the period where everything is operating and so you the restart expense would not be in there and the burn of ships out of service. For that period forward, and then I guess this would also mean for 2023, is it fair to say that your expense per passenger cruise day would be below 20 Key levels when you exclude those sort of one time restart costs? Well, so Where I get go ahead, David. It's okay. Go ahead. C. So when you exclude all of those costs and looking to 2023, I mean, we had indicated that the benefit of the Change in fleet was on the ship operating expenses was 4% per ALBD. We also have found efficiency shoreside as well. And so there are cost efficiencies That we have. We're also as the whole world is, we are seeing some inflation. We're working hard To mitigate all of that inflation, we don't see it nearly as much as people in the United States in terms of the labor, Given our employment base comes from nearly 150 countries around the world on board our ships, So we have a much more of an opportunity there. And so we're working hard, but I'd be hesitant to give guidance On 2023 cost structure, I think it's just fair to say to give you all the pieces that are out there. And then we'll give guidance as we get closer. Okay. That's helpful. So would you venture whether for 2022, whether the shore side efficiencies would offset The inflation and enhanced protocols just for the for 2022, if you exclude the if you get past the restart expenses? Yes. I'd be hesitant to give guidance at this point. Clearly, the shore side efficiencies will flow through. And since we're still working through all of the details relating to and sourcing and making changes and mitigating Some of the inflationary costs, I'd be hesitant to give guidance, but you can be sure that we've got people focused on those items space. To optimize the situation. Okay. Great. Helpful. Thank you. And then my other question is just to clarify The commentary on price for next year, if we're just looking at the second half when it's a little more comparable and then you said excluding The future cruise credit discounts that pricing is about in line with 2019 levels. I just wanted to make sure I understood When you gave your earlier commentary about how there is more bundling now. So more of what is being booked now for second half Compared to 2019, has more of sort of some of the onboard expense, right, kind of in the ticket price because of the bundling, if I'm understanding your comments right. And so I guess I just want to clarify, when you are seeing price in line with 2019, is that sort of you have That's after you've allocated some of the bundled ticket price to onboard or I don't know, sorry, I guess I'm just trying Yes, we've tried to normalize it and do some level of allocation, to be an apples to apples comparison. Okay, perfect. Thank you very much. Thanks. Thanks, Robin. Our next question is from the line of Ben Chaikin with Credit Suisse. Please go ahead. Hey, how's it going? Good morning, Bill. Good morning. Hey, at risk of getting overly granular, but I'll If you think about the profitability of the ships coming online and your new capacity over the next couple of years, so whatever next 2 or 3 years, And then compare that to the remaining legacy fleet, obviously, excluding the 19 disposed of ships, is there any way to ballpark Compare those 2 kind of like sets of assets, whether it's margins, EBITDA, revenue premiums, like that's something that's anecdotally Talked about our industry, but if that didn't make sense, I can try it differently or we can take it offline. No. We have rules of thumb about the overall benefit of new ship relative to the fleet. So maybe you might want to quote the jump to the extent we use it. From a cost perspective, if you just look at the unit costs for our new ships coming in. They tend to be 15% to 25% lower on a unit basis than the existing fleet. And from a fuel consumption perspective, we're talking more like 25% to 35% more fuel efficient on a unit basis. Services. So we do see the enhanced profitability. And when you start adding in, of course, the better cabin mix, The more opportunity for onboard revenue because there are more there's more public space and the larger ships. So all of that does bode well for And improved return on the new ships versus the existing fleet. Okay, cool. That makes sense. I appreciate it. Our next question is from the line of Jamie Katz with Morningstar. Please go ahead. Good morning. Thanks for taking my questions. Good morning. Now the ships are starting to be deployed. Do you guys have a little bit more visibility C. On CapEx demands over the next year or 2 that you'd be willing to share with us. I mean, I know we have The cash burn, but it would be helpful to hear the difference between maybe CapEx and OpEx going forward. Yes. We can share with you our CapEx projections without a doubt. So Looking at 2022, and I'll give you the 2 pieces of CapEx. The non newbuild CapEx, We're projecting about $1,500,000,000 and the new build is $4,500,000,000 So it's about $6,000,000,000 in total. Keep in mind, remember that most of the new build is financed with the export credits that are already committed. In 2023, the non new build we're forecasting about also about 1,500,000,000 And the new build is $2,700,000,000 for a total of 4.2 Citi. We're expecting an increase in CapEx in 2022 and 2023 from where we are today in 21, but we're not expecting to go back. Pre COVID, we had probably indicated a sort of a steady state CapEx C. Call it $2,000,000,000 non newbuild CapEx. And we do believe we'll probably get back there at some point in the future, but in the next 2 years, our best guess at this point is about $1,500,000,000 Okay. And then just going back to Robin's question on bundling. I'm curious whether you guys are thinking that The bundling behavior is something that's more secular. So over time, it's going to remain that the pricing component is Less important than it was historically and that the onboard component is more important than it was historically. And I'm not sure if there's anything to read into that, but I don't know if Is this a new secular trend or transitory? Yes. Again, I think we have 9 brands. Speed. There's a lot of variability across the brands. And so we bundling has been around a while. It's not a new thing, but there has been a more recent trend that guests seem to prefer to have certain aspects of their experience bundled. And so there has been an increase in some aspects of that. Whether that's an ongoing trend, probably, but we're going to stay flexible can give the guests what they want. And I think one of the Go ahead. I can add to what Arnold said. What are the benefits of the bundle package. I mean, it gives the consumer a choice. And any choices you give the consumer creates hopefully more demand and better pricing in the long run. But keep in mind that when somebody bundles, when somebody pays for like their drink package And they're in and out ahead of time. Well, first of all, that of course benefits the agent because they get a commission on the whole package. So Definitely does make the travel agents happy. But when the people get on board, they really have a fresh wallet. And because they've already paid for Securities. Certain items, so they have a fresh wallet. They're starting over again. And we believe that with the fresh wallet, it does incentivize More onboard spend in total. So we would expect our onboards to be higher in the long run As a result of the bundling and we did see it in the Q3. I mean the onboard and other per diems were up significantly compared to 2019. And so some of that is the fresh wallet of people getting on board. Thank you. That's helpful. Thank you. Our next question is from the line of Asia Georgieva with Infinity Research. Please go ahead. Good morning, guys. I think you have been doing a great job and probably very happy to be so busy with Sun. I think what you've done has been fantastic. And yes, good luck through the end of the year. My question was a little more in terms of sourcing and destinations. With the ships going back Citi. Back to warmer climates, including the Caribbean during the winter months, do you find any difficulties in terms Getting international passengers, especially from Europe, with more stringent entry C. Even though it's a small market, relatively speaking, in terms of the capacity you have there, but it's also somewhat important market during winter. Yes. Australia is an important market for certain and the travel restrictions absolutely play a part in terms of what we can do with occupancy ultimately. Now the encouraging sign is things continue to loosen up, things continue to improve. You can see in the U. K. Where there's good momentum. They are further ahead on vaccinations, etcetera. You're seeing the U. S. Recently made an announcement that you're fully aware of letting travelers from Europe come in and starting in November. But all of those things in near term are acting us for certain. And they will continue to evolve. Eventually, Australia will open. We'll be very excited about that and and ready to take full advantage of it. And our team over there is working on booking cruises going forward and so on in anticipation that Sun. Eventually, they will open. But the world is just processing itself through this pandemic. And as we said and as I said in the remarks Early on the prepared remarks, it's choppy, but there's movements forward. And the most important thing is that there is pent up demand. Sales. People are very interested in the cruise experience, not just repeat cruise stores, but we're seeing lots of Sun. New to brand and new cruisers booking. And so that's a very positive sign. But we do have to get to the point and we will get there elsewhere is kind of back to some kind of a normal where people are free to travel. And if I can just add If I yes. Spin. Yes, let me add some Go ahead, David. In terms of your question about Europeans traveling to the United States for the Caribbean winter season. So keep in mind, we have multiple brands. And Our European brands essentially are home porting in other places in the Caribbean. So I I don't remember every single Homeport. I mean P and O in the UK, I think Homeport is out of Barbados And Casa, Naida and other places in the Caribbean. They choose home ports where there's great air left from their home countries. So most of the Europeans who are coming to the Caribbean are going on our European brands C. And going somewhere in the Caribbean to embark on their vessel. The North American brands, which are sailing out of the United States, the overwhelming Majority of their guests are probably North American sailing on the board ships in the wintertime. So, it's Travel restrictions are easing. People are starting to be able to come. I won't repeat everything that you probably already know. But it's not as big of an issue for us as given the structure of where people start their cruises. I think the comporting point that you've made is great and I should have thought about that. And second question, your yield management guys centers are probably working very hard because now they have even more levers C. To work with. So in addition to trying not to underprice C. And yet reaching occupancy levels where at the shipboard level at least we're getting a cash benefit, Has there been any change, any restrictions in terms of occupancy? Or is it more C. A continuation of what you've been doing for decades trying to get the best price. We've intentionally restricted occupancy for a host of reasons, some related and because again, the brand is all over the place in terms of jurisdictions. So some just to be in compliance in some cases, others to give a ramp up to because we have new protocols, we have to get the crew experience with it and experience with the guests to make sure we work down the imports and some artifact of the compliance measures, whether it's physical distancing or other requirements. And so at this point, yes, there's been intentional constraint. But as we said, where we have like normal cruises C in the Caribbean. There's vaccinated cruises, but Carnival brand has have been at 70% occupancy, which is fantastic given the number of shifts they had and the protocols and then we intentionally tapped that. Side. So as we begin to open up more, obviously, the yield management folks will have to sharpen their I was going to say pencils, but nobody uses pencils anymore. Chuck in their keyboards more and go to work on it. But it's we have good momentum. It's very disciplined. We have managed the timing of restarts of some ships thinking through these matters. L. And so it's a very proactive and to date well managed relaunch, given us an opportunity to have strength in Pricing going forward. Well, the whole process is obviously well above my pay grade. So I still use pencils. Thank you for taking my questions. And do not hire me in yield management, not good enough for that anymore. Thank you, guys. Good luck. Thank you, The next question is from the line of Brandt Montour with JPMorgan. Please go ahead. Hey, good morning everybody. Thanks for taking my questions. Good morning, Grant. So David, I was wondering if you could maybe give us your view on how bookings cadence progressed Throughout Delta, but just focused on sailings for the second half of twenty twenty two. And if there was a wobble at all, Paul. How did the industry respond to that in terms of pricing? Yes. So as I said in my prepared remarks, The impact in August of the Delta variant On bookings, it's really much more of a near term phenomenon in terms of, call it, the next 6 months, maybe 9 months of bookings, the further out you go, it is really hard to even spot C. We distinguish a delta variant trend in the booking patterns. So the second half remains Strong and throughout the month of August. And in terms of pricing, I think Arnold said this in his notes In his prepared remarks, we all believed that the Delta variant people would We would get past this. And so our view was to maintain price and To make sure that we optimized revenue in the long run, not just bookings during the month of August, we still have plenty of time Since we're ahead, we still have plenty of time to fill the ships to the occupancy levels And we're in a good position. Excellent. Thanks for that. And then as a follow-up, I know you're targeting cash flow Operations breakeven sometime early in 2022. I know that you didn't give a specific month on that, which we can appreciate. I'm just curious, what are you Assuming in that for customer deposit inflows, if anything, or it might still be elevated at that time. And so just curious Stakton for that. Yes. Well, customer deposits at the end of the Q3 were 3,100,000 The last two quarters, they did increase. Our expectation is that they will continue to increase. Of course, In a steady state environment, remember that the overwhelming majority of the customer deposits at any point in Next 3 months continues to build towards the 100% next spring. You should see an increase In customer deposits over time, as we continue to get more and more final payments, keep in mind, like for the 4th quarter, We only have 47% of the capacity in service. So there's only half of probably the final payments that You would see come next May. So you will continue to see an increase Driven by that factor and that should be a positive cash flow inflow to us over that time Supreme. Okay. But maybe to ask a different way, do you need elevated customer deposit inflows to break on cash flow from operations in the first half of next year. I'll EBITDA We'll also breakeven in the early part of 2022. So I'll give you that hopefully Answers your question. Yes, that's helpful. In a much more direct way. All right, great. Thanks guys. Best of luck. Thank you. Our next question is from the line of Stephen Grambling with Goldman Sachs. Please go ahead. Hey, thanks for taking the questions. Could you just talk about the pricing and booking dynamics between what you saw On Carnival versus maybe some of the other brands, specifically looking at second half of 'twenty two as itineraries normalized, did you see any difference More recently in close in bookings that may inform how that trajectory could evolve? I would say, to begin with, we see strength across the brand, the portfolio, and that's very encouraging to us. But go ahead, David, with any specific comments you might want to make. For the back half of 'twenty two, I mean, as I'm going to say, all the brands are strong, things are going well. It's all the we're getting back to sort of a normalized comparison of full breadth Itineraries across the whole fleet. And so we feel very good about that. As I said, the back half of twenty twenty two was C. At a historical high, and we saw great trends in all brands and on both sides of the Atlantic. Securities. So there's nothing particular to note there. Closer in, some of that is just a function of In the marketplaces, but we are seeing good occupancy Across all the brands, I gave you the occupancy figures for the Q3. Clearly, the European brands had More capacity restrictions in the Q3. The UK restrictions go away, but the Continental Europe social distancing restrictions remain at least for part of the quarter. So there's nothing worth noting. I think we're seeing good comparisons and good booking Trends across all the brands. There are small differences, but some of that also has to do with itinerary length Steel. Between the different brands in the marketplaces. We'll take one last question, operator. Yes, I'm sorry, go ahead. This will be the last question. Go ahead. I may have missed this, but I was wondering if you had any way you can quantify the potential kind of sustained structural cost increases that you have from some of the health Securities. And as you mentioned, there are some supply chain disruptions. So I'm wondering if you could help frame kind of the level of C. Inflation you may be seeing, whether it's in labor or commodities. Yes. Real quickly, I'll make a general I think from a sustainable cost standpoint, a lot of the protocols, the start up costs, of SOS will go away. A lot of protocol costs will also go away because over time, the protocols won't be required. Once we get to a point where it's only protocol costs, those are in the 100 of 1,000 Services per ship versus 1,000,000 of dollars per ship or whatever. And again, we suspect that those will reduce over time as well. David? Yes, I agree with Arnold. And I will tell you, I'm reluctant at this point to try to Peg this because there's so many moving parts and variables and so many things we're working on That when we get closer, we'll have much better clarity. But there's a lot of opportunity out there for us. And you can be sure we're working hard to maximize those opportunities in every way with every supplier and every item we source as As well as the labor and other things. So, we'll give you more guidance as time goes on, but just recognize We are clearly focused on this on an ongoing basis. And thank you everyone. We really appreciate C. Your support and ongoing interest and we're very excited to be having the results we're having at this point. Thank you so much. Thank you, everyone. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.