Good morning. My name is Abigail, and I'll be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's Business Update and First Quarter 2022 Earnings Call. All participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.
Good morning, everyone, and thank you for joining us today for our business update, the first quarter 2022 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 would 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. A reconciliation of all non-GAAP items can be found on our website and in our earnings release available at www.rclinvestor.com. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our first quarter results and an update on our latest actions and on the current booking environment. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason.
Thank you, Michael. Good morning, everyone, and thank you for joining us today. Before jumping in and talking about the exciting things happening in our business, I would like to express our deep thoughts and prayers to our 2,000+ Ukrainian Royal Caribbean Group family members and to the citizens of Ukraine who continue to be affected by this tragic war. We, as always, remain focused on the safety and well-being of our employees and continue to provide them with support services and financial assistance during this time of incredible hardship. We are all praying and hoping for a peaceful resolution soonest. Now moving on to the business. Our teams have done an exceptional job getting our fleet back into service so that we can continue our mission of delivering the best vacation experiences in a responsible way.
As of today, 95% of our fleet capacity has returned to service. It's incredible to think that our journey to full fleet operations will be complete in less than eight weeks when our 63rd ship, Celebrity Infinity, welcomes guests for the first time since March of 2020. Since we resumed operations, we have delivered memorable vacation experiences to over two million guests worldwide while earning record high guest satisfaction scores. Additionally, outside of China, the vast majority of our destinations and markets are back online. I want to thank our teams, both ship and shore, for delivering on our mission so successfully. During the first quarter, we managed through the challenges brought on by the Omicron variant that resulted in the cancellation of 57 sailings in Q1, moderated our load factors in January and February, and softened demand for future voyages.
We have now sailed through these operational and short-term demand challenges caused by the variant. Over the past 60 days, demand has materially surpassed both pre-Omicron and 2019 levels. Load factors improved throughout the first quarter, and we finished the month of March at a load factor of 68%. We expect our load factors to continue to build, averaging between 75% and 80% in the second quarter and reaching triple digits by the end of the year. We continue to be thoughtful about the build of our business, being mindful of maintaining price integrity, taking advantage of high onboard spenders, and as always, focusing on the health and safety of our guests and crew. Now moving to the demand and operating environment. We continue to see strong demand for leisure travel and cruising.
The robust secular trend of experiences over things that propelled our business in the past years is now recovering towards pre-COVID levels. Consumers are now re-engaging with the world, and as a result, spending on travel in 2022 is set to outpace pre-pandemic levels, with consumers planning to travel more frequently. Cruise consideration is the highest it has been in two years and nearing pre-pandemic levels, with the most significant recovery among those new to cruising. Consumers are in a healthy financial position. Strong labor markets, wage growth, and record cash savings, $4 trillion in the U.S., support spend on vacation experiences. We are watching the high inflationary environment, but so far we have not seen an impact on consumer behaviors or willingness to spend on travel and cruise vacations.
Strong demand for cruise experiences continues to translate into robust onboard revenue performance for us across all categories from casino, beverage, and shore excursions to internet, retail, and spa. As we mentioned in recent quarters, our investment in a new pre-cruise planning system allows guests to better plan and book their onboard experiences. As a result, we continue to see increased penetration of pre-cruise purchases, which is leading to significantly higher total spend per guest. We remain focused on continuing to innovate the vacation experience we offer. We are strategically investing in our future to maintain our strong competitive advantage, setting the foundation for a strong recovery and long-term profitable growth. On our last earnings call, we discussed our expectations for a delayed wave period. While it started a few weeks later than we originally expected, it is what we are seeing now.
Bookings improved each week during the first quarter as the impact from Omicron faded. For the past eight weeks, bookings have been meaningfully higher than 2019, with particular strength in North American itineraries. Our largest brand, Royal Caribbean International, set two new records in March with the largest single booking day and the highest booking week in the brand's 53-year history. We have also experienced some headwinds related to the impact from the ongoing conflict in Ukraine. Itineraries initially planned to visit Russia represent only 2% of our overall capacity and close to 10% of our European capacity. In early March, we decided to cancel calls to Russian ports, including St. Petersburg, and substituted those itineraries with other highly desirable destinations. Naturally, we saw a short-term increase in cancellations and booking hesitancy for Baltic Sea itineraries, combined with some softness in overall European demand.
After several weeks of softer trends, booking volumes improved and are now above 2019 levels. However, the impact from the slowdown during a key booking period is definitely weighing on our load factors for our European sailings. While there are some headwinds in Europe, our North American-based itineraries, which account for over 70% of our capacity this year, have been trending much better, with recent bookings more than 40% ahead of 2019 levels. We are also seeing an increased volume of close-in bookings as consumers seem to be making their vacation decisions closer to their sailing date. This contributed to better-than-expected load factors in March, despite the impact of the Omicron variant earlier this year. We continue to build on the demand environment for the rest of this year and into 2023.
Inflation is impacting businesses across the globe, and we are no exception. As we mentioned in the last few quarters, fuel and food are categories that are most susceptible to inflation for us. The war in the Ukraine and continued supply chain constraints have further heightened those pressures. Our teams have become increasingly adept at navigating these challenges, and we have implemented several strategies to manage cost pressures while delivering the incredible product expected by our guests. On the fuel side, we continue to optimize consumption and have partially hedged rate below market prices, which is mitigating the impact on our fuel costs. We have taken and continue to take numerous actions to reshape our cost structure with a focus on further improving our leading pre-pandemic margins.
While these actions are intended to enhance our cost structure and margin profile, we do anticipate that inflationary pressures, mainly attributable to fuel and food, as well as transitory costs related to our health and safety protocols, will weigh on our costs this year. I will now touch upon environmental stewardship. Creating a more sustainable cruise industry is a journey, and every day is an opportunity to innovate and improve. Back in 2016, we announced our partnership with the World Wildlife Fund to advance our sustainability performance. This partnership pushed us to set ambitious sustainability goals in three areas, greenhouse gas emissions, sustainable food supply, and destination stewardship.
I am proud of the fantastic work achieved by our teams since we first signed the agreement with the WWF, and I am pleased to announce that the Royal Caribbean Group has recently signed a new five-year agreement to take our advancements to the next level. I'm also pleased that in the first quarter we were named one of the world's most ethical companies by Ethisphere. This is the seventh consecutive year our company has been recognized, the only one in the leisure and recreational category. Furthermore, we also earned a 100% rating on the Human Rights Campaign Foundation's Corporate Equality Index, which rates corporate policies and practices that relate to LGBTQ+ workplace equality. We are immensely proud of these recognitions. They reflect our deep commitment to our employees and our purpose and values.
As we continue to focus on completing our return to service, we are charting our course for future growth. Combination of strong secular demand tailwinds, our leading brands, the best cruise ships in the world, our global platform, and the very best people position us exceptionally well for long-term success. It is no secret that our innovative and industry-leading ships are the foundation for creating a great vacation experience. Year to date, we welcome two new ships to our fleet. Wonder of the Seas, which is the newest, largest, and most innovative Oasis-class vessel, joined Royal Caribbean International. Celebrity Beyond, the newest, the revolutionary Edge-class, joined Celebrity Cruises just a few weeks ago.
We have a long track record on delivering new and exciting experiences through new ships while achieving premium yields and profits. These ships, along with others that are set to join the fleet in the next few years, will drive differentiated vacation experiences and financial performance. We have more exciting new ships currently on order. Construction is now underway on Royal Caribbean International's sixth Oasis-class ship, which will be named Utopia of the Seas. This ship is expected to debut in the spring of 2024. We are excited that Utopia will be the first Oasis-class ship powered by LNG when she launches. Finally, the building of Royal Caribbean International's highly anticipated Icon of the Seas has reached a pivotal milestone on physical construction ahead of its fall 2023 debut.
Icon will set sail next year with the latest innovations and with signature features that were reimagined by our teams in bold new ways. Stay tuned for more on that. On the destination front, we continue to make progress on the expansion of Perfect Day at CocoCay with the addition of Hideaway Beach. Hideaway Beach will make Perfect Day at CocoCay even more perfect, with an entirely new experience expanding capacity to the island. On the technology front, the team has made tremendous strides modernizing our digital infrastructure and capabilities to enhance our commercial engines and the guest experience. Our business model is incredibly strong, and we have a long track record of growing revenue, earnings and cash flow. The pandemic has taught us new ways to operate with agility, but our formula for success remains unchanged.
We have the best brands in each of their segments, the most innovative fleet in the industry, exclusive destination experiences like Perfect Day at CocoCay, a nimble and effective global sourcing footprint, a leading technology platform, and most of all, the very best team both at sea and on land. Despite these challenges at the start of the year and the complex operating environment, we still expect 2022 will be a strong transitional year as we bring the rest of our fleet back up into operations and approach historical occupancy levels and return to a profit in the back half of the year. This will set a strong foundation for our success in 2023 and beyond. With these tools at hand, I'm confident about the recovery trajectory and the future of the Royal Caribbean Group.
Our people will always be our most important competitive advantage, and I'd like to thank all of them for everything they do each and every day to deliver on our mission. With that, I will turn the call over to Naftali. Nat?
Thank you, Jason, and good morning, everyone. Let me begin by discussing our results for the first quarter. This morning, we reported an adjusted net loss of $1.2 billion, or $4.57 per share for the quarter. During the first quarter, we restarted operations on two additional ships, and as Jason mentioned, we welcome Wonder of the Seas to the Royal Caribbean fleet. We operated 7.7 million APCDs and carried 800,000 guests. Load factor on our core itineraries in the first quarter was 59%. Earlier in the quarter, our load factor was impacted by about 2% due to temporarily elevated cancellations associated with Omicron. Trends, however, improved throughout the quarter, and March sailings exceeded our initial expectations, achieving an average load factor of 68%.
We also had multiple sailings in March that operated 100% load factors in the Caribbean. As Jason mentioned, we are seeing consumers make vacation decisions closer to the sailing date, which contributed to the outperformance in March. In Q1, we saw a 4% increase in total revenue per passenger cruise day compared to the first quarter of 2019. Onboard revenue continues to perform well for us. A combination of strong consumer spending and higher pre-cruise purchase penetration is contributing to this favorable trend. Cash flow from operating ships was positive in the first quarter. Operating cash flow significantly improved throughout the quarter and approached a positive inflection point in the month of March. Operating cash flow turned positive in April. We are pleased to have reached this important financial milestone, and we expect that EBITDA will also turn positive from June forward.
Next, I'd like to comment on capacity and load factor expectations over the upcoming period. We plan to restart operations on all remaining ships by the end of June. We plan to operate about 10.3 million APCDs during the second quarter, and we expect load factors of approximately 75%-80%. Our load factor expectations reflect the higher occupancy we are seeing in the Caribbean and lower expectations for repositioning voyages and early season Europe sailings. We now offer cruises in the vast majority of our key destinations once again. Australia announced the resumption of cruising in April, and our cruises are open for sale. While China remains closed to cruising, we are maintaining dialogue with the local authorities regarding our return to service when China opens its borders. We have redeployed ships planned for China to other core markets.
We remain optimistic about our ability to capture long-term growth opportunities in that market. Next, I'll provide an update on the demand environment in our 2022 sailings. As Jason noted, we saw a consistent improvement in bookings throughout the first quarter. In the past eight weeks, booking volumes have been meaningfully higher than 2019. In addition, the elevated near-term cancellations experienced early in Q1 that impacted bookings have now normalized to pre-Omicron levels. While we are very pleased by the ramp-up in demand, it took a few weeks longer than expected, leading to promotional activity on some itineraries. That being said, we remain focused on maintaining price integrity while maximizing both load factor and overall revenue. Our shipboard revenue APDs are at record levels and are contributing to more overall revenue per guest than ever before.
North American-based itinerary have been trending particularly well with load factors building nicely. Regarding our European sailings, we are now seeing improving trends with bookings outpacing 2019 levels. We did, however, lose some ground when the tragic situation in the Ukraine escalated, which is weighing on load factors for higher yielding summer season in Europe. From a cumulative standpoint, our load factors on sailings in the second half of the year are booked slightly below historical levels with a greater mix of high-yielding suite inventory booked versus inside and outside staterooms. Our booked APDs remain higher than 2019, both including and excluding FCCs. While still early, 2023 is booked within historical ranges at record pricing. We expect sequential occupancy improvements each quarter with fleet-wide load factors reaching triple digits by the end of the year.
Our customer deposit balance as of March 31 was $3.6 billion, an improvement of about $400 million during the quarter. Approximately 27% of our customer deposit balance is related to future cruise credits, which is an improvement from last quarter. To date, 56% of FCCs have been redeemed. As Jason shared, the main impact of the current inflationary environment is on our fuel and food costs. Regarding fuel, we are 55% hedged for 2022 and 25% hedged for 2023 at below market rates. Our proactive hedging efforts help us mitigate the rate impact. We continue to actively manage our fuel consumption and our investments in technology and systems help us reduce our emission profile and fuel costs.
In addition, the eight new vessels to join our fleet in the last 18 months are 30%-35% more fuel efficient than older capacity. Fuel is typically just over 10% of our cost basket. While elevated prices certainly weigh on our cost, we continue to manage consumption and proactively hedge the rate. Like other businesses, we are seeing inflation across the food basket. Our operational and supply chain teams have been navigating these pressures through long-term partnerships and contracts within our diversified supplier base that allow us to opportunistically adjust sourcing strategies as needed. We do anticipate that inflationary pressures and transitory costs related to our healthy return to service and continued safety protocols will weigh on this year's earnings. Shifting to our balance sheet, we ended the quarter with $3.8 billion in liquidity.
We have ample liquidity to allow us to continue our recovery trajectory. We're extremely focused on managing and improving the balance sheet. Our plan throughout 2022 is to continue with refinancing debt maturities and high coupon debt issued during the pandemic. In January, investors again demonstrated their support when we accessed the capital markets by issuing $1 billion of senior unsecured notes. Proceeds from the offering have been used to repay principal payments on debt maturing in 2022. February, we arranged for a $3.15 billion backstop facility to provide us flexibility in refinancing debt maturities in June 2023. Lastly, turning to the outlook for 2022, we expect a net loss for the first half of the year and a profit for the second half. We also expect positive EBITDA starting in June.
We continue to focus on bringing the fleet back to service, building our load factors and restoring profitability. When our business is fully operational, it generates attractive financial results and significant cash flow. We are pleased with the progress we're making towards the inflection points of profitability as we complete our return and build the future for the Royal Caribbean Group. With that, I will ask our operator to open the call for your questions.
Thank you. As a reminder to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Steve Wieczynski with Stifel. Your line is now open.
Hey now, guys. Good morning. So Jason, wanna ask about the cash flow inflection point that you reached in April. I'm wondering if you think that positive operating cash flow level should be sustainable now moving forward. You know, or do you think April was an anomaly and you might go back into a, you know, a negative position until the full fleet is deployed? Basically, you know, to simplify this question, you know, do you think outside of some crazy event or events, operating cash flow from here should remain positive?
Well, first good morning, Steve. Hope all is well. I think we should just really pause and take in that statement. I mean, it has been effectively over two years since we can make a statement about being cash flow positive. It's really great now to be in that position where we start to generate positive cash flow and positive EBITDA and then positive earnings as we get to the back half of the year. We very much think it is sustainable. Our load factors are building in accordance with our expectations. You know, there's been a lot of, you know, noise, you know, kind of generally in the system.
There's always things that come up, but from what we can see in the day-to-day booking environment, we feel very good about the load factor build, the rate build, that we're seeing. I do think that this inflection point is a very important moment, not just for us, but for the industry as we kind of get onto the other side of this.
Yeah, maybe to add, Steve, good morning. We share here that this is obviously a great inflection point. As we go forward, obviously there are things, you know, every quarter, you know, interest expense timing.
Mm-hmm.
Other timings of expenses. You know, this is the inflection point that we've reached here, and we expect it to continue.
Okay. That is, that's a very solid positive there, guys. Second question, bigger picture question, obviously there's, you know, there's a fear out there building around, you know, a possible slowdown in the economy and a possible recession. Given what you guys have gone through with COVID and the stress it's, you know, it's put on your balance sheet, you know, I guess my question is, you know, if we do encounter some type of economic slowdown, how do you guys envision being able to navigate an environment, you know, like that given your current liquidity position? Maybe also remind us how you navigated through, you know, 2008, 2009.
Steve, I think first, as Naftali said in his comment, you know, we are in a strong financial position. We're in a strong liquidity position. I first wanna point out that the level of booking activity that we're seeing, the spend levels that we're seeing on the ship, we don't see anything to date that would show that there's some type of recession or recession fear weighing on the consumer. I think a piece of that, as I said in my comments, are the trillions of dollars of cash sitting in the savings accounts and the low leverage of the customers just in North America alone.
As we've seen in the past, you know, when there are recessionary periods, I think one of the things that's really important, and it does pain me sometimes to say this, but we still trade at a significant value relative to land-based vacations. When a consumer, let's just say if they are feeling a level of pressure, and they may, you know, still need and want to go on vacations and build experiences and memories. I think that value differential, which we are every day doing all we can to close that gap, is one in which the consumer recognizes. That has tended to kind of fare well relative to other travel or consumer discretionary products, during times like that.
Just to add quickly, you know, we are in a very strong liquidity position. We're obviously in this inflection point of free cash flow of operating cash flows. Our focus is, as I said in my remarks, is to continue to refinance the balance sheet. That means both refinancing our maturities. Obviously that creates you know the runway as well as reducing the interest costs and the leverage overall.
Mm-hmm.
We have a plan here, you know, in the near future, to manage the balance sheet.
That's great color. Thanks, guys. Really appreciate it.
Thanks, Steve.
Our next question comes from the line of Robin Farley with UBS. Your line is now open.
Great. Good morning. Thanks for taking the question. Wanted to ask about, you mentioned that, you know, you lost a little bit of ground for some weeks there even though European demand is above 2019 levels.
Mm-hmm.
Can you tell us how you're thinking about load factor? I mean, in normal times, you're gonna be 100% full no matter what because of-
Mm-hmm
You know, maximizing the variable revenue. Is this a period in Q3 with Europe where you might say, given the ramp up, you know, let's stay below 100%? In other words, I guess if you could help us think about that trade-off between giving up the onboard revenue and, you know, but maybe potentially impacting the price of other things already booked for Europe.
Well, I think there's a few things, I think just to comment on the Europe side. First I would say, you know, it is our expectation in Europe for our load factors to be lower. Some of it is very much related to price integrity, but some of it's also, you know, that relates to the testing requirement to come back into the U.S., you know, for Americans. The combination of those things weighs on the consumer in terms of their travel expectations. As we said on our remarks, our expectation is we're gonna be building up, you know, through the back half of this year to that triple digit mark.
Our expectation is we will have lower load factors in Q3 relative to, you know, 100%.
Robin, it's Michael. I just have to jump in and say that we have ships now sailing at 100%, and we've had ships sailing at 100% now for several weeks, you know, out of the Caribbean into the Caribbean market and in our short product. As we head towards Memorial Day weekend, we're gonna see significant percentage of our ships sailing at 100% and greater. You know, Europe's one thing, but what we've seen in terms of demand in the American market for the drive to products, which I think we have around 70% of our products drive to this year, has been really strong. Certainly over the past several weeks, we've been delighted with the volume of bookings that we've been seeing coming in for these products.
It's been really good.
When we make the comments around the load factors, obviously that's total load factors for the whole fleet, right? That reflects the combination of the trends that Jason and Michael just shared.
No, that's very helpful color. Thank you. Maybe just a last follow-up. Given that you're back to, you know, profitability and sort of reasonable, you know, reasonable visibility with that, is there a point when you might restart giving guidance, you know, in the next quarter or two? Or is that something that, you know, we shouldn't necessarily expect this year?
Well, Robin, I'll tell you, we had a meeting a few days ago with our senior leadership team, and I think my comment to them was, we have now moved from scenarios to now a forecast. Because we can see that visibility and that predictability, and that's a big statement for us and I'm sure others as I think Michael always remind us, but I think we're like on our 300th scenario since the start of the pandemic. I think we are getting closer to that, and our visibility within the quarter is much greater. We do appreciate, you know, that, you know, having that visibility and predictability is important to the investment community. I would say that we're getting close to it.
I would wait to see what happens on the next quarter call.
Okay. That sounds great. Thank you.
Thanks, Robin.
Next question is from Benjamin Chaiken with Credit Suisse. Your line is now open.
Hey, how's it going? You know, onboard spend continues to be particularly strong. Is this driven by a smaller number of core guests, or is it a more kind of like widespread structural uptick in spend that you see even as load factors build on ships that are, you know, getting back to normal occupancy or close to it?
Hi, Ben, it's Michael. I think this is what looks like it could be a structural change. I mean, we've now got, as I said earlier, many ships sailing at 100%, and our big Oasis-class ships have been sailing in the 80s, and our onboard spend continues to perform at the same levels. It's been really. It's been wonderful. I think a couple of things. One is the Hybris and the investment that we made in the software for pre-cruise revenue, which, you know, continued through the pandemic, and we've really leveraged that now. We've seen a significant increase in penetration and uptick with the pre-cruise sales. Of course, we've always said that, you know, a $1 pre-cruise dollar gives us another $0.50 onboard spend.
We really believe we're seeing that coming through now. It continues, and I think one of the things that we've been focused on in terms of the volume is that relationship between ticket and onboard spend. If you even look at our first quarter net revenue APD, it was higher than back in 2019, and we see that continuing quarter by quarter through this year.
Yeah. Just to add to Michael's point, we also see the strength in onboard across all categories. It's not just one category that you can draw the conclusion. It's everything like Jason said, from spa to retail, shore excursions, casino, food and beverage. It seems like the consumer is really willing to spend on great experiences and we've made all these investments that Michael mentioned to make sure that we capture that spend, as much as we can as they're enjoying our cruises.
Is the pre-cruise like at the time of ticket purchase, you're kind of offering incremental onboard, or is it like following up with the consumer or the customer from time of ticket purchase up until cruise? Like, can you just give a little color on how that works exactly?
Yeah, I mean, it follows ticket purchase. As soon as we have a commitment from a customer that they're, you know, gonna sail with us, then we have a whole cadence of communication to the customer. We use all of this software development and the improvement we've had over the years with our analytics to provide them with options and offers and promotions, et cetera, for onboard products. We literally have that communication cadence in place until they sail with us. By the way, when they're sailing with us, we continue that communication cadence as well, giving them offers and what have you. It's really, you know, it's a kind of a, the evolution of the sophistication of our communications in terms of the pre-cruise software.
Yeah. Ben, I think just to jump in, I mean, we are in the early innings of this pre-cruise system. You're having the commerce engine in place, having the capabilities that Michael just talked about to be able to curate the experiences or services that we can be offering to that guest through their journey from when they book a cruise all the way through the time when they're sailing with us, and being proactive about opportunities that might arise even during the voyage. Being able to put that or position that in front of the customer based off of things that they may have already had planned or things that they may have done in the past, et cetera.
You know, that is kinda getting to that one-to-one spot of engagement is really kind of what we see as the North Star here. That's kind of what these systems and the AI and analytics and the use of data effectively is all about.
Got it. I appreciate it. Thank you.
Our next question is from Daniel Politzer with Wells Fargo. Your line is now open.
Hey, guys. Good morning. Thanks for taking my questions. So, the first I wanted to hit on, you know, it's been obviously we've seen a lot of commentary in terms of robust travel and leisure spend and demand. You guys have certainly seen that as well. How would you break that out between, you know, the new cruise customers, and are you seeing that kind of come in through longer term bookings or short-end bookings?
Yeah. Hi. Hi, Dan. Yeah, we're seeing it come through all of our customer segments. I mean, I think we commented maybe on the last call that the new to cruise was a little slower to return. When we first started back in service, we did rely heavily on our loyalty customers. That's really shifted now, and we're kind of moving back into a far more normal environment where we see our new to cruise returning. I mean, it helps with the fact that we've got great products that really do attract new to cruise. We've got Perfect Day. I think even in this year, in 2022, we'll take over two million guests to Perfect Day this year alone.
You know, the right products, the right mix of experiences, and we're seeing our new to cruise customers come back to us. How they're spending is very similar. I mean, things shift and change around based upon age demographics and what have you. You know, the kind of the product offerings that we have, that we provide to our customers and using the software and analytics seems to be really resonating.
Got it. I think you guys called out particular strength in North America and that customer base and maybe Europe a little bit softer. To what extent, if any, could you maybe bifurcate that softness? Is it a reflection of kind of what's going on the geopolitical front in Europe? Or, you know, is that more related to a slowing of the consumer? Yeah, any color there?
Yeah. Yeah, I think in terms of what we see, 'cause we've seen this, you know, return in demand from Europe for our different deployments, especially within Europe. It's definitely the Ukraine that I think really kind of weighs, especially within Central and Northern Europe, you know, sailing sort of inside the Baltics in the Med is certainly, I think, of great interest. I mean, they are booking. They are now booking at levels that are above 2019 levels, but it is softer than what we had originally expected it would be. I think fortunately, you know, you see the North American consumer accelerating and very much focusing on North American products, but also very much willing to go to Europe.
My comment was, I think on the psyche side, you know, testing to get back into the U.S., which I know, you know, the cruise industry, the airline industries and other industries are trying to influence for that change, is I think that kind of last psychological point that weighs on the consumer to kind of travel freely globally.
Dan, just to add to Jason's comment on the testing to return to the United States, I mean, as we know, many European countries now are stopping that requirement. They're kind of freeing up the ability for the Europeans to travel around. I think, you know, we're all hopeful that that's gonna change fairly soon in returning to the United States.
As I think we mentioned, we do see an improvement in the European bookings, but also both from volumes from North American, but also from some of the closer in within the European sourcing markets. So we're definitely seeing the improvement there.
Great. Thanks, guys.
Our next question is from Ryan Sundby with William Blair. Your line is now open.
Yeah. Hey, guys. Good morning. Thanks for taking my question. Somewhat similar to Ben's question around guest spending. I just wanted to follow up on the record guest satisfaction scores. So as you start to ramp up itineraries and load factors here, do you think you'll be able to maintain that, or is there something structural there? Then as my follow-up, if you do see satisfaction scores hold up, in the past when you've seen a jump in satisfaction for one reason or another, have you seen that translate into a material impact in terms of repeat selling or word-of-mouth referral?
Well, Ryan, it's Michael. I think, you know, happy customers is a beautiful thing to have. I think that's, you know, that formula's never changed. When people really have an amazing time, they go back, word of mouth, they tell their friends and families, they wanna come back and repeat. We know we've done, obviously, work on Net Promoter Score and repeat cruises, and the correlation is relatively high. There is a relationship between Net Promoter Score and loyalty guests. It's a winning formula, and I think that's always been one of the great things about cruise, is the value proposition connected to satisfaction has always been remarkably high. We think it's a great thing, and we're always striving to deliver the highest level vacation that we possibly can.
I think it's fair to say that in the beginning, the euphoria of excitement from primarily our loyalty guests was so incredibly high, and the crew were so incredibly happy to be back that for many months there was just this euphoria on our ships, and I think that comes through on the Net Promoter Score. Certainly, we see those Net Promoter Scores staying at a really high level. They've started to come down a little bit as we see the volume increasing. As the load factors get to 100% and beyond, then you start seeing a more normalization of those, Net Promoter Scores. But I think there's just a happiness, I would say, not only with our customers, but with our crew members.
That happiness, you know, coming out of the pandemic, going on vacation with Royal Caribbean, reconnecting to all of those experiences that people have missed for two years, I think that has somewhat translated into people just saying, "I'm having a fantastic time." I think I would be naive to believe that these extremely high NPS scores will stay with us in the long run, but I think there's been a fundamental transformation in terms of how guests and customers are interacting with the experience, and it's a very positive thing for our business.
Yeah. Just to add to it, when you look at it by segment, right? You look at, you know, even the ultra-luxury side with Silversea, and you see the luxury side with on the Celebrity side. It's really across all segments. You're seeing this euphoria that, you know, that Michael referred to. It's as Michael said, I don't think we're naive to think it's gonna stay at these levels, but I think we're also surprised as the mix has changed from the loyal, very loyal to now more first to cruise coming in. You know, those levels have continued to be exceptionally high.
Got it. Maybe if I could just squeeze one more in there. Now, Naftali, it sounds like you've pointed a bunch of different levers there to navigate the current fuel and food inflationary environment. Can you guys talk about if you've started to consider price there as a lever to help offset these pressures? How accommodating do you think the guests would be given that we're still somewhat in a restart mode here?
Sure. As you can imagine, inflation or not, we're trying to maximize price every day. That's revenue management team's job, and that's what we do here. We do it every day. As you can see, the volumes are obviously picking up. You see the pricing that we command for our products. You know, we try to do that decoupled from the pressures maybe that we're seeing on the expenses side.
Yeah. I think the other thing just to add, what we do see over time, whether it's with inflation or other related activities in the macro environment, is as the consumer recalibrates its willingness to pay more for things and they see comparables and they're paying more, right? There's this gravitational pull to those locations. So we do, as Nat said, we try to maximize revenue each and every day, whether it's ticket or on board. At you know, the same time what we do see is as the consumer begins to gravitate towards higher pricing as they get calibrated to what they're paying for a hotel room, or what they're paying for other services and restaurants and so forth.
Makes sense. Thank you.
Thanks.
Our next question is from Vince Ciepiel with Cleveland Research Company. Your line is now open.
Thanks. You alluded to kind of the value of cruising versus other land-based and the goal to close the gap over time. When you look here recently, Marriott said March bookings ADR were running 12 ahead. Bookings saw ADR run 20% ahead in April. Airbnb's 2Q outlook calls for ADR to run like 30% ahead. I'm curious kind of what you're seeing in your leading-edge bookings on pricing for all future period. Has that been accelerating, you know, through the course of the last 3-4 months? As that continues to layer in, is your book position for the second half and for 2023, the embedded pricing there moving higher over the last, call it 60 days?
Yeah, I think that's. Well, Vince, I think that's exactly what we're seeing. I do think that in the backdrop of this, you know, the entire industry is coming back online at the same time. There's a lot of, you know, ships coming online, which I think causes a little bit of noise in the system overall. I think we look at two things. One, you know, we're looking real-time at what people are paying, and as you noted, we're seeing those similar trends. Though still at a discount to what the hotels and other operators are getting. By operators, I mean non-cruise. We also look at what's happening on board.
I think you have to look at those two things in combination because that's how the consumer looks at their travel experience in combination. It's not just a hotel room. It's not just an airplane seat. You know, this is a kind of total vacation package that's kind of in their consideration. You know, what we've talked about as it relates to onboard spend combined with the ticket, you know, certainly kind of all connects to that storyline.
As we mentioned, obviously, as we look ahead in our book position both for the second half and 2023, we are higher, you know, without even the impact of the FCCs compared to 2019.
Great. Another on costs. I'm not sure if you've mentioned this or not, but obviously, you know, through COVID, you've become more efficient, newer ships, some cost changes made even on the land side. How are you thinking about longer-term kind of non-fuel unit costs? Do you think they can get back to those 2019 levels just with everything going on right now with inflation and wages and labor, food? How are you thinking about the longer-term unit cost opportunity?
Yeah, you noted well that we had great margins before the pandemic. We had these leading margins, and our goal is to get back to and beyond those margins as soon as possible. You mentioned some of the factors. We've done a lot throughout the pandemic, and this is what we're working towards as soon as possible. Yes, there are some inflation, kind of inflationary pressures you call it around fuel and food that we pointed out. We're seeing some stabilization, but all the things that the
Great. Thank you.
Thank you.
Our next question is from Stephen Grambling with Goldman Sachs. Your line is now open.
Hey, thanks. I just want to follow up on your answer there to Vince's comment on price and onboard. I guess I would note that the hotels and others are also seeing very strong food and beverage, which I would think is kind of comparable to the onboard. And those are often running also double digits up versus 2019. To make sure I heard you correctly, I think you said that the magnitude of both of these combined, you feel like is effectively comparable to those peers? Or is the higher capacity growth across the industry driving that perhaps a little bit lower, but the overall dollars are kind of ending up in the same place?
Yeah. My point was that directionally, it's exactly what we're seeing. My comment was in the short run, there's you know, you have a lot of ships coming online, and there's different you know, category mixes that are in play that can cause some noise, you know, as you guys are doing price checks and so forth. What we're seeing in recent bookings, what we're seeing, obviously what our guests spend directionally is very much in line with what we're hearing from other travel providers.
Got it. That's helpful. Then this may be a difficult thing to assess, but given this is the first time the entire fleet has really been shut down and restarted, is there any risk or any thoughts that we need to consider around kind of deferred maintenance CapEx or, you know, other onboard maintenance type costs that may need to be incurred as the whole ship fleet gets up and running over the next couple of years here? Thank you.
Yeah. Thanks, Stephen. We hope that this will be the only time that we will see that we have shut down the fleet, that's for sure. What we've done throughout, and I think we spoke about it in past quarters, is even through the pandemic, and even through the shutdown, the way we laid up the ships, the way we continued to maintain them, was one of our key goals. We still maintained them. You know, the layup was such that it will help us to get the ships back quicker and without many issues. I think we're very pleased as we bring in the full fleet, we're not seeing something that is out of the ordinary.
That's you know kinda how we think about it, and we do not expect it to weigh on maintenance costs in the next couple of years.
Helpful. Thanks so much.
Our next question is from Fred Wightman with Wolfe Research. Your line is now open.
Hey, guys. Good morning. Just another one on that gap versus what you're seeing versus land-based peers. I mean, Jason, you made a comment as far as just looking to reset that. Do you feel like the current environment is a situation to where you could look to close that gap pretty materially versus land-based peers? Do you think that you wanna maintain a bigger gap just to try to get back some of that market share that you guys might have ceded over the past year or two? How are you sort of thinking about that at high level?
Yeah. Well, we're like we had said earlier, like we're always trying to maximize our revenue, and price integrity is very much kind of important part of that. So I don't think that we're doing anything to try to kind of certainly maintain a gap. You know, pre-COVID, you know, the combination of things like Perfect Day, you know, you could add things like the Edge class ships and so forth, like we saw a pretty significant reduction in that gap to land-based vacations, especially in key products like in Orlando and other products, you know, that are out there. I think that, you know, we very much are focused on that.
We have really managed to enhance the experience both on the ship and on land, you know, based off of really tuning into the customer for us to be able to go ahead and do that. You know, I think that's why, you know, we are seeing, you know, similar trends. When you look at the overall fleet as a whole and you compare those to a land-based vacation in Europe, or you look at a land-based vacation in Alaska or Vegas, et cetera, you know, there's still that gap and there's still that opportunity that, you know, that we're very honed in on. I mean, that's really where, if you saw us pre-COVID or during COVID, where we have focused our energy is less about our cruise peers, but more about how do we close those gaps to land-based vacations.
Great. Thank you.
Our next question is from Paul Golding with Macquarie Capital. Your line is now open.
Great. Thanks so much. Just wanted to ask about China. I know, in the prepared remarks, you commented that you're poised to reenter that market. Just wanted to ask if there was anything longer term or structural that may be shifting, in terms of future plans for itinerary deployment based on the volatility we've seen in Asia in terms of reopening, and what expectations you have, in terms of a normalized period, once you can redeploy ships there. Then I have a follow-up on labor. Thanks.
Hi, Paul, it's Michael. I think we, you know, we've stated previously our strategic intent is to return to the China market. We've been in the market for over a decade. We've had some phenomenal years in the China market, and we've had a very successful operation there. You know, the volatility's existed in all markets for the past two years, including China. I think it's regretful that the China market is still not accessible to us, and I think our current thinking was that 2023 we would be back in the China market. I'm not sure whether that'll
Come true or not, it could be 2024, but we're ready to go, and we're looking forward to returning to the market. I think when you look at the region of Asia Pacific, it's always been a meaningful market for Royal Caribbean Group, and our intention is to return to that market and to leverage the opportunities that we have. We've spent time building our brand in China, where in our space, we're a very well-known brand. We're very liked, and we have very good consumer following with the Royal Caribbean International brand. We think that when the market opens back up, we'll be able to re-access the market and get back to business. That's exactly what we're thinking.
Like, well, on the labor side, some of your land-based entertainment peers have cited waning wage increases this year as they tap international labor. I was wondering for shoreside operations, if you're seeing a similar picture, what your thoughts are around rate increases on shoreside labor for this year. Thanks so much.
On a shoreside standpoint, I think we're experiencing. I mean, most of our shoreside employees are, you know, your sales and marketing, your accounting, your supply chain, et cetera. So, you know, what we're experiencing there is similar to what I think most organizations are experiencing, though, I think because, you know, we wake up every day delivering the best vacations in the world, we tend to be more attractive than others in terms of attracting talent, so we're very fortunate for that. I think what people are experiencing in hotels and others in terms of that labor force, you know, we're, you know, certainly, you know, getting 75,000 employees back up and running on our ships was a tremendous and herculean effort by our teams.
For the most part, that's been able to be managed well, and you can see that really through the Net Promoter Scores that we're seeing on our ships.
Great. Thanks, Jason.
Sure. We have time for one more question. Abigail.
Sure. Our last question is from Ivan Feinseth with Tigress Financial Partners. Your line is now open.
Hi. Thanks for taking my question and congratulations on the ongoing progress.
Thanks, Ivan.
Could you go into a little more detail about your pre-cruising planning app and what kind of things it connects to, and what are some of the things that you can do with it and how you're seeing that, you know, add incremental revenue specifically outside of just onboard spending?
Well, Ivan, it's Michael. I mean, the pre-cruise revenue is fundamentally about onboard spend. I mean, everything that we're marketing is about the products and services that, customers, consumers are purchasing. I mean, historically, when they boarded our ships, they would purchase different packages and products. Now, we've over time developed the sophistication and the ability to not only use the analytics and the information that we know about the customer to offer them products and experiences and services that we think they're going to like. We've also been able to, over time, through testing, bundle these promotional products together to not only maximize revenue but also ensure that we're delivering a great vacation experience to the guest. You know, in some cases, we've got customers who prefer gaming and dining. In other cases, we've got families who prefer shore excursions.
We now have the ability to tailor our communications and our promotions to those customers based upon what we think their key preferences are. The fact that we can start that cadence of communication after the ticket purchase gives us the time to really engage with the customer, so we can start a dialogue about the kind of products and services that they want. I think, you know, over time, as we've built this knowledge and expertise. To Jason's point, this really is the beginning of this journey. I think what we've learned in this journey is how we can offer product bundles, manage the right pricing to different customer groups and segments and be successful with it. We continue to see the penetration rate increasing, and obviously the purchase is quite significant.
That's kind of the journey that we're on with this.
Yeah. Ivan, you know, to put this into context, you know, as everyone here who's heard us for years talk about Project Excalibur, which was our journey to take friction out of the guest experience, and that has come through engagement and providing tools and technologies and app, you know, that allows you to, whether it's booking your cruise, whether it is, you know, being able to just walk on and off of our ships in very short periods of time, on-demand services. It's really kind of just continuing to build out this journey of taking friction out.
What we know is if we can take friction out of the experience, and the friction is also booking shore excursions and spa appointments, et cetera, that you know, the guest is very much willing to spend when they're aware of what the offering is to them. The tools and technologies also allow us to be able to yield manage in real time, as well, which allows us to you know, take advantage when there are those opportunities.
Just to add, Ivan, I think one of the other beautiful things of this is, to Jason's point with the development of the app, the integration between the pre-cruise and the app is very harmonious. When we're communicating with you before you sail and you purchase various packages and products, then when you board the ship and you sign into the app, all of those products and services are made available to you on a calendar. There's reminders. There's communication to you. It's a very seamless process.
Okay. Very good. Now also, you can, let's say, proactively market both before and/or use it to proactively market both before and onboard? Let's say if there was downtime in the spa, you could connect with somebody.
Yes. Yep. Yeah. Yeah.
to book an appointment.
Yeah.
Exactly right, Ivan. Yeah.
All right. Sounds appreciated. Thanks. Thanks again.
Thanks, Ivan.
Thank you.
Ongoing.
Thank you.
Well, thank you for assisting Abigail with the call today, and we thank all of you for participation and interest in the company. Michael will be available for any follow-up you might have. I wish you all a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.