Carnival Corp. (CCL) Q1 2025 Earnings Call Transcript

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Carnival Corp. (NYSE: CCL)
Q1 2025 Earnings Call
Mar 21, 2025, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Carnival Corporation & plc's conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Beth Roberts, senior vice president, investor relations. Thank you, Beth. You may begin.

Beth Roberts -- Senior Vice President, Investor Relations

Thank you. Good morning and welcome to our first quarter 2025 earnings conference call. I'm joined today by our CEO, Josh Weinstein; our chief financial officer, David Bernstein; and our chair, Micky Arison. Before we begin, please note that some of our remarks on this call will be forward-looking.

Therefore, I will refer you to the forward-looking statement in today's press release. All references to ticket prices, yields, and cruise costs without fuel will be in constant currency unless otherwise stated. References to yields will be on a net basis. References to cruise costs without fuel, EBITDA, net income, and ROIC will be on an adjusted basis unless otherwise stated.

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All of these references are non-GAAP financial measures defined in our earnings press release. A reconciliation to the most directly comparable U.S. GAAP financial measures and other associated disclosures are also contained in our earnings press release and in our investor presentation. Please visit our corporate website, where our earnings press release and investor presentation can be found.

With that, I'd like to turn the call over to Josh.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Thanks, Beth. Once again, we delivered a fantastic quarter, this time hitting first quarter high-water marks for revenue, EBITDA, EBITDA per ALBD, operating income, and customer deposits. Net income came in more than $170 million better than guidance as we outperformed across the board, led by incredibly strong demand throughout our portfolio. We achieved a robust 7.3% yield increase, smashing our yield guidance, on top of last year's 17% yield improvement.

Both ticket and onboard equally outperformed on very strong close-in demand, which speaks to the strength of our consumer. Unit costs also came in better than expected, mainly due to timing between the quarters. This resulted in a near doubling of operating income for the quarter and EBITDA that reached $1.2 billion, approaching a 40% year-over-year increase. Operating margins and EBITDA margins each improved over 400 basis points year over year, with both of these now surpassing 2019 levels.

For the full year and despite heightened macroeconomic and geopolitical volatility since providing our December guidance, we are taking up yields by half a point to 4.7% based on our strong first quarter results while affirming yield expectations for the remainder of the year. In addition, David and our finance team stepped up our refinancing efforts, which will bring another approximately $100 million to the bottom line this year alone. Combined, this successful execution has enabled us to take up our earnings guidance for the year by $185 million. 2025 remains on track to be another very strong year for our brands, with yield growth far outpacing historical growth rates and nicely exceeding unit cost growth, delivering approximately $600 million incrementally to the bottom line, more than a 30% improvement from 2024.

And that is essentially on flat capacity growth. Achieving our March guidance will also result in reaching both of our 2026 SEA Change financial targets one year early, with ROIC hitting 12% and EBITDA per ALBD more than 50% higher than just two years ago, taking each of these two metrics to levels not seen in the better part of 20 years. At the same time, we're also closing in on our 2026 greenhouse gas target with an over 19% reduction in carbon intensity compared to 2019. We're generating demand well in excess of our very limited inventory remaining, which has been driving strong pricing for the remainder of the year while also building demand for future years.

In fact, we're at historical high prices across all core programs for 2025 and all quarters of the year, while booking volumes for 2026 sailings and beyond taken during the first quarter also reached an all-time high. We were very well positioned going into wave this year, and we exited with over 80% of the year on the books at higher prices and with a booking curve that is still the farthest out on record. We have no plans to let up anytime soon. As we foreshadowed on the last call, we kicked off new marketing campaigns across all major brands during wave season to fuel more broad-based consideration for cruise travel and keep the strong momentum going.

Costa kicked up the volume at the Sanremo Music Festival, among Italy's most renowned music events, which was watched by over two-thirds of Italy's television audience, featuring a live performance onboard Costa Toscana. Carnival Cruise Line was also a standout at the Oscars, selected along with a few other household names for a themed promo honoring stunt performers and featuring a daring skydive into a pool onboard Carnival Celebration. Of course, Carnival Cruise Line has clearly amped up the volume around Celebration Key, which was showcased while lighting the iconic New Year's Eve ball drop in Times Square, and continued through the Super Bowl in New Orleans, featuring our celebrity chef partners Emeril Lagasse and Guy Fieri, as well as brand ambassador Shaquille O'Neal. These two events alone captured over 5 billion impressions across paid, earned, and owned media.

And Carnival's adorable wave campaign Flip, Lost in Paradise was a hit, getting huge cut-through, with marketing KPIs up across the board. If our marketing team managed to get that kind of traction around what is still computer-generated animation, I look forward to four months from now when all five portals built for fun at Celebration Key are open for our guests and can be showcased. We're on track for our July opening and executing our ramp-up plan into the fourth quarter as our team settles into these new operations and focuses on delivering the kind of phenomenal experience our guests have come to expect from our exclusive destinations. RelaxAway, Half Moon Cay is also on schedule for the second half of 2026.

We've already begun to increase our marketing around this enhanced and rebranded jewel in the Caribbean. And we'll have more to come on our plans to increase awareness and consideration for our brands as we leverage our underexposed portfolio of Caribbean destinations. Turning to Alaska. We just announced an expansion and renovation project to Denali Lodge, one of our nine owned and operated hotel properties, building on this unmatched strategic advantage for Holland America and Princess Cruises.

Enhancements will include the addition of 120 new guest rooms and suites, room remodelings, additional food and beverage venues, and improvements to public spaces and nature trails. Our brand's land-sea packages are a huge draw for new-to-cruise guests and truly the best way to experience the greatness of Alaska. We also just completed the first of seven AIDA ships to undergo our AIDA Evolution program. AIDAdiva is now sailing from Rome, having just returned from a seven-week dry dock, with many added features that our German guests have come to love on AIDA's newer vessels.

This includes over half a dozen new bar and dining venues, new suites, and equipment upgrades to enhance fuel efficiency. AIDAluna will start her evolution later this year, followed by AIDAbella and AIDAmar in 2026. We also further progressed on optimizing our portfolio. Just this month, we completed the sunsetting of our P&O Cruises Australia brand by folding its two remaining ships into Carnival Cruise Line.

We also consolidated our Seabourn fleet with the sale of Seabourn Sojourn. While we were not actively looking to sell the ship, the offer was in the best interest of our shareholders. The sale leaves Seabourn well positioned with a phenomenal fleet of three ultra-luxury ocean vessels and two recently launched ultra-luxury expedition ships, which comprises one of the most modern fleets in the industry at an average age of just over seven years. Now, turning back to the business, and as you can see from our first quarter outperformance, onboard spending, and booking levels, we have proven to be incredibly resilient to the volatility around the globe.

Having said that, even with our resilience and strong visibility given that so much of 2025 is already on the books, we aren't taking the current backdrop lightly. We will be working hard to achieve these results. Thankfully, our team is nimble and agile, characteristics, as you know, we honed so well over the first half of this decade, leaving us better positioned to manage through whatever comes our way. We have strong well-recognized brands that are No.

1 or 2 in every major market for cruise, often tailored specifically to phenomenal national markets such as the U.S., Germany, and the U.K., markets that are deep and under-penetrated. We are delivering amazing vacation experiences every day in a time when people all over the world are placing increasing importance on experiences, particularly those spent with friends and family. And on top of that, we are still a ridiculously amazing value compared to land-based alternatives. While we have been chipping away at the price gap to land-based alternatives, the price-to-experience ratio of cruising versus those other options remains massively disproportionate.

While somewhat frustrating and while still a big opportunity over the coming years, this huge value for money is also truly a strength when people are looking to make their vacation dollars go even further. And it's about to get even better with the opening of Celebration Key, our marquee port in the Caribbean, which will give our guests yet another reason to come cruise with us. We have been making huge strides on rebuilding our financial fortress as we close in on investment-grade leverage metrics. We have well-managed near-term maturity towers and no new ships for delivery in 2026, which gives us a good amount of headroom to continue paying down debt.

In fact, we have just three ships on order over the next four years, further supporting our ability to reach investment-grade leverage metrics within 2026. Simply put, we are well-positioned for the future and are pushing forward with intention. I'll end by saying thanks to our travel agent partners, loyal guests, investors, destination partners, and other stakeholders who have contributed greatly to our results. And of course, a special thank you to each of our team members for driving outperformance once again.

But most important for our long-term success, thank you to each and every team member for delivering unforgettable happiness to our guests by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sail, place we visit, and life we touch. With that, I'll turn the call over to David.

David Bernstein -- Chief Financial Officer

Thank you, Josh. I'll start today with a summary of our 2025 first quarter results. Next, I will provide some color on our improved full year March guidance. Then I'll finish up with an update of our refinancing and deleveraging efforts.

Turning to the summary of our first quarter results. Net income exceeded the December guidance by more than $170 million as we outperformed once again. The outperformance was essentially driven by three things. First, favorability in revenue worth $98 million as yields came in up over 7% compared to the prior year.

This was 2.7 points better than December guidance, driven by both close-in strength in ticket prices and strong onboard spending. Second, cruise costs without fuel per available lower berth day, or ALBD, were only up 1% compared to the prior year. This was 2.4 points better than December guidance and was worth $65 million. The favorability in cost was mainly due to the timing of expenses between the quarters.

We did find some permanent savings, which flowed through to the full year, which I will touch on later in my remarks. And third, favorability in interest expense of $13 million was driven by our refinancing efforts during the quarter. Yield improvement in the first quarter versus the prior year was driven by improvements on both sides of the Atlantic, from higher ticket prices and improved onboard spending. The improvement in ticket prices was broad-based across all core programs.

The improvement in onboard spending, which accelerated from last quarter, was also broad-based as all categories of spending were meaningfully higher. Continuing the trend from last year, our European brands continue to outperform year over year on both price and occupancy. Customer deposits at the end of the first quarter were up over $300 million versus the prior year, driven by both improved ticket prices and increased pre-cruise onboard sales. Next, I will provide some color on our improved full year March guidance.

March guidance net income of approximately $2.5 billion is a $185 million improvement over December guidance. The improvement was essentially driven by two things: our first quarter favorability in yield flowed through to the full year, improving our full year yield guidance by half a point to 4.7% versus the prior year; and our refinancing efforts during the quarter allowed us to lower our full year interest expense guidance by $100 million. I did want to point out that absolute cruise costs excluding fuel are expected to be slightly less than December guidance. As I previously indicated, we did find some permanent savings during the first quarter, which flowed through to the full year.

However, those savings were partially offset by higher dry dock costs because of a couple of unplanned dry docks and charter hire costs associated with the sale of one of our vessels during the month of March. While charter hire costs increased cruise costs, they are offset by lower depreciation expense. With absolute cruise costs slightly better, the change in cruise costs without fuel per ALBD is 3.8% for March guidance, which is simply the math of spreading lower cruise costs over the revised ALBDs, which changed from December guidance because of a couple of unplanned dry docks in 2025. All of this results in 6.7 billion of EBITDA, a nearly 10% improvement over 2024, virtually all of which was driven by same-store revenue growth as our capacity is essentially flat year over year.

Now, I'll finish up with an update of our refinancing and deleveraging efforts. During the quarter, we refinanced 5.5 billion of debt, which is 20% of our total debt, with three very successful transactions. These transactions included our highest coupon debt instruments and delivered an incremental 145 million in annualized interest expense savings. We have been opportunistically reducing interest expense while simplifying our capital structure and managing our future debt maturities.

Today, our average cash interest rate is down significantly at just 4.6%. Over the last 12 months, we reduced our secured and senior priority guaranteed debt by approximately $4 billion, with more reductions to come. Our near-term maturity towers are well managed with just 1.1 billion of debt maturities for the remainder of 2025 and 2.7 billion for the full year 2026. During the first quarter, we reduced debt by another $0.5 billion, ending the quarter with $27 billion of total debt.

With the benefit of well-managed near-term maturity towers and improved leverage metrics, over the remainder of this year and through 2026, we expect to opportunistically execute the rest of our current refinancing plan: prepaying debt, further simplifying our capital structure, optimizing our future debt maturities, and further reducing our interest expense. For the two-year period of 2025 and 2026, this refinancing plan, combined with our strong and growing cash flow and just one new build being delivered over this time, has the potential to reduce debt by nearly $5 billion from where we ended 2024. And let's not forget that we ended 2024 over $8 billion off the January 2023 peak. Looking forward, we expect our leverage metrics to continue to improve as our EBITDA continues to grow and our debt levels continue to shrink, increasing our confidence in achieving investment-grade leverage metrics in the short term as we move further down the road, rebuilding our financial fortress while continuing the process of transferring value from debt-holders back to shareholders.

Now, operator, let's open the call for questions.

Questions & Answers:

Operator

Thank you. We'll now be conducting a question-and-answer session. [Operator instructions] Our first question comes from the line of Ben Chaiken with Mizuho Securities. Please proceed with your question.

Benjamin Chaiken -- Analyst

Hey. Good morning. Thanks for taking our questions and for all the helpful commentary. I think it would be great if you could provide some more color on maybe how we're trending since the 4Q period.

Anything notable regarding changes to the consumer or demand trends? I know that you noted not being immune from the macro, which, I guess, shouldn't be a surprise, but just maybe some more color on what exactly that means. And then one quick follow-up. Thanks.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Good morning, Ben. Thank you for acknowledging we do live on planet Earth. So, you know, look, wave was a success, right? I mean, we set a record for bookings for further out-years. We came in to wave at historic occupancy and price.

We used that to our advantage. We took price. And we're well set up for the rest of the year. Hence, not only do we pretty much smashed Q1 on the yields, but we maintained yield guidance for the rest of the year over 4%.

So, I think we feel real good about how we -- how we've been tackling things, and our brands are doing a good job.

Benjamin Chaiken -- Analyst

Got it. That's very helpful. And then just to clarify maybe some of David's comments, you know, you beat the 1Q, you smashed the 1Q, to your point, by 165 million, raised the guide, at least from what we can tell, by around 100. Our take from your comments is that the net yield outlook for Quarters 2 through 4 is the same.

I think costs were actually slightly lower per David's comments, but the net cruise cost higher because of lower ALBDs from the dry docks. I guess, what was the ALBD impact, if I got that right? And then I hate to be overly granular, but does the 165 beat in 1Q, versus the 100 million flow-through, driven entirely by the lower ALBD dry dock dynamic or is there anything else that you would flag? Thanks a lot.

David Bernstein -- Chief Financial Officer

So, the -- first of all, the flow-through to the year was a combination of two things. It was the yield that flowed through from the first quarter, which was 98 million, as well as 100 million of interest expense. And the total improvement for the year, I think, was $183 million.

Benjamin Chaiken -- Analyst

I guess I was referring to EBITDA. Sorry -- yeah. Sorry, the 165.

David Bernstein -- Chief Financial Officer

Oh, EBITDA. Yeah. So, the EBITDA is just basically the net income less the interest.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah, the yield -- I mean, Ben, the short answer is the yield flew -- flowed through for the year. The cost was mostly timing, which is why you don't see the full amount from Q1 going into the full year. We did reduce our absolute costs in a couple of ways, you know, a few tens of millions of dollars. But because of the reduction in ALBDs because of the extra dry docks, it basically covers it up.

Benjamin Chaiken -- Analyst

OK. Got it. That's very helpful. Thanks for clarifying.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Sure. Thank you.

Operator

Thank you. Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.

Robin M. Farley -- Analyst

Great. Thanks very much. Obviously, a lot of concern among investors because of some airline commentary and, last night, a hotel data point. So, great news to raise guidance, you know, mostly by the Q1 beat when we look at the yield.

And just given how you talked about the close-in being strong and onboard being strong, does that suggest that you're not raising the next three quarters yield because you want to be cautious, obviously, given the environment but there would be that potential -- if your expectations for the close-in and onboard are still what they were three months ago, that there's potential upside to that guide? Is that the way to think about the rest of the year?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah. Look, I mean, the strength of Q1 was pretty fantastic, and that was driven by both the close-in demand on the ticket and just tremendous onboard spending. We're talking about, you know, 10% growth year over year for the first quarter, which is actually an acceleration of onboard spend trends versus year-over-year growth from the fourth quarter. And frankly, the onboard spend that we've seen in the first couple of weeks of March hasn't slowed down.

So, we do feel good about the strength of our consumer. I mean, clearly, I just want to, you know, recognize that there's just a lot of volatility in the backdrop, right? And with new cycles comes volatility. We feel good about our guidance. We feel good about our ability to deliver it.

We always want to outperform, and brands work on that day in and day out. I certainly don't promise anything other than we're going to do our best.

Robin M. Farley -- Analyst

Great. Thank you. And then maybe just as a quick follow-up, just if there's a way to maybe quantify with the expense. Obviously, you said some of it was because of the ALBD.

Is there a way to think about either the dollar amount of sort of ongoing structural net cruise cost expense reduction, if -- and also excluding from that the higher charter costs from the Seabourn ship, right, because that's just sort of shifting from depreciation sort of temporarily and not really structural costs? So, what -- how should we think about the sort of additional dollar amounts of structural costs excluding that and excluding -- you know, if we think of the aggregate dollar amount, then the ALBDs in the denominator won't matter. Thanks.

David Bernstein -- Chief Financial Officer

Yeah. So, the -- on the 65 million of cost in the first quarter, we said most of it was timing, but probably about a third of it was permanent cost savings. And we're always looking for ongoing cost savings. And, you know, we do have the lowest -- the best cost structure in the industry, but that -- we don't stop there.

We keep on finding ways to improve over time. And we'll do that, you know, this year and next year and beyond.

Robin M. Farley -- Analyst

OK. Great. That was totally clear. Thank you.

Thanks.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Thank you, Robin.

Operator

Thank you. Our next question comes from the line of Steve Wieczynski with Stifel. Please proceed with your question.

Steven Wieczynski -- Analyst

Hey, guys. Good morning and congrats on the first quarter. So, Josh, I want to ask, you know, about bookings that you're taking in right now for 2026. And I know it's still a little bit early on, but just wondering if you're seeing any, you know, what we would call kind of material differences in bookings for '26 by brand or maybe if you're seeing customers, you know, book, but maybe they're not pre-booking onboard as much or they're taking lower cabin categories.

Just -- I mean just trying to make sure there isn't anything you're seeing right now, you know, as we look further out that would be concerning to you guys.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah, of course. Thanks, Steve. Thanks for the compliment. No.

I mean, I guess the short answer is no, there's nothing that I'd say on a brand-by-brand basis was raised, anything of interest to talk about. You know, I love the fact that we can say that we can walk and chew gum at the same time and finish out '25 and still, you know, ground ourselves with a good foundation for '26. And I think with a, you know, record book position at higher prices, that's exactly what the teams are doing.

Steven Wieczynski -- Analyst

OK. Gotcha. Makes sense. Sounds good.

And then the second question, it's going to be kind of somewhat the same question that Robin asked. I just want to ask it a little bit differently. But, you know, you beat the first quarter by -- I think it was 270 basis points on the yield side of things. So, you know, I guess as we think about the -- and we can see your second quarter guidance now.

So, if we think about the back half of the year, if the consumer stays status quo, there's no change in onboard, close-in remains strong, I'm guessing there's probably upside to your back half guidance. I'm just trying to ask that question maybe a little bit differently. Or maybe, you know --

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Just to be clear, if our onboarding remains really strong and our close-in demand remains really strong, then yeah, I think you're right.

Steven Wieczynski -- Analyst

OK. That's all I needed to hear. Thank you very much.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Thanks, Steve.

Operator

Thank you. Our next question comes from the line of Brandt Montour with Barclays. Please proceed with your question.

Brandt Montour -- Analyst

Good morning, everybody. Thanks for taking my question, and I'll echo the congratulations on the first quarter and raising the full year guide. My question is a permutation of something you may have already gotten. I hope not.

But, you know, Josh, you guys see a lot of different consumers and you see a lot of different areas of the world and how the behavior of those consumers can evolve with the current macro backdrop we're in. I'm curious if you're seeing any sort of relative differences between onboard and consumer booking behavior between Europe and America, as well as between drive to and fly to.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Got it. So, good morning, Brandt. So, you know, we've been talking for a long time about the strength of the portfolio and the portfolio approach that we have. And, you know, going to sound like a broken record, but as I've been saying probably for the last six quarters now, Europe has been driving things forward real nicely, and that has continued.

That's not a surprise for us because of the whole structural way that we were, you know, amping up everything since a couple of years ago. So, that's remained consistent, which doesn't mean that North America is not performing. It just means that our European brands are outperforming the outperformance we got on this side. So, I feel pretty good about that.

I'd say, you know, consumers, whether you are low-end, middle-of-the-road, high-end, luxury, every person is different, right? And every person is going to internalize the backdrop of what they're dealing with differently and make their choices. And our portfolio approach works incredibly well against that backdrop.

Brandt Montour -- Analyst

Thanks for that. And then just a quick follow-up. You know, if let's say that -- you know, no one has a crystal ball. Let's say the consumer slows further and if there's a slowdown in bookings industrywide or let's just even say away from you, how do you perceive the industry's current willingness to sort of hold price or act more rationally than it has in the past?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Look, I'll speak for myself. I won't -- I will not speak for the industry, other than to say I think the industry overall is on good solid ground, got great leaders at those operations that are doing real good things for the industry, as well as their brands, and we're increasing consideration, increasing demand, which is a great thing for everybody. With respect to us, you know, I -- we're executing on the things that we've been talking about for years. It's resulted right now in us being better booked than pretty much we've ever been.

We have great visibility, not that much to go in this year. Onboard spends, we pull forward, which has enhanced visibility versus, you know, prior periods. So -- and we, in particular, we have no capacity growth, right? So, we are in a fairly enviable position, I think, that even new builds are great, but we can do a lot with what we've got. And having only one ship coming this year, none in 2026, one in '27, I mean, that, for us, that's a fantastic road map for success.

So, we're looking forward to it.

Brandt Montour -- Analyst

Thanks a lot. Congrats again on the quarter.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Thank you.

Operator

Thank you. Our next question comes from the line of James Hardiman with Citigroup. Please proceed with your question.

James Hardiman -- Analyst

Yeah. With the -- I guess tying this all up, outside of bookings and onboard spend, which you've talked about, are there any other forward indicators that you think might be a good indicator of your consumer sentiment or whether how they are with respect to making payments for their trips or how many are buying travel or insurance or any -- what any of those indicators are showing?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

James, you're going deep. No, nothing out of the ordinary that would trigger flags. Cancellations are fairly consistent. So, there's really nothing else that we'd probably put on the table to talk about as anything of significance.

James Hardiman -- Analyst

Fair enough. And with the 12% ROIC in sight, can you give us any indication of what you think the long-term opportunity is there specifically and how you guys think about the return profile for Celebration Key and your other sort of non-ship investments? Are there any other investments that we should be thinking about that are significantly ahead of the -- your corporate average?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Well, I think, overall, we feel really good about the progress we've been making on the returns that we're generating. I certainly don't view and never did view 12% as an ending point. So, mid-teens is certainly realistic and certainly what we'll be shooting for. The things that are going to drive it are really the continuation of doing our jobs better across the brands in the commercial space, watching the costs like we always do as a low-cost industry leader, and being able to lean into the investments that we're making around Celebration Key, RelaxAway, and doing some other things with positioning of some of the destinations that we currently own, which are phenomenal.

And on top of that, you know, aside from the moderate -- I'd say modest capacity growth we have, we are investing in ourselves in other ways. We've talked about AIDA Evolution, for example. I think I said it in my prepared remarks, which, you know, you take one of the most successful brands in the world and you reinvest in them in their existing capacity to add revenue opportunities, cabins. That's going to serve us incredibly well, as is the investments we're making in Alaska to delight our guests and really cement our strategic advantage even further on our land-sea packages and what we have to offer in Alaska.

So, I think that we're in a pretty strong place.

James Hardiman -- Analyst

I guess just really quick off of that, delivering your targets so early, any indication when we might get a new outlook?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Man, I love that you're even asking that. So, I think we got to get to the targets, not just, you know, forecast them. So, you know, my expectation would be we'll be talking about our next set hopefully in early 2026, but that's -- you know, we got to deliver.

James Hardiman -- Analyst

All right. Thanks a lot, guys.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Patrick Scholes -- Analyst

Great. Thank you. Good morning, everyone. I want to follow up on the comment in here, you know, in the press release about not being completely immune from the heightened macroeconomic and geopolitical volatility since giving your guidance in December.

Regarding that volatility, have you actually seen the volatility have any impact on booking pace as the quarter progressed?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah, what we see -- look, we certainly saw ups and downs. I mean, we see ups and downs every year, so that's not terribly surprising. It all came out to the bookings we were able to make at the pricing that we wanted to make and sets us up, as we talked about, in a really good position. And at the end of the day, people just need to be getting used to the new normal, which is exactly what's happening.

You know, as a matter of fact, last week, booking was nicely ahead year over year. And not everything is the end-all, be-all for year over year, but it's what we talk about publicly. And particularly, you know, to the point people were asking about close-in, our close-in bookings last week for the second quarter, for literally sailing in the second quarter, we don't have that much to go, and the booking volume and pricing was just off the charts. So, you know, we just got to let the world progress.

We'll take what we want to take as we go and carry out the year.

Patrick Scholes -- Analyst

OK. Thank you.

Operator

Thank you. Our next question comes from the line of Jaime Katz with Morningstar. Please proceed with your question.

Jaime Katz -- Morningstar -- Analyst

Hey. Good morning. I want to talk a little bit about the cadence of costs over the rest of the year. I think there were set to be higher dry docks in both Q2 and Q3 this year.

And so, as we think about the arc of expenses, can you help us sort of flow through whether those are more equal or if maybe that is more weighted to Q2, those dry docks? Thanks.

David Bernstein -- Chief Financial Officer

So, the -- as I had indicated on the December call, we had expected that both the second and third quarter costs would be up a little bit more than the full year and that the fourth quarter would be up a little bit less than the full year. So -- and nothing's changed since then.

Jaime Katz -- Morningstar -- Analyst

OK. And then as we think about the lengthening of the booking curve, I'm just trying to triangulate what the visibility looks like now relative to the past. I think, historically, it used to be that you guys were booked maybe like 50% to 70% out for 2Q and then maybe 30% to 50% out for Q3. Has that decoupled a little bit and moved a little bit higher, just so we could have more certainty on what the rest of the year looks like?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah, that -- you know, all of those numbers that I used to give for the current quarter and the next three, we are above the top end of all of those ranges. And so, as a result, as Josh said, we're about 80% booked for the remainder of this year. If you took the top end of all the ranges, you'd be at -- you would get an average of 70 for the rest of the year. So, we're at the top end of all -- over the top end of all the ranges.

Jaime Katz -- Morningstar -- Analyst

Excellent. That's really helpful. Thank you.

Operator

Thank you. Our next question comes from the line of Conor Cunningham with Melius Research. Please proceed with your question.

Conor Cunningham -- Analyst

Hi, everyone. Thank you. You've been super clear on the strength of bookings, but I wanted to just maybe come back to the levers that you have if things did weaken. You talked about how you would work to achieve a lot of these results that are kind of flowing through.

And again, that doesn't seem like it's a demand problem. But like at the end of the day, if things were to weaken, what cost levers do you think you have right now that could be low-hanging fruit if things were to deteriorate on some level? Thank you.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Well, good morning. You know, the best lever we probably have is, you know, if the world takes a turn, we don't hedge. And because we don't hedge on commodities -- generally speaking, commodities turn with that world, and so there's a natural hedge in our business by the basis of how we run it. Look, we clearly can do a lot of things if we really choose or need to do that.

Our first goal is to deliver the results that we want to deliver because we think that's the right thing for the business, right? The guest experience that we want to give, the investments that we want to make for the long term, not just for the short term. Everything is always looked at pretty critically to decide, you know, what makes sense in the current environment because the world does change, and we've clearly got room, should we need to, to make a lot of changes, depending on what that circumstance could be.

Conor Cunningham -- Analyst

OK. And then I think a big part of the plan this year and over the next couple of years as supply is a little bit limited for you guys has been to push marketing spend and -- you know, to drive like improved revenue quality and so on and on. So, could you just talk a little bit about how that strategy is playing out right now? It seems like it's working, but I just -- the two levers that I think from a revenue management standpoint are just like inventory and marketing. So, if you could just, you know, talk about the balance of those two going forward, that would be helpful.

Thank you.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah, no, thanks very much. Yeah, we've talked about it. We've strategically been changing our investment approach when it comes to things like advertising. We're spending much more on a per-unit basis than we did back, you know, five, six years ago and still a good amount less than many others in the vacation and leisure space.

We think we're getting the balance right. As far as, you know, is it working, look, first quarter just ended. Our yields over the last two years are up 24%. I think that's probably a pretty good indication that it is working and also that you don't need new builds to drive that demand because a vast majority of our brands don't have any.

So, that same ship sails, if you will. And that goes to how we manage the curve on the yields, the advertising that we do, both the creative top-of-funnel type of things and then the digital performance, our relationships with the trade, and then delivering onboard. And I think the brands are doing an incredible amount of work to make that happen. And I do think advertising helps unlock that.

And so, we've -- we have unleashed it while maintaining the cost structure that we think is appropriate.

Conor Cunningham -- Analyst

Appreciate it. Thank you.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Thank you.

Operator

Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.

David Katz -- Analyst

Hi. Good morning and well done all around. I wanted to just bring forth a debate that we have a lot and is there any evidence that is shareable around, you know, any of the bookings from consumers trading down, right? We assume that there is some trading down to the value of a cruise versus, you know, the much more expensive hotels, particularly domestically and, you know, potentially, some that are maybe priced out of a cruise that may be at a different end of the spectrum. Is there anything that we can discuss or unpack there?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

So, I think that's two separate questions. So, first, the concept of "trading down" to a cruise, I'd look at it differently. I'd say that we have a tremendous price-to-experience ratio compared to land and people recognize that value more and more if they're looking to make their dollar go further. And even though it pisses me off when we look at the price gap because there's so much opportunity for us that I'm excited about, in those types of times, that is a huge strength that we have because we can outperform the experience we give for the price that we charge compared to land.

As far as -- and the fact that we're carrying more new-to-cruise than we ever have. You know, new-to-cruise, the growth rate for Q1 alone was significantly multiple times higher than the growth rate on the capacity. So, it's working. As far as trading down within cruise, there's nothing that we see because our brands have a pretty good mix within themselves to be able to cater to people at lots of different price points.

You know, we talk about Carnival a lot, and people have concerns about Carnival because of X, Y, Z in consumer. Keep in mind, Carnival's got suites on eight days, which are very different from inside cabins on three-nighters. So, we have a lot of product to be able to source lots of folks brand by brand up and down the price points.

David Katz -- Analyst

I'll apologize for the word choice about trading down.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

I appreciate that. Thank you very much.

David Katz -- Analyst

OK. My quick follow-up is that the sale of the Seabourn ship at a gain, can you just elaborate on, you know, the reasoning behind that and the timing of it? Just a little insight. Thank you.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah. I mean, it's actually pretty simple. We got a cash offer that when I looked at that offer versus what I thought the impact would be for that ship over an appropriate amount of time and what the impact would be on the rest of that fleet and its ability to manage its yields, it was a decision that was in the best interest of the shareholders. It's as simple as that.

You know, nothing is for sale. We don't have a for-sale sign up. But if people are approaching us unsolicited for offers, I'll listen. And if it's the right thing to do for the shareholders, then we'll do it.

And that was -- doesn't happen very often, but that was one of these cases.

David Katz -- Analyst

Appreciate it. Thanks very much.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah, I'll just say Seabourn is a phenomenal brand. We are talking about one of the youngest fleets around the world, ultra-luxury, and they are going gangbusters. So, the yields are up nicely like -- there's nothing wrong other than the fact that somebody made us an offer that we couldn't refuse.

David Katz -- Analyst

Got it. Thanks a lot.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Thanks.

Operator

Thank you. Our next question comes from the line of Matthew Boss with J.P. Morgan. Please proceed with your question.

Matthew Boss -- Analyst

Great. Thanks. So, Josh, close-in demand, off the charts. No slowdown in onboard spend in the last few weeks.

It seems like the near term is crystal clear. So, maybe multiyear, could you elaborate on new customer acquisition that you're seeing across the portfolio, maybe tied to the new marketing that you cited and walked through, and just structural improvement opportunities that you see across your brands given the portfolio approach that you have?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah. So, with respect to guest composition, you know, we're at -- it's actually a pretty interesting place now, right, because, effectively, with no growth on the horizon, every brand has the same capacity that they have year over year, which means it's -- we're not trying to fill new capacity and cast a net wider for purposes of just needing more bodies. And so, the idea of first-time cruisers, brand switchers, and loyalists, it really becomes a dynamic of who's willing to pay the most to get on the ship. And so, yes, we have been ramping up first-timers, which I think is a testament to the brand strengths and the marketing that they've been doing and the experiences that they give us.

Ultimately, though, ultimately, it's going to really be a matter of getting that optimal mix based on the price points and what generates the most revenue. I think it's also useful, over the next couple of years, it's extreme slowdown for us in capacity growth, but the industry overall is slowing, its growth rate. So, I think that there's -- that certainly doesn't hurt us. It helps us.

With respect to your second question, could you just elaborate a little bit more on what you were thinking?

Matthew Boss -- Analyst

Yeah. Just with the new marketing, what you're seeing in terms of new customers, as well as brands that maybe haven't returned to 2019 metrics, just the next leg of opportunity that you have relative to maybe others in the industry if we remain at robust levels?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah. You know, our brands are on a spectrum from having recovered past '19 levels to not yet there. Some of that has to do, as you've heard me say in the past, with what their '19 levels were to begin with. And so, we're not patting ourselves on the back in some cases because they exceeded 2019 levels because they should have been higher then and they are now, with plenty of runway.

I would say the vast majority of our brands have -- if we boil it down to ROIC, the vast majority of our brands have multiple points in the medium term that they're going to be able to take advantage of. And primarily, that's going to be due to continuation on the improvement we've been making on the revenue side. And that's what the trajectory is for those brands. They are making jumps by leaps and bounds, and they've got a lot more to go, and I am excited about that.

Matthew Boss -- Analyst

Great. And then, David, maybe just to switch gears, on your goal to return to the fortress balance sheet, how are you thinking about capital allocation priorities beyond debt paydown as you approach investment-grade metrics?

David Bernstein -- Chief Financial Officer

So, you know, as Josh said before, the immediate debt paydown is Priority 1, 2, and 3. But as I had indicated, you know, in my remarks, we're talking about potentially a $5 billion additional paydown. And when you start thinking about 2026, we should be beyond investment-grade metric leverage. And so, as a result of that, we'll be -- you know, not only are we investing in ourselves in all the examples that Josh gave, but we will be considering other priorities, and we'll be talking about that as we move forward into 2026 and beyond.

Matthew Boss -- Analyst

Great. Congrats on the continued momentum.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Thank you.

Thank you. Our next question comes from the line of Lizzie Dove with Goldman Sachs. Please proceed with your question.

Lizzie Dove -- Goldman Sachs -- Analyst

Hi there. Thanks so much for taking the question and congrats on a great Q1. I guess going back to luxury for a second, you know, you have Seabourn, you have Cunard. Obviously, the last few weeks, we've had mixed commentary from other cruise companies about luxury.

Curious, just to zoom in on that, anything you would kind of flag there and what you're seeing on the luxury trends specifically?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah. Good morning, Lizzie. Nothing interesting to talk about, I don't think. As you heard me say, Seabourn has been making great progress year over year, as is Cunard.

So, yeah, I'm sorry, just -- I guess the answer is no. Short and sweet.

Lizzie Dove -- Goldman Sachs -- Analyst

That's great to hear. And I guess totally switching gears for a second, I'll ask about Celebration Key. I mean, you're now through most of wave season. Curious just what you've been seeing there, how much the kind of consumer reception has been to the marketing you put around that, whether you're still on track to kind of open right at the end of summer.

Just any updates you can give around that would be helpful. Thanks.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yup. Thanks. Yup, no, first of all, from an operational standpoint, everything is proceeding exactly on track, and the teams are doing a phenomenal job, not only in the finishing up of the construction, but in the massive undertaking that is, you know, training and getting ready on the land-based operations themselves to be able to deliver the experiences that we want to deliver. We are seeing the premiums that we expected to see when we started this project a long time ago.

And so, things are progressing exactly -- I mean, honestly, exactly as planned, which is a shoutout to the teams for doing all the right things.

Lizzie Dove -- Goldman Sachs -- Analyst

Great. Thank you.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Thanks, Lizzie.

Operator

Thank you. Our next question comes from the line of Vince Ciepiel with Cleveland Research. Please proceed with your question.

Vince Ciepiel -- Analyst

Thanks. I wanted to lean a little bit more into the land there. When would you expect the Celebration Key to kind of be, you know, peak noticeability in your booking surge in light of how that Carnival product books, the opening, and awareness of the island? And then additionally, you know, I know this is the new part of your land portfolio, but you have quite a sizable footprint already. I know there's expansion with -- I think it's Half Moon Cay pier and investment into the Alaska part of the portfolio.

So, how are you thinking about your opportunity in the land stuff in years ahead?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Yeah. Thanks, Vince. So, a bunch of questions there. So, as far as the impact of Celebration Key, I think it's pretty fascinating.

We're still in make-believe land, right? So, everything we're putting out in -- on the marketing side really is in the imagination. And I think that, coupled with, as you said, the primary tenant there is going to be Carnival Cruise Line, a huge amount of which is short cruises, three, four, five nighters that have a much shorter window than booking on the sevens and eights, means that we haven't seen the -- by any stretch of the imagination, we haven't seen the full impact -- Carnival hasn't seen the full impact on the benefits. And I do think the ability to leverage it in operations and generate content and guest experience with our guests, with the trade is going to be a springboard forward, which is a great thing for Celebration Key. You know, we easily see a path where, you know, by the end of the decade, what was about 6.5 million guests going to our Caribbean footprint in 2024 could be upwards of 11 million, which is a phenomenal thing.

And I think the thing that we're learning, which we haven't really benefited from in full, is how we position -- how we brand and position our destinations themselves to make them part of the consideration set of the consumer. Because historically, it's very much been about just the cruise and the brand and then delight them when they're in our destination. But we have the ability to make it a driver for taking the cruise to begin with. And so, we're starting to lean into that, obviously, with Celebration Key, and we're going to do more of that.

And Celebration Key is something that, you know, when we open, that's just phase 1, and we've got plans that will take us through the end of the decade to be able to significantly increase that throughput, which, as I mentioned, helps us drive that guest count up to about 11 million. With respect to Alaska, look, we -- if you haven't been there, I strongly suggest you've got to do it by cruise. And if you do it, you have to do a cruise land-sea package because that is the greatest way to see the great state. And it is a strategic advantage that we do have given the scope of our operations in Alaska, and we're going to continue to lean into that because it is one of the most popular itineraries and programs that we have in the whole portfolio.

Vince Ciepiel -- Analyst

Great. I wanted to sneak one more in. You mentioned it a little bit earlier on the European business. In the travel industry more broadly right now, there's a lot of talk on inbound-outbound for the U.S.

And I know that you source a fair amount of your European brands in Europe, and I would imagine a lot of the North American brands are heavily over-indexed to North American guests. But anything that you've seen in your data on any shift in flow of inbound interest to the U.S. and if that at all is a big part of your business?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Well, I guess I'll answer it in reverse. Is it a big part of our business? No, it's not a huge part of our business. You know, we strategically try to put our ships where our guest base is. I think, you know, in the volatility that we talked about in the first quarter, certainly, Canada was swept up in that.

Now, for us, that's 3% to 4% of our business, just to put it in context. But clearly, we read -- you know, everybody reads the news, and we're not immune from that dynamic. But going back to the strategy, by being able to target specific countries with specific brands that cater to their needs and preferences and position them where people can get to drive if they want to, it's a recipe for success for us in this environment.

Vince Ciepiel -- Analyst

Great. Thanks.

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

Thanks. Operator, we have time for one more.

Operator

Thank you. Our final question comes from the line of Chris Stathoulopoulos with SIG. Please proceed with your question.

Chris Stathoulopoulos -- Analyst

Good morning, Josh, David, and team. Thanks for taking my question. So, I'm going to close it out. I'll keep it to one and hopefully try to, I guess, consolidate here the questions around demand because I think it's the question I'm getting here.

Investors are trying to tease out the health of the consumer and whether any weakness at this point is localized to a specific consumer demographic or region. So, if we use the airlines here as a proxy, there was a comment earlier on the call, last week, U.S. domestic basic economy close-in weakness, exact opposite of what you're seeing here. What is similar, it sounds like premium international demand is similar.

So, as we look across your brand scale from contemporary, premium, luxury and we adjust for mix shifts, the earlier question on regional source of travelers, is there anything that is different or unique with the pace of bookings or onboard spend at this point?

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

So, I guess, consolidated question, the short answer is no. You know, we -- just keep in mind, we're -- airlines come out with a lot of commentary. We are different from airlines and even different from hotels. We don't rely on business.

Business travel is not part of our portfolio. So, it is about the consumer. And, you know, good times and bad times, people take vacations. The unemployment rate in this country and the developed countries that we really source from are fantastically low.

So, does it mean that people want to think hard about how they spend their vacation dollar? Absolutely. Is it more important when times are stressful that they get away and take a vacation? Does it mean more to them? Absolutely. And I think we've learned that, you know, since the turn of this decade how much importance people place on it. So, you know, I think we are resilient, and we'll continue to work hard to deliver.

So, since you said it was one question, thank you for doing what I asked. I think we'll end it there. So, thanks, everybody, and talk to you next quarter.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Beth Roberts -- Senior Vice President, Investor Relations

Josh Weinstein -- President, Chief Executive Officer, and Chief Climate Officer

David Bernstein -- Chief Financial Officer

Benjamin Chaiken -- Analyst

Ben Chaiken -- Analyst

Robin M. Farley -- Analyst

Robin Farley -- Analyst

Steven Wieczynski -- Analyst

Steve Wieczynski -- Analyst

Brandt Montour -- Analyst

James Hardiman -- Analyst

Patrick Scholes -- Analyst

Jaime Katz -- Morningstar -- Analyst

Conor Cunningham -- Analyst

David Katz -- Analyst

Matthew Boss -- Analyst

Matt Boss -- Analyst

Lizzie Dove -- Goldman Sachs -- Analyst

Vince Ciepiel -- Analyst

Chris Stathoulopoulos -- Analyst

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