Carnival Stock

Greetings, and welcome to the Carnival Corporation Q2 2026 Earnings Results. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Beth Roberts, Senior Vice President of Investor Relations. Thank you, Beth. Please go ahead.

Thank you. Good morning, and welcome to our second quarter 2026 earnings conference call. I'm joined today by our CEO, Josh Weinstein, our CFO, 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 today's press release and our filings with the SEC for additional information on factors and risks that could cause actual results to differ from our expectations. We will be referencing certain non-GAAP financial measures, including yields, cruise costs without fuel, EBITDA, net income and related statistics for all which are on a net basis or adjusted as defined, unless otherwise stated.

A reconciliation to U.S. GAAP is included in our earnings press release and our investor presentation. References to ticket prices, yield and cruise costs without fuel are in constant currency unless we know otherwise. 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.

Thanks, Beth, and good morning, everyone. Once again, we delivered another quarter of outperformance, demonstrating the strong demand we have across our portfolio of world-class cruise lines, the value consumers place on our vacation experiences and the progress we're making across the business. It was another record quarter with records across revenues, yields, EBITDA, net income and customer deposits, which reached an all-time high of $9 billion.

We outperformed our March guidance by $100 million driven by continued commercial execution and a step-up in our cost efficiency efforts across the organization. Yields exceeded expectations on resilient close-in demand and robust onboard spending and marked our 12th consecutive quarter of record yields. At the same time, we intensified our focus on cost management delivering flat unit operating costs and outperforming our cost guidance by 2.5 points.

Fuel efficiency improved by more than 5%, building on last year's over 6% efficiency gain and further supporting our cost performance. What stands out most is that we achieved these results despite operating through a period of extreme geopolitical volatility, consumer sentiment at historically low levels and unusually high fuel prices. As we have consistently said, though, while we are incredibly resilient to major external shocks, we are not immune and near-term disruption can affect the timing of results, especially when it persists for an extended period of time.

Accordingly, our second quarter operational outperformance and accelerated cost efforts are offsetting the moderation we've incorporated into our back half outlook given the impact of the prolonged conflict. Specifically, this moderation was concentrated on our European deployments, particularly in the Med region, which were closest to the conflict and it was further exacerbated by elevated airfares and reduced international flight capacity for North American guests. So yes, this did put a bit of a dent in our trajectory, but as you would expect, our revenue management teams pivoted and performed exceptionally well.

We entered the quarter having strategically positioned ourselves with both an occupancy and pricing advantage, which was significant for European deployments and which allowed us to deliberately utilize much of that occupancy advantage to prioritize price integrity. As a result, our book position remains ahead of last year as we begin the third quarter at record prices in each of the remaining quarters of this year. With 93% of the business on our books and less inventory remaining for sale than last year, we are well positioned to close out 2026. And we continue to expect record yields in the second half of the year, building on the strong mid-single-digit growth we achieved last year.

Looking further out, we have continued to drive strong bookings for 2027 and beyond, reinforcing our extended booking curve. Since the start of the second quarter, booking volumes and pricing for these future sailings have continued to run ahead of last year's levels. This strength has been broad-based and includes our European deployments next year where bookings were up year-over-year in mid-teens percentages at higher prices, supporting our confidence in the longer-term demand environment.

As conditions continue to normalize, we expect to benefit from the strong underlying demand, pricing and operational improvements that remain embedded in our business. And in fact, booking trends in recent weeks suggests we are already beginning to see a reversal of these headwinds. The key takeaway here is that this moderation is already proving to be transitory and is not something that alters the underlying trajectory of the company.

Importantly, these strong results are not being driven by a single factor. They are supported by structural improvements we continue to make across the business. These improvements are increasingly being driven by 3 areas: stronger commercial capabilities, disciplined fleet investments and our differentiated destination portfolio, all while further reinforcing our industry-leading cost advantage.

First, we continue to sharpen our commercial capabilities through revenue management enhancement, personalization, marketing effectiveness and pulling onboard spending forward. These capabilities are helping us drive stronger pricing, higher onboard spend and improved commercial execution across the portfolio.

Second, we're continuing to improve the earnings power of both our existing and future fleet through disciplined capacity growth and high-return investments. Our capacity growth remains intentionally measured and we remain highly disciplined in how we allocate capital, investing behind those brands and opportunities that demonstrate the strongest return potential.

This quarter, we placed orders for 3 new Princess cruise ships scheduled for delivery in 2035, 2038 and 2039. These vessels built upon the success of our sphere class platform with some Princess and Star Princess continuing to deliver fantastic guest satisfaction and commercial performance. They bring our total order book to 10 ships, including 5 for Carnival Cruise Line and 2 for AIDA. While it is safe to assume that more vessels will be ordered for delivery in the 2030s, we have no plans to deviate from our 1 to 2 ships per year cadence.

What we do plan to do is lean heavily into investing in return-generating modernization programs across our existing fleet. We are very encouraged by the continued performance of the AIDA Evolution program with AIDAbella becoming the third of 7 ships to complete the upgrade. We also recently announced Holland America Evolution, our next midlife modernization program, which will further enhance the guest experience while creating additional revenue opportunities and operational efficiencies.

6 Holland America Line ships will receive these upgrades beginning with Oosterdam in the fall of 2027 and we also anticipate moderate capacity growth for Holland America as we leverage ways to add cabins to these ships. You can expect to hear more in the coming months about significant enhancement programs for more of our brands.

Third, we continue to maximize the value of our unmatched destination portfolio through investments that enhance the guest experience, strengthen itinerary differentiation and further leverage this amazing footprint. In early May, we completed a peer extension at Celebration Key, increasing operational flexibility and enabling us to accommodate up to 4 ships and over 13,000 guests on any given day. Next year, Celebration Key is expected to welcome 3.5 million visitors while still providing ample capacity for future land side expansion.

This month, we also opened a new peer at RelaxAway, Half Moon Cay enabling 2 of our larger ships to dock simultaneously while maintaining tender operations for midsized vessels. This increases capacity at the destination to over 12,000 guests per day. RelaxAway has opened to rave reviews, reflecting our deliberate intention to preserve the natural beauty and relaxed atmosphere that have made Half Moon Cay, one of the most beloved destinations in the Caribbean.

Importantly, these investments enable us to offer both Celebration Key, Grand Bahama and RelaxAway, Half Moon Cay on the same itinerary creating 2 highly differentiated beach experiences within a single vacation. Celebration Key offers a high energy experience, including expansive lagoons, the world's largest sandcastle complete with water slides and the world's largest swim-up bar. RelaxAway is centered on the natural beauty of its mile-long White Sand Beach and picturesque Crystal Bluewater. We believe this pairing is a meaningful competitive advantage. Beach vacations are among the most popular vacation choices for consumers and few travel companies can offer this level of variety, convenience and value within a single vacation experience.

We also continue to invest in Isla Tropicale in Roaton, recently completing an enhanced pool and Cabana offering that adds to an already highly rated destination. These investments further strengthen our Western Caribbean itineraries by giving guests the flexibility to choose between an amazing beach day or explore one of the Caribbean's most content-rich destinations.

Isla Tropicale also pairs exceptionally well with our destination in Cozumel, Puerta Maya, which serves as a gateway to some of the most sought-after cultural and adventure experiences in Mexico. Together, these destinations create a differentiated Western Caribbean vacation that appeals to a broad range of guests and support stronger demand across our deployment offering. These investments are particularly important because they build upon a position of strength in the Gulf Coast, where we have spent more than 25 years establishing the industry's leading presence.

Today, we sell approximately 1 million guests annually from Galveston and operates 6 ships from the market soon to be 7 with the arrival of Carnival Tropicale in 2028. Our scale which also extends to Gulf home ports in New Orleans, Mobile and Tampa, combined with our destination portfolio and long-standing year-round presence provide a meaningful competitive advantage as demand continues to grow throughout the region. Taken together, our Paradise collection destinations are expected to welcome over 9 million guest visits next year with approximately 85% of our Caribbean itineraries calling on at least 1 exclusive destination and nearly half visiting 2 or more.

Our unique destination strategy extends well beyond the Caribbean. Alaska remains one of our most important competitive advantages, spanned across 5 of our brands, 19 ships and 4 embarkation ports. Our scale and long-standing presence in the Alaska region have helped secure preferential access to both embarkation ports and ports of call creating advantages that are increasingly difficult to replicate. Importantly, we're the only cruise company with a fully integrated land and sea platform. Through our lodges, rail assets and motor coach operations, we offer high-yielding land and experiences that further differentiate our Alaska offerings.

We currently operate lodges at 8 properties, including Denali, where an expansion of our most popular property is currently underway, reflecting both the strength of demand and our confidence in the long-term growth opportunity in the region. Together, our Caribbean and Alaska destination portfolios are exceptional assets that strengthen our competitive position and support long-term growth across the business. Collectively, our commercial, our fleet and our destination initiatives are strengthening the business. As they continue to mature, we expect them to drive stronger earnings, cash flow and returns over time.

And as of today, we have the financial flexibility to simultaneously invest in our brands and destinations, continue reducing leverage and accelerate shareholder returns. Consistent with that approach, we have already repurchased $450 million of stock under our opportunistic share buyback program. That flexibility is a direct result of the progress we've made over the past several years and reflects the strength of the foundation we've built.

As we look ahead, we remain focused on executing our strategy, navigating external conditions as they emerge and continuing to deliver sustainable long-term value for our shareholders. Of course, none of this progress would be possible without the dedication of our more than 160,000 team members, ship and sure. I want to thank them for delivering these second quarter results and continuing to go above and beyond to deliver unforgettable happiness to our guests by providing them with extraordinary cruise vacations while honoring the integrity of every place we visit, life we touch and ocean we sale.

I also want to thank our travel agent partners, our loyal guests, investors, destination partners, and all of our stakeholders for their continued support and for helping us build the momentum we are seeing across the business.

With that, I'll turn the call over to David to walk you through the quarter and our guidance in more detail.

Thank you, Josh. I'll start today with a summary of our second quarter 2026 results. Then I'll provide color on our full year June guidance and finish up with some comments on the unification of our dualistic company structure and an update on our share buyback program.

We delivered record second quarter net income, exceeding our March guidance across revenue, costs and earnings. These results reflect strong execution across our portfolio and the benefits of enhanced revenue optimization, cost management and operational efficiency. Net income of $569 million was more than 20% higher than the prior year despite a nearly 30% increase in our fuel price. Net income exceeded our March guidance by $100 million or $0.07 per share.

The outperformance versus March guidance was driven by 3 factors. The primary driver of our outperformance was exceptional cost discipline. Cruise cost without fuel per ALBD were essentially flat year-over-year outperforming our March guidance by approximately 250 basis points and contributed $0.05 per share. This substantial improvement was achieved despite higher crew travel costs and freight resulting from the Middle East disruption. Some of the $0.05 per share cost improvement this quarter was timing of expenses between the quarters.

Importantly, the improvement was not solely timing related. During the quarter, we identified and implemented several initiatives that reduced our cost base and we'll continue to benefit earnings throughout the remainder of this year and beyond, resulting in a $0.06 per share cost improvement flowing through to our full year June guidance.

Second, revenue contributed $0.01 per share as yields were up 2.2% versus the prior year on top of a more than 6% increase in the second quarter last year. despite extreme geopolitical volatility and historic low levels of consumer sentiment throughout the quarter resilient close-in demand and robust onboard spending drove yields modestly above our March expectations. And third, the remaining $0.01 per share of favorability came from improvements in depreciation expense and fuel consumption, where we delivered in over 5% year-over-year reduction.

Now turning to our full year June guidance. Our full year guidance calls for earnings per share of $2.22 which is $0.01 above our previous guidance as we recognize the EPS accretion from our second quarter share repurchases. Overall, due to the extreme geopolitical volatility that lasted more than 3 months, our June guidance reflects a revision to yield that was offset by our intensified focus on cost management. We view the revision to yield as transitory and not something that alters the underlying trajectory of the company, while our cost management initiatives are embedded in the business and should continue to benefit us over time.

In addition, given the recent volatility of fuel prices, I would like to point out that the net impact of fuel price and currency on our June guidance versus our previous guidance was less than $0.01 per share with our fuel price for June guidance based on the current spot price of fuel.

Now turning to yield growth. Our June guidance assumes normalized yield growth of approximately 2.25%. As you recall, we normalized 2026 yield growth by approximately 50 basis points for 2 things. the previously disclosed impact of last summer's close-in decision to redeploy away from the winter 2026 Arabian Gulf voyages which in hindsight turned out to be a great decision and the fourth quarter impacts of loyalty program accounted. Our yield growth was revised by approximately 1 percentage point relative to our previous guidance and represents a $0.14 per share operational knock-on impact of the extreme geopolitical volatility generated by the Middle East conflict.

As you heard from Josh, the conflict in the Middle East impacted our European deployments. The end result is a portion of the yield moderation is from slightly lower occupancy, and this revision includes both ticket and onboard revenue. We believe this decision is consistent with our philosophy of making decisions that are in the best interest of the company in the long run and will facilitate our ability to benefit from inherent strong demand as the extreme geopolitical volatility subsides.

Cruise costs without fuel per ALBD are now expected to be up approximately 1.3% on a normalized basis, which includes the $0.06 per share cost savings I previously mentioned. This is normalized for 3 factors that constitute slightly more than 1 point of cruise costs without fuel a partial year operating expenses associated with Celebration Kay and RelaxAway, Half Moon Cay and the timing of certain expenses between years, as we previously discussed, as well as the recent impact of higher crude travel costs and freight resulting from the Middle East disruption.

Importantly, while the conflict in the Middle East resulted in a yield growth revision by approximately 1 percentage point relative to our prior guidance, our intensified focus on cost management generated an offsetting 1 percentage point improvement in cruise costs without fuel. This demonstrates the many levers we have to manage the overall performance of our business. Other operational favorability of $0.08 per share were driven by improvements in depreciation expense, fuel consumption, fuel mix, net interest expense and other income.

Now I'll finish up with some comments on the unification of our dualist company structure and an update on our share buyback program. In early May, we announced the completion of the unification of our dualistic company structure under a single company, Carnival Corporation with Carnival plc as a U.K. subsidiary of Carnival Corporation. The completion of the DLC unification represents an important milestone in our company's evolution.

The transaction simplifies our corporate structure, enhances liquidity in our stock, creates a single global share price and reduces administrative complexity, all of which strengthens our ability to create long-term shareholder value. I would like to take this opportunity to say thank you to our shareholders for their overwhelming support for this initiative.

Turning to capital allocation. In late March, our Board of Directors approved an initial $2.5 billion share buyback program. The authorization of our buyback program reflects both the strength of our cash flow generation and our confidence in the long-term value of the business. To date, we have opportunistically repurchased over 17 million shares for over $450 million. Combining our annualized dividend distributions and just the share repurchases completed to date, we will be returning $1.3 billion to shareholders this year while continuing to invest in growth opportunities and further strengthening our balance sheet.

Our net debt to adjusted EBITDA ratio has consistently improved throughout the year from 3.4x at year-end 2025 to 3.3x at the end of the first quarter to 3.1x at the end of the second quarter, which is over a 0.5 point improvement from just 1 year ago. All of this is made possible by the strength of our business which is forecasted to generate over $7 billion of EBITDA this year despite the recent events over the last 4 months.

Operator, we're now ready to open the call for questions.

[Operator Instructions] And our first question comes from the line of Trey Bowers with Wells Fargo.

I apologize for my voice, I'm fighting up some allergies. Just as we look at kind of the shape of the yield growth for the balance of the year, it looks like Q4 kind of implies a slightly lower number than Q3. Anything to call out there? Is that just kind of being conservative? Or is there something about the shape of the year that would cause Q4 to be a little bit softer?

You sound fine, Trey. So Q4, when you normalize for the CCL loyalty program, which is all in Q4, we're actually closer to 2%. So I don't think that's the normalized pattern at the end of the day.

Okay. Perfect. I didn't realize it was all Q4. And then as we look out to 2027, you guys gave us kind of the impact of the war and the impact of the loyalty program. I mean it seems like around a little bit of above the 3% number is the core of -- where yield has grown. Is that a good number to have in mind for next year? Or are you guys going to pause on saying anything about 2027 this early?

I think it's well done that you -- right off the bat, you tried to get us to give guidance on '27, but we're not going to do that yet. So I'm sorry, you have to wait a little closer to '27.

I guess if not that then, just what is the -- how much of that impact from loyalty kind of impairs '27 numbers as well?

Yes. So for '27 for the full year, it's like 0.4 point.

Year-over-year because it's a full year of that.

The next question comes from the line of Steve Wieczynski with Stifel.

So, Josh, I guess I'm a little bit confused here. If we think about your March full year yield guidance, which was 2% in 3 quarters versus the revised 1.75% yield guidance you provided this morning. I'm just trying to figure out what really has changed since March. At that point, you guys were 85% booked for the year. So just wondering, were you guys expecting a smaller impact from the war? Or was there a major change in demand for certain itineraries? Or you guys witnessed a major uptick in cancellations.

But I guess the simple question -- I mean, I guess here's a simple question, Josh. Is pretty much all of the 100 basis point cut to yields just directly tied to the Middle East, meaning the rest of your deployments have been pretty much status quo?

Yes. So let me -- I guess I'll start by going back to March. We have been at the time of a few weeks into the conflict. And what we did expect at that time was there was going to be a pretty significant pause as people try to figure out, right, with this new normal means. And what we talked about on the call is it did seem like there was kind of concentric circles as you go farther away from the conflict. So the Med region was really the thing that kind of was taking it most on the chin. It got better when you got to Northern Europe and then it got better as you move farther away.

We certainly did not expect the conflict to last throughout the whole of our second quarter including the Strait of Hormuz and all the knock-on impacts that the world really saw from that. So hindsight is great, but that wasn't the expectation. So when we think about and try to do this like year-over-year, if we go last year, right, last year, March, was a recovery month for us. That was actually gaining steam because we had an initial impact in February from the initial rulings of tariffs, if you remember. And then April of last year, just took a big hit with all the volatility and then people normalized as we talked about because they started figuring out what this mean or not mean to me and they moved on.

This year, March with clearly impacted by the start of the war to differing impacts like I talked about. And we did better year-over-year in April, but we should have done better because last year, April was the volatility from the tariff announcements. Europe did do a good deal better in April than March, but it was not positive year-over-year. So we were still not in a great place, and that's not surprising because the news flow didn't stop, right?

I mean this was -- the last 3 months until we turn the page a little bit in June, and we'll talk about that, too. This was a perpetual headline of ever-changing questions about when and how this was going to end and people can't normalize if they can't figure out how are they going to plan their future. And we really did experience that. So May was a bit of a step backwards year-over-year versus April because of the comps at the least and then the ongoing pace of what was going on in the conflict.

So I think the good news is June certainly seems to have turned a corner and last week was a nice was a nice cherry on top as we kind of got the MOU signed and people started thinking about, okay, I can start planning my life again. So we do not plan for smooth sailing on a continuous basis as we get through the end of this year. I think that will be [ naive ]. We think there'll be bumps in the road as the geopolitical situation does gradually normalize. And we're doing what we can and what we should to move forward.

Okay. That's great. And then I guess you kind of answered this a little bit, but maybe not. But you mentioned a couple of times that you've recently started to see reversal of these headwinds in terms of booking progress. So as we think about your guidance for the rest of the year, is that assuming that reversal continues to play out? Or does that -- or does your guidance still assume that these headwinds that have been in place just kind of stay in place for the remainder of the year?

Yes. So we definitely do not expect to go backwards to what the second quarter looked like, meaning we do not expect and we're not planning on a world where the conflict is going to reignite and the straits are going to be closed, and that's what we're going to be experiencing for the next several months. If that happens, we'll have to see what that means for our business and what we do.

I think the fact that we were able to deliver what we did in Q2 and come out the other side with what we expect to be record yields in the second half. and giving the dividend play and investing in ourselves and delevering. I mean I think it shows the strength of the business. We're now planning for perfection, though.

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

Just wanted to get a little more color around you were 85% booked in March and just kind of thinking about the delta for the 100 basis points for the full year to be on that last 15%. Could you maybe give us a little bit of insight into that demand for the med from North American travelers versus your European sourced customers? Just to get a little more color around that.

Rob, I'm sorry, can you do me a favor. I apologize. Can you ask the question again? Sorry about that.

Sure. So basically, asking for the difference in demand from European source passengers for your European source brands versus North American travelers. Just trying to think about that you were 85% booked for the year in March, and so the 100 basis point change is really just occurring on that last 15% that hadn't been sold as of March. And so just trying to think about how that is versus those 2 different customer segments of yours?

Yes. So what I'd tell you is both our Europe segment and our North America segment for our Europe deployment were ahead in occupancy overall, which was great to see. It was significantly more ahead year-over-year for our North American brands, which makes sense because it's a longer haul type of decision they're making, and we were really leading into pulling that ahead. So their occupancy advantage actually unwound more than our European brands did.

And so we're seeing a turn, which is great as I mentioned. So it does seem like people are now turning the page, including for Europe, but we are we are ending in a place where we absolutely expect positive yields for our European deployments as we move forward.

Okay. And just as a follow-up, actually on a different topic. I'm curious, you mentioned that the peer is done at celebration key to be able to have 4 ships. But I don't think you've announced anything in terms of expanding what you have available your passenger capacity with the amenities there. Can you take 4 ships today and have all of those travelers there? Or when does that happen that you get the benefit of the -- [ your ] being open.

Yes. So we'll get the benefit pretty much right away in that it gives us the flexibility to maximize that 13,000 guest footprint that we have on land. We won't have 3 ships -- actually, no, I take that back. We've already had 3 ships in a day, which was great. Obviously, we can't take the 3 biggest ships because if we took the 3 bigger ships in a day, we'd be closer to 18,000 than we were 13,000.

What it does give us though is the flexibility to optimize the deployments in the itineraries to mix and match the ships to make sure that we're getting is close to that 13,000 guest count as we can on a regular basis. And that's why we're expecting -- when you look at 2027 on an annualized basis for Celebration Key about 3.5 million people, which is a pretty good step in the right direction. We will certainly be talking more about potential land side expansion as we make our way through the year.

The next question comes from the line of Ben Chaiken with Mizuho.

I'd love to -- Josh, you touched on the modernization effort. It feels like you may be leaning into this a little bit further. Are there any statistics you can share whether that's expected yield uplift or ROI. I guess it'd just be great to understand kind of what data or thought process gives you the confidence in this strategy.

Sure. So the way we've looked at it, there's 3 components to these modernization programs. One is the boring stuff, which happens on any refit, which is below the water line, the things you have to do to make sure that the equipment is in good order, et cetera. Next is what we consider the fund refurbishment side, which is guest-facing public areas, cabin work, new venues for F&B experiences and all of that segment too. And segment 3 is the ability to include new cabins. We look at the latter too, when we think about our ROIs and the investments we make the cabins are easy. They pay for themselves in a couple of years.

So when we find those opportunities, we exploit them. We couldn't do it on AIDA because they were so densely packed to begin with since their creation. But certainly for Holland America and other brands as we announce those will be part of the equation. When we look at the guest refurbishment side, we really think about it like a new build type of hurdle with much less cost involved. So we expect to achieve at least high teens when we're going into those type of refurbishment decisions.

Okay. Got it. That's helpful. And then maybe just touch on Celebration Key. You kind of alluded to it a moment ago in the previous question, but any update on Celebration Key from a demand perspective, but then also more importantly, how you're thinking about future phases of land development to the extent that's on your mind, which kind of sounds like it might be.

Yes. So I'll take the latter quickly. It is still a lot of work to do to get there, and we don't want to get ahead of anything. So nothing they talk about yet, but certainly, as soon as we feel comfortable doing that, we will. With respect to demand, it's really on almost all Caribbean capacity for Carnival. So it is pretty endemic and engrained in what their offering is. And the feedback has been really quite strong.

We solved a lot of the challenges that we had from start-up, which isn't surprising given it was a start-up, and we expect to just keep making the experience better and better for our guests. And now we have the ability to also pair that with RelaxAway, Half Moon Cay, which we are absolutely really static about. So a lot of tailwinds as we look into the future.

The next question comes from the line of Xian Siew with BNP Paribas.

Maybe going back to the net yield guidance and the 100 bps reduction. I think you mentioned lower occupancy as part of that. So is it that you're kind of maybe leaving some cabins unsold rather than discounting? Or is it cancellations? Can you give us maybe a little bit more color? And then if I look ahead then, could occupancy snap back into next year?

Sure. So yes, I mean, occupancy is definitely part of it. And we looked at -- particularly with Q3, where we were looking at what the trends were and what our book position is and what's the right trade-off to make. We took our occupancy expectations down a couple of points for Europe because we think that's the right thing to do for the long term. We recognize that, that might have an impact on the onboard spending, obviously, profile since there's less souls on board. But we're managing the business for the long term. So we think that that's the right trade-off and overall, the healthiest thing for the business.

As far as snapping back, when we look into next year yes, absolutely. There's nothing to say that we shouldn't be able to achieve what we want. And I've tried to stress in my notes, and I know David did as well, we really do view this as a temporal phenomenon. And it was just a little bit of a pause in the good momentum that we've had, so that it's a little bit less momentum right now, and we expect to ramp it back up. as things do normalize.

Great. And then you talked a little bit about the Western Caribbean and Isla Tropicale. Just wondering if you could give us little bit more color on what you think the opportunity is for that region as you kind of lean into it a bit more.

Yes. I mean we have been for decades. We will continue to do that. We're really excited in 2028. We'll have the newest ship for the Carnival Cruise Line brand positioned out of Galveston. And we continue to -- we will continue to invest in things like Isla Tropicale, Puerta Maya, which is a beautiful gateway, Paradise collection destination for us. So we'll continue to do what we've what we've been doing and try to maximize our presence in the Western Caribbean as well.

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

So Josh, with your booking curve the furthest out on record, as you cited, could you elaborate on demand for '27 sailings for Europe, as you noted, people turning the page there. And any notable trends in the Caribbean? Or maybe just if I put it all together, it sounds like, and I just wanted to confirm, no change at all in your confidence for moderate yield growth multiyear, as you outlined as part of the PROPEL plan.

Yes. No change in my confidence for that. So it's early days for 2027. We wanted to give you a little bit of color that -- to kind of highlight the temporal nature of this, the fact that our European bookings over the same time that we saw a really big kind of pause for a lot of folks for 2026. We saw almost doubling down for 2027, which we thought was a great sign. Overall, we are at historic highs for price and occupancy for 2027, and we'll work hard to improve our position over time.

Great. And then, David, with your net cruise cost ex fuel guidance of 2% to 3% for this year, it's coming in roughly 100 basis points more favorable relative to your initial forecast. Do you see the cost savings this year as structural? Just wanted to confirm potential reinvestments that we should think about or just anything multiyear that would change the low single-digit cost CAGR that was embedded in the PROPEL plan?

No, everything that -- the overwhelming majority of what we're doing is for the long term. We found lots of hundreds of little things that we can change over time, which will improve our cost base. I mean there's things like the brands have been optimizing the number of forklifts that they use an embarkation day. When you go from 14 to 13 forklifts and you can make a change on multiple ships over multiple itineraries, it saves hundreds of thousands of dollars in a year. And there's lots of ideas and things like that.

We're also been working with many of our suppliers and vendors to look for reduced rates as everybody implements AI and gains efficiency in their business. We do expect fee reductions as a result of that. So hundreds of items across the business, which we view as permanent cost savings in the future.

The next question comes from the line of James Hardiman with Citi.

This is Sean Wagner on for James. Similar to the first question about yield impacts in 2027 and understanding that it's too early to give us 2027 guidance. But with all the moving parts and onetime pieces called out 2026 cost guidance. How should we think about these cost items into next year? I assume you get all of the 30 bps of elevated costs related to the Middle East back. But can you sort of walk us through how the timing of costs and partial operating expenses for the 2 exclusive destinations net out next year?

Yes. So there's a lot of puts and takes for 2027. But at this point in time, I think it's a little premature because many decisions have yet to be made for 2027. And so like the guidance that -- the yield guidance that Josh referred to, you'll have to wait a little bit closer to the end of the year to get better color on that. But as we said in our long-term PROPEL model and guidance, we've got great cost discipline built in the business, and we do expect to utilize that discipline to control costs over time.

Okay. Fair enough. And then I guess you spoke on bookings and pricing on 2027 sailings being up since March, how does the overall 2027 booking curve compared to 2026 at this point? And then I guess to the point of the substantial increase in European bookings for 2027, is that increase primarily first half weighted?

So yes, overall, our position for 2027 is at historical highs for price and occupancy. So we're setting ourselves up well. So still a lot of work to do. I don't have the split to be honest with you for Europe between first half and second half. So we can try to get back to you on that. But overall, we feel like we're setting ourselves up as best as can be, and we'll see how we can progress things.

And the next question comes from the line of Lizzie Dove with Goldman Sachs.

So as it relates to this year, it sounds like for the guidance caught on yield, most of that, maybe all of it is Europe. But could you maybe elaborate a little more on Caribbean trends? How would you characterize the kind of backdrop and competitive environment there? And how did the conflict or higher airfares from the conflict impact that region versus Europe?

Sure, Lizzie. So I think it's fair to say holistically, nothing was immune because there are certainly people at any price point for any deployment that this changed their decision-making process. But clearly, as we talked about, for us, at least, it was really centered primarily in Europe and then lesser impact as it got farther away. The actual booking trajectory of the Caribbean didn't take much of a movement as we went into the war, during the war and now have come out. So we just seem to be chugging along.

I think it's fair to say we're chucking along, we're the capacity increase outside of us is 27% over 2 years. So as I've said before, give me 2 options. One is no growth and the other is 27%. I'll take the note growth. But that's already been baked into our planning and how we've been positioning ourselves.

Got it. And then I guess just going back to Europe. One thing I'm trying to square is we had one of your peers say Europe trends had turned in late April. It sounds like yours are kind of starting to turn now. So is there anything that you would flag from, I don't know, maybe more of a brand perspective, I know we've discussed like local Europe versus U.S.? But anything, whether it be P&O, AIDA versus Costa that you'd flag in terms of how Europe has trended?

Yes. Well, I'll be -- I certainly wouldn't speak for any of our competitors, so I can just speak for ourselves. And I'm not sure if you heard the -- what I had said earlier on the call. But May, even for Europe was definitely a good amount better than April -- pardon me, April was a good amount better than May. But it still didn't mean it was going great. So you could say for us, yes, it was recovering in April versus where we were in March, which was really kind of a cardiac arrest for a little while. But it still wasn't great.

In April, we did have much easier comps year-over-year. And May, it was just that continuation of the news flow and fuel prices and will Europe have fuel to fly my plane back home, right? I mean, all those things, they didn't really die down. And so it did definitely have an impact, at least for us. in May, particularly with folks who are looking to fly. So that's the best I can tell you about ourselves.

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

Just on Celebration Key, I know you talked about the ramp and the goal for next year. But I think you start to sell itineraries to other brands that start to touch there. I think Princess itinerary start to open up in November or something like that. So if you could just talk about how different brands are going to be impacted. Yes, can you just talk about the opportunity at the different brands for Celebration Key in general.

Yes, sure. So definitely opportunities wise, I think AIDA is technically the first brand that's going to touch down outside of Carnival Cruise Line. So they get the mantle. But that's fairly irregular as opposed to what Princess is going to be doing, which is more scheduled throughout the winter.

Right now, I'd say it's great, but it's a tail of a dog because for the most part, Carnival Cruise Line is taking up most of it. But we've we certainly have been building out itineraries for as many brands as many ships to be able to benefit from Celebration Key as possible.

And we had the same approach for not only Celebration Key, but for RelaxAway and Half Moon and just try to maximize the impact that we can make for the company. The limiting factor certainly on Celebration Key is that land side. So hopefully, as we make our way through the latter half of this decade, we'll be able to make some inroads on giving ourselves even more opportunity.

Okay. That's helpful. And then I'm sorry to bring it back to '27, just there's a lot of moving parts. So like I think we all understand that, that second half comps are now a little bit easier than they were before. But you made the parallel to the trade and tariff situation in 2025. So that seemed to like linger on I think within your yield headwinds for a little bit longer than what I think we all kind of had anticipated. So when you booked stuff I presumably think that's a first half commentary during this whole timeframe. Did your yields change meaningfully in any direction? Just trying to understand the transitory part of the whole thing.

I had you until you ask the last part of the question, to be honest with you.

Yes. It's like you're talking about how it's transitory, and I understand that the worst is over and the yields are -- your bookings are starting to improve. But presumably, you booked some 2027 bookings in the first half during this time frame. Like did that -- like should we expect a headwind to first half of 2027 next year just given things were booked now?

I got you. I got you. Well, you're certainly right about last year. The flavor of that crisis had a lingering impact. As far as this goes, I think it's safe to say, we're still early days to figure out exactly how much if and which way this is all coming together for 2027. So I think it's a little bit premature.

Clearly, there are some folks who are not booking, right, who just went through the quarter and didn't book and there is an impact there. I think the good news is, overall, for 2027, our bookings were up year-over-year which is a good sign.

The next question comes from the line of Andrew Didora with Bank of America.

I guess just one last question on kind of the occupancy point in the back half of the year. just embedded in your 3Q net yield guidance, should we be factoring in flat year-over-year occupancy down occupancy or up occupancy?

Yes. So it's probably relatively flat year-over-year. Our original thought would be that we would perhaps get a bit more than we did in the prior year. But given the circumstances, I'd say it's going to be close to flat.

Okay. That's helpful. And then, Josh, just you continue to double down on kind of the limited fleet growth and new hardware I guess what are maybe the top 2 or 3 opportunities that Carnival has that can help keep your longer-term net yield growth sort of in that moderate range or, I'll call it, above inflationary range over the next several years as you have a little bit more modest fleet growth.

Yes, thanks. Honestly, I think a lot of it is just blocking and tackling and doing well across the space and our commercial execution. With respect to things that we can introduce to help everybody, we've got a lot of the foundation in place already with the destination footprint that we've already got that we can now leverage fully as we look forward, I think that's going to help.

I think our brands are truly world class. They've been doing a lot to show significant improvement in their yields, most of which had no new builds. And so we just got to keep doing what we've been doing and deliver.

We've got time for 1 more operator.

And the final question will come from the line of Anthony Bernie with Jefferies.

This is Anthony on for David Katz. Just one quick one on the capital returns. I know you've done the dividend and the buyback. Just curious if you expect the dividend to kind of remain constant or grow over time. And for repurchases, is the level that you've been doing over the first half representative of what you kind of expect for the second half? Or how should we think about that?

Sure. Well, I'm only one of many board members, and this is a Board decision about the dividend. I do think it'd be fair to say that a moderate increase as we look forward is rational and reasonable, but ultimately, we had to do that with the Board in full, and I think we'll do that in a very measured, responsible way.

With respect to the buybacks, I've said, we got the initial authorization for $2.5 billion. We certainly don't expect to spend $2.5 billion this year. At an annualized rate, $450 million a quarter would probably be too much to expect at least on our current thinking but we have been opportunistic, and we'll continue to be opportunistic. So we still have plenty of headroom as we look forward with the cash that we're generating and the metrics that we're trying to achieve. So I expect more to come, but I wouldn't be wedded to annualizing this quarter's amount.

Okay. Well, thank you very much, everybody. I hope you all have very pleasant summer. I hope you are sailing with us, and we'll see you or talk to you in September. Take care.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to the Carnival Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Beth Roberts, SVP, Investor Relations. Thank you, Beth. You may begin.

Thank you. Good morning, and welcome to our first quarter 2026 earnings conference call. I'm joined today by our CEO, Josh Weinstein; our CFO, 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 today's press release and our filings with the SEC for additional information on factors and risks that could cause actual results to differ from our expectations. We will be referencing certain non-GAAP financial measures, including yields, cruise costs without fuel, EBITDA, net income, ROIC and related statistics, all of which are on a net basis or adjusted as defined, unless otherwise stated. A reconciliation to U.S. GAAP is included in our earnings press release and our investor presentation. References to ticket prices, yields and cruise costs without fuel are in constant currency, unless we note otherwise. 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.

Thanks, Beth. Good morning, everyone, and thank you for joining us today. Before we begin, I do want to acknowledge the ongoing conflict in the Middle East and the profound human impact it's having on so many people. Our thoughts are with the brave men and women of our armed forces, with all those affected, and with the countless families and communities facing hardship during this time. Like so many around the world, we remain hopeful for a resolution that brings relief to those impacted and a lasting peace to the region.

Turning to our business. We are off to an excellent start to the year. First quarter results came in ahead of guidance, thanks to higher yields and better cost performance, reflecting healthy fundamentals and solid execution across the business. Close-in demand remained robust, guests continued to spend more onboard and pricing strengthened, enabling us to outperform our December guidance and deliver record first quarter revenues, net yields, operating income, EBITDA and customer deposits. We're seeing this momentum continue in onboard and pre-cruise sales. Guests are engaging earlier in the vacation journey, purchasing more inclusive packages, excursions and other experiences before they even step on board. That trend is contributing to higher onboard revenue and reflects the value guests place on the experiences our cruise lines deliver.

We're also seeing it in our bookings. Bookings for current year sailings increased 10% year-over-year, adding to our record book position for the remainder of the year at historically high prices. With nearly 85% of 2026 already on the books and less inventory available than this time last year, we remain well positioned to keep improving yields as the year unfolds. Cumulative future year bookings also reached a first quarter record, adding to our continued confidence in the trajectory of the business. And as a result, we are seeing it in our customer deposits, which reached a new first quarter record of almost $8 billion, surpassing last year's high watermark by nearly 10%.

Now what stands out most is that we're achieving all of this against such an unpredictable macroeconomic and geopolitical backdrop. It says a great deal about the demand we continue to see across our portfolio of world-class cruise lines, about the team's ability to execute on our long-term strategy and about the progress we've made in positioning the business to perform through a wide range of environments. This start to the year also supports increasing our full year outlook operationally by approximately $150 million compared to our December view. That improvement helps absorb a $500 million fuel headwind albeit that is against a substantial EBITDA forecast of $7 billion, which David will walk you through in more detail.

This quarter and our outlook are further evidence of how far this business has come over the last several years. Over that time, we have restructured the organization, reconstituted the global leadership of the corporation and our cruise lines, actively managed the portfolio and its assets and sharpened our commercial operations. We have also just begun to better harness the power of our unmatched Caribbean and Alaskan destination footprints, improve pricing, fortify the balance sheet and embed greater rigor across the organization. As you know, thanks to those efforts, last year, we surpassed our SEA Change objectives in roughly half the originally outlined time frame. We more than doubled our ROIC, delivered our highest unit EBITDA in nearly 2 decades and meaningfully reduced our greenhouse gas intensity rate, all of which built momentum and, more importantly, reinforced that our approach is working.

With this robust foundation in place, we are focused on the next chapter of value creation for Carnival. So today, we are introducing PROPEL: Powering Growth & Returns, Responsibly. By 2029, we are targeting return on invested capital above 16%, earnings per share growth of more than 50% versus 2025 and the distribution of more than 40% of our cash from operations to shareholders, or approximately $14 billion. At its core, PROPEL is about converting strong and growing demand into higher returns, earnings and cash flow while maintaining disciplined capacity growth and a strong balance sheet.

That we see 4 primary drivers underpinning these targets. First, yield expansion. A continued focus on high-quality execution across our commercial operations will drive even more growth in same-ship demand, strong pricing, increased onboard spend and earlier guest engagement throughout the booking journey. These trends are already evident in our current performance and give us confidence in our ability to drive sustained yield improvement.

Second, disciplined capacity growth and high-returning capital allocation. Our capacity growth remains intentionally measured with only 3 ships scheduled to enter service during the PROPEL period. At the same time, we'll be investing in return-generating modernization programs across many of our cruise lines, building on the success we are already seeing from AIDA Evolution. And the second cruise line announcing its program will be just next month, so stay tuned.

Third, further monetizing our destination portfolio. We're expanding and enhancing our unique destination assets, including Celebration Key, Grand Bahama, RelaxAway, Half Moon Cay and Isla Tropicale, Roatan, along with our unrivaled Alaska land footprint to deliver differentiated guest experiences while generating attractive incremental returns.

Fourth, continued cost discipline. We remain hyper-focused on maintaining our industry-leading cost structure and driving operational efficiencies across the P&L. And all of this is supported by a phenomenal team and advancing technologies to enhance revenue and improve efficiency. Importantly, these PROPEL targets will not come at the expense of financial strength, corporate responsibility or investing in our future. We are targeting net debt-to-EBITDA of 2.75x and a reduction in greenhouse gas intensity of more than 25% versus 2019 levels. For us, returns, resilience and environmental stewardship go hand in hand.

And further, our growing cash flow will enable us to meet these targets while reinvesting over $15 billion back into the business over this time frame. With greater financial flexibility, we have the capacity to invest in our growth, to achieve our leverage target to grow our recently reinstated dividend and to return excess capital through an opportunistic buyback program, beginning with a $2.5 billion authorization announced today. This is a balanced approach, investing for growth, increasing shareholder returns and doing so in a way that supports the long-term earnings power of our business. Accelerating returns is a natural result of that strategy and a reflection of the attractive fundamentals of our business.

Our capacity growth remains measured while demand continues to expand as cruising becomes even more mainstream, as consumers are choosing to spend more of their hard-earned money on well-deserved and much-needed vacations, and as we remain underpenetrated relative to the broader vacation market. We are well positioned with a strategy that is grounded, focused, diversified across our portfolio and built for consistent execution over the long term. As we continue to monitor developments in the Middle East, we remain focused on executing on that strategy and delivering for our guests, for our shareholders and our other stakeholders. While external conditions will continue to evolve, what gives us confidence is our ability to deliver exceptional vacation experiences, operate efficiently, allocate capital with discipline and grow in a measured way.

Now none of this progress happens without the dedication of our global team, the best in all of travel and leisure. I want to thank our more than 160,000 team members, both ship and shore, for their hard work in delivering these first quarter results. They go above and beyond every day to deliver unforgettable happiness to our guests by providing them with extraordinary cruise vacations while honoring the integrity of every place we visit, life we touch and ocean we sail. I also want to thank our travel agent partners, our loyal guests, our investors, our destination partners and all of our stakeholders for their continued support.

With that, I'll turn the call over to David to walk you through the quarter and our guidance in more detail.

Thank you, Josh. I'll start today with a summary of our first quarter 2026 results, then I'll provide color on our full year March guidance and finish up with some additional insights into PROPEL. Once again, we delivered record first quarter operating results with strong execution, resulting in us beating guidance on revenue, costs and net income.

Net income of $275 million was more than 55% higher than the prior year and exceeded our December guidance by $40 million or $0.03 per share. The outperformance versus December guidance was driven by 3 factors. First, revenue favorability contributed $0.04 per share as yields were up 2.7% versus the prior year on top of the more than 7% increase in the first quarter last year. This was over 100 basis points better than our December guidance, driven by continued strong close-in demand which drove higher ticket prices and stronger onboard spending. Yield improvement was driven by increases on both sides of the Atlantic.

Second, cruise costs without fuel per available lower berth day, or ALBD, were up 5.3% versus the prior year. This is more than 0.5 point better than our December guidance and contributed $0.01 per share. This benefit was driven by cost-saving initiatives that we firmed up during the quarter. Third, the remaining $0.02 per share of operational favorability came from improvements in depreciation expense, net interest expense and fuel consumption, where we delivered a 4.7% year-over-year reduction. Total first quarter operational improvements of $0.07 per share are fully reflected in our full year guidance. However, those first quarter operational improvements were partially offset by the unfavorable impact of fuel price and currency costing $0.04 per share.

Turning now to our full year March guidance. Our full year guidance calls for earnings per share of $2.21. This includes the first quarter operational improvement of $0.07 per share as well as an additional $0.04 per share of improvement in depreciation expense, fuel consumption, net interest expense and income tax expense over the remaining 3 quarters of 2026. However, that $0.11 per share operational improvement for 2026 will be more than offset by a $0.38 per share headwind from higher fuel prices driven by recent geopolitical events and reflected in our March guidance.

Given the recent spike in volatility in fuel prices, we believe it is reasonable to assume some moderation over the balance of the year rather than base our guidance on current elevated spot prices. As a result, our guidance assumes the purchase price of fuel for the month of March and early April, Brent averaging $90 per barrel for the remainder of April and May, Brent averaging $85 per barrel for the third quarter and Brent averaging $80 per barrel for the fourth quarter. A 10% change in our fuel cost per metric ton, excluding emission allowances, for the remainder of the year impacts our bottom line by $160 million or $0.11 per share.

Turning now to yield growth. Our March guidance assumes yield growth of approximately 2.75%, which is 25 basis points better than our December guidance and fully reflects the first quarter yield improvement. Importantly, our yield assumptions for the balance of 2026 remain unchanged from our December guidance. Yield growth versus 2025 reflects both higher ticket prices and continued strength in onboard spending. It is also worth noting that full year 2026 yield growth is approximately 3.25% on a normalized basis, excluding the previously disclosed impact of the summer 2025 close-in decision to redeploy away from the planned first quarter 2026 Arabian Gulf voyages and the impacts of loyalty program accounting for Carnival Cruise Line.

Cruise costs without fuel per ALBD are now expected to be up approximately 3.1%, which is 15 basis points better than our December guidance and reflects the first quarter improvement. Like yields, our cruise costs assumptions for the balance of 2026 remain unchanged from our December guidance. On a normalized basis, cruise costs without fuel per ALBD are up just 2.3% after factoring in the partial year of operating expenses associated with Celebration Key, Grand Bahama and RelaxAway, Half Moon Cay as well as the timing of certain expenses between the years.

In addition, you will see that our cost growth decelerates from the first half of 2026 to the second half. The main drivers of the deceleration are the sliding of some costs from the fourth quarter of 2025 to the first half of 2026, which will impact our first half, second half comparison, as we indicated on the December earnings call. The full year operation of Celebration Key, Grand Bahama, which opened in July 2025, will also impact our first half, second half comparison. This comparison is also affected by the seasonalization of advertising and repair and maintenance spending.

I will close with a few additional thoughts on PROPEL. As Josh said, at its core, PROPEL is about converting strong and growing demand into higher returns and stronger operating cash flow while maintaining disciplined capacity growth and a strong balance sheet. Our confidence in achieving our PROPEL targets is grounded in the same strategies, priorities and disciplined execution that have delivered strong results and momentum in recent years. It is also supported by realistic assumptions and performance metrics that give us confidence in the path ahead.

From 2026 through 2029, we expect moderate yield growth on a CAGR basis and low single-digit CAGR growth in cruise costs, excluding fuel per available lower berth day. Because we expect yield growth to grow faster than costs, we believe this will drive significant margin expansion. Achieving these targets will require heightened cost discipline and a focus on further strengthening our industry-leading cost structure. We will drive operational efficiencies and realize scale benefits within ship operating expenses and G&A through technology and sourcing, resulting in decelerating cost growth throughout the period.

While it is true we are announcing PROPEL at a time of heightened volatility, these targets are about the long-term trajectory of our business, for which I have great optimism. And I say that based on very relevant experience. During my time at Carnival, we have managed through so many challenges, 9/11, the global financial crisis, the Arab Spring uprisings, COVID and the Ukraine war, just to name a few. And we have always come away demonstrating our ability to execute and achieve new record results while building resilience and growing stronger. I expect no less as we look ahead to our future.

Operator, we're now ready to open the call for questions.

[Operator Instructions] Our first question today is coming from Robin Farley of UBS.

I wonder if you could just give us a little insight into when you were thinking about your long-term targets. Did anything change from 4 weeks ago aside from obviously the changes in fuel? Just wondering how anything in the last month would have impacted your longer term, the other indicators. And then just as a follow-up on the share repurchase, if you could just spell out a little clearly what dividend and share repurchase over the next 3 years. I mean I think I can back into the math from what your dividends are and your total capital return. It's just a significant step-up from what you had done pre-COVID. So I just want to make sure that we're thinking about that right.

So first, sorry for the technical delays. We got hung up on, which is not good when you're the speakers. So with respect to the long-term targets, I mean, at the end of the day, they're long-term targets and we have a lot of confidence in our ability to deliver over that period. With respect to the current situation and what its impact could be, I'm not going to speculate on how it's going to play out, but we do have very minimal exposure to that region. We didn't have any this year because of the decisions we took and we've already made that decision for next year. And we have the ability to move our assets as everybody knows. So we feel very good about the long-term trajectory. We certainly didn't just do it based on fuel prices from 2025. We thought about this and stress-tested it in various scenarios and it's something that we do believe strongly that we can deliver.

With respect to the capital allocation, remember if you think about what the world looked like 10 years ago versus where we are today, our profile is very, very different. We've got no ships this year. We've got one ship a year thereafter. We are generating a lot more cash than we used to. And even with the spending that we're investing, as we noted, in our materials, in ourselves, which is quite important, including the destination strategy and revitalization plans for our brands, it still leaves us with a tremendous amount of free cash flow that we can give back. And we will do just that. And you should expect both the dividend and the initial authorization of $2.5 billion. Those are starting points, and we'll progress from there.

Our next question is coming from Steve Wieczynski of Stifel.

Congrats, Josh, on the strong results here. So I guess, first of all, it seems like the booking environment remains very healthy at this point. But Josh, wondering if you could maybe walk us through what you've seen from a booking perspective for both your North American and your EAA brands. I guess what I'm trying to understand here is if there's been any material differences in the bookings across your brands. And then also maybe you've seen any changes in your cancellation rates as we head into the summer, specifically around I assume it would probably be European cruises this summer.

Yes. So let me start with the cancellation question. We're really not seeing anything significant to talk about with respect to cancellation trends. Our onboard spend have been consistently strong as we got out of Q1 and headed into Q2. So with respect to the last 3 weeks, I'd say as -- feels like d j vu, like last year. People see what's going on. There is a lack of understanding about what it means for the world, what it means for me personally, and then life normalizes. And we're in the process of life normalizing over this period. We've seen -- it's not surprising that if you think about potential impact and how people are thinking about things, to the extent that we're talking about sailings that are Eastern Mediterranean, that's got a different profile than Western Mediterranean. That's got a different profile from Northern Europe and then obviously Caribbean, Alaska, Australia.

So overall, we're actually pretty pleased with how things have been progressing. Certainly volumes have been stronger for places like Alaska and the Caribbean. But it's not like there's just this line around Europe. I mean Northern Europe is going quite well. We've made progress even with our Eastern European sailings when it comes to the book percentage that we're at today versus where we are a few weeks ago. Would it have been higher and more activity had all of this not happened? Absolutely. But one of the strategies that we had going into wave was pull forward the occupancy, pull forward our bookings. And we did just that. So we entered into this period with a nice amount of headroom, which we've maintained overall. So there's going to be ins and outs as we move through this. And I'm sure there's going to be reverberations that we don't know about yet, but the teams are managing to the curve and being reactive because the world is pretty reactive right now.

Okay. Got you. And then second question, Josh, if I could ask one about PROPEL. If we think about the target of greater than 50% EPS growth from '25 through '29, so simple math is going to say, okay, 2025 adjusted EPS, I think, was whatever it was, $2.25, I think. That would say 2029 EPS should be at a worst-case greater than $3.38, $3.40, somewhere in that range. I guess with 2026 EPS now taking a pretty significant step backwards just because of fuel, is it fair to kind of assume that you guys feel pretty comfortable that you'll be able to absorb pretty much higher fuel prices over a longer period of time? Am I kind of thinking about that the right way?

Yes, I think that's right. Over a longer period of time, we'll take what the world has and we'll perform in any environment at the end of the day. So clearly, we'd be performing better if fuel was back at $60, $70, but we don't plan our lives around a world where fuel stays at $60 to $70. That's why our focus forever, and will continue to be forever, is use less because whatever the price is, if we use less, we do better. And if you think about our trajectory on our consumption, if you look at the per unit consumption decreases that we've had across the fleet, if you go back to where we were in 2019 versus where we are in 2026, we're saving this year alone about $650 million. If you go back just to 2023 and you look at where we are today, that alone is $250 million, thanks to the consumption savings that we are hyper-focused on and we'll continue to do that.

Our next question is coming from Matthew Boss of JPMorgan.

Great. So Josh, maybe could you elaborate on the curve and your comments on bookings well into 2028? Maybe if you could just speak to pricing power or areas of opportunity that you see across the portfolio today.

I want to make sure I understand your question. So can you say it a different way?

Yes. Maybe if you could just elaborate on the strength on further out bookings. I think you cited well into 2028 and just where you see the greatest areas of pricing power across the portfolio. And I know we've talked about your portfolio approach and how that separates you from some of your peers in the industry.

Yes, I mean, I think the answer is yes. We've seen the trajectory of our brands in a pretty holistic way, leaning forward across the board when it comes to lengthening the booking curve. So it's almost uniform that people are at the far end of their booking curve. So everybody's been taking opportunities to really put things out for sale with more lead time, driving further sales and managing the curves. I don't know if I'd say differently than they used to. It's really just evolving. We've got tools that we've invested in to help us be better at our jobs in that respect. We've got -- we've brought in a lot of folks over the last few years that have great capability that are leading teams of revenue managers that are really pushing the envelope.

And I think overall, we are becoming more mainstream, right? We're becoming more mainstream as a product. Our loyal guests really enjoy what they get with us and know to book in advance as far as they can so they get the best of whatever they want for their particular vacation. So I think it's all the blocking and tackling that we have been working with our teams around the world around those brands to push things forward. And it is -- when we talk about bookings, we're not just -- internally, we're not just looking at this quarter. We're not just looking at full year. What are our targets for '27, which I'm not going to tell you, what are our targets for '28? How far are we going? And are we getting the right balance, right? I mean we don't want to be 100% booked on day 1 that we put things on for sale. So there is art and science behind it, but everybody's been working hard to maximize the revenue.

And then maybe, David, could you outline the drivers of ROIC above 16% in the PROPEL plan, meaning opportunities you see remaining across the portfolio, just how you're thinking about net yields relative to low- to mid-single digits historically?

As I said in the prepared remarks, our PROPEL model and the 16% was built off moderate yield growth and low-single-digit cost growth. And there's clearly, as Josh talked about, further out bookings and the revenue management, and I won't repeat all the things he said. There's clearly upside opportunity on both the revenue and the onboard areas to drive the ROIC even higher than 16%. That's not a cap. It's just a target for 2019 (sic) [ 2029 ] and beyond.

The next question is coming from Xian Siew of BNP Paribas.

Maybe just on the 2Q guidance, you did 2.7% net yield growth in 1Q and 2Q is guided at 2%. Maybe just can you talk about any reasons 2Q should maybe take a little bit of a step back? Because it sounds like underlying, there's -- demand is quite strong.

I mean honestly, our first quarter yield guidance was less than 2%. We were pretty clear that when we were kind of coming around the table again to think about the rest of the year, we kept things fairly consistent given all the noise and all the background. So there's -- every period's got differences based on dry docks, based on what day of the week the bookings, the sailings end, et cetera. But we feel that 2% is where we were and where we are, and we always try to exceed.

Okay. Great. And then maybe just on the follow-up for longer-term outlook for net yield, you kind of mentioned moderate yield growth. Could you maybe talk about what do you think is the biggest kind of drivers within that? How do we think about the building blocks, if it's the ship kind of revamps, the islands? Like, what do you think is kind of the biggest kind of drivers within that?

Well, I don't think if we're going to quantify, the biggest drivers are not going to be the revamps. I don't think the biggest drivers are going to be the destinations. I think they're going to absolutely be accretive, but those are fairly isolated ship-by-ship things that are going to be nicely supportive of the yield growth. What's really going to drive us forward is incremental improvement in the commercial space, right, in the marketing, in the revenue management, in utilization of technology that we're already utilizing to be better at lead generation, better at conversion, better at personalization, better at driving earlier engagement with booked guests so that they are booking not just the ticket, but the packages and bundles and all the experiences that we have to offer on board.

So the good thing is, if you think about where we are now versus where we were when I was kind of talking about this stuff 3 years ago, I think we've got a track record of leaning into those things and getting better every day. And not only do we have, I think, just an amazing team and amazing leaders, many of whom are new versus where we were 3 years ago, but the technology advancements to supercharge this only are going in one direction. So I think that's really where the broad-based improvements are going to be, which then get [ bolstered ] by the investments we've been making in the destinations and will continue to do so. And as you said, the refurbishments.

Our next question is coming from Brandt Montour of Barclays.

Congratulations on getting the buyback announcement today. I have a question on technology to kind of stay with that thread, Josh. How do you think about the opportunity to do more direct integrations with AI and LLM companies out there that do travel? And just given sort of the inherent complexity of the cruise product for most first-time cruisers, does that have the potential to fundamentally change the way consumers find their way to cruises?

I think it already is, right, because of the number of folks that utilize, whether it's ChatGPT or Gemini, Claude, I mean, you name it. I mean the whole nature of our interaction with the guests and how to get to our -- either our websites or our trade partners to come sail with us are in flight. I do think -- and so the teams have been working for a while now and will continue to do that on optimizing how we show up in those AI engines as opposed to the old days where we were just talking about Google search.

I think the thing that's probably going to be a little slower for the cruise industry because of what you said versus what you see in places like Walmart and things that are a little bit more easy to navigate and easy to know what you're looking for and find it at the price that it's listed for is we are more complicated. There is no doubt. We're not a commodity. We are an experience. And so I'm sure it will come at some point, but we'll be on the tail end of that versus what we're already starting to see in select types of retail experiences.

And I think with respect to our travel agents, we've been saying this forever, they are an incredibly important piece of our business. I don't expect that to change anytime soon. They are great at providing newcomers access to us. And they too, just like we are and just like every other company is, are working on, what does it mean to be a travel agent in a world of AI and optimizing their operations around that too? So I think it's going to lift -- a tide that's going to lift all boats.

That's really helpful thoughts there. A different question would be on the longer-term targets. You just gave a great rundown, Josh, of how you think you're going to be able to drive yield growth. But just sort of honing in on your ship orders, 3 years ago, I think we all kind of thought that you'd see this -- lower, less ship orders, 1 to 2 per year. You're doing 1 per year. It looks like you guys are doubling down on that for the next sort of period of time. When you take this model out, obviously your fleet age will start to stand out against peers. And I want to know if you think that the industry has changed or your business has changed and that doesn't matter as much anymore?

I mean for those on the call that got to experience us going on the AIDA ship that came out of the AIDA Evolution program, an 18-year-old ship can look and feel like a 1-year-old ship and be maintained in that condition. So I don't think getting older in and of itself is going to be a driver of our ability to execute on our revenue strategy. I was, I am and I continue -- will be for looking forward to be of the belief that by having very measured capacity growth, we really get to focus on improving the underlying business and keep focused on that. And there is a tremendous amount of opportunity to do that.

And yes, newbuilds are great, but we've got 96 ships, right? Newbuilds are not in the grand scheme of things. The thing in any couple of years or a few year period is going to lift us up. What's going to lift us up is the 96 ships. And we have every intention of keeping this fleet going for a nice time while we do introduce new capacity over time in a measured way. So I don't know if that answers your question, but I feel that the approach has been working and will continue to work. These are very long-term assets that people enjoy. And some of the best yields and some of the best NPS we get are on some of our older ships.

Our next question is coming from Trey Bowers of Wells Fargo.

Thanks for the color earlier in the call about what you guys are kind of seeing in the Med and Europe given the conflict, but it seems like we could take out of that, that maybe some of the non-European trends, are they coming in even better than you might have expected? And maybe in that, could you just break down kind of what you're seeing in the Caribbean and maybe Alaska?

First thing I'd say is it is early days, right? We're literally a few weeks into something that has been completely unexpected, and it's working its way through the global backdrop. So yes, Caribbean's been a bit stronger. Alaska has been strong and it continues to be strong. We've been very pleased for a very long time about how Alaska for 2026 was shaping up. I'd be saying the same thing if we were having a call at the end of February.

And with respect to Europe, I mean, we are very well booked in Europe to begin with. And so like I said, we had been pushing to really produce a good occupancy advantage and we did that. There is absolutely not the pace that we would have expected over the last few weeks versus a world where this wasn't happening in the backdrop, but not to an extent that there's much to talk about, just an extent that, yes, things have shifted a little bit here and there. And I have no idea how it's going to play out. Now cards on the table. I don't know. So we'll have to see how this develops, and we'll respond accordingly.

Yes, fair. And I have to ask, David, when we go through these periods of fuel spikes like this, and when and if things settle down, does this kind of maybe reintroduce the idea of just trying to smooth fuel prices a little bit through reintroducing a hedging program at some point?

Yes. No, thank you. So listen, we think about that question all the time, regardless of the situation and circumstance when we talk about it. But at the moment, you know what we've done over the past decade, and we'll continue to evaluate and rethink it.

I lost a bet. It took us until 10:46 for someone to ask about fuel hedging.

Our next question is coming from Ben Chaiken of Mizuho.

Maybe on free cash flow, the $14 billion is very compelling. I think you framed it as 40% of operating cash flow. Does that -- if I'm not mistaken, does that kind of signal that you think about capital return and free cash flow independently? In other words, capital return in any year is agnostic of the CapEx in that year. And maybe along the same lines, for the implied buyback portion of that $14 billion, do you expect that to be smooth or will you be opportunistic? And then one follow-up.

Yes. So from an -- we do expect to be opportunistic in terms of the stock buybacks. We've said that repeatedly. As Josh said, we're starting with $2.5 billion. And clearly, over this period with $14 billion of expected shareholder returns, there'll be additional stock buybacks. In terms of the allocation, you got to remember that our CapEx is reasonably predictable over time because we have laid out one ship per year. And remember, we're only talking about '26 through '29 here. So it's one ship a year.

Our non-newbuild CapEx also has some level of predictability, although we don't know the exact number every single year. This year it's $2.4 billion. And so as a result of that, we were able to triangulate into 40% of cash from operations, or more than 40% of cash from operations being returned to shareholders. And it's a combination of the reinvestment in the business, as Josh said, the $15 billion, and $14 billion -- more than $14 billion probably going to shareholders. That's the way we think about it as opposed to because of the predictability.

Okay. Got it. And then, David, in the past you've talked about there being more costs within NCC this year versus CapEx. You didn't necessarily talk about it on this call, but I think over the last 6, 12 months you've brought it up. Have you kind of contemplated this anymore, meaning is '26 an anomaly? Or is the level of cost attribution between OpEx and CapEx the right way to think -- for this year, the right way to think about it moving forward?

Yes. So you're referring to the dry dock expense where I had indicated in December that the total dry dock -- total spending on dry dock was flat, but there was a different allocation between the costs. That's something that we're going to have to look at every single year based off of the accounting rules and what can get capitalized. So stay tuned until -- for our December guidance. But we haven't, of course, we're just beginning to work through the 2027 capital expenditure plan and dry dock schedule. So there's a lot more for us to evaluate before we can give that answer.

Was there something unique that you're doing this year on the dry docks? I appreciate it moves year-to-year, but just to maybe double-click there.

Yes. There wasn't anything in particular that was unique. Remember, in total, the dry dock expense, and I mean, we're talking about well over $1 billion between all the ships in the year. And so a very small movement of even 1% or 2% between CapEx and expense can have an impact on the percentage increase of net cruise costs without fuel. And that's what it was. It was just a couple of percent movement which had a -- I think it was a 0.6% impact on the net cruise costs without fuel.

Our next question is coming from Conor Cunningham of Melius Research.

Just on the -- so I understand that you're 85% booked for 2026, but just around fuel recapture a little bit, on the remaining 15%, does your pricing algorithms immediately kick in? And then in the same context as that, do you worry about demand destruction at all just because some of your competitors obviously do hedge and you guys don't? And like, does that put you at a disadvantage as a result on the pricing side?

Yes. So the answer is with respect to how we manage our revenue, the price of fuel is somewhat irrelevant. And certainly immediate swings are irrelevant. We price as much as the market can bear. We price as much as we -- as our guest base and potential guest base is willing to pay. And if they were willing to pay $10 more because of fuel, they should just be willing to pay $10 more. And so it is a little bit separated. Now clearly, when we do our itinerary planning and long-term planning, the price of fuel is a very big factor in how we set the itineraries and getting the balance right between the revenue that we'll generate and the cost that we incur.

But with respect to how we manage the business day-to-day, now, I mean, we're really trying to maximize. And we're talking about $7 billion of EBITDA. So I don't see a disadvantage one way or another with respect to the price of fuel at any one given time. People don't tell us we got a great advantage when we're not hedged and the price is low. So this kind of conversation, we only talk about this when fuel goes in one way and not the other. I do think, I'll go back to what I was saying before, the focus on consumption is really, when you think about the long-term trajectory of our business and the long-term trajectory of our earnings power, using less is the only solution to the price of fuel.

And that $650 million that I said, between 2019 and this year, the savings that we'll get in this year alone because of the consumption savings, that's nicely higher than the over $500 million impact we're seeing because of the spike in fuel. So that will remain our focus. Now I don't take away from what David said. We'll always look at it, right? And the world can change and we could take a different view in the future, but that's not the focus. The focus for the health of the long-term business is to use less.

Totally appreciate that. And I hate to ask another fuel-related question. Just given the -- like, I mean, if you look at your current pricing for fuel right now, it is obviously below current spot, and it's below the forward curve. And I totally appreciate it's impossible to factor like where that's all going. But like, why use those numbers? Why not assume something higher and then kind of if it comes in better, great. Just the idea around where you're marking oil at today in general?

We literally set our guidance on Monday and that was the curve on Monday. We rounded, but that was the curve on Monday. Since then it's gone up, it's gone down. It will continue to change. We tried to give you information so people can model whatever you believe or whatever is happening, but we just had to draw a line in the sand sometime and just move forward.

Yes, we gave you the sensitivity.

Well, if you know where it is next week, let me know.

Yes. If I know where it is next week, I'm retiring because I know the future and I can make a lot of money doing a lot of things. And I'm not the person that was betting on the prediction market in advance of all the stuff that's going on.

Our next question is coming from Chris Stathoulopoulos of SIG.

Josh, you've been in this seat now for a few years. You've navigated some difficult landscapes. I've always said with a lot of confidence and transparency. But one of your peers in the travel space is, I guess, giving some straight talk around what an extended period of elevated energy prices might mean. So you've gotten around Russia, Ukraine, tariffs, Liberation Day, other things. Walk us through, I guess, your plan. So in the short term, you're talking about lower consumption. Longer term though, if we're in a period of 16, 24 months of $100-plus oil, just how should we understand, I guess, internally? What are the areas of focus? How should we think about your ability to respond via pricing and perhaps changing itineraries and the like? Just want to understand, like, I guess the mid- to longer-term playbook in an extended or elevated energy cycle.

Sure. Yes. So I'd say, from a consumption standpoint, you've got, as you said, shorter term and longer term. Shorter term, there's still things that we can do on balance that will improve our consumption savings and really being even more maniacal about simple things that can save a lot of money with respect to how we're managing the sailing times and making sure we get in just to the port right in time and leave on time that cuts your fuel usage and how we manage the HVAC. I mean all those things, there's still opportunity to, like I said, be more focused.

On the longer term, yes, we absolutely have the ability to change itineraries, to make decisions about number of ports that will stop off at particular -- in particular future scenarios. I would say we have been really strategic in thinking about the fuel side of our investments in our destinations in the Caribbean. And we are looking to -- and we have been looking to create a bit of a strategic fence for ourselves where we have great opportunities to go to great places that are very, very close to the home ports that we sail from. And things like Celebration Key and the pier that's going up now at RelaxAway are incredibly useful.

We also have things in the pipeline on the investment side which we call -- we've already cycled through our Service Power Package 1, which cuts a lot of consumption on the hotel side. We already have our plans for Service Power Package 2, and we are incredibly bullish on that. And if it's warranted, we can always speed that up and get even more consumption savings. I don't -- I will be honest with you, though. I don't know how to respond to your question in total because I don't know what the world looks like in a year if fuel is at $110 and what that means. I just don't know.

I would remind everybody that we have a lot of things going for us when it comes to what it is that we have to offer. Number one, we are still a huge value gap to land. We provide experiences at a much lower price point than people can find on land. And if people are looking to stretch their dollar further, it goes further with us. Second, we do make it convenient for people to get on our ships. About 50% of the folks that travel with us drive to get there. And that is incredibly powerful if people are looking to avoid cost, cost of air. So we will continue to, as you said, navigate challenges as they come.

And I think over the last, call it, 5, 6 years, we have shown how much agility and nimbleness we've got and ingenuity to overcome some pretty significant things and come out stronger. Oh, you have one more? This might be the last question though. Go ahead.

All right. Well, wanted to give you 2 things. So we can do our math on what it means for implied EPS growth through '29 off of the new guide. But if you could talk a little bit more about how, I guess, things like YODA and AI. I know there was an earlier question in AI, but I have been getting some questions on how AI might perhaps unbundle and take away some potential pricing power that you've been able to extract, if you will, because of this frictionless approach or bundling around purchasing.

And then also, there was a chart back in your SEA Change deck from a few years ago that had future state capacity by brand, and I wonder if we're at a point where -- I think it was 30% plus for Carnival Corp where that is contemplated similar-ish level for PROPEL by '29. Realize there's a lot there. Maybe if you just want to talk about, I guess AI or...

I got to be honest with you, and I apologize. I didn't understand either question. So...

Okay. Well, maybe if you could talk about -- you've talked about the moderate yield growth. And in the past, you've done a lot of -- you've spoken about YODA and how that differentiates what you do at the core. And there's been some questions around AI, which perhaps is maybe at conflict with that. And then on the actual capacity by brand, back in the SEA Change slide, you had future state, which was '26. I'm assuming that FY '29 contemplates a similar sort of distribution of capacity by brand type.

Okay. So as far as the AI goes, I think I understand where you're going. I mean AI has the opportunity to certainly be a disruptor in society in a lot of different ways. AI also has an opportunity to be harnessed for the benefit of supercharging what we do, including how we manage YODA. I mean we're already starting to utilize some pretty advanced technology in how we operate our business on the revenue side. And I think it's still early days. So I think the whole world is going to move at pace, taking advantage of what technology is going to do for businesses and for consumers. With respect to the capacity, are you asking basically whether our brand mix is going to be relatively consistent for 2029 versus where we are now?

Yes.

Got it. So I mean, yes, I mean, more or less. I mean you've got the road map, right, which is really there's just effectively 2.5 ships in that period that are going to Carnival. So Carnival will be a bit heavier weighted in '29 versus where we are today because they're the only ones that have ships on order over this PROPEL period, and then we start introducing some for AIDA. And then obviously, we will order more ships for the 2030s. It will come at some point and we'll share that with you when there's something to share. But it's all going to be in the vein of intentionally measured capacity growth.

So I apologize again for the delay in getting to the Q&A session, but I do appreciate the questions. And thanks to everybody for joining. Be safe, and we'll talk to you next quarter.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or log off the webcast and enjoy the rest of your day.

Greetings, and welcome to the Carnival Corporation & plc Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Beth Roberts, Senior Vice President, Investor Relations. Thank you, Beth. You may begin.

Thank you. Good morning, and welcome to our fourth quarter 2025 earnings conference call. I'm joined today by our CEO, Josh Weinstein; our CFO, 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 today's press release and our filings with the SEC for additional information on factors and risks that could cause actual results to differ from our expectations. We will be referencing certain non-GAAP financial measures, including yields, cruise costs without fuel, EBITDA, net income, ROIC and related statistics for all, which are on a net basis or adjusted as defined, unless otherwise stated.

A reconciliation to U.S. GAAP is included in our earnings press release and our investor presentation. References to ticket prices yields and cruise costs without fuel are in constant currency unless we note otherwise. Please visit our corporate website where our earnings press release and investor presentation can be found. For further information on our proposed DLC unification and shift in legal incorporation, please visit carnivalcorp.com/unify.

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

Thanks, Beth. It is definitely gratifying to begin this call by saying we delivered yet another very strong quarter to finish a fantastic year. Not only did we deliver historical fourth quarter highs for revenues, yields, operating income and EBITDA, we achieved these record results in each and every quarter of the year and for the full year. 2025 was clearly another step change forward for us. We delivered over $3 billion to the bottom line, a 60% increase over 2024 and an all-time high net income for our company. This was over 30% greater than our initial guidance.

Full year yields improved more than 5.5% over last year and topped our initial guidance by almost 1.5 points, driven by successful commercial execution across our industry-leading cruise lines, and all while absorbing the heightened volatility we encountered periodically throughout the year. We also brought unit costs in over 1 point better than initial guidance at a 2.6% increase for the year with successful cost management mitigating inflation, higher dry dock expenses and the inclusion of costs for our amazing new destination Celebration Key Grand Bahama. This combination pushed operating margins and EBITDA margins up by over 250 basis points year-over-year, leading to the highest operating income per ALBD in almost 20 years and EBITDA per ALBD reaching an all-time high. For all of these incredible achievements, full credit goes to our hard-working and dedicated team, the best in all of travel and leisure for the consistent outperformance throughout the year that resulted in ROIC in excess of 13%, the highest level this company has seen in 19 years.

Having said that, we are very well positioned to top 2025's fantastic results in 2026. We are already about 2/3 booked in line with where we were a year ago at this time and at historical high prices for both North America and Europe. And over the last 3 months, we achieved booking volumes that were at record levels for both 2026 and 2027. At the same time, closing demand remains strong, as demonstrated by the outperformance in our fourth quarter by our onboard revenue per diem significantly outperforming prior year levels and our customer deposits up 7% year-over-year, hitting an all-time high for year-end.

Our book position and recent performance are all despite Michigan's U.S. consumer sentiment readings dipping quite low for several months throughout 2025, and in fact, last month dropping pretty close to its lowest level in recorded history. It is a true testament to the strength of the product offering across our portfolio of world-class cruise lines and our guests prioritizing their spending with us. In reality, the disconnect between consumer sentiment and actual booking behavior continues to reinforce what we've said for a long time.

Demand for our cruise lines is proving far more resilient than traditional macro indicators would suggest. We are expecting another year of same-ship yield improvement marking our fourth consecutive year of low or mid-single-digit per DM growth. Normalizing for the accounting changes from the implementation of Carnival Cruise Line's beneficial new loyalty program and late-stage deployment changes necessitated by geopolitical uncertainties in the Arabian Gulf, we are forecasting a 3% yield increase in 2026. And while I think it's obvious, to address the question we've been getting most often, our 2026 guidance fully incorporates the 14% increase in non-Carnival Corporation capacity growth in the Caribbean taking that to a 27% increase in just 2 years as well as our 4% growth over that time period.

Now even against that backdrop, we continue to drive the business forward underscoring the advantage of our diversified global portfolio. We are also continuing to successfully mitigate inflation through effective cost management. And again, with no ship deliveries for 2026, we don't have the advantage of offsetting large cost increases with significant capacity growth. On that basis, we've guided to unit cost growth of 3.25%, which includes a partial year of operating costs from our successful new destination developments and the timing of expenses hitting in the first quarter of 2026 rather than Q4 2025. David will provide more color around the costs, but normalized just for these 2 items, net cruise cost ex fuel per ALBD are expected to be up about 2.5% for the full year. All told, in 2026, we will bring over $350 million more to the bottom line year-over-year and generate over $7.6 billion of EBITDA.

With this strong cash flow, no new ship deliveries this year and the fantastic balance sheet improvements we've made over the last 2 years, we're about a year ahead of schedule and can now embark on a capital allocation strategy that will return even more value to shareholders. Having reached a better-than-expected investment-grade leverage ratio of 3.4x at year-end, I am pleased to say we are now formally resuming our dividend at an initial rate of $0.15 per quarter, which we expect to grow responsibly over time. Reinstating the dividend reflects both our confidence in the durability of our cash generation and the structural improvements we've made to our balance sheet.

Alongside the dividend, we will continue to delever to get below 3x net debt to EBITDA, while still allowing for opportunistic share repurchases in the future. In fact, we just kick-started that a bit by calling the last of our convertible debt and in the process using some cash to take out 18 million shares. We will also have ample opportunity to deliver even greater shareholder value over time as we continue to reinvest in our future, through our disciplined newbuild program, return-generating vessel enhancement programs like our successful AIDA Evolution project, which will soon expand to several of our other brands and our ongoing destination development efforts. We see much more pricing opportunity ahead as we transition our destination strategy from what has historically been a utilitarian asset base to a marketable growth driver for years to come.

Celebration Key is a real differentiator for us and will be complemented by the expansion at RelaxAway, Half Moon Cay later this year. This will soon be followed by Isla Tropicale, as we lean into the rest of our Paradise collection even harder. And as recently announced, we'll also be looking forward to a great guest experience we're developing with our partners in Ensenada, Mexico, showcasing the culture and natural beauty of Baja California, Mexico that will greatly benefit our West Coast deployments and our significant competitive lane advantage in the incredibly profitable Alaska trade will continue to serve us well for decades to come.

On top of these important attributes, cruising has clearly become a mainstream vacation alternative. And we have positioned our company with the most diversified portfolio of world-class cruise lines in the industry. And in fact, we hold the #1 or #2 brand in every major market for cruising today. Our well-recognized cruise lines have been honing in on their target markets, sharpening their marketing messages and reaching target consumers in an incredibly efficient manner. Moreover, we are continuously improving upon our yield management tools and techniques to generate the most revenue possible from our asset base.

We're also leaning into AI to further improve in areas such as marketing effectiveness and enhanced personalization and to find further efficiency gains across the business. And the good news is the price to experience ratio to land-based alternatives is still at a ridiculous value and provides enormous headroom for many years to come. and that's despite what will be an approximately 20% cumulative yield increase for us since 2023. So while we are not immune to things like the lowest consumer sentiment in years, or capacity spikes in our most concentrated market or geopolitical conflicts around the world, having 2/3 of the business on the books at higher prices underscores the resilience of our business model. Against all of that background noise, we plan to deliver another double-digit earnings growth on top of the 60% increase we achieved in 2025, leaving us well positioned to continue to outperform in the consumer discretionary and travel space yet again.

Again, thank you so much to each of our team members, ship and shore, who have delivered such phenomenal results in 2025 and set us up well for another step forward in 2026. At the end of the day, this is about delivering unforgettable happiness to over 13.5 million people around the world by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sale, place we visit and life we touch, and that is something we do incredibly well.

Thanks also goes out to our travel agent partners who have contributed immensely to this success. Likewise, a heartfelt thanks is owed to our loyal guests, investors, destination partners and other stakeholders. Suffice it to say, these accomplishments reflect the effort, support and loyalty we've received from all of you. I continue to be very proud of what we've been able to accomplish together while at the same time, remain incredibly excited about the runway ahead that leads to continued improvement to our business and results for years to come.

With that, I'll turn the call over to David.

Thank you, Josh. I'll start today with a summary of our 2025 fourth quarter results. Next, I will provide a recap of our 2025 deleveraging and refinancing efforts. Then I'll give some color on our 2026 full year December guidance as well as some key insights into our 2026 first quarter and then finish up with some comments on the recommended simplification of our corporate structure.

Turning to the summary of our fourth quarter results. Net income of $454 million was nearly 2.5x the prior year and exceeded September guidance by $154 million or $0.11 per share as we outperformed once again. The performance versus September guidance was driven mainly by two things: First, favorability in revenue were $0.03 per share as yields came in up 5.4% compared to the prior year, and that was on top of last year's robust increase of nearly 7%. This was 110 basis points better than September guidance, driven by continued strong close-in demand, which resulted in higher ticket prices and an acceleration of strong onboard spending. The increase in yield was driven by improvements on both sides of the Atlantic.

Second, cruise cost without fuel per available lower-berth day, or ALBD, were only up 0.5% compared to the prior year. This was 2.7 points better than September guidance and was worth $0.04 per share. The favorability was driven by both cost-saving initiatives, which we firmed up during the quarter as well as timing of certain expenses between the years. The balance of the favorability $0.04 per share was a combination of better fuel prices, favorability in fuel consumption and fuel mix, slightly less depreciation than expected favorable net interest expense and a variety of other small factors.

Next, I will provide a recap of our 2025 deleveraging and refinancing efforts. We have reached a meaningful turning point achieving an investment-grade net debt to adjusted EBITDA ratio of 3.4x as of the end of the fiscal year 2025. We successfully completed our $19 billion refinancing plan in less than a year. These efforts strengthened our balance sheet by simplifying our capital structure, reducing interest expense and debt, optimizing our future debt maturities and enhancing our financial flexibility. In total, we have reduced our debt by over $10 billion since the peak less than 3 years ago. These efforts and our strong continued operating performance resulted in multiple credit rating upgrades throughout the year, culminating and reaching investment grade with Fitch and being one notch away with a positive outlook from S&P. All of this is expected to result in an over $700 million improvement in net interest expense in 2026 as compared to 2023, which is fully reflected in our guidance.

Now I will provide some color on our 2026 full year December guidance. On top of the 17% yield growth over the last 2 years, we are expecting to deliver further yield improvement in 2026 with our guidance forecasting an increase of approximately 2.5%, which is really 3% when normalized for the Carnival Cruise Line loyalty program accounting and the last-minute changes we made to our Arabian Gulf deployment and certain dry dock schedules. The 2.5% yield growth is worth over $0.35 per share when compared to 2025, which is a result of both an increase in ticket prices and higher onboard spending, which has continued to remain strong.

Turning to costs. Cruise costs without fuel per ALBD are expected to be up approximately 3.25% costing $0.27 per share for 2026 versus 2025. This is really a normalized rate of 2.5% when factoring in two things. First, operating expenses for full year operations of Celebration Key Grand Bahama and the midyear opening of our new peer at RelaxAway, Half Moon Cay will impact our overall year-over-year cost comparisons by 0.5 point. Second, the sliding of some costs from fourth quarter 2025 to 2026 will impact our overall year-over-year cost comparisons by about [ 0.3 ] point.

The three main drivers of our normalized 2.5% cost increase are: First, 3% attributable to inflation and higher advertising expenses; second, about 0.6 point from dry dock expense on our income statement. In 2026, after optimizing our dry dock schedule, we are expecting 604 dry dock days. While the total actual spending for our dry docks in 2026 is expected to be roughly in line with 2025 as a result of the nature of the 2026 work more of the spending is classified as operating expense and less as capital expenditures. And third, cost mitigation of approximately 1.1% from efficiency initiatives and further leveraging our industry-leading scale. Regulatory costs related to emission allowances and higher income taxes driven by Pillar 2 will cost us $0.11 per share.

Benefits from net interest expense, fuel consumption and capacity were partially offset by increased depreciation for a net favorable impact of $0.06 per share. The net impact of fuel price and currency is expected to favorably impact 2026 by $0.20 per share, with fuel prices favorable by $0.17 and the change in currency exchange rates adding $0.03.

In summary, putting all these factors together, our net income guidance for full year 2026 is over $3.45 billion, an improvement of more than 12% versus 2025 or $0.23 per share. In addition, this will result in $7.6 billion of EBITDA. As we mentioned on the last earnings call, for the longer term, we're targeting a net debt-to-EBITDA ratio under 3x. While I'm happy to report that even with 4 dividend payments modeled into our guidance for 2026, we are projecting to get there by the end of the year.

Before I leave our 2026 guidance, I did want to update you on the impact of Carnival Cruise Line's new loyalty program, Carnival Rewards, which will now start in September 2026, impacting results for the fourth quarter. As a reminder, while the program will be cash flow positive from day 1, it does impact our yields in 2026. The impact is expected to be 0.2 point in 2026, 0.5 points in 2027, 0.2 point in 2028 and turn positive thereafter.

Now some key insights into our 2026 first quarter. Yield improvement is approximately 1.6% or 2.4% when normalizing for the last-minute changes to our Arabian Gulf deployment and certain dry docks in the first quarter. First quarter 2026 has a difficult prior year comparison as 2025 was at a record level with a 7.3% increase compared to 2024. In addition, the quarter is being affected by the Caribbean double-digit industry-wide growth along with the first quarter having the largest absolute quarterly capacity in the Caribbean during the year, as well as the impact of volatility in the first half of last year had on our advanced booking curve. Adjusted cruise costs, excluding fuel per ALBD are expected to be up approximately 5.9% compared to the prior year and higher than the full year. This results from the fact that all of the items that are expected to impact the full year will have a greater impact on the first quarter.

I'll finish up with some comments on the recommended simplification of our corporate structure. We are recommending to our shareholders that we unify the dualistic company or DLC framework into a single company listed solely on the New York Stock Exchange. This aligns with the marketplace. We are aware of 15 dual-listed companies or DLCs created over the last 4 decades, including our DLC in 2003. A substantial number of those have been unified in recent years for many of the same reasons we are recommending our unification. Today, we know of only 3 other major DLCs remaining.

Under our plan, Carnival plc shareholders would receive Carnival Corporation shares on a one-for-one basis and Carnival plc shares and ADSs would be delisted. Carnival plc would become a wholly owned U.K. subsidiary of Carnival Corporation. This would create a single global share price, streamlined governance and reporting and reduce administrative costs. We believe we will also increase liquidity for stock trades and increased weighting of the stock in major U.S. stock indices. We intend to hold meetings of our shareholders in April to consider the recommendation. Subject to shareholders approving our recommendation, we intend to complete the unification in the second quarter of 2026.

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

[Operator Instructions] Our first question comes from the line of Robin Farley with UBS.

Great. That was a lot of information that covered a lot of the initial questions. Maybe just one thing when we think about your guidance. It sounds like if we were just taking up the accounting accrual, it will be closer to sort of 2.8% yield growth for next year. You mentioned that a lot of the beat in Q4 similar to what you said during the year was this acceleration in onboard spend and better close-in demand. Would you say that you -- when you're thinking about your guidance for 2026, are you factoring in that those things will continue at that level? Or are you kind of assuming that those would be at the rate that you'd originally thought? In other words, I'm just thinking about whether that acceleration and good close in demand is in your guidance or that would really be upside to your guidance?

Robin, so I think the fair thing to say, look, this is our guidance based on what we expect to happen at this point in time when we look into 2026, taking into account the business we've got on the books, the momentum we've got and the fact that the world changes on a pretty daily basis. And so we're always going to try to continue the momentum on the onboard side. We're always going to try to make sure that the close-in bookings are going to hopefully beat our expectations. But -- at this point in time, it's truly our best guess. And as we always do around this time of year, you could say that we started early. It always starts early at this point, which I do believe, and it's really something that takes off as we get into the latter part of November. We're still right in the mix of it, as you know. And so we do need some more time to see how it all develops.

Okay. Great. And then you alluded to the increase in Caribbean capacity and a lot of that really is focused on Q1. Typically, at this point, right, you would be over 80% booked for Q1? Or if you could just kind of remind us where that is? I know you mentioned kind of overall for the year and that your overall for the year in line with those record highs. Would you say for Q1 that you're further ahead than typical or sort of in line with typical just when we think about how far past the point of digesting anything in the Caribbean is already -- has already happened?

Yes. I mean for our Q1 sailings, there's not that much left to go. And we are, at least at this point in time, we're a little bit better positioned tiny bit versus last year on the fringes. So not much to say about the first quarter.

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

Congratulations on the dividend and the results. So the first question is on the bookings. You guys called out the momentum and it was clear in the release in the commentary. We had heard that there had been some slightly less robust demand, still good, but it's just not quite what some folks have seen last year. So just wondering from a revenue management perspective, as you guys have chosen to take any volume at the expense is slightly less pricing growth this year, if that was a strategy at all for you guys?

Yes. Thank you for the question. We're -- as you said, we -- our revenue managers brand by brand, voyage-by-voyage are doing the right things to maximize ultimately the amount of revenue we have in the bank by the time the ship comes back to port. And so the momentum has been good. We're doing things that we think are going to continue to help support the guidance and support the business, not only for 2026, but for 2027 and even some that we're getting into 2028. So we feel good about the way our teams are going about managing the curve.

Okay. That's great. And then on the Caribbean commentary, we hear about that capacity lift. A lot of it is in the close end market, 3- and 4-day itineraries. I don't know if you want to comment in terms of your exposure to that market specifically or if you could get in the weeds and kind of help us understand if you have a little bit of different mix versus what you guys see coming into that market for this first quarter specifically?

I actually don't have it offhand with respect to the first quarter. But clearly, there is -- there's all sorts coming into the Caribbean, right? You've got the 7 others, you got the shorts from others. When it comes to us, Carnival has been America's crews line operating in the Caribbean on shorts for, I don't know, 5 decades. And they'll continue to do that and do that thoughtfully. We like the portfolio approach we're taking even into the Caribbean because -- when you think about our mix and you look at the first quarter, 20% of our Caribbean capacity is actually from our European brands that have flare programs going into places like Barbados and Dominica, and it works very well for us. So probably in a roundabout way to answer your question, there is short, there is 7 nighters, and there's things that are even longer, and we play in all of it.

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

Congrats on another nice quarter. So Josh, could you elaborate on the momentum carrying into '26 that you cited, specifically maybe the cadence of booking volumes that you've seen up through holiday, prices in North America and Europe, which I think you cited at historical highs? And maybe even to say it a different way, have you seen anything irrational at all? And does your guidance for the 3% normalized yields for the year, does that require today's level of momentum to sustain? Did you bake in benefit for Celebration Cay Half Moon? Is there anything in there for lapping up against the tariff volatility from a year ago that you saw in bookings? And did you put anything in at all for stimulus in terms of potential benefit?

Yes. Thanks for the question, Matt. Let me see if I can answer it holistically. So as a starting point, like I said in an earlier call, we are very happy with the momentum that's taken us through the end of the first quarter and into the last few weeks and volume is up nicely. And we're doing that the way that we always do that, which is managing the curve and putting out our product and our experiences to our guests who are looking for value, and that's what we do, and that's what we've done over the last couple of years as our yields have gone up 17%, and we'll continue to do that. With respect to all of the ins and outs of what's been baked in, like I said before, every forecast to some extent, is a guess and it's based on some assumptions. So as far as stimulus specifically, we didn't really bake anything into that. As far as the macroeconomic impacts that we saw this year, yes, that did play into it to some extent. I mean, we know that we're going to lap some of the volatility in the spring. And we also know we didn't have the volatility of the spring on our radar screen this time last year. Things do happen all the time, all around the world. And so we just got to be prepared to deliver in light of that. I just keep going back to the well. The one thing I'd reiterate to everybody is the fact that things happen in cycles, things happen differently in different geographies, and the diversity that we've got sets us up very well to be able to withstand volatility. And the fact that we're guiding to a normalized yield increase of 3%, I think, is very good. And I'd just remind you that if you remember, what we've talked about with respect to the volatility last spring, it was really having an impact on the second half of '25 into the first half of '26, which is what's been built in exactly to our to our forecast. So as always, we're going to try to exceed everything. That's always the goal, but this is our guess at this time. Best guess.

Great. It's great color. And then, David, just relative to your 3.25 net cruise cost outlook for the full year, what have you embedded if anything, as it relates to cost management? Last 2 quarters, you've shown really nice results on the cost side. I think you cited hundreds of items that you found to leverage scale as potential offsets the transitory cost headwinds. What have you embedded on the cost management side that could be potential offsets to the cost headwinds that are in your forecast, if anything?

Yes. So no, as I mentioned in my prepared remarks, we did put in about 1.1% of cost mitigation from efficiencies and other initiatives, sourcing, which leverage our scale, et cetera. So we put in a substantial amount, which offset inflation.

Our next question comes from the line of Steven Wieczynski with Stifel.

Happy holidays to all you guys. So Josh, I want to dig into the Caribbean a little bit more. And I know it's a topic you probably haven't been asked about a lot recently. But if we think about 2026, can you maybe give us some color on what you're seeing right now in terms of demand for your Caribbean products? And maybe that's not the right way to ask it, and maybe a better way to ask that is your ability to take pricing action right now in the Caribbean? And then maybe how you're thinking about pure Caribbean yields in '26 relative to your overall 2.5% yield guidance?

Yes. I mean just -- I guess I'm going to broken record myself, right? I mean, we're managing the business as we think is appropriate. I'm not going to comment on our competitors on any type of individual basis. I can just tell you our profile is 4% growth over the last 2 years between '25 and 2026. I will tell you that when the industry -- when you back us out is growing as much as it has, it's -- yes, that's just the backdrop, but we feel good about what we've been able to accomplish and how we put it into the forecast. So I'm not sure if you want to try to take it from a different angle, but we feel good about the way we've been tackling our business.

Let me ask it this way then. Caribbean yields will be positive in 2026?

Caribbean yields will absolutely help support the momentum of this business. And we look forward to talking at the end of the year when we find out what happens.

Okay. I thought I tried to ask it that way. Okay. Second question is probably going to be a David question. Obviously, we have the first quarter guidance. Wondering, David, if you could help us think a little bit more about the cadence over the last 3 quarters in terms of both yields and costs and anything we should think about in terms of timing of both of those metrics as we update our models.

Yes. So as far as cost is concerned, the first quarter was, as you saw, higher than the full year. So when you start thinking about the second, third and fourth quarter, I do believe that there will probably be all 3 quarters less than the full year. However, keep in mind there's a lot of decisions left to be made on particular items and exact spending and advertising, repair and maintenance and other things. So the seasonalization between the quarters, as I've said before, it's a tough thing to forecast. Judge us on the full year and not the quarters, but I think it will be probably less than the full year. As far as the revenue is concerned, you saw the first quarter. I mean, the prior year first half has much more difficult comparisons, higher yield increases than the back half. So relatively speaking, I would expect to see on a year-over-year basis, higher yield increases in the back half of this year than the first half.

Our next question comes from the line of Ben Chaiken with Mizuho Securities.

For '26, on the cost side, it sounds like the 2.5 normalized cost has 0.6 point for dry docks in it with more OpEx versus CapEx, to your point, David. I guess what's the more typical allocation as we think about the future, is it the '25 version of the '26 version, if that makes sense, assuming I understood you properly.

Yes. It's really difficult to depict here because, remember, we're talking about a very small movement on a large number, maybe 4% or 5% on over $1 billion. So as a result of that, it is very difficult to project what will happen in 2027. This has been going on for a long time. One is -- and it has swung both ways. I mean, one of the things that I used to -- that I've always said many times is the fact that not every dry dock day is created equal, and this is what I was referring to. Now I'm just getting to a little bit more detail of the split between CapEx and OpEx. But we're really talking about a small movement, and as we plan through 2027, we'll get better visibility into that. But on the margin, it's kind of small. So it's a handful of percent difference between the two pieces.

Okay. Got it. And then on the fuel side, there was -- there's some rounding, so it's not like perfect math, but it seems like there was quite a step-up in the emission allowance tax. I could be mistaken, but I think it's around $160 million for you in '26. Is there any way to...

The increase was about $0.06 a share or about call it, roughly $80 million. Remember, in '26, we went from -- we went to the full 100% versus '25 where we were -- it was 70% of the emissions allowances. So because of the step up, there was an increase, plus there was a slight increase in the projected cost of the EU allowances as well.

Totally. No, I got you. I was just think is there a smart way to think about the out years? Like are we -- is clearly -- is that step function over and now it just grows by what you guys do on a...

Yes, the step functions over because we're at 100%.

Our next question comes from the line of James Hardiman with Citi.

So circling back to the Caribbean conversation. As we think about -- obviously, there's some one-timers in the first quarter, the Arabian Gulf deployment changes. But sort of your like-for-like numbers that you've given us, right, 2.4% for Q1 relative to 3% for the year. Is that delta primarily just the outsized mix of the Caribbean in Q1? And then to Steve's question, as we think about the shape of the year, do you ultimately feel better as we move into the year about that Caribbean piece. I think the Caribbean is a much larger chunk of Q4 as well, but it seems like based on the answer to the previous question that you feel pretty good. The Q4 yields, if anything, are probably going to be better than the full year? So just trying to understand the Caribbean dynamic in the context of all that.

Yes. James, so I think you've heard pieces of this throughout. So first of all, if you look at the first quarter versus the first half versus the second half, the comps are a lot different when it comes to the yields that we're lapping. We have the impact of the volatility in the spring, which is having the outsized impact now, not for the second half of 2026. Overall, we feel good about the business. There are some specific drivers for Q1 that we've talked about. And we'll hopefully continue to, like I said, ride the momentum and keep improving the business.

Got it. And then I guess moving to the other side of the pond. Obviously, as we think about global capacity growth for 2026, it's in a very good spot, right? The issue is that a lot of that capacity is moving from Europe into the Caribbean, I would think that given your relative exposure to some of your peers in Europe that maybe that's a net benefit to you guys? Maybe speak to that dynamic and whether or not you feel like you're sort of uniquely positioned there.

Yes. So I'd say, yes, I love it. Keep clearing out of Europe. That will be fine with us. At the end of the day, with our strategy and our approach, when you have P&O Cruises, which is the biggest investment in the U.K. and AIDA, which is the biggest and the best in Germany. And then we've got cost. It's really servicing the Southern European countries. Our European strategy, we think, is very, very effective over the long term, as we've been saying for a long time. And we also, frankly, see strength in our North American Brands European program. So we're very happy with, a, where we're sourcing; and b, where we're deploying. And so we'll continue to stick to our strategy.

Our next question comes from the line of Lizzie Dove with Goldman Sachs.

I wanted to get a higher level and just on the strategy that you've taken, you have fewer ships launching than some of your peers, yet you're seeing, clearly, congrats on a great yield growth. Can you maybe talk more about what you think is driving that same-ship yield growth from here? How much of that is maybe brand improvements and some of the brands that have been lagging, maybe more exposure to new to cruise? Just anything you could share, that would be helpful.

Lizzie, so I think it is our brand is getting better and better at their commercial execution up and down that silo, right, is everything from how we do the revenue management and the tools we use and the capabilities that we have. It's the performance marketing. It's the better and clearer brand messaging that's really speaking to why you shouldn't just want to take a vacation with us or cruise with us, but you want to take a cruise with that brand, that's when we know we're doing it right. And that's what we've been focused on. And of course, I always say I talk about this as the lease only because we're really so good at it. We're always trying to figure out how do we make the experience on board, meet and exceed expectations of our guests. And as you've heard me say, we have a tremendously ridiculous price to experience ratio gap between what we give to our guests and what you can get in land-based alternatives. And that value proposition, I think, is getting clearer and clearer when it comes to how we can market and talk about this.

Now because we don't have capacity growth in the next couple of years to speak of any real size. We don't have the situation where we're trying to figure out how do we get more people on to our ships. We have actually got pretty maximum capacity on our ships. So newcomers are welcome as are our loyal guests who we love, as are folks who have cruised on others and want to try one of ours. And so we're trying to appeal to as broad an audience as we can for the limited space that we have, which is a good recipe for being able to improve our revenue.

Great. And then I know you get asked this every quarter, but I'll ask it again, especially in the context of contribution to your net yield guidance this year. Celebration Key has been open a number of months now. I think you've had 1 million guests you said go there. I think we all make our own estimates of ticket yield contribution on board. Anything you can share it just participation rate, spend rate, what you are seeing on uplift and what you're expecting on the go forward and as you kind of develop RelaxAway more?

Thanks for asking again. So I'd say we celebrated just yesterday, the 1 millionth guest coming to Celebration Key, which we were ecstatic to be able to celebrate. And it will give you the same answer, which is we're getting the ticket premium that we anticipated. The output from the onboard shore operations is in line and the fuel consumption is too. So it's proceeding pretty much as we had planned. We'll continue to learn and adopt over time as we should. And we'll certainly factoring in, as you said, order some lessons learned that could be translatable to Half Moon RelaxAway. But I would say we're trying to make them very distinct and different experiences. And I think our guests are going to be delighted with that, and we can't wait to show them both for much of our capacity on the same itinerary. So we're looking forward to that.

Our next question comes from the line of David Katz with Jeffries.

David, could you just help us a bit with fixed versus variable costs within where you're at today? I know we're not going to be able to predict the future necessarily, but we'd love to get a sense for how we might find leverage in the model, should it turn out to be a better year than anticipated.

So it's a difficult question to answer because we do operate at full capacity and essentially sell every cabin. So once you have that basic premise in the business. What you're basically saying is a ship size, most of your costs are fixed. However, that doesn't mean that you can find better ways and optimize the business by doing things differently, which is whether it's been using AI or other things in order to improve your cost structure. We're doing that shore side as well. Shore side, you find that obviously, somebody could say, your advertising expense is variable. But in the long run, it really isn't. So what we have to do and what we focus on continually is being most efficient with every single dollar we spend and find ways to do more with less.

Understood. And just my follow-up, one more for you, David. Sorry, Josh. So on the listing, presume that there could be a couple of bucks of cost savings upfront and ongoing, thinking a few million dollars upfront and maybe a few million as an ongoing, every little bit helps. Is that the neighborhood, David?

Yes, that's the neighborhood. And so -- and the payback on this is very quick. It's just less than 2 years. And so we feel very good about the situation, and it also streamlines reporting and simplifies governance and other things for us. So we're -- we feel very good about the decision and we finally got to it.

Our next question comes from the line of Jaime Katz with Morningstar.

Nice quarter guys. Can I ask a little bit about consumer demand. I think you guys did a nice job of dissecting demand by geography, but maybe can you talk a little bit about the behavior of consumers between income levels because we've been hearing a lot about this K-shaped demand patterns and how they've differentiated. Are we seeing things like seaborne consumers being more resilient [indiscernible] than Carnival consumers or vice versa? Is there any way to parse that out to a better degree for us?

Yes, sure. So when you look at the segments, you got contemporary premium and luxury. We're not seeing any meaningful difference across the segments, I would say. And this has been asked before when you think about our U.S. consumer across the big brands that we've got in the U.S., excluding seaborne, the range of our of our household income is something in the $100,000 to $150,000 range. So it's certainly in the middle class. And now having said that, our guests don't live in a vacuum. They live in the same world as every other consumer does, and they see the headlines. And they're looking, I think, in a lot of cases, to figure out how do they get more value for what they're spending. That's been a pretty constant theme for a long time, and it certainly was in the fall, as you heard, not only us and people in the cruise space talk. But I think as you hear retailers talk and as we've been getting into the holiday season. Some people are looking to make sure that they are getting the most they can get for the money that they spend. And they're specifically looking to preserve and protect things that are dearly important to them like spending time with their friends and family on holidays. And when you put all of that together, that is a very nice tailwind for what we have to offer because we are an amazing value, we give an amazing experience, and we can help you make your money go further than what the land-based alternatives are. And so we feel good about the positioning. I'm happy to always have a gap to land and always be a value and close the gap over time and always have a gap and be a value. I think that's a great thing that we can provide to our guests.

Okay. And then I think there was a comment on always sailing full, but can you talk a little bit about how you guys are thinking about managing occupancy in 2026 just relative to the past, given that prices are at an all-time high and maybe the experience improves with fewer people on the ship? So maybe how is the occupancy being optimized in the year ahead?

Sure. And I think that's a fair call out. We are not mandating -- I am not mandating to my teams you better say full to the last decimal point going 3 places over, right? At the end of the day, we want people to maximize revenue. And that's why we could miss an occupancy by a little bit, and we still end up with more revenue than what our forecast was because we're managing and our teams are managing that balance, and I think doing it the right way. And so there's always going to be opportunity to figure out on the fringes whether it's worth getting the last few people on board or it's not and keep a little bit more price integrity overall and generate more in the long run. So we give our brands rightly so the leeway to do that, and they have been doing it. And I expect that, that will continue.

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

Just on the balance sheet, you've obviously done a tremendous amount of work. I think you're targeting, I think you said sub-3, David. Just -- why is that the right level? And is there a desire to go above and beyond the $2.6 billion, I think, that you have naturally coming due this year in general?

Sure. So overall, if you calculate using our guidance where we'll wind up the year, we will wind up less than 3. We wind up at about 2.8x. So we are moving in the right direction and feel very good about that. I would say we had said sub-3. But overall, we're probably targeting something in the range of 2.75, that should get us around a BBB rating, and we feel that, that is strong at this point in time for a company like ours.

Okay. And then I know there's been a lot of talk about the Caribbean, but like the -- it's pretty normal in this industry to have big swings in supply from time to time. I think one -- I mean, not too long ago, I think we were talking about Alaska as having too much supply at one point, but it normalize pretty quickly. So can you just -- and I know you talked a little bit about this, Josh, but just on core pricing versus occupancy, like what the biggest change to me seems to be that Carnival is less willing to discount to fill. So I mean, I know you've talked about maximizing revenue. But if you could just talk like holistically, how that's changed versus history, I think, would be helpful just given I think that's a big deal here?

Sure. And I think that's a great intro. I mean, first of all, let me just say real clearly, the Caribbean is and it always will be a fantastic market for us. And we have successfully absorbed elevated supply in the Caribbean before and in Europe and Alaska many times over the last many decades, and it comes and it goes and it gets absorbed, and we move along. And I don't feel any different about the long term in light of what this particular instance is because we do that very well.

With respect to the philosophy, look, I think it is Fair to say that we are thinking and acting, I think, in a rational basis in a way that we want to maintain price integrity in the market for us. And at the same time, making sure we get folks on board that are happy and spending money not only in the ticket and -- but the onboard. And because we have evolved over the last several years and we'll continue to with bundled pricing and packages, it does change the dynamic about how we can position ourselves in the market and do things and make folks think that and understand that it's a great value. We have been -- like I said before, we've been doing this over the last couple of years, and our yields are up 17%. It's part of the arsenal to put out promotions to make people interested in what we have to offer and get our base of business and hopefully generate as much revenue as we can on as much happy guests as we can. So no specific formula to give you, but I think it's fair to say that that's the approach.

Operator, I think we've got time for one more.

Our final question will come from the line of Sharon Zackfia with William Blair.

I wanted to ask about marketing because clearly, you had a lot of success with increasing your marketing spend, and I think that was called out at someday you will increase more in '26. Can you talk about where you ended with marketing as a percent of sales in '25, how do you think about that for '26? And then there's a lot of talk about the way to get to consumers kind of changing with maybe SEO and things like that being less effective. I mean how do you think about targeting consumers as the way to get to them, maybe shifting, particularly in the digital landscape?

Yes. Well, so I'll talk about the last part first. You're 100% correct. It is one of the fastest changing areas of our business when it comes to technology use of AI tools, not only by us but by the consumer and how are we marrying all of that up. And so there are lots of things that are already in place because not surprisingly, there are third-party companies that have tools already available that we're taking advantage of to make sure that we're keeping pace with the way that consumers are changing how they go about looking for not just the vacation, but frankly anything now it is. So that is -- I think that's just going to be a common theme as we move ahead over the next several years, and we've got to be -- we have to be nimble, and we have to be really thoughtful about the fact that the world is going to change dramatically, I think, over the next 5 years, and we just -- we need to make sure we're keeping pace. So that -- so we are reallocating dollars as we talk with our operators about how they need to spend differently to adjust to that. I think it's fair to say, though, there will still be top of funnel things that we are always going to want to do to get into the consideration set. And we're talking about how do we optimize once you get below that to make sure that we're being put the right way in front of the right guest or potential guests to close the booking.

As far as how we're seeing the advertising, it's not like it's spiking dramatically over -- as a percentage of revenue. We're just trying to do what we think is, is the right thing for our brands and our business. It's about 3.5%, give or take. That's -- it's a metric we look at, but it's not the metric that end the discussion about how much people should be spending on advertising because as you can probably appreciate, there's a lot behind it as we develop and change those plans real time.

Thank you very much. So for everybody, I would just say thank you. Happy holidays, and thank you again for all the support that we have had as a corporation and for all of our guests and all of our trade partners, thank you very much for everything you do for us and for the team. Well deserved -- well-deserved break next week. So thanks very much, and happy holidays.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Carnival Corporation and plc Q3 2025 Earnings Results Conference Call and Webcast.

[Operator Instructions]

As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Beth Roberts. Please go ahead, Beth.

Thank you. Good morning, and welcome to our third quarter 2025 earnings conference call. I'm joined today by our CEO, Josh Weinstein, our CFO, 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 today's press release and our filings with the SEC for additional information on factors and risks that could cause actual results to differ from our expectations. We will be referencing certain non-GAAP financial measures, including yields, cruise costs without fuel, EBITDA, net income, ROIC and related statistics for all, which are on a net basis or adjusted as defined, unless otherwise stated. A reconciliation to U.S. GAAP is included in our earnings press release and our investor presentation, which are available on our corporate website. References to ticket prices, yields and cruise costs without fuel are in constant currency unless we know otherwise. 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.

Thanks, Beth. This was a truly outstanding quarter with our business continuing to fire on all cylinders, outperforming and taking us to new heights. Once again, we delivered record revenues, yields, operating income, EBITDA and customer deposits. This quarter, we also achieved all-time high net income of $2 billion, surpassing our pre-pause benchmark by nearly 10%. This is a significant milestone with strong operational execution more than compensating for a nearly 600% increase in net interest expense compared to 2019. On a unit basis, both operating income and EBITDA reached the highest levels in the better part of 20 years. These record results were delivered on 2.5% lower capacity as compared to the third quarter last year, yet another proof point on our successful delivery of same-ship yield improvement and its marked impact on the bottom line.

In fact, yields increased 4.6%, all of which was achieved on a same-ship basis. Yields were also over a point better than guidance again due to the strength in both close-in demand and onboard spending. Unit costs beat guidance by 1.5 points on continued cost discipline. The outperformance on revenue and costs, alongside our refinancing efforts, enabled us to take up our full year guidance for the third time this year. These fantastic results and our team's consistently strong execution delivered ROIC of 13% for the trailing 12 months. This is the first time since 2007, nearly 20 years ago, that returns have reached the teens; another clear testament to the fundamental improvements in our operational performance.

Our leverage is now down another notch to 3.6x net debt to EBITDA, closing in on investment-grade leverage metrics. This positions us even closer to using our strong and growing free cash flow to not only continue to responsibly delever, but also to return capital to shareholders. In fact, just today, we called the remaining converts using $500 million of cash that David will touch upon. To fuel this over the longer term, we believe we have much more opportunity to increase same-ship yields and further close the unbelievable value gap to land-based alternatives, pushing margins and returns even higher over time.

In fact, booking trends have continued to improve since our last update nicely outpacing capacity growth at higher prices and setting a record for bookings made on sailings 2 years out. And with nearly half of 2026 already on the books at higher prices, we feel pretty good about next year. We just welcomed Star Princess into the fleet, sister to the highly successful Sun Princess previously awarded Conde Nast 2024 Megaship of the Year. This new ship class will now represent over 15% of the Princess fleet, a nice tailwind for the brand next year.

Of course, we also have the full benefit of Celebration Key and the continued rollout of our destination development strategy as we progress through next year. Celebration Key is as phenomenal as we expected and open to rave reviews. I could not be prouder of both the Carnival Cruise Line and our destination development teams for not only getting this fantastic development done on time and on budget, but also delivering an amazing guest experience right from the start. Since our late July opening, nearly 0.5 million Carnival Cruise Line guests have already passed through the Sunshaped Arch in Paradise Plaza, soaking in the largest freshwater lagoon in the Caribbean, heading up to the top of the world's largest sandcastle, zipping down our racing water slides or enjoying a cool cocktail at the world's largest swim-up bar. While early guest feedback from Celebration Key has been fantastic. We are paying close attention to our guest suggestions, and we'll continue to fine-tune operations and strive for continuous improvement to make the experience for our guests even better. As you may have seen, the media coverage for our new destination has been overwhelmingly positive. Even before opening, we were amongst the most search cruise destinations and we have clearly built on that success. Our marketing teams have been working

[Audio Gap]

As beaches are the #1 destination for vacation in Americans are miles upon miles of some of the most beautiful beaches in the world are the perfect fix. By making targeted incremental investments and stepping up our marketing efforts to support this broad destination portfolio, we believe we have further opportunity to monetize these strategic assets by using them to drive consumer consideration and conversion, taking share from land-based alternatives.

Altogether, our exclusive Caribbean destinations will capture over 8 million guest visits next year, almost equal to the rest of the cruise industry combined. And let's not forget our strategic portfolio of brands and assets stretch far beyond the Caribbean.

We have, by far, the most assets in and capacity dedicated to Alaska, which has been incredibly strong this year as well as the biggest reach into Europe, which has likewise been performing incredibly well for us. Our portfolio of brands and land-based assets are clearly the largest and most diverse in the industry and getting even better every day. While getting to 13% ROIC so quickly is a significant achievement, it's certainly not a ceiling. We have been disciplined in deploying capital towards our highest returning brands with 7 ships on order for Carnival and AIDA combined. But keep in mind, we have many other brands that are quickly progressing up the internal leaderboard. This year, the overwhelming majority of capacity will be at brands delivering double-digit returns. Yes, this is already well above our cost of capital, but our brands have much more room to significantly improve. In fact, several of our brands are not yet back to either 2019 levels or the record highs they've reached in the past 2 decades. So we know the latent potential they have. And even the 2 stars currently a top that internal leaderboard, AIDA and Carnival Cruise Line have road maps to progress. AIDA will continue to benefit from its hugely successful evolutions program, which coupled with new ship orders, will modernize its current fleet.

Next month, AIDA Luna will enter drydock, the second of 7 ships to receive this proven upgrade. Carnival will also be launching a fantastic new marketing campaign just ahead of wave season, an enhanced loyalty program mid next year and of course, stands to disproportionately benefit from the step-up we're making in our Caribbean destinations, given their large year-round Caribbean presence. So while it is incredibly rewarding to see the great progress our teams have made in such a short amount of time, I am equally excited about the opportunities ahead as we create shareholder value through continued progress on profitability and returns.

At the same time, further balance sheet improvement should continue the transfer of enterprise value from bondholders back to shareholders. I would like to again thank our team members, ship and shore for the dedication and execution which enabled us to deliver happiness to nearly 4 million guests this past quarter by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sell, place we visit and life we touch, and special thanks to our travel agent partners, destination partners, investors and of course, our loyal guests for their continuing support.

With that, I'll turn the call over to David.

Thank you, Josh. I'll start today with a summary of our 2025 third quarter results. Next, I will provide some color on our improved full year September guidance as well as some key insights on our fourth quarter. Then I'll provide you with a few things to consider for 2026 and finish up with an update on our efforts to rebuild our financial fortress through refinancing and deleveraging.

Turning to the summary of our third quarter results. Net income exceeded June guidance by $182 million or $0.13 per share as we outperformed once again and achieved our highest ever net income for the quarter. The outperformance was mainly driven by 3 things: first, favorability in revenue worth $0.04 per share as yields came in at 4.6% compared to the prior year, and that was on top of last year's robust increase of nearly 9%. This was 1.1 points better than June guidance, driven by continued strong closing demand, resulting in higher ticket prices and the continuation of strong onboard spending. The increase in yields was driven by improvements on both sides of the Atlantic.

Second, cruise cost without fuel per available lower birth day, or ALBD, were up 5.5% compared to the prior year. This was 1.5 points better than June guidance and was worth $0.03 per share. The favorability was driven by cost-saving initiatives, which we firmed up during the quarter. These will flow through to our full year September guidance. And third, favorability in fuel consumption and fuel mix was worth $0.02 per share as our efforts and investments to continuously improve our energy efficiency of our operations leveraging technology and best practices paid off once again.

The balance of the favorability $0.04 per share was a combination of improved depreciation expense and better fuel prices as well as favorable interest income and expense. Customer deposits at the end of the quarter were at a record for the third quarter at $7.1 billion, up over $300 million versus the prior year, driven by higher ticket pricing and increased sales of pre-cruise onboard revenue items.

Next, I will provide some color on our improved full year September guidance. Our net income guidance of approximately $2.9 billion or $2.14 per share is a $235 million or $0.17 per share improvement over our June guidance. The full year improvement of $0.17 per share was driven by 3 things: first, flowing the $0.13 per share third quarter favorability through to the full year; second, an additional $0.03 per share of fourth quarter interest expense favorability as the actions that impacted third quarter interest expense are also creating favorability in the fourth quarter; and third, $0.01 per share from improved fourth quarter fuel prices.

Yield guidance for the fourth quarter remain the same as the prior guidance. Cruise costs without fuel for the fourth quarter are flat with June guidance. However, our cruise costs for the fourth quarter did benefit from some of these cost savings we solidified during the third quarter, but were offset by higher variable compensation driven by improved operating results. All of this results in over $7 billion of EBITDA, a 15% improvement over 2024, virtually all of which is being driven by same-ship yield improvement as our capacity is only up approximately 1% year-over-year.

Now a few things for you to consider for 2026. We are forecasting a capacity increase of just [ 0.8% ] compared to 2025. As Josh indicated, booking trends have continued to improve since our last update and we now have nearly half of 2026 on the books at higher prices. As we highlighted on our last call, Carnival Cruise Line's new loyalty program, Carnival Rewards, will start in June 2026, impacting results for the second half of the year. As a reminder, while the program will be cash flow positive from day 1, it does impact our yields in 2026. The year-over-year impact is expected to be about 0.5 point. It should also be noted that we do not anticipate any meaningful impact on cost from the new loyalty program when compared to the current program. Our game-changing destination celebration key, which opened in July 2025, has been delivering an amazing guest experience with a full year of operation in 2026 along with the mid 2026 opening of our new peer at RelaxAway, Half Moon Cay, we expect that the operating expenses for these destinations in 2026 will impact our overall year-over-year cost comparisons by about 0.5 point. While it is still early in our planning process, we are expecting to do more work during our 2026 drydocks. The additional expenses will impact our overall year-over-year assumptions by up to 1 percentage point.

Now I'll finish up with an update of our refinancing and deleveraging efforts. During the quarter, we continued our refinancing strategy to reduce interest expense and manage our maturity towers while also reducing secured debt by nearly $2.5 billion, leaving just $3.1 billion remaining. We issued 2 senior unsecured notes and completed 1 bank loan. The combined proceeds of $4.6 billion from these financings, together with cash on hand, were used to repay over $5 billion of debt, continuing our deleveraging efforts. We have been working aggressively all year long to delever as well as to simplify and strengthen our capital structure, rebuilding our investment-grade balance sheet.

Since January, we refinanced over $11 billion of debt at favorable rates and prepaid another $1 billion, accelerating our path to investment-grade credit metrics. We are pleased that our efforts have been recognized with the recent Moody's credit rating upgrade and the maintenance of their positive outlook. Based on our September guidance, we are expecting to end the year with a marked improvement in our net debt-to-EBITDA ratio going from 4.3x at the end of 2024 to 3.6x at the end of 2025.

Looking forward, we are targeting a net debt-to-EBITDA ratio of under 3x. Given the progress we have made and while still a top priority, it is great to be able to say that debt reduction no longer has to be priority 1, 2 and 3. We can soon pivot to diverting some of that effort to returning capital to shareholders as well. In fact, just today, we provided a redemption notice for all of our outstanding convertible notes, which if converted, will be settled using a combination of $500 million of cash and equity as we continue to rebuild our financial fortress. The convert redemption will be settled on December 5, just 5 days after year-end and will result in a $600 million improvement in net debt.

Pro forma for the convert redemption, our net debt-to-EBITDA ratio, is forecasted to be 3.5x very early in our fiscal year 2026. This transaction will also result in a lower share count used in the calculation of our fully diluted EPS for 2026 by approximately 13 million shares at a $30 share price. As we near completion of our current refinancing strategy and with no ship delivery scheduled during 2026 and just one delivery per year for several years thereafter, looking forward, we expect our leverage metrics to continue to improve as our EBITDA continues to grow, and our debt levels continue to shrink.

With strong investment-grade metrics in our future an upgrade to investment grade should not be far behind, which will result in security release on our remaining secured debt. All of this continues to move us 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.

[Operator Instructions]

Our first question today is coming from Robin Farley from UBS.

Great. Wanted to clarify, obviously, very positive forward booking commentary. When we talk about historic price levels. Does that mean sort of in line with -- or is that actually suggesting prices above? And I also thought it was interesting, the comment in the release that something like now both Europe and North American sourcing brands are at that historic price. So that is that -- is the implication there that maybe a quarter ago that North American price in the books wasn't at that record level like on a combined basis it was, but now North America better. So just wanted to get that clarification.

So what we intended to convey is that both North America and Europe are at historical record high levels in pricing, which is great to see. As far as looking back a quarter ago, I didn't -- nothing dramatic happened along the way. So it might be that we just wanted to give more information rather than less. So things are looking great on both sides of the Atlantic, across the brands.

And then just for the follow-up. Anything you can quantify with Celebration Key when you look at the impact on forward bookings, where you could sort of say it's causing an X percent premium and ticket price for ships that are calling on that island versus other ships that aren't calling on it? Or any way to just sort of help us think about how that's driving your yields?

Yes. No, we're ecstatic with Celebration Key and the impact that it's already starting to have on the business. It's kind of hard because it's such a massive set of business that's actually just shifted and is now inclusive of Celebration Key. But it's certainly getting the returns as anticipated when we came up with it a long time ago and as we've been getting closer to fruition. And a nice chunk of that is obviously the premium we're getting on the ticket side for any itinerary that's going to Celebration Key. So it's still 6 weeks -- actually, I guess, it's 2 months, 2 months into operations, which we hit the ground running and early days on the future potential that it's got, but it's tracking exactly as we anticipated. As I said in my prepared notes, I knew we'd get this question and the best thing I'm going to tell you right now is it's certainly meeting expectations, and we couldn't be happier.

Your next question today is coming from Brandt Montour from Barclays.

Great. So I wanted to ask about the consumer, your consumer, Josh. We see lower-end consumers sort of fatigued and hurting in several other travel verticals, it doesn't seem like you're seeing it. Maybe that's why you're not seeing it because of the value proposition, like you talked about, but are you seeing any sort of behavioral shifts within your loyalty set or people may be trading down between shore excursions or sort of any type of behavioral changes from your core consumer here?

You know, continue to say the same thing quarter after quarter, which is we've got an amazing business with amazing brands that are doing a phenomenal job of improving on a daily basis. So I'm real proud of all of them regardless of whether that's contemporary premium luxury. I'd say if you look back, we said in the third quarter, we had a pretty great booking looking a 13-week period, we look more year-over-year than we had in the third quarter of 2024. And in fact, Carnival, for example, it booked 8% more in the third quarter of '25 than it did in the third quarter of '24. So we feel like we are -- we feel like we're pushing ahead very well. And as you know, and most others know, we don't really have capacity growth. So when you think about 2026 with no new ships and then one they're after for the next couple of years, that's all going to increase demand on a very restrained supply side for our capacity. So it's setting us up very well.

Okay. Great. That's helpful. And then just a follow-up on the bookings commentary. You're half booked for '26, sounds like from your tone that that's a place where you want to be. But just thinking about the ebbs and flows of that booking strategy over the last few months, bookings were choppy back in April and March, and you kind of came back from that. When you look forward and think about how your strategy might change into '26, do you feel like you want to go in kind of similar to where you were last year? Or was there learning from last year where that might not be perfectly optimal?

Yes, that's a great question. I mean, to some extent, we need a little bit of a crystal ball in hindsight is great, but knowing where we were positioned last year as we got towards the end of the year. And then what we absorbed and still came out in a pretty great way as we've been talking about over the last few quarters. It is giving us some thought about how we need to make sure we're optimizing in light of the volatility that we had last year, it's the question mark, right? And there's always something. But it's not an election cycle year, which was the case last year at this time. Knock on wood, I think, the volatility has certainly been reduced pretty dramatically. Now we -- I'm knocking out everybody around the table, it's knocking on wood right now. But knowing that, that happened last year and it shouldn't be recreated in a similar way, it does give us some confidence in how we're approaching this and what we were able to do despite the volatility this past year.

Our next question is coming from Steven Wieczynski from Stifel.

Congrats on the strong third quarter outlook. So Josh, I want to ask a little bit more about how you're thinking about 2026 versus maybe 3 months ago? And I fully understand you guys aren't in a position to provide guidance yet for next year. But based on your qualitative commentary, it seems like booking trends have actually accelerated, I would say, versus versus the fear that might be out there in the marketplace that demand is decelerating. So just wondering from a bigger picture perspective and maybe how you're feeling about next year versus back in June. And then also in your slide deck, you mentioned that 2027 bookings are up to, in your words, unprecedented start? And maybe if you can help us think a little more -- maybe what that wording means there?

Yes, sure. Just because I have a bad memory. Let me start with that one. So 2027, what I meant is, literally, we've never had more bookings in a 13-week window over the third quarter. So this is a record for us for 2027. And so it was exactly as we intended to be unprecedented. With respect to 2026, so we feel good about 2026. We obviously are I have a feeling I'm going to do this a lot on this call. We're not giving guidance yet. We're not really talking about 2026. We're just trying to give a little bit of an understanding about where we're sitting. But I think all the things that we've talked about for quarter over quarter over quarter around our brands really trying to just own their space in the vacation market and doing their commercial execution on an improved basis is paying off.

Okay. Got you. And then, Josh, here's another 2026 question. So David mentioned.

Thank you for warning me.

Exactly. David did mention, look, there are headwinds out there as you start next year. I mean, 50 basis point impact on yields for the reward program, 100 basis points for the dry docks and 50 basis points like you said, for the build-out of the rest of the island. So basically, you guys have a 200 basis point headwind as we start 2026. But I guess the question, Josh, is there anything you didn't mention that maybe kind of behind the scenes that you guys are working on to help kind of mitigate some of those headwinds.

Yes. Yes, absolutely. I mean, look, let me give you some pros about 2026. As you said, we're about 50% booked. That's the longest booking curve we got on record. We just had a better Q3 booking period than we did last year. As I said, there was no election cycle. We get the full year benefit of Celebration Key half a year of RelaxAway, OBR strength has continued, and we expect that to continue as we look forward. We have no capacity growth, very, very little, I should say, which bodes very well. The strength of our diversified portfolio. I think it's really been playing out over the last couple of years and couldn't be more complementary of the work that is happening all over our 8 brands to really drive the business forward, and we get a benefit on the loyalty side, but the cash flow, as you know.

So putting that aside, we're always trying to figure out how do we become more efficient in what we do and how we do it. And as a matter of fact, David and I are going -- starting next week, we're going to be meeting with each of our brands to go through the 2026 operating plan and really understand how we can up our game to mitigate cost headwinds that happen every year, and we'll try to mitigate as best as we can.

Your next question is coming from James Hardiman from Citi.

Maybe sort of a nitpick question, maybe it's a dumb question. But as I think about your forward booking commentary, I think coming out of Q2, you were saying you were in line with respect to load factors. But then I think in the press release, you spoke to sort of an acceleration in bookings year-over-year since May, which I would think would mean that you're now ahead on bookings. So -- but I think you're still in line. So maybe it's just too close to call out in terms of the overall numbers, but just wanted to clarify on that point.

Yes, James, I think you might -- I'm trying to recall back from the second quarter. I think the second quarter, we were talking about 2025 in the remainder of the year. And this time, the commentary was on 2026. Maybe you can double check the comments.

Okay. I'll definitely do that. And then as I think about the quarter and really the last couple of quarters, the organic growth has been pretty stunning here, right? Particularly, you don't have any new ships coming online, and I think you've had the best yields in the industry, at least the ocean side of the industry. So maybe connect the dots between some of the programs that you've been talking about, Josh, right, the AIDA evolutions program and some of the things going on with Carnival, new marketing the step-up in Caribbean destinations, maybe connect those dots with how that's translating into pricing. And then as we think about moving forward, other low-hanging fruit and how we should think about pricing moving forward in the context of sort of the brand-level initiatives that are underway.

Yes. Look, where to start. I mean when you think about something like the AIDA evolution program, that's [ one 2,000 ] birth ship that's had 4 or 5 months of operations coming out of it, which is going great, and it is knocking the cover off the ball and Felix [indiscernible] should take a bow for everything that he's done with AIDA. But in the grand scheme of things, that alone is fairly small. It will get better and better as we get more and more ships through that program over the next several years. And I expect actually some of our other brands to be embarking on similar exercises and initiatives to really up the game of their of their ships that might be 15 years old or so, but they're going to be with us for well over 15 years as far as I'm concerned more. And so there's a lot of opportunity for that to run. Celebration Key, we talked about, I think, quite a lot. I couldn't be more proud of the team there for delivering an excellent experience and giving us tremendous wind at our backs as we look forward into 2026 and beyond. But really, this is fairly broad-based.

I mean most of our brands have not had growth for a long time, and they are improving their yields year-over-year, not insignificantly. And it is because they can actually execute at a higher level, which is what they've been doing, and that will continue. We've made in -- we've made investment on the advertising side. We've made investments into our revenue management systems. We've made investments into our people to make sure we've got the right capabilities and the right leaders doing the right things. And I think we've been saying this for a long time, right? I mean when we came out with SEA Change, we talked about what [ we to ] do and that was back in June of 2023. And really, the reality is it's just exceeded my expectations on the pace of that execution improvement. But the good news is there's a lot more in store.

Our next question is comes from Ben Chaiken from Mizuho Mizuho Securities.

I guess, first on capital return. I guess, how are you thinking about timing, leverage bogeys? And then is there any preference between dividends and/or buybacks and then kind of like separately, longer term, how do you think about capital return as a percentage of your free cash flow, if that's the way you kind of bucket it. And then I have one follow-up.

Ben. Well, you heard what David said in his prepared remarks, I mean, the -- like I was just saying, the acceleration is across the board and that's certainly inclusive then in our ability to start returning cash to shareholders as we get to that leverage metric. We'll be awful close to that at the end of our fiscal year. And as David noted, with what we're doing on the convert side should pretty much position us very well in early 2026 to get there. I have been fairly, I think, fairly clear when I have conversations with anybody who asked about this, that, number one, I want to be clear, it's a board conversation and decision, which has not happened yet; two, dividends are very important to us. We see the benefit of establishing -- reestablishing our dividend program. So I would expect outside of what we're doing on the converts, which is a little bit of a juice buyback because of what we're doing with our cash.

It's really going to be reinstating the dividend, but it doesn't mean that it's to the exclusion of buybacks over time. We have done both before very effectively, and we can do that again. in the future. But it is a little premature for us to kind of try to telegraph what when and exactly how we're going to do that and any type of metrics that we're going to be using to moderate the amount of cash that's going out the door.

What I can say in the good news side of the ledger is Again, we got no capacity growth next year. We don't have any new ships coming and we have one a year thereafter for the next several years, which should allow us to take a lot of free cash flow and return it to shareholders in the form of dividends and buybacks over time. And so once we've kind of fully turned that corner and can start talking about it, we'll try to give people more of a road map about how we're thinking about it. I'd say it's close. It is close, and I look forward to be able to talk about it having happened.

Understood. And then near term, I think previously, there was a pretty healthy acceleration kind of implied between 3Q and 4Q yields. Obviously, 3Q came in better. Maybe talk about what you're seeing with close-in demand and how you're thinking about the remainder of the year.

Yes. Look, Q3 ended on a strong note, and that was, as David said in his notes, it was a combination of close-in demand being stronger than we had forecast and continued strength in onboard spending. Q4, where you saw we've been fairly consistent since the beginning of the year actually about how we were looking at the second half of the year. And given the volatility impact that we had in the spring, it did limit our upside, as I've said before, and we managed to get some out of our third quarter. And as always, we're going to work as hard as we can to outperform every quarter, and that includes the fourth. But I think I said it last time, whereas we were outperforming in the first half of the year by 200 to 250 basis points on the yield side, that was going to be hard in the second half of the year, and you saw what we were able to do on the third quarter.

Our next question is coming from Matthew Matthew Boss from JPMorgan.

Congrats on another nice quarter. So Josh, could you elaborate on the ample opportunity remaining with net yields, margins and returns that you cited in the release I don't know maybe there's a way to think about what inning you see the overall story in today? Or just how would you rank the continued areas for ample improvement that you noted?

Having just got to 13% on the return side, I don't see why that cannot make significant improvement on a longer-term basis from there. We never look -- I never looked at 13% as an ending point -- never looked at 12% as an ending point, which was our SEA Change targets, and now we're at 13%. We are planning in our fiscal second quarter, hopefully, early on in that second quarter to be able to give longer-term targets, which will probably help give you some clarity around how we're thinking about things. But from a margin perspective, from an improvement in yield perspective, I think you should expect us to have a continued track record of improvement over time. That's what we've shown, and we expect that to continue.

And then David, helpful color on costs for next year. Are there any constraints as we think about delivering on your algorithm for costs to grow below yields as we think about puts and takes for '26 and also as we think multiyear?

Yes. So as Josh indicated, we're going to be looking at targets early next year. And we do expect to see improving returns and improving margins. So which would mean that in the long term, yields would grow faster than costs over time. And any 1 given year, obviously, that's a difficult metric. But there are things that we can do. in difficult circumstances, and we will work hard. We have lots of savings opportunities to leverage our scale. As we talked about, we saw things in the third quarter, hundreds of items, leveraging our scale across various operating areas, and we expect to see that continue into 2026. Some of that is what Josh was talking about before is offset to the cost increases that I mentioned in my prepared remarks.

That's great color. Best of luck.

Yes. I'd just add for everybody, the lack of capacity, I think, is part of our strategy. It also basically means for every dollar that we spend, that's a $1 increase on our -- on a unit basis. And I'm not shying away from that. That is what it is, and we're going to work hard to reduce our costs wherever we see efficiency and we can leverage our scale more, but it's a very different environment on the cost side than when you're living with a 6%, 7%, 8% year-over-year capacity increase, which covers up quite a lot of cost spending underneath the surface. So that's on us. We're going to try to perform as well as we can in all circumstances, but that's just a reality of a very low capacity environment.

Next question today is coming from Conor Cunningham from Melius Research.

In the prepared remarks, you talked a little bit about the laggard brands moving up the ranks. I'm just hoping you could maybe drill down on that a little bit and talk about what's actually improving there. And then I mean, in the past, you've just talked about rationalizing brands and whatnot. So I would imagine that there's some sort of investment needed to kind of get those brands back to the 2019 and beyond levels. So if you could just talk a little bit about the laggards, that would be helpful.

Yes. It is interesting, and we don't really -- and I'm not going to open the kimono and tell you everything that you probably want to know. But I would say that, for example, some of the brands that are lagging 2019, well, they were super high up the leaderboard in 2019. And they're already at double digit. They're just not to where they were in 2019 because they were really clicking on all cylinders. And they've already got -- they're showing improvement, good improvement, but I know that there's a way to go. Likewise, there's a couple of brands that have already improved versus 2019, but the 2019 starting point wasn't anything to be raving about.

So I know that they've gone to even higher heights in the past 20 years, and we see a path to be able to help them get there. So it is a bit of a mix underneath. When we talk about significant investment, though, in order to be able to help brands really get up to the top of that leaderboard, I don't think there's actually anything in particular, that is a glaring hole for any of these brands that we've got to fill. We have rationalized. We have rightsized many of our our brands that needed rightsizing and the progress is good, and we'll continue to support the brands that need a little bit more help than others to keep pushing up the ranks. I'm ecstatic that as amazingly as Carnival and AIDA have been doing over the last couple of years, they got to look over their shoulder because there's some that are coming on fast.

Okay. That's helpful. And then I know that you got asked about '26, and maybe I can ask about '27. So on the dry dock commentary, it seems like there's been a couple of issues with that. I mean, you've had a headwind for several years now, right? And then '27, I would think that we'll actually start to tick down again. Like what holds that back? Like is your fleet back to -- maybe just talk about the dry dock opportunity in -- come '27, because those would actually start to bend down again, that would be helpful.

Yes. So 2027, I mean, at the moment, these things move around constantly as we planned thing. But at the moment, the plan is for less dry dock days in 2027 than in 2026. But I caution you that things can change as they do all the time. So there may be some opportunity there on the flip side, but it's very premature.

Your next question is coming from Liz Doug from Goldman Sachs Asset Management.

So congrats on another great quarter, obviously, really strong same ship yields. I'm curious as you go forward, it feels like you're having really strong returns on things like the ADA evolution program. How do you evaluate when you're thinking about building new ships versus maybe expanding that type of retrofitting type program to the other brands and the relative returns there?

Yes. So actually, I'm not going to tell you which one, but I sat through a session last week with another one of our brands to be doing something similar vein to how AIDA just thinking about the midlife ship refurbishment program. So we are actively in the middle of that. Most of our brands have no new builds on order. And so making sure that we're maximizing the assets that we've got and investing in them. when the returns make sense is part of how we're thinking about the world going forward. It's one of the reasons why our dry dock costs are higher than they have been in the past, but they're giving us the return. So we do look at it -- I would look at it very similar to a new build, right? What's the incremental amount that they want to spend incremental to what would be normal just to run the ships in the normal course. And what we're going to get for it. And AIDA's shown us a template for getting significantly outsized returns on that type of investment. So I would say stay tuned, there will be more to come in this space.

Got it. That's helpful. And then shifting gears in Galveston, I think you're still the leading cruise line there in terms of volumes, number of ships there, et cetera. But you do have on 1 of your peers mainly, I suppose, like trying to get more active in that space over the next few years. How does that impact or does it impact how you think of your go-to-market there? There's been a lot of expansion on islands and the Eastern Caribbean, which I know you can reach from Galveston, but whether it's small developments with the Western Caribbean or Mexico, what [indiscernible] you have, East [indiscernible] Tropical Highway, how do you just think about keeping that competitive edge in Galveston.

Yes. Galveston has been a tremendous market for us for decades, and we expect that to continue. We've got some fairly loyal guest bases all throughout Texas, which is always appreciated. So it's certainly more crowded. I mean, we find that everywhere, right? People see successful operations and they want to emulate it, and I want to do the same when I see it from others. So we're going to try to keep upping our game and the guest experience that we have, the ships that we put there and where we can take them. We're always looking at opportunities, [indiscernible] for how to diversify the offerings for our guests, and we'll continue to do that. And every market is important. Every home port is important. But 1 of the things that we get with our scale and our size and that diverse portfolio is a lot of things are clicking well for us, right? I mean the Caribbean is about 1/3 of our business. It's an important third. But Europe is in getting pretty damn close to 30% of our business.

Alaska is inching towards double digit and -- primarily over the third quarter. So we really do have a diversified portfolio that we've been, I would say, over my tenure, it didn't start in a lot of folks' minds as a positive. It was a drag because North America started out the gate so quickly when we came out of our pause. But I can tell you that diversification and the strength of that portfolio all over the world is a huge benefit for us, and we continue to enjoy the results.

Next question is coming from David Katz from Jefferies.

David, in some of your earlier remarks about capital allocation, there was some reference to a bit of a transition to getting to return capital. Should we think about leverage having to get inside of that 3x before there'd be more substantial recurring whatever adjective we'd like to put on it. How are we thinking about the progression from here before we'd see maybe a buyback and other forms.

Well, I think we start by saying, I think it's wonderful, we're having this conversation that we're in [indiscernible] with a strong balance sheet getting stronger every day. But as Josh said, it is a Board decision. And we do have to have some conversations with the Board. We are looking at given our circumstances, as I said, we can begin to think about returning capital to shareholders, and we will do that. And as we go along throughout 2026, we will make decisions as to how much, when, where and how. And so it's a little premature to make any statements relative size or magnitude of anything in terms of that right now.

Yes. One thing, David, I think you misspoke or you misread the release in that we're not looking to get to 3x before we start doing that shareholder return of capital. It's as we have our line of sight of 3.5x is where we can start pivoting and doing more. We don't -- even though our long-term target is under 3, once we get to that 3.5x, we can walk in to gum and we can do both.

Understood. And that's what I intended. But just to follow up, thinking about other potential large capital projects or investments that may come our way. Is there any -- I know this is not always the best place for hypotheticals, but just thinking about what might get in the way or defer any of that leverage come down. Anything out there we should just consider or be aware of?

No. The only thing I'd say is, as we've been talking about a little bit on this call is part of what we do is invest in ourselves on the capital side. So if we see opportunities for midlife ship significant refurbishments like we're doing with AIDA, that will certainly come into effect. There's the opportunity for Phase 2 of Celebration Key as we've talked about. But none of that is even close actually to the price of a new build. So we're talking about things in any -- over the coming years that we think are accretive to the business, but in the grand scheme of things are significantly smaller than the types of investments that individual we build would have us make.

Sure. Next question is coming from Sharon Zackfia from William Blair.

I think at the beginning, you talked about early learnings on celebration key kind of things that maybe you can amplify and/or improve. So I'd be curious on what you're hearing from guests there. And then secondarily, on the loyalty hit, to yields next year. I assume that's all kind of second half weighted just given when loyalty kind of rolls out, if you could clarify that.

So on the celebration Key side, some of this is us being a little bit more thoughtful about exactly how we schedule the arrivals and departures of our ships when we've got multiple ships in port to make sure that everybody's got time and space to have an amazing time Because there's so many folks going Assure, which is amazing, we need to get some shade shalounges and more umbrellas, which is I'm actually happy to do. some more shading in the island. There are some things that structurally we are working on. There's a rocky stretch of the beach that we want to make less rocky over time. We just got to see how the natural flows of the environment are working in a little bit more of an extended period to make those types of decisions. But tweaks all over the place. on the F&B offerings, the type of things we offer, where we offer them. I mean it's all going to be in play. I mean, I'd say this with a lot of love for the team at Carnival Corporation worldwide who have been participating in this.

The fact that we hit the ground running as hard as we have from opening to pretty much full is pretty phenomenal. And we'll take the learnings as we go, and we'll just feed it in. Not really no different from a new ship, no different from new functions. You just got to listen, get feedback and move on. As far as the loyalty hit, you want to...

Yes. The loyalty, it is the second half after the implementation of the program in June 2026.

Next question is coming from Chris Stathoulopoulos from Susquehanna International.

So I'm going to keep it to 1 question. Really more of a strategic view, Josh, I know you're not talking about '26, but this is more of a high level as we think about the industry and really about Carnival's ability to, I would say, protect pricing power, brand equity in the Caribbean. So you have a competitor who's going to be adding on a lot of new hardware and pivoting to fund and some itineraries as well as another who recently announced a new class of ships beyond their icon. So if we think about the Caribbean market and maybe you want to kind of contextualize this in terms of the mix of premium, so balcony and suites and the like. I'm guessing this is going to be growing year-on-year low single digits for next year, perhaps at the same level through end of decade. What is the plan for Carnival to protect its ability to push yields to maintain its share. I realize you have 2 private estimations coming online, so maybe you could contextualize that in terms of a premium for that itinerary versus not but want to understand how you're thinking about the Caribbean, particularly as the market looks to evolve and capacity, perhaps grow at a rate that we haven't seen for some time.

Yes. No, thanks for the question. I wish we could say we haven't seen this growth for a long time, but that's just not the case. I mean the fact is the Caribbean market has for 20 years, been growing at rates that people did not think it's sustainable. And lo and behold, it is. And we do grow less. We are growing less than some of our competitors. But at the end of the day, I think the first thing we got to contextualize is that we are all competing for land alternative vacations and guests that would otherwise be going somewhere else. Be that whether that's Orlando, whether that's a beach resort, whether that's going across the Europe, whatever that might be, that's what we're competing against.

And in that context, we are all tiny I mean we are just incredibly insignificant in the grand scheme of the vacation market, which actually is a plus because the better we've gotten at reaching into the mainstream, more consideration being given by those who do not cruise the better off we are. Now keep in mind, it doesn't mean we're standing still. So Carnival has got 2 XL sisters coming in one in '27 and one in '28. So we're building for -- we're building for Carnival. We also have announced our own new class, the ACE class, which is going to carry more guests than anything that exists in the world today. And that's also for Carnival and helping to protect his position in general, but it has been the mainstay in the Caribbean forever. So this is just nothing new in the grand scheme of things. We just got to keep doing what we're doing, investing in the things that we think make a difference, leaning into the destination strategy, certainly Celebration Key, RelaxAway, Half Moon, those things are going to help. And we're always looking at different opportunities like that.

And the other thing is, ultimately, what we see is with a lot of our competitors, they view the Caribbean differently. They view it as something that is more transient in nature than we do. Caribbean for Carnival, that is who they are, that is what they do and they're amazing at it. I'm not taking anything away from our competitors, some of them have have made a great goal of it and they're doing similar things, but they also look at the Caribbean as something like good enough until something better comes along. And we position ourselves very well being there for the long term. So thank you for the question. We have time for one more, operator.

Our final question today is coming from Vince Ciepiel from Cleveland Research.

Just wanted to think a little bit longer term about the opportunity. I know in the multiyear goal, you guys are targeting low- to mid-single-digit type per diem growth. When we look at occupancy here, still, I think, about 1 point shy of where 2019 shook out. And I imagine something like 20% of the fleet might be newer. And we think it's over-indexing the balconies and maybe have higher occupancy levels in terms of opportunities. So how are you thinking about kind of the multiyear opportunity ahead in the occupancy side of the yield equation?

Yes. Look, there's nothing -- I mean, truly -- when I say this is nothing magic about the occupancy number that we hit exactly this year versus 2019. We're encouraging our brands to optimize between the price that they can achieve and the occupancy. We know we can get occupancy. It's really easy to sell completely full. It's just a matter of how much you can charge to do it. And we want to make sure our brands are focused on the total revenue and not just occupancy to hit it. There is opportunity, there is opportunity for our brands to improve on the occupancy position that we found ourselves at the end of the third quarter, which isn't far off from 2019, which was a high watermark and is above the historical range. But in the grand scheme of things, there'll be incremental things that we do brand by brand to make the trade-off between that price and occupancy and getting more focused on at the right price.

Thank you very much. With that, I'll say thank you very much. Look forward to talking in December when we can probably talk a little bit more about 2026. So thanks, everybody. Have a good day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.