Carnival Corporation & plc Q2 FY2025 earnings call

Conflict in The Middle East: The escalation in The Middle East has not had a discernible impact on the business so far, but will be closely monitored in the coming days and weeks. ### Business Performance: It marks eight consecutive quarters of record revenues and yields. The second quarter saw EBITDA and operating income reach new highs. Net income was $185 million better than the guidance. Yields grew by almost 6.5%, which was 200 basis points better than the guidance, driven by strong closing demand for tickets and onboard spending. Unit costs were 200 basis points better than expected due to timing between quarters. ### Destination Developments: Celebration Key is set to open in less than a month, featuring large lagoons, over one and a half miles of white sand beach, and the world's largest swim-up bar and sandcastle. There is an expansion at Relax Away Half Moon Cay and an enhancement at Mahogany Bay in Roatan, Honduras (renamed Isla Tropical). ### Fleet Upgrades: Aida Diva reentered service after undergoing the Aida Evolution upgrade, and two new builds have been ordered for Aida. Carnival Cruise Line announced new features for its Excel class ships and the upcoming star princess, sister ship to the successful Sun Princess. ### Loyalty Program: Carnival Cruise Line will launch a new loyalty program in June 2026, where loyalty benefits and status will be tied to total spending on Carnival and spending with its cobranded credit card.

No specific product segment breakdown is provided in the transcript. However, overall financial performance highlights include: year-over-year EBITDA increased by 26%, operating income rose by 67%, and net income more than tripled. Customer deposits reached an all-time high. EBITDA margins were the highest in nearly twenty years, with margins 200 basis points higher than those in 2019. Trailing twelve-month EBITDA per available lower birthday (ALBD) was 52% above the 2023 baseline, return on invested capital (ROIC) surpassed 12.5%, and carbon intensity was reduced by 20% compared to 2019, meeting the 2026 target ahead of schedule.

Full-Year June Guidance: The net income for June is approximately $2.7 billion, which is a $200 million improvement over the March guidance. The yield guidance was increased by 30 basis points to 5% higher than the strong 2024 levels. Cruise costs without fuel per ALBD are expected to be up 3.6%. Favorability in fuel consumption, interest income/expense, and the net impact of currency and fuel price are expected to continue throughout the year. EBITDA is expected to be $6.9 billion, a 13% improvement over 2024. ### Third-Quarter Guidance: Cruise costs without fuel per ALBD are expected to be up 7% compared to the prior year, driven by factors such as the operating expenses of Celebration Key, one-time items from 2024, higher advertising expense, and lower third-quarter capacity. ### Loyalty Program Impact: The new loyalty program will impact yields, with an expected half point impact in 2026, a bit less in 2027, neutral in 2028, and positive thereafter. This is due to the deferral of a portion of the ticket price paid by guests equal to the value of future program benefits earned.

Middle East Conflict: The escalation in The Middle East is a risk as it is unfolding quickly, and it is too early to project its potential impact on future business. ### Geopolitical Volatility: General geopolitical turbulence and volatility in the world can affect consumer behavior and booking patterns, as seen with some weakness in booking demand in April followed by improvements in May and June, but there remains uncertainty.

Q: Josh, speak to how improvements in product and experience are translating to above plan pricing and onboard spend and the incremental opportunity tied to fleet improvements.

A: Teams have made step-by-step improvements in various aspects of the business. Onboard experience and product have seen small incremental improvements, like Holland America's focus on fresh seafood. The Aida Evolution upgrade for Aida Diva has exceeded expectations. We are still in the early innings with developments like Celebration Key and more in the pipeline.

Q: Provide color on pricing for Celebration Key itineraries and marketing plans.

A: Pricing for Celebration Key itineraries is in line with expectations, showing a premium. Marketing dollars have been shifted to lean into Celebration Key, which is already one of the most sought-after cruise destinations even before opening.

Q: How to think about the margin opportunity given the last two quarters exceeded 2019 levels and 2019 is not seen as a ceiling.

A: We are maintaining our low-cost industry leadership status while focusing on driving incremental revenue. Incremental revenue is flowing to the bottom line, allowing us to have this positive trajectory.

Q: Characterize demand for Europe in Q3 and the upside potential of onboard revenue.

A: Demand for Europe in Q3 is looking great. Onboard revenue outperformed throughout the quarter and in the first couple of weeks of June, and while yield guidance is set, we always strive to outperform.

Q: Thoughts on the lower income consumer and the impact of geopolitical events on bookings.

A: There is no discernible differentiation in patterns between the lower income consumer and others. There was weakness in booking demand in April, followed by improvements in May and June. Geopolitical events like the Middle East conflict may impact a few ships in late 2025 and early 2026, with mitigation plans in place.

Q: Details on the loyalty program and its tie-in with the credit card.

A: The new loyalty program ties loyalty benefits and status to total spending on Carnival and spending with its cobranded credit card. The existing loyalty program is successful, and the new program will supercharge benefits for cardholders but does not require a card to be part of the program.

Q: Color on the opportunity for Relax Away and Isla Tropical destinations.

A: Relax Away can significantly increase visitors with expanded infrastructure. Isla Tropical can enhance the experience and accommodate more ships, though specific numbers are not provided yet.

Q: Why the loyalty program changed now and its impact on yields.

A: The loyalty program was not contemplated two years ago. The half point impact on yields in 2026 is due to the initial deferral of a portion of the ticket price paid by guests as they earn future program benefits.