Norwegian Cruise Line Holdings Ltd. (NCLH) Earnings Call Transcript

Good morning, everyone. Thanks for joining us today at the New York Stock Exchange at this beautiful venue. We're really excited to kick off our 2024 Investor Day. I'm joined today by a few members of our management team who will be presenting, including Harry Sommer, President and CEO of Norwegian Cruise Line; David Herrera, President of Norwegian Cruise Line; Patrik Dahlgren, Executive Vice President of Vessel Operations; and Mark Kempa, Executive Vice President and CFO. As a reminder, this presentation is being simultaneously webcast on the company's Investor Relations website at www.nclh.ltd.com/investors. This webcast will also be available for replay for 30 days following today's event. Before we begin, I would like to cover a few items. This presentation includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements. These statements should be considered in conjunction with the cautious statement contained in our presentation. Our comments may also reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. With that, I'll turn the floor over to Harry.

Thank you. Thanks, Sarah. And I want to thank all of you for -- well, it has a mind of its own. So I think we're having some technical difficulties this morning. I'm going to like sing and dance here for a moment while they fix the video feed. You guys at least enjoying your breakfast so far this morning. Let's see if they can handle it for 5 minutes. It really is a beautiful room. This is our third time here that we're going to be doing the closing [ belting ] later today. So that's always a lovely celebration. And now they fixed the problem, so we can start to again. So I want to thank all of you for joining us this morning for my first Investor Day and I think the first Investor Day we've had as a company since, I believe, 2018. I'm really excited to be here with my entire executive leadership team, half sitting at that table and the other half sitting at that table, to discuss the future of NCLH, what we're calling charting a new course, our strategy and financial targets for the next 3 years. It's been about a year since I was appointed CEO of this wonderful company, and I've really taken this opportunity to study the business. I've met with partners, the investment community, team members, crew and most importantly, guests. And I've had a chance to visit every ship throughout our fleet or at least every ship class throughout our fleet and actually got to experience the product. Some highlights, going on a race track with my family on the brand new Norwegian Vista in Lisbon -- sorry, the Norwegian Viva in Lisbon, having a steak in the [ Polo Grill ] on Oceania Vista, overlooking the castles in Malta and experiencing the most beautiful, most expensive suit at sea on the Regent Seven Seas Grandeur during her christening cruise in Miami a few months ago. I've seen firsthand what our guests love about our product and the experiences that we deliver. Past that, I spent the last year working with our executive leadership team. I'm doing a deep dive in how we do business. We've worked on transforming the culture with the rigor and focus that we haven't seen as a company heretofore. We prioritized what's important, and we developed a vision and strategy for the future. Today, you'll hear from a number of presenters that are all going to focus on a consistent message and that vision for the future, a balance between 2 primary dynamics: One is providing guests with experiences they value and are willing to pay for, what we refer to as the return on experience, or ROX, and delivering outstanding financial results, which we refer to as ROI. It's that balance that's going to propel this company forward. So let's get started. I begin with what makes NCLH a compelling investment opportunity. It starts with the industry with an excellent reputation, great demographics, strong demand and a very limited supply growth. And within this industry, our 3 brands have a unique and strong position. Lastly, we have the balance between ROX and ROI, which I described. And David and Patrik are going to cover in much more detail on both the revenue and cost side. Simply put, our goal is to unlock shareholder value, which Mark will review later this morning in our [ chart of ] the course -- Charting the Course 2026 targets. You guys all probably saw the press release this morning that we issued at 8:45. So none of this will be new to you. Well, at least it's like 20 minutes old. But here are targets for 2026. It starts with a keen focus on revenue growth and cost control, which will allow us to return to historical EBITDA margins as a company. We're very proud of being able to get to that 39%. That growth with measured capacity growth will lead to outsized EPS growth of $2.45 by 2026, a 30% CAGR over our newly published 2024 guidance. That, coupled with strong cash flow and disciplined capital allocation, which we'll use to strengthen the balance sheet, will decrease our leverage to 4.5x, considerably better than it is today, which will jointly allow us to target a return on investment capital and ROIC of 12%, a record for the company. Of course, all of this is underpinned by being good stewards to the environment, and we're reaffirming our goal to have a 10% reduction in greenhouse gas [ intensity ] by 2026. The takeaway of this is every metric here is well ahead of where we are today and well ahead of consensus for 2026, and we believe it puts us on a solid footing for a bright future and enhanced returns. Can't wait to see the first reports, you guys are already typing. Let's level set where it is that we are today. We're proud to have a history of 57 years of innovation. Of course, we're the [ first ] cruise line. We invented modern cruising from the Caribbean back in 1966. We have an industry-leading portfolio of 3 complementary brands, offering a full range of products. We plan to generate about $9 billion of revenue this year, carrying close to 3 million guests on our 32-ship fleet, 13 ships on order which assures us growth through 2036. The core, of course, of who we are is our 41,000 team members, who work day in and day out to deliver an exceptional product and exceptional financial results. We're led by a team of 10 executive leadership team members. As I mentioned before, they're all sitting here today. We'll be available to talk to you guys over lunch at the end of this presentation. 7 of us are new to our role. But collectively, we have 20 years of experience in the industry. We have deep knowledge and a drive to innovate and succeed. I've been told that many of you may not know me yet, I've only been in the role for a year. So the Board suggested we put this slide up to give you a little bit about my experience, but I wanted to do this a little bit tongue and cheek -- there you go, that's my favorite picture. That's me. Little more hair. My beautiful wife in 2 of my 3 children. So that little boy there was about 1 year old in the picture. He's 26 today, just graduated with this doctorate in physical therapy. I'm very proud of him. I love my daughter and wife, too. But the main really topic of this is one of time. A reflection of my 32 years in the industry, my 15 years with the company and really combined with the experienced management team, again, that you see here today really is going to propel us forward to drive success. Let's talk about the core content of today. We're going to talk a little bit about an overview of the industry, a description of our position in the industry and lastly, our strategic vision to move forward. I'm not going to spend too much time in the industry, you know it well. I'll get through some of these slides fairly quickly. But I'll start with our strong industry dynamics you guys all know about, the high barriers to entry. It's a capital-intensive business. The fact that we get favorable ECA financing on our new builds, plus the 4 here that I'll go through really briefly in the next few minutes. I'll start with an increasing awareness of cruising, and it's across all age groups. Just a couple of key stats. You can all read them. One is that 36% of old cruisers are now over -- under 40, very proud of that we're attracting the new generation; and that cruising is just a sliver of the overall vacation market, representing just 2% of vacations that guests take. In fact, it would take 21 of our newest larger ships that we just announced to make up just 1% of the overall vacation business. We really believe there's tremendous room for growth ahead. Focus a little bit about the loyalty across all age groups. When I saw this slide a few weeks ago, it surprised me, but you'll see that there's a strong intent to return across every single demographic, including millennials and Generation Z. The industry has done a great job in recent years and -- coming up with new hardware, new amenities, new experiences and new itineraries that drive this loyalty. In fact, we're seeing, as you see on this part of the slide, we have a higher intention to repeat today than we did in 2019, which heretofore had been a record year. We, of course, believe that cruising delivers an outstanding vacation experience, which represents both an experience and vacation gap versus the hotel industry. Cruise, of course, we believe, has much better control of our product than the hotel industry does, which we believe will allow us to continue to expand on this experience gap. With the cruise, everything is included. We make this easy for the guests, and we provide a great experience. Of course, at NCLH, across all 3 of our brands, we're the masters of packaging. So we put even more inclusions in to make the experience gap even higher, which gives us great optimism that we'll be able to close this value gap over the next few years. Of course, the combination of all these factors has led to what we've seen in the industry year after year after year with the exception of the 2 years with that little [ squiggly ] line. Every year, the cruise industry moves more guests than the year before, this year, next year being no exceptions. But the part I want to highlight, which isn't really as well known is the limited supply constraints in the industry. Only 3 shipyards in the world that build ships of any scale, in Italy, France, Germany, Finland, 3 -- 4 yards, 3 ship owners -- ship build owners, if you will. And they only have the ability to build about 3 or 4 big ships a year, which inherently limits the supply to 3% a year. I think with the backdrop of that demand with limited supply, we're very optimistic about our abilities to fill the ship and drive pricing. Talk a little bit about NCLs special place in the industry. We believe there are 5 key dynamics that set our business model apart, of course, all predicated by being a good steward to the environment. And let's take a moment to deep dive into all of them. First off, we have a strong profile of 3 award-winning brands with complementary and non-overlapping offerings that's key. We believe they're attractive to every segment of the population, with brand propositions appealing to all age groups and demographics, particularly in the middle- and upper-income demographics. Norwegian, of course, is our largest brand, the one that was founded 57 years ago. It's one of the few contemporary brands that appeals to both families and people traveling as adults only. We have fun areas like our racetracks and aqua coasters, water slides. We also have private, more adult areas like our Vibe Beach Club and Haven, our industry-leading ship-within-a ship concept. Dave will talk a little bit about that in his presentation. And of course, we have areas that everyone enjoy, like our expansive entertainment and dining options. Oceania, it's our premium -- upper-premium cruise line. It was founded by [ cruise ] -- [ foodies ], run by [ foodies ]. There's one right there. He runs it. You won't hear from him today, we don't have enough time, but he's very proud of his brand. But it's not just about food. We win every food award out there, and let me just spend one more minute on that. We, in fact, have 2 culinary directors that are both master chefs of France. There's no other cruise line that even has one. But going back, not just about food. We also have outstanding levels of service, attention to detail, [ curated ] travel experience. It's an overall great experience for the guests that travel. Our crown jewel, of course, is Regent. There's our Brand President, Andrea. She does a fantastic job for us. This is, by far, the pinnacle of cruise experiences in the industry. Every amenity is included, and our guests are treated like royalty every step along the way. We have a World Cruise that we launched a couple of months ago where the top suite on the World Cruise sold within minutes of opening for $1.6 million, and it's worth every penny of it. That's the way to drive revenue. Having Regent in our portfolio elevates or forces us to elevate the experience across all 3 of our brands, and we're proud of the complementary nature of how we each push each other to do better. Regent on its own garners the highest yields in the industry and we believe, some of the highest margins as well. Next, differentiator is our target of high net worth individuals. You can see across all 3 brands, we hire people in that highest tier of net worth. These guests value their time and are willing to pay for experiences that we provide. They are especially resilient in economic times. In the last great recession before this one in 2008, we were the first cruise line to get back to our prerecession yields. We bounced back very quickly. We just saw a report from the Congressional Budget Office last week that showed despite the high inflation we've had the last few years, consumers in the upper-income tiers actually have a higher purchasing power today than they did in 2019. Those are the guests that we target. We also partner with personalities and other brands that resonate with our core demographics. On Regent, we've recently partnered with Aston Martin's Formula One team, I can't wait to try one of those out as soon as Andrea allows me. On the Oceania side, we partnered with the food personality, Giada De Laurentiis, one of the loveliest people I've ever met. She truly is as nice as she looks, and she makes one mean lemon ricotta cookies. Frank turned me on to them. Thank you. And on the Oceania -- on the Norwegian brand, excuse me, we target with [ Elvis Duran ], big DJ here in New York. Maybe you guys listen to them on your drive-in. Really a fun person to be around. More close to our hometown in Miami, we partnered with the Miami Marlins, not shown here. They actually let me throw out the first pitch last week. That was like a childhood dream of mine. It went over, it was a strike, you guys can give me a round of applause for that. But it's really fun, and it really engages with our customers to move forward. But now back to business. Third element that sets us apart is our itinerary planning. On the Oceania and Regent brands, our itineraries are well set. We go to interesting places around the world, visiting close to 700 ports, places that are more well-traveled, affluent customers that those brand attracts want to go. But I'll spend another minute or 2 on NCL. NCL, we take a slightly different philosophy, where we [ pair ] our ships with destinations, sending some of our smaller ships to more exotic destinations and sending our larger, more amenity-filled ships to our fun-in-the-sun destinations. We believe that's a great way to experience with return and gives our guests the opportunity on the NCL brand to return over and over and over again, maximizing their lifetime value and driving the high yields that NCL enjoys. In the future, NCLs larger ships with increased amenities, we believe, are perfectly suited for the millennial and Generation Z generations' demographics. And we plan on deploying our marginal capacity towards more fun-in the-sun destinations, which we define as Caribbean, Hawaii and Bermuda, which will cumulatively make up 57% of our capacity by 2026. This capacity will also be in shorter-length cruises, which will allow us to have more efficient operations for an added benefit of enhanced returns from that perspective, from a cost perspective as well. Another important dimension of our itinerary planning is leveraging strengths in regions that we can win. We have -- with our increased Caribbean deployment that I talked about in the last slide, it's given us the ability now to invest more in our private island, Great Stirrup Cay, which David will talk a little bit more about in his presentation. Of course, you saw the announcement of our 2-ship pier that we made a few weeks ago that will allow us to call on the island nearly 100% of the time. But even with all this increase in capacity, the 54% in fun in the sun that I mentioned before, our Caribbean deployment will still represent a tiny fraction of the 350 million annual hotel beds that there are in the region we're confident that we can fill. We also have another private island in the Caribbean, Harvest Caye. It's the only private island in the Western Caribbean, one of the highest-rated destinations for us as well, similar to Great Stirrup Cay. Guests stay on the island all day, which allows us to best monetize the experience for the company and provides a great experience for the guests clearly as well. But we invest not just in the Caribbean. We've made significant investments in other areas where we can win. We mentioned Alaska, Hawaii and Bermuda on this chart. Let me just spend a minute on Alaska. We were, of course, the first cruise line to sell round trip from Seattle back in 1999. We have a lot of ships there in the summer, and we have used our scale and experience to partner with local companies to build out facilities in places like Ketchikan, Icy Strait Point, Whittier. We recently purchased some land in Juneau to build a pier and of course, in our home port in Seattle. Hawaii and Bermuda, as I mentioned, are other places that we've invested with local operators to make sure that we can maintain and expand on our competitive advantage with our large deployments in those regions. And these are just a few of the examples. We invest where we can win, and we invest where we can have a competitive advantage. Of course, you all have heard about our newbuild announcement that we made a few weeks ago. This is our bold 8 ship -- new ship announcement across our 3 brands. Each brand will have a [ new-to-class ] ship offering, which will each represent the largest ships for their respective brands. NCL, for example, with its NCL 2030 ship, as we refer to them as, delivering close to 5,000 guests will be a full 56% larger than the ships we delivered in the last 2 years. We believe this increased space allows for more amenities. I mentioned before, we can attract more young and new-to-cruise guests, a more cost-effective platform which will provide us the dual objective of delivering what guests value, that ROX concept I talked about before, while having the most efficient operations and delivering on financial returns, the ROI. Of course, while these newbuild order is significant, it still represents a relative modest growth, a 6% CAGR through 2028 and a 4% CAGR through 2036. I'll also point out that we have a few vessels that will be turning over 30 years, especially when you [ get ] out to the out years, which should allow us to perhaps look for potential other areas to [ repurchase ] those ships over time. But even without repurposing, the 4% and 6% growth we believe is moderate and absolutely fillable. Just to give you a little insight, Mark will talk about this a little further in his presentation, about our ability to field capacity. You can see historically, with a 7% capacity increase, which is larger than the 4% to 6% we're looking to add in the future, we have been able to have an outsized growth in gross revenue, adjusted EBITDA and net cash flow. We believe with the slightly smaller capacity increase going forward, we can even be a bigger earnings powerhouse, which will allow us to achieve the financial metrics we showed before in our Charting the Course strategy. I'd be remiss if I didn't say we're also focused on our Sail & Sustain environmental targets, which are listed here. In fact, we're issuing our new Sail & Sustain report in a couple of weeks' time, I think, the week of June 5. So you guys can be -- look out on it. It's very impressive. I saw the first draft last week. We're committed, but we're committed to doing this and returning shareholder value at the same time. So let me now go to the last leg, just a little bit deeper dive into our Charting the Course future. We have a bold vision. We have a bold vision that we're sharing today to inspire what we do and how we do it best. Our reason for being here is to provide guests with exceptional vacation experiences, what we call to Vacation Better and Experience More. This is a foundation that we believe all 40,000 of our team members can get behind and will resonate with the close to 3 million guests we travel a year -- that travel with us a year, excuse me. But let me take a step back to sort of show how we got to where we got to today. Over the last year, I've spent a little time thinking about what the underlying philosophy of this company had been for the last decade. Fundamentally, this had been a founder-led company. Our new approach changes this to focus on a culture where we're going to be more collaborative and team focused. We believe our executive leadership team represents a young, powerful force to be reckoned with for decades to come. And however great our founder was, and he was, we believe that our team can collectively deliver better, and we will. Second, we have been passionate about product, and past investments in the brand led to enhanced reputations for all 3 of our brands for high quality and industry-leading yields. With our product now at a high standard, we can shift our focus to investing in experiences that gets value and are willing to pay for, that focus on ROX and ROI that we keep talking about. Next, in the past, we have been focused a little bit more on smaller ships, disproportionately growing Oceania region in the last few years and even on the NCL brand, having smaller ships than we had before. We believe our future is in larger, more efficient ships with more guest amenities and a more efficient operating platform to drive higher returns. Lastly, in the past, we had a single focus on yields, which did drive the highest yields in the industry, which we continue to have today. But sometimes, we didn't have the same discipline on cost. Our future strategy is to continue to focus on yields but also have a sharp focus on cost control, disciplined capital allocation, measured capacity growth, which will all lead to higher EPS and record ROICs. This vision, as you can see from the previous chart, is supported by these 4 key pillars, which I refer to as the 4 Ps: people, product, platform and performance, which collectively go to a fifth P, a plan for a great future. Let's just take a quick look at these 4 pillars and what they mean to us. On the people side, we are committed to being the employer of choice in the markets we operate. We've developed new value anchors around collaboration, innovation, transparency and passion. Hopefully, you'll see some of that passion here today. As part of this, we're committed to talent development. And I'm thrilled that in our short time together as a new management team, we've already won 3 awards which we've never won before, on healthiest employee, Best Employer for Diversity and World's Best Employer for Forbes. But I'm even more proud that we have the highest retention rate as far back as we can measure, exceeding the retention rate that we had in 2019. I can broadly say that the great resignation was not a thing at Norwegian Cruise Line Holdings. The product pillar, of course, is key to our success. This is a focus on investments that guests value and are willing to pay for. It revolves around things like having a clear brand message and personalization to attract the right guest, best-in-class packaging and exceptional onboard experience. We use so many metrics to track our progress, things like acquisition cost, pre-cruise onboard sales, guest satisfaction scores and future cruises purchase while guests are still on board, which, by the way, are at record levels. But the main metric here is yield and pricing, our continued focus to grow those. Turning to our growth platform. We have several areas of focus, none more important than a [ sharp ] ROIC in our ship construction and refurbishment process, which all of my colleagues will talk later on this morning. We're relentless in the development and construction planning processes to monetize these most important assets. As I mentioned earlier, our new larger ships will allow us to focus on more fun-in-the-sun destinations, which will allow us to monetize even more the previous and future investments we're making in port infrastructure like Great Stirrup Cay. Lastly, everything we do is underpinned by a fanatical focus on financial performance, a culture which is embraced throughout the entire organization. And each quarter, as we achieve above historical yield growth and below inflationary cost growth, which results in improved margin, improves both the financial community and importantly, our internal team that financial excellence is possible and achievable and will continue. Another pillar that embodies this is technology, from revenue management to itinerary planning systems to customer service platforms and the use of artificial intelligence. Artificial intelligence is an area that's getting a lot of focus lately. And our leader of the area, Kelly [ Buckle ], which is with us here today as well, right next to Andrea; he's sort of our resident expert in the field, recently served as a keynote speaker in an AI conference in Silicon Valley just last month. He's super focused on challenging us to develop a straight-of-the art platform in the year that can incorporate things from marketing copy, guest chat, website shopping, reservation systems and onboard sales, really the gamut of what we do. Our current investments to date have been modest, but the results have already been impressive, and we'll continue to invest in this in the future. So combined, this new vision and strategy leads to a simple, yet powerful earnings and return algorithm. Improved yields, cost discipline leads to margin expansion. Margin expansion, coupled with moderate capacity growth, leads to outsized EPS growth. EPS growth, combined with the commitment to disciplined capital allocation which will favor debt repayment in the short to midterm, will all lead to lower leverage, a strengthened balance sheet and record ROIC. So now I'll return to where I started, coming full circle, reasserting our 2026 financial and sustainability targets. We believe each target represents a core metric that will be critical to our future success. Each helps pave the road to financial excellence. And with our clear earnings and return algorithm, we believe these goals are achievable and attainable and provide an attractive investment opportunity for investors. So let me end my time with you today, it's my last slide, to reiterate our key points on why we believe NCLH is a compelling investment opportunity. I start with our new strategic focus. Our management team is innovative and driven. We are keenly focused on this new operating model, driving yield and controlling costs. We're laser-focused on returns and results. And our algorithm is clear and compelling, imminently executable and will deliver shareholder value. On the other side of the slide, I'll point out we have a unique growth profile with the fastest yet managed capacity growth, significant margin enhancement rapid deleveraging and the highest EPS growth in the industry over the next few years. We're excited about the future, and we hope you are as well. So with that, I'm pleased to turn over the presentation to my colleague, David Herrera, the President of Norwegian Cruise Line. He'll focus on driving the top line at NCL. I worked with David now for close to a decade, one more minute, I got to say some nice things about you. His experience runs the gamut from finance and strategy to sales and marketing. He's a well-seasoned executive, with a strong passion for culture and talent development and boy, does he have fashion. Thank you all for joining us today. I'll be back later for some comments. But for now, David Herrera.

Thank you, Harry, for that fantastic introduction. He does that every time I enter a room. It's really, really reassuring. Thank you guys for being here. It is a pleasure. I'm going to talk about two specific things, then talk a little bit about NCL. I'm going to reinforce what our value proposition is, what attracts people to NCL, what makes them so loyal and then, of course, going to dive a little bit deeper into a lot of the initiatives that Harry mentioned to give you a sense for what we're doing and why we're so excited right now at this point in our company history. So Harry mentioned this, NCL is a very different company today than we were just a few short years ago. In 2024, we're going to carry well over 2.5 million guests on our 19 ships. We're going to depart from 50 unique ports, and we're going to visit over 400 destinations. Right now, on our ships, right now, there are 59,103 guests having a fantastic time, and you can check that number. I can't tell you exactly what everybody is doing right now, but I can give you a very clear appreciation for what drew them to NCL. This is what our brand stands for. Harry mentioned this, at NCL, we aspire to give everyone the best vacation they can every time they get on our ships. Consumer research and marketing analytics are more front and center than they've ever been in our company. A value-centric onboard package designed for multiple demographics is the way that we win, whether you're a young couple on their honeymoon or you're a solo senior traveler taking advantage of our award-winning and expanded solo cabin selection or you're a group, maybe an investor group that's looking to learn a little bit more and wants to buy some cabins, let me know, I can hook you up. Our goal is to provide an elevated cruise experience and give people the opportunity to choose what they want to do on our ships. To give a very specific example, and Harry mentioned it a little bit, the Haven. How many people here know what the Haven is on an NCL ship? You guys are all VIPs because the Haven is our VIP ship-within-a-ship content. It's only about 5% of our cabins, but it is an unparalleled experience. The Haven, the moment a guest steps on to a ship, and she's handed her first glass of champagne by her butler. And she's escorted into the VIP Haven Lounge, where she meets with the concierge and they finalize any last-minute plans that she might have on her cruise. That is an unparalleled experience, and that is what we aspire to provide. Everyone in this room is a consumer. We all notice and appreciate when a brand goes out of their way to understand what we want, give us what we aspire, give us the opportunity and the experience that we want. That's what we do, that is NCL today. Okay. Top line growth, Harry is making me talk about it, you guys want to hear about it. Let's dive into it a little bit. And let's just talk about how we're going to drive profitable top line growth into the future. As Harry mentioned, these are the 4 pillars. I'm going to spend a lot of time talking about our guest-centric product offering. We are fully aligned as a management team that these are the critical pillars for us to focus on. Bluntly, we know that this is an inflection point in our company's history. We feel it, we understand it, we see the opportunity. And we are absolutely aligned in our efforts and our goals to realize this charting this new course strategy. So over the next few minutes, I'm going to focus on guest-centric product offering. What exactly do we mean by that? Okay. Our business is making sure people have a good time on a cruise ship. But our job, our work starts the moment someone starts thinking about taking a cruise. A seamless journey from dreaming to cruising, every step along the way of the marketing and the booking funnel, our job is. Guests are looking for a premium experience at a great value that is easy to book. That's the opportunity for us. It's that simple. This is how we will grow and exceed our historical net yield growth. Personalized offerings, not only are they accretive to yield, which we all care about, but it impacts the guests' experience. It makes it easier for us to get guests to come back and get them to say nice things about us, so they tell their friends and more people get on our ships. This complete view of the consumer journey is why, and Harry mentioned this earlier, NCL maintains the highest yields in our [ segment ]. All right. So how do we do it? Okay. Today, I'm going to focus on just 5 of the key levers that our company is utilizing to drive this performance. As we all know, there is not one silver bullet for success. Behind each of these 5 levers or a lot of little levers, a lot of little decisions, you got to win a little bit more every single day. While there's 5 arrows here, they all have one common theme. Driving an over -- a higher overall total yield. Please allow me to dive a little bit deeper into each initiative. Let's start with the first one, newbuild design with richer cabin mix. When people dream about taking a cruise, they don't dream about an inside cabin. They dream about being able to walk out, step on to their private balcony, breathe in that sea air and appreciate the majesty that is the open water, and they're willing to pay a premium for that. In fact, the average balcony sells for double the price of an inside cabin. That's why as we build our ships, we focus on a richer cabin mix. A ship that has a higher balcony mix will generate a higher yield, simple as that. In fact, by 2026, 2/3 of all the cabins on our fleet will be balcony or even higher. Okay. So once you have these amazing ships built, the next step is figuring out where they go. Our consumer research is absolutely clear. The itinerary is one of the key factors in the purchase decision. Our guests just don't want to go on a cruise, they want to have a bucket-list experience, whether that's visiting the Colosseum in Rome, seeing a glacier in Alaska or just go in fishing off the Roatan in Honduras. A bucket list is different for everybody. The reason they want to have it, they want to be able to go back and tell their family and friends that they did it. So when we think about fleet expansion, we think about it starting at our core. Our fleet expansion allows us to maintain and enhance our strong market positions in high-yielding markets like Europe and Alaska. But it also allows us to expand on our fun-in-the-sun options, including the competitive advantages that we have in Bermuda and Hawaii, as Harry mentioned. This new capacity that's coming into the Caribbean, is going to come in the form of 3-, 4-, 5- and 7-night cruises. By default, that will end up reducing the average length that we have on our entire fleet. Interestingly, it's going to make us even more efficient because by 2026, 80% of our cruisers are going to embark from the top 10 ports. Why does this matter? Increasing operating efficiencies will make the experience better and yield higher returns. It will make the embark process smoother. It will make the depart process smoother. It will make provisioning more efficient. It will allow for our captains to have more familiarity with the routes and therefore, save money on fuel. All these benefits of a more consistent deployment will lead to overall higher yields and higher guest satisfaction. Another benefit of this additional Caribbean capacity, and we've heard this from you and we've heard this from a lot of our guests, they're very excited about the opportunity to monetize on our private island, Great Stirrup Cay, which we lovingly call GSC. It's really just the initials, it really doesn't mean anything. Both GSC and Harvest Caye provide well-balanced offerings that are an extension of the experience on the ship. We're not trying to build the world's largest theme park on our Bahamian paradise. What we're going to do is we're going to add new amenities and new features that yes, it's going to move us a little closer to a land-based vacation, which is what our guests have been asking us for. They want the opportunity. They want the new experiences. They want the ability to visit GSC on every call. Fortunately, for us, GSC has to be the largest of all the private islands. So we have the footprint now that we have the investment, and we have the master plan to add these new amenities while still providing our guests all of the opportunities and experiences that they've had up until now. Our guests are asking for more Caribbean options. They've been asking for a while. And the fact that we are increasing our fleet enables us to provide our guests what they want. And this is truly exciting. All of us are thrilled with the opportunity to design an island. How cool is that, design a new island? But the reality is GSC is pretty awesome right now. It's actually one of our highest-rated ports of call. And now that we have a pier, we're going to have a pier, that means that we're going to call consistently. Tendering during the winter months, GSC has been a challenge. And unfortunately, we end up missing the island. Not only does that impact our yield, but that impacts the guest experience. People look forward to visiting GSC. So now, we can have a thoughtful and ROI-centric investment strategy to invest and build new revenue-generating opportunities, experiences on GSC. We got to hurry up because from now till 2026 -- by 2026, we're going to increase our passenger count by 75%. That's okay. More opportunity to get more guests, more revenue-generating opportunities, higher yield. I'm going to talk for a minute about Silver Cove. In the same way that the Haven is our VIP experience on the ship, Silver Cove is the VIP experience on the island. A bunch of private villas, surrounding an exclusive lagoon, where you're waited on by our amazing crew and team. That's another unparalleled experience. And it's one that guests are willing to pay a very healthy premium for. So by having more guests call consistently on GSC, that means more guests get to experience Silver Cove, and that not only supports revenue but again, supports the guest experience. So to optimize this yield expansion, we also have a new approach to revenue management. The role that revenue management plays in the success of NCL cannot be overstated. We are always looking to improve the best practices so that we can maximize yield. We have to be maniacal about staying on and maybe even getting ahead of the booking curve sometimes. Maximizing every dollar from every cabin on every voyage is a must. And we do this by investing in new platforms and technologies that make that happen. I'll give you one specific example of the opportunity of having -- selling premium paying -- having our guests pay a premium for category-level upgrades. As we get closer to sailing, on those rare times that we have a balcony cabin open, it is much more efficient for us to sell that balcony cabin to an ocean-view guest, have them pay a premium. If they pay that premium, we now have an empty ocean-view cabin. Guess what? It's an opportunity for an inside guest to pay us a premium to get into an ocean-view cabin. In the end, we're left with an inside cabin, which is a much lighter lift for us, but we've generated extra revenue without incurring an expensive acquisition cost of finding a new guest to buy a balcony cabin. This is an incredibly tedious process that has been expedited because of the investment that we made in technology to make this seamless, fluid and effective for us as an organization. This constant rigor that we have in revenue management has to be partnered with the same thoughtful and data-driven approach to marketing. As the former CMO, I might be a little bit biased, but I'm pretty sure my marketing team is the best one in the world. We have installed a new culture of objectively measuring and leveraging analytics while investing in technology. What have we accomplished? Well, as you can see, we've increased our marketable database by 77% since 2019. And we've increased web visits by 39% over that same time period. We continue to get smarter and more efficient at our full funnel analysis of our multimedia mix strategy to attract both new to brand and new to cruise. Those 2 areas have to grow, not just for NCL but for the entire industry. And that's why we're excited about the investment that the industry is making in this. But there's a third bucket. There's a third bucket of guests that we already have a running head start on, and those are our very loyal past guests. Not only do they have a lower acquisition cost, but they truly do become ambassadors both on and off the ship. Our past guests love us. And a clear indicator of that is our ability to sell them CruiseNext certificates. CruiseNext certificates, or deposits, which are value-centric coupons that guests purchase when they're on board, and it serves as a nonrefundable deposit for their next cruise. And they're not even sure when their next cruise is going to be, but they are so loyal and so enamored with our product that our sales team, as you can see, do an amazing job of talking to them when they're on the ship and getting them excited about their next cruise. The benefits for us as an organization, our cash flow and a pipeline of future bookings. But I want to touch briefly on the right side, the CruiseFirst. Harry had mentioned the squiggly lines in one of his last slides. In 2020 and 2021, we didn't have any guests on the ship to sell them CruiseNext certificates. So we got creative. We got in the lab. We collaborated because that's what we do as a management team, and we figured something out. We create a pre-cruise version of CruiseNext. And we called it CruiseFirst. But now, we sold it at point of sale. It was a hit, still serves as a deposit, still nonrefundable, still same terms and conditions, but it's just a land-based version of CruiseNext. As you can see, both of these unique value-centric offers continue to grow significantly year-over-year. And this will also help drive yield and help fill all these beautiful ships that we have coming. This is just one example of our constant sales and marketing efforts throughout the entire guest journey. That is in our DNA. This last point is about the guest journey specifically. As I mentioned earlier, we have the mindset that our job starts when someone starts thinking about buying a cruise. Candidly, our efforts to monetize that interest starts shortly thereafter. That is why we have the best onboard revenue in the industry. At the point of sale, we reinforce our premier package, which is called Free at Sea. Free at Sea is a value-centric package that allows our guests to enjoy beverage, dining, WiFi and shore [ extension ] credit. 90% of our guests participate in one or more of these components. We see more opportunity here. Over the next few months, we are going to be considering, analyzing, maybe even announcing decisions that are going to help drive our yield specifically as a result of the new approach to Free at Sea. This level of demand reinforces the extra earning potential. These multiple touch points, many of them pre, during and post cruise; not only with cash flow, but they also drive an increase of onboard revenue, as you can see, almost 30% since 2019. Look as I mentioned, these are only 5 of the many initiatives that we are working on to drive top line growth. I assure you we have many more. As Harry mentioned and Mark will reinforce in his section as well, our goal is to deliver higher than historical yield growth while we continue to grow our fleet. Our entire management team is 100% aligned, and we are absolutely thrilled about this opportunity ahead of us. It's an exciting time to be at NCLH. Thank you for your time. At this point in our program, I'm going to stop talking. We're going to get 15 minutes to have coffee. And then when we come back, you're going to hear from my outstanding operating partner, Patrik Dahlgren and of course, someone you guys know well, our CFO, Mark Kempa. Thank you very much. [Break]

Our next speaker is one of the newest members of our executive leadership team. He brings with him over 25 years of experience in the cruise industry, and he's the only one of my direct reports with the title of Captain. He's an expert in all facets of vessel operations. But more importantly, he's been an important driver of the change in culture, which David and I discussed this morning. So with that, I'm proud to welcome Patrik Captain Dahlgren as our next speaker today.

Thank you, Harry, or maybe I should say Admiral. Good morning, everyone, and thank you for joining us on our journey here today. It's an exciting time, and we're very excited to share with you our new approach to operations here at NCLH. I'm an operator at heart, and a key part of my job is taking care of our fantastic crew out there on the ships that are providing outstanding guest experiences every day to our guest, but doing so efficiently. We moved from a model of product regardless of guest insight or cost for that matter to a model where we're now looking more thoughtful into what do the guests want, when do they want it? The ROX, the return on experience that both Harry and David were talking about through their presentation. Also charging our guests, prices that provides an outstanding ROIs in the years to come, prioritizing efficiencies and leaving no stones unturned in terms of removing wasteful processes throughout the organization or on board our ships, all leading to continued superior guest experiences and returning guests in the years to come. We're changing, the way we're doing business, focusing on the ROI and the ROX, the return on experience. We're enabling this through a new approach and a new structure with a transformational office, which we have started at NCLH a few months back. And this office leads company-wide initiatives, organizing it in a structured way and drive the change forward every single day. We have multiple levers in order to improve on these different efficiencies as a company, continuing to, of course, evolve and improve and innovate on guest experiences but looking at different cost drivers that does not add value to the guest experience, sourcing being one of them. As you can appreciate, we go to over 700 ports around the world, and our previous sourcing method was lacking some efficiencies. We're going more to direct sourcing, direct to manufacturers and as well as fuel, which I will talk about a little bit later on what we're doing there, but a better sourcing plan. The processes through the organization is really driven through a data-driven decision making, providing the people with the right data at the right time to make the right decision and focusing on supporting our amazing crew on board our ships that deliver these amazing experiences every day with the right training and with the right tools to be efficient. Our investment framework overall, we are very thoughtful in what we decide to invest in, looking at what drives further revenue as a company, what drives the ROI and the ROX. Harry also mentioned the decarbonization through our Sail & Sustain program. We continue to be committed to our decarbonization plan through energy efficiencies, driving down both the cost and our greenhouse gas over time as well as focusing on new technologies and innovations and alternative fuels. All of this supported through the transformational office. Again, the new approach is not about just reducing cost. It's continue to deliver world-class experiences to our guests, but doing so more efficiently. Harry and David both mention now Charting the Course pillars. Today, I will mostly focus on the exceptional performance side of those pillars and the impact that this will have moving forward. Following slides we'll outline some really interesting examples of what we have done in case studies to date across the fleet for our NCLH brands. We continue with the cost excellence that we have done for the -- several months back. We're maniacally focused on driving down the cost where it does not matter to our guests, better leveraging the scale and looking at being more data-driven as well as we were talking about -- both Harry and David, was mentioning in regards to our newbuild portfolio, which we're really excited about, but continue to be smart the way we invest, value engineer on those ships as we move forward for superior returns in the future. The first case study I'm really particularly excited about is our cabin cleaning and cabin setup on our ships. As you can appreciate, when a large Norwegian Cruise on vessel come into port after a cruise, 1-week cruise maybe in the Caribbean or elsewhere in the world, 4,500 guests is debarking after an enjoyable vacation. Another 4,500 have to embark that vessel. And in a short period of time, the vessel staff need to set up the ship to a beautiful condition, ready for all the great experiences. And as we look through the process of how this was done and how we can do that more efficiently, we're particularly focused, in this case, on the cabin stewards and how they set up the cabin. We did the time and motion study and as you see in the little crazy spaghetti model there, it outlines all the different steps that a cabin steward had to take in and out of the cabin in order to set up and clean the cabin. There are some on the model because we didn't have enough lines to show, but also a wasteful process where the cabin steward actually had to go back and forth to the laundry on the ship. And on a large Norwegian vessel, it's a really long height, elevator ride all the way down to the lower decks of the ship and back again. So each cabin steward had to do the same over and over again. With the new process, we have significantly less steps for the cabin steward to set up the cabin, cross utilization of labor for other departments that had lower workload at the time in order to set up this cabin. Not only throughout this process did we have the same level of cabin cleanup and set up, we had the same scores from the guest or higher throughout this entire change. We also managed to reduce the headcount on the Norwegian brand for these cabin stewards by 500 people. So a significant change, a win-win, lower amount of crew count, higher setup for the cabin and actually spare time for the cabin steward to spend more time with a guest, providing service, answering questions to those guests, a win-win. There was one losing factor, though, for those cabin stewards who were wearing in the [ iWatch ], they got very little points on their steps. Another interesting case study was in regards to our entertainment. We're really proud of our entertainment at NCLH. And looking at the guest data, what did the guests really want in terms of entertainment? So when we digged a little bit deeper, we realized that what they mostly asked for was broader entertainment across the entire journey, which we provided to them. But in regards to the shows, it was very interesting to see that the highest rated shows that we had in the fleet were the smaller shows that we had produced internally in Tampa, Florida by our Creative Studios. The interesting part of those shows were that they came with less cast members, high energy, shorter shows, less cast members. And the difference between the traditional big Broadway shows that we had at NCLH, they came with none or very close to none, license fees. They were very high at the Broadway shows. In addition, when you have a large amount of cast members on the cruise ship, the challenge is with crew berths. There were simply not enough crew berth in the Norwegian brand, and they're all spilled over to revenue-generating cabins. By going to this model, we managed to not only increase the guest satisfaction on the scores related to entertainment, we also managed to return back the revenue these cabins that was occupied by these crew members. So a win-win on both sides. Another interesting study we did was looking through our culinary side. And this specific one is related to menus in our main dining room on the Norwegian brand. And as we look -- as we are very proud of the culinary offerings that we have in our fleet, and we have amazing chefs and you had Harry speak about that earlier as well. It's really interesting to see when you look at the data, which type of menu items were ordered mostly, which one were the favorites, the amount of waste that came out of the different ways of making the different menu items. And we looked at the really low ones. So if you see on the left-hand side, those that x-ed out, those are really low rated menu items that was on the original menu at the main dining room on the Norwegian brand. We reduced them by close to 30%, as you see here. And again, it's the items that was ordered only 4% of the time, but actually stood for over 20% of the waste. We could reinvest that in terms of not only lowering the cost but reinvest the time that the chefs are using to create these dishes. So the favorite dishes actually increased in terms of guest satisfaction scores. So better offering for the guests, better quality of execution, less waste and lower cost. So again, a win-win. You heard me talk about the different cost initiatives and efficiency -- efficiencies throughout the cost side. Another one that's interesting is a smart way how to increase the revenue onboard existing vessels. The cruise ship on a regular basis needs to go into dry dock for regulatory inspection, technical upgrades and so forth. And what we did in this example on Norwegian Joy, we were looking at areas onboarded ships that was underutilized that we didn't see much use for at that time. And on this particularly dry dock, we implemented [ 24 ] additional balcony staterooms on the ship, again, additional revenue for the vessel. We implemented a new thermal spa onboarded ship, which is exceptionally popular and another revenue-generating item. We redesigned the Owner's Suite on -- in the Haven area that David also spoke about earlier, increasing the revenue for that -- I apology. We also looked at open deck space that was underutilized and implemented the Vibe Beach Club in an expanded format onboarded Norwegian Joy. That was one ship example. We're doing the same across the entire fleet for every dry dock moving forward. And in particular for 2024, we're now targeted for 200 additional guest cabins. And my friends in revenue tells me that it's somewhere about $150,000 per year per cabin. So a significant increase in revenue, looking at existing ships in a smart way, add, amenities increase the revenue. So a win-win from both sides. Going back on the house, fuel. I touched that a little bit on earlier in regards to sourcing. Fuel is about 15% of our expense, a big portion of our expense. And looking at how we traditionally did sourcing for fuel at NCLH. We bought from 1 vendor, regardlessly going to over 700 ports around the. In the new model now, we have over 40 different vendors at significantly lower cost across the globe in a yearly bidding. We implemented an advanced bunker optimization tool, both our shoreside procurement team as well as the onboard team to utilize to make sure we bunker when we should in the most optimized way. Also increasing the fuel mix with a different type of fuels to lower cost. Operational refinement, we did multiple operational refinements in the fleet, helping the captains and the chief engineers onboard to be more efficient in the different in the different decision-making process, providing them with the right data to make the right decision. And in one particular case that I wanted to share was in regards to engine startup. The old model, several ships started the engines 2 hours before departure. In the new model, it's about 15 minutes. So a significant saving in terms of energy. Harry mentioned the decarbonization and sale and sustained plan that we have for the company. We're exceptionally proud for our plan, and we're fully committed to continue on that journey. We're investing in energy upgrades and energy efficiency asset upgrades, both through technology with AI that Harry also touched on and other aspects of the operations onboard to make it more efficient. Overall, all in all, I should say, if you look at those investments that we have planned for 2024, they all have an average estimate ROI of 70%. So it's interesting in this case because you have a significant saving on the greenhouse gas, but you also have a significant saving in terms of cost. So a great way to move forward in this strategy. But we don't stop there. We're also testing alternative fuels. So by the end of this year, we will have tested 40% of our fleet with alternative biodiesel. And finally, I wanted to share with you how all this is tied together. I mentioned the transformation office, and we're really excited for this new approach which is structured and organized looking through a long list of initiatives, both this year and the years to come. We have over 100 work streams and initiatives to date throughout operations to lower our cost, be more efficient and continue to deliver world-class experiences. But those hundreds are just as it is today. It keeps counting more and more every single week as we work through this, all leading to sub-inflationary cost growth moving forward. Finding the balance, we've been really laser-focused and we talk about ROI and ROX (sic) [ ROEx ]. We continue to drive that balance between the return on investment and the return on experience every day, continue to deliver world-class experiences to our guests in the years to come, being the leader in terms of innovations on all the guest experiences, and we're particularly proud of all these changes we have done in a short period of time, creating a mindset of entrepreneurship, people are really driven, people share ideas and experiences and very good comradery in moving all these initiatives forward. It's a big task, but we are ready for it together as a team. Finally, thank you for listening to me and these outlines I had here today. The next speaker, I think you're very well familiar with because it's our amazing Chief Financial Officer, Mark Kempa.

Thank you, Patrik. I mean Captain, and good morning, everyone. Aren't we lucky that we have such an amazing performance-driven individual on our team who has a solid track record of operational excellence and delivering results. He really is a game changer for us. And we are very, very excited to have him on our team. Thank you, Patrik, and welcome. So let's take a look back at our historical financial performance. We'll give you a story about that. How that correlates to what we're going to look at today and then how that correlates to going forward. We are entering a new growth era. We have a strong and resilient business model, which in prior to 2020 had moderate and consistent capacity growth that drove outsized yield and EPS growth and generated over $1 billion of free cash flow annually. 2023 was our great cruise come back, where we focused on returning to normalized operations, including getting all of our ships back to their load factors. Fast forward where we are today, we are charting a new course. Our compass is clearly pointed toward margin expansion, significant free cash flow, all of which supports our #1 goal of delevering the balance sheet and unlocking shareholder value. So let's take a quick look at our business model. Go back one, I apologize. This is something we've done before. We know how to operate this business, and we know how to extract value. It's a simple model that clearly demonstrates why we're comfortable today with the long-term targets that Harry presented in his presentation that I will also go over. So let's dive into the model a bit. We have a track record of disciplined capacity growth of 7% CAGR from 2015 to 2019. This resulted in top line CAGR growth of 10%, significantly outpacing our volume or our capacity growth. And this was with a backdrop of the U.S. GDP growing roughly at 3% over the same time period. That in and of itself speaks to the strong demand and great value our brands bring to our guests. That delivered strong profitability, with adjusted EBITDA growing 12% on a CAGR basis, over that same time period. So when we summarize that, it's clear we have a proven and strong commercial platform that is not only resilient, but which results in strong earnings growth, strengthening of the balance sheet and growth in shareholder value. On 7% capacity growth, we grew earnings 15%. That's 2x leverage on our earnings. That is a powerful earnings engine. So let's now shift to how we plan to drive top line revenue and growth. As we look forward, our capacity growth of low to mid-single digit is moderate compared to past. In fact, it's almost 200 basis points lower. So if you think about that from a financial performance perspective, it means we are well positioned to capture the potential for outsized growth in the cruise sector, as consumers are now more accustomed to higher hotel RevPARs in the travel sector, ex cruise. Further, this capacity does not assume vessels age 30 and over are repurposed or otherwise disposed, another opportunity for us. So what does that mean? Moderate capacity growth is a natural tailwind to drive yield growth. But it's not the sole driver of growth. It's complementary. So as we think about what our business requires to outperform, it really is simple, low to mid-single-digit yield growth. It's as simple as that. That's not to say that we settle for historical average. It's meant to demonstrate that our business model doesn't require reaching high hurdles to achieve outsized performance. So what else drives yield pricing and yield? As David discussed in his presentation, improvement in stateroom mix. More efficient vessels that have a higher, richer stateroom mix also have more enhanced opportunities for onboard revenue generation, driving higher pricing and yield. As we look forward to our vessels on order over the next 2 to 3 years, the majority of our new capacity is 10% richer in terms of premium stateroom mix versus today's fleet. Again, it's just another natural tailwind for pricing and yield growth. So as we think about earnings growth, it all starts with the top line, and the multiple drivers that generate pricing power. So as David mentioned, we have 5 -- what we called out 5 items today. There's 5 key levers to drive pricing and yield, stateroom mix, deployment optimization, enhanced revenue management and targeted marketing. All underpinned with the goal to maximize spend throughout the customer's journey by capturing more of the consumer's wallet over time. So now let's turn our focus to the cost side of the equation. Let me be very loud and clear here today, if I'm not already loud. We are laser-focused on cost management. I'm going to say it again, we are laser-focused. What does that mean? It means shedding waste in our business, improving on our business processes and reinvesting in the areas where it matters, not to us but to our valued guests, all while delivering an excellent product a fantastic guest experience and most importantly, protecting the equity of our brands along the way. We continue to demonstrate that we have the ability to change the culture and reduce our unit costs. We heard you, and we took action. Our performance over the last few quarters is definitely a testament to that. So let's talk about how we're approaching this. It 100% starts with changing the culture. When you change the culture, you empower your teams not only to bring forward ideas, but more importantly, to make the change. We take a structured approach and are performance-driven. We're not cutting just the cut. That would be easy for the short term, but certainly not beneficial for the long term. We have a large commercial platform with inherent scale and we must leverage it. So to support this, we created an internal transformation office, which is a team that reports directly to me but work side-by-side with our business leaders. Today, I have members of my finance and transformation team here today, and they are laser-focused on -- they are laser-focused on helping the org measure the performance on each initiative. And it's also 2 heads that I actually just get to choke or congratulate at some point, we'll see. I think we'll be congratulating. More importantly, though, their sole responsibility is to question the status quo of everything we do and build muscle of removing waste from the system. That doesn't mean go find the hanging the low-hanging fruit and move on. In fact, I don't want that. Our structured approach involves setting the North Star, reviewing the business process end to end, identifying the opportunities or the gaps, establish a plan and then go execute on that plan, sounds easy. So you might ask, well, how do we maintain momentum? Through rigorous and formal review cadence and the sharing of real-time reporting amongst our peers. This allows us to collaborate with the best minds in the organization and to pivot and adjust it as needed throughout the process. This results in actionable and manageable tasks across the entire organization, again, in a structured approach. Simply put, you can't manage what you don't measure. And as I often tell my team, measure often. So what does this mean to you, all of our stakeholders? Well, here's the answer. We are committing to bending the cost curve by achieving sub-inflationary unit cost growth year after year. Our multiyear savings plan is targeted to drive down costs, leverage our scale so that our growth on a unit cost basis is less than what inflation would suggest. We have both the ability and the innovation to achieve this through our change in culture and our relentless focus on eliminating waste but also reinvesting where it matters. So the next question is, what's the size of the pie? How about a $300 million slice of pie? We are committing to a goal of $300 million of savings over the next 3 years. For context, that represents about 6.5% of our total ship operating expenses in 2024 or you could average that out and say that's about 2% per year. About 2/3 of that savings is expected to be realized through the various initiatives in our ship operating cost categories that Patrik covered in his section. We are also attacking marketing, selling and administrative expense by rationalizing every cost in the business, consolidating certain back-office activities and utilizing low-cost but effective technology. And the other 1/3 comes from fuel and energy. We are hyper focused on reducing our fuel costs in a meaningful way. We're not only optimizing our at the-pump price through our bunker arbitrage initiative that Patrik touched on earlier, but we're also taking aim to reduce our energy footprint across the fleet, which just happens to go hand-in-hand with our decarbonization goals. We have a strong platform. We have a strong program already underway as evidenced by the $100 million of savings that we've already committed to for 2024. So we are absolutely confident in our ability to deliver $300 million of run rate savings by 2026. So now let's take a look at our operating leverage -- our operating model leverage. We're on a path to returning to our historical operating model leverage. Historically, our average ratio was about 1.9 with -- and hitting a high of 1.95 in 2018. That dropped to about 1.4 on average over the course of 2022 and '23. And now as we look forward to 2024, we have almost a 30% improvement back to 1.8 for 2024. We have momentum and we will continue to improve on that metric over the next few years. So let's turn our focus to leverage reduction. It all starts with meaningful margin improvement through a simple executable algorithm. So let's set the stage and talk about that, starting with our algorithm. Our algorithm is simple, low to mid-single-digit yield growth, sub-inflationary unit cost growth that translates to improvement in operating EBITDA margin. Sounds simple. That's because it is. But the key to the algo is we are committing to a 2.5% spread between our net yields and unit cost growth. Our commitment to deliver on $300 million of run rate savings over the next 3 years is a key component of that. And as a reminder, we're already in the process of delivering $100 million of that this year, as I said before. It's straightforward is that. A simple and executable plan that is achievable and doesn't require steep hurdles to climb, moderate yield growth, combined with our cost improvement plan delivers expansion of margin. So what does this translate to? Strong cash flow generation, $7 billion strong. Margin expansion plus our moderate 5% capacity growth drives approximately $7 billion of operating cash flow through 2026. $7 billion. So let's talk about the framework that actually reduces leverage. The framework has 3 components. Strong operating cash flow generation, $7 billion strong, a disciplined capital allocation strategy, combined with an expanding cash flow equals a meaningful reduction in leverage. One plus 2, plus 3 equals 4. So let's briefly discuss each one of those components. The first is strong operating cash flow. In 2023, we generated about $1.5 billion of cash flow. This year, we are expected to generate a little over $2 billion. And as we look forward, that's expected to accelerate to about $2.5 billion on average for each of the next 2 years. That's a 70% increase from 2023. And all on the back of moderate capacity growth of just 5%. The second component is our disciplined capital allocation plan. With $7 billion of cumulative operating cash flow, our plan allows for disciplined investing to expand the business, while at the same time paying down a meaningful portion of our debt portfolio. On the CapEx side of the equation, we plan to invest a little over -- around $3 billion split between new growth CapEx and investment/maintenance CapEx, this will allow for measured growth, while at the same time, the opportunity to enhance our existing assets through ROI-generating projects, such as the items Patrik mentioned about the Joy 24 staterooms that translated into 200 staterooms across the fleet. On the debt service side, we have about $3.2 billion of scheduled amortization through the end of 2026. So if you do the math, the result implies the potential for excess cash flow that may be used for accelerated debt repayment during the period, the potential. But we have not assumed any of that in our targets that we've presented here today, 0. So let's dig into our debt portfolio a bit. Our debt portfolio is differentiated from that of other travel and leisure companies. A substantial portion is supported by our attractive export credit agency financing and at favorable rates. Our weighted average cost of debt is about 5%, with 95% of the portfolio fixed, but with plenty of callability to prepay as cash flows continue to increase. That's a nice hedge to have in an elevated rate environment. At recent quarter end, about 38% of our paper was unsecured. And we continue to review opportunities to optimize that portfolio, including converting secured debt to unsecured as our balance sheet continues to improve, very similar to what we recently did with our $650 million facility going from secured to unsecured and releasing collateral. With our continuing improvement in credit metrics, we expect further upgrades like we recently received from S&P. Above all, we have a very manageable debt stack over the next few years. We have a very manageable debt stack over the next few years. So now let's talk about our expanding cash flow. Since 2019, our advanced ticket sales have grown more than 80% to $3.8 billion. In part, this is driven by 20% capacity growth, combined with higher pricing. More importantly though, it can also be primarily attributable to the lengthening of the booking window from 2019 and prior, but also a strong focus on the consumer sales cycle through targeted initiatives and offers that allow us to capture more of the customers' wallet over time and all before they ever step foot aboard one of our vessels, also known as precruise sales opportunities. This is free working capital and we continue to refine our efforts to expand our cash flow. We believe this is an underappreciated characteristic of our company and it represents another significant opportunity to help further delever the business. So what does this mean? It results in a significant reduction in our leverage by 2026. In fact, we plan to reduce our leverage by almost 3 turns by that same time period. And we've already made quite a bit of progress this year on that. Let me be clear, I'm [ not already ], our #1 priority across the company is to reduce our leverage, second to none. We have a strong track record of having the ability to reduce leverage and strengthen the balance sheet. We've done it before, and we are absolutely in the process of doing it again. And as a reminder, these numbers do not assume any prepayment of scheduled maturities. So what's the takeaway from all that? Our balanced capital allocation plan allows for measured growth and investment while reducing leverage at the same time and strengthening the balance sheet, delevering and growing at the same time. It's a great formula. So let's move on to our road map ahead. But before doing so, let's rewind a bit and take a look at 2024 performance to date. We started the year with strong yield guidance of 5.5%, adjusted EBITDA of $2.2 billion and EPS of $1.23, which was a significant increase over 2023 to the tune of 75%. We subsequently increased our guidance, raising our yield by 100 basis points to almost 6.5%, increasing adjusted EPS by $0.09 to $1.32 or a 7% increase. That's almost an improvement of 90% versus 2023. So I'm happy to share today that we have more good news. If you haven't already seen our press release this morning, due to solid and consistent demand from our core consumer, both in terms of booking performance and continued strength in our onboard revenue, we are once again -- well, we have once again raised our guidance for 2024. Net yield guidance is increasing another 80 basis points to 7.2%. Adjusted EBITDA is increasing to $2.3 billion from $2.25 billion, which on a 4% increase in capacity is a 24% improvement over 2023. And EPS increases by $0.10 to $1.42. This represents a 15.5% increase or $0.20 versus our initial guidance at the beginning of the year and a doubling of our adjusted EPS from 2023. The majority of the yield increase comes from improved pricing outlook in the second half of 2024. And there's a very small portion that's benefiting Q2 as a result of our onboard revenue performance. We are not changing our load factor guidance for the year. So this increase is almost all coming on the back of pricing strength in the second half of the year. So now let's pivot back to our road map. Our road map is clear. Expansion of adjusted EBITDA margin leads to delivery of strong EPS growth, which drives strong ROIC to 12% by 2026. So let's dive into each one of those. When looking at our targets, based on our moderate yield growth and are rightsizing our cost base, we expect to adjust -- to expand our adjusted EBITDA margin by 800 basis points to 39% versus 2023, 800 basis points. That puts us back at our historical levels. We are well on our way to that goal as evidenced by our recent guidance this morning, which implies that we're now expected to improve by over 300 basis points from prior year to approximately 34% margin. Turning to EPS. We expect to deliver a 30-plus percent CAGR in EPS growth by 2026. Our margin expansion plan that is supported by our simple and executable algorithm combined with our moderate capacity growth is expected to deliver adjusted EPS of $2.45 by 2026. That's an impressive 30% CAGR versus 2024 even after doubling EPS from 2023 to 2024. Pretty clear path to EPS growth. ROIC. We expect to drive a 400 basis point improvement to 12% by 2026. That's a record level for our company and it's underpinned by our strong adjusted EPS growth. The continued expansion of our cash flow, which allows us to reduce our debt levels, and supported by disciplined capital allocation plan that allows -- that ensures we are investing in the right assets with the right ROI. So where does this all take us? It takes us back to where we started the day. Our charting the course 2026 targets, driven by a simple and executable plan from an experienced management team with a clear strategy and a new performance-based culture that drives meaningful results and increases shareholder value. So let's recap our targets. Margin of 39%, an 800 basis point improvement from 2023, adjusted EPS of approximately $2.45, a 30% CAGR from 2024 even after doubling it from 2023 to '24, a significant reduction in leverage to the mid 4x and approximately 3 turn reduction from 2023 levels, which results in further strengthening of the balance sheet and record ROIC of12%, a growth of 400 basis points from 2023. A simple algorithm, an executable plan by an experienced management team. Are you guys convinced? Let me show you one other slide. Let me show you one other slide. We are executing on a strategic pivot and have a unique growth profile in the industry. We have the experienced management team paired with a new performance-based culture. We have powerful drivers of yield. We are laser-focused on the cost and debt reduction, which is all underpinned by a strong and simple algorithm that provides a solid and clear road map to 2026 that results in the highest -- the fastest capacity growth, significant margin expansion, rapid reduction in leverage and the highest EPS growth in the industry, 30% CAGR. We are executing on a strategic pivot. I will say it again, we are executing. So that's all for me today. I thank you for your time. I'll now pass the baton back to Harry or otherwise known as Admiral as of this morning. for some closing comments before we go to Q&A.

Yes, [ passion ] also, yes. Okay. Most of you said, yes, I'll take that. Well, thank you, Mark. It's really a privilege to work with such seasoned professionals, Mark. We spent many years together in various different relationships here at NCLH. Really, really culminating in today's events. So thrilled to have him on the team. But more importantly, thrilled with the whole management team. I'm happy with their presentation, Mark, Patrik and David all gave today to share with you our bold vision for the future. I hope you are as inspired today as I was. We've looked into our strategy. We've looked into the core of who we are. And I think what we've presented today displays a strong plan for the future. We've set aside 1 hour for Q&A but I just want to share a couple of closing remarks before we get there. I remind you of our bold new vision, vacation better experience more primarily driven to inspire both our staff and the 3 million guests that we carry each year into what it is that the company stands for. And this is our investment thesis, our 4 strategic pillars. Our goals that Mark so eloquently just took you through. We believe that these are all meaningful paths, meaningful numbers to drive a path forward for the company to achieve financial success. So with that we're going to invite our 3 executives up to do a quick Q&A session. I'll turn the mic over to Sarah, and I'd be remiss if I didn't thank her and [ Dela Cruz ] for the wonderful job they've done putting this event together. So please give them a round of applause.

Got some chairs coming up. Just for the Q&A, please raise your hand. We have some people passing around microphones and so state your name and the firm you're with since it's hard to see you.

It's Steve Wieczynski from Stifel. So 2 questions. I guess, first one for Mark, if we kind of think about that low to mid-single-digit yield growth over the next 2.5 years, can you break that down a little bit in terms of maybe the pillars that go into that. So how do you think about onboard? How do you think about new capacity? How you think about just general ticket pricing? And then on top of that, is there anything embedded in there for the private island concept in terms of benefits to yields, even though that all might not be done by 2026? And then second question, you talked a lot about leverage reduction, but at the same time, obviously, as you kind of went through the pandemic, you took the dilution was call it 100% or somewhere in that range. So that $2.45 number could have been $5. At some point, do you start to think about trying to get some of those shares back?

Certainly, and thank you for the question, Steve. So I think the key when you look at our targets, and we tried to emphasize this is, we're talking about delivering low to mid-single-digit yield growth. And again, I'll reiterate, that doesn't mean that's what we settle for. So when you think about the components, whether it's cabin mix, optimizing our deployment, rightsizing our revenue management systems, whatever the case may be, those are all fundamentals that help drive that number. But what I want to reiterate is we are only committing to low to single mid-digit yield growth. And at that level, that gets us to the targets we talked about today. So when we think about things like the island, when we think about things like enhanced onboard revenue. Yes, that can be complementary but we certainly didn't want to sit here today and sign up for x percent of yield growth because then you guys would have all looked at me and said, "You're crazy, how do you know you can get that?" That's why I want to take you back to our algorithm is simple. It requires low digit mid-single-digit yield growth, subinflationary cost growth and you get these numbers. But absolutely, we are striving for much more than that. I can promise you that. And as David touched on, throughout his presentation, and Patrik, we are maniacally focused on driving the top line, but we're going to do it with rightsizing the product as well and making sure we're reinvesting in the right places. And on the share side of the equation, Steve, you're absolutely right. If we think about this in the context of 2019, we delivered, what, $5 and change of EPS. Take that same $2.45. If we didn't have this wonderful shutdown, we would be back at the same levels. But here's the reality. The reality is we still need the next 12 to 18 months to focus on our debt and pay down our debt. That is our #1 priority. We've said it many times, and that is our #1 priority. Now as we look to 2026 and beyond repurchasing shares is not out of the equation. But again, we have to get our leverage back into that 3 zone before we've been start addressing that. That is our #1 priority.

Brandt Montour from Barclays. So a question on the regional mix. Looking on '26, it looks like you guys are almost pivoting back to the Caribbean in a pretty big way. And I think you talked a little bit about it, but -- maybe you could just flesh that out just because we remember the move during the pandemic was to be further out, farther-flung places, more exotic there's higher prices. The Caribbean does have a lower yield in those other places. So is this a sort of a great conundrum #2 where we go over the next couple of years and we have a dilutive mix from more capacity in the Caribbean? Or is that something you can offset?

You want to start, David, and?

So when we talk about what we've done in the past, we made a conscious decision to maximize yield. And that's why [indiscernible]. So we don't have the number of ships that we need to be everywhere at the same time. So by targeting the higher yield in Alaska and European markets, this new fleet expansion is going to allow [indiscernible] but we've got a lot of demand, lot of for request from our guests because as you said several years [indiscernible]. And a lot of our cast guests, they continue to want that Caribbean experience. The fact that we've now increased -- we will increase the size of the fleet allows us the opportunity to not only stay in our foothold and our strong market position in Alaska and Europe, but also expand our Caribbean deployment with these new revenue enhancement opportunities that [indiscernible] ROI centric focused on the. So when we look at our total portfolio, we look to maximize yield at every opportunity. This is just [indiscernible].

And I'll just add to that. While it is true that once you get to ship 50 or 60, I'm not sure what the exact number is that incremental ships to the Caribbean would be lower yielding. I do believe that will be the case in some distant year in the future. If you look at our deployment in the Caribbean right now, I mean, we have no deployment out of places like [indiscernible] in the summer. We only have 1 ship out of Miami in this summer. I think we only have 3 ships in the winter. I mean our deployment is so small in these places. I think it will take a while to hit the place where Caribbean itinerary would be subyielding compared to the overall fleet average. And I also want to stress that when we talk about fun and sun, it's not just Caribbean, it also refers to Bermuda, where we're looking to expand our footprint there. You can look for more on that later, not announcing anything today, but we are. And that's among some of our highest-yielding itineraries that we have. It's a great place to go to. And there's also opportunities in places like Hawaii. We've done a little bit more there with the second ship seasonally and we think there's opportunities there as well. So it's not just the Caribbean that builds us up to the 54%. And I'll just -- I'm sorry, it was one of the point I made and just had to remember what I was going to say. There's also a benefit in being in the Caribbean, which Patrik and David both referred to in lower cost. So one of the reasons that we're committed or secure or feel optimistic, I should say, that's the word I was looking for, about our cost goals for '25, '26 to continue to drive down as subinflationary is the simplified operations that both David and Patrik referred to. Operating shift out of Miami, Port Canaveral. We've recently put a ship in Jacksonville. We have ships in Tampa, Galveston and New Orleans. All of these places are much lower cost to operate than places like Europe, Alaska, or some of our smaller ships go into places like Australia, Africa, South America and beyond. So certainly, that will help drive the 2.5 point differential that Mark referred to between yields and costs.

Thanks, Harry. Can we take another question from over here?

Conor Cunningham from Melius Research. Sorry. On the $300 million cost reduction plan, can you just frame up the timing of how that works by year? And then maybe touch on the buckets, I think you talked about fuel, marketing and then ship expense. And then in terms of -- I get all the targets for '26 and that all sounds great. But can you just talk about, one, is executive comp tied to that, those targets now? And then if you don't get the yield improvement that you expect, is there further cost reductions? Like is this is the early innings of a cost reduction plan going forward? I realize that's a lot. Sorry about that.

Yes. Maybe, Mark, I'll let you touch upon the timing of the $300 million, and I'm happy to talk about executive compensation.

Yes. So that was a lot in one question. So if I forget something, Conor, let me know. Look -- when you think about the timing of the $300 million, what we've committed to today is we're saying it's a run rate level. We've reiterated that we've already committed or achieving $100 million of that this year. We certainly think there's room for opportunity. But I don't want us to get bucketed it in that it's x million in year 1, x million in year 2 or 3 because there's always going to be some ups and downs depending on what's happening in the world. The key is we're committing to a $300 million run rate by the end of 2026. So you are going to effectively be able to measure us on that in early 2026, when we issue our full year guidance for that year. What I can say is we are very, very focused on this. I talked about we've set up our own internal transformation office. We have dedicated resources that this is all they are doing. And it's not the [ SWOT ] approach where you look at everything in the business at once. It's individualized sprints in specific areas that allow us again to have that actionability, that momentum. All the things that Patrik talked about, whether it's in our ship operating, the way we operate our vessels, how we [ crew ] our vessels, how we deliver our product, how we reduce lower acquisition cost. You name it, it's on the table. And this is a multiyear journey. It's not a 6-month, it's not a 12- or 18-month. In fact, I think this journey never ends because it starts with the change in culture that we're permeating within the organization. So we're going to continue to push on that. We're committing to the $300 million today. Time will tell. I think the key is we are very, very comfortable with that. So when you talk about if you don't get to 2.5% yield or whatever or low to mid-single digit, the key is what is the spread? We're committing to that spread between unit between revenue and unit cost. There's a gazillion permutations you can make to get to that. But that is the key, and that's how you're going to be able to measure us from here on out. I think the last part was about executive comp, Harry?

And I'll take that. There was a middle question about whether we were in the early innings or not. I was just going to make a comment that the only time we play baseball is when I go to [ Miami from New Orleans ] I'm their new right handed pitcher. Okay. It's a bad joke. They don't have a good record this year. But all jokes aside, we don't talk baseball analogies. I think Mark said it right, this isn't about early innings or late innings. This is a change in culture, and this is a permanent component of who we are. We will never stop looking at every opportunity in front of us, both on the revenue side and the cost side to unlock value for shareholders. That's the key mission of the 4 people here and the rest of the management team today. In terms of executive compensation, it's a really good question and one that we talk at a Board level fairly continuously. What we agreed was once these charting the course goals were announced that our future version of executive compensation, so starting in 2024 would be based on these 4 levers. So look to see that. I guess, it will be the CD&A that went out in '25 for '24, but you have our commitment and we have our Head of People Excellence here [ Lynn White ] to be honest, who works very closely with the Board in setting those standards. So the short answer is -- short, middle and long answer is yes, my compensation and the compensation of the 3 members here and the other members of the executive team will be based on these 4 targets. We will be laser-focused on achieving them.

Thanks, Conor. We have a question over here.

Robin Farley with UBS. Two questions. One is, I think you've previously talked about Q4 having tough comps in price. And I'm just wondering, with the raise today and full year guidance, do you now see Q4 pricing per diems in total being positive year-over-year? Are you still cautious about that comp? And then my other question is on expense a little bit longer term. On that $300 million, have you identified all of that today and then it just takes time to roll it out over the next 2 years? Or does it depend on sort of identifying things as you get scale with deliveries and things like that?

So Robin, thank you for the question. I'm glad you could join us today. So on the pricing side for Q4, we absolutely will see positive pricing growth in Q4. There's no question. I'm not 100% sure how our comments in earlier earnings calls was misinterpreted to suggest that we wouldn't, but we will. And certainly, the extra $50 million of revenue guidance that we have that we issued today that Mark suggested would be in the back half of the year will absolutely positively impact Q4. I will once again say, I want to be as clear as possible. There will be positive pricing increase in Q4 on a year-over-year basis despite anything else that's happening in the environment. In terms of your question, no, we have not identified to the dollar every last one of the initiatives that will allow us to unlock $300 million of annual run rate savings that Mark referred to by 2026. My guess is we're -- I'm not supposed to say. But we are certainly a substantial percentage of the way there. We're not at 10%. It's a big number. But as Patrik mentioned in his comments, he has well over 100 initiatives that are being vetted. We have a full-fledged transformation office led by Charles, who's sitting right over there. He wanted to make sure he got his fair share presentation time today as well. And we are going in a methodical process. As Mark said, not all at one time, that's impossible, but we're going through them item by item for most important to lesser important to go through it. And we're extraordinarily confident we'll be able to hit that number.

And maybe just a couple of additional comments, Harry. On the cost side, if you think about it, the $100 million that we've talked about today, that inherently has some run rate capability in it, right? Because a lot of things either commence in the year or they commence later in the year. So if you just inherently think about that number, there's a natural culmination around that. We certainly just didn't pick $300 million out of the sky. Again, targeted areas, assessing the business where we think we can get it. But again, we're very, very comfortable on that. And then just back to your Q4 comment, I'll give you guys a little bit more color. If you think about with our guidance raise today and some of that, a very small portion will impact or benefit Q2. And if you think about the rest of it, I guess, the color I can give you is that we now expect both Q3 and Q4 to have yields that start with a 4 handle. So I think that will help you give you a little bit more triangulation capability within your models to extract some of the commentary we had on the second half of the year today.

Thanks. I have another question from here.

Ivan Feinseth, Tigress Financial Partners. Congratulations on the great start to the year and the increase in guidance and the nice reaction in the stock price today. I have 3 questions. As far as your growth, how much do you think will be driven by new to cruise and what are you -- what are some of your initiatives to attract new to cruise? And then also, how are you currently envisioning using AI to optimize different aspects of your business? And then third, as far as the size of your island, you spoke it has a sizable footprint. What kind of additional amenities and upgrades are you going to be doing to the islands? And then as far as ship size...

That's 4, Ivan. Maybe let us answer the 3.

Ivan, thanks for the question. So again, 3 different buckets, new to cruise, new-to-brand, cast guests. New-to-brand, that's just one pocket to the other pocket. The way this industry succeeds, the way this industry grows is with new cruise. And you see the investment at the industry level, specifically at NCL, we are using -- and it actually dovetails into the other question about AI. We're using targeted personalized offers to attract new to cruise. We're looking -- we're using look-alike models. We are investing in multimedia facets to include AI-driven [ predictory ] investments across not only programmable TV, and digital, but we're leaning into the efforts that have proven successful for us in the past. The -- we were pleasantly surprised, and it was one of the slides that Harry pointed out, and this information is consistent throughout the industry. CLIA has reinforced it. We're seeing a big lift in the millennial and the Gen Z side of the demographics. There, there's an interest in increasing more so than we would have anticipated just a couple of years ago. So these smaller targeted investments have an amplifying effect because of social media. So we're also heavily investing in social media. We rely heavily on influencers as well. So this new-to-cruise market, which has performed even better than we would have anticipated just a short time ago is critical to the overall success of the business. I think the third question was about the island, is that right? So we -- it's pretty cool to design a new island from scratch. And thank you for pointing out that it is the largest of the private islands in the industry. We announced the pier will be in place in 2025. Obviously, it is -- it's a phased approach to build out a complete island and to add all the different amenities that we're talking about. So you're not going to see everything day 1. The first cruise that lands on the pier in October of 2025. There will be some components of the build out there. We haven't released specifics yet. You're not the only ones who are asking the moment that we announced the private island investment, we heard it directly from our cast guests. The entire internal team is excited. Ivan, I can tell u that it's going to be a phased approach. It's going to diversify away from where we every have the island experience. You want to go snorkeling, you want to lay on the beach, you can do that. What we're going to invest in are some more active amenities that are revenue drivers, that are going to expand the amount of experiences that our guests can have on the outlook.

And then I would go to your second question on AI. I alluded to some of them in my prepared comments earlier, but I think you can really position them into sort of 2 broad buckets, at least the way we're thinking about it in the early stages, and this really is the early stages of AI. One, perhaps a little bit less exciting but can certainly help us in our cost reduction is just replacing what we would call monotonous tasks. Whether it's writing marketing copy or translating marketing copy. We keep our websites in 7 or 8 different languages. And both the writing of the copy and the translation here to date has been very time consuming. Things like chat in our call center, I think we do something like 60,000 or 70,000 okay. Kelly certainly got the number right. Chats in our call center where we actually have human beings on the other side responding to guests' requests for information and bookings. We believe we can automate substantial parts of those, too. Guest relation letters. As you might imagine, we get lots of guests writing to tell us what a great experience they've had, and we like to respond to each one of them. And there's things and how we're [indiscernible] now on the Regent brand, you're creating training models so that we can respond back even things like creating training modules for our travel agencies and also for our internal agents that can be written and updated through AI technology. So those things -- they're not incredibly glamorous and exciting, but each one of those represents people that can be repurposed for other tasks or ultimately cost savings, not that we're -- we don't do any mass layoffs as you see, we're growing capacity huge. And the point would be how can we grow capacity without having to grow our head count in a commensurate basis and those are the type of things that will allow us to do that. I think the more exciting part for us is more on the data analytics side. I think there's so much information that we get from customers visiting our websites and the various paths that they take. And what we can do from a predictive manner to show guests the information that we think they're most interested in seeing, both on their initial website visit and also in our corresponding -- and our corresponds to them afterwards, following up on new leads or people visiting to websites. I think there's also things that we can do in terms of data on our itinerary planning side. We just kicked off an initiative recently to do a better job at coupling revenue and costs in our itinerary planning and I think using tools of AI just crunch the sheer amount of the huge information out there. I mean if you think about every single voyage has -- a P&L can be produced for every individual voyage, which can be consolidated together that will allow us to make better decisions and itinerary planning. And I think you saw the results of some of that already here today where you saw a shifting of some of our deployment going into the future. Revenue management systems, where guests is going to buy, how they're going to buy, what they're going to pay for at various points along the cycle. I want to be clear, Ivan, we're not attacking those all in the next 30 days, right? That's impossible. But those are the types of projects that Kelly is going to be leaving -- leading as thought leadership throughout the organization to move the company forward.

Thanks. Let's get a question over here, Lizzie.

It's Lizzie from Goldman Sachs. It was great. First question is just on the 2025 set up. I think on your recent earnings, you talked about the next 12 months, i.e., ending in Q1 of next year and the pricing and volume commentary. I'm curious what you're seeing right now. It feels like you've got a little bit more confidence based on the guidance raise just in terms of, yes, pricing and bookings for next year.

Yes. I'll start off. And if Harry or David wants to jump in. Look, we -- on our earnings call in early May, we talked about our 12-month booked position in a great spot where we need it to be, both on load and pricing. I think the market, for whatever reason, took some lower levels in Q4 as a predictor for 2025, which I think we absolutely disagree with and we are not seeing that in our business. So 2025 continues to build within our booking curves where we want it at good pricing and solid load factor level. So everything we see -- again, I try to remind all of you guys, we are a leading indicator, right? Cruise lines are a leading indicator. It's the booking strength, the booking window, consumers making discretionary decisions 8, 9, 10 months out and then the onboard spend representing today's consumer confidence. We do not see any cracks in either one of those. So the setup looks good. Consumers are strong, our consumers that we chase are especially resilient and strong. So we're feeling good about the setup for '25 and beyond.

So thank you, Mark. So without adding any specific numbers at all, just giving you a sense from the business side, the momentum is there. When we look at our KPIs, not only our booking KPIs, not only are we achieving our standards, but we look at the demand metrics that are coming in. What type of interest are we seeing across the funnel? Whether it's awareness consideration or conversion. We continue to see very strong performance there. And of course, when we measure cancellation rate as Mark said, we really are a bellwether industry, a parakeet per se in the coal mine. For us, that's one of the first metrics that we look at, and we see favorable performance of cancellations. So we continue to see strength over the next 6 to 12 months from an overall booking and demand level activity.

Thanks, Lizzie. Let's take a question from James [indiscernible].

It's Stephen Grambling from Morgan Stanley. Two quick questions. First, on competition. I appreciate the capacity...

Stephen, maybe a little closer to the mic?

Can you hear me now?

Yes.

So first, on competition. I appreciate the capacity is constrained for the industry. But I guess, I would love to hear how you're thinking about the competitive landscape, how it's evolving and whether that is -- the capacity is being added different in terms of the impact to you, whether we're looking at luxury or aspirational versus history.

Sure. I think one of the key messages that we're trying to drive across that we talked a little bit about in the presentation early is we don't really focus that much on the other cruise lines in terms of the competitive landscape. The cruise lines in total represent less than 2% of the indication market. And I think for us, it's much more important for us to focus on the Hilton, Hyatt, Marriott, IHG's of the world and see what it is that the broader consumer wants and what they're also willing to pay for in terms of how we design our product and move forward. So I don't really see anything meaningful happening in the cruise space. Outside the normal new brands come and go from time to time. New ships are delivered. Overall, the supply growth is limited to 3%, perhaps 4% a year in nearly bumper years. Our focus is clearly on what the consumer wants and where the consumer is going on vacation and how they're vacationing.

And then one other follow-up on the $300 million cost initiatives. Have you had these types of cost-outs planned in the past, but maybe more as internal versus external and any way to kind of frame this versus prior initiatives?

No, I've been part of the company now for 15 years. So I think I can speak with some historical perspective. I think I'm the longest tenured manager -- the longest tenured executive under the prior executive, the prior CEO on the stage. I can tell there was never an initiative like this. And not to say that we were spend through -- spend thrifts and spend on everything foolishly. We certainly did not. But I've never seen a change in culture that has led us to consider the product offering and balance what we call the ROEx versus ROI to make sure that we're delivering a product that gets truly value and are willing to pay for, certainly, nothing of this scale.

Thanks. Let's go to James.

So pretty meaningful ...

Where are you?

Over here. Hiding in the back.

I'm sorry, I couldn't see you. I was like the voice we've got in the back there.