Good morning, and welcome to the Norwegian Cruise Line Holdings Business Update and Third Quarter 2022 Earnings Conference Call. My name is Maria, and I'll be your operator today. [Operator Instructions] As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Jessica John, Vice President, Investor Relations of ESG and Corporate Communications. Ms. John, please proceed.

Thank you, Maria, and good morning, everyone. Thank you for joining us for our third quarter 2022 earnings and business update call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings; and Mark Kempa, Executive Vice President and Chief Financial Officer. Frank will begin the call with opening commentary, after which Mark will follow to discuss our financials before handing the call back to Frank for closing remarks. We will then open the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website at www.nclhltdcom/investors. We will also make reference to a slide presentation during this call, which may be found on our Investor Relations website. Both the conference call and presentation will be available for replay for 30 days following today's call. Before we begin, I would like to cover a few items. Our press release, the third quarter 2022 results was issued this morning and is available on our IR website. This call 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 cautionary statement contained in our earnings release. 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'd like to turn the call over to Frank Del Rio. Frank?

Thank you, Jessica, and good morning, everyone, and thank you for joining us today. I am pleased to report that we reached another significant achievement on our road to recovery this quarter, with a generation of positive adjusted EBITDA for the first time since the pandemic began. We have been clear about our intentional and methodical return to service strategy, consistently meeting or even exceeding the operational and financial milestones we have guided to. I am encouraged by our progress as each quarter has seen substantial sequential improvement in load factor with the shortfall gap continuing to narrow versus pre-pandemic levels, while our industry-leading pricing continues to hold strong. And while we are always looking for ways to capitalize on opportunities to accelerate our recovery, I want to reiterate that our primary focus continues to be maximizing profitability for 2023 and beyond in a sustainable banner by prioritizing our long-term brand equity and protecting our industry-leading pricing. While the macroeconomic environment heading into 2023 remains more uncertain than usual, we see several tailwinds and catalysts to sustain our current positive trajectory as outlined on Slide 5. First, the public health regulatory COVID-related protocols continue to improve. In the past 30 to 45 days alone, key countries like Canada, Bermuda, Greece and all of South America have removed COVID testing requirements for entry and many countries in Asia have begun reopening the cruise. These developments have paved the way for us to relax our own COVID-19 protocols, allowing us to reach a wider cruising population as well as adding greater variety to high-yielding itineraries as more ports around the world become accessible to cruising. With the public health environment improving, in September, our 3 brands removed mandatory vaccination requirements. And just last month, Norwegian Cruise Line took another significant step forward…

Thank you, Frank, and good morning, everyone. My commentary today will focus on our third quarter financial results and outlook and the progress we continue to make on our path to full recovery. Slide 14 outlines key metrics highlighting our third quarter results, all of which were at or above our previous guidance. During the quarter, our load factor improved 17 points over the prior quarter to 82%, in line with the guidance previously provided. This is consistent with our phased and methodical approach to ramping up occupancies while maintaining pricing discipline as we remain on track to reach historical load factor levels for the second quarter of 2023. Fourth quarter load factor is expected to be in the mid- to high 80% range, which, while on the surface appears only modestly higher than third quarter represents continued significant improvement when taking into account the seasonality of our operations. Strong ticket pricing and onboard revenue generation drove total revenue per passenger cruise day in the quarter, up approximately 14% versus 2019 better than our expectation for a high single-digit increase. This is particularly impressive given the impact in 2022 of the Russia-Ukraine conflict on premium-priced Baltic itineraries, which are heavily weighted to this quarter. In addition, crew-related capacity constraints on the high-yielding Pride of America were another headwind during the quarter. As we look to the fourth quarter, we expect this metric to increase by approximately 20% compared to 2019 levels. Slide 15 illustrates our advanced ticket sales build, which continues to indicate healthy consumer demand. Our total ATS balance stood at $2.5 billion at the end of the third quarter, flat versus the prior quarter's record high balance and versus the seasonal decline we typically see between the second and third quarter. On a gross basis, ATS build was…

Thank you, Mark. Before we wrap up our prepared remarks, I'd like to provide an update on our global sustainability program, Sail & Sustain, which Slide 23 outlines key accomplishments and milestones. Since we last spoke, we continue to advance our commitment to pursue net 0 greenhouse gas emissions. We successfully completed the testing of a biodiesel fuel blend on Regen’s Seven Seas Splendor founder in October, and we announced the signing of a Memorandum of Understanding with MAN Energy Solutions to conduct a feasibility study and retrofitting an existing engine to operate with dual fuels, diesel and methanol. We will continue to evaluate a variety of alternative fuels and share learnings with other companies as we collectively try to find a viable long-term solution. In September, after Hurricane Ian had a devastating impact to our neighbors in Southwest Florida, we responded as quickly and as generously as we could and donated $100,000 to the American Red Cross to assist in emergency relief efforts. We also committed to matching donations from team members, business partners, travel agents and concerned guests and others in our network up to an additional $100,000. And before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on Slide 24. First, we believe we are very well positioned in the current economic environment given NCLH's unique drivers, which have allowed us to excel financially in the past and will continue to do so in the future. Second, we are hitting our targets and reaching key milestones in our path back to normalcy. We are focused on laying the foundation for long-term sustainable profitability for 2023 and beyond. Third, our target upmarket consumer continues to hold strong, which is reflected in our excellent book position and significantly higher pricing for '23 and as well as our impressive onboard revenue performance. And lastly, our cash generation engine has wrapped up, which, along with our new build pipeline provides a clear path for return to meaningful profitability and a deleveraging of our balance sheet in the coming years. We've covered a lot today, so I'll conclude right now with our commentary and open the call for your questions. Operator?

[Operator Instructions]

Before we get to the questions on the line, we first want to address a top question from our new online shareholder Q&A platform, which provides all of our investors another avenue to submit and up vote questions for management. Several of the top questions we received this quarter were centered around the same key theme, which was our comfort around our current financial position and liquidity, particularly if we face an economic slowdown or recession. Mark, do you want to answer that one?

Sure. Thanks, Jessica. And it's very exciting to have this new engagement platform being utilized by our broad shareholder base. So nice step forward. Look, we feel good about our liquidity position today, which is north of $2.2 billion. And as I said, that consisted of cash of $1.2 billion and the $1 billion undrawn commitment. As I said in my prepared remarks, based on our current projections and trajectory, we do believe we will be able to meet our liquidity needs organically. So far, despite the heightened concerns around the economy, we have not seen any signs of a pullback from our target consumer. We continue to believe that we are better -- relatively better positioned in the event of an economic downturn given our brands skewed to the higher end of their respective market categories. And that results in a more upmarket consumer, which typically has been very resilient to weaker economic environments. So we'll continue to monitor the evolving landscape, and we're preparing for multiple scenarios. But overall, we feel confident that if faced with challenges, we will demonstrate our resilience as we have done so many times in the past.

Our first question from the line comes from Patrick Scholes with Truist Securities.

A couple of questions for you regarding commissions. Certainly been a lot of news about your changes in the -- and could you tell why is now the right time for that? And then related to that, it would seem that this is something your competitors could do and if they did it, maybe this -- it's sort of a net 0, if everybody is doing it. Why do you see a competitive advantage of doing that at this time? And then I'll have one more follow-up question.

Patrick, it's Frank. A couple of reasons. Number one, the travel agency community is not fully yet back to pre-pandemic levels, at least not for the cruise space. Because while we were out and remember, we were out nearly 500 days, travel agents had to continue making a living, and they made a living by selling more land resorts, more land vacations than they ever had before and they're still doing it. So we have to find a way to draw them back to the cruise industry and away from the land vacations, which is our #1 competitor anyway as opposed to other cruise brands. And we think this is a way to do it. We actually did an experiment over the summer using a relatively good-sized sample. And we found that travel agents who were paid commissions on these non-commissionable fares increased their business with us significantly such that the revenue that they generated over a long period of time, more than offset the increase in commission expense. So we think this is an ROI type of move. In many ways, I hope the competition does match this because I think it will be great overall for the travel agency community, which we all rely on. And at the end of the day, it's not about so much about commission savings, it's all about generating additional revenue and filling the vessels that are coming online for us and for the rest of the industry. So I know if no company has ever made their mark by saving and saving and saving, you make your mark on the top line. And this is what this -- that's what this move is meant to do to generate more revenue. And your second question, Patrick?

Yes. That makes sense. Just taking a look actually at the 3Q results, and this was also for 2Q as well. Can you remind us why, again, and this was before you made your commission change. Why were commissions and onboard cost rates so much higher than comparable in 2019?

Patrick, this is Mark. I touched on that last quarter. So if you recall, as part of our overall Free at Sea and part of our broader bundling package we introduced a significantly new air program. So we started to see some of the cost of that flowing through in the second quarter. And then, of course, if you look at the third quarter, that's where most of our ships are often the more premium and exotic itinerary. So you do see a higher cost of air component within that. That said, on a net-net basis, it does drive better overall net revenue per diems, and that's certainly evidenced by our performance in the last 2 to 3 quarters.

Our next question comes from Robin Farley with UBS.

Great. I wonder if you could sort of put a range for us around when you talk about price being up significantly for 2023 to get a sense of what range that may be? I know you had given a range with Q2 results and indicated that, that would come down as load moved up. But wondering if you'd sort of give a similar ballpark.

Robin, it's Mark. So I'm going to hold Frank back off on that one because I think if you recall last quarter, we said it was going to be a onetime data point. So I have to be the bad guy in the room. Look, our pricing, as we said 30 days ago, is significantly up. We reiterated that today in our release. It's up. I cannot give you a range. We gave you the onetime data point. We did say that -- we would expect that to level off, but it's up significantly. And again, that is all part of our phased ramp-up strategy. We're protecting price. We want the consumer to pay more. Yes, are we -- is there an offset in the very short term that we are sacrificing a small amount of load factor. Yes, we've said that, but that is part of our strategy. We expect to be back at normalized load factors in the second -- for the second quarter of next year. So we are right on path. We are right on track with our intentional actions. And all I can tell you is that pricing is up, and that continues to show in both our actual results. And if you recall in my prepared remarks, I said that gross pricing is expected to be up 20% in Q4. So if you think about that, you can kind of get an idea of where we're trending. But all signs are looking good for next year.

That's great. And just as a follow-up, just to clarify on your comments about the expense -- the net cruise costs for 2023. You said it would normalize in 2023. Will that be as soon as Q1? In other words, is this extremely elevated cost here in -- is it just a Q4 thing or is it going to take you a couple of quarters to normalize? Just trying to clarify what sort of in 2020, is it by 2023 at some point during 2023?

Yes, great question. So look, if we look at Q3, where our cost came in and if you do the math and you imply where Q4 is, it's coming down slightly. Look, it's going to be a tapering down. And what I would broadly guide you to is that when you look at FY '23, certainly not in the first quarter, but when you look at the year on a whole, you're probably looking at net cruise costs down at least mid-single digits from the prior year. And obviously, we expect to do better than that. But you have to really look at the composition of what's going in there. And if you look at the third and fourth quarter, we do still have some trailing COVID-related costs, whether it's testing, additional crew, that is tapering off in the quarter. So we did see some ramping down in Q4 related to that. In Q3, we had a significant launch of the new class of vessel, Prima. That's a drag on cost. But the other thing to keep in mind, too, is that starting next year or in '23, we no longer have quarantine cabins that are out of service. So while - and that's a double impact because if you think about that in '22 and especially in Q3 and Q4, from a unit cost standpoint, that impacts our denominator from a capacity day basis. So by the mere fact that we have -- we are putting those cabins back into revenue sale mode, so to speak, for 2023, it will inherently reduce our unit cost but we're also going to get the benefit from additional revenue. So there's a lot of moving parts in 2022. It's just, as I said before, it's a bit of a noisy and bumpy year. But I'll go back to the expectation that at least we expect mid-single-digit decreases and we're going to do everything in our power to do much better than that.

Just to make sure I understand, when you're saying down mid-single digit, is that year-over-year, are you saying then sort of relative to '19 that the cost could still be up like 20% or 30%? I'm trying to do the math on the slide here, so maybe --

I won't let you do the math, but I did say in my prepared remarks that we expect cost to be up versus '19 and '23. Recall, we did not have the benefit of removing any older ships from the fleet nor did we have the benefit of selling any higher operating cost brands vis-a-vis some of the broader industry. So when I'm talking about at least what I -- my commentary on mid-single digits, that's off where we are in terms of run rate for Q3 and Q4 of this year, not the entire FY '22.

Our next question comes from Steve Wieczynski with Stifel.

So probably for you, Mark. But I want to start with the balance sheet. And we recently saw one of your peers lay out some longer, let's call it, longer-term financial targets in which they see a path back to investment grade over the next let's call it, a couple of years. Just wondering if you guys have thought about a similar path and maybe what the next couple of years might look like from a deleveraging perspective is I think I remember you guys had some massive deleveraging. I think that was post 2014 or 2015 in which you basically cut your leverage in half over, let's call it, a 3- or 4-year period. Also noticed, Mark, your CapEx forecast for 2024 dropped a good bit from last quarter, and I assume that's just your Prima class plus ship getting pushed back into early '25, but that's going to allow you guys to generate some significant free cash flow as well in '24, which potentially could help your deleveraging path. That all makes sense.

Steve, that's a lot to unpack there, but I'll start with, first and foremost, yes, we think about it every day in terms of where this business is going and the opportunity and how do we get back to pre-pandemic levels. As we stated 30 days ago in our investor event, we are charting a path back to success. And first and foremost, that means rightsizing the business, getting the business back to full operating capacity, which is just around the corner. That's going to result in significant cash flow, and that results in delevering and derisking the balance sheet. So that is what the entire management team as well as our Board is focused on. I've said that before, I said that in 30 days ago, I'm telling you again today. We need to delever this company. We've done it before. We've taken the company down from 9, 10x levered to where we were in the end of '19 at low 3s going into the 2. So as we look forward, and if I have a crystal ball, as I said at the investor event is we want to turn -- we want to finish FY '23 with a 5-point X handle in leverage. And then our goal in 24 is a 4x handle and then 3x handle. So we obviously have a path of how we can do that. We need to continue to execute. We need a relatively stable environment, but signs are looking good. We're getting where we need to be. Our strategy is working. Will there be bumps in the road? Yes, there's going to be bumps in the road, but we've proven time and again that we can get past that. What was the last part of your question now?

The CapEx.

Yes. Sorry about that. Yes, you're absolutely right. So Look, as we said in our earnings release, we do have a slight delay with the LEO 3 and 4 class vessels. And that is strictly 100% as a result of shipyard delays from supply chain constraints. I think on average -- those ships are being delayed on average by about 4 to 5 months each vessel. So that just really just simply pushes some of your CapEx from '24 to '25 and so forth. So a little bit of an opportunity. Certainly, not a huge shift, but given where the world is today, we think that's okay. And that's going to further help us when we think about next year of having -- over the next couple of years, having slightly better lower CapEx that should provide more cash to the business.

Okay. Understood. And then if I could ask 1 more question. I know I asked a bunch to you, Mark, but maybe for Frank. Maybe just how you're thinking about the next 4 or 5 months from a booking perspective. And I guess what I'm getting at here is you obviously have had a lot of strong booking activity since all the COVID restrictions have been removed and whatnot. But maybe just how you're thinking wave season should start to gear up here over the next, call it, 4 or 5 weeks. How are you guys kind of thinking about the booking patterns over the next couple of months? Are you expecting kind of a normalized wave season from here?

No, I think it will be an extraordinary wave season. It's already started, 10 days doesn't make a trend necessarily. But the last 10 days, the Norwegian brand had its best 10-day streak ever, ever. And I think that's going to carry on throughout the fourth quarter and into wave. Wave is -- it is a consumer event, but travel agents get behind it. And travel agents haven't had a wave in 3 years, and they're excited. And when I see travel agent is excited, I can't help but join them. So I really think that the next 4 months, 5 months into the end of March, which is typically the end of the wave season are going to be exceptionally strong booking periods.

Our next question is from Dan Politzer with Wells Fargo.

So Mark, I just wanted to follow up in terms of the spend cadence. I know you mentioned down mid-single digits versus that second half run rate for net cruise costs in 2022. But as we think about for 2023 and I guess the cadence over the course of the year, it sounds like it's going to be certainly front-end weighted. Is that mostly the elevated marketing cost? And then as you kind of exit 2023, how should we think about the net cruise costs?

Yes. Look, I think when you look at the cadence, while it is still a bit early to give exact guidance on cadence, we're still going through all of our operating plans internally. I think it's fair to say that Q1 is going to be probably a bit higher than Q2 would be. And then naturally, I think we're going to start to see more scale in Q2 and Q3. So you're going to continue to see a downward trend. And as you're looking at your models, keep in mind, we do have 3 new ships that we're taking delivery of next year. So there will be some start-up costs related to those. So just keep that in mind. But it's going to be a downward slope next year. And you're going to -- we're already starting to see that take effect. Look, as we look into 2024, we're going to continue to garner scale benefit as we take on new capacity. We believe that throughout the course of 2023, we're going to find opportunities, and we're rightsizing the business from some of the cost creep that we've just seen over the last 2 to 3 years. We've had to take hard looks at ourselves and make sure we're doing all the right things. Our first and foremost, we wanted to make sure we were getting back operating in a healthy and safe manner. We've done that. We're doing it. Now we're focusing on what does it take to deliver that product. So we are focused on it. we're attacking it from every angle. But you're going to -- it will be a slow downward trend, and -- But too early to comment on 2024, but just on the surface, we will see some scale benefit.

Got it. And just for my follow-up. In terms of 2023, you gave your deployment mix, which I think was pretty helpful. So as we think about pricing and the top line, to what extent do you attribute that --the pricing tracking higher to this more attractive or optimized itinerary of mix with less Caribbean, more Europe, more Alaska and Asia Pac versus 2019? Or is this more your market to fill strategy and kind of just holding the line on pricing?

I think it's a little bit of both, Dan, especially the Norwegian brand has pivoted to longer, more exotic, higher-yielding itineraries that book earlier, there's no such thing as a good close in bookings, and that's one of the things that we're trying to get away from. It's part of the strategy over the paying NCF. By the way, I feel to mention that NCFs are only paid commission if the booking is more than 120 days from booking date. And there's a big demarcation of the quality, the pricing of a booking that is made early rather than close in. But yes, we've made no bones about that we hold price. We lead the industry by such a wide margin on price that it's almost untouchable and we continue to grow. You see what we've done in second quarter, third quarter of this year compared to our peers, what we're projecting for Q4. We're projecting for 2023. That is the central theme of our go-to-market strategy, and we accomplish it by marketing to fall by bundling and by having top line product on board. So that's going to continue. It is core to our strategy. it's price, price, price. And that's why, as Mark mentioned, we have taken a very disciplined approach to filling. We don't care if we're behind others by a quarter or 2 in terms of load factor, we simply won't sacrifice price because we've seen historically that those who drop prices to ridiculous levels in order to fill take years, if not decades, to recover, and we're simply not prepared to do that.

Our next question comes from Vince Ciepiel with Cleveland Research Company.

A little bit longer term, curious, Frank, your perspective on kind of finding the balance of growing capacity with continuing to source the strongest guests, providing unique and interesting itineraries. I know you talked a little bit about the low penetration rates of crews. I imagine share gains is kind of part of it. But how are you thinking about kind of managing that build along with continuing to have poor capacity and interesting itineraries to meet that demand you're going after.

That's our secret sauce, Vince, if I tell you, everyone will do it. But I will tell you that there are just dozens, dozens of either underpenetrated or places that we simply don't go because we don't have enough vessels. Just in the U.S., there are cities in the U.S. that are historically very strong source markets that we don't have a vessel, either seasonally or at least -- or year round. And we think that with new vessels coming online, we'll be able to do that. Alaska, where we've made huge investments in land-based infrastructures and ports, we're still underpenetrated. The Norwegian brand, for example, only has 4 vessels there. Oceania and Regent only one each. Our competitors have multiples of that. And the reason for that is, is that we need to be in other places. So we see Alaska, we see Europe as growth markets. We believe South America is becoming very, very interesting, greater demand for South American ports. Asia has taken a backseat over the last couple of years because of the COVID situation there. But I got to tell you, Japan is red hot for us. Australia is red hot. And so I'm excited about the possibility of going to new places with new ships and continuing to just feed the beast of high-yielding itineraries. You've heard me say before, Vince, itineraries is the #1 driver of yield. And we think that we do itineraries better than most, and we'll continue to do so.

Great. And second for Mark, there's a little bit of confusion on the cost front, and I know you guys don't want to give specific guidance, so I maybe wanted to come at this from a different direction. When you talk about record EBITDA in 2023, which sounds like you guys still feel good about like getting there is some component of price and costs. But as you think about managing the business from a margin perspective, obviously, fuel is outside of your control. But as you just think about the next 1 to 2 years, those margins ex-fuel, aka the relationship between price and operating costs. Any reason to think that, that would be a departure from kind of where you've been historically?

Vince, absolutely not. We've talked about this before. And I'm not going to sit here and tell you today that there is not near-term pressure on margins. We've said there is. We acknowledge that, I'd be a fool not to say that. But I think when you look out over the course of the next year or 2 and you look at where the business is going and where the costs will settle, right? This hyperinflationary environment cannot last forever. And we are taking actions internally as well to ensure that we're rightsizing all of the cost of the business. But more importantly, we believe the operating leverage of this industry and more particularly our company is intact. Is it going to be there in the next quarter or 2, I think that's going to be a challenge. But when you look over the next 1 to 2 years, certainly, we believe this industry gets back to pre-COVID margin levels and plus. But as I said in my remarks, it is not going to be an overnight flip of the switch. So it's going to take some time. But without a doubt, this industry, we believe, is intact from a margin perspective.

And Vince, that's why maintaining those high prices is so important because we can control that or at least we can greatly influence pricing and the relationship between marketing and sales and all our distribution channels, whereas do you acknowledge that we don't control the cost of fuel, but we don't really control the cost of beef or carrots or onions or a lot of other things that we consume. And unless you're prepared to slash and burn the product, which will in turn affect your pricing, the best way to control margins or influence margins positively is through pricing, which is what we do.

Our next question comes from James Hardiman with Citi.

Some of this has been covered, but I just want to make sure we're able to sort of unpack the difference between gross pricing and net pricing, right? In the third quarter, I think gross was up 14% versus 2019. And net was up 5%. It sounds like the difference is some of the bundling of the airfare, I guess, as we move forward, some of the NCF stuff is going to be in there. So I guess, as we look to 2023, -- how should we think about the gap between those 2? Should we expect that to widen even further as we move forward? Or does some of that stuff sort of peel back?

Vince, it's Mark. So you're absolutely right. When you look at the last 2 to 3 quarters, the differential between gross to net has been about anywhere from 8 to 9 points, I think, when you look at the second and third quarter. So if you look at where our implied guidance is for Q4 and you do the math, you're probably going to get to a spread of about 7 points. So our best view of everything we can see, given the bundling, getting back to normalized load factor levels and full ships, it's probably going to be somewhere in the zone of that 7 to 8-point differential on a run rate basis. Now could it be higher or lower in a particular quarter, it may be a point or 2. But I think generally speaking, we're looking at somewhere around that 7-point differential.

Got it. That's really helpful. And then Obviously, one of the things that shaped this year, maybe less so for you than some of your peers. But obviously, wave season was hijacked by Omicron and you had the Ukraine conflict, I know it's difficult. But is there any way to quantify or estimate what type of an impact that, that ultimately had on your business this year? And I'm assuming that it's primarily a pricing impact more so than occupancy, but maybe walk us through that. Ultimately, I'm just trying to think through or think about what this year would have looked like with a more normal wave season, which I think we're all hoping that, that is the case in 2023.

Yes, James, it would have looked a lot better. If you look back at all the major changes that took place starting in early June when the U.S. government no longer required people to test to get back into the country. That was a huge one. It was only 4 or 5 months ago, I think we all want to put COVID so far behind us that we forget some of these major milestones that occurred just very recently. Then of course, the CDC dropping their protocols and allowing us to do what we're doing now, that all has contributed to less friction with consumers, bringing travel agents back to the fold, so to speak. And so that's why I'm so excited about this upcoming wave period because it doesn't have all the burdens that the last 2 or 3 had. But specifically to your question about Q3 pricing and Ukraine, look, if you had asked me what is the single city in the world, port in the world that you cannot live without, I'd tell you it's St. Petersburg, and we lost it. Very, very high yields, incredible shore excursion sales. So onboard revenue was just higher than any other itineraries that I can think of, relatively long season. You can get to St. Pete in the Baltic in mid-May and you can leave in mid-September. So it's a real blow. It's a real blow. And so by -- we kept most of the ships there, although 1 vessel came out of the Baltic, and we send it to the Caribbean, which is about as extreme from one to the other that you can think of. So it did affect load factors and no question, it affected pricing. And the impact on EBITDA has to be in the tens of millions of dollars.

Our next question is with Paul Golding with Macquarie Capital.

I wanted to ask a bit of a follow-on question with Europe. Given the protracted geopolitical issues, I'm looking at the deployment mix for '23. It looks like Europe is up in terms of plan for '23 deployment mix versus '19. So I just wanted to get a sense of the demand picture for presumably the North American cruiser. Is that still strong for Europe despite the geopolitics. And is that a tailwind that we should see also given the 85% North American sourcing comment from prior?

Yes, I think it is a tailwind for several reasons. One, it was until midsummer that Americans were allowed back into the U.S. unless they had to test. And so this revenge travel or pent-up demand that we've been talking about for months is really alive and well for Americans going to Europe. And we want Americans going to Europe because they do sell the -- buy the highest cabin categories book early and also because of the strength of the dollar. I mean, going to Europe now, even though you do pay -- Americans do pay in dollars for our cruises here, they're going to spend a lot more money and enjoy themselves a lot more once they get to Europe. So we do believe that Europe is poised for an incredible 2023 season. That's why we increased our capacity there by 6 percentage points of occupancy at the expense of the Caribbean. And I'll take that trade all day long because the yields both on ticket and on onboard revenue are so dramatically better for European cruises that we'll take that trade.

And then maybe staying on the topic of Eastern Europe, I was wondering if there's been any change to the positive side in terms of cost with respect to your onboard labor costs due to the issues in Europe? Are you seeing any benefits there? And maybe more structurally short side, even though I know it's a smaller piece. Any change in the structural labor cost picture there in general?

No change at all. The vast majority of our onboard crew come from Asia, not from Eastern Europe. Things have changed. 20 years ago, it was Western Europeans, became Eastern Europeans. Now it's primarily Asian. So no positive question whatsover. We have an -- operator, question for 1 more -- time for one more question, please.

Our next question is from Ivan Feinseth with Tigress.

Congratulations on another great quarter and the ongoing progress.

Thank you, Ivan.

The big gain in onboard spending, what are the key drivers of that? What are you seeing being most popular that cruisers are spending on?

We're seeing it in experiences. So our casino is doing really, really well. We're going to give Vegas a run for their money. People are enjoying the destinations. We have industry-leading itinerary. So show excursion business is up. Our cuisine is second to none, and people are enjoying cuisines. But even our spa, our spa is doing very, very well. And so I'm happy for the folks over at One World Spa.

And then Mark had commented a couple of times about you seeing slight moderation in commodity, food commodity prices. Are you still seeing those trends? Or what's your outlook there?

Yes, Ivan. We continue to see that. Certain categories are trending down and they're starting to get into their historical averages. We're not -- certainly not where we would like them to be or need them to be, but we are seeing continued momentum in there. But I wish it was quicker, but we're at the mercy of the rest of the world. But again, we're seeing positive momentum on that front.

Thank you, operator, and thank you, everyone, for joining us this morning. We ran a little bit over time, but those were all great questions, and we were happy to have the opportunity to answer them. As always, our team will be standing by to answer any of your questions. Have a great day, everyone.

This concludes today's conference call. You may now disconnect.