Norwegian Cruise Line Holdings Ltd. (NCLH) Q1 2026 Earnings Report, Transcript and Summary

Good morning. Welcome to the Norwegian Cruise Line Holdings First Quarter 2026 Earnings Conference Call. My name is Robert, and I'll be your operator. [Operator Instructions] As a reminder to all participants, this conference call is being recorded. I'll now turn the conference over to your host, Sarah Inmon. Ms. Inmon, please proceed.

Thank you, and good morning, everyone. Thanks for joining us for our first quarter 2026 earnings call. I'm joined today by John Chidsey, Chairperson and CEO of Norwegian Cruise Line Holdings; and Mark Kempa, Executive Vice President and Chief Financial Officer. As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website. We will be referring to a slide presentation during this call, which can also be found on our 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 with first quarter 2026 results was issued this morning and is also available on our Investor Relations site. 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. Unless otherwise noted, all references to '25 and '26 net yield and adjusted net cruise cost excluding fuel per capacity day are on a constant currency basis and comparisons are to the same period in the prior year. With that, I'd like to turn the call over to John.

Thanks, everyone, for joining the call. It's my pleasure to be joined by Mark today as we discuss our first quarter results. I've now been in the seat for roughly 3 months. I'm going to start the call by spending a few minutes covering what I'm seeing so far across the business, and then we'll update you on the actions we are taking to position the business for long-term success. It has been a very active start. I've spent a meaningful amount of time meeting with various stakeholders, including shareholders, travel partners, guests, and team members listening carefully to their perspectives on the business. Our proactive work this quarter is setting the tone for the remainder of 2026. My key focus is on driving sustainable improvement at NCLH, and that starts with disciplined execution, operational rigor, and a clear focus on the fundamentals. I continue to believe that NCLH is a special company with strong brands, world-class assets, and dedicated guests. This was especially evident at the christening of Norwegian Luna that was held about a month ago. The excitement on board from travel partners and guests was palpable. At Great Stirrup Cay, we witnessed the significant progress being made on the island, particularly at the Great Tides Waterpark, which remains on track to open later this summer. This water park will be a demand driver moving into 2027. It will elevate the island's offerings and enhance the guest experience. Experiencing our newest ship and upgraded private island amenities firsthand brought to light the strength of our brands and the size of the opportunity ahead of us. It also reinforced my view that cruising remains one of the most attractive propositions in travel. Day in and day out, we offer a differentiated vacation experience across multiple destinations, focusing on convenience and quality to deliver enhanced value for our guests. As cruising continues to benefit from healthy industry fundamentals, including record passenger volumes and encouraging indicators of both repeat and first-time cruise demand, I am confident in the industry's long-term trajectory. We are focused now more than ever on where we need to enhance operations so that NCLH can capitalize on these broader industry trends from a position of strength. To that end, I now have a good sense of the core areas where we will be dedicating the most focus to drive the most meaningful impact in the near term. Since stepping into the CEO role in February, one of my top priorities has been strengthening our internal culture across the organization. This includes building a greater sense of urgency, sharpening accountability, and fostering a one team mindset across our operational segments. Of course, strategy matters, but my turnaround experience has reinforced that culture is essential to improving how we operate, how we make decisions, how we deliver results and the speed at which we do it. We are already taking steps to build and enhance a cohesive culture, including our recently completed search for a new Chief People Officer, whom we expect to officially welcome to the team soon. On the cost side, we are working efficiently and effectively to optimize our SG&A structure, streamline the organization and better align resources with the areas that matter most to drive performance and long-term value creation. While shipboard operating costs have remained relatively consistent over the past several years, we see a meaningful opportunity to reduce shoreside cost. As part of that effort, we are streamlining the shoreside organization and making targeted role and position adjustments to improve efficiency and better align resources. As a result, we expect our salary and benefits costs to decrease by approximately 15% on an annualized basis. Actions like these are never easy, but are intended to better align resources, improve productivity and strengthen execution across the business. As part of these efforts, we are also exploring additional opportunities to improve efficiency in our operating model and drive incremental savings over time. For example, we have started to pilot select offshoring initiatives across different areas of the company. These efforts are in their early stages, and we are testing and learning as we go. We plan to utilize this lever as we move ahead, expanding upon and scaling our efforts where and when appropriate and most beneficial to the business. We are also taking a hard look at other spend across the business, including marketing and advertising, and we see an opportunity to not only improve effectiveness, but also efficiency. From a marketing perspective, our focus is on correcting missteps we have made in recent years as we enhance our ability to target the right consumer with the right message through the right channels while ensuring that our spend is translating into demand and returns. In line with this focus, we are planning to reduce our marketing spend in 2026 while sharpening the effectiveness of that spend. As a result of the marketing spend reductions as well as organizational optimizations, we expect to reduce our SG&A by $125 million on an annualized basis. These are long-term structural actions that we believe will help offset near-term pressures and position the business for stronger performance over time. Beyond this, we have been evaluating our bundled air program through the same lens of discipline and return on investment, and we have continued to make targeted changes to improve economics. In many cases, this program has effectively served as a promotional tool, but hasn't always delivered returns commensurate with its cost. We will continue to assess these offerings to ensure they remain commercially sound while offering convenience to our guests. I am confident in the efforts underway to capitalize on opportunities we are identifying on the cost side. And while the revenue side of the equation is more complex, I recognize that it undoubtedly represents our greatest opportunity. From a revenue management perspective, as you know, this is not a function that changes overnight, but we are actively taking steps to strengthen it. To that end, we recently implemented Phase 1 of a new revenue management system. And while its capabilities are meaningfully stronger than our prior tools, its effectiveness will depend on correctly calibrating the underlying data, refining and turning it to better align with our deployment. A system like this is also only as strong as the people using it, and we are continuing to build out the team and capabilities needed to fully leverage it. We are also continuing to refine and tune the system to better align with our deployment. Additionally, for revenue management to be effective, we need to generate stronger demand at the top of the funnel. As clearly evidenced by our shortfall in occupancy for this year, our marketing function has not been operating as effectively as it needs to, and we have to get those fundamentals right in order to drive demand more consistently and put ourselves in a better position to optimize pricing. As I mentioned earlier, we have had missteps over the last few years where we were not consistently and effectively speaking to our core customer. We were not always putting the right commercial support behind the itineraries we were trying to fill, and our marketing was not as demand generative as it needed to be. To address that, we are looking to bring in new leadership and marketing at NCL and better align that function with revenue management, deployment and sales. This work is critical and will strengthen the business over time, but it may result in some near-term variability in top line performance as we work through these initiatives. While we have identified key internal priorities and are making progress addressing areas of underperformance, the external operating environment has turned more challenging. We entered the year behind our ideal booking curve in certain areas and recent geopolitical developments have added pressure to an already challenged backdrop, particularly in our European market this summer and demand for close-in bookings. Rest assured, we are monitoring this closely and making adjustments to our business model when and where needed. I want to be clear, while the macro environment continues to rapidly shift and evolve beyond our control, many of the issues we are addressing are internal and fixable. They come back to execution, alignment, and discipline, as I noted at the outset of this call. Mark will go into our guidance for the year, but we recognize that our 2026 outlook is below expectations. We are not satisfied with that, and I know our shareholders aren't either. I step into this role to address these issues, and we are here to do just that with the support of our talented team. We have the assets, we have the brands, and now we have the focus. Our job is to execute better, operate with more discipline, and build a stronger, more cohesive organization. While progress will take time, I am confident we are moving in the right direction to deliver stronger, more sustainable performance over time. With that, let me turn it over to Mark.

Thank you, John, and good morning, everyone. I'll begin with our first quarter results on Slide 6, which were in line with our expectations. Net yield in the first quarter was down 1%, which is above our guidance. Adjusted net cruise cost ex fuel of $168 was slightly better than guidance, declining 1%, driven by strong cost controls, which ultimately drove adjusted EBITDA of $533 million, exceeding our guidance. Lastly, adjusted net income for the quarter benefited from below-the-line foreign currency exchange and was $108 million or an adjusted EPS of $0.23. Turning to Slide 8. You can see our second quarter and full year guidance. Our outlook reflects an extremely challenging backdrop for the balance of the year. Keep in mind, our prior guidance did not include any impacts from the disruptions in the Middle East, which is creating incremental headwinds, including pressure on the top line and higher fuel expense. These external pressures are occurring as we continue to calibrate our revenue management system, improve commercial execution, including marketing and demand generation, and work through the impact of entering the year behind our targeted booking curve. As a result, we are reducing our full year guidance for net yield, adjusted EBITDA and adjusted earnings per share. Starting with net yield in the second quarter, we expect a decline of 3.6%. This reflects pressure mainly on our European sailings, which represent approximately 26% of our deployment in the quarter as well as weaker-than-anticipated domestic demand as consumers reevaluate travel plans in the current macroeconomic environment. Looking to the full year, we expect net yields to decline 3% to 5%. This updated guidance reflects both the impact of the macroeconomic environment and the extent to which those pressures have compounded the execution and commercial challenges already facing our business. In terms of pacing through the quarters, we currently expect the third quarter to be significantly weaker than the second quarter, reflecting our greater exposure to Europe, which represents approximately 38% of our deployment in the quarter as well as continued softness in markets such as Alaska, which we discussed last quarter. Looking to the fourth quarter, we are assuming the consumer environment remains pressured, although net yields should improve from Q3, supported in part by the opening of Great Tides Waterpark at Great Stirrup Cay by the end of the third quarter. Moving to cost. John discussed earlier in the prepared remarks, we have made great strides to take quick and decisive action on the cost management side of the equation. I will go into this in a bit more detail, but we now expect our adjusted NCC ex fuel to be approximately flat for the full year and up 1% in the second quarter due to the timing of certain costs. Moving to fuel. We now expect fuel expense to be approximately $800 million based on the current spot prices. However, fuel expense would be approximately 6% lower if rates were based on the forward curve. As a result of softer-than-expected top line performance and higher fuel costs, partially offset by better cost performance, we are reducing our full year adjusted EBITDA guidance to between $2.48 billion and $2.64 billion and our adjusted EPS guidance to between $1.45 and $1.79. We recognize these results are significantly below expectations. That said, we have moved quickly to focus on what we can control, particularly on the cost side, which I will detail on Slide 9. We have taken swift action within SG&A to drive efficiencies and identify savings. To start, we are taking steps to optimize our organization and reduce our marketing spend, which combined are expected to generate annualized run rate savings of $125 million. In 2026, these efforts will result in an expected approximately 2 percentage point reduction in adjusted net cruise cost ex fuel. Unfortunately, a meaningful portion of these savings is being offset by incremental direct costs related to the conflict in the Middle East, including higher crew airfare and increased logistics costs. Together, these impacts represent an approximate 1% increase in adjusted net cruise cost ex fuel. As a result, we now expect full year adjusted net cruise cost ex fuel to be approximately flat for the year. The important point to keep in mind is that while these savings are being partially offset by war-related impacts in 2026, the actions we have taken are structural in nature. On a run rate basis, we expect to carry these savings forward and see a benefit in adjusted net cruise cost ex fuel as we move into 2027. As shown on Slide 10, these actions position us to keep adjusted net cruise cost ex fuel subinflationary and in fact, 1% or lower in 2026 for a third straight year despite the current macroeconomic headwinds, while also meaningfully exceeding our cumulative 3-year savings target of $300 million. We are now approaching $400 million in savings between our shipboard efforts over the last 3 years, combined with our recent shoreside cost savings. We expect these actions to continue to benefit the business over time, supporting margin expansion as top line performance begins to recover in 2027. It's also important to note that our work here is not done. We continue to see additional savings opportunities across the business, both within SG&A and on the shipboard side, and we expect to build on these efforts going forward. The reduction in our 2026 adjusted EBITDA outlook has also impacted our expected year-end net leverage. Reducing net leverage remains our top financial priority, and we remain confident that leverage will improve over the coming years as earnings grow, capital spending moderates and cash flow strengthens as we turn around the business. Turning to Slide 11. Our gross newbuild and growth CapEx detail highlights that we are beginning to move beyond a period of elevated capital spending. Over the last several years, we have invested heavily in our fleet, adding 2 to 3 ships annually and driving strong capacity growth with capacity days expected to increase 7% in 2026. We will continue to take delivery of new ships over the next 2 years with 2 ships in 2026 and another 2 in 2027. Beginning in 2028 and 2029, however, that pace moderates meaningfully with only 1 ship scheduled for delivery in each of those years. As a result, we expect gross newbuild and growth CapEx to decline by nearly $1 billion per year, which should materially improve free cash flow generation. We view this as an important inflection point for the business and a meaningful opportunity to accelerate deleveraging. Also important to note, as shown on Slide 12, our debt maturity profile remains manageable with no significant debt maturities until 2030. That gives us added financial flexibility and supports our ability to focus on deleveraging over the next several years. With that, I'll turn it back to John for closing remarks.

Thanks, Mark. Before we open the line for questions, let me leave you with a few closing thoughts. First, as Mark noted, the operating environment has become more challenging since our last call, and that is clearly weighing on the business. But I also want to be very clear, many of the issues we are actively addressing are internal, operational, and fixable. This is a company with strong brands, attractive assets, and a product that continues to resonate with guests. Our focus today is on executing better, operating with greater urgency and aligning the organization more effectively around revenue, cost discipline, and returns. Second, we are swiftly taking action to address any issues that were within our control. We have already moved decisively to streamline the organization, reduce cost and strengthen accountability, but we know our work does not stop there. The actions we have taken to date and those we are continuing to pursue will support a healthier cost profile this year. More importantly, they are beginning to build a stronger operating foundation for the future. On the revenue side, improvement will take more time given booking lead times and the work currently underway in revenue management and marketing, but we are focused on making the right changes now so that the business is better positioned as we head into 2027 and beyond. Third, reducing leverage remains a top priority. While leverage is not improving during 2026, we do have a path to improving free cash flow and strengthening the balance sheet as capital spending moderates and earnings recover over time as we turn around the business. As I said on our last call, we have the assets, we have the brands, and we now have the focus. Our job is to execute with greater discipline, restore credibility through consistent delivery and unlock the earnings potential of this business over time. That work is underway, and while progress will take some time, I am confident we are moving in the right direction. With that, operator, please open the line for questions.

I appreciate all the color. So John, could you elaborate on the roughly 400 basis point revision to your full year net yield outlook now calls for a 3% to 5% decline? Just how much of this you see as macro versus company specific? And any breakdown of the impact across regions would be helpful.

Sure, Matthew. Yes. So I'm not going to break it out exactly because I think that's very difficult to parse all that out. But clearly, as Mark noted, we didn't have any impact whatsoever from the Iran conflict on our last earnings call. So this was sort of our first attempt at trying to assess what's going on, particularly given the amount of capacity that we have in Europe coming up in the second and third quarter. And particularly, as we noted in our earlier call that we were already behind the booking curve. So I think it has sort of an outsized impact on us compared to our competitors, given how we came into the year. But I think most of it really is -- I think the situation in revenue management and marketing, and I know you guys asked me that on our last earnings call, but it was day 4. Now that I've had a chance to dig in a lot deeper, I think our opportunities are much greater than I thought. But on the flip side, I think what we need to fix in those areas is also greater in terms of building out the team, getting the team to work better. And I think that just takes time. So part of that reduction is just a reflection of while I have confidence in the people that are building it, I just think it's going to take some time, and I wanted to make sure that we sort of adequately addressed really sort of the complexity of what we have to accomplish in the coming quarters as we build out those 2 functions. And again, I think the revenue upside far outstrips the cost. So I think I still feel really good about that. I feel really good about the industry. But that really, in my mind, explains sort of the change, if you will, in the guidance around yield.

Great. And then, Mark, could you walk through on the bottom line, just the puts and takes embedded in this year's EBITDA margin forecast, maybe specifically flow-through of the $125 million identified cost savings versus costs you see as transitory this year? And then if we just take a step back, is there any structural change in your view to the roughly 39% margin target for the business that you had quoted prior?

Matt, so to address your latter part of the question, no, I don't think there's anything structural in front of us that would preclude us from getting back to 39-plus percent. I think when you step back and you look at the EBITDA reduction, primarily that's coming in as a result of revenue, our revised revenue guidance. That said, we have made significant and quick actions on the cost side of the equation. We noted in our prepared remarks that we've reduced costs by about $125 million on a run rate basis and probably about 2/3 of that or so are coming to fruition in 2026. That said, we are seeing some elevated costs directly as a result of the war. As you can imagine, it's really around transportation, both logistics and crew movement. But we think those are transitory, assuming the conflict resolves itself in the near future. So between the additional run rate savings from our initial first 60 to 90 days with John in the seat plus some of the transitory costs, we certainly think that should be a tailwind for us going into 2027.

So Mark, another yield question here. So as we kind of think about the revised yield guidance, look, I think a lot of us were obviously expecting a pretty significant yield cut given the headwinds from Europe this summer. But look, I'm not sure a lot of folks were expecting a negative 5% on the low end. So look, if we think about the midpoint now, so call it, down 400 basis points, can you help us think what would get you to the down 5% versus the down 3%? I'm just trying to figure out that -- what that delta would be between getting from negative 3% to negative 5%.

Steve. Look, I think in our revised guidance, as John said in his prior answer, we do have some more structural issues, both in our marketing and demand issue structures versus -- and that's resulting in some issues in our revenue management system. You have to have the right marketing at the top of the funnel to generate the demand, and we're seeing that that's just not functioning as it should be. When I think about the 3% to 5% range, Steve, I think it's important to note that roughly about 1.5 points of that is as a result of the load reduction from our prior guidance. So yes, it is a wide range. But again, it's based on what we're seeing today. And most importantly, I think this is a very -- not necessarily appreciated. It takes time for teams to gel and get that opportunity, that engine going. As we've said over the last 4 to 5 months, this is a completely new team. And we've recently announced a change in our marketing leadership as well at the Norwegian brand. So that will take time to turn around. And of course, as we get that going, we'll continue to see green shoots going forward.

Okay. Got you. And then second question, look, your booking commentary or demand commentary, I would say, is a good bit different than what we're hearing from some of your peers right now, especially in the -- around the North American deployments. So am I thinking about it the right way that maybe the Norwegian brand itself is kind of getting lost at this point with agents and consumers, meaning the brand really now needs to kind of show what the brand really is. I'm not sure if I'm asking this the right way, but does that make sense?

Yes. It does, Steve. It's John. I mean, let's face it, we're not comparable to our economy. I mean, I said this is a turnaround. I think we've been very clear. That's why the change was made. That's why I'm sitting here now. So when you're making comments about why we look different from our peers, I would say, yes, we do. But again, as I said, I have confidence in the industry. I have confidence in all the growth trends. So to me, these are self-inflicted wounds that we need to go fix or missteps. And so I wouldn't say that we've completely lost our way by any sense with agents and consumers, but I wouldn't say we're hitting on all cylinders by any stretch. So I think, again, we sound like a broken record, but getting the right team in place and getting them to work well together is how you're going to optimize or maximize the optimization in those areas. So I'd rather just say we're not firing on all cylinders. But structurally, nothing wrong, great industry. It's just we need to execute with better discipline.

To the extent -- maybe one on '27. To the extent there are bookings taking place today for '27 in Europe, what color can you give us? I think the concern being, as we've seen in the past, these type of disruptions at times have had a tail to them in part because of your booking curve and customer exposure. Just any color there? Or ask maybe differently, what are you doing today to make sure this isn't something that sticks with you for the next 6 to 12 months?

So Ben, first of all, I'd say when you look at the luxury brands, I'd say they're in pretty good shape just like they have been this year. I'd say they're performing to expectations. So again, I think that's another proof point that the industry is fine and the industry is growing. I think what we said about NCL, when you said how can we make sure it doesn't happen going forward, I would say, again, let's get a great marketing team built, let's get a great revenue management team built. Let's make sure they work as a cohesive group between sales, revenue management, itineraries, deployments, et cetera. So I think that if we can get all that in place, which is not a short-term thing, it's a couple of quarters at least to build out that. That's what's going to ensure your '27 and your '28 look differently on the NCL side. On the luxury side, I think things are pretty good.

Got it. And just to be clear, I was coming from a Europe perspective, just given the disruption we've seen and the fact that you guys booked North American guests there, just so you know where I was coming from. Maybe it's the same answer.

Well, Ben, I think it goes back to fundamentals. It's making sure we're getting back on the right booking curve well in advance. And I think that's where we entered 2026 suboptimally. And with the exacerbation of the war, that's just -- that's hurt us more. So we're very focused on 2027 across all itineraries to ensure that we have the right booking curve. We have the right base loading of business on the books, and we think that will start to help us again in 2027, but that will take time to turn around.

Okay. And then I think if I'm not mistaken, I believe Q4 yields are negative. I think in the prepared comments, you mentioned they'll continue to be pressured. Maybe that's kind of saying the same thing. Is that correct? Can we confirm that? And if so, can you kind of deconstruct maybe some of the high-level assumptions for Q4, if possible? Obviously, Europe is 13% of mix. I think we all imagine that's probably negative year-over-year. It's just a large swing between maybe the previous implied versus today. So could you help us?

Yes. I think when you look at both ends of the guidance range, there certainly could be a scenario where Q4 could be negative. That said, we still are a ways out, and we still have a lot of booking momentum to go. I think we're very, very excited that we've now started to see the marketing in earnest starting over the last week or 2 around our exciting island, which is going to open in late summer. So we would expect that will help turn the corner and help with demand generation. So -- but certainly, if you're looking at the high end of guidance, there is a scenario where Q4 could be negative. And then if you look on the other book end of that, I think you're in positive territory. So look, we're focused on the future. We're focused on turning the demand engine around and the marketing engine, and that's going to take some time. So we'll continue to look for those green shoots coming forward.

Maybe to just clarify what you just said there. So you have a second half implied net yield guide of negative 3.4% to negative 7.2%. You just talked about potential for positive yields come in the fourth quarter. So that would imply like a -- that third quarter is well below the low end of the 7.2% range. So I'm just trying to understand the puts and takes. There's been a lot of moving parts from quarter-to-quarter. I totally understand that Europe is a larger portion come 3Q. So if you could just give a little bit more granular on the 3Q. I know that you're not specifically guiding to it, but I think it would be really helpful.

Yes. Conor, so obviously, yes, the implied second half is a wider range. But I think when you look at Q3, given our significant Europe deployment being behind the booking curve, with the war exacerbation, I think there's a scenario where you could see high single-digit negative yields in Q3. So hopefully, that will help you kind of back into where Q4 could be. And that's on the worst -- that's on the high end of the -- or the low end of the guidance, I should say, at a negative 5% for the year.

Conor, I think the other thing is -- this is John. Again, you guys are trying to, like, really nail this down. I don't know how many times to say we are not comparable to our peers at the moment. And so the reason I said in my prepared remarks that we have the range, I think you even said in the question earlier, the wider range is just letting these teams gel. They're not even completely hired. I mean, we're hiring people and revenue -- the teams are being built out. They're gelling. So by definition, I think it would be irresponsible to have some super tight range and we could explain it to you exactly down to every 10 basis point change. That's just not possible with the Norwegian brand. So it's more of that than there's anything that we can singularly point to and say, that's your issue. So if you keep thinking about this as a turnaround story for the Norwegian brand, again, the luxury brands are operating as you would expect, that's really what accounts for the variability. So I wouldn't be making assumptions. It's more just letting this whole thing gel together.

Yes. I totally understand it's just that things have been moving around. So maybe just to stick with that. So again, this is a gradual turnaround, and I understand that it takes a while to build. So as we think about '27, maybe just like whole company rather than just specific parts, it seems that this will take at least the first half of '27 to start to see a lot of the fruits of your labor start to play out. Is that a fair time line? It just -- you talk about gradual improvement, and I understand that. But just if you could just help bridge us to how you start to see this thing from a commercial strategy standpoint, turn.

Yes. I mean, as we've said all along, I think the cost, you'll keep seeing the costs come out. I mean, over the next 2 to 4 quarters, you're just going to see one thing sort of on top of the other as we keep turning over rocks and there's plenty more to go there. But yes, I think on the revenue side, when you think about getting your marketing message out there, getting back to the things we have talked about, premium families with kids, seasoned travelers, things of that, that we've sort of walked away from for the last couple of years, which Mark's talked about. You've seen that in the decline in our occupancy rates. All of that, you can't just flip a switch and go, "Oh, we're back to where we were in 2018 or '19," and the consumer just reacts immediately. So I do think that's going to take some time. So yes, I think it's accurate to say you're going to see your green shoots in '27. And as you get clicking into '27, that's going to roll over into '28 when hopefully, we're hitting on all cylinders. So I think you're correct. To me, the cost and the revenues are on 2 different tracks. The cost will come quicker. I think the revenue will come a little bit later. But again, the revenue far outstrips the cost opportunity.

So the first one is a bit of a near-term question because I don't think we really kind of got into the nooks and crannies of the third quarter. Have you guys seen any sort of signs of stabilization over the last couple of weeks? I mean -- and sort of how much left do you have to book for that quarter? Just trying to get a sense where we're at in the calendar and that booking cycle, if even the numbers you did put out for the third quarter feels fully derisked here and what you're seeing real time.

Brandt, look, I think fundamentally, when you -- at the core, you have to consider where we entered the season. We were behind the booking curve. We had more business to go after. That was exacerbated by the war. Again, when you think about that, we had a higher hill to climb than that -- than some of our competitors. And as John said, we're just not comparable. So we've seen elevated cancellations in Europe across the board. And again, here and there in certain areas of Europe, you start to see some green shoots. But given the fact that we're sitting here in May, it's going to be very hard to dig out of that hole that we've created ourselves -- for ourselves with that being behind in the booking curve.

Again, on the luxury brands, the last 3 or 4 weeks, we have seen -- I wouldn't call it even slightly better than stabilization. We've seen some encouraging signs over the last 3 to 4 weeks for Regent and for Oceania.

Okay. That's helpful. And then noncommissionable fares, I believe, went into effect this week for you guys. And I know that forecasting '27 and the second half of '26 is a bit difficult with all the teams gelling and everything you sort of talked about already. But hopefully, you have an idea of what you're sort of internally modeling for NCF in terms of those being either net dilutive or net accretive to yields. And so maybe just take us through sort of the model specific to NCF effect on the business for the second half of '27. Is that -- how much of a bad guy is that? And then when it can kind of flip positive, if that's in '27 and if that's how you think about it overall?

Brandt, and again, I think we probably talked about this on our prior call or a call before that. The whole NCF statement was really about, again, trying to garner attention around the Norwegian brand, getting back to the -- getting the travel agent community instilled with the Norwegian brand as we obviously go to shorter and more domestic cruising. So very, very early in the stage to say what that quantification is going to be in 2027. But again, the thesis was getting back in the attention in front and center of the travel agent community. So as you think about that, it was only related to the travel agent distribution channel. It was not a policy that went across our direct channel. So we think, over time, the volume will outpace any potential impact as a result of that minor cost impact.

I'm going to ask the 2027 question a little differently. I don't know. I mean, there's a lot of unknowns here. So I don't know how much of this you can help with. But I guess, as we think about the booking curve, obviously, one of the issues -- one of the main issues for 2026 is that you entered the year behind. And so some of the external issues were so much more difficult to overcome. Anything you can tell us about where you sit on the booking curve with regards to 2027? And then as I think about the different possibilities for 2027, the Street kind of has you getting back to your algo, right, next year. Obviously, it's going to be off of a much lower base. But should we think about the opportunity '27 versus '26 is still sort of a normal opportunity? Could it be greater than that because there's a lot of one-timers as we think about 2026? Or is this stuff going to carry over so much so that we should not be anticipating meaningful yield growth in 2027?

Yes. I think it's a little difficult to know. Again, I think we know where we made our mistakes in terms of getting behind the booking curve. And I think the team that is being built knows where the mistakes were and is working to correct that. As we go into '27, I think the proof will be in the pudding, obviously, because, again, that team is being built out. The system is being refined, calibrated, whatever word you want to choose. So I would certainly think it's going to be better. I wouldn't sit here and tell you it's going to be all the way to bright. I don't -- I wouldn't promise you that. But I think meaningful improvements are being made in those areas. So I'd say, again, I'm optimistic. Whether it plays out perfectly in '27 versus '28, only time will tell, but I feel better about -- at least we understand where we made our mistakes, and I think we're working to correct them. Again, on the luxury brands, I think they're right where they should be from an expectation standpoint in '27. So again, it's all about Norwegian.

And James, on the cost side of the equation, again, we've talked about we're taking quick and decisive action. We've already seen that with some of the numbers we talked about today. That's not going to stop. So you're going to see a much quicker change on the cost side of the base of the business. And again, getting our revenue management and demand engine via our marketing engines correct, again, will take more time. So we're going to move quick and decisive on that, but that's not something you turn around over time. Definitely on the cost side, you're going to see a much quicker -- quicker results flowing through.

Got it. And to that point, I know I've asked this question a bunch of times, Mark, but maybe assure us that some of the outperformance on the cost side isn't contributing to the underperformance on the top line, i.e., cutting a little more muscle and not entirely fat. And then I guess, big picture, John, you've talked a couple of times here about how you're not really comparable to your peers right now. I guess, I'm just trying to think through the brand damage that's been done here, how consumers are thinking about your brand from a big picture perspective and how much needs to be repaired as we move forward?

Yes. Well, I'm going to answer both parts, and then Mark can jump in. No, we're actually investing more money in revenue management and marketing -- not marketing, but I'm talking about the team and the horsepower. So we've been very careful where we took cost out to have it not impact in any way revenue-producing opportunities. So we will be spending more money in those areas, not less. Again, marketing dollars per se hasn't been done as efficiently or effectively as possible. So that's obviously an area you can cut. But I can assure you, in terms of intellectual horsepower, we are definitely continuing to upgrade in those 2 areas. So do not worry about that at all. And then in terms of brand damage, I don't think there's any -- when you look at guest satisfaction scores, what the consumer thinks, I think there hasn't been any brand damage. Again, I think the brand is functioning. If you recall in the earlier call, I said I just don't think we've maximized what we can get out of the Norwegian brand because we haven't been doing things as effectively or as coordinated as we should. So I don't look at it as you have to repair damage. I look at it as we just got to get back to maximizing what we can get out of that brand. And that's, again, just through operational missteps over the past 4 or 5 years, whether it's our itineraries, whether it's how we went to market, whether it's ineffective air spend and as we said, is more akin to a subsidy marketing. So there's lots of things like that, but I don't see any brand damage.

Yes, I would agree -- I fully agree with John. We're not talking about a brand damage issue here, James. Again, this is about making sure we're putting our dollars to work in the right places. And equally as important, having the teams focus on the right priorities versus too many priorities. And by doing that, you actually get a lot more productivity and intellectual horsepower. So we're investing in the right places, and we're focusing on the right priorities. It goes back to a lot of fundamentals.

Understandably, we've heard a lot about Europe. You've touched on Alaska. But maybe if we could just touch on what's going on in the Caribbean right now and what you're seeing there. You had a lot of capacity to absorb this year. We've seen some recent deployment shifts from MSC and whatnot. And so would love to hear the kind of latest of what you're seeing in the Caribbean and just the broader kind of competitive environment there more broadly.

Yes. Look, Lizzie, we've been pretty transparent. We did have a large Caribbean deployment shift this year. And we were very frank on our last call that we did not have the right tools in place. We didn't have our marketing in place. We just -- we didn't have our island in place. We've now launched the marketing of our island in the last week or 2. So we're hopeful that that's going to start to improve demand generation. So again, those goes back -- that goes back to a lot of internal missteps that the company took along the way. So as we've seen the -- we believe in the Caribbean. We think it's going to be a good market for us, but we have to have the right tools in place, and we're working on that.

Got it. And then I wanted to ask just about long-term deployment. Obviously, Europe has its challenges this year with the conflict. But I think even pre that, I think Europe was tracking a little bit down. You mentioned some of the open-jaw itineraries and whatnot. I guess, how do you think about Europe in the long term? Like, is your mix of deployment -- are you happy with that current mix that you have? Or could you see kind of making some shifts over time, whether it's out of Europe or kind of anything else?

No, I mean, I'll give you my take. I think -- no, we're happy with the current mix. I think, again, when you think about how much of our business we source from the U.S. for our European itineraries, it's huge. So obviously, the Iran war has a much bigger impact on us than some of our competitors in that sense. But I think, again, when we get everything aligned the way it should, whether it's in the Caribbean or whether it's in Europe, the Norwegian brand should perform better because all the fixes we're talking about aren't for one specific region of the world, they'll flow across all the different areas of the globe. So I think we feel good about Europe long term.

I wanted to unpack Great Stirrup Cay a little bit more. Can you just talk in more detail on review scores, guest impression? I know that you still have the water park to go, but there was considerable investment already to this point. I imagine more people enjoying the Lagoon, going to Silver Cove. Just kind of like what the guest feedback has been? And when you think about quantifying that, if it's possible, at one point, you had thrown out some potential yield benefit the island could generate. And just [Technical Difficulty]

Yes. Vince, it's Mark. Look, as we've said, with the Phase 1 opening of Great Stirrup Cay, we've seen our guest satisfaction scores improve dramatically. And so the feedback from the guests who are touching the island and getting to the island has been nothing short of great. That said, as we've said before, we have not opened some of the primary monetizing events or activities on the island, which are scheduled for late summer this year. So we think when those open, together with a solid marketing campaign behind that, we absolutely believe that the island will generate incremental yields not only from the on-island monetization, but over time, getting premiums for itineraries that are calling on that, which is, of course, underscoring the thesis of the investment there. So again, we're very happy with the results to date. And we look forward to, again, late summer, opening up the monetization activities, which we believe will really start to spark incremental demand.

Great. And then just kind of a longer-term question. You look at the occupancy levels and there's always the balance between price and load. But this business used to be at 107%. I think you've got more Caribbean capacity now. So perhaps there's room to even get above that, 105% just a couple of years ago. How are you thinking about just the occupancy opportunity over the next few years as you start to get some of these missteps addressed, get the teams gelled, the marketing message right? How are you thinking about where occupancy could go?

Look, Vince, that's -- absolutely, that's one of our items front and center where we think there's opportunity on the occupancy side. We want to get back to not only historical levels of our occupancy, but also to exceed that. We said on our last earnings call or a couple of calls ago that we're not just looking at maximizing our existing -- our new ships from an occupancy standpoint, but taking our existing fleet and ensuring that we're maximizing space across our existing assets so we can add more thirds and fourths and get more of the families. But I'll go back to, again, we have to get the brand, specifically the Norwegian brand front and center. We have to get the marketing and demand engine front and center. And over time, we believe that will help drive both price and occupancy.

I just wanted to go back to clarify some of the comments in the release and your earlier comments. Do you believe the situation in the Middle East is negatively impacting bookings for Caribbean and Alaska? Because the wording in the release sounds like you may be thinking that the Middle East is impacting things outside of Europe as well. So I just want to clarify that. And then when we think about your change in Q4 guidance, and I know it's -- these are broad strokes, right? We're not trying to nail down tens of basis points. But going from something a couple of hundred basis points positive to something flat or a couple of hundred basis points negative, just -- since Europe is not as much of a factor in Q4. Can you help us think about how much of that impact in Q4 you think is kind of impact from the Middle East versus what you were describing as kind of self-inflicted?

Yes. So I would say, yes, it is having some impact on the U.S. I mean, gas prices, everything. I mean, it's kind of across the board. You can look at airlines, you can look -- I know the premium end of airlines is fine, but if you look at our premium brands, they're different. But mass, I think if you look at the mass, what you really have to look at is the Spirit. Yes, it is having some impact for sure. But in terms of the fourth quarter, how much is the Middle East? Again, I'm not -- we can't really parse what's -- how much is one versus the other. Again, we just said we're assuming the environment doesn't change from where it is today. We're not assuming it gets any worse. We're not assuming magically it goes away next week and oil goes back to $50 a barrel. We just sort of assumed that the environment stays the way it is. And given all the issues we've talked about, sort of our turnaround in that brand, that's really what's driving that spread. It's nothing specific around the war. But yes, overall, for sure, the environment has softened to some extent.

Yes. And Robin, I think those are just downstream ancillary effects that we're seeing. What's interesting, of course, as John has said several times, our luxury brands are just fine, and we're seeing great performance out of there. Even further, I think once we have our guests on the vessels, we're actually seeing healthy onboard spend. So it's a matter of, again, making sure we're getting in front of the consumer, having our right demand and marketing engine going and getting the guests on board. If we can do that, I think that's really going to help turn things around.

Great. And then just a quick follow-up on your leverage levels at the end of the year. I know we'll be able to do the math in more detail after the call. Just with the change in guidance, where do you see that getting your leverage levels at year-end?

Yes. I think based on the range of outcomes that you're probably looking at somewhere in the high 5s. And so obviously, we're not happy with where that's going. But as we've said before, it will take time to turn around the revenue side of the equation, but we are moving quick and decisive on the cost side. So to the extent over the next couple of quarters, we can announce some more actions around that. Hopefully, that will give us some more insulation.

Time for one more question.

You said a couple of times on the call that the luxury brands are just fine. I assume that is a statement of kind of where you see the marketing engine and the brand's strength. But is that also a signal of just kind of yield dynamics? And if so, could you give us a sense for kind of order of magnitude differential between what you're seeing at Norwegian versus what you're seeing at the luxury brands? And then I have a follow-up.

No, we don't break that out. I'm just saying that from an overall standpoint, we like what we see. And as we've said all along, there's cost opportunities in those brands, which we're going to continue to go after those just like we are in NCL, might not be on an absolute basis as much, but plenty of opportunity there, but it's definitely a more resilient consumer, no great surprise.

And then on the $125 million of kind of SG&A save that you expect to see going forward, can you guys just -- one final time, just try to unpack a little bit. You're talking about kind of needing to improve the marketing messaging of the Norwegian brand and you're improving the people. So there's an investment happening there. So just help us understand how it makes sense that kind of maybe marketing spend is, where exactly was that inefficiency? Just any incremental detail of a marketing spend that sounds like it's getting cut as you need to kind of increase and improve awareness of the brand would be super helpful.

Yes. I don't -- without going into any detail, all you need to do is just sort of look at our marketing spend over the last 3 or 4 years vis-a-vis our competition, and you would see that we spend -- our spend increased dramatically, and we're not nearly as efficient as our competitors. That's mostly not around heads. That's just around where we're spending it and how we're spending it. So again, we're investing more in the quality of the people, but there's plenty of room to cut. So it's -- I mean, given the disproportionate amount of spend, there are plenty of places to look for money there.

Yes, Trey, it's about putting the dollars to work in the right places versus volume. And again, you can see our numbers when you look at our year-end filings vis-a-vis our competitors. I think we've been spending probably 2x on a per bed basis. But it's about effectiveness, and that's what we're focused on going forward.

Okay. Well, thank you, everybody, for joining us this morning. Appreciate all the questions, and talk to you later. Thanks.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.