Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Group First Quarter 2023 Earnings and Business Update Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Michael McCarthy, Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us today for our first quarter 2023 business update conference call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bayley, President and CEO of Royal Caribbean International. Before we get started, I'd like to note that we will be making forward-looking statements during this call. These statements are based on management's current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change. Also, we will be discussing certain non-GAAP financial measures, which are adjusted as defined, and a reconciliation of all non-GAAP items can be found on our website and in our earnings release available at www.rcl Investor com. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our first quarter and an update on our latest actions and on the current booking environment. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason.

Thank you, Michael, and good morning, everyone. I'm thrilled to be here this morning to share our incredible first quarter results and the strong trajectory of our business. When we turn the page from 2022 into 2023 with the full strength of our operating platform deployed and numerous tailwinds related to the consumers' desire to travel and experience the world, we believe this would be a great year. We expect it to finally return to yield growth in the first quarter and accelerate even more through the rest of the year. Well, as you saw in the press release this morning, what transpired over the past four months was much better than we had anticipated. Our brands are stronger than ever and our yield in Q1 blew away previous records. Before getting into the detail, I want to thank the entire Royal Caribbean Group team, 100,000 plus strong for another outstanding quarter. Their dedication and commitment allow us to deliver the very best vacation experiences responsibly while generating strong financial results. As highlighted on Slide 4, it has been a tremendous first quarter that set us well on the path to a year that is significantly better than we expected just a few months back. We knew that demand for our business was strong. what has transpired was a record-breaking extended wave season that translated into robust bookings and meaningfully better prices. In the first quarter, we delivered a record 1.9 million memorable vacations, achieved 102% load factor at higher pricing than 2019, and earned exceptional guest satisfaction scores. Yields grew 5.8% compared to record 2019 levels, and were significantly above our guidance. Strong demand for Caribbean itineraries translated into higher load factors had better-than-expected pricing for both ticket and onboard. Our yields are now exceeding record highs, and we…

Thank you, Jason, and good morning, everyone. Let me begin by discussing our results for the first quarter. As you can see on Slide 4, we reported an adjusted net loss of approximately $59 million or $0.23 per share. These results were significantly above our expectations and the high end of our guidance range. Total revenue was $2.9 billion. Adjusted EBITDA was $642 million, and operating cash flow was $1.3 billion, again, significantly above our expectations. We finished the first quarter with a load factor of over 102% at net yields that were up 5.8% for the quarter or 440-basis points higher than the midpoint of our guidance. Better-than-anticipated close-in demand for Caribbean sailings and improving pricing environment and continued strength in onboard revenue were the main drivers for these exceptional results. Higher load factors drove 2/3 of the yield outperformance and higher pricing drove the remainder. Net cruise costs, excluding fuel per APCD, increased 5.8% in constant currency compared to the first quarter of 2019. Net cruise costs for the first quarter included $2.87 per APCD or 240-basis points impact of structural costs. Operating costs also benefited from approximately 160-basis points of favorable timing compared to guidance. First quarter results are a testament to the continued robust demand environment attractive value proposition of our cruise vacations and strong commitment by our teams to deliver the best vacation experiences responsibly. Turning to the booking environment. Bookings have consistently been higher than the same time in 2019, with the gap widening as WAVE extended further into the year than ever before. The booking strength has been particularly evident on Caribbean sailings where our superior hardware and Perfect Day at CocoCay continue to be winning combination. More than half of our Caribbean sailings visit Perfect Day at CocoCay, which is Royal Caribbean…

[Operator Instructions] We'll go first to Stephen Wieczynski, Stifel.

Hi, guys. Good morning. So first off, congratulations on a strong quarter. Jason, in the release, you mentioned that for 2023, you're expecting 2023 EBITDA to significantly exceed 2019 levels which is a change in wording relative to where you were back in February. And look, I understand I'm probably knit taking here a little bit, but I just want to understand maybe how we should think about EBITDA trajectory now for the year and the progression you guys are on now to get north of $5 billion in EBITDA by 2025 according to your Trifecta program?

Steve, good morning, it's Naftali. So, as you can see, we are very pleased with the results. And as we think about EBITDA and how this translates to the progression throughout the year. You can see that we are increasing yields, and we expect the EBITDA growth to be higher than our yield growth. And that's because a lot of the revenue is dropping to the bottom line because we are very much focused on costs and enhancing margins. So, if we look at what we kind of look at the guidance that we provided, we're going to -- we expect to be an eyelash away from our previous EBITDA per APCD record in 2019. And a lot of the things that we're doing and a lot of the strategies that we're employing should benefit to us as we continue to execute towards our Trifecta goal.

And I mean, just to add on to it, Steve, as we think about it on the Trifecta side. Obviously, this year -- the performance of this year is better than we -- it's much better than we had expected. And I think the commentary we talked about Icon. Obviously, we have Nova coming online, which is a high-yielding ship. We have Ascent coming online, which is high-yielding. You have Hideaway coming online. And of course, the commentary that we've been talking about that we've seen acceleration in price in volumes is also what we're seeing for like-for-like for 2024, though it's early. And for us to get to the marks for Trifecta, we really just need moderate yield growth in good cost control, which you continue to show. And so that's kind of very much on our path. And as Naf mentioned, it's great to see that that really almost every penny of the outperformance on revenue is dropping right down to the bottom line, which would be dropping right down to EBITDA.

That's great color. Thanks guys. And then second question, as we think about the back half of the year, obviously, we can back into your yield guidance. But if we kind of break down those yields a little bit, are you assuming your customer from an on board has obviously been extremely, extremely healthy? And are you assuming that your customer kind of stays in the same ballpark that they are now? Do you have them slowing a little bit in terms of spend levels? And then second part of this question, which is a little bit different, but we get a lot of questions from investors about demand and demand into 2024. And can the demand levels that are there right now persist into next year? Or is '23 being -- is '23 benefiting from just still kind of reopening and COVID bookings and stuff like that? So hopefully, all that makes sense.

Yes, sure. Well, I think, obviously, we don't have a crystal ball. What we know is what we see happening basically every minute of every day. We're taking tens and tens of thousands of bookings a day. We've got 160,000, 170,000 people spending on our ships. And so, we have a very good idea, the customer in terms of what's happening today. We also obviously do a lot of surveying of our customers in terms of what they're looking to do in the future. And it's obviously clear to us that they are very focused on gathering experiences and creating memories with their friends and family. So, the other point I'll just add is, and this is more on the pre-cruise side and what they're booking on the ship for the future. That number continues to rise, which also just shows their appetite to spend more and more on non-ticket-related spend. So, I think for us, when we think about the back half of this year, our expectation is that we're going to continue to see what we're seeing. However, the mix changes a little bit. Q3, we have a little bit more Europe. We have a little bit less Caribbean. And of course, you've heard our commentary on the Caribbean is exceptionally strong, which is really what's driving the overall outperformance. While Europe is now very much coming in as we expected for the year. So, I think that probably talks a little bit about how we think about the back half of next year. Now again, going to demand level for 2024, what we have, again, is what we're seeing day in and day out. And at this point in the year, the customer now, and of course, we began to position ourselves and orient ourselves to 2024 more and more. Certainly, the majority of the bookings we're now taking are focused on 2024. And we see very similar strength and acceleration from what we've been seeing close in as well as what we've been seeing for the bookings for 2023.

That's great color. Thanks, guys, appreciated. Congratulations.

Steve, I just have to add one comment because it's -- I have to talk about Icon of Seas. I think if you think about '24 and the comments we made earlier about Icon. Icon is literally the best-performing new product launch we've ever had in the history of our business, and we're delighted with volume and rate, and that really is a full '24 product. So, you can see if you wanted to use Icon as a proxy, I know it's a brand-new product, and it's stunning, but it's really driving a huge amount of demand and great rate.

That probably won't be the first time you hear about Icon from Michael -- just to ...

Thanks, guys.

Your next question comes from Brandt Montour, Barclays.

Hi, good morning, everybody. Obviously, an exceptional quarter, congratulations. A question about load factors. I know you guys are going to hit historical load here in the spring. But curious, looking past that, what the new normal for load looks like given maybe you have some regional mix shift, which could affect it, but more so, you have obviously a lot of new capacity that's different and has more onboard and more space. So, any comments about what the new normal looks like for you guys for lows?

So, on an expectation standpoint, I mean, just mathematically, our load factor -- our normalized load factor will begin to rise. And that's really leading with Icon coming on, which will have a higher load factor profile. Now we're also taking on Nova, which has a lower load factor than the Royal Caribbean brand and the Celebrity brand, and we're also taking on Ascent, which has lower load factors than Royal. But with Icon coming on next year, Utopia coming on next year, you would expect our load factors to be up one point or two when we look into 2024 and beyond.

That's super helpful. And then my second question is just on China. Back in 2019, if I recall, you guys had something like mid-single digits of your global demand coming from China traveling outside of China. And I know there's outbound international flight constraints limiting China outbound travel, but you're probably engaged with your database over there. I'm just curious what you're seeing from them now that they're starting to travel again? And if it's even showing up sort of on the radar in terms of what's booked for this -- for later this year?

Yes. It's Michael. Yes, outbound has always been a relatively small percentage of our China business. I think we're now more encouraged by all of the signals that we've had for our reopening in China in '24. And we still got some work to do, but we've now started to rebuild our sales organization in China, and we expect, hopefully, by late spring, early summer to be back operating out of China.

'24.

'24.

And then sorry, that's in terms of actual capacity in China. The question was more about China outbound to other areas.

Right. Yes, that's correct. That's in actual capacity operating out of China in '24. As it relates to outbound started to return, but it's obviously coming now from a smaller base.

Great. Thanks, so much.

Next, we'll hear from Robin Farley, UBS.

Great. Thanks. With that, yield guidance increase. I don't even have a question on demand because that was kind of a mic drop if that increases. I actually have a question kind of -- just looking at -- related to balance sheet issues, another cruise line has talked about getting ECA funding for a significant amount of money that's not related directly to a ship order, but that's for owners extras. And I'm just wondering, is there potentially opportunity because obviously, those would be at sort of 1% and 2% interest rate. Is there opportunity for Royal? I know you guys aren't doing any big change orders that we know of at the moment, but is there an opportunity for you to get some ECA funding for things not directly related to a ship delivery?

Yes. Robin, it's Naftali. These sales have been fantastic partners to us. We're obviously very committed to our new build program, and they provide us very attractive financing. There's always puts and takes, but we don't expect any material changes from our financing arrangements at this point.

Yes. The only point I would just add, Robin, what you're describing is not a new concept. We've actually probably been doing that for about a decade. So, if we have change orders or we have owners’ extras that the same concept of the 80%-20%, 20% down, 80% financed is how those ships have been financed, whether it is for the contract price or other elements that we're adding on to the ship.

I guess it was really more, I was thinking that it's the first time we've seen sort of like incremental ECA funding that wasn't tied to ships ordered before the pandemic, which -- and again, I know it's tied to a very big change order. So not your situation. And then just one other quick clarification on the expense side of things. When you look at your expenses for the full year. Obviously, some of it you mentioned structural because you have a full year of CocoCay and Galveston. But you said some of it's transitional. And I don't know if I heard you say, I'm just wondering what amount because, obviously, some of the structural that will be recurring next year. But some of the transition costs would, as they fall away, create an expense decline next year. So, I just, I don't know if you can quantify how many basis points of your full-year increase is one-time?

Yes. So, it's predominantly structural. Some of the two examples that you mentioned are there. And obviously, there will be now in our base as we go forward. As we get to our full -- our historical load factors, those transitional costs are very minimal, and we are expecting them to go away. So, it's predominantly the structural costs.

And I mean, for the transition costs, is there -- is it 100-basis points or 200-basis points of the full year expense this year that in the gearing will ...

It's roughly -- it's even less than -- yes, it's even less than 100-basis points. And with some of the COVID protocols that we had a little bit in Q1 and some of our crew movements that we need to finish up, but that's generally the ballpark.

Yes. And in reality, on the cost side, if you take out the transition that of just talked about and you take out the structural, our costs for the year were basically up around 3%. So just to kind of give you the sense of the level of all the actions we took over through COVID to get our cost structure and operating model align has effectively absorbed a tremendous amount of inflation. So, our costs in the assets are really just up 2% to 3%.

And would you say that inflation is sort of now moderating if we think about 2024, that like the rate of increase in 2024? Or is that 3% something that you would expect to recur?

No. I mean it's definitely moderating. I mean it's -- all -- but it's still a pain and it's still coming at you in different ways. But we have -- I mean, our teams are really exceptional trying their very best to combat it and come up with great solutions -- sometimes it's around how do we get goods from point A to point B. And in some cases, how do we just leverage more of our buy across our brands, but it is painful.

Yes. And the way -- the word I would say is just persistent right, which it's not unique to us. You see it everywhere. It's definitely moderating. I think the other thing just to point out that our focus is also what you saw in the first quarter, which is as our revenue accelerates, how do we keep the costs down and really try to get that revenue all the way to the bottom line.

Great. Thank you, very much.

We'll go next to Vince Ciepiel, Cleveland Research Company.

Great. Thanks. I wanted to dig a little bit more into pricing. Obviously, with the net yield guidance, it looks like net for the end of this year, to be up high singles, maybe even approaching 10% versus 19%? I'm curious kind of how you might break out or talk directionally about how much of that is like-for-like versus new hardware versus CocoCay lift? And then maybe just zeroing in on the like-for-like, your ability to continue to move that up in years ahead when you consider the value gap versus land?

Yes. So first, you're right. If you kind of look at the pricing. It is an eyelash away from double digits. We do have some structural costs, especially on the back end of the year. We eliminated some of the lag reporting lag for Silversea. If you take that out, we are double digits. So, we're very pleased with that. And it comes from different things. Yes, we have eight new ships that we did not have in 2019. That's a great yield driver and price driver. We have a lot of these ships going to CocoCay that continues to track yield premiums, we have the onboard strength that we are -- that we continue to execute on. So, all of these are driving the pricing increase and the pricing strength. And we also see like-for-like pricing increase as well. So, it's a demand environment. It's all these actions that we have taken that we think are going to continue to benefit us beyond 2023.

Yes. I just want to add, what's also just very encouraging when you see -- which is effectively a double-digit price increase for us. That also does not include -- I mean -- or the negative side of this is we don't have China, obviously, here in 2023, which had a substantial APCD differential to the average. We also sold Azamara, which was a higher-yielding versus the average. And so, to be at a double-digit price increase and which has been accelerating, I think, really just shows the strength of leisure, the strength of crews and the strength for our brands.

Great. And then a little bit longer-term question. Your 1Q margin looks like it was basically back in line with pre-COVID levels if you ex. fuel and the guide suggest that, builds further as you move through '23. So, I think that's really reflective of gains in the core operations of the business. And in light of that, curious how you're feeling about the ROIC target long term? I think you said teens, which feels like a pretty broad range. But in light of the progress you're making in '23 on the margin front, just how you're feeling about longer-term ROIC?

Yes. Well, I think first off, we are, based off of this latest guide, we are now in double digits on an ROIC basis. And so, our focus here is to have a business model that during good times and bad times stays within the teens on an ROIC basis. The focus on margin and also the capital discipline that you're seeing us employ each and every day, we think very much gets us there with moderate yield growth and good cost control. So, we feel very good about our Trifecta goals. We talked about that as that's really us just getting to base camp, which is your kind of pre-COVID levels scaled up for the additional capacity on our business. And really, if you just think about 2023 in itself, if it wasn't for the crisis actions we had to take, we will be well north of our 2019 earnings and well north of our '19 ROIC. So that's how I think we think about the business and the organic growth we have with the ships coming online and react we have on the destination side is really well positioning us.

Next, we'll go to Benjamin Chaiken, Credit Suisse.

Just one for me. On CocoCay, are you still seeing the same pricing premiums to those itineraries as you did to the rest of the portfolio as you did in '19? And I asked that in the context of there just being much more capacity at the island today than a few years ago. And then part two, I think Hideaway Beach is a 4Q opening. Any color on demand or pricing there? Thanks.

Benjamin, yes, I mean I think we're truly delighted with Perfect Day, and I think the comments earlier, we spoke about the volume that we're attracting to Perfect Day. This year, we'll take around 2.5 million of our guests to Perfect Day and the pricing premiums continue to be really robust, and the spend on the island continues to be really robust as well. So, we've seen -- as we've increased the volume, we've seen no decline in the power of the pricing. And in fact, it continues to accelerate. With Hideaway Beach, that will accommodate approximately 2,500 more gas. So today, we're I think in March, we had close to 250,000 guests in Perfect Day. And on average now, we're having around 11,000 guests a day in CocoCay. With Hideaway, we can add another 2,500, 3,000 guests. And that's really for design to be open in time for Icon of Seas. And of course, Icon will visit at the end of January, and Icon will be going to Perfect Day every single week. We've also got Utopia coming online in June. We haven't announced the deployment, but Utopia will also be going to Perfect Day. And the demand is just very strong. I mean we've seen -- there's a lot of demand for that particular product in any of our ships that have Perfect Day on their itinerary demanded, and there's strong pricing premium that we see there.

But just one point on Hideaway for modeling purposes. Just keep in mind that it's coming online at the very end of this year. But its ramp-up of operations and so forth, as Michael said, is kind of in line when Icon comes online, which will be towards the end of January. So just as you're thinking about yielding costs, just keep that in mind.

That’s helpful. Thank you.

Also, Benjamin, just to add a quick comment, not on Perfect Day, but we did receive the kind of the greenlight approval from the Bahamian government to proceed through the environmental and permitting and planning process now in the Bahamas. So, our intention is to have the Royal Beach Club open in -- towards the end of the spring-summer of '25. And that new addition to the portfolio is also going to really produce an incredible experience for -- certainly for the short product and the short product is doing exceptionally well at the moment. We continue to increase our short product and put really great ships into that market. So, the combination of Perfect Day on one day and the Beach Club on the second day really is a winning combination.

And forgive me, is the expectations around the Royal Beach Club, is that a similar size to highway or large -- smaller, larger, just more capacity standpoint?

Actually, from a capacity perspective, it's very similar to Hideaway. Remember, Hideaway is part of the Perfect Day experience. So, the Perfect Day experience capacity will be around 13,000 a day. But the Beach Club's capacity will be around 2,500 to 2,750 a day.

Your next question comes from Conor Cunningham from Melius Research.

Just on the $5.3 billion in customer deposits that you have. I was curious if you could parse out what percentage of the bookings are people that are new to cruise versus historical levels. It just seems like that, you're gaining a lot of momentum there. Just curious on where that sits. Thanks.

Yes. So, as we -- I think Jason said this in his prepared remarks, this quarter, and it's been consistent in the last several quarters. The combination of new to our brands and new to our crews significantly exceeded 2019 levels. So, we're very pleased with seeing this quality demands and our brands attracting new people to our ecosystem. And at the same time, we also focused on making sure that they stay there, right, then increase repeat rates. This is all in line with our strategies. So, some of the benefit you see in the first quarter in these customer deposits is just more people looking with us, new to our brands, and new to cruise.

Okay. That's helpful. And then just I was hoping if you could unpack a little bit just on this close-in pricing momentum that you saw in the quarter. What did you assume originally? And then first, how it played out? And just how you're thinking about that trend through the remainder of the year? I realize load factors are stepping up. So, there's probably less to fill. But just curious on how you're thinking about that going forward? Thank you.

Yes. Well, I think first, what I would say is it was a -- it was an incredible surprise at the differential between our WAVE expectations close in versus the realities of what occurred. There was a substantial difference versus '19 levels, which were already at a record high. And so, we built another three or four load factor points. As you pointed out, Conor, we are -- our expectations for the balance of the year was to be at normal load factors. So, those book positions were higher, so there is less inventory. But certainly, there is the opportunity. And of course, we've we recognize a lot of that opportunity in terms of the expectation that those volumes will continue and at higher rates. I think the thing that was a great I wouldn't say a surprise, but delight to us was while the volumes were building at those large volumes. We were also able to continue to raise pricing during that period of time, which is not always what you see as you -- times in which you're looking to fill certain volume gaps.

Yes. And just as I think I said it in my prepared remarks, 2/3 of our yield outperformance in the quarter were just load factors. We built 200-basis points more, and the remaining was just higher pricing, both on ticket and exceptional strength on onboard revenue.

Matthew Boss from JPMorgan is up next.

Great. Thanks, and, congrats on a really nice print. Maybe to follow up on demand. As we think about the drivers and the magnitude of the top line upside relative to where we stood three months back, I guess maybe if you could help to maybe rank order the upside? And then could you elaborate on your most recent momentum that you cited in bookings that you've seen? And finally, maybe just relative to the Trifecta plan that you laid out in November '22. What's your confidence today? Or just help us to think about puts and takes to consider relative to when you initially laid this out?

Okay. Well, I'll take a stab at it and for my teammates here to add in. I think, first, just starting off on Trifecta. We feel very good about our Trifecta program. Obviously, the results of what we're talking about today in terms of the acceleration, the higher pricing, our continued ability to manage our costs is all very encouraging as we kind of think through what 2025 is going to look at or look like. There's always headwinds that you're dealing with. But we do really believe that biosis continuing to moderately grow our yields and managing our costs and managing our capital allocation, we see kind of clear skies towards those goals. There's obviously things in which when we think about negative carry, we think about, and how to manage that and get that down to the levels to get our earnings power back from there. That's also kind of top of mind for us. As it relates to on the demand side, just to be -- I think which we kind of laid out in our remarks, there are several things. First is the Caribbean has been exceptionally strong, especially ships that are touching a Perfect Day. We saw a huge strength from onboard, spend has been very, very strong. It's not one area of onboard. It's really across the board. So that's really -- that's been very encouraging. Our North American products have all been booking well, Alaska, Northeast and so forth. And for Europe, I think we were a little bit concerned going into the year. But because of our global and nimble sourcing model, we really have seen a surge in European bookings, and we feel very good on how Europe is going to play out this year, but not to the level that we saw in the Caribbean. And so that just broader combination is what's driving acceleration and demand acceleration in pricing -- and we -- while we doubled our yield and increased our earnings by 40%.

Yes. Just to add, it's Naftali, I think first on the latest points around the demand, I think if you kind of zoom out a little bit, we did talk about and we've been talking about the valve proposition of cruise being very attractive, and you see that played out. So, our goal is to close the gap and we do that with the ships that we have, the experiences we deliver Perfect Day at CocoCay, some of the itineraries we designed. But those are things that if you the consumer are, obviously, it's very attractive. On the Trifecta, I just want to make one comment, which is, as we were designing it, we weren't designing it for a perfect environment, right? So as Jason said, there's puts and takes, there's headwinds, tailwinds. And as we were designing those coordinates, we're confident we can get there.

And Matthew, you just to add, when just using the Royal Caribbean International as a proxy for the company. When I think about 2024 and 2025, we've got Icon of the Seas coming online. We've got Utopia of Seas. We've got Hideaway Beach and Perfect Day coming online in late this year. We've got expectations that China will be up and operating in '24, and we've got the Beach Club coming online in '25. So, just from the Royal Brands perspective, we've got an incredible lineup of really new and exciting products. And we've seen that these products really do ignite the market and generate significant demand. So, we feel pretty optimistic about the future.

It's great color. Congrats again and best of luck.

Next up, we'll hear from Daniel Politzer, Wells Fargo.

Hi, good morning, everyone. Congrats on the quarter. Just a quick one for me. The Caribbean itineraries, I mean it sounds like pricing is tracking -- pricing and demand is tracking well above your expectations. And you've talked about this shift to short-term product. Could you see a prolonged shift there? And how do you think about your capacity allocation over the next kind of year or two as it relates to Europe and some of the more premium itineraries relative to kind of the lift you're probably getting now from CocoCay?

I think we feel pretty good about the balance of our deployment. We have been -- I think we have shown that having great assets like Perfect Day, putting great assets in the short product, which connects very well to millennials and Gen X and so forth that are looking for more volume vacation experiences and they do that over shorter periods of time. And so that really kind of zones into that clientele. But I think when we look -- and of course, our deployment will shift a little bit in our expectations as we look forward as we expect China to come online and Asia/Pac to kind of like light back up here in '24 and 2025. But Caribbean is going to continue to be where the majority of our capacity is. And I think our broader portfolio of deployment more or less look like it does this year with a little bit more indexing into short and play a little bit more indexing into China.

Got it. Thanks. And just for my follow-up, I wanted a little bit more color on China and maybe that cruise customer, if you can maybe put a little bit more color around what looked like historically in terms of mix of pre-board spend versus onboard, the EBITDA relative to the rest of your portfolio per APCD yields, kind of any additional color as we think about the reopening and take that into account given the strong and robust demand from the travel and leisure customer there?

So then, pre-pandemic, we built a significant business for cruise in the China market. I think Royal was the number one cruise brand in China by volume, and we had a few of our ships that were operating there. And in fact, before the pandemic, we had Wonder of the Seas originally planned to deploy into the China market, which, of course, subsequently changed. Our expectation is that this market will return to how it was pre-pandemic. The value of a Chinese customer is very high. When you look at the net revenue from a Chinese consumer. It's typically around the same level as an American and slightly higher. So, we see that returning. The spend changes somewhat in terms of onboard spending. They skew differently in different areas. But overall, the aggregate of their spend is very high. So, we believe that, that market will return, and we're hoping in '24, we'll see that.

Got it. Thanks, so much.

Your next question comes from Fred Wightman, Wolfe Research.

Hi, guys. Good morning. I was hoping you could just talk a bit more about -- if you think about the really strong demand you're seeing for the Caribbean and sort of in-line European demand, what is driving sort of that divergence? Is it just that CocoCay is that attractive? Are you hearing pushback on European airfare? Like where is the biggest difference?

Well, I think in the earlier part of the year, we were a little bit concerned about the airlift for Europe but that has kind of normalized at least for our guests. And also, don't forget, we source as well in Europe for our European product. And that just goes back to our business model of having this kind of global, nimble sourcing model. So, I think that's how we kind of think about that. As it relates to the Caribbean, I think it's a combination of things and as Naf pointed out, there is still a significant value gap between land-based vacation and cruise. I think we have closed some of that gap this year, which is encouraging. And we saw a pre-pandemic that ships that touched Perfect Day as an example had really kind of closed the gap to land-based, especially Orlando and Vegas. And what we are doing -- what we are seeing is, that is starting to kind of get back to '19 levels so the gap still exists as those businesses got stronger during the period. And so, I don't think it's one thing. But I think the value gap, I think that the demand to spend time with people's friends and family and gather experiences and buy less stuff, all these secular and demographic trends are just huge tailwinds for the demand environment.

Makes sense. And then on the expense side, you guys called out some benefit from expense timing in the quarter. I think that was sized at 180-basis points. Is that all showing up in the 2Q guide to some of that get punted 3Q and 4Q? How should we think about that?

Yes. It's -- I mean, majority of it, almost all of it isn’t should be expected in Q2.

Perfect. Thank you.

And we'll go to Paul Golding, Macquarie Capital.

Thanks so much and congrats on the quarter. Just one for me, longer-term question here. I know you are still building load factor. But as you think about Q1 and the strength and close in bookings, does this change the way you think about WAVE and how you manage the booking curve and inventory as you go into the next WAVE cycle, the next booking cycle? And just in the context of what we had through the pandemic, which was a bit protracted booking curve. Thanks so much.

Yes. Well, we actually -- through the COVID period had kind of shifted how we go to market with our inventory. We used to kind of put everything out there and all the suites would be sold basically right off the bat, and then you would kind of work your way down to the inside cabins. Well, now we hold back inventory and we release it, based off, of the much more sophisticated revenue management models that we have today. And so, all of that takes into account the demand environment we are seeing and that's why I think sometimes when we get into conversations around what percent booked are you? How does it relate to this period versus that period? What we are really focused on is optimizing yield. And so there might be periods where quarter-over-quarter or year-over-year, we want to be in a stronger book position or less or lesser than what we were booked in a previous period because what we're focused on is maximizing yield, which sometimes comes with us having more inventory to sell.

Appreciate the context. Thanks.

Okay. Well, we thank everyone.

Go ahead.

Thank you. We thank everyone for their participation and interest in the company. Michael McCarthy will be available for any follow-up. So, we wish you all a great day. Thank you.

Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.