Q3 2025 Earnings Call Transcript

Greetings, and welcome to Carnival Corporation & plc Q3 2025 Earnings Results Conference Call and Webcast. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. We ask that you please ask one question, one follow-up, then return to the queue.

As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Beth Roberts. Please go ahead, Beth. Thank you.

Good morning, and welcome to our third quarter 2025 earnings conference call. I'm joined today by our CEO, Josh Weinstein, our CFO, David Bernstein, and our Chair, Mickey Arison. Before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to today's press release and our filings with the SEC for additional information on factors and risks that could cause actual results to differ from our expectations.

We will be referencing certain non-GAAP financial measures including yields, cruise costs without fuel, EBITDA, net income, ROIC, and related statistics for all, which are on a net basis or adjusted as defined. Unless otherwise stated, a reconciliation to U.S. GAAP is included in our earnings press release and our presentation, which are available on our corporate website. References to ticket prices, yields, and cruise costs without fuel are in constant currency unless we note otherwise.

Please visit our corporate website where our earnings press release and investor presentation can be found. With that, I'd like to turn the call over to Josh.

Thanks, Beth. This was a truly outstanding quarter, with our business continuing to fire on all cylinders, outperforming and taking us to new heights. Once again, we delivered record revenues, yields, operating income, EBITDA, and customer deposits. This quarter, we also achieved an all-time high net income of $2 billion, surpassing our pre-pause benchmark by nearly 10%.

This is a significant milestone with strong operational execution more than compensating for a nearly 600% increase in net interest expense compared to 2019. On a unit basis, both operating income and EBITDA reached the highest levels in the better part of twenty years. These record results were delivered on 2.5% lower capacity as compared to the third quarter last year. Yet another proof point on our successful delivery of same ship yield improvement and its marked impact on the bottom line. In fact, yields increased 4.6%, all of which was achieved on a same ship basis.

Yields were also over a point better than guidance again, due to the strength in both close-in demand and onboard spending. Unit costs beat guidance by 1.5 points on continued cost discipline. The outperformance on revenue and costs alongside our refinancing efforts enabled us to take up our full-year guidance for the third time this year. These fantastic results and our team's consistently strong execution delivered ROIC of 13% for the trailing twelve months.

This is the first time since 2007, nearly twenty years ago, that returns have reached the teens. Another clear testament to the fundamental improvements in our operational performance. Our leverage is now down another notch to 3.6 times net debt to EBITDA, closing in on investment-grade leverage metrics. This positions us even closer to using our strong and growing free cash flow to not only continue to responsibly delever but also to return capital to shareholders.

In fact, just today, we called the remaining converts using $500 million of cash that David will touch upon. To fuel this over the longer term, we believe we have much more opportunity to increase same ship yields and further close the unbelievable value gap to land-based alternatives, pushing margins and returns even higher over time. In fact, booking trends have continued to improve since our last update, nicely outpacing capacity growth at higher prices and setting a record for bookings made on sailings two years out. And with nearly half of 2026 already on the books at higher prices, we feel pretty good about next year.

We just welcomed Star Princess into the fleet, sister to the highly successful Sun Princess, previously awarded Conde Nast 2024 Mega Ship of the Year. This new ship class will now represent over 15% of the Princess fleet. A nice tailwind for the brand next year. Of course, we also have the full benefit of Celebration Key and the continued rollout of our destination development strategy as we progress through next year.

Celebration Key is as phenomenal as we expected and open to rave reviews. I could not be prouder of both the Carnival Cruise Line and our destination development teams for not only getting this fantastic development done on time and on budget but also delivering an amazing guest experience right from the start. Since our late July opening, nearly half a million Carnival Cruise Line guests have already passed through the sun-shaped arch in Paradise Plaza. Soaking in the largest freshwater lagoon in The Caribbean, heading up to the top of the world's largest sandcastle, zipping down our racing water slides, or enjoying a cool cocktail at the world's largest swim-up bar.

While early guest feedback from Celebration Key has been fantastic, we are paying close attention to our guest suggestions and will continue to fine-tune operations and strive for continuous improvement to make the experience for our guests even better. As you may have seen, the media coverage for our new destination has been overwhelmingly positive. Even before opening, we were amongst the most searched cruise destinations, and we have clearly built on that success. Our marketing teams have been working around the clock to make Celebration Key a household name.

The grand opening alone generated almost one and a half billion media impressions. And we've been activating a ton of live footage from the destination on social media and the like ever since. Celebration Key is sure to increase consideration amongst new-to-cruise while at the same time giving our repeat guests yet another reason to come back soon. In fact, we expect word-of-mouth will continue to build with 2.8 million guests visiting Celebration Key next year on 20 Carnival ships, leaving from 12 different home ports.

This adds up to high utilization rates, with a ship in port virtually every day of the year and at least two ships 85% of the time. To that end, our pier extension is in progress and by next fall, accommodate up to four ships at a time. Allowing us to maximize the utilization of our existing land capacity. And because I know I will get asked, right off the bat, I'll just say, in the early innings, the returns of our Celebration Key investment are indeed meeting expectations.

All of which were built into our forecast and which we have exceeded. Switching gears to another of our Caribbean gems, mid-next year we will also open the Pier expansion at Relax Away Hastings Quay. Our pristine Caribbean oasis. This spectacular tropical paradise already ranked amongst the best private islands in the Caribbean invites our guests to relax and enjoy our white sand, crescent beach, and crystal clear turquoise waters.

Once both piers are operating, one out of every five Carnival Cruise Line Caribbean itineraries will go to these perfectly paired destinations. Providing guests with both the ultimate and the idyllic beach days. All in one vacation. And overall, the vast majority of our Caribbean guests will enjoy one of our seven purpose-built Caribbean gems with half of those guests visiting more than one.

As beaches are the number one destination for vacationing Americans, our miles upon miles of some of the most beautiful beaches in the world are the perfect fix. By making targeted incremental investments, and stepping up our marketing efforts to support this broad destination portfolio. We believe we have further opportunity to monetize these strategic assets by using them to drive consumer consideration and conversion. Taking share from land-based alternatives.

Altogether, our exclusive Caribbean destinations will capture over 8 million guest visits next year. Almost equal to the rest of the cruise industry combined. And let's not forget our strategic portfolio of brands and assets stretch far beyond the Caribbean. We have by far the most assets in and capacity dedicated to Alaska.

Which has been incredibly strong this year. As well as the biggest reach into Europe, which has likewise been performing incredibly well for us. Our portfolio of brands and land-based assets are clearly the largest and most diverse in the industry, and getting even better every day. While getting to 13% ROIC so quickly is a significant achievement, it's certainly not a ceiling.

We have been disciplined in deploying capital towards our highest returning brands, with seven ships on order for Carnival and Aida combined. But keep in mind, we have many other brands that are quickly progressing up the internal leaderboard. This year, the overwhelming majority of capacity will be at brands delivering double-digit returns. Yes, this is already well above our cost of capital, but our brands have much more room to significantly improve.

In fact, several of our brands are not yet back to either 2019 levels or the record highs they've reached in the past two decades. So we know the latent potential they have. And even the two stars, currently atop that internal leaderboard Aida and Carnival Cruise Line, have road maps to progress. Aida will continue to benefit from its hugely successful evolutions program.

Which coupled with new ship orders will modernize its current fleet. Next month, Aida Luna will enter dry dock, the second of seven ships to receive this proven upgrade. Carnival will also be launching a fantastic new marketing campaign just ahead of wave season, an enhanced loyalty program mid-next year, and, of course, stands to disproportionately benefit from the step-up we're making in our Caribbean destinations given their large year-round Caribbean presence. So while it is incredibly rewarding to see the great progress our teams have made in such a short amount of time, I am equally excited about the opportunities ahead as we create shareholder value through continued progress on profitability, and returns.

At the same time, further balance sheet improvement should continue the transfer of enterprise value from bondholders back to shareholders. I would like to again thank our team members Ship and Shore, for the dedication and execution which enabled us to deliver happiness to nearly 4 million guests this past quarter by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sail, place we visit, and life we touch. And special thanks to our travel agent partners, destination partners, investors, and of course, our loyal guests for their continuing support.

With that, I'll turn the call over to David.

Thank you, Josh. I'll start today with a summary of our 2025 third quarter results. Next, I will provide some color on our improved full-year September guidance as well as some key insights on our fourth quarter. Then I'll provide you with a few things to consider for 2026 and finish up with an update on our efforts to rebuild our financial fortress through refinancing and deleveraging.

Turning to the summary of our third quarter results. Net income exceeded June guidance by $182 million or $0.13 per share as we outperformed once again and achieved our highest ever net income for the quarter. The outperformance was mainly driven by three things. First, favorability in revenue worth 4¢ per share as yields came in up 4.6% compared to the prior year and that was on top of last year's robust increase of nearly 9%.

This was 1.1 points better than June guidance driven by continued strong close-in demand resulting in higher ticket prices and a continuation of strong onboard spending. The increase in yields was driven by improvements on both sides of the Atlantic. Second, cruise costs without fuel per available lower berth date or ALBD were up 5.5% compared to the prior year. This was 1.5 points better than June guidance and was worth $0.03 per share.

The favorability was driven by cost-saving initiatives which we firmed up during the quarter. These will flow through to our full-year September guidance. And third, favorability in fuel consumption and fuel mix was worth $0.02 per share as our efforts and investments to continuously improve our energy efficiency of our operations leveraging technology and best practices paid off once again. The balance of the favorability $0.04 per share was a combination of improved depreciation expense and better fuel prices as well as favorable interest income and expense.

Customer deposits at the end of the quarter were at a record for the third quarter at $7.1 billion, up over $300 million versus the prior year driven by higher ticket pricing and increased sales pre-cruise onboard revenue items. Next, I will provide some color on our improved full-year September guidance. Our net income guidance of approximately $2.9 billion or $2.14 per share is a $235 million or $0.17 per share improvement over our June guidance. The full-year improvement of $0.17 per share was driven by three things.

First, flowing the $0.13 per share third quarter favorability through to the full year. Second, an additional $0.03 per share fourth quarter interest expense favorability as the actions that impacted third quarter interest expense are also creating favorability in the fourth quarter. And third, $0.01 per share from improved fourth quarter fuel prices. Yield guidance for the fourth quarter remained the same as the prior guidance.

Cruise costs without fuel for the fourth quarter are flat with June guidance. However, our cruise costs for the fourth quarter did benefit from some of this cost savings we solidified during the third quarter but were offset by higher variable compensation driven by improved operating results. All of this results in over $7 billion of EBITDA, a 15% improvement over 2024 virtually all of which is being driven by same ship yield improvement as our capacity is only up approximately 1% year over year. Now a few things for you to consider for 2026. We are forecasting a capacity increase of just eight-tenths of a percent compared to 2025. As Josh indicated, booking trends have continued to improve since our last update and we now have nearly half of 2026 on the book at higher prices.

As we highlighted on our last call, Carnival Cruise Line's new loyalty program, Carnival Rewards, will start in June 2026, impacting results for the second half of the year. As a reminder, while the program will be cash flow positive from day one, it does impact our yields in 2026. The year-over-year impact is expected to be about half a point. It should also be noted that we do not anticipate any meaningful impact on costs from the new loyalty program when compared to the current program. Our game-changing destination Celebration Key opened in July 2025, has been delivered an amazing guest experience.

With a full year of operation in 2026, along with the mid-2026 opening of our new pier at Relax Away Halfmookie, we expect that the operating expenses for these destinations in 2026 will impact our overall year-over-year cost comparisons by about 0.5 points. While it is still early in our planning process, we are expecting to do more work during our 2026 dry docks. The additional expenses will impact our overall year-over-year assumptions by up to one percentage point. Now I'll finish up with an update of our refinancing and deleveraging efforts.

During the quarter, we continued our refinancing strategy to reduce interest expense and manage our maturity towers while also reducing secured debt by nearly $2.5 billion leaving just $3.1 billion remaining. We issued two senior unsecured notes and completed one bank loan. The combined proceeds of $4.6 billion from these financings together with cash on hand were used to repay over $5 billion of debt continuing our deleveraging efforts. We have been working aggressively all year long to delever as well as to simplify and strengthen our capital structure rebuilding our investment-grade balance sheet.

Since January, we refinanced over $11 billion of debt at favorable rates and prepaid another $1 billion accelerating our path to investment-grade credit metrics. We are pleased that our efforts have been recognized with the recent Moody's credit rating upgrade and the maintenance of their positive outlook. Based on our September guidance, we are expecting to end the year with a marked improvement in our net debt to EBITDA ratio going from 4.3 times at the end of 2024 to 3.6 times at the end of 2025. Looking forward, we are targeting a net debt to EBITDA ratio of under three times. Given the progress we have made, and while still a top priority, it is great to be able to say that debt reduction no longer has to be priority one, two, and three.

We can soon pivot to diverting some of that effort to returning capital to shareholders as well. In fact, just today, we provided a redemption notice for all of our outstanding convertible notes which if converted will be settled using a combination of $500 million of cash and equity as we continue to rebuild our financial fortress. The convert redemption will be settled on December 5, just five days after year-end and will result in a $600 million improvement in net debt. Pro forma for the convert redemption, our net debt to EBITDA ratio is forecasted to be 3.5 times very early in our fiscal year 2026. This transaction will also result in a lower share count used in the calculation of our fully diluted EPS for 2026 by approximately 13 million shares at a $30 share price.

As we near completion of our current refinancing strategy, and with no ship delivery scheduled during 2026, and just one delivery per year for several years thereafter, looking forward, we expect our leverage metrics to continue to improve as our EBITDA continues to grow and our debt levels continue to shrink. With strong investment-grade metrics in our future, an upgrade to investment-grade should not be far behind which will result in security release on our remaining secured debt. All of this continues to move us further down the road rebuilding our financial fortress while continuing the process of transferring value from debt holders back to shareholders.

Now operator, let's open the call for questions.

Thank you. We'll be conducting a question and answer session. Our first question today is coming from Robin Farley from UBS. Your line is now live.

Great. Thank you very much. Wanted to clarify, obviously, very positive forward-looking commentary. When we talk about historic price levels, does that mean sort of in line with or is that actually suggesting prices above?

And I also thought it was interesting the comment in the release said something like, now both Europe and North American sourcing brands are at that historic price. So does that imply that maybe a quarter ago that North American price on the books wasn't at that record level, like, a combined basis it was, but now North America better. So just wanted to get that clarification. Thanks.

Hey, good morning, Robin. So what we've intended to convey is that both North America and Europe are at historical record high levels in pricing, which is great to see. As far as looking back a quarter ago, nothing dramatic happened along the way. So it might be that we just wanted to give more information rather than less.

So things are looking great on both sides of the Atlantic across the brands.

Thank you. And then just as a for the anything you can quantify with Celebration Key when you look at the impact on forward bookings where you could sort of say, it's causing an x percent premium and ticket price for ships that are calling on that island versus other ships that aren't calling on it or any way to just sort of help us think about how that's driving your yields? Thank you.

Yep. No. We're ecstatic with Celebration Key and the impact that's already starting to have on the business. You know, it's kinda hard because it's such a massive set of business.

It's actually just shifted and is now inclusive of Celebration Key, but it's certainly getting the returns as anticipated when we came up with it a long time ago and as we've been getting closer to fruition. And a nice chunk of that is obviously the premium we're getting on the ticket side for any itinerary that's going to Celebration Key. So, you know, it's still six weeks you know, actually, I guess, it's two months into operations. Which is, you know, we hit the ground running and early days on the future potential that it's got.

But it's tracking exactly as we anticipated. As I said in my prepared notes, I knew we'd get this question, and the best I'm gonna tell you right now is it's certainly meeting expectations, and we couldn't be happier.

Great. Thanks very much.

Thank you.

Thank you. Next question today is coming from Brent Montour from Barclays. Your line is now live.

Great. Thanks for taking my question. So I wanted to ask about the consumer, your consumer, Josh. We see lower-end consumers sort of fatigued and hurting in several other travel verticals.

It seems you're seeing it, maybe that's why you're not seeing it the value proposition like you talked about. But are you seeing any sort of behavioral shifts within your loyalty set or people maybe trading down between shore excursions or any type of behavioral changes in your core consumer here?

You know, continue to say the same thing quarter after quarter, which is we've got an amazing business with amazing brands that are doing a phenomenal job of improving, you know, on a daily basis. So you know, I'm real proud of all of them, regardless of whether that's contemporary, premium, luxury. I'd say if you look back we said in the third quarter we had a pretty great booking period. We booked more year over year than we had in the third quarter of 2024. And in fact, you know, Carnival, for example, booked 8% more in 2025 than it did in the third quarter of 2024. So we feel like we are pushing ahead very well.

And as you know and most others know, we don't really have capacity growth. So when you think about 2026 with no new ships, and then one thereafter for the next couple of years, that's all going to increase demand on a very restrained supply side for our capacity. So it's setting us up very well.

Okay. Great. That's helpful. And then just a follow-up on the bookings commentary, you're half booked for 2026. Sounds like from your tone that that's your place where you wanna be.

But just thinking about the ebbs and flows of that booking strategy over the last few months, bookings were choppy back in April and March, and you kinda came back to that. When you look forward and think about how your strategy might change into 2026, do you feel like you want to go in kind of similar to you were last year? Or was there learnings from last year where that might not be perfectly optimal?

Yeah. That's a great question. I mean, you know, to some extent, we need a little bit of a crystal ball, and hindsight's great. But knowing where we were positioned last year as we got towards the end of the year and then what we absorbed and still came out in a pretty great way as we've been talking about over the last few quarters.

It is giving us some thought about how we need to make sure we're optimizing in light of the volatility that we had last year. A question mark. Right? There's always something, but, you know, it's not an election cycle year.

Which was the case last year at this time. Knock on wood, think the volatility has certainly been reduced pretty dramatically. Now we you know, I'm knocking out everybody around this table is knocking on wood right now. But knowing that that happened last year and it shouldn't be recreated in any similar way, it does give us some confidence in how we're approaching this and what we were able to do despite the volatility this past year.

Excellent. Thanks, everyone.

Thank you. Thank you. Next question is coming from Steve Wieczynski from Stifel. Your line is now live.

Hey, guys. Good morning. Congrats on the strong third quarter and outlook. So Josh, I want to ask a little bit more about how you're thinking about 2026 versus maybe three months ago.

And, you know, fully understand you guys aren't in a position to provide, you know, guidance yet for next year. But based on your qualitative commentary, it seems like booking trends have actually accelerated, I would say, versus the fear that might be out there in the marketplace that demand is decelerating. So just wondering from a bigger picture perspective, maybe how you're feeling about next year versus back in June. And then also in your slide deck, you mentioned that 2027 bookings are up to, in your words, an unprecedented start.

And maybe if you could help us think a little more about what that wording means there. Thanks.

Yeah. Sure. Just because I have a bad memory. Let me start with that one.

So 2027, what I meant is literally we've never had more bookings in a thirteen-week window over the third quarter. So this is a record for us for 2027. And so it was exactly as it was intended to be unprecedented. With respect to 2026, yeah, we feel good about 2026. We obviously are, you know, have a feeling I'm gonna do this a lot on this call. Not giving guidance yet.

Not really talking about 2026. We're just trying to give a little bit of an understanding about where we're sitting, but I think, all the things that we've talked about for quarter over quarter over quarter around our brands really trying to just own their space in the vacation market and doing their commercial execution on an improved basis is paying off.

Okay. Got you. Thanks for that. And then Josh, here's another 2026 question. So David mentioned Thank you for warning me in advance.

Exactly. David did mention look. There are headwinds out there as you start next year. I mean, 50 basis point impact on yields for the reward program, a 100 basis points for the dry docks, and 50 basis points, I think he said, for the build-out of the rest of the island.

So, you know, basically, you guys have a 200 basis point headwind as we start 2026. But I guess the question, Josh, is there anything you didn't mention that, you know, maybe you kinda behind the scenes that you guys are working on to help kinda mitigate some of those headwinds?

Yeah. Yeah. Absolutely. I mean, look, let me give you some pros about 2026. You know, as you said, you know, we're about 50% booked.

That's the longest-looking curve we got on record. We just had a better Q3 booking period than we did last year. There's as I said, there was no election cycle. We get the full year benefit of Celebration Key, half a year of Relax Away.

OBR strength has continued, and we expect that to continue as we look forward. We have no capacity growth. Very, very little I should say, which bodes very well. The strength of our diversified portfolio I think really been playing out over the last couple of years and couldn't be more complementary of the work that is happening all over our eight brands to really drive the business forward.

And we get a benefit on the loyalty side with cash flow, as you know. So putting that aside, you know, we're always trying to figure out how do we become more efficient in what we do and how we do it. And as a matter of fact, David and I are going starting next week, we're gonna be meeting with each of our brands to go through the 2026 operating plan and really understand how we can up our game to mitigate cost headwinds that happen every year and we'll try to mitigate as best as it can.

Okay. Great color. Thanks, Josh. Appreciate it.

Thanks, Steve.

Thank you. Next question is coming from James Hardiman from Citi. Your line is now live.

Hey, good morning. Thanks for taking my call. So maybe sort of a nitpick question, maybe it's a dumb question. As I think about your forward booking commentary, I think coming out of Q2, you were saying you were in line with respect to load factors.

Then I think in the press release, you spoke to sort of an acceleration in bookings year over year since May. I would think would mean that you're now ahead on bookings. So but I think you're still in line. So maybe it's just too close to call out in terms of the overall numbers, but just wanted to clarify on that point.

Yes, James, I think you might I'm trying to recall back from the second quarter. I think the second quarter we were talking about 2025 and the remainder of the year. And this time, the commentary was on 2026. Maybe you can double-check the comment.

Okay. I'll definitely do that. And then as I think about the quarter and really the last couple of quarters, the organic growth has been pretty stunning here. Right?

Particularly, you don't have any new ships coming online I think you've had the best yields in the industry, at least the ocean side of the industry. So maybe connect the dots between some of the programs that you've been talking about, Josh. Right? The AIDA evolution program and some of the things going on with Carnival, new marketing, the step-up in Caribbean destinations, maybe connect those dots with how that's translating into pricing.

And then as we think about moving forward, other low-hanging fruit and how we should think about pricing moving forward in the context of sort of the brand level initiatives that are underway? Thanks.

Yeah. Look, you know, where to start? I mean, when you think about something like the AIDA evolution program, that's one two thousand berth ship that's had four or five months of operations, you know, coming out of it, which is going great and it is knocking the cover off the ball. And Felix Eichhorn should take a bow for everything that he's done with Aida.

But in the grand scheme of things, that alone is fairly small. It will get better and better as we get more and more shifts through that program over the next several years. And I expect, actually, some of our other brands to be embarking on similar exercises and initiatives to really up the game of their ships that might be fifteen years old or so, but they're gonna be with us for well over fifteen years as far as I'm concerned more. And so there's a lot of opportunity for that to run.

Celebration Key, we, you know, we talked about, I think, quite a lot. Couldn't be more proud of the team there for delivering an excellent experience and just giving us tremendous wind at our backs as we move forward into 2026 and beyond. But really, this is fairly broad-based. I mean, most of our brands have not had growth for a long time.

And they are improving their yields year over year not insignificantly. And it is because they can actually execute at a higher level. Which is what they've been doing tonight, and that will continue. You know, we've made investment.

We've made investment on the advertising side. We've made investments into our revenue management systems. We've made investments into our people, to make sure we've got the right capabilities and the right leaders doing the right things. And I think we've been saying this for a long time.

Right? I mean, when we came out with SeaChange, we talked about what we need to do, and that was back in June 2023. Really, the reality is it's just exceeded my expectations on the pace of that execution improvement. But the good news is there's a lot more in store.

Got it. That's really helpful. Thanks, Josh.

Thanks.

Thank you. Next question is coming from Ben Chaiken from Mizuho Securities. Your line is now live.

Hey, good morning. I guess first on capital return, guess how you're thinking about timing leverage bogeys and then is there any preference between dividends and or buybacks? And then kind of like separately, longer term, how do you think about capital return as a percentage of your free cash flow, if that's the way you kind of bucket it? Thanks. Then one follow-up.

Yeah. Hi, Ben. Well, you heard what David said in his prepared remarks. I mean, like I was just saying, the acceleration is across the board and that's certainly inclusive then in our ability to start returning cash to shareholders, as we get to that three and a half times leverage metric.

We'll be awful close to that at the end of our fiscal year. And as David noted, with what we're doing on the convert side, should pretty much position us very well in early 2026 to get there. I am I am been fairly, I think, fairly clear when I'm having conversations with anybody who asks about this that number one, wanna be clear, it's a board conversation and decision, which has not happened yet. Two, dividends are very important to us.

We see the benefit of establishing our dividend program. So I would expect outside of what we're doing on the converts, which is a little bit of a juice buyback, because of what we're doing with our cash, it's really gonna be reinstating the dividend, but it doesn't mean that it's to the exclusion of buybacks over time. You know, we have done both before very effectively, and we can do that again. In the future.

But it is a little premature for us to try to telegraph what, when, and exactly how we're going to do that in any type of metric that we're gonna be using to moderate the amount of cash that's going out the door. What I can say in the good news side of the ledger is again, we got no capacity growth next year. We don't have any new ships coming, and we have one a year thereafter for the next several years, which should allow us to take a lot of free cash flow and return it to shareholders in the form of dividends and buybacks over time. And so once we've kind of fully turned that corner and can start talking about it, we'll try to give people more of a road map about how we're thinking about it.

I'd say it's close. It is close, and I look forward to being able to talk about it having happened.

Understood. And then near term, I think previously, there was a pretty healthy acceleration kind of implied between 3Q and 4Q yields. Obviously, 3Q came in better. Maybe talk about what you're seeing with close-in demand and how you're thinking about the remainder of the year? Thanks.

Yes. Look, Q3 ended on a strong note, and that was, as David said, in his notes, it was a combination of closing demand being stronger than we had forecast and continued strength in onboard spending. You know, for Q4, we're you saw we've been fairly consistent since the beginning of the year actually how we were looking at the second half of the year. And given the volatility impact that we had in the spring, it did limit our upside as I've said before.

And then, you know, we managed to get some out of our third quarter. And as always, we're gonna work as hard as we can to outperform every quarter, and that includes the fourth. But you know, I think I said it last time, you know, whereas we were outperforming in the first half of the year by two to 250 basis points on the yield side, that was gonna be hard in the second half of the year. You saw what we were able to do, on the third quarter.

Ben, you still there?

Thank you. Our next question is coming from Matthew Boss from JPMorgan. Your line is now live.

Thanks and congrats on another nice quarter.

Thanks, Matt.

So Josh, you elaborate on the ample opportunity remaining with net yields, margins, and returns that you cited in the release. I don't know, maybe there's a way to think about what inning you see the overall story in today or just how would you rank the continued areas for ample improvement that you noted?

You know, having just got to 13%, on the return side, I don't see why that cannot make significant improvement on a longer-term basis. From there, we never looked I never looked at 13% as an ending point. I just never looked at 12% as an ending point, which was our sea change targets, and now we're at 13%. We are planning in our fiscal second quarter hopefully, early on in that second quarter to be able to give longer-term targets.

Which will probably help give you some clarity around how we're thinking about things. From a margin perspective, from an improvement in yield perspective, I think you should expect us to have a continued track record of improvement over time. That's what we've shown, and we expect that to continue.

And, David, helpful color on cost for next year. Are there any constraints we think about delivering on your algorithm for cost to grow below yields as we think about puts and takes for 2026 and also as we think multiyear?

Yes. So as Josh indicated, we're going to be looking at targets early next year. And we do expect to see improving returns and improving margins. So which would mean that in the long term, yields would grow faster than costs.

Over time. And any one given year, obviously, that's a difficult metric. But there are things that we can do. In difficult circumstances and we will work hard.

We have lots of savings opportunities to leverage our scale. As we talked about, we saw things in the third quarter hundreds of items leveraging our scale across various operating areas, and we expect to see that continue into 2026. Some of that is what Josh was talking about before is offsets to the cost increases that I mentioned in my prepared remarks.

That's great color. Best of luck.

Yes. And I just add for everybody, the lack of capacity I think, is part of our strategy. It also basically means for every dollar that we spend that's a dollar increase on our on a unit basis. And I'm not shying away from that.

That is what it is. And we're gonna work hard to reduce, reduce our cost wherever we see efficiency. And we can leverage our scale more. But it's a very different environment on the cost side than when you're living with a 678% year-over-year capacity increase, which covers up quite a lot of cost spending.

Underneath the surface. So that's on us. We're gonna try to perform as well as we can in all circumstances. That's just a reality of a very low capacity environment.

Thank you. Next question today is coming from Connor Cunningham from Melius Research. Your line is now live.

Hi, everyone. Thank you. In the prepared remarks, you talked a little bit about the laggard brands moving up the ranks. I'm just hoping you could maybe drill down on that a little bit and talk about what's actually improving there.

And then, I mean, in the past, you've just talked about rationalizing brands and whatnot. So I would imagine that there's some sort of investment needed to kinda get those brands back to the 2019 and beyond level. So if you could just talk a little about the laggards, that would be helpful. Thank you.

Yeah. You know, it is interesting, and we don't really I'm not going to open the kimono and just tell you everything that you probably wanna know. But I would say that example, some of the brands that are lagging 2019, well, they were super high up the leaderboard in 2019. They're already at double-digit. They're just not to where they were in 2019 because they were really clicking on all cylinders.

And they've already got they're showing improvement, good improvement, but I know that there's a way to go. Likewise, there's a couple of brands that have already been improved versus 2019, but their 2019 starting point was anything to be you know, raving about. So I know that they've gone to even higher heights in the past twenty years, and we see a path to be able to help them get there. So it is a bit of a mix underneath.

When we talk about significant investment though in order to be able to help brands really get up to the top of that leaderboard. I don't think there's actually anything in particular that is a glaring hole, for any of the brands that we've gotta fill. We have rationalized. We have rightsized, many of our brands that needed rightsizing, and the progress is good.

And we'll continue to support the brands that need a little bit more help than others to keep pushing up the ranks. I'm ecstatic that, you know, as amazingly as Carnival and Aida have been doing, over the last couple of years, they gotta look over their shoulder because there's some that are coming on fast.

Okay. That's helpful. And then I know that you got asked about 2026, so maybe I can ask about 2027. So on the dry dock commentary, it seems like there's been a couple of issues with that. I mean, you've had headwinds for several years now.

Right? And in 2027, I would think that that we'd actually start to tick down again. Like, what holds that back? Like, is your fleet back to if you just talk about the dry dock, opportunity and come 2027, does it actually start to bend down again?

That would be helpful. Thank you.

Yes. So 2027, I mean, at the moment, these things move around constantly as we plan things. But at the moment, the plan is for fewer dry dock days in 2027 than in 2026. But I caution you that things can change as they do all the time. So there may be some opportunity there on the flip side. But it's very premature.

Okay. Thank you.

Thank you. Next question is coming from Lizzie Dove from Goldman Sachs Asset Management. Your line is now live.

Hi, there. Thanks for taking the question. Hi, So congrats on another great quarter. Obviously, really strong same ship yields.

I'm curious as you go forward, it feels like you're having really strong returns from things like the AIDA evolution program. Do you evaluate when you're thinking about building new ships versus, you know, maybe expanding that type of retrofitting type program to the other brands? And the relative returns there?

Yes. So actually, I'm not going to tell you which one, but I sat through a session last week with another one of our brands to be doing something similar vein to how Aida is thinking about their midlife ship refurbishment program. So we are actively in the middle of that. You know, most of our brands have no new build on order.

And so making sure that we're maximizing the assets that we've got and investing in them when the returns make sense is part of how we're thinking about the world going forward. It's one of the reasons why our dry dock costs are higher, right, than they have been, in the past, but they're giving us the return. So we do look at it. I would look at it very similar to a new build.

Right? What's the incremental amount that they wanna spend incremental to what would be normal just to run the ships in the normal course. And what are we gonna get for it? And Aida has shown us a template for getting significantly outsized returns on that type of investment.

So I would say stay tuned. There'll be more to come in this space.

Got it. That's helpful. And then shifting gears, in Galveston, I think you're still the leading cruise line there in terms of volumes number of ships there, etcetera. But you do have one of your peers mainly, I suppose, like trying to get more active in that space over the next few years.

How does that impact or does it impact how you think of your go-to-market there? There's been a lot of expansion on islands in the Eastern Caribbean, which I know you can reach from Galveston, but whether it's more developments with Western Caribbean or Mexico, Puerto Maya that you have, Isla Tropicale, how do you just think about keeping that competitive edge in Galveston?

Yeah. You know, Galveston has been a tremendous market for us for decades, and we expect that to continue. We've got some fairly loyal guest bases all throughout Texas, which is always appreciated. So it's certainly more crowded.

I mean, what we find that everywhere. Right? People see successful operations, and they wanna emulate it. I wanna do the same when I see it.

From others. So we're gonna try to keep upping our game and the guest experience that we have, the ships that we put there, and where we can take them. We're always looking at opportunities, Lizzie. For how to diversify the offerings for our guests, and we'll continue to do that.

And every market is important. Every home port is important. But one of the things that we get with our scale and our size and that diverse portfolio is a lot of things are clicking well for us. Right?

I mean, The Caribbean's about a third of our business. It's an important third. But Europe is, I think, getting pretty damn close to 30% of our business. Alaska is inching towards double digit.

And it primarily over the third quarter. So we really do have a diversified portfolio that we've been I would say over my tenure. It didn't start in a lot of folks' minds as a positive. It was a drag.

Because North America started out the gate so when we came out of our pause. But I can tell you, that diversification and the strength of that portfolio all over the world is a huge benefit for us. And we continue to enjoy the results.

Great. Thank you.

Thank you. Next question is coming from David Katz from Jefferies. Your line is now live.

Morning everybody. Thanks for taking my question. David, in some of your earlier remarks about capital allocation, there was some reference to a bit of a transition to getting to return capital. Should we think about leverage having to get inside of that three times before there'd be more substantial recurring you know, whatever adjective we'd like to put on it, how are we thinking about the progression from here before you know, we'd see maybe a buyback or you know, yeah, and, you know, other forms?

Thanks.

Well, I think let's start by saying it's wonderful we're having this conversation. It is. That we're in with a strong, you know, with a strong balance sheet getting stronger every day. But as Josh said, it is a Board decision.

And we do have to have some conversations with the Board. We are looking at given our circumstances, as I said, we can begin to think about returning capital to shareholders and we will do that. And as we go along throughout 2026, we will make decisions as to how much, when, where, and how. And so it's a little premature to make any statements relative to the size or magnitude of anything.

In terms of that right now.

Yeah. One thing, David, I think you misspoke or you misread the release in that we're not looking to get to three times before we start doing that shareholder return of capital. It's as we have our line of sight on 3.5 times. Is where we can start pivoting and doing more.

We don't even though our long-term target is under three, once we get to that three and a half times, we can walk and chew gum. And we can do both.

Understood. And that's what I intended. But just to follow-up, you know, thinking about other potential large capital projects or investments that may come our way, is there any I know this is not always the best place for hypotheticals but just thinking about what might get in the way or defer any of that leverage come down. Anything out there we should just consider or be aware of?

No. The only thing I'd say is as we've been talking about a little bit on this call, is, you know, part of what we do is invest in ourselves. On the capital side. So if we see opportunities for midlife ship significant refurbishments like we're doing with Aida, that will certainly come into effect.

There's the opportunity for phase two of Celebration Key as we've talked about. But none of that is even close actually to the price of a new build. So we're talking about things and then the, you know, over the coming years that we think are accretive to the business but in the grand scheme of things are significantly smaller than the types of at an individual new level. Would have us make.

Understood. Thank you.

Sure.

Thank you. Next question is coming from Sharon Zackfia from William Blair. Your line is now live.

Hi, thanks for taking the question. Think at the beginning you talked about early learnings on Celebration Key kind of things that maybe you amplify and or improve. So I'd be curious on what you're hearing from guests there. And then secondarily, on the loyalty hit, to yields next year, I assume that's all kinda second half weighted just given when loyalty kind of rolls out, if you could clarify that.

Thanks.

Yep. Hey. So on the Celebration Key side, some of this is us being a little bit more thoughtful about exactly how we schedule the arrivals and departures of our ships when we've got multiple ships in port to make sure that everybody's got space to have an amazing time. Well, because there's so many folks going ashore, which is amazing, we need to get some more chaise lounges and more umbrellas, which I'm actually happy to do.

Some more shading in the island, there are some things that structurally we are working on. There's a rocky stretch of the beach that we wanna make less rocky over time. We just gotta see how the natural flows of the environment are working in a little bit more of an extended period to make those types of decisions. But, you know, tweaks all over the place on the F and B offerings, the type of things we offer, where we offer them.

I mean, it's all gonna be in play. I mean, I'd say this with a lot of love for the team at Carnival Corporation Worldwide who have been participating in this. The fact that we've hit the ground running as hard as we have from opening to pretty much full is pretty phenomenal. And we'll take the learnings as we go, and we'll just feed it in.

Not really no different from a new ship. No different from new functions. You just gotta, you know, listen, get feedback, and move on. As far as the loyalty hit, you wanna

Yeah. The loyalty is the second half after the implementation of the program June 2026.

Okay. Thank you.

Thank you. Next question is coming from Chris Stathopoulos from Susquehanna International. Your line is now live.

Good morning, everyone. So I'm going to keep it to one question. Really more of a strategic view, Josh. I know, not talking about 2026, but this is more of a high level as we think about the industry.

And really about Carnival's ability to, I would say, protect pricing power and brand equity in The Caribbean. So you have a competitor who's gonna be adding on a lot of new hardware. And pivoting to fund and some itineraries as well as another who recently announced a new class of ships beyond their icon. So as we think about The Caribbean market, and maybe you want to kind of contextualize this in terms of the mix of premium, so balcony and suites and alike.

I'm guessing this is gonna be growing year on year low single digits for next year, perhaps at the same level through end of decade. What is the plan for Carnival to protect its ability to push yield to maintain its share, I realize you have, two private destinations coming online maybe you could contextualize that in terms of a premium for that itinerary versus non. But I wanna understand how you're thinking about The Caribbean particularly as the market looks to evolve and capacity perhaps grow at a rate that we haven't seen for some time? Thanks.

Yeah. No. Thanks for the question. I wish we could say we've seen this growth for a long time, but that's just not the case.

I mean, the fact is The Caribbean market has, for twenty years been growing at rates that people did not think was sustainable. And lo and behold, it is. And we do grow less. We are growing less than some of our competitors.

But, you know, at the end of the day, I think the first thing we gotta contextualize is that we are all competing for land alternative vacations and guests that would otherwise be going somewhere else. Be that whether that's Orlando, whether that's a beach resort, whether that's going across to Europe, whatever that might be, that's where we're competing against. And in that context, we are all tiny. I mean, we are just incredibly insignificant in the grand scheme of the vacation market, which actually is a plus.

Because the better we've gotten at reaching into the mainstream, more consideration, being given by those who do not cruise, the better off we are. Now keep in mind, it doesn't mean we're standing still, so Carnival has got two XL sisters coming in one in 2027 and one in 2028. So we're building for Carnival. Also have announced our own new class, the Ace class. Which is gonna carry more guests than anything that exists in the world today.

And that's also for Carnival and helping to protect this position in general, but it has been the mainstay in The Caribbean forever. So, you know, this is just nothing new in the grand scheme of things. We just gotta keep doing what we're doing, investing in the things that we think make a difference. Leaning into the destination strategy, certainly Celebration Key.

Relax away half moon, those things are gonna help, and we're always looking at different opportunities like that. And the other thing is, you know, ultimately, what we see is with a lot of our competitors, they view The Caribbean differently. They view it as something that is more transient in nature than we do. You know, Caribbean for Carnival, That Is Who They Are.

That Is What They Do. And They're Amazing At It. I'm Not Taking Anything Away From Our Competitors. Some Of Them Have Made A Great Go Of It, And They're Doing Similar Things.

But They Also Look At Caribbean as something, like, good enough until something better comes along. And we position ourselves very well -being there for the long term. So thank you for the question. We have time for one more operator.

Thank you. Our final question today is coming from Vince Cibile from Cleveland Research. Your line is now live.

Thanks. Just wanted to think a little bit longer term about the opportunity. I know in the multiyear goal, you guys are targeting low to mid single digit type per diem growth. When we look at occupancy here, still I think about a point shy of where 2019 shook out.

And I imagine something like 20% of the fleet might be newer. We think it's over indexing the balconies and maybe have higher occupancy levels. In terms of opportunities. So are you thinking about kind of the multiyear opportunity ahead in the occupancy side of the yield equation?

Yes. Look, there's nothing truly when I say this, there's nothing magic about the occupancy number that we hit exactly this year versus 2019. We're encouraging our brands to optimize between the price that they can achieve and the occupancy. We know we can get occupancy. It's really easy to sail completely full.

It's just a matter of how much you can charge to do it. And is above the historical range. But in the grand scheme of things, there'll be incremental things that we do brand by brand to make the trade-off between that price and occupancy and get more folks on. At the right price.

Great. Thanks.

Thank you very much. With that, I'll say thank you very much. Look forward to talking in December when we could probably talk a little bit more about 2026. So thanks, everybody. Have a good day.

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.