Q1 2026 Earnings Call Transcript

Greetings, and welcome to the Carnival Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Beth Roberts, SVP, Investor Relations. Thank you, Beth. You may begin.

Thank you. Good morning, and welcome to our first quarter 2026 earnings conference call. I'm joined today by our CEO, Josh Weinstein; our CFO, David Bernstein; and our Chair, Micky 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, all of 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 investor presentation.

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. Good morning, everyone, and thank you for joining us today. Before we begin, I do want to acknowledge the ongoing conflict in the Middle East and the profound human impact it's having on so many people. Our thoughts are with the brave men and women of our armed forces, with all those affected, and with the countless families and communities facing hardship during this time.

Like so many around the world, we remain hopeful for a resolution that brings relief to those impacted and a lasting peace to the region. Turning to our business. We are off to an excellent start to the year. First quarter results came in ahead of guidance, thanks to higher yields and better cost performance, reflecting healthy fundamentals and solid execution across the business.

Close-in demand remained robust, guests continued to spend more onboard and pricing strengthened, enabling us to outperform our December guidance and deliver record first quarter revenues, net yields, operating income, EBITDA and customer deposits. We're seeing this momentum continue in onboard and pre-cruise sales. Guests are engaging earlier in the vacation journey, purchasing more inclusive packages, excursions and other experiences before they even step on board. That trend is contributing to higher onboard revenue and reflects the value guests place on the experiences our cruise lines deliver.

We're also seeing it in our bookings. Bookings for current year sailings increased 10% year-over-year, adding to our record book position for the remainder of the year at historically high prices. With nearly 85% of 2026 already on the books and less inventory available than this time last year, we remain well positioned to keep improving yields as the year unfolds. Cumulative future year bookings also reached a first quarter record, adding to our continued confidence in the trajectory of the business.

And as a result, we are seeing it in our customer deposits, which reached a new first quarter record of almost $8 billion, surpassing last year's high watermark by nearly 10%. Now what stands out most is that we're achieving all of this against such an unpredictable macroeconomic and geopolitical backdrop. It says a great deal about the demand we continue to see across our portfolio of world-class cruise lines, about the team's ability to execute on our long-term strategy and about the progress we've made in positioning the business to perform through a wide range of environments. This start to the year also supports increasing our full year outlook operationally by approximately $150 million compared to our December view.

That improvement helps absorb a $500 million fuel headwind albeit that is against a substantial EBITDA forecast of $7 billion, which David will walk you through in more detail. This quarter and our outlook are further evidence of how far this business has come over the last several years. Over that time, we have restructured the organization, reconstituted the global leadership of the corporation and our cruise lines, actively managed the portfolio and its assets and sharpened our commercial operations. We have also just begun to better harness the power of our unmatched Caribbean and Alaskan destination footprints, improve pricing, fortify the balance sheet and embed greater rigor across the organization.

As you know, thanks to those efforts, last year, we surpassed our SEA Change objectives in roughly half the originally outlined time frame. We more than doubled our ROIC, delivered our highest unit EBITDA in nearly 2 decades and meaningfully reduced our greenhouse gas intensity rate, all of which built momentum and, more importantly, reinforced that our approach is working. With this robust foundation in place, we are focused on the next chapter of value creation for Carnival. So today, we are introducing PROPEL: Powering Growth & Returns, Responsibly.

By 2029, we are targeting return on invested capital above 16%, earnings per share growth of more than 50% versus 2025 and the distribution of more than 40% of our cash from operations to shareholders, or approximately $14 billion. At its core, PROPEL is about converting strong and growing demand into higher returns, earnings and cash flow while maintaining disciplined capacity growth and a strong balance sheet. That we see 4 primary drivers underpinning these targets. First, yield expansion.

A continued focus on high-quality execution across our commercial operations will drive even more growth in same-ship demand, strong pricing, increased onboard spend and earlier guest engagement throughout the booking journey. These trends are already evident in our current performance and give us confidence in our ability to drive sustained yield improvement. Second, disciplined capacity growth and high-returning capital allocation. Our capacity growth remains intentionally measured with only 3 ships scheduled to enter service during the PROPEL period.

At the same time, we'll be investing in return-generating modernization programs across many of our cruise lines, building on the success we are already seeing from AIDA Evolution. And the second cruise line announcing its program will be just next month, so stay tuned. Third, further monetizing our destination portfolio. We're expanding and enhancing our unique destination assets, including Celebration Key, Grand Bahama, RelaxAway, Half Moon Cay and Isla Tropicale, Roatan, along with our unrivaled Alaska land footprint to deliver differentiated guest experiences while generating attractive incremental returns.

Fourth, continued cost discipline. We remain hyper-focused on maintaining our industry-leading cost structure and driving operational efficiencies across the P&L. And all of this is supported by a phenomenal team and advancing technologies to enhance revenue and improve efficiency. Importantly, these PROPEL targets will not come at the expense of financial strength, corporate responsibility or investing in our future.

We are targeting net debt-to-EBITDA of 2.75x and a reduction in greenhouse gas intensity of more than 25% versus 2019 levels. For us, returns, resilience and environmental stewardship go hand in hand. And further, our growing cash flow will enable us to meet these targets while reinvesting over $15 billion back into the business over this time frame. With greater financial flexibility, we have the capacity to invest in our growth, to achieve our leverage target to grow our recently reinstated dividend and to return excess capital through an opportunistic buyback program, beginning with a $2.5 billion authorization announced today.

This is a balanced approach, investing for growth, increasing shareholder returns and doing so in a way that supports the long-term earnings power of our business. Accelerating returns is a natural result of that strategy and a reflection of the attractive fundamentals of our business. Our capacity growth remains measured while demand continues to expand as cruising becomes even more mainstream, as consumers are choosing to spend more of their hard-earned money on well-deserved and much-needed vacations, and as we remain underpenetrated relative to the broader vacation market. We are well positioned with a strategy that is grounded, focused, diversified across our portfolio and built for consistent execution over the long term.

As we continue to monitor developments in the Middle East, we remain focused on executing on that strategy and delivering for our guests, for our shareholders and our other stakeholders. While external conditions will continue to evolve, what gives us confidence is our ability to deliver exceptional vacation experiences, operate efficiently, allocate capital with discipline and grow in a measured way. Now none of this progress happens without the dedication of our global team, the best in all of travel and leisure. I want to thank our more than 160,000 team members, both ship and shore, for their hard work in delivering these first quarter results.

They go above and beyond every day to deliver unforgettable happiness to our guests by providing them with extraordinary cruise vacations while honoring the integrity of every place we visit, life we touch and ocean we sail. I also want to thank our travel agent partners, our loyal guests, our investors, our destination partners and all of our stakeholders for their continued support. With that, I'll turn the call over to David to walk you through the quarter and our guidance in more detail.

Thank you, Josh. I'll start today with a summary of our first quarter 2026 results, then I'll provide color on our full year March guidance and finish up with some additional insights into PROPEL. Once again, we delivered record first quarter operating results with strong execution, resulting in us beating guidance on revenue, costs and net income. Net income of $275 million was more than 55% higher than the prior year and exceeded our December guidance by $40 million or $0.03 per share.

The outperformance versus December guidance was driven by 3 factors. First, revenue favorability contributed $0.04 per share as yields were up 2.7% versus the prior year on top of the more than 7% increase in the first quarter last year. This was over 100 basis points better than our December guidance, driven by continued strong close-in demand which drove higher ticket prices and stronger onboard spending. Yield improvement was driven by increases on both sides of the Atlantic.

Second, cruise costs without fuel per available lower berth day, or ALBD, were up 5.3% versus the prior year. This is more than 0.5 point better than our December guidance and contributed $0.01 per share. This benefit was driven by cost-saving initiatives that we firmed up during the quarter. Third, the remaining $0.02 per share of operational favorability came from improvements in depreciation expense, net interest expense and fuel consumption, where we delivered a 4.7% year-over-year reduction.

Total first quarter operational improvements of $0.07 per share are fully reflected in our full year guidance. However, those first quarter operational improvements were partially offset by the unfavorable impact of fuel price and currency costing $0.04 per share. Turning now to our full year March guidance. Our full year guidance calls for earnings per share of $2.21. This includes the first quarter operational improvement of $0.07 per share as well as an additional $0.04 per share of improvement in depreciation expense, fuel consumption, net interest expense and income tax expense over the remaining 3 quarters of 2026. However, that $0.11 per share operational improvement for 2026 will be more than offset by a $0.38 per share headwind from higher fuel prices driven by recent geopolitical events and reflected in our March guidance.

Given the recent spike in volatility in fuel prices, we believe it is reasonable to assume some moderation over the balance of the year rather than base our guidance on current elevated spot prices. As a result, our guidance assumes the purchase price of fuel for the month of March and early April, Brent averaging $90 per barrel for the remainder of April and May, Brent averaging $85 per barrel for the third quarter and Brent averaging $80 per barrel for the fourth quarter. A 10% change in our fuel cost per metric ton, excluding emission allowances, for the remainder of the year impacts our bottom line by $160 million or $0.11 per share.

Turning now to yield growth. Our March guidance assumes yield growth of approximately 2.75%, which is 25 basis points better than our December guidance and fully reflects the first quarter yield improvement. Importantly, our yield assumptions for the balance of 2026 remain unchanged from our December guidance. Yield growth versus 2025 reflects both higher ticket prices and continued strength in onboard spending.

It is also worth noting that full year 2026 yield growth is approximately 3.25% on a normalized basis, excluding the previously disclosed impact of the summer 2025 close-in decision to redeploy away from the planned first quarter 2026 Arabian Gulf voyages and the impacts of loyalty program accounting for Carnival Cruise Line. Cruise costs without fuel per ALBD are now expected to be up approximately 3.1%, which is 15 basis points better than our December guidance and reflects the first quarter improvement. Like yields, our cruise costs assumptions for the balance of 2026 remain unchanged from our December guidance.

On a normalized basis, cruise costs without fuel per ALBD are up just 2.3% after factoring in the partial year of operating expenses associated with Celebration Key, Grand Bahama and RelaxAway, Half Moon Cay as well as the timing of certain expenses between the years. In addition, you will see that our cost growth decelerates from the first half of 2026 to the second half. The main drivers of the deceleration are the sliding of some costs from the fourth quarter of 2025 to the first half of 2026, which will impact our first half, second half comparison, as we indicated on the December earnings call.

The full year operation of Celebration Key, Grand Bahama, which opened in July 2025, will also impact our first half, second half comparison. This comparison is also affected by the seasonalization of advertising and repair and maintenance spending. I will close with a few additional thoughts on PROPEL. As Josh said, at its core, PROPEL is about converting strong and growing demand into higher returns and stronger operating cash flow while maintaining disciplined capacity growth and a strong balance sheet.

Our confidence in achieving our PROPEL targets is grounded in the same strategies, priorities and disciplined execution that have delivered strong results and momentum in recent years. It is also supported by realistic assumptions and performance metrics that give us confidence in the path ahead. From 2026 through 2029, we expect moderate yield growth on a CAGR basis and low single-digit CAGR growth in cruise costs, excluding fuel per available lower berth day. Because we expect yield growth to grow faster than costs, we believe this will drive significant margin expansion.

Achieving these targets will require heightened cost discipline and a focus on further strengthening our industry-leading cost structure. We will drive operational efficiencies and realize scale benefits within ship operating expenses and G&A through technology and sourcing, resulting in decelerating cost growth throughout the period. While it is true we are announcing PROPEL at a time of heightened volatility, these targets are about the long-term trajectory of our business, for which I have great optimism. And I say that based on very relevant experience.

During my time at Carnival, we have managed through so many challenges, 9/11, the global financial crisis, the Arab Spring uprisings, COVID and the Ukraine war, just to name a few. And we have always come away demonstrating our ability to execute and achieve new record results while building resilience and growing stronger. I expect no less as we look ahead to our future. Operator, we're now ready to open the call for questions.

[Operator Instructions] Our first question today is coming from Robin Farley of UBS.

I wonder if you could just give us a little insight into when you were thinking about your long-term targets. Did anything change from 4 weeks ago aside from obviously the changes in fuel? Just wondering how anything in the last month would have impacted your longer term, the other indicators. And then just as a follow-up on the share repurchase, if you could just spell out a little clearly what dividend and share repurchase over the next 3 years.

I mean I think I can back into the math from what your dividends are and your total capital return. It's just a significant step-up from what you had done pre-COVID. So I just want to make sure that we're thinking about that right.

So first, sorry for the technical delays. We got hung up on, which is not good when you're the speakers. So with respect to the long-term targets, I mean, at the end of the day, they're long-term targets and we have a lot of confidence in our ability to deliver over that period. With respect to the current situation and what its impact could be, I'm not going to speculate on how it's going to play out, but we do have very minimal exposure to that region.

We didn't have any this year because of the decisions we took and we've already made that decision for next year. And we have the ability to move our assets as everybody knows. So we feel very good about the long-term trajectory. We certainly didn't just do it based on fuel prices from 2025. We thought about this and stress-tested it in various scenarios and it's something that we do believe strongly that we can deliver.

With respect to the capital allocation, remember if you think about what the world looked like 10 years ago versus where we are today, our profile is very, very different. We've got no ships this year. We've got one ship a year thereafter. We are generating a lot more cash than we used to.

And even with the spending that we're investing, as we noted, in our materials, in ourselves, which is quite important, including the destination strategy and revitalization plans for our brands, it still leaves us with a tremendous amount of free cash flow that we can give back. And we will do just that. And you should expect both the dividend and the initial authorization of $2.5 billion. Those are starting points, and we'll progress from there.

Our next question is coming from Steve Wieczynski of Stifel.

Congrats, Josh, on the strong results here. So I guess, first of all, it seems like the booking environment remains very healthy at this point. But Josh, wondering if you could maybe walk us through what you've seen from a booking perspective for both your North American and your EAA brands. I guess what I'm trying to understand here is if there's been any material differences in the bookings across your brands.

And then also maybe you've seen any changes in your cancellation rates as we head into the summer, specifically around I assume it would probably be European cruises this summer.

Yes. So let me start with the cancellation question. We're really not seeing anything significant to talk about with respect to cancellation trends. Our onboard spend have been consistently strong as we got out of Q1 and headed into Q2. So with respect to the last 3 weeks, I'd say as -- feels like d j vu, like last year.

People see what's going on. There is a lack of understanding about what it means for the world, what it means for me personally, and then life normalizes. And we're in the process of life normalizing over this period. We've seen -- it's not surprising that if you think about potential impact and how people are thinking about things, to the extent that we're talking about sailings that are Eastern Mediterranean, that's got a different profile than Western Mediterranean.

That's got a different profile from Northern Europe and then obviously Caribbean, Alaska, Australia. So overall, we're actually pretty pleased with how things have been progressing. Certainly volumes have been stronger for places like Alaska and the Caribbean. But it's not like there's just this line around Europe.

I mean Northern Europe is going quite well. We've made progress even with our Eastern European sailings when it comes to the book percentage that we're at today versus where we are a few weeks ago. Would it have been higher and more activity had all of this not happened? Absolutely.

But one of the strategies that we had going into wave was pull forward the occupancy, pull forward our bookings. And we did just that. So we entered into this period with a nice amount of headroom, which we've maintained overall. So there's going to be ins and outs as we move through this.

And I'm sure there's going to be reverberations that we don't know about yet, but the teams are managing to the curve and being reactive because the world is pretty reactive right now.

Okay. Got you. And then second question, Josh, if I could ask one about PROPEL. If we think about the target of greater than 50% EPS growth from '25 through '29, so simple math is going to say, okay, 2025 adjusted EPS, I think, was whatever it was, $2.25, I think.

That would say 2029 EPS should be at a worst-case greater than $3.38, $3.40, somewhere in that range. I guess with 2026 EPS now taking a pretty significant step backwards just because of fuel, is it fair to kind of assume that you guys feel pretty comfortable that you'll be able to absorb pretty much higher fuel prices over a longer period of time? Am I kind of thinking about that the right way?

Yes, I think that's right. Over a longer period of time, we'll take what the world has and we'll perform in any environment at the end of the day. So clearly, we'd be performing better if fuel was back at $60, $70, but we don't plan our lives around a world where fuel stays at $60 to $70. That's why our focus forever, and will continue to be forever, is use less because whatever the price is, if we use less, we do better. And if you think about our trajectory on our consumption, if you look at the per unit consumption decreases that we've had across the fleet, if you go back to where we were in 2019 versus where we are in 2026, we're saving this year alone about $650 million.

If you go back just to 2023 and you look at where we are today, that alone is $250 million, thanks to the consumption savings that we are hyper-focused on and we'll continue to do that.

Our next question is coming from Matthew Boss of JPMorgan.

Great. So Josh, maybe could you elaborate on the curve and your comments on bookings well into 2028? Maybe if you could just speak to pricing power or areas of opportunity that you see across the portfolio today.

I want to make sure I understand your question. So can you say it a different way?

Yes. Maybe if you could just elaborate on the strength on further out bookings. I think you cited well into 2028 and just where you see the greatest areas of pricing power across the portfolio. And I know we've talked about your portfolio approach and how that separates you from some of your peers in the industry.

Yes, I mean, I think the answer is yes. We've seen the trajectory of our brands in a pretty holistic way, leaning forward across the board when it comes to lengthening the booking curve. So it's almost uniform that people are at the far end of their booking curve. So everybody's been taking opportunities to really put things out for sale with more lead time, driving further sales and managing the curves.

I don't know if I'd say differently than they used to. It's really just evolving. We've got tools that we've invested in to help us be better at our jobs in that respect. We've got -- we've brought in a lot of folks over the last few years that have great capability that are leading teams of revenue managers that are really pushing the envelope.

And I think overall, we are becoming more mainstream, right? We're becoming more mainstream as a product. Our loyal guests really enjoy what they get with us and know to book in advance as far as they can so they get the best of whatever they want for their particular vacation. So I think it's all the blocking and tackling that we have been working with our teams around the world around those brands to push things forward.

And it is -- when we talk about bookings, we're not just -- internally, we're not just looking at this quarter. We're not just looking at full year. What are our targets for '27, which I'm not going to tell you, what are our targets for '28? How far are we going?

And are we getting the right balance, right? I mean we don't want to be 100% booked on day 1 that we put things on for sale. So there is art and science behind it, but everybody's been working hard to maximize the revenue.

And then maybe, David, could you outline the drivers of ROIC above 16% in the PROPEL plan, meaning opportunities you see remaining across the portfolio, just how you're thinking about net yields relative to low- to mid-single digits historically?

As I said in the prepared remarks, our PROPEL model and the 16% was built off moderate yield growth and low-single-digit cost growth. And there's clearly, as Josh talked about, further out bookings and the revenue management, and I won't repeat all the things he said. There's clearly upside opportunity on both the revenue and the onboard areas to drive the ROIC even higher than 16%. That's not a cap.

It's just a target for 2019 (sic) [ 2029 ] and beyond.

The next question is coming from Xian Siew of BNP Paribas.

Maybe just on the 2Q guidance, you did 2.7% net yield growth in 1Q and 2Q is guided at 2%. Maybe just can you talk about any reasons 2Q should maybe take a little bit of a step back? Because it sounds like underlying, there's -- demand is quite strong.

I mean honestly, our first quarter yield guidance was less than 2%. We were pretty clear that when we were kind of coming around the table again to think about the rest of the year, we kept things fairly consistent given all the noise and all the background. So there's -- every period's got differences based on dry docks, based on what day of the week the bookings, the sailings end, et cetera. But we feel that 2% is where we were and where we are, and we always try to exceed.

Okay. Great. And then maybe just on the follow-up for longer-term outlook for net yield, you kind of mentioned moderate yield growth. Could you maybe talk about what do you think is the biggest kind of drivers within that? How do we think about the building blocks, if it's the ship kind of revamps, the islands? Like, what do you think is kind of the biggest kind of drivers within that?

Well, I don't think if we're going to quantify, the biggest drivers are not going to be the revamps. I don't think the biggest drivers are going to be the destinations. I think they're going to absolutely be accretive, but those are fairly isolated ship-by-ship things that are going to be nicely supportive of the yield growth. What's really going to drive us forward is incremental improvement in the commercial space, right, in the marketing, in the revenue management, in utilization of technology that we're already utilizing to be better at lead generation, better at conversion, better at personalization, better at driving earlier engagement with booked guests so that they are booking not just the ticket, but the packages and bundles and all the experiences that we have to offer on board.

So the good thing is, if you think about where we are now versus where we were when I was kind of talking about this stuff 3 years ago, I think we've got a track record of leaning into those things and getting better every day. And not only do we have, I think, just an amazing team and amazing leaders, many of whom are new versus where we were 3 years ago, but the technology advancements to supercharge this only are going in one direction. So I think that's really where the broad-based improvements are going to be, which then get [ bolstered ] by the investments we've been making in the destinations and will continue to do so.

And as you said, the refurbishments.

Our next question is coming from Brandt Montour of Barclays.

Congratulations on getting the buyback announcement today. I have a question on technology to kind of stay with that thread, Josh. How do you think about the opportunity to do more direct integrations with AI and LLM companies out there that do travel? And just given sort of the inherent complexity of the cruise product for most first-time cruisers, does that have the potential to fundamentally change the way consumers find their way to cruises?

I think it already is, right, because of the number of folks that utilize, whether it's ChatGPT or Gemini, Claude, I mean, you name it. I mean the whole nature of our interaction with the guests and how to get to our -- either our websites or our trade partners to come sail with us are in flight. I do think -- and so the teams have been working for a while now and will continue to do that on optimizing how we show up in those AI engines as opposed to the old days where we were just talking about Google search. I think the thing that's probably going to be a little slower for the cruise industry because of what you said versus what you see in places like Walmart and things that are a little bit more easy to navigate and easy to know what you're looking for and find it at the price that it's listed for is we are more complicated.

There is no doubt. We're not a commodity. We are an experience. And so I'm sure it will come at some point, but we'll be on the tail end of that versus what we're already starting to see in select types of retail experiences.

And I think with respect to our travel agents, we've been saying this forever, they are an incredibly important piece of our business. I don't expect that to change anytime soon. They are great at providing newcomers access to us. And they too, just like we are and just like every other company is, are working on, what does it mean to be a travel agent in a world of AI and optimizing their operations around that too?

So I think it's going to lift -- a tide that's going to lift all boats.

That's really helpful thoughts there. A different question would be on the longer-term targets. You just gave a great rundown, Josh, of how you think you're going to be able to drive yield growth. But just sort of honing in on your ship orders, 3 years ago, I think we all kind of thought that you'd see this -- lower, less ship orders, 1 to 2 per year.

You're doing 1 per year. It looks like you guys are doubling down on that for the next sort of period of time. When you take this model out, obviously your fleet age will start to stand out against peers. And I want to know if you think that the industry has changed or your business has changed and that doesn't matter as much anymore?

I mean for those on the call that got to experience us going on the AIDA ship that came out of the AIDA Evolution program, an 18-year-old ship can look and feel like a 1-year-old ship and be maintained in that condition. So I don't think getting older in and of itself is going to be a driver of our ability to execute on our revenue strategy. I was, I am and I continue -- will be for looking forward to be of the belief that by having very measured capacity growth, we really get to focus on improving the underlying business and keep focused on that. And there is a tremendous amount of opportunity to do that.

And yes, newbuilds are great, but we've got 96 ships, right? Newbuilds are not in the grand scheme of things. The thing in any couple of years or a few year period is going to lift us up. What's going to lift us up is the 96 ships.

And we have every intention of keeping this fleet going for a nice time while we do introduce new capacity over time in a measured way. So I don't know if that answers your question, but I feel that the approach has been working and will continue to work. These are very long-term assets that people enjoy. And some of the best yields and some of the best NPS we get are on some of our older ships.

Our next question is coming from Trey Bowers of Wells Fargo.

Thanks for the color earlier in the call about what you guys are kind of seeing in the Med and Europe given the conflict, but it seems like we could take out of that, that maybe some of the non-European trends, are they coming in even better than you might have expected? And maybe in that, could you just break down kind of what you're seeing in the Caribbean and maybe Alaska?

First thing I'd say is it is early days, right? We're literally a few weeks into something that has been completely unexpected, and it's working its way through the global backdrop. So yes, Caribbean's been a bit stronger. Alaska has been strong and it continues to be strong.

We've been very pleased for a very long time about how Alaska for 2026 was shaping up. I'd be saying the same thing if we were having a call at the end of February. And with respect to Europe, I mean, we are very well booked in Europe to begin with. And so like I said, we had been pushing to really produce a good occupancy advantage and we did that.

There is absolutely not the pace that we would have expected over the last few weeks versus a world where this wasn't happening in the backdrop, but not to an extent that there's much to talk about, just an extent that, yes, things have shifted a little bit here and there. And I have no idea how it's going to play out. Now cards on the table. I don't know.

So we'll have to see how this develops, and we'll respond accordingly.

Yes, fair. And I have to ask, David, when we go through these periods of fuel spikes like this, and when and if things settle down, does this kind of maybe reintroduce the idea of just trying to smooth fuel prices a little bit through reintroducing a hedging program at some point?

Yes. No, thank you. So listen, we think about that question all the time, regardless of the situation and circumstance when we talk about it. But at the moment, you know what we've done over the past decade, and we'll continue to evaluate and rethink it.

I lost a bet. It took us until 10:46 for someone to ask about fuel hedging.

Our next question is coming from Ben Chaiken of Mizuho.

Maybe on free cash flow, the $14 billion is very compelling. I think you framed it as 40% of operating cash flow. Does that -- if I'm not mistaken, does that kind of signal that you think about capital return and free cash flow independently? In other words, capital return in any year is agnostic of the CapEx in that year.

And maybe along the same lines, for the implied buyback portion of that $14 billion, do you expect that to be smooth or will you be opportunistic? And then one follow-up.

Yes. So from an -- we do expect to be opportunistic in terms of the stock buybacks. We've said that repeatedly. As Josh said, we're starting with $2.5 billion.

And clearly, over this period with $14 billion of expected shareholder returns, there'll be additional stock buybacks. In terms of the allocation, you got to remember that our CapEx is reasonably predictable over time because we have laid out one ship per year. And remember, we're only talking about '26 through '29 here. So it's one ship a year.

Our non-newbuild CapEx also has some level of predictability, although we don't know the exact number every single year. This year it's $2.4 billion. And so as a result of that, we were able to triangulate into 40% of cash from operations, or more than 40% of cash from operations being returned to shareholders. And it's a combination of the reinvestment in the business, as Josh said, the $15 billion, and $14 billion -- more than $14 billion probably going to shareholders.

That's the way we think about it as opposed to because of the predictability.

Okay. Got it. And then, David, in the past you've talked about there being more costs within NCC this year versus CapEx. You didn't necessarily talk about it on this call, but I think over the last 6, 12 months you've brought it up.

Have you kind of contemplated this anymore, meaning is '26 an anomaly? Or is the level of cost attribution between OpEx and CapEx the right way to think -- for this year, the right way to think about it moving forward?

Yes. So you're referring to the dry dock expense where I had indicated in December that the total dry dock -- total spending on dry dock was flat, but there was a different allocation between the costs. That's something that we're going to have to look at every single year based off of the accounting rules and what can get capitalized. So stay tuned until -- for our December guidance.

But we haven't, of course, we're just beginning to work through the 2027 capital expenditure plan and dry dock schedule. So there's a lot more for us to evaluate before we can give that answer.

Was there something unique that you're doing this year on the dry docks? I appreciate it moves year-to-year, but just to maybe double-click there.

Yes. There wasn't anything in particular that was unique. Remember, in total, the dry dock expense, and I mean, we're talking about well over $1 billion between all the ships in the year. And so a very small movement of even 1% or 2% between CapEx and expense can have an impact on the percentage increase of net cruise costs without fuel.

And that's what it was. It was just a couple of percent movement which had a -- I think it was a 0.6% impact on the net cruise costs without fuel.

Our next question is coming from Conor Cunningham of Melius Research.

Just on the -- so I understand that you're 85% booked for 2026, but just around fuel recapture a little bit, on the remaining 15%, does your pricing algorithms immediately kick in? And then in the same context as that, do you worry about demand destruction at all just because some of your competitors obviously do hedge and you guys don't? And like, does that put you at a disadvantage as a result on the pricing side?

Yes. So the answer is with respect to how we manage our revenue, the price of fuel is somewhat irrelevant. And certainly immediate swings are irrelevant. We price as much as the market can bear.

We price as much as we -- as our guest base and potential guest base is willing to pay. And if they were willing to pay $10 more because of fuel, they should just be willing to pay $10 more. And so it is a little bit separated. Now clearly, when we do our itinerary planning and long-term planning, the price of fuel is a very big factor in how we set the itineraries and getting the balance right between the revenue that we'll generate and the cost that we incur.

But with respect to how we manage the business day-to-day, now, I mean, we're really trying to maximize. And we're talking about $7 billion of EBITDA. So I don't see a disadvantage one way or another with respect to the price of fuel at any one given time. People don't tell us we got a great advantage when we're not hedged and the price is low.

So this kind of conversation, we only talk about this when fuel goes in one way and not the other. I do think, I'll go back to what I was saying before, the focus on consumption is really, when you think about the long-term trajectory of our business and the long-term trajectory of our earnings power, using less is the only solution to the price of fuel. And that $650 million that I said, between 2019 and this year, the savings that we'll get in this year alone because of the consumption savings, that's nicely higher than the over $500 million impact we're seeing because of the spike in fuel. So that will remain our focus.

Now I don't take away from what David said. We'll always look at it, right? And the world can change and we could take a different view in the future, but that's not the focus. The focus for the health of the long-term business is to use less.

Totally appreciate that. And I hate to ask another fuel-related question. Just given the -- like, I mean, if you look at your current pricing for fuel right now, it is obviously below current spot, and it's below the forward curve. And I totally appreciate it's impossible to factor like where that's all going.

But like, why use those numbers? Why not assume something higher and then kind of if it comes in better, great. Just the idea around where you're marking oil at today in general?

We literally set our guidance on Monday and that was the curve on Monday. We rounded, but that was the curve on Monday. Since then it's gone up, it's gone down. It will continue to change. We tried to give you information so people can model whatever you believe or whatever is happening, but we just had to draw a line in the sand sometime and just move forward.

Yes, we gave you the sensitivity.

Well, if you know where it is next week, let me know.

Yes. If I know where it is next week, I'm retiring because I know the future and I can make a lot of money doing a lot of things. And I'm not the person that was betting on the prediction market in advance of all the stuff that's going on.

Our next question is coming from Chris Stathoulopoulos of SIG.

Josh, you've been in this seat now for a few years. You've navigated some difficult landscapes. I've always said with a lot of confidence and transparency. But one of your peers in the travel space is, I guess, giving some straight talk around what an extended period of elevated energy prices might mean.

So you've gotten around Russia, Ukraine, tariffs, Liberation Day, other things. Walk us through, I guess, your plan. So in the short term, you're talking about lower consumption. Longer term though, if we're in a period of 16, 24 months of $100-plus oil, just how should we understand, I guess, internally?

What are the areas of focus? How should we think about your ability to respond via pricing and perhaps changing itineraries and the like? Just want to understand, like, I guess the mid- to longer-term playbook in an extended or elevated energy cycle.

Sure. Yes. So I'd say, from a consumption standpoint, you've got, as you said, shorter term and longer term. Shorter term, there's still things that we can do on balance that will improve our consumption savings and really being even more maniacal about simple things that can save a lot of money with respect to how we're managing the sailing times and making sure we get in just to the port right in time and leave on time that cuts your fuel usage and how we manage the HVAC.

I mean all those things, there's still opportunity to, like I said, be more focused. On the longer term, yes, we absolutely have the ability to change itineraries, to make decisions about number of ports that will stop off at particular -- in particular future scenarios. I would say we have been really strategic in thinking about the fuel side of our investments in our destinations in the Caribbean. And we are looking to -- and we have been looking to create a bit of a strategic fence for ourselves where we have great opportunities to go to great places that are very, very close to the home ports that we sail from.

And things like Celebration Key and the pier that's going up now at RelaxAway are incredibly useful. We also have things in the pipeline on the investment side which we call -- we've already cycled through our Service Power Package 1, which cuts a lot of consumption on the hotel side. We already have our plans for Service Power Package 2, and we are incredibly bullish on that. And if it's warranted, we can always speed that up and get even more consumption savings.

I don't -- I will be honest with you, though. I don't know how to respond to your question in total because I don't know what the world looks like in a year if fuel is at $110 and what that means. I just don't know. I would remind everybody that we have a lot of things going for us when it comes to what it is that we have to offer.

Number one, we are still a huge value gap to land. We provide experiences at a much lower price point than people can find on land. And if people are looking to stretch their dollar further, it goes further with us. Second, we do make it convenient for people to get on our ships.

About 50% of the folks that travel with us drive to get there. And that is incredibly powerful if people are looking to avoid cost, cost of air. So we will continue to, as you said, navigate challenges as they come. And I think over the last, call it, 5, 6 years, we have shown how much agility and nimbleness we've got and ingenuity to overcome some pretty significant things and come out stronger.

Oh, you have one more? This might be the last question though. Go ahead.

All right. Well, wanted to give you 2 things. So we can do our math on what it means for implied EPS growth through '29 off of the new guide. But if you could talk a little bit more about how, I guess, things like YODA and AI.

I know there was an earlier question in AI, but I have been getting some questions on how AI might perhaps unbundle and take away some potential pricing power that you've been able to extract, if you will, because of this frictionless approach or bundling around purchasing. And then also, there was a chart back in your SEA Change deck from a few years ago that had future state capacity by brand, and I wonder if we're at a point where -- I think it was 30% plus for Carnival Corp where that is contemplated similar-ish level for PROPEL by '29. Realize there's a lot there. Maybe if you just want to talk about, I guess AI or...

I got to be honest with you, and I apologize. I didn't understand either question. So...

Okay. Well, maybe if you could talk about -- you've talked about the moderate yield growth. And in the past, you've done a lot of -- you've spoken about YODA and how that differentiates what you do at the core. And there's been some questions around AI, which perhaps is maybe at conflict with that.

And then on the actual capacity by brand, back in the SEA Change slide, you had future state, which was '26. I'm assuming that FY '29 contemplates a similar sort of distribution of capacity by brand type.

Okay. So as far as the AI goes, I think I understand where you're going. I mean AI has the opportunity to certainly be a disruptor in society in a lot of different ways. AI also has an opportunity to be harnessed for the benefit of supercharging what we do, including how we manage YODA.

I mean we're already starting to utilize some pretty advanced technology in how we operate our business on the revenue side. And I think it's still early days. So I think the whole world is going to move at pace, taking advantage of what technology is going to do for businesses and for consumers. With respect to the capacity, are you asking basically whether our brand mix is going to be relatively consistent for 2029 versus where we are now?

Yes.

Got it. So I mean, yes, I mean, more or less. I mean you've got the road map, right, which is really there's just effectively 2.5 ships in that period that are going to Carnival. So Carnival will be a bit heavier weighted in '29 versus where we are today because they're the only ones that have ships on order over this PROPEL period, and then we start introducing some for AIDA.

And then obviously, we will order more ships for the 2030s. It will come at some point and we'll share that with you when there's something to share. But it's all going to be in the vein of intentionally measured capacity growth. So I apologize again for the delay in getting to the Q&A session, but I do appreciate the questions.

And thanks to everybody for joining. Be safe, and we'll talk to you next quarter.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or log off the webcast and enjoy the rest of your day.