Royal Caribbean (RCL) Q3 2021 Earnings Call Transcript

Royal Caribbean (RCL 4.16%)
Q3 2021 Earnings Call
Oct 29, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Shelby and I'll be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's business update and third quarter 2021 earnings call. [Operator instructions] I would now like to introduce chief financial officer, Mr.

Jason Liberty. Mr. Liberty, the floor is yours. 

Jason Liberty -- Chief Financial Officer

Good morning, everyone and thank you for joining us today for our business update and third quarter earnings call. Joining me here in Miami are Richard Fain, our chairman and chief executive officer; Michael Bayley, president and CEO of Royal Caribbean International; and Michael McCarthy, our vice president of investor relations. During this call, we will be referring to a few slides, which have been posted on our investor website, www.rclinvestor.com. Before we get started, I'd like to refer you to our notice about forward-looking statements, which is on our first slide.

During this call, we will be making comments that are forward-looking. These statements do not guarantee future performance and do involve risks and uncertainties. Examples are described in our SEC filings and other disclosures. Please note that we do not undertake to update the information in our filings as circumstances change.

Also, we will be discussing certain non-GAAP financial measures, which are adjusted as defined and a reconciliation of all non-GAAP historical items can be found on our website. Richard will begin the call by providing a strategic overview and update on the business. I will follow up with a recap of our third quarter results. I will then provide an update on our latest actions and on the current booking environment.

We will then open up the call for your questions. Richard? 

Richard Fain -- Chairman and Chief Executive Officer

Thank you, Jason and good morning, everyone. As always, it's a pleasure to give an update on what's happening within the Royal Caribbean Group. It's certainly been a horrible year and a half, looking at our financial statements and seeing that sea of red ink is painful, but we are pleased to be looking at such a positive forward path. The reason we've gotten through this awful period of COVID as well as we have is because we've had our eye firmly on where we needed to go rather than on where we were at any given moment.

The same approach is serving us well as we look to the coming months. Before I comment on our position going forward, I have to express my admiration for and appreciation of the men and women of the Royal Caribbean Group, who have worked so hard, so diligently throughout this difficult time. The pandemic has cost us all dearly, but our people stepped up to the plate and work so hard to get us through this period. They invented amazing protocols to protect our crew members and our guests.

They put in place financing arrangements with a deft hand and they have taken care of themselves, their coworkers and their families under some of the most trying circumstances any of us have ever experienced. To them, I say thank you. You are all true heroes. Now, the pandemic is not yet fully behind us.

It's still very present, but scientists have given us a good answer to this nightmare with effective vaccines and remarkable treatments. The Delta variant caused a temporary slowdown in our bookings, especially close in, but our trajectory for recovery remains very much intact. In this call, I intend to focus on where we're going rather than where we've been. We are all tired of talking about COVID-19.

Every conversation doesn't need to start with a description of the trauma we've experienced. Every discussion doesn't need to dwell on how awful it's been. Fortunately, the path forward appears clear and very positive for our company and for our industry. For some time now, we have said that we hope to take advantage of the special features of cruising and make cruising one of the safest places on earth to spend your vacation.

The numbers are now coming in and our objective appears to be validated. Our strategy has been to get the flywheel spinning. For over 18 months, our guests have had to deal with cancellations, interruptions, confusing rules and changing protocols. These constant changes have added uncertainty.

Thankfully, today, we're operating almost normally. Our published itineraries are being delivered on a consistent basis. Two-thirds of our ships are already operating and virtually, everything will be back to normal in our core markets before the end of this year. Our goal is to start the new year with smooth, steady, consistent operations that will give our guests comfort and give travel advisors the confidence to book future cruises.

Like the pilot of a plane during takeoff, prioritizing speed over altitude, we have prioritized spreading the wealth. We have prioritized starting up more ships even with lower loads per vessel rather than trying for higher load factors on fewer ships. We have been executing this in a financially and medically prudent manner. January is the start of wave period and our goal is to have our core markets operating normally as quickly as possible.

That will put us in an excellent position to have a good wave period. Our bookings are already showing that the public has a great deal of pent-up demand and is eager to travel again. We have a long period of poor bookings to make up for, but current booking trends give us a high level of confidence for 2022, especially from the summer on. We're not back to normal.

However, predictions of a dramatic different new normal do not appear to be bearing out. Once we board a ship, cruises today are remarkably similar to cruises before the pandemic. There are some changes, but most of these are not visible to the public and the remaining ones are likely to be temporary. Satisfaction level among those who are cruising today is the highest in our company's history and their onboard spending is also unparalleled.

The recent announcement by the CDC that they intend to eliminate the prescriptive conditional sale order in January is very welcome. Our own requirements and protocols are stricter than the CSO anyhow. So the confidence though that they are demonstrating by the CDC's actions will help give confidence to the market. Now while we are very encouraged about the strong bookings that we've been seeing, we do appreciate that we are still not in a normal travel environment.

We are emerging from a period of lower-than-usual bookings and our international sourcing, which has historically been the strength of the group, has been confusing due to the constantly changing travel restrictions and is just now starting to build back. The image of the cruise industry from the early days of the pandemic is also weighing on the minds of consumers, albeit much, much less than previously. There's also a special story about what's happening in Asia and how that affects the Royal Caribbean Group. China was one of the fastest-growing markets and we believe will continue to be an important part of our strategy going forward.

However, as you know, China is essentially closed to international travel today and that includes cruise travel. We do not expect China to reopen until at least the Olympics in Beijing are over. Another important market for us is Australia. Australia's approach to containing the pandemic has been based on isolation.

They are now rapidly switching to the vaccines as a way of controlling the disease. We do not expect Australia to open the cruise travel until the spring. But since this summer season doesn't start until our next winter anyhow, we're not counting on much from Australia until the end of next year. Against this background, our ability to predict a profitable 2022 is strong evidence of how quickly our future can get better.

We are encouraged to see the return to profitability and strong cash flows as a rapid turnaround, rather than a slow, steady progression. It is unusual actually for us to provide any indication of next year's results this early, but we understand the need to have a frame of reference going forward and we wanted to be constructive in that regard. Obviously, there are a large number of factors that could shift us off this trajectory, including worsening spread of the disease, a new variant, inflation, etc. But on the current trajectory that we are seeing, we believe we can prudently predict at least this level of profitability and cash flow.

I'd also like to touch on two other subjects that are of interest to any company, human capital and supply chain issues. Our people have been the strongest driver of our performance throughout our history. So we watch this area very carefully and we are concerned by reports of labor shortages, especially in the hospitality arena. Fortunately, our shipboard jobs are seen as very attractive by crew members around the world.

So that has not been a serious problem as we restart and we do not expect that it will become one. Similarly, onshore, we have long been seen as a desirable place to work and while the current situation is something every businessperson should watch closely, we do not expect it to interfere with our ability to operate successfully. Supply chain issues are impacting everyone and we're no exception. Fortunately, we have traditionally hedged our bets by buying key supplies forward and this is cushioning us from the current volatility.

Looking forward, we expect these contracts plus our purchasing power, plus our ingenuity to give us protection. Now while this pandemic has been all consuming, we have not been idle on other fronts either. The need to be a good corporate citizen, to behave in a way that we can all be proud of has remained an important part of our thought process even during this timeframe. Over the last few months, we've announced a significant number of highly significant steps forward on the environmental side of our ESG aspirations.

A few weeks ago, we announced that the new Silversea ship, called Project Evolution, will contain some of the most advanced environmental features of any cruise ship on the water or in the construction docks. It will be a multi-fuel vessel capable of burning initially lower carbon producing LNG and later as they develop the noncarbon-based fuels, we'll work off of those. In addition, it will have fuel cell technology, not as a demonstration project, but it's a significant part of the energy capability of the vessel. As a result, it will be able to operate 100% of its hotel load purely on these emission-free fuel cells.

That means not only will the ship need to use its engines in port, but it can do so without even having to plug into shore power. This requires an amazing concentrated effort to develop the technology in conjunction with Meyer Werft and others. In addition, it will use waste-to-energy technology to convert rubbish to energy and use advanced supply chain techniques to reduce the carbon generated during the construction process. An even bigger announcement this week was our disclosure of our new project called destination net zero.

This is an ambitious project to eliminate our carbon footprint by 2050. By signing up for the science-based target initiative, we are not only setting a goal for the distant future, but also establishing the interim milestones that will allow us to get there with confidence. It's also interesting to look at the last 19 months and take note that during this period, we've taken delivery of five spectacular new vessels. And during the next nine months, we will accept delivery of three more.

In fact, over the next fortnight, we will be naming two of these ships here in South Florida. We have not remained idle. Before I turn it back to Jason, I'd like to reiterate my appreciation for in admiration of the people of the Royal Caribbean Group who have gone above and beyond, not only to get us through the pandemic in far better shape than anyone would have expected but have also prepared us to look forward to the future with confidence and yes, even excitement. With that, I turn it back to Jason.

Jason? 

Jason Liberty -- Chief Financial Officer

Thank you, Richard. Before I begin my remarks, I also want to echo Richard's comments regarding our incredible teams. The people at the Royal Caribbean Group are at strongest competitive advantage, powering our resurgence and delivering, again, the world's best vacations. I want to thank every member of the Royal Caribbean family for their ongoing and exceptional efforts in the incredible service and memorable experiences you provide to our guests every single day.

I will now turn to discuss our performance for the third quarter. This morning, we reported an adjusted net loss of $1.2 billion or a loss of $4.91 per share for the third quarter of 2021. It's important to note that while these results may be below some of the Street estimates, our third quarter results and related cash burn were better than our internal expectations, driven by better costs and better onboard revenue performance. Onboard revenue strength contributed to a 12% increase in total revenue per passenger cruise day, compared to the third quarter of 2019.

In line with our expectations, our occupancy for the quarter was 36%, with sequential improvements from one month to the next. From the very beginning of our restart, we talked about several tenets that would be the basis of our ramp-up. The first was ensuring the health and safety of our guests and crew, the second was that we wanted to ensure that the vacation experience matched or exceeded our guest's expectations and the third was bringing the fleet up in a financially prudent way. So far, we have delivered on all three of these tenets.

We've carried over 500,000 guests since the restart and have only had 150 COVID positive cases among these 500,000 people. In addition to providing safe vacations, we are also clearly exceeding our guest expectations with Net Promoter Scores well above all-time highs. And once beyond the initial start-up period, load factors on our core itineraries averaged 44% and all of those ships were cash flow accretive. The last point I would like to make is that while we now have more than 65% of our capacity up and running, leading the industry by far on a relative basis, we are continuing to manage our load factors to ensure that we stay true to our healthy return to service tenets, as well as retaining price integrity.

Now, I'd like to discuss capacity and load factor expectations over the upcoming period. For the fourth quarter, a little over two-thirds of our capacity will be sailing core itineraries beyond the initial start-up period. As such, our overall load factors will continue to trend of increasing from one month to the next and are expected to be in the range of 60% and 65% in the fourth quarter. In addition, we do expect our fleet on our core itineraries to generate direct profit.

Given our healthy return to service tenets and our focus on price integrity, we expect our load factors in 2022 to continue to steadily increase month-by-month and return to historic levels in the summer. From a capacity standpoint, we expect that 50 of our 61 ships who have returned to service by the end of this year. By the end of Q1 2022, we expect about 85% of our capacity to be operating with 100% back in service in the spring in time for the lucrative summer season. While we are offering cruises in the vast majority of our key destinations, we continue to closely monitor both China and Australia and anticipate those markets will start opening in the spring.

This timing could influence the return dates of a few of our ships. As to our balance sheet, we ended the third quarter of 2021 with $4 billion in liquidity. During the third quarter, we continued our efforts to manage and improve our balance sheet. To that end, we successfully issued $1 billion in senior unsecured notes at five and a half percent due in 2026.

These proceeds were used to replenish capital as a result of the redemption of 40% of the 11 and a half percent senior secured notes that were due in 2025. This redemption will result in a full year interest savings of $51 million. As we discussed on other calls during the pandemic, we have taken and continue to take numerous actions to reshape our cost structure with a focus on further improving our leading pre-COVID margins. These actions include getting rid of older tonnage and adding more leading, high-yielding and cost-efficient hardware to our fleet.

While these actions will improve our cost structure and margin profile, we do anticipate the recent inflationary pressures and some transitory cost related to healthy return to service will weigh on next year's earnings. Now, I'll give you an update on our 2022 sailings. At a macro level, we've seen a sequential improvement and new bookings from one quarter to the next. Bookings during Q2 were higher than Q1 and bookings during Q3 were higher than Q2.

This Q3 improvement took place despite the long demand in August that corresponded with the rise in the Delta variant. September was a great booking month overall with new bookings for 2022, more than 60% higher than Q2 average. The momentum has continued for all three of our brands and bookings so far in October have been significantly better than September. Bookings from our two biggest markets, the U.S.

and the U.K., have been improving from one week to the next and are now exceeding 2019 levels. We have now restarted our brands marketing programs, which are generating strong results and preparing us nicely for 2022 and 2023. From a cumulative standpoint, our book load factors remain within historical ranges, driven by strong booking levels for the second quarter of 2022 forward. Load factors in the first quarter are lower than historical levels but are aligned with our anticipated load factor ramp-up.

Our booked APDs are up significantly, both including and excluding the negative impact of FCCs for the full year and for each quarter of 2022. As always, trends do differ a little by itinerary with our core summer products and a stronger volume position than other itineraries. Our customer deposit balance is now $2.8 billion, an improvement of about $400 million over the past quarter, despite the significant quarter-over-quarter increase in revenue recognition, which reduces the customer deposit balance. Our customer deposit balance is less than 15% lower than it was at the end of September 2019, for the three brands with almost the entire difference driven by Q4 2021 sailings.

Our customer deposit balance related to bookings in Q2 forward sailings for all three brands is higher than at the same time in 2019. Approximately, 35% of our customer deposit balance is related to FCCs. Of the FCCs, approximately 45% of them have been redeemed thus far. Now, considering everything I just said about the booking environment and costs, I would like to discuss our very early view of 2022.

The Royal Caribbean Group possesses the best brands in their segments, the most innovative fleet in the industry, wholly owned destination experiences like Perfect Day at CocoCay that are second to none, a nimble and effective global sourcing footprint and most of all, the very best team both at sea and on land. This incredible and unique set of assets have helped us effectively manage through the pandemic and is now helping us accelerate out of it. As such, while it's still too early to provide guidance for the next year, we currently anticipate the group generating positive EBITDA starting in the spring of 2022 and positive earnings for the full year of 2022. With that, I will ask our operator to open up the call for a question-and-answer session.

Questions & Answers:

Operator

[Operator instructions] Your first question is from Steven Wieczynski at Stifel. 

Steven Wieczynski -- Stifel Financial Corp. -- Analyst

Hey, guys. Good morning. So I want to dig into your commentary about getting back to historical load factors by the third quarter of next year. And I guess what I'm wondering is, how you're thinking about making that bridge from where you are today versus getting back to those levels? And I guess really the question is, would you've been able to make that assumption, if the CS order was extended versus you guys being able to operate more independently? And I guess even asked another way is, how much higher load factors does the removal of the CSO contribute? And how are you guys now thinking about vaccine mandates across different age demographics into next year? 

Jason Liberty -- Chief Financial Officer

Hey, Steve. How are you doing? So I'll just start off and talk a little bit about our load factor build for next year. So one, we didn't point specifically to the third quarter, I think we pointed specifically to the summer. So we are kind of preparing our business to be -- to kind of maximize our revenues and profitability in this -- and obviously, in a very kind of lucrative peak summer season.

Our load factor ramp-up is somewhere about five to seven load factor points per month. Again, we're doing this in a measured way. I'll have Mike on in a second here to talk about the CSO, but that's not governing our load factor build. I think it's more of us just thoughtfully ramping up our business based on those three tenets of health and safety, guest experience and doing things in a financially prudent way.

So with that, I'll pass it over to Michael to talk a little bit about the things on the CSO side. 

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

Thanks, Jason. Hello, Steve. Yeah, I think with the CSO, we've been through quite a journey with collaboration and the work with the CDC. And I think if you think what we've been through in terms of determining the protocols and then executing them, I think it's fair to say that the industry and the CDC and the intergovernmental agency representatives, who have been part of this return to service team, feel like we've been very successful in implementing these protocols.

And they're proving, as we commented earlier, to be very successful. While the CSO comes to its kind of a technical end on January 15, we will continue our ongoing collaboration with the CDC in terms of the protocols that will voluntarily operate after the CSO expires. And I think what's happened over this past several months is that we've really got a focused, collaborative effort and we found the relationship with the CDC has been very constructive. They certainly -- and we want to make sure that we're operating safely.

And they're also well aware that some of the protocols that we have in place will naturally fall away as the pandemic moves further and further in the rearview mirror. So I think as we move into '22, hopefully, what we'll see is the protocols become easier and less cumbersome for our customers. Having said that and kind of jumping on Jason's comments about load factor, while we've been extremely prudent and thoughtful about bringing back our fleet and managing the load factors, it's worth pointing out that -- and I'll use Royal Caribbean International as a proxy for the company, we've brought back significantly more capacity ships, beds and berths than any of our competitors by a significant demand. And what that means is that operationally and logistically, we've already climbed over that mountain and we've now got a large number of assets available for booking.

And more importantly, we've now gone through and absorbed all of those expenses. We vaccinated all of our crew. We've managed to get all of our crew to these ships and we're operating them. One of the things that we were very cognizant of is the need to be very consistent with the distribution and the customer because as Richard pointed out, we've had so many cancellations of ships over the past year and a half and now we have this stability.

So as we look into '22, we feel pretty optimistic about what we've achieved with the CDC and the CSO and I think we're feeling very optimistic about the fact that we've got so many of our ships already up and operating. And while we've talked about the load factors, it's worth pointing out that it's a story that's, for the purposes of this conversation, is averaged out. Last weekend, Freedom of the Seas sailed from Miami with an occupancy of 85%. And that's one of the products that's particularly attractive to new-to-cruise and it's one of the products that we've been very focused on and making sure that we're learning and understanding exactly how our protocols can adapt to more capacity.

So we feel pretty good about what's happening. 

Steven Wieczynski -- Stifel Financial Corp. -- Analyst

Thank you. That's terrific color. And then the second question would be maybe if you could help us, Jason, maybe help us think about some of the assumptions that you guys are embedding for the next year to get you to that positive earnings level. And I understand you're not ready to give guidance at this point, but maybe some high-level thoughts around how you're thinking about pricing from here or change in onboard metrics or how you're thinking about fuel for next year? I mean anything that you would call out to help us think about that would be extremely helpful. 

Jason Liberty -- Chief Financial Officer

Well, sure, Steven. Of course, we're still very much going through our planning process for next year. I mean -- I think our commentary around pricing and how we're seeing the business build back up are certainly -- or what's supporting our current expectations around profitability for 2022 as well as the timing of cash flow. We have done a lot.

And of course and that consideration is, we do expect there to be some additional costs that relate to inflation. We've hedged, I think, 53% of our fuel for the next year. And I think one of the things that we'll toggle here is, as Michael was referring to, our healthy return to service protocols, there will be a series of transitory costs. A lot of those transitory costs we've absorbed this year, as Michael talked about and the ramping up of our fleet, but there will still be more ramp-up that happens next year.

And depending on how some of these protocols, which are very much kind of self-induced here around testing as that -- based on that could impact our cost profile. But even kind of considering all that, that's why I think we feel at this point, you're comfortable talking about pointing the business toward profitability in 2022. As we -- as our plans start to kind of firm up and I think as we get into next year, we'll consider giving some more thought in terms of how 2022 is going to look through the course of the year. 

Steven Wieczynski -- Stifel Financial Corp. -- Analyst

OK, great. Thanks, guysl. Really appreciate it.

Jason Liberty -- Chief Financial Officer

You got it, Steve.

Operator

Your next question is from James Hardiman of Wedbush Securities. 

James Hardiman -- Wedbush Securities -- Analyst

Hey, good morning. So I'm getting a couple of questions on fuel. Obviously, there's been a lot of inflation there. I guess, first, housekeeping question.

Can you give us the consumption and the cost per metric ton in the third quarter? But then I guess, more broadly, your fleet is going to be younger as we exit the pandemic into 2022 and 2023. Any way to think about sort of consumption per berth as we look to those years?

Jason Liberty -- Chief Financial Officer

Well, first, I'll just answer your tactical question, James. In the third quarter, we had about 237 -- well, exactly 237.6 metric tons that we burned. The average price there was $497. To your point, we have -- well, as Richard mentioned in his remarks, we have taken on new capacity.

We will be taking on additional new capacity into next year. We have gotten rid of older tonnage. And so we do expect that our fleet will become more and more fuel efficient also as we focus on our path here to net neutrality on the carbon side that, that will continue to help us focus on burning less fuel also here in the future. But in saying all of that, the mix of that is that our fuel consumption on a per berth basis should get lighter and lighter as time passes here and that's what we would expect.

At this point, it's too soon to guide on what our fuel consumption will be as our deployment for next year is still not fully out.

James Hardiman -- Wedbush Securities -- Analyst

Got it. And then everything that you've given us with respect to 2022 is, I think, really encouraging. Obviously, it's way too early to talk about sort of the beyond, but it seems like implicit with everything that you're saying. I guess is there any reason to think that 2023 wouldn't be a pretty normal year in terms of occupancy and pricing and the fleet and everything else?

Jason Liberty -- Chief Financial Officer

Yeah. Well, certainly, it's -- things are -- it's very, very early days to be talking about 2023. But in terms of -- what we have really experienced, especially over the past, call it, 45 days and the acceleration we're seeing and the demand environment and people's willingness to pay ahead of 2019 levels is really encouraging. And we're very excited about it and our marketing efforts are really just further bolstering that demand profile.

What I would say about 2023, which, again, it's very early is that we're seeing very similar strong trends for 2023. And we're booked in a place that's better than where we would typically be booked this far out of a period for 2023. So if you were standing in 2019, same time last year and you're looking at 2021, we're in a better position than we were back then. 

Richard Fain -- Chairman and Chief Executive Officer

I would just add, one of the things that was interesting to me is that as the Delta variant came on, it really hit our bookings for '21 and '22, but it didn't seem to have any impact on our bookings in '23. So I think what people have been doing is saying, this pent-up demand, I want to get out there, but I don't want to do it too soon. I want to make sure where things have stabilized. And so I really do think it's quite dramatic that we saw essentially no impact from the Delta variant on '23 bookings.

Whereas, it impacted '22 and '21 quite heavily. 

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

I have to jump in, Jamie. Jamie, I have to jump in. And I know Jason and Richard are probably fed up with me saying these things, but we launched the World Cruise or World Cruises with Royal Caribbean International literally about 10 days ago and we only made it available to 16 million loyalty members. And within seven days, we were 70% booked.

And the average price of a balcony room is $75,000 for the balcony. The Royal Suite sold within a week at $760,000 and all of these suites have booked with nonrefundable deposits. So even we were taken aback by the unbelievable response of our loyalty customers, the fact that within a week, we were 70% booked on a ship that carries around 2,100 guests and is on a nine-month world cruise was just remarkable. And I think that's indicative of what we're seeing. 

Richard Fain -- Chairman and Chief Executive Officer

I never get tired of hearing that, Michael. In fact, maybe you could tell us just how booked are we on that cruise so far.

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

70%. 

Richard Fain -- Chairman and Chief Executive Officer

70%. It's amazing. I know, but I think you forgot to mention that. 

Jason Liberty -- Chief Financial Officer

I knew it wasn't going to be an if. It was a when.

James Hardiman -- Wedbush Securities -- Analyst

That's great color. Thanks guys.

Jason Liberty -- Chief Financial Officer

Thanks, James.

Operator

Your next question is from Jaime Katz of Morningstar. 

Jaime Katz -- Morgningstar -- Analyst

Hi. Good morning. Can you give us some insight into what your prognosis is or what underlying thoughts you have surrounding the economic environment next year that -- or over the near term that you're incorporating into your outlook? And then in order to give Michael another turn at the wheel, I'd be curious to hear any updates on the private destination projects that you guys have -- maybe had on the back burner? Thanks.

Jason Liberty -- Chief Financial Officer

You should just know, Jaime, he might bring up this thing called the world cruise as part of that comment there. 

Richard Fain -- Chairman and Chief Executive Officer

Or a perfect day might fit into the conversation. 

Jason Liberty -- Chief Financial Officer

Possibly. Yeah, yeah. So Jaime, in terms of -- and this is how we've always kind of thought about things as we look further out is, we obviously have very good data in terms of how the guests are booking today or how they have booked and what the book of business looks like. We don't speculate a lot on how the economic environment is going to change.

Of course, we have seen secular trends that very much support experience and vacations and a lot of pent-up demand that makes us very much believe. And we've seen this in the bookings and the acceleration of bookings that, that will continue to go on. So that's kind of how -- I don't have a forecast. There's probably people in different companies that have -- or I would say, banks and consulting houses that have economic outlooks, but for us, what we try to do is really kind of firm up what we're seeing in the data and booking activity. 

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

And Jaime, on the private destinations, I mean one of the things that we're already seeing is Perfect Day is leading the charge in terms of demand and premium for the ships that are operating out of South Florida already and in fact, out of New York. We do -- we did press pause during the pandemic on these projects, but we've started to reengage. And quite literally last week, there was a conference down in Panama with many of the Caribbean countries. And it was quite interesting to see the level of activity that we experienced in terms of reengaging and talking about destination developments throughout the Caribbean South Central region.

So we did obviously have a plan in place prepandemic. We press pause. We are now reengaging on all of those plans. In the immediate future, we have an expansion taking place in Perfect Day with the addition of Hideaway Beach, which is a new experience that will open in late '22 for Perfect Day.

The beauty of Hideaway Beach is that it is an adult-only area as part of Perfect Day. It will allow us to increase our capacity by approximately 3,000 people a day in late '22, which is obviously going to help improve our overall profitability and drive more revenue, both ticket and onboard. So that's coming. And then we're close to finalizing the design and construction plans and the approvals for Beach Club in Nassau, which we're hoping to start work on that very soon and we have other projects that we've now started to reengage with.

So I think our aspirations never really moved away. We just had to press pause for a while. Also, of course, we've got our Galveston terminal that's opening in '22 and that will accommodate our Oasis class ships and then future Icon. And of course, that gives us remarkable access into the Texas, Oklahoma and that whole region as a market for driving -- drive into.

So we're continuing our journey, but certainly, Perfect Day is leading the charge on current bookings.  

Jason Liberty -- Chief Financial Officer

Thanks, Jamie.

Operator

Your next question is from Stephen Grambling of Goldman Sachs. 

Stephen Grambling -- Goldman Sachs -- Analyst

Hi. Thanks. I kind of want to go back to something I recognize, you don't want to provide too much input on 2022, but I'd love if you could just provide some additional thoughts on what's driving some of this strength in revenues per passenger day? And any details on where spend, perhaps, is more robust and where it could still be dampened by some of the limitations or social distancing that's being imposed? 

Jason Liberty -- Chief Financial Officer

Yeah, sure. So I'll start it off here and just talk a little bit about drivers here on the demand environment for 2022. I think the first is -- one of my comments that I had made in my opening remarks was just really -- I mean if you just look over the past two or three weeks, we're seeing bookings occur that are higher than what we did -- on a daily basis, higher than what we're seeing in 2019. I think that's a combination of us coming out of Delta and that pent-up demand.

I also think it's a combination of our marketing efforts that have come into play here, that are accelerating and getting into the minds of the consumer, especially our new-to-cruise consumer that we've seen that acceleration. I'd also comment that we're seeing now very similar trends for all of our brands. So if you remember, in the early part of this year, we talked about strong trends, especially in the ultra-luxury side, as we're coming out of this. We're now seeing strong trends across all of our brands which helps us provide further confidence there.

And we've also seen booking, especially over the past 30 to 40 days really pick up for Q1 as well as Q4 of next year. There's always very strong demand for Q2 and Q3 with the summer, but seeing those shoulder seasons begin to rise, I think it's also been very encouraging. And again, that's consistent with all of our brands. 

Stephen Grambling -- Goldman Sachs -- Analyst

Super helpful.

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

Stephen, just to add to Jason's comments. The other thing that we've seen, which we commented on was the onboard revenue environment, which is truly impressive. A couple of things that are happening there. I mean we know that there's just more consumer spend occurring and it seems to be really happening on our ships.

We've also really increased the volume of special groups such as gaming groups that are coming on our ships and that's proving to be very profitable. And the other thing is that we continued the investment in Hybris, which is a new software, which really allows us to have far more capability in our pre-cruise revenue marketing and that is really beginning to shine through for us. So as we look into '22, for example, just in Q1 '22, our pre-cruise revenue bookings are already way ahead of 2019, even though there's less volume on gas. So it's -- there's a lot of positive things that are coming through to help us. 

Stephen Grambling -- Goldman Sachs -- Analyst

Great. Thanks so much. I'll jump back in the queue.

Jason Liberty -- Chief Financial Officer

Thanks.

Operator

Your next question is from Robin Farley of UBS. 

Robin Farley -- UBS -- Analyst

Great. Thanks. I wanted to ask about something that a lot of investors try to get a handle on. When you talk about load factor in Q1 being kind of below historic range or lower than average, how much of that -- you talked about expecting occupancy levels to end up around 85% for Q1.

So can you quantify -- are you actually sort of not selling? Is 15% of your capacity not available for sale in Q1 on the ships that would be in service? So just to kind of help quantify how much of the lower load factor in Q1 is actually what's not available for sale? And then also, probably the other big factor is the fact that you've had to rejigger a bunch of itineraries in the last few months. And so what percent -- I don't know if you would know this ballpark of your Q1 itineraries are things that were kind of rejiggered in the last year as opposed to you normally have 12 months to sell an itinerary. Now some of these itineraries, you'd be selling in less than six months. So I don't know if you can quantify that.

As opposed to -- right, so investors sort of trying to get a handle on how much is that versus like, oh, load is below in Q1 because people don't want to travel yet versus these other two factors that I think are probably part of it. Thanks.

Jason Liberty -- Chief Financial Officer

Yeah. So I think there's a few things in play. One, I think we need to remember that about 80% of our capacity is expected to be up in sailing by the end of the year. So as we move into Q1, which is where the majority of that -- the rest of that 20% comes into play, similar to what we have been doing here and from June on, as we slowly bring in these ships to make sure that the crew and everyone is very used to the protocols that need to be executed on, making sure the guest experience is exceptional.

And so we are certainly moderating load factor and ramping that up. And so that's going to weigh in on Q1 load factors and leave in a little of early Q2 load factors as there's a few more ships that come into play. That's probably the biggest driver of why in Q1 our load factor would be lower than what you would see Q2, going forward. Certainly, my guess is, there's probably 15% to 20% of our capacity in which there's, I would say, more than moderate itinerary changes and that -- because I mean, most of our itineraries there might be a port here or port there that has changed out of this, but it's -- that's not really the driver of it.

Maintaining price integrity, slowly ramping up our fleet or ramping up our fleet or the ships that come on in a manageable way is really what's driving the difference here on the load factor in Q1. 

Robin Farley -- UBS -- Analyst

Great. That's helpful. Thank you. And then just my follow-up is, you talked about in Q3 how revenue per passenger day is up 12% and a lot of that is driven by higher onboard spend per person.

Is there -- can you give a little bit of a comment just on ticket price? And I'm really asking on the comparable cruises, right? Obviously, a ship that would have been in Europe in 2019 wouldn't compare to that ship in the Caribbean. But if you have like a seven-day Caribbean versus seven-day Caribbean in 2019 kind of how ticket price compared in Q3? Thanks.

Jason Liberty -- Chief Financial Officer

Yeah, yeah. So it's good question, Robin. Obviously, we've seen significant rise here on the onboard side. And I think, first, I want to make a point that Michael had made, a lot of this is pre-cruise driven.

And that has really been something that has amplified our onboard spend, but our ticket rates are better than what they would be seen in a 2019 period. It's just that we called out here specifically around the onboard side. So similar commentary to what we've been saying about the booking environment on a rate and load factor basis is very much applies to what we saw here in the third quarter. 

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

Robin, I think I might just add a little more color to your question on which ships are sort of different and which were on -- which were -- people didn't have time to do their advanced bookings, etc. There's obviously an effect by vessel, if you will. But I think there's an overall effect of the uncertainty that all three of us have talked about. It's just been -- there have been cancellations, there are itineraries that are changed, etc.

And I think people want to look forward to a period of stability and so that's really been our focus. And it's a little hard to measure that on an itinerary-by-itinerary or vessel-by-vessel, but I think overall, it's a factor and that's why we've been so anxious to get everything up and running and without changes. 

Robin Farley -- UBS -- Analyst

OK, great. Thanks very much.

Jason Liberty -- Chief Financial Officer

Thanks, Robin.

Operator

Your next question is from Brandt Montour of JPMorgan. 

Brandt Montour -- JPMorgan Chase & Co. -- Analyst

Hey. Good morning, everyone. Thanks for takin my question. Jason, my first question is when you think about expenses next year, I know you gave some color around fuel, but excluding fuel and excluding sort of onetime restart costs, do you expect inflation to have a material impact on net operating unit costs? And is there, I don't know, residual savings that you guys had last year that might be an offset for that? 

Jason Liberty -- Chief Financial Officer

Sure. What I would say, Brandt, is that we certainly expect and in our consideration, at least in terms of what we know today, that inflation will have an impact on our business and that is in our consideration. And of course, we will have, as you said, these transitory costs. On the other side of it and we talked about this in the past, we have taken significant action on reshaping our costs here over the past several years.

And so we do think a lot of this inflation is temporary. We do -- and we certainly think the transitory costs around healthy return to service and getting our ships up is temporary. And as those things evaporate, we believe that a lot of our efforts, which are absorbing a lot of these cost additions into 2022, we'll then we'll kind of free and show here in our margins as our business returns to historical load factors. 

Brandt Montour -- JPMorgan Chase & Co. -- Analyst

OK. That's helpful. Appreciate that. And then on 2022's itinerary slate and in the spirit of maximizing profitability for the peak summer season, is there any -- I guess the easy way to ask is, there is -- are you expecting any dilutive impact to pricing from regional mix shifts given that some Americans are still wanting to travel domestically.

Do you expect that? Have you paid mind toward that in your planning for '22's itinerary mix? 

Richard Fain -- Chairman and Chief Executive Officer

Yeah. Actually, that is a very important point. There's simply no question that the restrictions on international travel, both the absolute restrictions and the psychological restrictions, have made people be much more regional than normal. And for us, with our global brand strategy, that's not what we were hoping to see, but it is a fact of life and I think we expect it to be an impact.

Remember, part of our strategy was, we could take Americans on the European cruise and Europeans on the American cruise. And both the formal restrictions, the government restrictions, but also people's uneasiness in longer term -- longer distance travel, we think is a factor and we've incorporated what we think of that in our forward projections. But that is there's no question, that's an important point that we tried to touch on in our comments. 

Jason Liberty -- Chief Financial Officer

Yeah. And I think just to stress, obviously, we, for the most part, know what our deployment is going to be here in 2022. We're seeing live every minute of every day, the booking activity that is coming in and the sourcing, etc. And so in our consideration and modeling here for the 2022 period of time, that sourcing mix that is very much married to the deployment is being very thoughtful in how we think about next year. 

Brandt Montour -- JPMorgan Chase & Co. -- Analyst

OK, that's helpful. Thanks a lot guys and congrats on the progress so far. 

Jason Liberty -- Chief Financial Officer

Thanks, Brandt.

Operator

Your next question is from Fred Wightman of Wolfe Research. 

Fred Wightman -- Wolfe Research -- Analyst

Hey, guys. Maybe just to follow up on that last point. Richard, I think you called the international sourcing mix or sourcing environment confusing. Can you maybe just put some specific numbers as far as where you see those cross-border bookings for '22? And how that compares to sort of pre-COVID levels?

Richard Fain -- Chairman and Chief Executive Officer

Yeah. I mean it's tough to kind of put it out in a specific way at this point in time, but when we think about next year, a lot of our deployment is married here to the Caribbean and Alaska and other parts of North America and so we will be weighted more toward the U.S. and Canada than we did in a pre-COVID period of time. On the same side, a lot of our deployment that's going to be in the Mediterranean and Northern Europe and so forth will just be sourced more out of Europe in terms of our expectations and also in terms of what we're seeing in our bookings versus North Americans flying over to Europe.

Now in saying all of that, there's still plenty of people from Europe coming to the Caribbean and people from the U.S. going to Europe next year, but we are somewhat just kind of moderating those expectations in our forecasting. 

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

And Fred, just to add to Jason and Richard's comments, I mean, I think it's also reasonable to say that day by day, week by week, the news that we see and receive from -- that deals with all of these different issues continues to get brighter and better. When you think back through the pandemic, there was a period that every single email or conversation or a piece of news from a government was negative. Now, everything is turning very positive. So for example, the presidential proclamation a few days ago, which basically opened up the travel between the United States and European countries and what have you, we continue to see across all of the different itineraries and destinations.

So kind of a leveling out of protocols and reasonableness and you can feel that now coming through in the bookings. So considering we're just entering into November, I think that this news will continue over the next month or two, which is going to be critical as we get into wave. 

Fred Wightman -- Wolfe Research -- Analyst

Great. And then, Jason, could you just maybe comment on your current understanding or current readings or some of the tax proposals in the U.S.? And what, if any, impact do you think that could have for you guys? 

Jason Liberty -- Chief Financial Officer

Sure. Obviously, it's evolving. At this point in time, we don't anticipate there being any significant impact to our business.  

Fred Wightman -- Wolfe Research -- Analyst

Great. Thank you.

Operator

Your next question is from Vince Ciepiel of Cleveland Research. 

Vince Ciepiel -- Cleveland Research -- Analyst

Great. Thanks for taking my question. I was curious, when you look at your bookings as well as what you're sailing right now, are you seeing anything interesting in demand mix between interior versus balcony? And what that might mean for onboard and pricing comparability of what you're sailing now versus 2019? And then as you think about ramping to full load into the second half of next year, is that reliant on selling out all the interiors like you did pre-COVID. 

Jason Liberty -- Chief Financial Officer

Well, certainly, if you were to look at our book business and I don't think this would be a surprise. We are -- and this, by the way, is how we are typically booked this far out as we're weighted more toward our suites and our balconies. People when they tend to plan their vacations further out and you look at the booking window, it's typically weighted more that way. And so between now and time of sailing is when you begin to see inside cabins and so forth start to move in.

But when we look at the pricing of it, it's again relative to '19, it's coming in as we would expect it to and at rates that are very similar to those records of 2019. But certainly, it's weighted heavier at this point toward those balconies as well as those suites. Now in saying all of that, our inventory of our ships is getting richer and richer. And so we have more and more of that inventory coming into play, which again just further supports and bolsters our yield profile and growth here in the future.

Vince Ciepiel -- Cleveland Research -- Analyst

Great. And then unrelated follow-up on capex. Not sure if you had mentioned this yet, but how you're thinking about next year? And normally, there's some amount of cash and maintenance piece as well as some new ship payments, then I also think you have wonder and beyond, which is usually covered by committed financing. But how are you thinking about capex going into next year?

Jason Liberty -- Chief Financial Officer

Yeah. Well, that's exactly right. It's related to the newbuilds. I mean we have committed financing on all ships that we have under construction.

We're still going through our planning process, but obviously, we're very mindful of our capital structure and our efforts here to get back to pre-COVID levels and our pre-COVID balance sheet. And so as the business here ramps up and firms up for 2022, that will begin to form our expectations here on the capital we plan to invest and also focusing on how do we get the balance sheet back to pre-COVID levels? 

Vince Ciepiel -- Cleveland Research -- Analyst

Thank you.

Jason Liberty -- Chief Financial Officer

You got it. We have time for one more question. 

Operator

Your final question is from Ben Chaiken of Credit Suisse. 

Ben Chaiken -- Chairman/CEO

Hey. How is it going? Jason, I think you mentioned strength in new-to-cruise. Should we think about this as a return of that customer that didn't exist understandably over COVID and as we exit or is this an accelerate -- was that new-to-cruise comment accelerating versus '19? 

Jason Liberty -- Chief Financial Officer

Well, if you looked at just propensity to cruise from the early days of the pandemic to today. We -- obviously, in the early days, new-to-cruise had basically kind of turned itself off for the most part and today, what we see is that they have certainly returned. I think our marketing efforts have really helped that in just reminding those customers about the incredible experiences you can have on our leading fleet as well as amazing places like Perfect Day at CocoCay. So I think those things in kind of combination -- and of course, just kind of thawing out here over the pandemic has led to the new-to-cruise customer coming back and certainly accelerating.

So we're really happy to see that now taking place and again, all the surveying that we're doing really shows that they're quite open to coming back and that's being supported by their booking activity. 

Ben Chaiken -- Chairman/CEO

Got you. So it's a return of the new-to-cruise. And then, I guess, just to clarify one more. I think you said 85% of capacity by the end of 1Q '22.

I believe that was from a fleet perspective. Can you just help us bridge to ALBDs or is it similar? 

Jason Liberty -- Chief Financial Officer

Yeah. I think on a capacity basis, by the end of the first quarter, we're close to 90%. 

Ben Chaiken -- Chairman/CEO

And then -- right. But just trying to connect between fully end ALBDs, is it a similar number or is there a...

Jason Liberty -- Chief Financial Officer

It's about 5 percentage points higher on a capacity standpoint versus a number of ships. 

Ben Chaiken -- Chairman/CEO

OK. Thanks.

Jason Liberty -- Chief Financial Officer

You got it. OK. Thank you for your assistance today, Shelby, with the call. We thank all of you for your participation and continued interest in the company.

Michael will be available all day for any follow-ups you might have and that's Michael McCarthy, by the way. 

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

Thank you for clarifying. But I'm available for any sales of World Cruises for Royal Caribbean.

Jason Liberty -- Chief Financial Officer

OK. Giving out your cellphone number, OK? I wish you all a great day and everybody, be safe. Take care. 

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Jason Liberty -- Chief Financial Officer

Richard Fain -- Chairman and Chief Executive Officer

Steven Wieczynski -- Stifel Financial Corp. -- Analyst

Michael Bayley -- President and Chief Executive Officer, Royal Caribbean International

James Hardiman -- Wedbush Securities -- Analyst

Jaime Katz -- Morgningstar -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Robin Farley -- UBS -- Analyst

Brandt Montour -- JPMorgan Chase & Co. -- Analyst

Fred Wightman -- Wolfe Research -- Analyst

Vince Ciepiel -- Cleveland Research -- Analyst

Ben Chaiken -- Chairman/CEO

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