Norwegian Cruise Line Holdings (NCLH) Q1 2022 Earnings Call Transcript

Norwegian Cruise Line Holdings (NCLH 5.39%)
Q1 2022 Earnings Call
May 10, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Norwegian Cruise Line Holdings business update and first quarter 2022 earnings conference call. My name is Rob, and I'll be your operator. [Operator instructions] Later, we'll conduct a question-and-answer session and instructions for the session will follow at that time. [Operator instructions] As a reminder to all participants, this call is being recorded.

I would now like to turn the conference over to your host, Jessica John, vice president of investor relations, ESG, and Corporate Communications. Ms. John, please proceed.

Jessica John -- Vice President, Investor Relations, ESG, and Corporate Communications

Thank you, Rob, and good morning, everyone. Thank you for joining us for our first quarter 2022 earnings and business update call. I'm joined today by Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings, and Mark Kempa, executive vice president and chief financial officer. Frank will begin the call with opening commentary.

After which, Mark will follow to discuss our financials before handing the call back to Frank for closing remarks. We will then open the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's investor relations website at www.nclhltd.com/investors. We will also make reference to a slide presentation during this call, which may also be found on our Investor Relations website.

Both the conference call and presentation will be available for replay for 30 days following today's call. Before we begin, I would like to cover a few items. Our press release with first quarter 2022 results was issued this morning and is available on our Investor Relations website. This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements.

These statements should be considered in conjunction with the cautionary statement contained in our earnings release. Our comments may also reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. With that, I'd like to turn the call over to Frank Del Rio.

Frank?

Frank Del Rio -- President and Chief Executive Officer

Thank you, Jessica, and good morning, everyone, and thank you for joining us today. In the last few days, our company marked a significant milestone, if not the most significant milestone thus far in our Great Cruise Comeback. This past Saturday, Norwegian Spirit welcomed guests for the first time since our fleetwide pause in operations back in March of 2020. And in doing so, she became the final ship in our 28-ship fleet to return to service, making Norwegian Cruise Line Holdings the first major cruise operators that have all its ships operating again.

The last two years and certainly, the last few months have been challenging, to say the least. But with each new challenge in a row that further complicate an already colossal undertaking, the team at Norwegian stepped up to the plate time and again to demonstrate our extraordinary resilience, dedication and passion. So I want to thank each and every team member across our organization, from shipboard to shore side, for all their efforts to reach this point and our Great Cruise Comeback and position our company to thrive in the years to come. Even more impressive was our team's ability to drive some of the highest guest satisfaction scores ever, ticket revenue and onboard spend in our history, and this trend has persisted even as we ramp up occupancy, carrying more guests across all brands, all itineraries and in all cabin classes.

We have reached this milestone with a clear, consistent and focused strategy throughout our relaunch, ensuring that we do not prioritize short-term gains at the expense of jeopardizing our long-term brand equity and industry-leading pricing in the process. First, we have prioritized the health, safety and well-being of our guests, crew and the communities we visit above all else, doing everything possible to create a safe and healthy experience for all stakeholders. Since launching our Great Cruise Comeback, we have carried over 500,000 guests, and we continue to experience significantly lower COVID incidence rates of aboard our ships as compared to the population at large, indicating that our health and safety protocols are indeed working as designed. Second, and throughout the pandemic, we provided steadfast support, both to our guests and travel partners, focusing on doing the right thing and demonstrating our willingness to go to great lengths to support them.

And I don't think this commitment has gone unnoticed. I firmly believe that as we exit the pandemic, our three brands will be in better standing than ever before with these key partners, the travel public at large and with our key past guests. And lastly, we have stood firm on our core go-to-market strategy of marketing to fill and maintaining price integrity by emphasizing value over price. You have heard me say time and time again that we will not sacrifice our industry-leading pricing to temporarily bolster our load factors, and I continue to stand behind that philosophy.

Pricing will be the primary driver to net yield growth. As we exit the pandemic and return to a normalized booking performance, this outperformance will be key. And given that consistent net yield growth is the single most important factor in maximizing high-quality and sustainable profitability, this is an area where we will not compromise our efforts. So while our first quarter load factors were somewhat tempered, our net per diem growth over first quarter of 2019 record pricing was, as shown on Slide 5, significant.

A trade-off and an outcome that is much more meaningful for the company's long-term success. Now you don't have to take my word for it, our pre-pandemic track record of stellar net yield outperformance year after year speaks for itself. As you can see on Slide 6, in 2019, our net yields were better than our peers by somewhere between 20% to 40%. This historical outperformance, coupled with the strong pricing we are experiencing for all future periods are evidence that our strategy is a superior one and the best way to protect our brand's equity while driving long-term shareholder value.

Taking a step back to serve the broader landscape, today, we find ourselves in a much more favorable public health regulatory and demand environment than when we last spoke a little over two months ago. We have witnessed a continued relaxation of COVID-related protocols across the globe from air travel to concerts and other indoor activities, and this time around, the cruise industry is an active participant. First, we are pleased that in late March, the CDC entirely removed its travel health notices for cruise, representing a significant step toward leveling the playing field between cruise and our land-based counterparts. In addition, the CDC continues to modify elements of its voluntary framework for cruise, relaxing certain requirements, the most recent of which includes reducing required vaccination thresholds from 95% to 90%, which further opens up the important family market to cruising.

Second, as I mentioned earlier, we have seen an acceleration in the reopening of society to pre-pandemic normalcy, which bodes well for the travel and leisure sector overall. More ports around the world have opened to cruise and we have seen travel restrictions relax in many areas. And while there are still regions where discussions to reopen to cruise are ongoing, particularly certain countries in Asia, the good news is that we do not have ships sailing in those regions until fourth quarter, giving us additional time to monitor the situation, plan for various outcomes and be ready to adapt as needed. And lastly, we are seeing an explosive showing by consumers, particularly American consumers.

Consumer spend is strong, snapping back and even exceeding where we left off in 2019. Gone are the days where the family budget was going to antibacterial wipes, hand sanitizer, delivery apps, stationary bikes and streaming services. Consumers today are spending to catch up on over two years of missed experiences. One example of this that we see every day is hotel ADRs and airline fares, which are at or near record levels.

And now with our full fleet back up and running in our industry's overwhelming advantage in its value proposition over land-based options, we, along with the entire cruise industry, are well positioned to capitalize on this pent-up demand.,While the public health environment improved over the course of the quarter, the start of the Russia-Ukraine conflict did cause additional disruptions across the world and to our business, as you can see on Slide 7. First and foremost, we continue to hope for a peaceful resolution, which minimizes further impact for those in the region. Our motto is family first and as such, we have focused on assisting our impacted shipboard and shoreside team members as best we can. We have activated our crew relief fund and are providing logistical communication and mental health support to affected team members.

In addition, we also provided a sizable donation to Save the Children of Ukraine Crisis Relief Fund and invited partners, including guests, travel partners and team members to contribute as well. Prior to the conflict, approximately 10% of our annual capacity across our three brands was scheduled to sail in the Baltic region, with approximately 5% calling on St. Petersburg, Russia. We subsequently canceled or modified approximately 60 sailings, which included all calls to ports in Russia for 2022.

And in a move that demonstrates one of the unique strengths of our industry, we quickly redeployed three ships scheduled to operate in the region to sail alternate itineraries. Oceania's Marina, Regent Seven Seas Mariner, will remain in Europe sailing British Isles and Northern European itineraries, respectively. Meanwhile, Norwegian Getaway was redeployed to Port Canaveral to take advantage of pent-up close and domestic demand, which despite the condensed booking window, has already meaningfully exceeded our occupancy expectations. And in a pre-emptive measure, our three brands will pause all calls to Russia from their 2023 and 2024 itineraries.

While this is not an ideal scenario, we are once again demonstrating our ability to pivot as needed and respond to exogenous events. Now turning to Slide 8. We shift today's discussions to our broader booking and demand trends. Overall, we continue to experience sequentially improving underlying demand and robust pricing for all future periods.

The Omicron surge in December and January did indeed impact net booking momentum, with the vast majority of cancellations concentrated for close-in sailings. The tide began to turn in mid-January, when net booking volumes began to show week-over-week improvement. As bookings regained momentum, we experienced another temporary setback with the emergence of the Russian-Ukraine conflict. This impact was also short lived and was mainly concentrated on the Baltic region, with some leakage to surrounding Mediterranean sailings with cancellations returning to pre-conflict levels by the end of the first quarter.

Overall net booking volumes have continued to improve sequentially, returning to and recently surpassing pre-micron levels and currently at levels approaching the pace needed to consistently sail at historical pre-pandemic load factors. As a result of the impact from Omicron and the Russia-Ukraine conflict, second half 2022 book position is not below an extraordinarily strong 2019. As we look further out in the year, the picture improved sequentially with book position in the fourth quarter remaining in line with 2019. More importantly, cumulative full year 2023 book position is ahead of 2019 and ahead of pre-pandemic 2020 at a comparable point in the booking curve.

On the all-important pricing front, as mentioned earlier, our go-to-market strategy of marketing to fill versus discounting to fill and emphasizing value over price is paying off in droves, with pricing meaningfully higher for all future periods when compared to the comparable pre-pandemic periods. This holds true even when including the dilutive impact of future cruise credits in 2022, which, as a reminder, will no longer be a headwind in 2023 as FCCs must be applied to sailings through year-end 2022. As the booking environment improves, we will continue our strategic marketing efforts in order to further stoke demand to obtain quality, high-priced and high-value bookings. With each month that goes by, our recovery trajectory becomes a little clearer.

2022 is no doubt a transition year. But as I look toward 2023, I'm excited by the full potential of the future holds. We are still operating in an uncertain environment. And if we've learned anything, it's that a return to normalcy will certainly not happen overnight and possibly not without additional bumps in the road.

But with each passing day, I'm increasingly confident that we are reaching the milestones needed to propel us forward in this recovery. We are doing everything in our control to position us for sustained long-term success and we are laying the foundation needed to set the company up for an extremely strong year in 2023 and beyond. From where we sit today and without another black swan event derailing our plans, there is a reasonable and clear path to reach record net yields and record adjusted EBITDA levels in 2023, boosted by the introduction of four new ships across our three brands over the next 18 months, a goal our entire team is focused on achieving. As just mentioned, a key component to this future success will be our industry-leading growth profile, with nine new ships coming online across our three brands through 2027.

The first of these ships, Norwegian Prima will join our fleet in just a few short months, as you can see on Slide 9. After a record sales debut in May of 2021, her booking volumes continue to be stellar and her pricing significantly outpacing our past new ship launches.,In March, we announced that pop icon Katy Perry will serves as godmother to Prima and will be the headline entertainer at her christening ceremony in Reykjavik, Iceland. This announcement garnered significant media coverage, further building on the excitement surrounding Prima and allowing us to reach a new-to-cruise audience. As we look to next year, 2023 will be the first year that each of our brands will be welcoming new capacity, the addition of Norwegian Viva, Oceania Cruise's Vista and Regent Seven Seas Grandeur to our fleet.

These new hardware introductions are a meaningful driver, not only in net yield growth and overall profitability, but also in attracting new guests to our brands and reigniting loyal past guests to enjoy new and elevated experiences. Theyalso have historically had a significant halo effect in the rest of our fleet. Needless to say, I'm ready and eager to begin welcoming these additional premium capacity to our fleet, which we expect will be meaningful contributors to our top and bottom line financial results. I'll be back with closing comments a little later.

But for now, I'll turn the call over to Mark Kempa for his commentary on our financial position. Mark?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Thank you, Frank, and good morning, everyone. Before I begin my commentary on our financial results and outlook, I would like to take a moment to express my sincere thanks to our truly top-notch team for the successful execution of our return to service plan. Their hard work, collaboration and innovative spirit are unmatched, and their efforts have been critical to getting us to the significant milestone, with all ships now officially back to revenue service. Turning to the first quarter results.

Strong ticket pricing and onboard revenue spend drove positive contribution from the fleet that operated in the quarter despite headwinds we faced from the Omicron variant. During the quarter, we canceled approximately 60 sailings due to Omicron-related operational disruptions from additional travel restrictions, increased health and safety protocols and port closures. This impact, coupled with our focus on maintaining price integrity for the long term, resulted in slightly lower than anticipated load factors in the quarter. However, pricing remained robust in the quarter, and onboard spend per person per day continues to be up meaningfully versus record 2019 levels.

Looking ahead, load factors are also improving sequentially each month, and we expect second quarter load factors to come in at approximately 65%. This will continue to build throughout the year, and we expect to reach historical load factor levels in the first half of 2023 and at record pricing, staying consistent with our go-to-market strategy and protecting the long-term pricing strength of our brands. In addition, we are experiencing an uptick in bookings for close-in sailings, which not only help organically boost near-term load factors but more importantly, are a positive indicator that consumer confidence is building as these bookings are typically within the cancellation penalty period. Turning to our financial performance.

Slide 10 lays out our expectations for upcoming key financial milestones. In March, we reached a significant inflection point in our financial recovery, with operating cash flow turning slightly positive for the month ahead of our previous projections, which we expect will continue throughout the second quarter. This momentum should continue to gain steam as we progress through the year with both positive operating cash flow and positive adjusted EBITDA expected for the second half of 2022. This sets us up nicely to achieve our goal of record net yields and record adjusted EBITDA for full year 2023.

Moving to Slide 11. Our cash balance for the quarter increased by approximately $390 million on a net basis to $2.1 billion. This reflects $1.1 billion of cash burn associated with operations, including interest and capital expenditures, partially offset by nearly $600 million of advanced ticket sale collections and other working capital changes. Our cash balance at the end of the quarter was also boosted by an incremental $925 million associated with the balance sheet optimization transactions we executed in February.

Our overall liquidity remains strong, standing at $3.1 billion at the end of the first quarter, which positions us well to manage the resumption of debt amortization and newbuild-related payments, which were deferred during the pandemic, the former of which resumed beginning last month. With all ships now sailing and cash generation increasing month after month, our current trajectory would indicate that we are confident we can fund our operations organically. A key component of this cash generation is our advanced ticket sales build, which continues to accelerate. As you can see on Slide 13, Total ATS balance stood at $2.2 billion as of the end of the first quarter, up over $400 million versus the prior quarter.

On a gross basis, ATS build increased by 60% to $1.1 billion in the quarter, surpassing the $1 billion mark for the first time since the start of the pandemic and approaching pre-pandemic levels. This is another positive indicator demonstrating strong consumer demands for our brands. Turning to cash burn. Our monthly burn in the quarter was approximately $375 million, better than our guidance of $390 million despite some cost pressures from inflation and global supply chain constraints.

This cash burn figure does not include cash inflows associated with current or future bookings, nor contributions from ships that have already resumed service. Moving to the balance sheet. As part of our financial recovery plan shown on Slide 14, our team is focused day in and day out on finding and seizing opportunities to optimize our balance sheet and maximize value for our shareholders. During the quarter, we raised approximately $2.1 billion through a series of debt transactions.

Proceeds from these transactions were used to redeem the remaining outstanding balances of the high-cost 12.25% senior notes due 2024 and the 10.25% senior secured notes due 2026, which we incurred out of necessity at the peak of the pandemic. The remaining proceeds of approximately $925 million will be used to make principal and interest payments on scheduled debt amortization due in the short term. These transactions extended our debt maturity profile and released certain collateral and guarantees. The combined benefit of these transactions, coupled with those completed late last year as laid out on Slide 15, reduced our annual cash interest expense by approximately $75 million.

As I've touched on in the last few quarters, consistent with what all other industries are also experiencing, inflation in global supply chain constraints continue to put upward pressure on our costs. Fuel prices have risen significantly, accelerated by the ongoing geopolitical unrest. While we are not immune to this spike in pricing, our hedge program, as shown on Slide 24, provides partial protection. On the labor front, we remain relatively better positioned than our land-based peers due to our long-term employment agreements, which provide for stable wage inflation and predictability in our operating cost structure.

We've also provided incremental guidance on key certain metrics like depreciation and amortization, interest, fuel consumptions and capital expenditures, all of which can be found on Slide 25. Looking ahead, we are gearing up to deliver on our attractive newbuild program. This transformational growth is an underappreciated cornerstone of our company's investment thesis. Compared to 2019, the addition of -- to our fleet of nine new ships through 2027 results in a 50% capacity growth versus 2019, as shown on Slide 16.

This also reflects the additions of both Norwegian Encore in late 2019 and Regent Seven Seas Splendor in early 2020. These new ships are expected to be top line and margin accretive and with very efficient financing structures, resulting in an expected immediate boost to our profitability. As we have showed you in the past, Slide 22 demonstrates how this management team has time and again generated outsized returns on incremental capacity, a trend we fully expect to continue in the future. Another area where we can drive additional value for our stakeholders is our multiyear strategy to capture additional share of the leisure wallet.

Cruise vacations continue to offer a unique and incredible compelling value proposition for consumers versus land-based vacation alternatives. In the past, we have said that a cruise typically offers at least 20% to 30% better value than a similar land-based alternative. With the current inflationary backdrop, that gap has widened, making our value proposition even more compelling today than ever before. Without the same labor pressures on many of our land-based peers are facing, we can also provide a consistent and exceptional level of service to our guests as evidenced by our high guest satisfaction scores.

These factors combined present another opportunity for us to both drive additional demand and increased prices. Stepping back and looking at the bigger long-term picture, I am optimistic not only because of the progress we have made so far in our recovery, but also by our future prospects. Each new milestone we reach is another stepping stone as we push forward in our recovery process. And as I touched on, we have several significant catalysts to generate value beyond simply targeting a return to our pre-pandemic performance.

We are focused on controlling what we can control and finding new and innovative ways, however big or small, to improve each day. I am confident that our strong culture of operational and financial excellence and discipline, which served us well in the past and through the challenges of the pandemic, will serve us even more in the future. With that, I'll turn the call back to Frank for closing comments.

Frank Del Rio -- President and Chief Executive Officer

Thank you very much, Mark. Before we wrap up our prepared remarks this morning, I'd like to provide an update on our global sustainability program, Sail & Sustain, and which Slide 17 outlines key accomplishments and milestones. We have made several significant advances since our last earnings call. First, we announced last month that we are pursuing net zero greenhouse gas emissions by 2050.

This ambition spans our entire operation and value chain, as we aim to bring all of our key partners along with us on this important journey. To support our path to net zero, we have also committed to develop short- and near-term greenhouse gas reduction targets. These new commitments broaden and strengthen our existing and continually evolving climate action strategy, which is centered around three key focus areas: first, reducing our carbon intensity; second, investing in technology and exploring alternative fuels; and third, implementing a carbon offset program. We will continue to monitor and invest in opportunities to reduce emissions, including in beyond our fleet, working closely with our vendor partners to accelerate decarbonization efforts.

A key driver to achieve our net zero ambition is the development of alternative fuels along with the associated critical infrastructure at destinations globally to support the usage of these fuels and to accelerate the use of shore power while in ports. We will continue to partner and research to identify appropriate alternative fuel sources that can also be sufficiently scaled. For example, we are currently actively engaging with partners, including shipyards, engine manufacturers and classification societies in exploring path for the development of additional technologies, including potential hybrid engine solutions and safe and effective methanol engine retrofits. Second, last month, we published our first task force on climate-related financial disclosures or TCFD report.

As part of this process, we engaged teams across the organization to conduct an extensive climate risk screening, identifying priority climate-related risks followed by a scenario analysis in our top risks under different hypothetical climate scenarios. We are focused on improving resiliency and the result of this assessment will assist us in further integrating climate-related risks into our long-term strategy and decision-making processes. Lastly, I'm pleased to report that I signed the CEO Action Pledge for Diversity and Inclusion in March, further expanding our commitment to fostering an inclusive workforce, where diverse backgrounds that are represented engaged and empowered to generate and execute on innovative ideas. Before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on Slide 18.

First, we are incredibly pleased to have our full fleet back in operation, so we can now singularly focus on wrapping up occupancies in a disciplined and brand accretive manner with the goal of reaching record net yields and record adjusted EBITDA for full year 2023. The public health and regulatory environment has improved, and I am encouraged by the current trajectory and the overall progress we have made as a society in learning how to adapt and live with the virus, allowing us to accelerate our return to normalcy. Second, we are encouraged by the improving booking trends and robust pricing we are experiencing, which lay a strong foundation for the second half of '22 and 2023. We will lean on our fundamental go-to-market strategy of market-to-fill in order to set the stage now for high-quality, sustainable long-term profitability and free cash flow generation.

And lastly, we will continue to execute on our medium and long-term recovery plan and to capitalize on our attractive growth profile over the coming years. As you can see, we've covered a lot today, so I'll conclude our commentary here and open up the call for your questions. Rob, please open up the line.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Steve Wieczynski with Stifel.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

So Frank and Mark, I want to ask about your ability to take price moving forward. One of the questions we get a lot from investors is the long-term pricing power of your company and the industry in general. And you guys obviously, have remained underpriced relative to a lot of other vacation alternatives. And the fear is with disruptions like you're seeing with Russia, Ukraine and having to redeploy those assets elsewhere, coupled with a decent amount of new supply, those types of factors might keep your pricing ability more in check.

So just trying to understand how you think about price ability or price actionability and how you kind of combat those fears that are out there?

Frank Del Rio -- President and Chief Executive Officer

Thanks, Steve. I think it's a great question, especially because we rely on pricing to perform as well as we do, both top line and bottom line. And one of the drivers of that future pricing of performance is going to be the nine new vessels that's coming online. We have the most growth coming online, percentage-wise.

I think as Mark mentioned, 50% in '23 over 2019. And as you know, new vessels, especially the new generation of the Norwegian vessels, the new generation of the Oceania vessels and the last of the Regent vessels, they're all incredibly productive in terms of being able to raise prices. No question that the conflict in the Ukraine does have a adapting, in fact, on pricing. St.

Petersburg, Russia was a star port. We probably won't be going there anytime soon. But coupled with the new vessels coming online, you know of our history -- I think it's one of the slides, of our history of outperforming the industry in net yield growth year after year after year. Go-to-market strategy of market-to-fill as opposed to discount-to-fill is not a slogan, it's something we do every day.

We take it very seriously. Being the small to the three big cruise companies, we don't have the scale to control costs as well as some others might. We win our game based on our ability to drive top line revenue and the key to driving top line revenue is pricing. And so we have the best and the brightest in our company focused on that, and we believe that we'll be able to continue to outperform in that area for years to come.

Mark Kempa -- Executive Vice President and Chief Financial Officer

And Steve, to add to what Frank is saying, we can't overlook as we talk about the value proposition of cruise. We've always said that cruise is underpriced versus our true competitors, which are land-based vacations. And as you've seen consumers more and more willing to pay higher pricing for land-based alternatives, that is additional demand and additional pricing that we can go after and we expect to go after. We'll continue to chase that, and that's an opportunity for the industry as a whole.,If you look -- go back and look at 2008 and 2009, what happened in pricing after the last recession, pricing rebounded quickly.

And I think we were the first in the industry. A couple of our brands never lost pricing power. And our largest brand at the time was the first to rebound. So we're set up well.

We think there's continued opportunity down the line, consumers are willing to pay for value and cruise offers a compelling value.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

That's great color. And second question, probably a bigger picture question. It's something I've asked some of your peers as well, but it's probably relevant to what's going on right now in the equity markets. And clearly, there's a fear out there, the U.S.

is heading into some type of correction or recession or whatever you want to look at it. And I just want to understand how you guys think you're positioned at this point, both from a what we call kind of a financial or liquidity position as well as your business in general. And maybe help us think about how you guys have performed in the past during tougher economic times. And if you see any scenario in which you would need to raise additional liquidity?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Steve, I'll take that. So first and foremost, let's remember, we have a few inflection points that we just hit as a company. Free -- our positive cash flow from operations turned in March. We expect that to continue in the second quarter and throughout the rest of the year.

As I showed in our slides, we expect free cash flow to turn positive in the fourth quarter. So all that plays in well. When we look at our liquidity position, we turned the quarter with around $3.1 billion. And as I talked about, not only turning the corner on cash flow, but our advanced ticket sales engine is roaring.

And so when you look at that, and we're pretty confident in our ability to fund our operations organically. When you look at the bigger picture against the economic backdrop of whether it's inflation or recession talk, as you think about the cruise industry and our company as a whole, against an inflationary backdrop, we're relatively better positioned than many of our land-based competitors due to the fixed cost nature of our business. So that gives us an advantage. And again, I'll go back to what I said in the beginning of your question, that, combined with the value proposition of cruise, consumers look for that.

So we feel like we're in a great position going forward.

Operator

Our next question is from the line of Vince Ciepiel with Cleveland Research.

Vince Ciepiel -- Cleveland Research Company -- Analyst

Helpful comments there and interesting goal on the '23 net yield. I think you had also mentioned a record year for EBITDA, and I'm sure that unit growth is part of that, but I wanted to get your perspective on profitability within that. Obviously, there's been inflation across the business. A lot of companies are dealing with this now, but you guys have made some efficiency improvements through COVID rolling out additional capacity to leverage some land-based fixed costs.

So curious kind of how you're thinking about margins into next year in light of those moving pieces?

Frank Del Rio -- President and Chief Executive Officer

Vince, it's Frank. Look, it all starts with record pricing. Today, we've said that our 2023 book position, meaningfully ahead of where we were last year, pricing meaningfully ahead of where we are last year. We can hold, meaning no more black swan events.

We think that there will be margin expansion, led not only by the pricing we're seeing, but by the introduction of four new ships. We were, in a way, lucky that we didn't take delivery of any new ships during the pandemic. But over the next 18 months, we take delivery of 4. And so we think, like we've seen historically, new ship introductions are a real tailwind to net yield growth, to profitability, to top line revenue.Inflation is an ugly word, but there's a pretty side to it, which is pricing power.

And you've heard Mark's statements this morning along with mine that we do have pricing power, not only in absolute terms but in relative terms compared to land-based resorts and other vacation options. So we think that in the absence of more black swan events, and we've had more black swan events in the last 2 years than I think we've had in the prior '20, 2023 indeed, could be the record year that we're seeing unfolding before us.

Mark Kempa -- Executive Vice President and Chief Financial Officer

And Vince, we're -- not only unit growth, as we said, in 2023, we effectively have a 20% capacity growth over '19. We're going to drive the top line. But on the cost side, you have to remember that if you look at our costs, we're not immune to inflation, but about 25% to 30% of our cost basket is exposed to that hyperinflation, so to speak. That's a lot less than many of our comparable type of leisure industry, so to speak.

So we have some protection against that backdrop. We're going to continue to push on price. We continue to gain scale as we grow. And all that's going to reduce -- result in expansion of margin and increased profitability.

Vince Ciepiel -- Cleveland Research Company -- Analyst

That's helpful. And curious, I wanted to dig into the customer mix a little bit. I think there was a comment in the slide deck about loyalty guests driving a good portion of occupancy. But curious how you've seen new-to-cruise bookings transition in the last 60 days and if there's been any catch-up there?

Frank Del Rio -- President and Chief Executive Officer

Early in the pandemic recovery, there was an overwhelming skewness toward past guest booking. They were the most comfortable with cruising, most comfortable with particular brand. What we have seen really, since the beginning of the year, is a return to normal breakout between past guest booking with us, new-to-brand guests booking with us and new-to-cruise booking with us. So I think from that perspective, we've either reached or about to reach the normal breakout of the different groups of passengers, which is good to see.

Cruise line can't live with past guests alone. So it's good to see the return of new to cruise and new to brand to us.

Operator

Next question is from the line of Stephen Grambling with Goldman Sachs.

Stephen Grambling -- Goldman Sachs -- Analyst

Outside of the start-up costs, is there any way you can frame the impact of COVID-related costs this year to sustain, whether it's social distancing, testing, etc.? And what you would look for to start easing some of these, maybe as we get out to 2023?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yes. I -- Steve, I think outside of testing, we've effectively stopped the social distancing with the reduced regulations that were issued by the CDC recently. We're now going to be taking back some cabins over time that we had to put aside for quarantine or for isolation. So that produces additional opportunity.

There's going to be certain staff areas that we can reduce. So I think as we cycle through the second quarter and probably, somewhat into the third quarter, you're going to start to see some of those kind of what we'll classify as pandemic-specific related costs go away. I don't foresee any major cost components going forward from 2023 onward as a result of the pandemic, just some things on the margin, but nothing significant.

Stephen Grambling -- Goldman Sachs -- Analyst

And then maybe to harp on your answer to the questions on record net yields, I think some of the skeptics have been concerned that this bullish outlook six months out has been kind of successively, always six months out each quarter for about a year. So I guess, what do you feel has changed this quarter to give greater confidence in those trends finally materializing?

Frank Del Rio -- President and Chief Executive Officer

Well, the reason why the phenomena that you just described has occurred because we keep having these black swan events. First, it was Delta, then it was Omicron and then there was the Ukraine-Russian situation. And so we have tempered all our remarks by saying as long as there are no additional black swan events, we're seeing fantastic pricing strength. It is meaningful over what our record 2019 pricing was.

And therefore, again, in the absence of anything new, but this will hold. In the past, that hasn't held because of these black swan events. So promise me no more black swan event, Steve, and I'll promise you record net yields. But let's balance that, Steve, with the fact that we did turn cash flow positive in March.

We are confident we are going to be cash flow positive in the second quarter. It's been over 2.5 years as a company since we've been able to say that. And that's going to translate into EBITDA and then ultimately, profitability. So the tide is turning and the future looks bright.

So those are key milestones that we should not discount. I want to highlight that pretty strongly today.

Stephen Grambling -- Goldman Sachs -- Analyst

On that point, have the close-in booking trends then flipped as well? It seems like it has from your commentary, I think because that's what people have been concerned by, that you get to the close-in and maybe there's just been some impact to people's willingness to get on cruises and get on the ships. So has that flipped where you'd say, definitively, no, there's been no inherent damage to the consumers' behavior getting on the ships or that close-in booking and new-to-cruise?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Well, I think we -- in our commentary, I talked about that. And we are seeing close-in demand, which is good. And it's close-in demand that showing that consumers have confidence, they're booking within the cancellation period. We had not seen that during the pandemic.

So we've been seeing that over the last few months, which is a good sign. We're still seeing strong demand for the longer term as well. But again, that's a sign of confidence that consumers are willing to go, and they're confident that the voyage is going to sail and there's proper protocols in place. So it's actually a very good sign in relation to where -- as we exit the pandemic.

Operator

Our next question comes from the line of Patrick Scholes with Truist Securities.

Charles Scholes -- Truist Securities -- Analyst

A question for you, with the CDC last week lowering the requirement for vaccination from 95% to 90%, does that change at all how you folks think about your requirement? And correct me if I'm wrong, I believe you're still at 100% vaccination requirement?

Frank Del Rio -- President and Chief Executive Officer

No, Patrick, that's not correct. We have -- we had reduced from 100% to 95% when the CDC allowed it, and now we are -- at least for the Oceania -- at least for the Norwegian brand, which is the family brand in our company, we're going to be allowing 90% of the folks to be vaccinated, 10% not. That opens up the family market in a big way just in time for the summer season.

Operator

Our next question comes from the line of Robin Farley with UBS.

Robin Farley -- UBS -- Analyst

A bunch of my questions have already been answered. I guess one thing you're always talking about the second half, the strength in bookings meaningfully ahead. I think you mentioned that still includes itineraries going to Asia. I'm just wondering how -- sort of based on how things are now, if it continued and those markets didn't open up to cruising, when would you make those changes? Just thinking about sort of when your bookings may be sort of past the point of having any more disruptions for the year, how far in advance of anything Q4 going to Asia, would you make those changes?

Frank Del Rio -- President and Chief Executive Officer

Yes. Asia is really booking strong for us and at very, very high prices. But there is that risk, Robin. And so we will likely take some chips off the board in the coming weeks to balance that risk reward, likely at the Norwegian brand, which has more flexibility in where it can achieve good pricing and accelerate the bookings much faster than Oceania, Regent can because of the longer booking curve there.

The good news is that just today, we heard from the Minister of Tourism in New Zealand that they expect New Zealand to open up no later than October to cruising. That opens up that whole Australasia area for us. Australia, New Zealand, Tahiti, and we hear good commentary coming out of some Asian countries, some Asian ports, not China, and we're not very big in China, as you know. So we're hopeful, but there is a risk there, no question.

So we're hopeful, but there is a risk there, no question. But we are hopeful that it will reopen. I know South America, which also caused some issues this past winter, looks like it's going to be open. Argentina has announced, Uruguay has announced, Chile has announced.

So again, the world is reopening, perhaps at a different pace, but it is reopening and that's good news for us.

Robin Farley -- UBS -- Analyst

OK. No. That's great. And maybe just as a last follow-up.

Just going back to the close-in booking question. I don't know if there's anything that you can share, that you can kind of quantify with the close-in. In other words, like what percent of bookings are for departures in the next six weeks? Or anything like that, just to see that because it seems like that's the piece, right, that obviously that with the disruptions earlier this year, all the cruise lines have -- got lost a little bit of ground in terms of the recovery. And is there a way to quantify anything with the close-in bookings? Because that's sort of as we head into the peak summer season, a way to think about what strength may not be showing up in your numbers yet, but is there?

Frank Del Rio -- President and Chief Executive Officer

Robin, I'm not going to give you a number per se, but I will tell you that close-in bookings defined as bookings for the next 60 days, are running significantly higher than history. Now part of that is because historically, there typically is very little inventory to sell inside 60 days, and that's not necessarily the case today. But it is strong, much stronger than quite frankly than we anticipated two or three months ago. And another positive green shoot as Mark mentioned.

I mean, we got to get momentum back. And I'll take momentum anywhere I can get it. That means bookings are strong for the next close in, that's a start. Just last week, the Oceania brand introduced late '23, all of '24 departures that had one of its top three booking days in history.

So we're seeing people booking way into the future. And now we're seeing very, very strong bookings, very close in. And so in time, if there is a gap between the long and the relatively short, it's going to be -- it's going to start to fill in. And again, another green shoot as the summer rolls around top prime cruising season, it's going to continue to get better.

So again, I preface it, no more black swan events, the industry is going to progressively get stronger, better, going back to normalcy, reaching the normal high occupancies that we've always enjoyed.

Operator

[Operator Instructions] The next question comes from the line of Dan Politzer with Wells Fargo.

Dan Politzer -- Wells Fargo Securities -- Analyst

You guys typically have higher pricing than peers and certainly [Inaudible] today, I mean, to what extent do you think that your pricing power right now is a reflection of maybe a skew to the higher end consumer? And what have you seen kind of across your database and the different brands in terms of booking and pricing strength?

Frank Del Rio -- President and Chief Executive Officer

I think we're seeing pricing strength. I know we're seeing pricing strength across all three brands. Certainly, the upscale brands are doing terrific because of the nature of their itineraries or customer base. They're booking curve is always further out than the close-in or Norwegian brand.

And that is certainly playing out again for the back half of '22 and into '23. I just mentioned one of the upscale brands just announced here '24 itineraries and had a new record day, one of the top three days in the company's history. So we're not seeing any isolation of one brand versus another in terms of pricing, pricing is strong across the board. And that's very encouraging for us.

Partly it's because all three of our brands have the same go-to-market strategy where we focus on marketing and the value proposition over pricing. It's not one brand does one thing and one another brand does another. We harmonize that and curate it and that's why we have such a strong historical performance and year-over-year yield growth and have the highest yields in the industry by a very wide margin.

Dan Politzer -- Wells Fargo Securities -- Analyst

Got it. And then in terms of just markets, I mean, is it safe to assume it's your North American markets that are really driving that pricing power? Or are you seeing any stabilization for outbound in Europe?

Frank Del Rio -- President and Chief Executive Officer

No. I think Europe has come back very, very nicely. I was just talking to one of our brand presidents this morning and he tells me that European source business is strong. We can't believe how strong it is, especially in Europe, U.K.

is doing well. Australia is still lagging a bit. That country has been closed for a while. But again, these are all green shoots, we're waking up to bear.

Look, it's been 26 months since we were shut down on March 10. It took us 26 months to get our fleet back operating at full strength. And so it's going to take some time to get all the pieces right to get consumers thinking in the right direction, getting the ports opened around the world. And it all starts with a moderation of COVID.

And I think we've seen that even when there are spikes here and there, society is learning to live with COVID. And we have to do that. It's not going away. No vaccine is going to make it disappear.

It is now one of the many novel coronaviruses that affect our lives every day, and I'm glad to see that we're all learning to live with it. But learnings take a while. And so that's what we're seeing. We're seeing green shoots we're not 100% back to where we need to be.

But certainly, we are approaching the levels we need to sell full to generate the highest net yields in the company's history, the highest EBITDA in the company's history in the coming quarters. With that, we have one more question -- time for one more question, and then we'll conclude today's presentation.

Operator

And that question will come from the line of James Hardiman with Citi.

Sean Wagner -- Citi -- Analyst

This is Sean Wagner on for James. Just kind of within that 28% total per diem growth versus 2019, is there any kind of color you can give on the ticket NPDs and onboard spend in the quarter and sort of how they've trended sequentially, as maybe on a kind of comparable ship basis as more ships have gotten under the water and the ships are getting kind of closer to normal occupancy?

Mark Kempa -- Executive Vice President and Chief Financial Officer

Yes, Sean. So look, we continue to see strength in both ticket and onboard revenue. As we've talked about in our last few calls, the strength of the consumer is resonating well on the ships. Obviously, if you look at our financials and realize we do have our bundling strategy, which sort of at somewhat artificially inflates our onboard revenue by a couple of percentage points, nothing major.

So if even if you isolate that out, the onboard revenue performance is just strong. But more importantly, it starts with the ticket. It starts with getting that right customer, that high-quality customer booking far out in advance. Those are the customers we target.

We get a -- we offer them a significant value. And then in turn, they spend on board. So it's coming across in all areas. And that's what -- we're glad to see that.

That's what we want to see. That's what we're targeting. That's what's behind our go-to-market strategy. So it's not just one or the other.

It's a combined effort.

Sean Wagner -- Citi -- Analyst

OK. That's very helpful. And just real quick, you mentioned in the slide deck returning to historical load factors in 2023. Is there any specific time you expect to kind of get to maybe normalized historical occupancy levels?

Mark Kempa -- Executive Vice President and Chief Financial Officer

I think what's going to be in early -- in the first half of 2023, like we said, we continue to build. Q2, we expect is going to be in the 65% range. Obviously, when you look at the third and fourth quarter, that's going to continue to build. But we're going to maintain our price discipline, our pricing integrity.

We are not going to chase short-term load and damage the brand for the long term. We do not believe that's not our strategy, and that is not the right strategy for our company. So we will maintain that price discipline. We expect in the -- over the first half of 2023, we're going to be back at those 105, 110 load factors that we're used to seeing, but more importantly, at high pricing.

Jessica John -- Vice President, Investor Relations, ESG, and Corporate Communications

Before we go, we'd like to remind everyone that our annual general meeting is coming up on June 16. This year, we have a number of very important proposals on the ballot. We are extremely appreciative of the support we've received from our shareholders during this extraordinary time, and we are asking for our shareholders' continued support. On behalf of every shareholder account that vote, we will make a $1 charitable donation to American Cancer Society, up to $100,000.

Please vote and support our board's recommendations for our annual general meeting proposals so that we can continue to deliver on our mission to provide exceptional vacation experiences delivered by passionate team members committed to world-class hospitality and innovation. Thanks, everyone, for your time and support. As always, we will be available to answer your questions. Have a great day.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Jessica John -- Vice President, Investor Relations, ESG, and Corporate Communications

Frank Del Rio -- President and Chief Executive Officer

Mark Kempa -- Executive Vice President and Chief Financial Officer

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

Vince Ciepiel -- Cleveland Research Company -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Charles Scholes -- Truist Securities -- Analyst

Robin Farley -- UBS -- Analyst

Dan Politzer -- Wells Fargo Securities -- Analyst

Sean Wagner -- Citi -- Analyst

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