Chief Future Officer: Naftali Holtz, Royal Caribbean Group

just turns off. They did not teach this in business school, by the way, so you know it turns off and you you have to figure out how you're going to ensure that the company has liquidity needs in order to be able to get to the other side of it. No revenue at all, but you have costs and expenses. That's right. What you learned in the pandemic is that leadership really matters. For Royal Caribbean Cruises, the lesson was

stark and clear. After generating almost two billion dollars in annual profit before COVID, the company lost more than five billion dollars in both At the end of one longtime CEO, Richard Fain, stepped down after thirty three years, handing the reins to CFO Jason Liberty. What was it like that transition going from CFO to sea and we were still

kind of coming out of the pandemic. We were still ramping up our fleet, ramping up our occupancy, and so we had to keep our eye on the ball on because historically we would bring about three ships up a year um and here we brought up sixty four ships. And it's a big change to herculean efforts helping the new CEO meet those challenges. New CFO and if Tally Holt, who moved up from VP of Finance, I had hired

him I think about six months before the pandemic. I was looking for somebody with with a lot of really strong work ethics, somebody who was strategic, um, you know, somebody who who understood how to you to get things done inside of an organization. And I saw those qualities and off Tolly. And he has done an exceptional job coming into the role. He hit the ground running. That dynamic in the C suite is help Royal Caribbeans come back,

maintain momentum. What's it like becoming CFO working for the individual who was CFO and is now CEO. I feel very fortunate because I have someone who has been in the job for many years is still with a company. Obviously as much more responsibly. But he understands what what I what, what what it means to be in my job. So what was that like for you? Having been in the CFO role for so long? What did you expect of him? I rely on him very much to be

my eyes and ears, my strategic partner. And I'm also very transparent with him in terms of what I'm thinking about and doing um And sometimes he will sit there and did we really need to spend money on that? And also, yeah, we really need to spend money on that. I'm a very direct person and I care and I feel that that's that's important for me to make sure that if I feel differently, you know, at least we

have a conversation. And you know, many times I would I would I would think one way and then he would point his point of view and it would make sense, and I would say, you know what you're write and you know and I get behind advancing the company's long term mission through honest conversation. That's how enough Tally Holt

takes the CFO roll forward. And maybe many years ago we was about making sure that the numbers are correct and everything is on time and and we report correctly and I think involved today too much more than that. You know, what is the strategy that we're going to embark on, what does that mean to the financial performance of the company, and how does how do we invest

a view dot um. That's one aspect of it, and the other is just making sure that we are always on the polls with its full fleet returning to the season, Royal Caribbean has enjoyed a financial rebound booking or robust and they've been accelerating every quarter. In novemb Or, the company announced the Trifecta Program, a three year initiative designed to exceed performance in key financial metrics by the end of Inside the industry, they're going to fit in because

there's bent up demand. People want to travel. We have a hundred and thirty thousand people sailing with us right now as we talked, and they are spending more than they did a month ago. They're spending more than they did a year ago. They're spending more than they did pre COVID on travel experience. We know the ships that are coming in. These ships are huge money makers, very high yielding. Because of the inventory mix, there's more space

for onboard revenue venues they're very fuel efficient. Intent to cruise is climbing. Whether or not that can be sustained, I think is a question to be answered. And there are a couple of different elements of that, the first being, UH, the economy. Do you get a little nervous with all the recession talk or another black swan who would have thought, right, what happened the last couple of years. It's hard to

plan for it right. So what we are focused on is to making sure that we have the best business the right so the business is run well. We are obviously are focused on liquidity and and our and our on our financial metrics, and we want to fix the balance sheet, um, you know, to to get to back to where we were. Fixing the balance sheet, that's a heavy lift. Royal Caribbean is carrying nearly twenty four billion dollars in debt. Though it's paid down most of its

short term obligations, the debt still looms large. It's a dark cloud over the entire cruise industry. The valuations for the major cruise lines have gone down and UH and the debt levels are very high, so they will have difficulties to to receive more debt and it might be very high interest rates. The debt that we took on. Half of it was in order for us to deal with UH not operating for those for those eighteen months

and ramping our business back up, staying a lot, that's right. UM. The other half of it was actually because we were growing and we were taking on new ships, and those new ships we get incredible export credit financing for and we've done a lot of refinancing and we do believe over the coming years we're gonna be a much better place to do two things, one is de leverage and also improve our rating, and so that will also lower

our capital costs. Are you comfortable with that level of debt and being able to service it, well, we were not happy with it. We want to get Our goal is to get back to the balance sheet we had um which is an investment, great profile. We're back sailing UM You occupancies were generating cash flow from operations, so you know we Our goal is now to continue to grow Ibada, continue to grow the cash flow so we can pay down to debt and bring the balance sheet back.

This business is very resilient. We always said that we wanted to have a balance sheet that could take a punch, and we proved that we had a balance sheet that could actually take a meteor um And so I think that's why you know, NOF is very focused. I'm very focused on getting back to a investment grade balance sheet. I'm getting back to an unencumbered balance sheet. You know that that sets us up for events as they as they as they come forward, can Royal Caribbean perform its

way back to unencumbered financial stability. The cruise line generates about six revenue from sales of tickets. Most of the rest comes from on board spending. At the moment, higher prices aren't holding down demand in either category. On the ticket pricing side as well as on onboard spend, um you are pricing is up versus nineteen. We use nineteen as our reference point. Onboard experiences have really been become

a much more integral part of the experience. What we have seen in the past couple of years is that we we have a much more penetration of onboard board experiences for a guest. So people just want to consume more, They're willing to spend more, and that's obviously much um that helps them. The yields and the revenues as well as the margin pre pandemic. Unless we're impressed by Royal Caribbeans margin expansion. Operating margins double during Jason Liberty's first

seven years as CFO. The barriage ahead may not be a smooth especially if inflated costs eat into revenue gains. We've seen huge inflation costs on the on the food. However, you are supply chain teams have done really an exceptional job. So we do believe as which is what the basis of our Trifector program is moderate yields and good cost control. And for us, good cost control is is low single

digit um change your ear. If you think about the cruise industry, there's a course that vantage full labor because they don't have debate the minimum weights is and there's also ghost advantage in supplies like food and beverage supplies because they buy it in quantity. Jason, what are the conversations you have with enough Tolly about costs because it's such a big component of of you know, when you look at your financial statements, where I really focused no

off on is where can we become more efficient? Where can we use technology for us to become more efficient? The food side, what we we want to make sure is that the experience that we offer to the guests is great, because that's our mission. Maybe we can source more locally, maybe we need some of it to source more globally. Just reimagine of how do we deliver on

the service and on the fuel side. UM, we have an active hedging program and you know, we're very focused, which is good for also for our environment, is to minimize the reduced the consumption of fuel UM and that is UM. You know, obviously one of the things that we can control the most. What Royal Caribbean can't control

head winds caused by world events that threatened growth. COVID zero has meant zero cruising in China since the start of war in Ukraine and recession signals are concerns in Europe. All this put strain on the supply chain that provides Royal Caribbean's most important commodity passengers are sourcing for Our guests come from a hundred different locations around the world, and we created a platform for it to be very nimble, and so we're always sourcing the highest shielding guests from

anywhere in the world. But our assets, our business moves. It's fluid, so when events do happen around the world, we have we have the ability really on a dime, to move our deployment around or move our sourcing around to help mitigate that. So yeah, we're, you know, like we always are. We're nimble, and we've you know, are sourcing, and our deployment is going to be different. Um and

then we'll see what brings. Uncertainty about the future of travel has weighed on crew stocks over the last two years. Despite suns of a rebound, investors remain cautious. What was it going to take for Wall Street to be like,

we're comfortable with this. Well, I think they're getting more comfortable with it and and and I think once they start seeing guidance and they see the level of profitability, the level of cash flow, I think at that point, you know what, we'll we'll start to see the the the overall crystallization of where we are um and then and then begin to think about where we're gonna be going.

It's Ason Liberty took over as Chief executive of Royal Caribbean Cruises in January two, replacing Richard Fayne, who had been CEO since and remains chairman of the company's board. Liberty's promotion fits with a trend. According to Christ Colder's annual survey, more new CEOs are coming to the job directly from a CFO chair than ever before. The role of the CFO. I think has changed over time, right.

They become much more strategic, um, you know, and of course this world has become more data driven UM, and so being able to you know, to to think in that way, and and of course being brought up that way and putting people in the CFO position that think that way versus maybe just doing accounting or treasury related activities. I think that's why you're starting to see more CFOs rise into the CEO spot, which because there's a lot of that kind of commonality that comes in the day

to day of the CEO job. Royal Caribbean CFO and of Tally Holtz brings a strategic and data driven background to the CFO role, and he's mission driven as well. I was born and raised in Israel UM and like everybody else, I enlisted into Israeli Air Force. I had a four very meaningful years serving my country and giving back, and then I always wanted to be to move to

the United States. I had some family here, but I was just aspiring to the country the opportunity, and I thought that the best way for me to do it is through going through business school. And I was fortunate to get into Chicago Booth and learned from the best and get some of those finance skills and knowledge UM. And then I started on Wall Street and it was just the natural I was, you know, transition. I really felt compelled and and interested about UM investments and the

markets and companies and their stories. And I really learned a lot UM and you know, through transactions interacting with CEOs and CFOs. So how do you think having a career on Wall Street finance background maybe makes you a better CFO. Obviously, all the skills that I had UM, you know, in my career on Wall Street, understanding how to raise capital, what investors are looking for, helped us in the beginning of the pandemic when we had to raise capital UM to make sure we get to the

other side. So, you know, just understanding the different instruments in the different ways to raise the capital, understanding the capital a location, how we will prioritize investments, how we were prioritizing the cash flow that this business generates a lot of cash low um is something that I'm focused on, and obviously I've seen a lot of those in my career on Wall Street. A cruise ship is much more

than a flotilla of financials and numbers. If Tally Holt shown me around the celebrity beyond Royal Caribbeans newest ship rolling out, not the red carpet, instead the magic carpet, an example of investment that's yielding returns in several different ways. Originally, actually we designed it because we wanted to have a really nice platform for tender in because sometimes we can't

homeport exactly value functional. And then we looked at it and said, why don't we just make it a really cool feature spot where people can enjoy it beyond the functional space, and we may create that this bar it went up and down. It take about the Instagram conues become bad at about that I can instagram a moment with the sunset, having a drink with your friends or family. I mean, that's that's that's amazing. So what does it

take to do something like this? And I'm thinking cost engineering time, Yeah, a lot of effort, from a lot of people. So starts from just the design and the conceptual aspect of it. Then we need to figure out a lot of technical factors, the wait, the wind, and so lots of lots of hours of really hard work. And every time we up the game, we see that customer willing to spend more. Is there like a bunch of other innovative ideas that you guys are working on.

Is there other things that maybe are in the hopper that might be like this that we might see in future ships. Yes, you know, obviously the ships are core to to We delivered the bestifications in the world, um and a couple of years ago we saw an opportunity to extend that even to land, so we built some private islands and exclusive destinations. Cook is one example of it. And we have a lot of great ideas and projects in the hopper. And you know, we're very focused on

being discipline. You know, we we deploy billions of dollars on behalf of our shareholders, so we we have for ourselves and for them, you know, a return expectations. So we just to make sure that as we as we invest the money, it's it's it's it's getting the returns we want in every corner of celebrity beyond, there's evidence of careful investment designed to give customers every opportunity to spend money. And for passengers who want to spend a

little more money, there's ample opportunity to upgrade. So this is our exclusive retreat area and guests can upgrade right and and buy a room a stateroom here and enjoy the exclusive access to those facilities. And you can see there's a pool, there's cabanas obviously, lots of opportunities for food and beverage. The segmentation of giving you know, passengers and opportunity to have a different experience, maybe pay up for a more premium experience. Is this kind of where

it's all going. Yeah, And I think it's really about every Everyone has maybe a little bit different um you know, um desire of what their ultimate vacation is. Some people want to go and meet people. Some people just want to because it came in with their their where their family, just to go and spend their time alone. So it's really designed to do to be like the ultimate vacation,

depending on what do you want. Royal Caribbean is one of three companies that together control about three quarters of the global cruising market. Its capacity share was second only to Carnival and more than twice that a third place Norwegian cruise line. Royal Caribbean operates it ships under three brands with three distinct profiles. And the Royal Caribbean brand, you know, they're more family focused, multigenerational. Our Celebrity brand is more of a premium luxury and then we have

Silver Sea which is ultra luxury and expedition. So it's not a one size fits all business. And as passengers demand more choices, one way to fulfill them is bigger ships. In October, Royal Caribbean unveiled plans to launch what will be the largest ship in the world, Icon of Disease. It will carry over seven thousand passengers. Its first cruise,

set for January, sold out within hours. If you're going on a on a seven day void, you're going to be able to do anything and everything that you could possibly dream of and and you know, it might be what you want to do, it might be what your daughter wants to do, it might be what your parents want to do, and everybody can have different experiences on a We describe it as the thrill and the child.

We offer much a lot more on the ship. They become much more profitable because there's so much more to do. There's economies of scale um and their efficiencies and operations, so it ship that we deliver is actually much more profitable. Caribbean is also investing in technology to drive profits to say that cruising industry is actually one of the leaders when it comes to digital transformation, and I see that accelerating in the future. We want to make sure that

we create a frictional ness experience. Right. The expectations today from the consumer is that the experience is friction less. Especially through the pandemic, people got very comfortable for on demand services. They wanted groceries, they went to instacart and so for here all through your phone. That's exactly right. People want to organize themselves well in advance of getting

on our ships. So they want to be able to book their spa appointments, they want to be able to book their short excursions well in advance of them ever getting onto the ship. And of course when they do that, they actually tend to spend more money, which is also a a good thing. So we have to take friction and we have been taking friction out of that experience.

Is there some application where there's the app and there's kind of a metaverse where I can kind of walk through the ship before I even get on and decide what I want to do or where I want to go. Yeah, I think it's even I think it's even greater than that.

I actually think in the metaverse, where we're gonna be able to do is to help people begin to dream what their vacation is going to be and to be able to put on either oculus is or using their phones, um to really understand what they're going to expect location by location. We are working on this already and it's and I think it's going to change. Um, it's going to change how people book cruises. And then that that content helps us understand how we need to modify and

change our product not a beautiful thing, that's awesome. Royal Caribbean already understands the need to make its operations greener. The company just opened a state of the art zero energy cruise terminal in Galveston, Texas at a cost of one million dollars. Even the behemoth Icon of the seas is being built with sustainability in mind, that ship will have l en g um as as the base fuel for that ship. Now LG is not perfect um to

transitional fuel UM, it will produce less carbon. We're putting a mega watch fuel cell onto the ship and we're looking at trifuel engines, so that will be prepared for things when whether it's methanol or hydrogen or other comes into place. Sustainability is UH is table stakes going forward. Six and ten. Consumers in the US are concerned about the travel industry's impact on climate change. And when we ask consumers who is responsible for fixing it, a plurality

say it's the responsibility of companies in the industry. The cruise line has to go green. There is no a lot of options because millennials are the biggest group of consumers today already and in the future even more, and they are choosing those cruise lines that are sustainable and and there's no room for creen washing in the area.

It's one of our goals right to reduce our carbon intensity by double digits and innovation around the environment is something that the company has done for many, many years. I'll give you a quick example. Um in Um the last couple of years we've we wanted to reduce used the waste of food on the ship. It's good for business, it's also good for the environment. We've used technology for that.

Really understand how much is it that we have the waste of the food and we've implemented technology to help us UM reduce that that waste. We are working really closely with ports around the world because when the ship is on port, we can maybe plug into their green grid and or have or powered the ship with the fuel cell and then part of it is really the fuel of the future, which UM. You know, we continue to have a lot of partnerships in R and d UM, you know as as we as we continue that journey,

so we're we're focused on it. There is so much to focus on. As a CFO engaged in the company's restart following a complete shutdown, I asked n if Tally holds what he sees when he looks ahead. What's the opportunity for Royal Caribbean and the next ten years that most excites you. Continue to grow our market share in the leisure in the leisure space just even beyond cruising. So what's the challenge for the company in the next ten years. That keeps you up at night, Well, I

sleep quite okay at night. But I think we just continue to you know, I think what we want to really focus on, to me is to continue to innovate, continue to be retaining the best talent and the culture of innovation and DNA and kind of making sure that we continue to evolve and and and with with the

with the with the world and the consumer. What's the best advice for the future that you would give to someone who was promoted to CFO today, Listen a lot um, really get into the business and what is it that's really driving it to be really impactful and influential. With two thoughtful and experienced financial leaders at the helm, Royal Caribbean is setting a course for its next chapter. Jason Liberty enough Tally Holtz feel prepared for whatever the future brings.

I'm Carol Masser. This is Bloomberg. Do