Q2 2024 Viking Holdings Ltd Earnings Call

Participants

Carola Mengolini; Vice President of Investor Relations; Viking Holdings Ltd

Torstein Hagen; Chairman of the Board, Chief Executive Officer; Viking Holdings Ltd

Leah Talactac; Chief Financial Officer; Viking Holdings Ltd

Linh Banh; Executive Vice President – Finance; Viking Holdings Ltd

Steven Wieczynski; Analyst; Stifel Europe

Matthew Boss; Analyst; JPMorgan

Andrew Didora; Analyst; BofA Global Research

Robin Farley; Analyst; UBS Equities

Daniel Politzer Politzer; Analyst; Wells Fargo Securities, LLC

Brandt Montour; Analyst; Barclays Estimates

Meredith Prichard Jensen; Analyst; HSBC

Stephen Grambling; Analyst; Morgan Stanley

Alex Brignall; Analyst; Redburn Atlantic

Patrick Scholes; Analyst; Truist Securities

Conor Cunningham; Analyst; Melius Research

Presentation

Operator

Good morning. My name is Paul, and I will be your conference operator today. At this time, I would like to welcome everyone to Viking’s second-quarter 2024 earnings conference call. As a reminder, this call is being recorded. (Operator Instructions)
I would now like to turn the program to your host for today’s conference, Vice President of Investor Relations, Carola Mengolini.

Carola Mengolini

Good morning, everyone, and welcome to Viking’s second-quarter 2024 earnings call. I am joined by Tor Hagen, Chairman and Chief Executive Officer; and Leah Talactac, Chief Financial Officer. Also available during the Q&A session is Linh Banh, Executive Vice President of Finance.
Before we get started, please note our cautionary statement regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of the factors which are detailed in today’s press release as well as in our filings with the SEC.
The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We may also refer to certain non-IFRS financial metrics, which are reconciled and described in our press release posted on our Investor Relations website at ir.viking.com.
Tore and Leah will provide a strategic overview of the company, a recap of our second-quarter results and an update of the current booking environment. We will then open the call for your questions. To supplement today’s call, we have also prepared an earnings presentation that will also be available on our Investor Relations website following this call.
With that, I’m pleased to turn the call over to Tor.

Story continues

Torstein Hagen

Thank you, Carola. Good morning, everyone, and thank you for joining us. I’ll start today’s call highlighting a few key performance indicators. And we’ll then take the opportunity to touch on demand sharing with you some of the characteristics and qualities of our target customer.
As you can see on slide 3, this morning, we reported successful second quarter results with our consolidated net yield up 6.6% from the prior year. Additionally, we continue to experience robust demand for our core products with 95% and 55% of our 2024 and 2025 capacity already sold as of August 11.
Our momentum was strong throughout the second quarter, culminating with two sales milestones at the end of July. First, the week ending July 31 was the company’s highest grossing ever, and it included the highest growth in day of sales.
These results speak to the strength of our one Viking brand and give us confidence that our core consumer demographic continues to show financial resiliency prioritizing travel and actively seeking enriching memorable experiences. And these results also speak to the effectiveness of our sales and marketing teams and strategy.
Now if you look at the next slide, I mentioned in the past that our approach of sales and marketing is different. We have a marketing platform that directly engages with consumers, supported by a database that includes more than 56 million North American households. This has enabled us to develop deep relationships with our guests through a strategy that leverages robust digital capabilities and data-driven decision-making.
As you see, we can generate demand, and to this end, we will continue to invest in sales and marketing during the second half of the year to support our growth plans and to keep momentum going. If you follow me on slide 5.
Last quarter, I discussed our identity and unique differentiators, one of which is our dedicated focus on the specific target demographic. Today, we’ll delve deeper into this.
You can see that we cater to curious, affluent English-speaking travelers, age 55 and over. Since our inception, we have focused on material travelers who not only seek to explore the history and culture of the destinations, but also possess the time and financial flexibility to travel.
On slide 6, we are sharing a few graphs that visualize the strength of our target demographic, more precisely, the US demographic which currently represents most of our guests. As you can see on the left side of the slide, the population age 55 and over is the fastest-growing segment, expected to increase by 13% to 110 million by 2030.
Moreover, the segment is not only growing fast, but their spending power is also increasing. Adults over 55 have the largest spending power of any demographic, holding 73% of US wealth, and that metric has been on the rise with the net worth of this group currently up 41% since 2019.
To give you some perspective and metrics related to our current customers, this quarter, we carried about 200,000 guests. We spent an average of almost $8,000 each on their holiday.
Now moving to slide 7. It is one thing to have a clear profile of the consumer we are targeting and it’s another to align our product and deliver a great experience. And we believe we are winning on both fronts. Our guests share a passion for travel and a keen interest in the destination.
At Viking we have a mantra about tailoring experiences to this group. We do not try to be all things to all people. We understand that our guests are thinking people who are traveling to learn and engage with the destination.
To this end, when gas book with us, we provide destination-specific content from reading lists to language classes. Once on board, our comprehensive programs cover the past, present and future of the destinations through lectures, performances and local demonstrations.
We offer these experiences on itineraries across all seven continents. Interestingly, our 2025 itineraries include over 500 unique destinations, significantly more than the 350 visited in 2018. Now we’re talking about how we believe our offering resonates with our target customers, it’s always encouraging to see this being publicly recognized.
On slide number 8, we are highlighting that this summer, we received top honors from Travel + Leisure and TravelAge West for a river, ocean and expedition voyages. Travel + Leisure readers once again recognized us as the world’s best for all these three categories.
Additionally, we also earned five category wins in the 2024 TravelAge West Wave Awards and these awards are voted by travel advisers that showcase the success we have had with these important stakeholders over the years.
Last October, we were also ranked number one by Condé Nast Traveler across rivers, oceans and expeditions. No other travel company has simultaneously been honored for the rivers, oceans and expeditions by both Travel + Leisure and Condé Nast Traveler, something Viking has achieved for two years in a row. This is very special for us.
In summary, we will continue to obsess of our guests by providing excellent travel experience at good value catering our offering to what we know they desire and enjoy. We believe that our clear focus on our core consumer demographic and our product is the essence of our brand promise and the cornerstone of our success.
I will now turn to Leah to discuss the financials.

Leah Talactac

Thank you, Tor, and good morning, everyone. We are very pleased to have reported a strong second quarter. On a consolidated basis, total revenue in the quarter grew 9.1% year over year to almost $1.6 billion, mainly due to higher revenue per PCD and an increase in the year-over-year size of the company’s fleet.
During the second quarter of 2024, capacity PCDs increased by 3.1% and occupancy was 94.3%. Adjusted gross margin in the quarter increased 9.5% year over year to $1 billion. Our net yield was $562, 6.6% higher than the second quarter of 2023, which is remarkable since as I mentioned last quarter, 2023 was already a very good year for us.
Vessel expenses, excluding fuel per capacity PCDs were down 1.9% year over year. This positive cost performance compared to last year was mostly driven by favorable timing of expenses. It is important to note that we do not manage our expenses quarterly. For example, our repair and maintenance expenses are tied to specific projects and purchase orders, which can shift between quarters.
Net income for the second quarter of 2024 was $156 million compared to $190 million for the same period in 2023. The net income for the second quarter of 2024 includes a loss of $123 million from the revaluation of warrants issued by the company due to stock price appreciation. It also includes a loss of $66 million related to the net impact of the private placement derivative loss and interest expense related to the company’s Series C preference shares.
In comparison, the second quarter of 2023 includes a gain of $3 million from the impact of the Series C preference shares. The company’s Series C preference shares converted into ordinary shares immediately prior to the consummation of the company’s IPO.
The second quarter of 2024 is the final quarterly period for which the financial results will include private placement derivative gains or losses and interest expense related to the Series C preference shares. Excluding the impact of these items, the majority of which are non-cash, net income for the period was $345 million.
Adjusted EBITDA for the second quarter totaled $493 million, improving more than $50 million when compared to the same time last year. This significant year-over-year improvement was driven by our top line which was bolstered by a higher net yield compared to last year and increased capacity. The adjusted EBITDA margin was 47.5% for the second quarter and 36.7% for the last trailing 12 months.
I will briefly address our net interest expense in the quarter, which decreased by $77 million compared to the same time last year. This decrease mainly reflects a onetime charge incurred in the second quarter of 2023 related to the early financing of a senior secured note originally maturing in 2025.
Now before moving to our reportable segments, I would like to highlight that rather than managing the company on a quarterly basis, we focus on the long term and manage the business profitability on an annual basis. To this end, adjusted gross margin for the first half of the year increased by 12.5% year over year to $1.5 billion, and our net yield was $543 million (sic – see press release, “$543”), 5.2% higher than the first half of 2023.
Now moving to our two reportable segments, river and ocean. For the river segment adjusted gross margin grew 12.6% to $664 million for the first half of 2024. And net yield grew to $568 compared to $506 in the same period last year, up more than 12% year over year, driven by strong demand for our European itineraries. Occupancy was 94.7%. As a reminder, the bulk of our river business begins in the second quarter.
For ocean, capacity PCDs increased by nearly 10% year over year, mainly due to the addition of the Viking Saturn, which was delivered by the end of April of 2023, and occupancy was 94.9%. Adjusted gross margin grew 11.4% to $711 million. Net yield for the ocean segment grew by 1% compared to the previous year, primarily due to the regional mix and specifically because a larger portion of the capacity was related to the World Cruise itinerary.
In 2024, we had two world cruises versus one in 2023. Excluding these cruises, our net yield for the first half of 2024, increased by mid-single digits compared to 2023.
It’s worth noting that the World cruises, which went on sale in 2021 were met with exceptional demand. Although the World Cruise itinerary typically has lower-than-average net yields, it garnered overvaluing support from our past guests and required less sales and marketing spend.
While I’ve given some details on our reportable segments, I’d like to emphasize that we view our business as one entity, whether our guests choose to travel by ocean or river our focus is on providing a best-in-class travel experience, prioritizing the destination.
Now let’s move to the balance sheet. As of June 30, 2024, we had total cash and cash equivalents of $1.8 billion and net debt of $3.6 billion. To this end, our net leverage improved to 3 times at the end of Q2 compared to 3.4 times on March 31, 2024.
As of June 30, deferred revenue was $3.8 billion. Also on slide 12, you can see our current bond maturity outlook, which has not changed since we last reported, with one bond maturity due in May 2025 and all other maturities in 2027 and beyond.
With this, I’d like to confirm our debt amortization for 2024 and 2025. As of June 30, 2024, the scheduled principal payments for the remainder of 2024 are $101 million and $459 million for the full year 2025. From a committed capital expenditure perspective and for full year 2024, the total expected committed ship CapEx is about $830 million, net of financing $450 million.
And for the full year 2025, the total expected committed ship CapEx is about $710 million, net of financing, $90 million. The primary driver of the quarterly change in committed ship CapEx for both 2024 and 2025 is the signing of the options for ocean ships 17 and 18, which are scheduled for delivery in 2028 and 2029, respectively, and remain subject to certain financing conditions.
With that, I’ll turn it back to Tor to review our business outlook, including our booking curves.

Torstein Hagen

Well, thank you, Leo. Before we get started on the curves, I’d like to remind everyone that advanced bookings include bookings for cruises, land and air for our core products.
I also want to note that the advanced booking per PCD has historically decreased as we got close to the forward year. This is not indicative of price reduction, but rather at a complex interplay of several factors, which include variations in deployment mixes the timing and types of itineraries open for sale.
For example, our most popular and newer itineraries will usually sell first. Also the cabin categories has typically better cabin categories book first. and the timing of price increases. And finally, our internal revenue planning decisions as we manage pricing and pacing based on market conditions.
Let us now dive into the curves which are evolving according to our expectations. On slide 14, we see our consolidated metrics. As you can see, our 2024 capacity is almost completely sold with 95% of our capacity PCDs booked for our core product and $4.6 billion of advanced bookings sold as of August 11. This is 14% higher than the 2023 season at the same point in time.
And 2025 looks encouraging, too. We have 55% booked with $3.4 billion of advanced bookings. This is 20% higher than the 2024 season at the same point in time in 2023. Please keep in mind that our operating capacity for 2025 is 12% higher.
So all this looks good. But I will highlight that depending on the market conditions, you might not want to be booked too far out as we also look to optimize pricing. We might want to slow down the pacing if we think that it will benefit the overall year. It is important to analyze occurs with these things in mind.
On the next slide, you will see our curves for ocean cruises. This is slide 15. I will start with a green line, which shows the bookings for 2024.
If you look at the box on the upper left side of the slide, you will read that for 2024, we have sold $1.9 billion in advanced bookings, which is 15% higher than last year at the same point in time. I will also note that our operating capacity is up 6% year over year.
Moreover, 94% of the 2024 capacity is all result as of August 11 of this year. So we have very little to sell for 2024 and our sales and marketing teams are now really focused on 2025 and beyond. I will note that we are pleased with the 2024 rates, which are up to $665 compared to $621 last year. If you now look at the blue line, you will see how the bookings for the 2025 seasons are doing.
For the 2025 season, we have sold $1.7 billion in advanced bookings, which is 24% higher than last year at this time for the comparable period. Our operating capacity is up 18% year over year, and 60% of the 2025 capacity is already sold as of August 11 of this year. Regarding the rates, there are up to $755 compared to $672 for the 2024 season at the same point in time.
Now if we move to slide 16, you will see the curves with the river cruises. I will start with advanced bookings for 2024, which is the green line. As you can see, we have sold more than $2.3 billion in advanced bookings, which is 14% higher than last year.
And I remind you that our operating capacity is up 4% year over year. So 96% of the 2024 capacity is already sold as of August 11 of this year. Like ocean, we are (inaudible) to cell for 2024, and our teams are now focused on 2025 and beyond. The 2024 rates for rivers are up to $761 compared to $690 last year.
Now looking at the blue line, these are the advanced bookings for the 2025 season. And for the ’25 season, we have sold about $1.5 billion in advanced bookings, which is 13% higher than the ’24 season at the same point in time.
Our operating capacity is up 8% year over year and 49% of the 2025 capacity is a result as of August 11 of the year. So these trends are very good for 2025 with rates up to $887 compared to $829 for the 2024 season. As I mentioned before, we are pleased with all these metrics which are progressing according to our plans.
Now Leah will add some color to our order book and capacity.

Leah Talactac

Thank you, Tor. Moving to our order book and capacity updates. During the month of August, we took delivery of the Viking Hathor, a state-of-the-art vessel specifically built to cruise an aisle, which will start sailing with guests by the end of the month. And lastly, as it relates to the two options exercised in June 2024 for ocean ships 17 and 18, these are now scheduled for delivery in 2028 and 2029.
In summary, we are pleased with our results for the quarter, and we are encouraged by the strong demand trends we are seeing for 2025 and beyond. Moreover, we feel that we are well positioned to continue to grow in this environment due to our clear focus on our target demographic, which is financially resilient and growing and our great product and value proposition.
This concludes our prepared remarks, and I’ll now turn it back to the operator to take questions.

Question and Answer Session

Operator

(Operator Instructions) Steven Wieczynski, Stifel.

Steven Wieczynski

So I want to start — I want to ask about the remaining inventory that’s out there for 2025. And look, I guess the question is how you guys are thinking about pricing for that remaining 45% of inventory given look, you probably have now sold your most desirable inventory cabins and whatnot.
So to move that remaining 45% of inventory, do you think it’s possible to take price action here? Or do you think there might have to be some discounting or promotional work in order to get that inventory sold moving forward. So just looking for high-level thoughts there.

Torstein Hagen

No. I think — it’s Tor here. I think we’re in a good spot for 2025. And if you look at, for example, the booking (inaudible) you see that maybe sometimes we even feel we have gotten a little bit ahead of ourselves. So I think there’s opportunity for — there is no need for any negative price action.

Leah Talactac

Yes. To add to that, the remaining inventory 2025 would be the later seasons of 2025, so we do have some time. So at this stage, the demand looks pretty good.
As Tor mentioned during the call, we are able to generate demand through sales and marketing, so I think we have a variety of levers to use such that pricing would not be our first lever in terms of moving that demand.

Steven Wieczynski

Okay. That’s great color. And the second question is around the cadence of your customer deposits. And we’ve actually got a couple of questions about this morning in terms of you had a decrease in customer deposits from the first quarter to the second quarter. And obviously, given the fact that you’re a new public company, just maybe wondering if you can give us a refresher course of how that cadence of your deposit line looks through the year?

Linh Banh

Steve, this is Linh. The decrease in Q1 to Q2 is really just because operations really pick up in the second quarter. It’s not necessarily a reflection of a decrease in deposits you’ll see that throughout the year. Q2, Q3 is our highest season.
And as such, you’ll see the deposits steady. But then Q4, Q1, which we know our river season starts to dry dock, you’ll see customer deposits build. So it’s really just the cadence of how our business runs.

Operator

Matthew Boss, JPMorgan.

Matthew Boss

So Tor, you cited encouraging demand trends that support bookings for next year. Could you elaborate on what you’re seeing in terms of health of the consumer? Maybe any key differences that you’re seeing across regions or product segments.
And then, Leah, on the ’25 booking curve, at 55% book, 10% pricing, I guess how best to think about opportunity for next year relative to that multiyear baseline 3% yield growth versus the mid-single-digit performance historically that you’ve seen?

Torstein Hagen

That’s maybe on the first part of the question. I read papers, and I see what other people’s report. I must say we haven’t seen anything that gives us any pause for concern for 2025, as matter of fact, July was extremely strong month for us.
I think one of the weeks was the strongest booking week we’ve ever, I’ve ever seen. I mean, that’s one week. Don’t get me wrong, but it’s been underlying a very strong trend and into office is also very strong. So I don’t think we’ve seen any sign of weakness. It may come, but we haven’t seen this.

Leah Talactac

Yes. And as far as the bookings are concerned, we’ve said before that typically what sells first are the high season and also the better cabin categories. At the end of the day, we’re really a value — we want to make sure that our guests feel that they’re getting good value.
As you can see from our growth plans, we have a large order book coming online and we want our guests to repeat. And so it’s a balance between the experience, getting strong yields, but also making sure that our guests feel like they’re getting something meaningful from us. And also, we have historically said mid- to high single digits. I think that’s a pretty good clip for us in terms of our pricing.
And at the end of the day, I would just keep in mind that the early inventory that sold at higher prices, they’re better itineraries, they’re high season. And then as we finish out the year, it’s going to be a little bit more of the shoulder seasons and lower cabin categories.

Operator

Andrew Didora, Bank of America.

Andrew Didora

Maybe shifting a little bit to costs here. Just in the second quarter, costs were better than we thought. I guess was any shift in spend that we should think about in 2Q relative to the back half of the year?
And I guess bigger picture here, is there any color you can provide just on how to think about vessel operating costs can trend here maybe on an APCD basis, particularly as you grow the Ocean segment?

Linh Banh

Andrew, yes, we did notice the positive cost performance. I think Leah mentioned it earlier on the call, this was mainly driven by timing. And I think you ways noticed by now, we’re long term. We don’t manage by quarter, we tend to look at things on an annual long-term basis.
So things can shift between quarters and including operating expenses. Our main goal, of course, is to prudently manage expenses without compromising quality. And so that’s what our team does, and that’s something that is a focus area for us.

Andrew Didora

I understand that. I guess any color that you can provide on how to think about that cost trend over the next few years, particularly as you have outsized growth on the ocean side?

Linh Banh

I mean I think from our perspective, from a expense profile, we’re subject to everything else everyone else is. The last couple of years, we’ve managed through. And as we look forward, hopefully, inflation settles and cost increases settle a bit more.
And that’s really — we don’t provide guidance, as you’re aware. But we will say, we do look at expenses. That’s something that’s very important to the company. and something that we will continue to manage.

Andrew Didora

Okay. Got it. And just lastly, just for modeling purposes, I know the share count in the release was influenced by averaging. Do you have the current diluted basic and diluted share count available?

Leah Talactac

Yes, I did want to add here that this quarter the EPS calculation is a little bit strange because we went public in the second — second third or the last third of the quarter. And so the calculation of EPS is more — there’s like a waiting so you can’t just do a straight division of the diluted into net income.
But when excluding these noncash impact on net income, you really use $345 million, which adds back the Series C and the warrants. And as to your question, can you remind me what your question was, again, what number were you asking for?

Andrew Didora

Just (inaudible) because of the timing of the IPO, just what’s the basic and diluted share count at the end of the quarter?

Leah Talactac

Yes. So are diluted is — so what we’re using for calculation? Diluted for the $0.37?

Andrew Didora

No, just what your current diluted share count is.

Leah Talactac

Okay. So it’s [$445, $757, $520], but again, because of the weighting, that’s not what we use on the EPS calc.

Operator

Robin Farley, UBS.

Robin Farley

I wanted to ask about the booking curve that you mentioned. When you say it’s in line with your expectations, just to help us understand what that would be. Looking at the revenue per booked cruise day, the increase is down a percentage right for the current year and down 2 points for next year.
Is that what we should think of as a typical quarterly pace as you approach 2025? Is that 2 points per quarter, what would be expected?

Linh Banh

Robin, hope you’re well. I think we discussed this. And just as a reminder, for oceans, we operate year-round. And for rivers, we have seasonality, right? So the river season is mainly let’s say, March, April through October, we do have ships that sale into the winter, but that’s like the bulk of the season.
And so when we’re selling ocean, you will see pricing be pretty consistent as we sell for rivers, you will see that Q2, Q3, high season, high cabin categories that will sell first. how pricing trends will always be dependent on what the deployment, of course, and our yield management.
So we can’t really say there is a set percentage of what changes as we continue to sell. But I think we can say right now, sitting here with 55% sold for 2025, we are in a good position.

Robin Farley

Okay. Great. And maybe just one clarification on that. When we think about that seasonality. Would the change over the course of Q3 and Q4 as you’re approaching the year ahead tend to move more than Q2 did.
It seems potentially that’s what we should expect, just as you’re saying that the things that sell closer in so Will that — is that likely to change more in a Q3, Q4 than it did and maybe in Q1, Q2 when we think about approaching 2025?

Linh Banh

I mean I think as we look to just selling out the rest of 2025, we do anticipate that the price we get will come down mainly because of the mix of what’s selling, which is the shoulder season things generally are lower pricing.
But at the end of the day, I think we have to step back. We’re sitting here in August for 2025, we’re well sold at good pricing. We have a lot of time to sell the rest of the inventory. So we are really quite pleased with where we are on the curve.

Operator

Dan Politzer, Wells Fargo.

Daniel Politzer Politzer

First, in terms of the yields in the quarter, I believe ocean was around flat. And I know Leah, you mentioned that there was some impact from World Cruises. Is there any way for the second quarter to give an X World Cruise type yield?
And then similarly, I think for the full year of ’24 based on the booking curves, ocean pricing as indicated, up 7%, which would, I believe, assume a pretty big acceleration in the back half of the year. So I just want to make sure we’re thinking about that the right way as it relates to the disclosures and the curves and the one-offs there?

Leah Talactac

Yes. So I mean you could see from the ocean bookings update that Tor spoke about, for the 2024 season, we expect yields at — as of today, they’re 7% up. So if you consider that we’re 1% as of second the first half, and we expect to be around 7% for the full year. I think that will guide you as to the second half expectations.

Daniel Politzer Politzer

Okay. And then just for my follow-up, in terms of costs, I know you mentioned it a bit, but were there any specific ways to quantify any benefits from timing or cost shifts in the quarter that will shift into the back end of the year?

Linh Banh

Not sure where you know we don’t provide guidance. And so what we can say is costs did trend favorably to the same quarter last year, which is great. It’s something that we will look to. Some of this is timing at the end of the day.
I think we can’t — we’ll reiterate again. We do look at the business on a long-term basis. And so from that perspective, we don’t really manage by the quarter, but I think the trend in powering costs are. It’s — for us, it’s positive.

Daniel Politzer Politzer

Okay. And then just I guess one other related one on the cost side. The new flooding, is that — has that been a headwind? Or is that something that should be on investors’ radar as we think about the cost in the rest of the year?

Leah Talactac

I think that we handled that exceptionally well. As you know, our identical on ships allow us to do ship swaps so that we minimize counseled cruises. And I personally went on the Danube this summer and everything is back to normal. It’s great. It was very encouraging to see all of the long ships operating along the Danube.
So I think our operators are very good at what they do, and this is just far for the course for them. So as far as managing cost, ship swaps really go a long way. And to the extent that we do have to do a little bit more deviations, our operators are also very cost conscious and make best efforts to minimize them.

Operator

Brandt Montour, Barclays.

Brandt Montour

So starting off on Egypt. I know you guys had a decent amount of your deliveries coming to the market over the next a couple of years. And so the question is maybe for Tor or for anyone.
Is there any sensitivity around that region for Americans traveling to the Middle East because of geopolitical events and even if you’re doing well, do you think perhaps you’d be doing better, if not for those? And how do you think about that oncoming inventory through those — to that lens?

Torstein Hagen

No. So I think the Americans have been surprisingly willing to go Egypt, of course, it has been a little bit hurt on the occupancy, but the economics of those ships are so phenomenal, but that has been okay. It’s been picking up again. And as you know, we are contrarian.
So I think this is probably the time to even think about more capacity as we have indicated that we are. So I think Egypt, and Egypt is very profitable for us. So I think we are not concerned at all. Americans are welcome to come and have a name (inaudible) in November, December, which I think we’ll have a lot of attendance.

Brandt Montour

Okay. That’s really helpful. And then a second question on capital allocation, a question I think you’ve probably gotten before, but you’ll probably get again is we have you building a fair amount of excess cash from operations over the next couple of years.
And obviously, most of your growth is financed at attractive levels. Maybe you can remind us outside of growth, to the extent that you can’t find places to put that cash to work in operations. What is your plan with the excess capital?

Torstein Hagen

Big. Probably has a question that comes to me often, but I think we should focus on making sure we have adequate financing, which we do. And then I think we have many opportunities of course, if we run out of ideas and opportunities, we may have to consider alternatives.
But for the time being, I think we have — you have seen our order book. And I think that’s a sign of our belief in this business. And I think we are comfortable to have cash on hand also in case some bad things happen that — so for the time being, we concentrate on getting the cash in, and then we’ll worry about a little bit later about how to give it out.

Operator

Thanks, everyone. Meredith Jensen, HSBC.

Meredith Prichard Jensen

Just a quick follow-up on that last question. to think, if you could speak a little bit about just the longer-term view of the order book. Obviously, we do have a vision quite a bit out.
But given competitors have moved into the future quite a bit with their order book. I was wondering if you just might speak to given your history, how you think about the positioning within the shipbuilding facilities and how you think about that for the future?

Torstein Hagen

As I said before, I think we think we are contrarians, so that means that we have been able to place orders when other people did not. So you can say our order book has been obtained, what we consider being — as we consider it being quite favorable prices, and where we now have an order book on the ocean side or ship.
So if we’re going to double the capacity from 10 to 20 ships when we include our options. And according to the rule of 72, that means over seven years have been said 10% growth per year, which I think is a reason — we have — we feel we have the relationships to the yards that’s needed and we must be the one the largest customer and (inaudible) ships.
I think compares ever had, is that what (inaudible) and I think we also have a relationship with the leadership builders. There are not so many firsts available any longer. So I think we are in a very good spot that, that order book has value.

Meredith Prichard Jensen

That makes a lot of sense. And just one quick additional. I realize you have a lot of direct business from your loyal customers such that marketing has been a network effect.
But I was wondering if you could speak to some of the interesting targeted marketing I’ve seen around, for example, the Olympics and tying in event-based ship capacity around the same and the Olympics and what ROI you might have seen from that as one example how we can think about your marketing and advertising strategy?

Torstein Hagen

We are very proud of many of the docking places we have before for seven years to have the docking place we have in Paris by the Eiffel tower, which we had to evacuate for a few days while the events are placed. But I think that’s one of our key strengths. I think it’s clear that we did place some ads on NBC during the Olympics, and I think we are seeing spikes in bookings for Paris as a result of that, but these things don’t last forever.
So — but I think it adds to who we are. And yes, I think that was good I think we’re very using our marketing to enhance outstanding. As you know, we also have — we have these special relationships with further down (inaudible) and so forth, which helps enhance our position. We have a lot of privileged access, which really matters, and we talk a lot about.

Operator

Stephen Grambling, Morgan Stanley.

Stephen Grambling

Perhaps asking about demand trends from a different angle. Just given the increased consternation on the back of airlines, hotel and park’s commentary in the second half, I guess, what would you be focused on in your business as a leading indicator to assess whether trends are potentially deteriorating?
And would it be occupancy or any types of add-ons before or after cruises or other factors? And then how should investors think about the levers that you have to pull should things decelerate that may differentiate you from other cruise peers?

Linh Banh

I think this is where our booking curves are a huge event for us. And we said it from the get-go, we would be transparent and we would provide the curves to our ester base as well, which we have done. And so from that perspective, I think that is our number one biggest indicator as to what is happening in — for demand for our consumer group.
And I think Tor mentioned this earlier, we had a great July, where we are for ’24 and ’25 is a good place to be. We will continue to focus on marketing and sales to keep this momentum going in the second half of the year and to continue to sell.

Torstein Hagen

Maybe I could add, maybe I shouldn’t. But when you look at the book in cruise for delivers for ’24 and ’25, you see there quite further advanced than we were used. And I wouldn’t be surprised if we say it will be reasonable to slow that down a bit in the future.
Sometimes, we feel that we have election here — this is an election here in the US up until. So then we like — we then typically like to be a little bit ahead. We’ll probably go a little bit further ahead than we needed to be a (inaudible)

Operator

Alex Brignall, Redburn Atlantic.

Alex Brignall

I actually just have one, they’ve been asked. But just on China, obviously, a little while ago, you reduced your planned capacity source from that market sailing in Europe in terms of the ships you’re going to have the boat, you’re going to have available.
Could you just talk about any evolution that there’s been in that in terms of air capacity or demand or the way that things are opening up or appetite that you’re seeing for outbound China into the European River sailing? And then I guess if you could expand and talk about the closer to home saving, then that would be helpful as well.

Leah Talactac

Yes. So we are — as we’ve said before, we’re taking a measured approach with respect to China. We have four ships operating in Europe as far as long ships are concerned. And I mentioned earlier in this call that I went on a River cruise on the Dan (inaudible) actually went on a China (inaudible) and I’m happy to report that the guests are they’re very well rated. They have high Net Promoter Scores.
And so I think from that perspective, we do have — we’ve got the product right for that consumer. But there are challenges in terms of visas or air lifts, I think those are going to eventually work themselves out. But again, this is a small part of our business. We do have a very strong core product business. And as far as China, we will continue to invest, but we will take it in a very measured approach manner.

And I guess just as an extension of that, are there any new customer source markets, clearly the lend themselves in English-speaking ships that you think are opportunities for you to expand the distribution and it can obviously give you yields comparable to those from Americans, which have historically been the highest from coming to Europe?

Torstein Hagen

Well, we have been very strong for funds having one brand and one customer who is in between for the English-speaking market. So of course, it could over time track on the Chinese market, of course, that would be great. As said, we’ll take a very measured approach. They are, as I can say, other large markets initials, I mean now which way Asia is (inaudible)
So we’re doing a bit more of that but this is again just getting a small (inaudible) it wouldn’t be a sense that (inaudible) will have an impact on our significant impact on P&L one way or the other (inaudible) time or you could see that these markets should develop these are people who have one and increasingly, they also have demographics that give some time.
The cruise (inaudible) but for the time being, we remain mainly focused on the industry markets. I would add one we make a very strong point and we have one brand and the more we looked and thought others and how they do and so forth.
I think the fact that we have the one brand and four product lines or three product lines is really a very huge advantage so that gas when they come to Viking, they get exactly — they know exactly what they get. I think it’s very strong on to ours.

Operator

Patrick Scholes, Truist Securities.

Patrick Scholes

Another way of asking the cash flow balance sheet question here. In a long-term, stable environment, what would you ideally want or target your net leverage to be, let’s say, in five years, the world continues to be stable, where would you want it?

Torstein Hagen

We have — as you know, we’ve been asked this question several times. Some of us have become experts and don’t trigger several times, but we don’t really want to give a commitment to the (inaudible) in the future. But there trend can come opportunities, but we say, okay, maybe it’s time to add back into the leverage and on our leverage has gone from 3.8% to 3.0 in a year or less than a year.
So the trend is good. So it should give opportunities. But there may be some opportunities (inaudible) is that we’d like to lever a little bit more. We talked about our — we don’t have an ambition of being investment grade as a bond.
We are in a business of making money for our shareholders. And then I think it’s better to be in the whole deal range. But we are very comfortable where we are now, of course. And there are things we can do, but I don’t think we been (inaudible) so forecast.

Operator

Conor Cunningham, Melius Research.

Conor Cunningham

On the potential decision to hold back inventory closer in what might drive that decision? And if you do hold back higher demanding inventory, does that potentially benefit some of the off-peak inventory that you sell closer?

Linh Banh

I think from our perspective, Leah mentioned this earlier, our priority is to deliver a great experience at a good value. So in terms of yield management, we want to ensure our guests have the opportunity to book what they want to book.
And so as of this point, we have not necessarily held back inventory. The back half of the year or shoulder seasons, I think many of us are aware, that’s just something that looks closer in. Generally speaking, whether you hold back, I see the inventory or not, the shoulder seasons just look closer in.
That being said, obviously, we’re Viking, our curves are generally more well advanced than others, including the shorter season. But at the end of the day, that’s not something we’ve necessarily done yet.
But when we look at our curves, we’re sitting here in August, like we mentioned earlier, we’re 55% sold for 2025 at good pricing. So we’re quite pleased with where we are.

Torstein Hagen

Maybe I could add. You use the word hold back. But I guess we will know Viking is a direct marketing company. That means that we generate demand ourselves. So you can say marketing is not an expensive such as a revenue generator.
So if we should — the action we take is to market less, and we would market less when things are good, [manageable] market. So that’s how the demand will be generated. So that’s a mechanism.

Leah Talactac

When you — I guess the question might have arisen from our comments that we said that we would slow down the booking curve, but it’s — we’re not holding back, but it’s really — our demand was so high that the curves were accelerating in a way that may not quite optimize how we would like our yields to that.
And so that was just an indication that like we may not want to be 55% sold out by the same time next year to optimize pricing. That was what that statement was about.

Got it. And then just on the marketing — leaning in the marketing, are you being more pointed outside of the US? Like I understand that the US is your biggest source market, but is it being more targeted towards the other English-speaking source markets that you’re focused on in general?

Torstein Hagen

To say.

Operator

This does conclude today’s Q&A session. I will now turn the conference back over to Tor Hagen, Viking’s Chairman and CEO for closing remarks.

Torstein Hagen

So I’d like to thank everyone for joining us today on today’s call. Thank you for your support. And (inaudible) interest in Viking. Been good so far, and we wish you a great day.

Operator

Thank you. This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.