Royal Q3: Chairman and CEO Richard Fain Outlines Strategy

Richard Fain, chairman and CEO of Royal Caribbean Cruises, outlined company strategy on today’s Q3 earnings call, noting a moderate capacity growth through 2017, combined with a cost conscious culture company-wide, and new revenue opportunities.

Next year’s earnings guidance for $4.55 is a 30 percent increase from this year which is also expected to be a record year, according to Fain.

He cited market segmentation as driving the Celebrity band, shifting market focus to Central America for Pullmantur and Azamara’s destination immersion, as well as the continued build-up of a global footprint and China presence for the Royal Caribbean International brand.

About 2015, he said that while he is very confident in the full year, that the first quarter will be challenging with further increased capacity in the Caribbean. After that, the next nine months look robust, he said. Royal Caribbean brands will have 44 percent of their cruise capacity in the Caribbean in 2015.

Asia and Australia will be key to the company’s Q1 with an 11 percent capacity increase year-over-year. Altogether these markets represent 12 percent of the company’s cruise capacity this year and 15 percent next year. China alone will have 10 percent of the capacity.

While the brands are starting the year with more bookings and higher prices than at this time last year, there is a change in policy to hold occupancy at higher prices, and not necessarily going the discount route to fill the ships.

China is expected to play a key role in Royal Caribbean’s future and will see a 68 percent capacity increase with the Quantum being deployed there in 2015.

The shift is also demonstrated in Royal Caribbean having fewer beds to sell in North America and Europe in 2015 and 2016 despite two new ships being introduced, according to Fain.

With Jason Liberty, CFO, noting that ships built post 2006 deliver yields that are 25 percent up on previous generations of ships, Royal Caribbean can be expected to continue to build, the question becomes what it will do with its older ships. Executives did not go into detail about the company’s potential partnership with China-based Ctrip.

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