Royal Caribbean Q3 Lifted by Mix of Performance and Cost Cuts

An improved third quarter for Royal Caribbean Cruises was driven by slight increases in ticket and onboard revenue, while the company cut costs in a number of areas.

Company management showed a commitment to cost control and yield improvements on their march to the Double Double initiative.

“We said before that the pipeline of supply is known and very much constrained,” said Richard Fain, chairman and CEO, speaking on the company’s third quarter earnings call. Fain added the company targets a 3 to 5 percent growth rate. He also dismissed concerns the U.S. market was saturated.

Fain also took call time to talk about the company’s so-called green initiatives, noting the bubble system that helps reduce fuel consumption. In addition, he talked about the company’s goals for greenhouse gas emissions, destination stewardship and more. The cruise line has recently ordered two LNG-powered ships, which will include fuel cell technology.

No Pullmantur impairment charge compared to 2015’s third quarter added to the bottom line, with the cruise company today reporting quarterly net income of $693 million compared to $228 million last year.

2015’s performance was limited by a $411 million charge related to the sale of Pullmantur.

Ticket revenue moved up slightly to $1,899,756,000 from $1,873,942,000 in 2015, driven by additional capacity from the Harmony and the Ovation of the Seas.

Onboard spending was also slightly up, from $649 million in 2015’s Q3 to $663 million this year. Onboard revenue performance came from increased demand for onboard internet and beverage packages.

On the expense side, total operating expenses were reduced by $47 million with the biggest reductions coming in commissions, onboard expenses, and fuel.

The company expects Caribbean yields to be up single digits in the fourth quarter, under expectations, and mainly attributed to the delay in deployment for the Empress of the Seas. The company is 94 percent booked for the fourth quarter.

2017 itineraries will include reduced exposure to the Eastern Mediterranean, and growth in the Caribbean, plus moderate growth in Asia/Pacific.

“We’re feeling pretty good about the Caribbean. 2017 is looking good on volume and rate with the capacity increase,” said Michael Bayley, president and CEO of Royal Caribbean International. “It looks very typical with what we’re seeing with booking patterns in Q4.”

Empress’ deployment has also been extended longer into the future, with the company noting it would deal with deployment adjustments if they became available (i.e. Cuba).

Bayley said promotional activity following a recent hurricane was the second best performing promotion in the brand’s history.

Europe will represent 15 percent of 2017 capacity, down from 20 percent in 2016.

Asia/Pacific will account to 20 percent of capacity, consistent with 2016, while China capacity will be mainly flat due to fleet and deployment adjustments.

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