Royal Caribbean Cruises was able to edge out gains on ticket and onboard revenue, while cutting costs in onboard spending, payroll, food, fuel, marketing and other operating expenses, driving an improved second quarter (Q2) performance.
“People have bought all the stuff they need and are looking at buying more experiences,” said Richard Fain, chairman and CEO, speaking on the company’s Tuesday morning Q2 earnings call.
“A strong 2017 provides quite difficult comparables to 2018,” Fain said, calling it a nice problem, but real issue. “We’re also seeing powerful drivers coming from the unique positioning from our special brands. All of our brands are performing at a level we’ve never seen.”
Revenue increased from $2.1 billion in 2016’s second quarter to just under $2.2 billion for 2017, while total cruise operating expenses were down from $1.3 billion to $1.25 billion.
Gross revenue per passenger day was $220.61 for Q2 ended June 30, 2017, up from $210.94 last year. Gross ticket revenue was $158.92 this year, compared to $151.95 last year, and onboard spending was $61.69, up from $58.99.
Net revenue per passenger day was $173.10 this year, compared to $163.77 last year. Net ticket revenue was $124.72 and net onboard was $48.38 this year, up from $118.43 and $45.34 respectively last year.
Bullish on Europe
Jason Liberty, CFO, said new bookings were up in the double digits at higher prices over the previous year.
And Europe may be coming back, according to Liberty, who said there was a surge in demand for European sailings from North American guests driven by stable airfare pricing and a stable geopolitical environment.
He noted that there would be a higher percentage of North American guests on Europe sailings than in any year prior. That will also drive pricing as European consumers will need to pay more to cruise, he said. Liberty also went on to say the third quarter will benefit from the demand for Europe.
While demand is good for Europe, supply has also been limited by the company, as both the Royal Caribbean and Celebrity brands have significantly less capacity deployed in Europe this year, according to the 2017-2018 Cruise Industry News Annual Report.
Alaska was referred to as a “record yield” product area by Liberty.
Fain noted the suspension of last-minute discounting had been “very positive” to the bottom line.
As a result net income rose for the second quarter, with last year’s performance of $229 million eclipsed by this year’s $369 million.
Investors were happy to hear the news which included the Miami-based company’s note that it will increase full-year earnings guidance.
After market open, Royal Caribbean shares were up 3.92% just prior to the line’s scheduled earnings call.
In China, the Quantum of the Seas has become synonymous with cruise, according to Fain. And while the Mariner will leave the market, Quantum-plus will arrive in China in 2019, giving the market the latest technology.
Fain said that China was now behaving closer to a typical cruise market, with ups and downs, and the company remains focused on the market, driving the evolution of distribution and destination development.
Michael Bayley, president and CEO of Royal Caribbean International, said the China market was an opportunity and capacity withdrawals may be tactical.
“Changes in the deployment are in the short-term. We don’t consider them particularly meaningful in the development of the market,” said Bayley, adding the decision to remove the Mariner of the Seas in 2018 was linked to a drydocking.
“We see lots of reasons to be optimistic about the future. Demand is good, we’re developing new markets and our employees are happy,” Fain added.