The impact of increasing fuel prices and foreign exchange movements is being offset by increasing revenues, the world’s second largest cruise operator reported yesterday.
In a second-quarter trading update Royal Caribbean Cruises reported adjusted net income of $482.2 million up from $369.5 million last year.
Gross yields were up 2.7% net yields were up 2.8% while gross cruise costs per APCD increased 1.1%.
Richard Fain, Royal Caribbean president and chief executive, said: “We started the year feeling very optimistic that we could nicely improve over what was an amazingly successful 2017.
“Since then, we’ve grown only more positive about our direction and about the prospects for the rest of this year and next.
“Our current quarterly expectations for 2018 are higher in each of the four quarters than they were when we put our initial forecast together last January.
“Of course, the drivers of that yield strength are always in flux, but the fact that we are seeing overall improvement in each quarter of the year over our original expectations is a real confidence builder.”
Fain said revenues “continues to excel”, cost remain firmly under control, and the operator’s below-the-line items are “doing beautifully”.
“The second quarter benefited from unexpected strength in last-minute bookings, and as usual, some markets performed better and some worse-than-expected.
“The second quarter also benefited from some substantial timing differences relating to costs and other items.”
Fain said these timing advantages will reverse in the second half of the year and that full-year expectations remain on track meaning these quarterly swings are irrelevant.
“From a business point of view the story is simply that business is good and we believe it will continue to be good for reasons we have previously discussed.
“Having to deal with the headwinds of foreign exchange and fuel rates is extremely frustrating, especially this year, when both have moved so strongly against us.
“As frustrating as it is, we feel very good about the fact that the strength of our business is more than compensating for such powerful negative forces.”
Fain praised the performance of its three main brands Royal Caribbean International, Celebrity Cruises and Azamara Club Cruise, which he said are setting new highs for customer satisfaction.
In particular he said Symphony of the Seas’ debut in the Mediterranean has been spectacular and Celebrity Cruises is enjoying a bounce as it prepares to welcome Celebrity Edge into the fleet.
Joint-venture Tui Cruises also continues to “go from strength to strength” and “surpass the very tough goals that we and TUI continually set for it”, Fain added.
“It’s rare for the stars to all align in such an auspicious manner. We often have one brand performing particularly well, but today they all are.”
This week Royal Caribbean closed its deal for luxury operator Silversea which it said in future trading updates will see higher costs but also higher yields.
Despite cruise now being seen as a mainstream choice, Fain said penetration remained low comparing the sector to Orlando and Las Vegas which have 40 million and 72 million annual visitors respectively. The cruise industry globally has just 26 million customers.
Royal Caribbean is confident about prospects for 2019 with more bookings already taken than at the same point last year and at higher prices.
Fain said next year the line has more inventory dedicated to markets that traditionally book later.
“Obviously, we expect these markets to do well, as well as other markets, but we know that they will simply make their reservations later and our revenue management systems operate accordingly.
“Thus, while we’re happy that our bookings are higher than prior years, our optimism about 2019 is really based on a combination of many factors.”