There's a lot of year left, but Royal Caribbean executives must be feeling pretty confident to use a word like "sensational." We'll see if reality lives up to the high hopes.
For whatever reason — pent-up demand, election fatigue, a renewed need for escape — travelers are booking cruises with Royal Caribbean for this year at a furious pace.
During an earnings call Thursday, Royal Caribbean Cruises chairman and CEO Richard Fain said the company’s booked position for the coming year was better than ever before, with high load factors and rates.
“We now stand at a threshold of what promises to be a sensational year,” Fain told analysts. Leaders of the individual owned brands — Royal Caribbean International, Celebrity Cruises, and Azamara Club Cruises — all have high expectations for 2017.
“Life is good,” he said. “Long may it continue.”
The optimism comes on the heels of a less-than-perfect quarter, when revenues and yields, or revenue per berth per day, failed to meet expectations. Profits increased from nearly $207 million in 2015 to more than $261 million in the fourth quarter of 2016, and earnings per share came in above forecasts.
Full-year net income increased to nearly $1.3 billion from about $666 million in 2015, a number that reflected an impairment charge related to the Pullmantur brand in Europe. Shares closed at $95.64, up more than 9 percent.
Chief financial officer Jason Liberty said on the earnings call Thursday that the lower-than-projected yields in the quarter were a result of softer close-in pricing and lower onboard revenue. In an interview with Skift, he said retail sales on ships have been “a little bit of a challenge for us.”
“For us, it’s pretty clear that people continue to change stuff for experiences,” he said. “And so though our onboard revenue was very good for the quarter, it’s a little bit softer than we expected it to be because of lower retail.”
While business struggled last year in the Eastern Mediterranean and Shanghai, where Royal Caribbean has increased capacity significantly in recent years, demand for North American sailings made up for that weakness, the company said. Repeated terror attacks in Europe seemed to keep North Americans cruising closer to home in 2016, but the appetite for Mediterranean cruises appears to have returned.
Looking toward 2017, the company said trends in several key areas were positive. Executives said demand was “exceptional” in Alaska, “quite strong” for the Caribbean, and “very strong” for Europe. In the Asia Pacific region, where 21 percent of capacity will be deployed, the booked position so far was described as “strong.”
No one on Thursday’s call would comment on pricing for cruises in China, which suffered last year as competitors crowded the market.
Royal Caribbean International president and CEO Michael Bayley said the company has been working with big distributors in China on marketing and selling tactics, and has been looking to open other channels for travelers to book cruises. He said the company has been seeing “good traction” in terms of those channels and bookings with important wholesale sellers.
“We’ve said in the past that China very much is a developmental market,” Bayley said. “We’ve been in the market for a number of years, we’ve been working on the distribution and certainly we’ve been accelerating our investments in that distribution over the past couple of years.”
One upcoming destination that has made headlines — if not tremendous amounts of money for the company — is Havana. Royal Caribbean received the OK to visit the city multiple times starting in March and hopes to add more stops once the Cuban government gives permission.
“I admit adding Havana has generated supberb booking activity for those few lucky itineraries,” Fain said. “But the scale is trivial, representing less than 1 percent of our capacity. We are encouraged that future prospects remain positive, but at this time the impact on our financials is marginal and it will be quite some time before this is even remotely material.”
Asked by an analyst if the new administration of President Donald Trump and its uncertain relationship with Cuba could put those trips at risk, Bayley said the company was used to working with governments all over the globe.
“We flex as the dynamics change,” Bayley said. “We’ve got a few sailings open for Cuba at the moment and we’ve got more coming. We’ll just adapt to what comes towards us.”
A similar question about Mexico came up later during a televised interview with Bloomberg. Tensions rose Thursday between the U.S. and Mexico over Trump’s proposed border wall.
“The unfortunate thing is we are spread out all over the world, so any problem that happens anywhere — including between the U.S. and Mexico — is bad news for us,” Fain told Bloomberg. “On the other hand, the good side is that we are spread out all over the world and we have the opportunity to more our activities as needed. But so far, I think we are simply so good for the U.S. economy and so good for the Mexican economy that I think we will probably do reasonably well even if there is some disturbance.”
Photo credit: The new Ovation of the Seas is shown in Sydney, Australia. Royal Caribbean Cruises said business is starting off strong this year.