Skift Take

After the costliest hurricane season in its history, Royal Caribbean Cruises still saw profits increase and exceeded its own expectations for the quarter. The business appeared to recover quickly, but we are curious to find out if travelers will be willing to book Caribbean cruises during the peak time for storms next year.

Just a few months ago, Royal Caribbean Cruises chairman and CEO Richard Fain marveled at how well the year was going.

“In a normal year, we have a lot of pluses and minuses and they usually balance each other out,” he told analysts. “But this year, we are experiencing many more positive forces than negative ones.”

But then August and September came around and brought more than their share of minuses in the form of hurricanes including Harvey, Irma, Jose, and Maria.

“It’s highly unusual to be hit with five major hurricanes in a row under any circumstances, but these storms were unusual for another reason as well,” Fain said Tuesday during the company’s third quarter earnings call. “Each of these storms followed a path that exactly matched our major trade routes. Somehow these storms seemed to know exactly when and exactly where to hit to cause the most destruction and the most misery.”

Popular ports of call including St. Thomas, St. Maarten, and San Juan were heavily damaged; Royal Caribbean started sailing from San Juan last month and will start visiting it as a port of call later this month. Ships return to St. Thomas Friday and will be back in St. Maarten next month.

The direct cost of the storms — which includes canceled trips, credits for future trips, aid sent by Royal Caribbean, and itinerary changes — amounts to more than $55 million or 26 cents per share, executives said. That makes this the most expensive hurricane season in the company’s history.

Still, Royal Caribbean saw slightly higher revenues of $2.57 billion for the quarter. Profit jumped from more than $693 million in the third quarter of 2016 to nearly $753 million during the same time this year. The company reported earnings of $3.49 per share, higher than analysts and its own forecast called for.

For the full year, the operator narrowed its guidance to adjusted earnings of $7.35-$7.40 per share. During the second quarter, the full-year forecast was for $7.35-$7.45 per share. Without the hurricane impact, expectations for 2017 would have been adjusted earnings of $7.60-$7.65 a share.

“Against this background, we are extremely pleased and frankly a little surprised that we are still able to stay within our EPS guidance for the year at a range of $7.35 to $7.40 a share,” Fain said. “The fact that we have been willing to able to withstand a $0.26 hit from the storms and still achieve this level of profitability reflects how strongly the market is performing this year.”

Bookings for the Caribbean dropped “precipitously” when the storms were hitting, both for that time period and the future, Fain said. Executives said the softer trends lasted about five to six weeks.

“None of that is surprising, but what is surprising is how quickly our bookings in the period recovered,” he said. “The drop-off in bookings was very rapid, but the recovery was also rapid. Today, virtually all our bookings in the region are back to pre-storm levels.”

There are exceptions, he said, but those are not the norm. In a Skift interview, he said it was still “a little early to tell” what the appetite might be for Caribbean cruises during the height of next year’s hurricane season.

Fain said the storm recovery is indicative of a broader pattern which includes security issues or geopolitical tensions. While bookings might be affected for an extended period of time in the past, they bounce back more quickly now.
“People seem to be more apt today to see such events as ordinary with little impact,” he said. “The events still aren’t normal, but they are seen as less relevant to the broader audience. In effect, the public appears to become inured to such one-off events.”

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Tags: cruising, earnings, royal caribbean

Photo credit: Royal Caribbean International's Majesty of the Seas delivered supplies to St. Maarten and St. Thomas after Hurricane Irma. The cruise operator still met its expectations for the third quarter, despite significant costs from the storm. Royal Caribbean International

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