Royal Caribbean Is Seeing Its China Business Perk Up

The up-and-down cruise market in China is up again, at least for Royal Caribbean International.

Parent company Royal Caribbean Cruises said during an earnings call Thursday that sailings in China had "performed very well" — better than expected — in the second quarter. Chief Financial Officer Jason Liberty said the market was booked "nicely ahead" in volume and rate for the rest of 2018 and into next year. A new ship, Spectrum of the Seas, will enter the market in June.

Much of the progress has come from better relationships with travel agents.

In an interview with Skift, Royal Caribbean Cruises CEO Richard Fain said the company has expanded its sales force to work with travel agents in China who may not be familiar with selling cruises or who might just need extra support.

"By investing in that distribution system, we've made them more efficient and effective and they're selling more of our cruises," Fain said.

During the call, Liberty said Royal Caribbean has also been successful at selling longer cruises and getting more passengers to fly to a port and then set sail.

"So all those things kind of combined are putting us at a very admirable position in China for the consumer that really appreciates the brand and appreciates the assets that they're going on," he said. "It has played out well for us so far this year. And as I said, our outlook on '19, while still early in terms of how we're seeing the bookings, has been quite positive."

Royal Caribbean's comments on the market come a couple weeks after another player, Norwegian Cruise Line, announced plans to move its built-for-China ship to North America. The industry overall has struggled recently as more operators moved into the market, driving prices down, and tensions between China and South Korea kept some popular ports off limits. Still, 2.4 million cruise passengers came from mainland China in 2017, and huge long-term growth is expected.

"We've been there now for quite a while, so we have learned a few things over the years," Fain said.

The update on China was just one piece of positive news in a good quarter for the world's second-largest cruise operator. Revenue increased to $2.3 billion from $2.2 billion the year before, and net income jumped from $420 million in 2017 to $466 million this year. Adjusted earnings per share of $2.27 was far higher than the company's forecast and Wall Street expectations.

Shares were up nearly 4 percent to $114.33 by late Thursday afternoon.

The company said the "quarter's unusually high performance" was due to several factors, including strong last-minute bookings, better results from joint venture partners including TUI Cruises, and lower expenses due to the timing of some costs.

"The second-quarter beat was really a surprise to us," Fain said. "You do have quarters where there's a sudden surge in last-minute bookings, and that did happen last quarter and it's lovely. But it's absolutely unpredictable, and frankly, it was a surprise to us."