Royal Caribbean Sees Payoff From Expanding Its Fleet

New ships and swelling demand brought Royal Caribbean a record quarter, the company said.

Demand was up in nearly every market, including China, driving increases in both ticket and on-board revenue, according to an earnings release Wednesday. The company expects this trend to last throughout the rest of the year as well, with early bookings already soaring, and prices set to rise steadily. New ships and a new resort, Perfect Day at Coco Cay, opening in the next few weeks, are expected to further boost sales.

Revenue hit $2.4 billion for the quarter, compared to $2 billion a year prior, despite higher fuel costs and lingering repairs from an accident at the Grand Bahamas Shipyard in April. Its stock jumped nearly 7 percent after market open.

In particular, new ships drove roughly one-third of the company’s core revenue growth, the cruise company said.

“This quarter, we were able to beat our earnings guidance, essentially due to higher revenues. Our revenues for the full year are also looking better than what we expected, with higher pricing in every quarter,” said Richard Fain, CEO of Royal Caribbean Cruises, in an earnings call Wednesday.

In China, the number of last-minute bookings picked up in February, March, and April, surpassing the company’s expectations. In part, this is due to a new ship — Spectrum of the Seas — which is debuting in China in the next two weeks, as well as an expansion of distribution channels. Plus, Royal Caribbean is one of the few outside cruise lines with a sizable presence in the market.

Spectrum will join Royal Caribbean’s other recent ships, including Celebrity Edge and Symphony of the Seas, which came out last year and continue to be very popular, Fain said.

“We continue to find that our guests appreciate the innovation and the focus that’s characterized our new ships, and more importantly, they’re willing to pay for it,” he added.

And in May, the company plans to launch Celebrity Flora, a yacht that will carry about 100 people through an excursion in the Galapagos.

Royal Caribbean also increased capacity in Alaska, its highest-yielding geographical market, even as other cruise lines are doing the same. Alaska is set to have one of the biggest summers in terms of cruise tourism this year. Despite how crowded it’s set to be, the company said it was encountering no problems with demand or pricing.

However, one setback was “the Grand Bahamas incident,” as the company refers to it. On April 1, a crane fell on an Oasis of the Seas cruise ship in the Grand Bahamas Shipyard, leading the company to cancel three sailings, and rack up repair costs.  The company expects nearly all of these costs to be resolved by the end of the year.

Additionally, the UK and Europe market were flat, in part due to Brexit uncertainty, the company said. In response, the company moved more capacity to its more popular markets, especially North America.

Tech and Experiential Offerings

Demand for onboard and onshore experiences, rather than retail items, is also rising. In response to this trend, the company has increasingly been using data to determine what experiences customers want.

“We’ve become more and more grounded in who our consumers are and what they’re looking to do,” said Jason Liberty, chief financial officer for Royal Caribbean. “So, whether we look at the types of water slides we have, or the culinary experiences, or shore excursions, all are variations of what our customers have said they want in a vacation experience.”

Popular packages include those for beverages, onboard restaurants, as well as internet and shore excursions.

Perfect Day is another example of Royal Caribbean’s focus on experiential offerings. The resort, which is set to open in the coming weeks, occupies an entire private island in the Bahamas, and offers a water park with one of the tallest water slides in North America, according to the company. In peak seasons, the resort can hold as many as 10 to 12 thousand guests.

The company has already opened the resort to select guests, helping it raise awareness of the destination. Bookings for the island are already strong, it added.