RCCL’s Fain: “Our Brands Are Firing On All Cylinders”

Cruise Week

Royal Caribbean Cruise Lines defied expectations in its 1st quarter earnings report and outlook, beating many predictions and, temporarily at least, putting an end to year-to-date stock challenges.

“Our brands are firing on all cylinders,” said Chairman & CEO Richard Fain. “As always is the case, some markets do better than others. This year we’ve seen particularly good results in the U.S. markets. We’ve seen some weakness in the Mediterranean sailings but strength in the Caribbean, Baltic and Alaska.”
    
He cited strong last-minute demand. “It’s very validating to me that we saw such strong close-in demand for products like the Caribbean despite our program designed to eliminate last-minute discounts.”

On the ticket side, strength in North America resulted in significantly better-than-expected pricing for the Caribbean. As well, onboard revenue was up 8.7% for the quarter. “While we saw year-over-year improvements in most key onboard revenue areas, beverage and Internet led the majority of the outperformance,” reported CFO Jason Liberty.
    
In the past, Royal execs downplayed talk of a booking slowdown in Europe. On the earnings call, this tone changed somewhat.
    
“...Recent geopolitical events did have an impact on booking volumes in the United States,” said Liberty. “While bookings have now returned to typical levels, we had to lower pricing and shift sourcing to recover the volume lost during the initial lull in demand.
    
“Our global presence enabled us to quickly adjust our sourcing activities, but our rate has been impacted since North American consumers typically pay more for our European cruises than guests sourced more locally.”

Liberty reported that approximately 2/3 of pax on European sailings live on that continent. “This year it will be 3 or 4 percentage points higher as we’ve shifted that sourcing.”

Royal execs observed that close-in bookings were strong outside of Europe, even with less discounting.

RCI President & CEO Michael Bayley says several factors contributed to that result: “The combination of the quality of the brands, the hardware and some of the softness in Europe has really buoyed up the demand from the American market for the products in the Caribbean.”

In the past, Royal execs downplayed talk of a booking slowdown in Europe. On the earnings call, this tone changed somewhat.    

“...Recent geopolitical events did have an impact on booking volumes in the United States,” said Liberty. “While bookings have now returned to typical levels, we had to lower pricing and shift sourcing to recover the volume lost during the initial lull in demand.
    
“Our global presence enabled us to quickly adjust our sourcing activities, but our rate has been impacted since North American consumers typically pay more for our European cruises than guests sourced more locally.”
         
While rival Carnival Corp. makes headlines this week with a historic cruise to Cuba aboard fathom’s Adonia, Royal continues to downplay the island’s potential. For instance, COO Adam Goldstein commented that while Royal is in dialogue with the Cuban government and optimistic about the talks, the timing of permission to go is unclear.

Richard Fain concurred: “We’ve made it pretty clear that we don’t think, even when it is operational, it will be a major part of our business. So I wouldn’t have thought that, looked at in isolation, [Cuba] would be a driver.”
    
Still, he does believe Cuba’s market entry will help yields. “I think 2 things. It actually will generally help yields in the area because I think the publicity about Cuba, the discussions about Cuba, raises interest in Caribbean cruising.”





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