RCCL’s ‘Mixed Bag’ Financial Results

Cruise Week

Winter Wave season, not the summer months, is usually the time for focusing on the state of cruise bookings. But heading into RCCL’s earnings report this week, there were more than the usual concerns on the state of the business.

On the one hand, North American retail reports indicate bookings are holding up, but the consumer media is doing its best to portray chaos: “The Zika epidemic that has spread from Brazil to the rest of Latin America is now raging in Puerto Rico -- and the island’s response is in chaos,” led an Associated Press article this week. Further press on the spread of Zika in Florida, centred on the Miami area, is fuelling that fire.
The New York Times chimed in on Europe with an article this week detailing how the latest terror attacks in Europe are having a “profound” impact on the region’s tourism economy.
Even if early August is not a crucial period for next summer’s Europe bookings, the Caribbean and Europe happen to be the 2 most critical cruise markets, hence the cause for concern.

Given that backdrop, it’s understandable that Royal Caribbean CEO Richard Fain said in his overview to the financial community: “Personally, I like to focus on the numbers. There of course needs to be good qualitative reason for the numbers, but in the end, it’s the numbers that speak for themselves.”

In that light, RCCL’s report was viewed as a mixed bag. 2nd quarter earnings per share beat expectations. However, revenues of $2.1 billion, though up 2.4% from last year, missed projections by $60 million.
“Commissions, Transportation and Other” declined from $356 million in the 2
nd quarter of 2015 to $335 million for the 2nd quarter of 2016. Onboard revenues increased, but ticket fares essentially were flat.

Looking ahead, Royal reported that the booked position for the remainder of 2016 remains strong, similar to last year’s record levels. “Overall, we would rate this year as another one for the plus column, with business consistent with expectations, including the usual swings and roundabouts in individual markets,” said Fain.

“Demand for North American products, which make up 1/2 of our capacity for the year, is unwavering in its strength, contributing to better than expected performance in the Caribbean, Alaska and Bermuda,” said CFO Jason Liberty.
While the western Med and Baltic were cited as being strong, the eastern Med has experienced some softness. No surprise there. However, in the Q & A it was clear that financial analysts were worried about Royal’s reporting softness for close in demand in the Shanghai market.

Overall, there is strength in the largest markets, which Fain partially attributed to pricing integrity efforts. “Part of that strength has been driven by our price integrity program, which gives guests and travel partners more confidence in the integrity of our pricing and also encourages earlier bookings,” said Fain.

“We’re also mindful that next year the markets that performed the very best this year, such as the Caribbean, are only seeing modest capacity increases, while the eastern Med capacity, for example, is dropping by double digits.”
The capacity shift away from Europe was a point emphasized throughout the call. For instance, Fain later reiterated, “From our own standpoint, there are significant declines in the European market.” He cited several examples, including keeping Celebrity Equinox in the Caribbean year-round and moving Harmony of the Seas to the Caribbean year-round.
Summing it up, the U.S. economy and RCCL’s product and policies in North America are driving bookings in a positive direction right now. However, factors outside of North America are weighing in negatively.


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