Royal Caribbean Group reported its third quarter 2022 earnings results on Thursday, November 3, 2022, which were better than expected. The company reported a profit, occupancy rates that near and, in some cases, exceed 100%, and bookings that have exceeded expectations and significantly accelerated compared with the second quarter.
Is it all good news? Not necessarily; while profits are there now, for the fourth quarter, Royal Caribbean expects losses to return due to increased costs.
Royal Caribbean Group Outperforming Expectations
Investors have been typically more confident in the performance of Royal Caribbean Group versus the competition, companies such as Carnival Corporation. That confidence had a good base, as was shown in the company’s third quarter earnings release.
The second-largest cruise operator worldwide has been showing recovery signals over the last two years, reflected in the earnings for the past quarter. For the first time since the pandemic, Royal Caribbean reported earnings that exceeded expectations and can report earnings per share of $0.13 and adjusted earnings per share of $0.26.
The results come from higher occupancy rates, mainly due to short-term bookings, better onboard revenue, and better cost performance. The cruise operator’s revenue soared to $2.99 billion for the third quarter from just $456.96 million a year earlier.
“Last quarter’s better-than-expected performance was a result of the continued robust demand environment and strong execution by our teams,” said Jason Liberty, president and chief executive officer of Royal Caribbean Group.
“The combination of our leading global brands, the best and most innovative fleet in the industry, our nimble global sourcing platform, and the very best people have delivered a successful return of our business to full operations and positions us well to deliver record yields and adjusted EBITDA in 2023.”
Occupancy & Bookings Looking Strong
One area where Royal Caribbean Group has been particularly strong is the increase in onboard occupancy levels. Where these lagged during the initial start-up period post-pandemic, ships have been sailing at much higher rates in recent weeks.
For cruises outside the Caribbean, such as Europe, cruises sailed at around 96% occupancy rates. In the Caribbean, the biggest market for Royal Caribbean International and Celebrity Cruises, occupancy rates topped at about 105%.
Bookings remain equally strong, accelerating versus the second quarter of 2022, and much higher than the volumes seen during 2019 for all future sailings. All quarters for 2023 are currently booked with historical ranges at record pricing levels.
It is noticeable that cruise passengers are making their cruise bookings much closer to their sailing dates than what was customary before the pandemic. This resulted in about 50% more bookings in the third quarter for current year sailings when compared to the third quarter of 2019.
“Our brands, vacation offerings, and fleet have never been stronger and we are well positioned for continued step change in financial performance,” said Liberty. “Our proven formula for success is unchanged as we grow capacity and, enhance profitability while seeking to deliver superior shareholder return.”
Even more important is what the company sees now for 2023.
Booking volumes for 2023 doubled during the third quarter compared to the second quarter. These are considerably higher than bookings for 2020 sailings during the same period in 2019, which was the highest in company history.
With two new mega-cruise ships on the books for Royal Caribbean International, Icon of the Seas and Utopia of the Seas, new ships for Celebrity Cruises, and new vessels for Silverseas, Royal Caribbean Group is increasing its fleet significantly. The current booking numbers validate that growth and ensure the company can keep up the occupancy rates.
Royal Caribbean Provides Bearish Q4 Outlook
Although Royal Caribbean Group is looking as strong as ever with this report, the company does not provide good news for the upcoming quarter.
Traditionally the busiest season for the cruise industry, the company sees rising fuel prices and other costs, such as interest payments, as a significant issue for Q4. This will result in an expected adjusted loss per share of ($1.30) – ($1.50).
So while the results speak for themselves, the company’s stock price did take a hit, with the stock price falling around 3% when the markets opened. Does that mean the future is bleak for Royal Caribbean? Not really.
The bookings for 2023 are firm, with occupancy rates back to historical levels. There is a new trifecta program, a three-year financial performance initiative designed to chart out the pathway back to superior performance. The company has also launched nine new cruise ships since 2019.
“The Trifecta Program provides us the financial coordinates we are looking to achieve over the next three years,” said Liberty. “As we have demonstrated in the past, we expect the formula of moderate yield growth, strong cost discipline, and moderate growth of our fleet will deliver a strong financial profile.”
This means that profits may not be as substantial as we’ve seen from Royal Caribbean Group in the past, but it does not mean that the company is in bad shape for the months to come.