There's usually a few interesting nuggets of information in Royal Caribbean Group's earnings each quarter, including the fact a lot of people are buying more extras than ever before for their cruise.
Referred to as "onboard spending", this is the revenue from purchases of everything for a cruise on top of the cruise fare, such as shore excursions, drink packages, wifi and more.
Not only is onboard spending up, but it's shocking to the cruise line at just how much is happening.
During Royal Caribbean Group's earnings call on Friday, one Wall Street analyst wanted to know more about the particularly strong spending numbers, and if there was any correlation to lower occupancy. His thought was less people means shorter lines and that translates to more of an inclination to spend money on experiences.
It's an interesting theory, but executives aren't sure why people are spending more than usual on their cruise vacations to enhance it, but they certainly are happy about it.
"I wish we knew. I can tell you that we've been absolutely delighted and initially very surprised by the onboard spend," said Royal Caribbean International President and CEO Michael Bayley.
"I think when we started operations out of the U.S. back in July, we were initially just shocked. It was really, really positive and it's just continued."
The reference to July is when cruises first resumed in 2021 from the United States and Royal Caribbean saw people were spending more on their cruise than before. That phenomenon has carried over for the last six months.
Mr. Bayley agreed there probably is some truth to the idea lower capacity on cruise ships, "creates a different kind of environment that help people spend more."
He also thinks Royal Caribbean's investment in pre-cruise technology may play a factor in those higher numbers. The company has spent the last 12 months working on improving their back end and front end systems to make the process better for customers.
Royal Caribbean Group CEO Jason Liberty said people spending more on their cruise is not just suite guests, "Whether it's the consumer that is booking the inside state room or the consumer booking the ultimate family suite as an example, you're seeing them all over index on their historical spend by quite a bit."
Not only that, people aren't just buying drink packages or spa treatments. Rather, they are spreading the money around.
Mr. Liberty said guest spending in the casino, spa, food & beverages, and gift shop are all "outperforming significantly".
Guest spending is the path to profitability
Onboard spending has been a great metric, and something for the cruise company to tout during an otherwise big loss for the quarter. But it's also how Royal Caribbean will move back into the black.
How important is onboard spend? The rule of thumb Royal Caribbean uses is every dollar of pre cruise spend is worth an incremental 50-cents of onboard spend.
Prior to the pandemic, Royal Caribbean Group would consistently point to onboard spending as the difference maker in a good quarter to a great quarter.
In February 2020 (the last quarter before Covid-19), Royal Caribbean Group reported 2019 was another year of very strong performance that generated over $2 billion in adjusted net income.
In 2019, Royal Caribbean Group generated $3.09 billion in onboard revenues, which was up from $2.7 billion for the year in 2018.
With the company seeing "historical spend" from people cruising these days, it's a positive sign brighter times are likely ahead.
