Despite being shutdown for almost two years, Royal Caribbean is doing so well in 2023 that it's already outpacing its previous high water marks.
Royal Caribbean Group reported incredible results for the second quarter 2023 that demonstrate a common theme: demand for cruises is higher than ever, and people are willing to pay more for it.
The company's resurgence is remarkable considering the low point it found itself in during the global health crisis between 2020 and 2021.
Royal Caribbean had already started the year off with good numbers, but the second quarter really saw the resurgence come full circle.
More people cruising
Royal Caribbean Group CEO started off the earnings call with some incredible numbers, highlighting how strong demand is for cruises.
The company saw positive indicators in May, and the second quarter proved to be even more fruitful than anticipated.
"During the second quarter, we delivered a record 1.9 million memorable vacations at exceptional guest satisfaction scores. We achieved record yields that were 12.9% higher than 2019."
Yields refers to revenue coming in, and that means people paid more for their cruises than in 2019.
2019 is an important statistic to Royal Caribbean, because it represents the previous high water mark for demand and profits.
Perhaps the most important segment of cruisers Royal Caribbean wants to see grow are people that have never cruised before, and they did just that.
"In the second quarter, the percent of guests who were either new to brand or new to cruise surpassed 2019 levels by a wide margin."
Getting people that have never cruised before is important because it's how to grow the customer base since the vast majority of the public has never been on a cruise before.
Not only are they attracting new cruisers, these new cruisers are coming back for more.
"And we have seen post-cruise repeat booking rates nearly double 2019 levels," Mr. Liberty said to illustrate that they are booking more cruises after trying their first cruise.
The higher demand coupled with higher prices than in 2019 is at the heart of why Royal Caribbean wants to continue to raise cruise prices.
Europe is back
Perhaps a surprising fact is how strong demand was for European cruises in the second quarter.
"While the Caribbean remains the standout performer this year, we were particularly pleased with the strength and quality of close in demand for European itineraries," Mr. Liberty said near the beginning of the call.
Essentially, more European consumers looking to book a summer cruise vacation came to Royal Caribbean.
Royal Caribbean Group Chief Financial Officer, Naftali Holtz, talked about the increase in revenue from Europe, "The better than expected performance has mostly been driven by our European customers, which underscores our nimble and global sourcing model."
Later in the call, Mr. Liberty said Europeans were ready again to travel and spend, "their willingness to spend was very competitive with the North American consumer."
"We expected Europe to be a little bit lighter versus '19 in terms of load factor. And it came roaring back."
"And that's a story of one of the North American consumer just feeling that they needed to for certainly certainly vacation in Europe. But also the European consumer was very much part of that story."
Doing better than ever
If you listen to just what Royal Caribbean Group's CFO had to say about the quarter, it pretty much sums up the demand environment.
The company delivered 17% higher adjusted earnings than they expected to with their prediction in May. Capacity overall was at 105% and net yields up 12.9% comparted to 2019 numbers.
In fact, booking volumes since the last earnings call significantly exceeded 2019 for both North American and European consumers.
So what drove this incredibly high demand?
Mr. Holtz said, "half of the yield growth was driven by new hardware and half driven by a significant increase in rates on like for like hardware, despite being a bit behind on load factors."
This translates to new cruise ships brought in more revenue, and there were higher prices on smaller, older cruise ships.
In addition to more revenue, cost cutting seemed to have an effect too.
"Our operational and commercial teams are doing an exceptional job, driving strong top line growth and maintaining focus on operating expenses to expand margins."
Caribbean and European sailings saw strong demand, and Alaska cruise capacity is up about 60% versus 2019.
Great cruise ships + Great destinations
Royal Caribbean International President and CEO Michael Bayley talked about the company's new strategy to attract new cruisers by positioning impressive cruise ships on itineraries with well-received ports.
"We've been very thoughtful...about the strategy of putting really outstanding hardware combined with excellent destination into the short product market because it truly is the on ramp for new to cruise and also first to brand."
Read more: Royal Caribbean has a plan to dominate short cruises with a new ship and private destinations
"Utopia will be the first Oasis-class ship that will be entirely focused on short cruises in the Caribbean, supporting our strategy of competing with land-based vacation alternatives and driving new-to-cruise customers into our vacation ecosystem as we seek to close the value gap,” Liberty said.
"Demand and pricing for Utopia has far exceeded our expectations."
Demand for CocoCay
Royal Caribbean's private island in the Bahamas is certainly doing its part to bring in cruisers.
Mr. Bayley talked about how much customers are clamoring for sailings that visit Perfect Day at CocoCay.
"Perfect Day is that, it really is perfect, and it is driving a lot of the demand and people are booking the ships and the itineraries that sail to Perfect Day."
"We see the repeat rates going back to Perfect Day accelerating."
He also mentioned the plan is to open the new adults-only beach area at the end of December of this year, "that'll come online at the literally in December of this year."
