Royal Caribbean Posts Strong Q2 Despite Fuel Costs, Geopolitical Impact
Concerns for the outlook for cruising moderated with strong stock gains after Royal Caribbean Group reported strong second quarter results, beating estimates. The company was able to control costs despite strong pressure from fuel and what it called a “modest booking impact” due to “prolonged geopolitical activity.”
Excluding fuel, Royal Caribbean reported a net cruise cost increase of 4.5 percent, contributing to better-than-expected results for earnings this quarter. Despite a six percent increase in total revenues and a 110 percent load factor, the company, however, reported declines in its gross margin and lower net income compared to a year ago. It carried 2.4 million passengers, which was a six percent increase over last year, and faced pressure with a five percent year-over-year increase in capacity as it introduced one of the world’s largest cruise ships, Legend of the Seas, with a maximum passenger capacity of approximately 7,600 people.
The company encouraged the investment community with its reports of strong close-in demand, a strong booked position, and record prices. It said that booking volumes are above last year’s levels with “robust” load factors. All of this was good news to investors who have feared the industry could face both cost and pricing pressures, especially in the Caribbean due to strong capacity growth.
Royal Caribbean raised its full-year forecast, while saying, “This outlook incorporates a modest booking impact on select itineraries primarily due to prolonged geopolitical activity.” It said it had experienced “a modest, near-term impact on bookings on select intinararies.”
While it said it sees “healthy demand and pricing at record levels,” it warned that net yields are expected to be approximately flat for the third quarter. For the full year, it shaved its revenue growth forecasts from 10 to nine percent and said net yields were expected to increase by 2.35 to 2.85 percent.
The largest pressure came from bunkering, which, it said, net of hedging, was $839 per metric ton for the second quarter with a consumption of 422,000 metric tons. Fuel costs in the second quarter were 27 percent above last year. The company does not publicly forecast fuel prices, but said it has included $362 million of fuel expenses in its third quarter forecast. For the full year, the company is expecting fuel expenses of about $1.34 billion.
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Analysts and the companies had earlier warned of a potential softening in bookings and demand, but Royal Caribbean said today that while it was early, booking trends for 2027 are “encouraging and pacing ahead of historic levels.” Further, it is said this included itineraries where demand had been impacted by geopolitical issues this year.
The company, which currently operates 71 cruise ships, including Royal Caribbean International, Celebrity Cruises, and Silversea Cruises, as well as a 50 percent ownership of TUI Cruises, says long-term it looks to capture a greater share of the growing $2 billion global vacation market. Currently, Royal Caribbean Group has a total of 13 ships, including four river cruise ships, on order for Royal Caribbean, as well as one for Celebrity and two for Mein Schiff. The new ships are scheduled for delivery between the second quarter of 2027 and the fourth quarter of 2032. It has options for additional ships, including plans to grow its entry into the river cruise segment to 20 cruise ships.
