The tide has finally changed for Royal Caribbean Group’s bottom line.
Royal Caribbean Group posted better than expected earnings for the third quarter of 2022 with total revenue of $3.0 billion and net income of $33 million and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $742.3 million.
Revenue reaching $3 billion is the highest since the third quarter of 2019.
The change comes as demand for cruise vacations increases following the global health crisis. The cruise line’s occupancy rate was 96%, more than double the 36% level in the year-ago quarter.
Royal Caribbean Group CEO Jason Liberty called the third quarter “better than expected”, “Last quarter’s better than expected performance was the result of the continued robust demand environment and strong execution by our teams. .”
“The combination of our leading global brands, the best and most innovative fleet in the industry, our agile global sourcing platform and the best people has enabled a successful return of our business to full operations and positions us well to deliver record, EBITDA-adjusted returns in 2023.”
As expected, total cruise-passenger revenue per day was flat and up 1%.
The third quarter in figures
Load factors (i.e. how full cruise ships are) in the third quarter were 96% overall, with Caribbean crossings hitting nearly 105%.
Royal Caribbean Group expects fourth quarter load factors to be similar to third quarter and reach triple digits by the end of the year.
Third quarter booking volumes accelerated from the second quarter of 2022 and remained significantly above booking volumes received in the third quarter of 2019 for all future sailings.
Third quarter booking volumes were significantly higher than the corresponding period in 2019 as Covid-19 testing and vaccination protocols were relaxed.
The company said its customers continued to book cruises closer to sailing than in the past, leading to around 50% more bookings in the third quarter for current year sailings compared to the third. quarter of 2019.
While 2022 bookings remain strong and on track to meet occupancy targets, the most notable change has been a substantial acceleration in demand for 2023 departures.
Booking volumes for 2023 doubled in the third quarter compared to the second quarter and were significantly higher than bookings for 2020 sailings during the comparable period in 2019, the highest in the history of the company.
As of September 30, 2022, the Group’s customer deposit balance was $3.8 billion, reflecting typical seasonality as peak deposits for summer cruises were recognized in revenue. In the third quarter, approximately 95% of total bookings were new to FCC buyouts.
A look at 2023
For 2023, all quarters are currently booked well within historic ranges at record prices.
Although still early in the booking cycle, the outlook for 2023 is encouraging and the company expects a return to historic load factors in early summer, record yields and adjusted EBITDA for 2023.
The company expects to benefit from lower transitional spending and accelerating earnings from measures taken to improve margin while partially easing ongoing inflationary pressures that are expected to linger through the first half of 2023.
Royal Caribbean Group has announced a new three-year plan which it hopes will return it to maximum profitability.
The Trifecta program has three main goals to achieve by the end of 2025:
- Triple-digit Adjusted EBITDA by APCD, surpassing the previous record Adjusted EBITDA by APCD of $87 in 2019.
- Double-digit adjusted earnings per share surpassing previous record adjusted earnings per share of $9.54 in 2019.
- Return on Invested Capital (“ROIC”) in teens to surpass the previous record ROIC of 10.5% in 2019 thanks to the optimization of capital allocation and improved operating income.
The company plans to achieve these goals through a formula of moderate capacity growth, moderate yield growth and tight cost controls, while ensuring disciplined capital allocation, investing in the future and improving the balance sheet.