Royal Caribbean (RCL 8.69%) has the wind at its back. The cruise line recently reported a second straight quarter of operating results that surpassed management's expectations thanks to strong demand across its geographic markets.
CEO Richard Fain and his team took the opportunity to raise their 2019 outlook. In a conference call with investors about the second-quarter results, executives explained why they are so bullish on the industry's short-term and long-term growth.
Below are three highlights from that discussion.
1. Strong results across the board
Our brands are executing beautifully, and demand continues to accelerate.
-- CFO Jason Liberty
Net revenue yields, a core industry growth metric, landed at 9.5%, right in line with the upgraded outlook executives issued in early May. The company noted demand challenges in parts of Europe, just as rival Carnival (CCL 8.46%) pointed out last month. However, people in the U.S. and China flocked toward cruise vacations, leading to strong overall passenger volumes, higher on-board spending, and increased ticket prices. These successes allowed Royal Caribbean to far outpace Carnival's expansion rate.
Executives noted that this surprisingly strong growth came despite the removal of Cuba from its itinerary, which reduced revenue and earnings for the second quarter. The gains were split almost evenly between growth in Royal Caribbean's core sailings and its new infrastructure launches, such as the Silversea vessel and the Perfect Day at CocoCay island resort.
2. Passengers value experiences over material goods
To describe Perfect Day as a home run wouldn't do a justice. It really resets the bar in the short cruise market.
Perfect Day at CocoCay, Royal Caribbean's private vacation island destination, is the latest move by the company to capitalize on guests increasingly spending on memorable experiences over material goods. The destination is proving to be a big hit with vacationers. Prices on cruises that include the resort are exceeding management's high hopes, it said, and that boost is supporting the bullish outlook for the rest of the year.
3. The rest of 2019 looks great
It's been a terrific year, and it looks set to continue to [be]. Each quarter we have been able to announce not only that we are doing well, but that we're doing even better than we thought at the end of the prior quarter.
Royal Caribbean raised its outlook for the second straight quarter, after accounting for the effects of losing access to Cuba. Executives now see growth landing at roughly 8%, or about 0.4 percentage points above the forecast they issued in early May.
This bullish outlook is supported by several positive trends, including robust cruise demand in the U.S. and China, new ship launches like the Symphony of the Seas, and popular experiences like Perfect Day and Royal Caribbean's upgraded ship terminal in Miami. These moves, plus health in the broader economy and a growing cruise industry as a whole, have management feeling confident about the second half of 2019 and increasingly optimistic about early booking trends for 2020.
Some of that boils down to luck, but most of the success can be pinned on Royal Caribbean's strategic initiatives and aggressive bets on improving the cruise experience. "I love it when a plan comes together," Fain said.