After enduring a slump of nearly three years, Royal Caribbean Cruises (RCL 1.23%) is finally seeing a wave of pent-up revenge travel. While cruising is clearly making a comeback, Royal Caribbean stock still trades more than 52% down from pre-pandemic highs. My personal opinion is to buy the dip on this cruise-line stock while it lasts. Here's why.
1. Bookings surpass pre-pandemic levels
Citing "a substantial acceleration in demand" for cruises this year, CEO Jason Liberty said in the company's third-quarter earnings call that bookings doubled between Q2 2022 and Q3 2022. Liberty affirmed that booking volumes stood "considerably higher" than in the same period in 2019.
Third-quarter revenue last year landed at nearly $3 billion, thanks to a combination of price increases, a rebound in demand, and onboard passenger revenue generation. Liberty pointed out that Royal Caribbean's guests spent "significantly more onboard our ships compared to 2019 across nearly all categories," and that their experiences have led to increased booking activity.
Royal Caribbean closed out Q3 2022 with the first profit in almost three years -- $33 million. While not so impressive on its own, compared to 2021's net loss of $1.4 billion in Q3, a small profit looks promising. After all, the Celebrity Cruises operator still contends with a fragile supply chain, heightened operating expenses, and inflationary pressures.
Despite opposing currents and billions in long-term debt, Royal Caribbean is signaling recovery to the long-term investor.
2. Big plans for 2023
Royal Caribbean has plenty in store to entice cruisers aboard. After successful tests onboard the Wonder of the Seas and Symphony of the Seas cruise ships, a new dining menu has been introduced fleetwide, offering fee-based upgrades and exciting cuisine themes.
The Silver Nova, a new eco-friendly luxury vessel from Silversea Cruises, is set to launch this year. The revolutionary cruise ship will utilize technology including fuel cells and liquefied natural gas (LNG) engines to reduce its impact on the environment.
Late this year, Royal Caribbean plans to launch the Ultimate World Cruise, a 274-night voyage across 65 countries and 150 destinations. Sure to attract new customers, this once-in-a-lifetime offering will sail around the world from Miami to destinations including South America and the Middle East.
Last but not least, the highly anticipated Icon of the Seas ship will be delivered in late 2023. Scheduled to debut in 2024, the Icon will emerge as the world's largest cruise ship at 250,000 tons and boast a massive floating waterpark. According to Liberty, the first day of bookings for Icon "far surpassed our previous single-day booking record for the brand and the company overall, and it wasn't even close."
3. The future looks bright
With its 64-ship fleet now fully operational, Royal Caribbean is looking to book as many cruises as possible during the current season -- a period after the holidays when cruise companies offer promotional rates. Although Chief Financial Officer Naftali Holtz anticipates higher expenses to persist in the near term, he forecasts that improved occupancy rates, a replenished staff, and more relaxed COVID protocols will boost profit margin in future quarters.
2022's Q3 already enjoyed a 50% increase in bookings year over year, and investors should pay close attention to future quarters' performance to ensure Royal Caribbean remains on course. The company plans to release fourth-quarter and full-year 2022 financial results on Feb. 7.
According to Liberty, "The future of the Royal Caribbean Group is bright," suggesting growth in the near future. If the company continues to recover as it has, Royal Caribbean stock should soon follow suit. For these reasons, I remain bullish on the stock.
