Royal Caribbean Cruises will have a major presence in the luxury and expedition markets with its investment in Silversea Cruises, according to chief executive Richard Fain.
"Our objective has been, and continues to be, to be the best player in each of our market segments, and frankly that's been working out very well for us," he said Thursday during a conference call with analysts.
"This adds the one segment that we think we really hadn't been a material player in, and that's our way of looking at this."
Royal Caribbean earlier today announced plans to buy two-thirds of Silversea for $1bn, funded through debt.
The luxury brand comes with an equity value of $1.5bn and $500m in debt.
Silversea will add nine more vessels to Royal Caribbean's overall fleet of 50 vessels across its Royal Caribbean International, Celebrity Cruises and Azamara Club Cruise brands.
The US-listed cruise major also has part ownerships in German brand TUI Cruises, Spanish brand Pullmantur and China's SkySea Cruises.
Fain said the cruise industry has benefited by keeping different voyage experiences, from mainstream to expedition, apart from each other instead of overlapping them.
"The industry has resisted the temptation to go to a common denominator," he said.
For example, Azamara Club Cruises continues to offer a "very strong destination focus" within its own market segment, he said.
"People do understand the personalities of the different brands," he said.
While similar to Azamara and luxury cruise competitors Oceania Cruises and Viking Cruises, chief financial officer Jason Liberty said Silversea distinguishes itself by also offering expedition cruises.
"These are two different segments that have a significant amount of demand and if you look at consumer trends, whether its activity-based or luxury goods and services, this is an area that will over-index," he said.
Royal Caribbean has for years offered expedition cruises to the Galapagos Islands through Celebrity Cruises' 2,900-gt Xpedition (built 2001).
In 2016, Celebrity added two more expedition vessels to the Galapagos itinerary by buying small Ecuadorian cruise line Oceanadventures.
Late last year, Royal Caribbean ordered two expedition newbuilds to replace two of the Celebrity expedition ships.
Keeping same guidance
Royal Caribbean reconfirms its latest adjusted earnings per share (EPS) guidance of $8.70 to $8.90 per share as it doesn't expect the Silversea stake to have near-term material impact.
Operationally, the company's forecast for the third and fourth quarters also remains the same, but increases in market prices for fuel and strength of the US dollar are expected to cost the company about $0.25 per share.
Upside for Royal Caribbean
Silverseas' 2,844 berths will make up 3% of Royal Caribbean's capacity but its yields could be around 200% premium, said UBS Investment analyst Robin Farley.
This implies a 5% to 6% boost to Royal Caribbean corporate average yields, she wrote in a note to clients.
UBS Investment values Royal Caribbean's stock at buy and gives it a target price of $147.
Royal Caribbean's stock has risen 4% to %112.73 as of early-afternoon trading.
