The cruise sector is sailing into what market players and observers expect to be a good year as the key selling season yields strong prices and historic early booking volumes.
The Wave season — the two-month window at the start of the year in which a large share of cruise passengers lock in their voyages for the year — is showing robust results at the midpoint of the selling period, Royal Caribbean Cruises has revealed.
“We now stand at the threshold of what promises to be a sensational year,” said chief executive Richard Fain.
Speaking after the Miami company released an earnings forecast for the year that was more optimistic than Wall Street predictions, he said his company’s booked position is better than at any time in its history. A higher percentage of advanced capacity has been booked and at higher prices.
The sentiment within the Miami cruise giant’s individual lines is even more impressive than the numbers, the executive said.
“Over the last few months, we have felt a tone which is as good or better than I can ever remember seeing it,” Fain told analysts during an earnings briefing for the world’s second-largest cruiseship owner. “Life is good. Long may it continue.”
Larger rival Carnival reiterated its own optimistic forecast for 2017 in a financial filing this week. UBS analyst Robin Farley said that, combined with Royal Caribbean’s guidance, means that Carnival could exceed its own expectations this year.
The Wave months are closely watched in cruise, and the timing of Royal Caribbean’s fourth-quarter earnings makes it an important sneak preview of industry performance during the key booking bonanza. Wave selling serves to lock in much of the cruise days for the year and to provide a barometer of the market.
However, it is unlikely that Royal Caribbean will allow itself to repeat the record advance bookings that it has logged for 2017, the pinnacle of years of a lengthening book.
Leaving some berths available
The New York-listed cruiseship owner’s revenue management team will not want to lock in too much capacity, so that there are some berths available for lucrative close-in bookings.
“My sense is that the booking window has stretched as far as they will ever want it to do” said Fain. “Future years are likely to show the same or lower levels of bookings, as they work to optimise with broad pattern of when and at what level to take more bookings.”
Analysts noted that part of Royal Caribbean’s forecast calling for an historic 4% to 6% increase in net yields this year is a result of an accounting benefit from the sale of 51% of its lower-yield Pullmantur brand. Infiniti Research analyst Assia Georgieva says the deconsolidation of Pullmantur from financial results could add 2.25% to 3% to the net yield, at a time when two newbuilding deliveries bring higher-yield fleet mix.
She says with all of those factors stripped out, the rest of the Royal Caribbean fleet appears to be flat-lining right now, particularly in the Caribbean market where Norwegian Cruise Lines added two ships and offered discounts to fill them, impacting pricing.
“Unfortunately, when one player makes a misstep, then it could affect everyone disproportionately,” Georgieva told TradeWinds.
But she said that after softness in the first quarter, the Caribbean market could pick up in the subsequent reporting period.
“Q2 yields are going to be even slightly higher than Q1,” she said, referring to the first and second quarters. “Because I’m starting to see at this point in Wave some pickup in pricing for Q2.”
But for Royal Caribbean, Georgieva said, the second half of the year could present some higher costs and more difficult comparables to the prior year.
“The back half is not going to be as positive either on the top line or on the earnings side,” she said.
But Rachael Rothman, a leisure analyst for Susquehanna Financial Group, is bullish on Royal Caribbean’s outlook for the year, thanks to its record bookings so far.
“Incremental bookings will generate further improvements in yields,” she said.
View a video of Fain’s comments at tinyurl.com/FainWebTV
