Cruise travel is continuing to look strong in 2018, with Royal Caribbean Cruises Ltd. reporting another earnings record for the second quarter. In its just-released Q2 earnings report, the parent company of Royal Caribbean International, Azamara Club Cruises and Celebrity Cruises – as well as, most recently, a majority investor in Silversea – said that its U.S. GAAP net income for the second quarter was $466.3 million, up from $369.5 million in the second quarter of 2017.
The report also brings the company’s full year adjusted earnings per share to $8.70 to $8.90, which includes a $0.35 negative impact from currency and fuel since Royal Caribbean’s April guidance.
Also during the second quarter, Royal Caribbean’s gross and net yields were up 2.7 percent and 2.8 percent, respectively, which the cruise company said beat its prior guidance due to strong close-in demand and better onboard revenue. Looking ahead to the full year for 2018, the company said it expects net yields to increase in the range of 2.75 percent to 3.75 percent.
Cruise costs, however, are on the rise; for the second quarter, gross cruise costs per APCD increased 1.1 percent on a constant currency basis, while net cruise costs excluding fuel were up 1.1 percent, lower than previous guidance due to the timing of hotel and marine related projects, as well as marketing related expenses, Royal Caribbean said.
In a written statement the company’s EVP and CFO Jason T. Liberty said that a strong demand environment, as well as effective cost and capital management, were leading to another year of record earnings in 2018. While it’s too early to talk much about 2019 yet, he noted the trends were “very encouraging.”
Update on the Silversea Purchase
In the second quarter report Royal Caribbean also provided an update on its recent purchase of a majority stake in luxury cruise line Silversea. The transaction officially closed on July 31 following the receipt of all necessary government approvals, and the Q2 guidance includes approximately $0.06 in additional interest expense related to the financing of the purchase.
Looking ahead, Royal Caribbean said it will begin reporting Silversea’s results with a three-month lag, meaning that it expects to begin consolidating operations in the fourth quarter of 2018. While Silversea is not expected to materially impact near-term adjusted earnings per share for the company as a whole, Royal Caribbean said, the transaction could involve some purchase accounting adjustments which will take some time to determine. Additionally, since Silversea is a luxury brand, the consolidation could lead to higher average yields for the company and higher costs per berth.
Strong Cruise Outlook Ahead
The Q2 report continues a strong year for cruise travel; Royal Caribbean was already reporting a record-setting booked position in its Q1 report, and fellow cruise company Carnival Corporation reported strong results for that quarter as well.
Overall, cruise travel is expected to hit a record 28 million passengers this year, according to the latest forecast from Cruise Lines International Association (CLIA). That’s up from 26.7 million cruise passengers in 2017, a year which saw particularly strong growth in Asia (up 20.5%), as well as positive growth in the United States and Canada (up 5%).
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