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The Street
The Street
Business
Daniel Kline

Royal Caribbean Cruise Line Adds Daring New Ship

With its signature brand, Royal Caribbean International (RCL) has made its massive ships as much the destination as any port.

If you board an Oasis-class or even a Quantum-class ship, it's a challenge to experience everything that's on board during a seven-day trip.

Oasis-class ships, led by the brand new Wonder of the Seas, use a neighborhood concept, with one area devoted to a literal park filled with restaurants, places for live music, a bar, and areas to just enjoy the peace. Another outdoor area hosts a carousel, an indoor/outdoor sports bar, games, and the cruise line's unique Aqua Theater venue.

Of course, there's also an expansive pool deck, water slides, a huge dry slide, multiple theaters and music venues, and more places to eat and drink than you likely have time to visit. 

Quantum-class ships don't have the outdoor space, but they have a massive sports court that hosts bumper cars as well as a unique two-floor Royal Esplanade filled with shopping and dining options.

Those ships are massive and Royal Caribbean plans to go even bigger with its new Icon-class and its next Oasis-class ship, Utopia of the Seas. But it has also added a very different ship to the fleet of one of its sister brands. 

Chief Executive Jason Liberty explained the circumstances behind that unexpected addition and how the ship will be used during the company's second-quarter-earnings call.

Image source: Dukas/Steve Vidler/Universal Images Group via Getty Images

Silversea Gets a New Ship in the Fleet

Royal Caribbean also owns Silversea Cruises, which offers luxury cruises on much smaller ships. These ships may not have waterslides, but they offer a luxury experience where passengers are pampered while on board. And the destinations are the true appeal.

Silversea's ships sail to all seven continents and can bring passengers to destinations that can't be reached by Royal Caribbean's larger boats. It's a high-end experience that offers once-in-a-lifetime trips. 

And now, somewhat unexpectedly, Royal Caribbean has added a new ship to the Silversea fleet. 

"Earlier this month, we acquired the ultra-luxury cruise ship Endeavor," Liberty said. 

"Originally delivered in 2021, the ship joined Silversea Cruise's expedition fleet. The ship is scheduled to begin service this November in Antarctica with bookings already commencing. This opportunistic acquisition allows us to add capacity and capture growth opportunities in a very attractive expedition segment." 

Royal Caribbean was able to buy the ship after its previous owner, Crystal Cruise, went bankrupt. Liberty, who formerly served as CFO of Royal Caribbean, explained why the purchase made sense. 

"Financially, it was a unique opportunity to acquire a brand-new, high-quality expedition vessel significantly below the building costs and that is fully financed through an attractive, long-term unsecured financing arrangement," he explained.

"We expect this transaction to be immediately accretive to earnings, cash flow, and [return on investment capital]."

Call It a Royal Comeback

After the pandemic-related shutdown, Royal Caribbean has slowly built back its business. The company became operating-cash-flow positive in the second quarter and has seen demand bounce back to 2019 levels. 

"While the last 2 1/2 years were certainly challenging, we have proven that our business and company are resilient. Our business is now fully back up and running, and our operating platform is larger and stronger than it has ever been," Liberty said.

Buying Endeavor was an opportunistic move to quickly expand a cash-generating part of the business. 

Normally, building a ship involves tying up capital -- generally borrowed capital -- to pay for an asset that won't add revenue until it can begin booking sailings.

In this case, RCL got an asset that immediately begin sailing for a price lower than it would have cost to build.

   

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