The pandemic crushed the cruise industry. Royal Caribbean (RCL), Carnival Cruise Lines (CCL), and Norwegian Cruise Line (NCLH) remained fully out of operation from the United States from March 2020 through July 2021.
Once operations resumed, things did not return to normal. Those July sailings, while triumphant, carried less than 50% of the normal passenger load (and the first ones had well less than that). Capacities have slowly inched up, but ongoing protocols regarding testing, vaccinations, and mask-wearing, have kept all three major cruise lines struggling to get back to where they were.
Royal Caribbean, however, has been leading the charge when it comes to fighting back to profitability. The company led the way in returning to operations sailing cruises to nowhere out of Singapore and then setting up operations in Nassau, Bahamas, to serve American customers when U.S, ports remained closed to the company.
Now, while Royal Caribbean continues to lose money and expects to post losses for the first half of 2022, the company has some unexpected good news. The company expects to be profitable in the second half of the year and that's being driven by more than just rising capacities.
The pandemic has changed a lot of things, and it's driving a new way for Royal Caribbean to make money.
Image source: Daniel Kline.
What Has Surprised Royal Caribbean Executives?
During Royal Caribbean's fourth-quarter earnings call, the company explained that a consumer pattern had changed and it wasn't fully sure why. People are spending more money on board and that has been a steady fact since the cruise line's July return. President Michael Bayley shared his thoughts as to what was happening during the call.
I can tell you that we've been absolutely delighted and, I mean, initially very surprised by the onboard spend. But it's kind of -- I think when we started operations out of the U.S. back in July, we were initially just shocked. It was really, really positive. And it's just continued.
So I think it's -- you're probably not far wrong that I think lower load factors created a different kind of environment that helped people spend more. But we've seen it across the board in nearly every single category where people are just simply spending more in every single revenue stream.
Bayley thinks there might be a reason for the spending.
We know back in '20 and '21, the savings rate was significantly higher and credit card debt was much lower. So we do think that people are happy. We've seen Net Promoter Score on all of our ships and brands being at record highs. So we've got a lot of happy customers in that happy frame of mind. They're opening up their wallets and they're spending literally all over the place. So we're very pleased with what we're seeing.
New CEO Jason Liberty, conducting his first earnings call in that role made it clear that the spending increase actually starts before customers board a ship.
I think it's in two dimensions. When you look whether it's the consumer that is booking the inside stateroom or the consumer that's booking the Ultimate Family Suite, as an example, you're seeing them all over-indexed on their historical spend by quite a bit.
And then, the other dimension of the category is by area. Effectively, every revenue area, whether that's spa, whether that's gift shop, whether that's casino, F&B and so forth is just outperforming significantly. I don't know how much of it's volume, how much of it's mix, how much of it is just the consumer with more money in their pocket, how much of it is just roughly chasing experiences, and as part of those experiences are spending money as well on our ships.
Royal Caribbean Sees Profitable Seas Ahead
The pandemic has been an ongoing problem for Royal Caribbean. The omicron variant forced a return to indoor mask-wearing and it led to a handful of cruises being canceled due to crews having a high level of positivity rates, albeit with no serious illness reported.
Omicron's impact has begun to fade and Liberty sees calmer seas ahead.
"We expect a net loss for the first half of 2022 due to the impact of Omicron and a return to profitability in the second half of the year," he said.
The new CEO spoke ecstatically about his hopes for the new year and how he sees the company's recovery.
"After a storied 2020 and 2021, we are eager to move forward in this new year," he said. "As people are keen on taking a vacation, we are ready to make their vacation dreams come true in a healthy and safe environment. We expect 2022 will be a strong transitional year as we bring the rest of our fleet into operations and approach historical occupancy levels."
