Fain sees cultural shift: People move on from bad events

Richard Fain - 'An important cultural change ... the public seems inured to unusual events. People move on' Richard Fain - 'An important cultural change ... the public seems inured to unusual events. People move on'

In the past, unusual events—be they weather-related or geopolitical—caused people to freeze. Cruise bookings suffered as everyone waited out a return to normalcy.

That's no longer true, Royal Caribbean chairman and CEO Richard Fain said Tuesday, as he spoke of a cultural shift that has relevance to the recent hurricane season.

Five major hurricanes in a row that 'exactly matched our trading routes' caused 'heart-wrenching devastation' in ports, and scrambling to revise itineraries—with more special berthing requests in September than in a normal three-year-period. For a stretch of five to six weeks, 'Caribbean bookings dropped precipitously.'

But as rapid as the drop-off, so was the recovery.

'Today, virtually all our bookings are back to pre-hurricane levels,' Fain said.

Destinations, and Royal Caribbean, are resilient, he continued. Islands want ships back, seeing cruise tourism as key to recovery, and their recovery has been impressive. Though residential areas may still be struggling, in many places the tourist areas 'suffered less damage and have mostly been cleaned up.'

Travel agents, Fain added, have been a 'very positive force' in getting the word out that most Caribbean destinations are open.

The projected $55m impact on RCL's earnings, or 26 cents per share for the year, reflects the most expensive hurricane season in the company's history, by far. And yet 2017 has been a remarkably strong year for cruising. 

RCL was 'pleased and a little surprised' to be able to keep its 2017 profit forecast, whch it had somewhat aggressively raised a few months ago, Fain told analysts during the third quarter earnings call. Today's $7.35 to $7.40 range is a just nickel lower at the top end than previous guidance.

The RCL chief cited 'an important cultural change' in how people respond to unusual events.

'Years ago a bad incident would have a strong and lasting impact. Whenever something happened, bookings would fall and they would stay down for an extended period. People seemed to curl up in a ball and obsess about whatever the issue was,' Fain said. Eventually, everyone moved on and bookings would recover, but that 'seemed to take forever.

'More recently, we've seen a sanguine response. Instead of the incident lingering for a long time, the recovery seems much quicker ... The public seems inurred to such one-off events ... They move on.'

From a societal view that's disheartening, Fain said. On the other hand, it may be constructive to get moving, he added, and from a commercial point of view, it's very helpful.

The fact that RCL is able to withstand a $55m impact from the recent storms 'shows how strongly the market is performing this year,' Fain said.

In conference call opening remarks that stretched 25 minutes, Fain also presented a new view of the industry's supply-demand equation.

People today are more interested in buying experiences than things. That's very good for cruising, and while society has changed, so has the industry, building ships that now resemble cities in their 'cornucopia' of activities and venues.

Still, misperceptions about cruising persisted, however Fain said 'We've reached a tipping point and are moving beyond ... Cruising has firmly established itself as adventurous and relevant.'

That's especially true for younger travelers. Over the past six years, Harris Polls have tracked an increasing—almost doubled—percentage of consumers who agree that cruising provides a very good or perfect fit for them. Currently, 31% of the market polled said that, with even more millennials concurring: 40%.

During the call Michael Bayley, president and CEO, Royal Caribbean International, reported that in the past three years, all RCL brands but especially his, have focused on the new-to-cruise market and millennials, making 'good progress.'

According to EVP and CFO Jason Liberty, about 30% to 33% more millennials are now cruising with RCL than several years ago.

Posted 07 November 2017

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Anne Kalosh

US editor of Seatrade Cruise Review and Seatrade Cruise News

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