Could Icon drive stronger yield growth and accelerate newbuilds?

Analysts asked management these things today when Royal Caribbean Group reported a higher than expected profit on strong demand, weeks of booking highs and a projected 40% earnings spike in 2024.

Is the momentum sustainable?

Vince Ciepiel of Cleveland Research questioned how Icon's introduction compares to the first-in-class Quantum and Oasis ships? And is the booking momentum sustainable as Royal Caribbean moves to the sixth Oasis ship, Utopia of the Seas, this year, and the second Icon ship, Star of the Seas, in 2025?

Icon was designed to be the best vacation for the multigenerational family market, Royal Caribbean International President/CEO Michael Bayley said.

'What we've created really is a game-changing hit ... It's epic.'

Combined with Perfect Day at CocoCay and the opening of Hideaway Beach there, 'We have a product and a vacation experience for multigenerational families that's truly the best in the world.'

Compared with previous first-in-class launches, 'We've never seen the response we've seen with Icon,' Bayley continued.

'... Bookings have been phenomenally strong, the rate has been unbelievable, the appreciation of the product has been high. The interest from the trade partners, from the consumer, from destinations, we've never seen the kind of response we've seen for Icon of the Seas. The employee response and the crew response ... We really feel as if this product is absolutely right on the mark.'

The metrics are three times better than Oasis of the Seas' introduction. 'The rate is really high; versus previous launches, it's double or triple. Same with the on-board product,' Bayley said.

'We've got it perfectly right'

'Icon with Perfect Day stands shoulder to shoulder with Orlando and Las Vegas, except we've got both: the gaming and everything the kids want to do to have a great vacation. So we feel we've got it perfectly right.'

Bayley was as enthusiastic looking to the upcoming introduction of Utopia into the three- and four-day cruise market from Port Canaveral, sailing to Perfect Day, and the planned 2025 opening of Royal Beach Club in Nassau.

Bottom line: He's confident Royal Caribbean has made the transition from cruise vacation to being a 'world-class multigenerational option that stands shoulder to shoulder with Orlando and Las Vegas,' adding: 'We're right there with Utopia, Icon and Perfect Day.'

Yield growth projections too modest?

Is there any reason yield growth couldn't be at more elevated levels than historically? Ciepel asked.

'I see plenty of upside,' Bayley responded, adding he's the brand guy, not the finance guy.

There Royal Caribbean Group CEO Jason Liberty jumped in: ''We're all extremely optimistic on the strong, quality demand,' he said, adding that for Q2 and beyond, the bookings and level of on-board spending activity are 'extremely strong.'

Closing the gap with land-based vacations

Could Royal Caribbean press for higher than moderate yield growth to close the gap with land-based vacations? Conor Cunningham of Melius Research asked.

Liberty said the company began closing that 40% to 45% gap last year with yields up 13.5% and average per diems up 16%.

'We made a dent into that. And this year, we expect to make a further dent. We're obsessed with how much we can close the gap with land-based [vacations].'

He said vacation consideration for the target market is shifting to cruising. And Royal Caribbean's repeat customer rate has doubled.

'Icon will chip away further and further with that value gap to land-based vacations,' Liberty asserted.

Newbuild plans?

Morgan Stanley's Jamie Rollo queried how Icon has changed Royal Caribbean's thinking about ordering ships, perhaps accelerating this new class, and what can be done about older vessels?

Bayley said the direction is 'very much focused' on the Icon-type of experience.

'We're very purposeful in our actions and the segments we operate in,' Liberty added, noting that the 'level of quality demand outpaces current supply.' But he cited shipyard constraints to faster supply growth and reiterated: 'We expect to continue to invest in the future, in destinations and the growth of our fleet, but will stick to moderate yield growth, cost control and moderate capacity growth over time.'

For the upcoming modernization of the second Oasis-class ship, 2010's Allure of the Seas, there are plans to add Icon elements.

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