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At Royal Caribbean, record sales, higher onboard spend, CocoCay cachet

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'Our addressable consumer is healthy, sitting on a lot of savings and searching for experiences and creating memories with friends and family,' Jason Liberty said
Royal Caribbean shares rose more than 7% on Tuesday after the company's fourth quarter topped expectations and management forecast record-breaking wave sales.

The group reported strong wave season bookings across all brands and on 14% capacity growth from 2019.

Eight new ships have arrived since then, with three more on the way this year: Silver Nova for Silversea Cruises, Celebrity Ascent for Celebrity Cruises and Icon of the Seas for Royal Caribbean International.

'We are experiencing a record-breaking wave season, resulting in a booked position approaching previous record highs and at higher prices,' President/CEO Jason Liberty said. Record yields and adjusted EBITDA are forecast in 2023.

Full-year EPS guidance/nearly normal booking window

For the first time in 2.5 years, Royal Caribbean issued annual earnings guidance ($3to$3.60 EPS for 2023), reflecting greater visibility as the booking window lengthens and is now within two weeks of what it's been historically.

'Our addressable consumer is healthy, sitting on a lot of savings and searching for experiences and creating memories with friends and family,' Liberty told analysts during Tuesday's fourth quarter earnings call.

Robust onboard spending continues

About 60% of customers now book some of their onboard activities in advance of their cruise, a double-digit increase versus 2019, and at 'significantly higher rates,' Liberty said. Those who reserve activities ahead typically spend twice as much. Every dollar in pre-cruise spending generates roughly 70 cents in incremental spending.

Passengers are also making onboard purchases an average of more than two months earlier than those who cruised in 2019. According to Liberty, 'Our ability to get the consumer to book earlier is the main reason we're seeing the increase.'

He said higher onboard spending 'translates into more revenue, stickier bookings and happier guests.'

Software investments pay off

Software investments made during the pandemic are facilitating pre-cruise spending, with 25% of that activity now on the app, a new development in recent months, Michael Bayley, president and CEO, Royal Caribbean International, told analysts.

The company also upped its capability to communicate with customers pre-cruise and during the cruise. Bayley forecast robust onboard spending to continue through 2023 and into 2024.

Capacity distribution

This year nearly 70% of Royal Caribbean's capacity will be in North America, 17% in Europe and 10% in Asia Pacific.

Some 80% of first-quarter capacity is in North America, mostly the Caribbean. This is higher than in Q1 2019. Many sailings visit Perfect Day at CocoCay.

Bayley called demand for CocoCay 'exceptionally high,' and cruises that go there continue to command a pricing premium. Spending on CocoCay is up, too, with consumers showing resilience to price hikes there.

2.5m-3m cruisers at CocoCay in 2023

Capacity on the private island has expanded, and Royal Caribbean expects 2.5m to 3m passengers will visit in 2023.

CocoCay's Hideaway Beach, an adults area, is set to open in late 2023, providing capacity for an additional 3,000 people a day, or 13,000. 

Further buildouts of the CocoCay concept in other locations are planned.

'Yes, we have an appetite for other such ventures,' Bayley said.

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