Quarterly profits up as Royal Caribbean shuns late discounting

With new ships proving a hit overseas and strong business closer to home, Royal Caribbean Cruises had a better-than-expected second quarter.

The Miami-based cruise company reported net income of $185 million — a 34 percent increase year-over-year — on $2.06 billion in revenue for the quarter ending June 30. Earnings per share of 84 cents beat the company’s forecast of 70 cents per share and analysts’ expectations of 73 cents a share.

Onboard revenue increased about 5 percent, a reversal of the dip the company reported during the first quarter. That decline was attributed to the effect of the stronger U.S. dollar, which prompted international guests to spend less while sailing. During the second quarter, however, the company offered some promotions and value-added deals that allowed passengers to pre-purchase beverage packages, specialty dining, shore excursions and internet use in local currencies.

“We put more energy behind the promotion and marketing of that into the international markets because that was an area of more concern,” said Michael Bayley, president and CEO of Royal Caribbean International. “Obviously while it’s still early, our tactics have been received well and are helping us mitigate any further risk.”

The company owns several brands including Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and European lines such as Pullmantur and CDF Croisieres de France.

While Latin America’s economic woes were a drag on Spanish brand Pullmantur, the negative impact of fuel prices and foreign exchange rates carried less weight than expected, which helped earnings exceed expectations. Pricing in the Caribbean, China and Europe was also strong.

Two of the newest ships in the fleet, Royal Caribbean International’s Quantum of the Seas and Anthem of the Seas, were performing especially well, officials said. Quantum arrived at its new home port of Shanghai in June and Anthem launched in April in Southampton, England.

“The Quantum of the Seas and Anthem of the Seas have definitely not disappointed,” said chairman and CEO Richard Fain. “Their performance is nothing short of terrific.”

To boost the cruise company’s branding power as well as customer and travel agent satisfaction, Fain said a policy announced last quarter to avoid late-in-the-game price cuts would continue and even expand.

Earlier, executives said they had ceased last-minute fare discounts for sailings in North America longer than two to four nights, with “last minute” ranging from 10-30 days before a sailing. On Friday, Fain said the company had extended that time frame to as many as 40 days prior to a cruise.

“We recognize that this policy is costing us some money in the short term, but we believe in the long term it will pay handsome dividends,” he said.

Shares of Royal Caribbean closed at $89.85, up more than 8 percent from the previous day’s close.

Analysts were optimistic about the picture for the rest of the year and into 2016.

“The implication of the second-quarter results and updated booking and pricing outlook leads us to believe that the second half will generate meaningfully higher profit than the same time last year, indicating that pricing integrity is taking hold, that consumers’ willingness to spend is rising, or both,” Morningstar analyst Jaime Katz wrote in a note to investors. “Either way lends itself to better results for Royal Caribbean.”

This story was originally published July 31, 2015 at 2:40 PM with the headline "Quarterly profits up as Royal Caribbean shuns late discounting."