Oct 30, 2024 • 9 min read
Royal Caribbean: Higher Cruise Pricing and New Customers
29.10.2024 - 17:39 / skift.com / Royal Caribbean / Sean Oneill / Jason Liberty / Royal Caribbean Cruises
Royal Caribbean Group said Tuesday that vacationers are spending more on its cruises and that it expects higher pricing in 2025. Executives discussing third-quarter results also said the majority of customers are new to cruises or their brands, and they discussed using AI to set prices and plans for a new private destination in Mexico.
“Third quarter results exceeded our expectations due to strong close-in demand and at higher prices on all of our key itineraries, coupled with continued strength in onboard revenue,” said Royal Caribbean CEO and president Jason Liberty.
A key metric for interpreting cruise operator profitability is net yield — the money remaining per available passenger cruise day after variable expenses, such as commissions to travel agents.
Royal Caribbean forecasted that its net yield would rise about 5% year-over-year in the fourth quarter. The figure represented strong pricing power but also showed a cool down in a post-pandemic surge in travel spending. Last year, the operator saw a roughly 18% jump in net yield compared with 2019.
On Tuesday’s earnings call, Liberty’s most-repeated phrase was “moderate capacity growth, moderate yield growth, and strong cost control” — which he referred to multiple times as the company’s “proven formula” or “formula for success.”
Royal Caribbean, which recently launched the world’s largest cruise ship, Icon of the Seas, said its overall fleet would grow 8% in full-year 2024 and 5% in 2025.
Texas is a key growth market. The state has a roughly similar number of potential cruise-goers as Florida. Yet, Royal Caribbean is generating roughly half as much demand in Texas as it gets from Florida.
Royal Caribbean said it partly benefited from having introduced AI-based revenue management software. The tools more accurately track shifts in supply and demand, improving the group’s ability to set the best prices to match goals for profit margin and occupancy.
“Obviously, our yield management tools get smarter and better every day,” Liberty said. “We look back and say we had some regret that in the past we’ve left revenue on the table. The tools would have said we should have slowed a little bit our bookings. We were probably too conservative.”
“Half of our onboard revenue in the third quarter was purchased through our AI-driven pre-cruise channels,” Liberty said.
Persuading customers to spend more onboard before they actually get on the ship is a key strategy.
“More than 70% [of our customers typically] purchase onboard activities before they sail, and they spend more than double compared to those who only make purchases on board,” Liberty said.
One way Royal Caribbean and its competitors have been increasing sales since 2019 is by creating itineraries
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