There are usually a few interesting nuggets of information in Royal Caribbean Group’s earnings each quarter, including the fact that many people are buying more for their cruise than ever before.
Called “onboard spend,” this is revenue from purchasing everything for a cruise in addition to the cruise fare, such as shore excursions, beverage packages, Wi-Fi, etc.
Not only are onboard expenses increasing, but it’s shocking for the cruise line to see all that going on.
During Royal Caribbean Group’s earnings call on Friday, a Wall Street analyst wanted to know more about particularly high spending figures and whether there was a correlation with lower occupancy. His thought was that fewer people means shorter lines and that translates into a greater tendency to spend money on experiments.
It’s an interesting theory, but executives aren’t sure why people are spending more than usual on their cruise vacations to improve it, but they’re certainly happy about it.
“I wish we knew. I can tell you that we were absolutely thrilled and initially very surprised with the spend on board,” said Michael Bayley, President and CEO of Royal Caribbean International.
“I think when we started our operations in the United States in July, we were shocked at first. It was really, really positive and it’s still going.”
The reference to July is when cruises first resumed in 2021 from the United States and Royal Caribbean saw people spending more on their cruise than before. This phenomenon has continued over the past six months.
Mr Bayley agreed there was probably some truth to the idea that reduced cruise ship capacity “creates a different environment that helps people spend more”.
He also thinks Royal Caribbean’s investment in pre-cruise technology could play a part in those higher numbers. The company has spent the past 12 months improving its back-end and front-end systems to improve the process for customers.
Royal Caribbean Group CEO Jason Liberty said the people spending more on their cruise aren’t just the suite customers: “Whether it’s the consumer who books the inside cabin or the consumer who books the family suite ultimate, for example, you see them everywhere. index on their historical expenses by a bit.
Plus, people aren’t just buying drink packages or spa treatments. On the contrary, they spread the money around.
Mr Liberty said customer spending in the casino, spa, food and drink and gift shop were all “significantly outperforming”.
Customer spend is the path to profitability
Onboard spend was a great metric, and something the cruise line can brag about in an otherwise large loss for the quarter. But this is also how Royal Caribbean will return to black.
How important are onboard expenses? The general rule used by Royal Caribbean is that every dollar spent before the cruise is worth an additional 50 cents spent on board.
Prior to the pandemic, Royal Caribbean Group consistently reported onboard spending as the difference between a good quarter and a great quarter.
In February 2020 (the last quarter before Covid-19), Royal Caribbean Group announced that 2019 was another year of very strong performance which generated over $2 billion in adjusted net income.
In 2019, Royal Caribbean Group generated $3.09 billion in onboard revenue, compared to $2.7 billion in 2018.
With society seeing “historic spending” from people cruising these days, it’s a positive sign that brighter times are likely to come.