Royal Caribbean’s travel revenue has surged by 120% year to date, approaching the level it was at in February 2020, thanks to post-pandemic revenge spending.

Royal Caribbean's travel revenue has surged by 120% year to date, approaching the level it was at in February 2020, thanks to post-pandemic revenge spending.

“Cruise-Line Operator Royal Caribbean Continues to Set Sail on a Wave of Success”

Prepare to set anchor as Royal Caribbean, the Miami-based cruise-line operator, extends its rally in 2023 with a staggering 120% increase in stock value. This surge has propelled the company’s stock to reach its highest level since February 2020. This momentum continued to build after Royal Caribbean reported its second quarterly net profit, marking a significant recovery from the industry’s crash in early 2020, which wiped out $24 billion in market value and caused the company’s shares to plummet by 83%.

Such an impressive comeback can be attributed to the resilience of the US consumer market, which remains buoyant thanks to government stimulus and an incredibly robust labor market. Surprisingly, despite soaring ticket prices, demand for cruise vacations remains strong. As a result, Royal Caribbean’s second-quarter sales exceeded expectations, leading the company to boost its full-year profit forecast beyond Wall Street’s projections. The cruise industry as a whole is experiencing substantial growth, with shares in Carnival Corp. also more than doubling in value and Norwegian Cruise Line Holdings climbing 76%.

By all indications, it’s too early to abandon the cruise industry, especially Royal Caribbean. As Barclays Capital analyst Brandt Montour suggests, the pricing momentum of the company is accelerating, with significant room for further growth before reaching the historical gap between cruise vacations and land-based alternatives. Although Royal Caribbean’s shares closed slightly below their all-time record set in January 2020, they still hold firm at $109.

While Carnival and Norwegian are also making strong comebacks, there is a notable difference in debt load between the three operators. Royal Caribbean appears to have a more favorable debt situation compared to its counterparts. Many companies in the industry had to take on substantial loans to remain solvent during the pandemic’s peak, and now face the challenge of renewing these loans at significantly higher interest rates. However, Royal Caribbean is relatively well-positioned, with more liquidity than maturities in the coming year, according to UBS Securities analyst Robin Farley.

Analysts also emphasize Royal Caribbean’s ability to cater to a higher-end consumer base compared to Carnival and Norwegian. This positioning allows the company to charge premium prices without alienating its core customers. As a result, Royal Caribbean has achieved higher margins compared to pre-pandemic levels, something its competitors have struggled to replicate. CFRA analyst Siye Desta, who recently downgraded Carnival due to potential weaker bookings and cost trends, maintains a positive outlook for Royal Caribbean, describing it as a stock to buy.

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Investor appetite for all three major cruise operators remains robust, as Carnival and Norwegian also saw positive stock performance with weekly gains of 3.4% and 2.4% respectively. All eyes are now on Norwegian as the company prepares to announce its quarterly results on August 1st. Royal Caribbean’s strong performance and boosted guidance have undoubtedly set higher expectations for Norwegian.

With a resilient consumer market, favorable debt load, and a strategy catering to higher-end customers, Royal Caribbean continues to sail smoothly in the sea of success.

Note: This article is based on an original piece by Angel Adegbesan, with additional insights and context added.