Royal Caribbean Earnings: Appetite for Travel Remains Robust, Leading to Impressive Profitability

We plan to raise our $94 fair value estimate by a high-single-digit rate for no-moat Royal Caribbean after digesting stellar second-quarter results and a 2023 EPS outlook lifted by more than 30% (to $6.00-$6.20 from $4.40-$4.80). Given the print, it’s clear consumers are willing to spend on travel despite inflation, as booking volumes in the second quarter were significantly higher (unquantified by Royal) at record pricing levels versus 2019. Moreover, 2024 bookings and pricing indicate continued momentum, displayed by Royal’s whopping $5.7 billion in advance customer deposits (this was $4.2 billion at year-end). Second-quarter net revenue yields (pricing) rose at a blistering 12.6% versus 2019 thanks to healthy close-in demand and robust onboard spending, which rose around 40% over the 2019 and 2022 periods. While costs are still inflated, they will decelerate through the back half of the year, returning the EBITDA margin to 2019 levels.