Royal Caribbean overcomes strong dollar to post Q1 profit increase

Shares of Royal
Caribbean Cruises Ltd. (RCCL) were down today after the company reported higher-than-expected
first-quarter earnings but cut its outlook for the year based on the strength
of the U.S. dollar and rising fuel costs. 

The company said strong close-in pricing on Caribbean
sailings drove net income to $45.2 million this quarter, a better-than-anticipated
performance, and a 70% increase over its $26.5 million net income during the
first quarter of 2014.

“Unfortunately, the currency markets have not cooperated,”
said RCCL Chairman Richard Fain, saying that weakness in the pound sterling, Australian
dollars and euro prompted RCCL to cut
its full-year earnings outlook from 40% to 34% higher than 2014. 

The majority of onboard products are priced in U.S. dollars,
so the strengthening of the dollar reduced the purchasing power of many
international guests. Strong cruise demand more than offset that, RCCL said. 

However, the impact of weaker onboard spending is expected
to be more significant during the summer and fall when Europeans, Australians
and South Americans make up a larger portion of RCCL guests, said Jason
Liberty, RCCL’s CFO.

Looking forward, Fain said that the strong dollar and a rise
in fuel prices would negatively affecting earnings, but that cost efficiencies
would mitigate a large portion of the impact. 

Booking volume during the first quarter was higher than the
year prior, even after adjusting for an increase in capacity, RCCL said.  Besides the particularly strong demand for
Caribbean bookings, the company said that bookings were up year-over-year for
Europe and China itineraries. 

RCCL said that demand for China “remains strong and bookings
have been outpacing expectations despite the significant capacity growth in the
region.” The Quantum of the Seas is already 80% booked for its inaugural season
there this summer. 

“2016 is looking good, as well,” said Royal Caribbean
International CEO Michael Bayley. “One
of the reasons we took Ovation there is that we’re confident in what we’re
seeing with Quantum.”