Royal Caribbean focuses on profitability goal

Royal Caribbean goal seeks to unite global workforce

Second-largest cruiseship owner focused on delivering on ‘Double-Double’ programme — but what next?

Royal Caribbean Cruises set an ambitious goal for itself a few years ago.

In a programme it dubbed the “Double-Double”, the world’s second-largest cruiseship owner aimed to double its earnings per share (EPS) by 2017 compared with 2014’s results, and deliver a double-digit return on invested capital.

As this year started on an optimistic note, Royal Caribbean executives told the investing community that the New York-listed company expects to deliver on the those twin goals.

Royal Caribbean is projecting adjusted EPS of between $6.90 and $7.10 for 2017, which would double 2014’s EPS of $3.39. And the company has a track record of delivering earnings within the guidance set out early in the year.

In this final lap of the Double-Double effort, investors and analysts want to know what comes next for Royal Caribbean and its portfolio of brands.

For Adam Goldstein, the Miami company’s president and chief operating officer, it’s still too soon to shift concentration from the task at hand.

“This year still has a long way to go, so we’re going to keep our focus on the challenge that we set ourselves before we dwell on what the next thing might be,” he said.

Still, Goldstein says, Royal Caribbean learned a valuable lesson: that its vast workforce across the globe under multiple cruise lines can be united in a single direction.

The Double-Double was designed not to be just a C-Suite initiative, but rather as a guiding principle across Royal Caribbean’s 70,000 or so employees, 90% of which are onboard ships.

Goldstein says that before the programme, the company had never tried to galvanise its workforce in a single direction.

“We weren’t exactly sure what to expect when we said this will be our guidepost financially for the next three years,” he said, speaking at his office overlooking a corner of Biscayne Bay.

“What we’ve learned is that our management team and our people around the world, and our people on the ships, are very responsive to a unified direction, a clear game plan and tangible metrics to achieve.”

If Royal Caribbean succeeds this year in doubling its earnings goal, it would build on a few years of consistent profitability growth. Last year’s adjusted EPS, for example, tripled the figure earned in 2012.

The company has 49 ships across its fleet, which is made up of the vessels in wholly owned brands Royal Caribbean International, Celebrity Cruises and joint-venture brands TUI Cruises, Pullmantur and SkySea Cruises.

As with its competitors, its 13-vessel orderbook stretches deep, with the final vessel scheduled for delivery in 2024.

It’s no accident that Royal Caribbean is boosting its bottom line as it continues to add the world’s largest cruiseships to its fleet.

Put simply, big new ships mean big profits.

Goldstein says it should come as no surprise that larger brands Royal Caribbean International and Celebrity Cruises have been increasing their average vessel size.

“The newer and larger ships disproportionately deliver profitability to our company. It’s very, very clear,” said Goldstein. “We’ve made no bones about that. That’s just the reality economically of how the business model works.”

But that doesn’t mean Royal Caribbean Cruises doesn’t see a place for its smaller wholly-owned brand, Azamara Club Cruises.

Azamara had just two ships since it was founded in 2007, and there have been no plans announced to expand that.

The line’s president and chief executive, Larry Pimentel, says while on one hand that static fleet position could be seen as disappointing, it has actually placed Azamara in a profitable position at a time when Royal Caribbean Cruises is focused on shareholder returns.

“In our case it’s a simple formula: satisfying guests profitably,” Pimentel told TradeWinds. “If you can’t do the first, you can’t do the second or any part of that; you’ve got a problem.”

Pimentel says the company’s destination-focused product is very well received by guests, and that Azamara’s time for growth may come, perhaps as a result of existing orders in the luxury sector.

Goldstein explained that Royal Caribbean has stressed its desire to keep a flexible fleet profile, and he says that doesn’t conflict with its drive for large ships.

Big ships cannot go to all ports, and customers want to see the world within the Royal Caribbean umbrella. And Azamara does things that Royal Caribbean International cannot do, Goldstein says.

“Azamara Club Cruises has really distinguished itself just by being one of the smaller cruise brands in the industry. In its fidelity to delivering an outstanding destination experience it’s carved out that niche in the market and it’s constantly upping its game,” he said.