Royal Caribbean sees cruise demand recover, but flags impact of higher fuel costs

Royal Caribbean's Mariner of the Seas departs Port Canaveral, Fla., on a 4-night Bahamas cruise, Tuesday, Jan. 11, 2021. (Joe Burbank/Orlando Sentinel via AP)

Royal Caribbean said on Thursday bookings for its luxury Mediterranean cruises have bounced back after about a month of disruption from the Iran war, sending its shares surging as much as 10.8 per cent.

Bookings are currently running at a higher pace than last year, the company said, even as rising fuel costs linked to the Middle East conflict prompted the cruise operator to cut its annual profit forecast.

Cruise operators, heavily dependent on fuel oil and marine gas oil, are navigating a tougher environment as stalled U.S.-Iran negotiations raise concerns about prolonged disruptions to the Middle Eastern supply, driving up oil prices.

But Royal Caribbean CEO Jason Liberty said on an earnings call that “travel remains a top priority, ranking as the number one leisure category where consumers intend to spend more.”

Shares of rivals Carnival Corp and Norwegian Cruise Line Holdings were up about five per cent and three per cent respectively, in the day. Cruise operators’ shares had taken a beating since the U.S.-Iran war broke out in late-February.

Higher fuel costs weigh on outlook

Royal Caribbean expects fuel costs to be about US$1.3 billion higher than its earlier full-year forecast of around $1.17 billion, based on current pump prices and after hedging. It has secured about 59 per cent of its fuel needs for the rest of 2026 at rates below current market prices.

The company expects adjusted per-share profit to be between $17.10 and $17.50 for fiscal 2026, down from its prior forecast of $17.70 to $18.10.

The second quarter is more exposed to premium itineraries hit by recent global events, with some spillover into the third quarter, it said.

Royal Caribbean expects annual revenue to grow roughly 10 per cent, compared with its prior forecast of double-digit growth.

“Sustained higher fuel costs will be a headwind to profitability, but we think RCL can adjust itineraries to mitigate this effect,” CFRA Research analyst Alex Fasciano said, adding that the cruise operator is seeing limited expenses elsewhere.

For the first quarter, higher ticket pricing helped Royal Caribbean post an adjusted profit of $3.60 per share, topping analysts’ estimate of $3.19, according to data compiled by LSEG.

Reporting by Anuja Bharat Mistry in Bengaluru; Editing by Shilpi Majumdar