One of the unspoken reasons behind the remarkable second quarter profit reported recently by Royal Caribbean Cruises Ltd. is that RCCL has more $1 billion ships that any other cruise line. But the others are catching up.
RCCL net income surged 61% to $369 million on a host of factors ranging from better exchange rates to strong North American demand. One factor that went unexplored in an hour-long investor call was the profitability of RCCL's newer ships.
Royal Caribbean International led the industry into the $1 billion era in 2009 with the introduction of the Oasis of the Seas for which the often quoted price tag was $1.4 billion. Now Royal has three Oasis-class ships in operation, with a fourth, the Symphony of the Seas, gathering bookings ahead of its debut next year.
As detailed in a new white paper from London-based Seatrade Cruise, the biggest new ships are exponentially more profitable than ships delivered even a decade ago. Economies of scale simply make one 5,000-passenger ship more lucrative than two 2,500-passenger ships.
The paper, entitled "Cruise Ships have a Big Future," notes that more than two-thirds of the 75 ships currently on order will measure more than 100,000 gross tons and six are over 200,000 gross tons. (The Symphony of the Seas will weigh in at 230,000 gross tons).
In addition to economies of scale, the paper says that such large ships have far greater potential for onboard revenue than smaller ones, with more space for bars, restaurants, and bigger casinos and spas.
And because of their scale, the paper says, yield management systems work more effectively on big ships.
"They simply have enough capacity on a single ship sailing to offer lowest prices to early bookers and then adjust them upwards as each sailing fills up. In this way, their yield management has been transformed," the paper says.
As long as Royal Caribbean keeps ordering new Oasis- and Quantum-class ships, it will continue to be the leader in the $1 billion ship derby. But others are in the race. Norwegian Cruise Line and AIDA Cruises each have ships being delivered next year that cost north of $1 billion.
And in 2019, four more $1 billion babies are set to arrive. These mansions at sea cost a fortune up front. But we could be seeing some more quarterly results like RCCL's when they start sailing in the next few years.