Royal Caribbean expects strong demand trends to continue through 2024, 2025: CEO

Royal Caribbean Cruises CEO says his company is seeing strong demand for cruises. Royal Caribbean Group President and CEO Jason Liberty sits down with Yahoo Finance's Diane King Hall to discuss the cruise operator's outlook and whether or not he's seeing the "revenge travel" trend continue.

Video transcript

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AKIKO FUJITA: Well, the strengthened travel demand is providing cruise liners with some wind in its sails, as Royal Caribbean looks to continue the travel optimism into the summer season. Yahoo Finance's Diane King Hall sat down with Royal Caribbean CEO Jason Liberty on the state of consumer demand and the type of customer the cruise line is servicing now. Take a listen.

JASON LIBERTY: We saw incredible acceleration here in the first quarter and the demand environment, which caused outperformance in our first quarter. And we raised our guidance, the earnings guidance for the year, by over 40%. Those trends continue to be very strong. And we, you know, we get to deliver 150,000 vacations every single day to our guests. And they're super happy.

DIANE KING HALL: What about 2024 and beyond? Is it still smooth-sailing?

JASON LIBERTY: Yeah. Well, really, for the past couple of months and certainly right now, most of the bookings we're taking on is for 2024. So the demand trends that we've seen earlier in the year is very much flowing into 2024 and even into 2025.

DIANE KING HALL: And what are your expectations for EBITDA through 2025? We know you have the trifecta program where you're trying to hit three benchmarks. Where do you stand with that?

JASON LIBERTY: Yeah. So we're very much on track for our trifecta goals. You know, one is to get to triple digit EBITDA per APCD. The second one is to be well into the teens on an ROI basis and then getting our earnings up into the double digit zone, again, as we burn off a lot of this negative carry that we had to take in during the pandemic. So we feel really good about the cash flow generation of the business. And we feel we're very aligned with our trifecta goals.

DIANE KING HALL: And let's talk about the customer, the type of customer you have. Now, there were people during the pandemic who said they would never return to cruise. Are you seeing a return of loyalists, previous customers? Or are your customers now new to cruise?

JASON LIBERTY: Yeah. So historically, you know, pre-pandemic, about a third of our guests were new to cruise, a third of our guests were loyalists, and the third of our guests refers to brand. What we see now is one propensity to cruise has completely returned back that was in 2019. But we're seeing more new to cruise than we had seen in 2019. We're seeing more first to brand, which is very much in line with our growth expectations for our capacity, growth as our new ships come on.

DIANE KING HALL: And what about the demographics? Cruise tend to attract more of middle-aged customers. And of course, you have families. What are the demographics like now? And what are you doing to attract younger customers?

JASON LIBERTY: Yeah. So we have really three core brands that are really in their different segments. And so they all address different age and demographic categories. Like our royal brand is very focused on multigenerational family. Our celebrity brand, people that are in their early 50s, more Gen X in nature. And our so received brand, which is Ultra Luxury and Expedition, tend to attract a little bit of the Baby Boomer side of things.

What we are seeing is the guest is actually a little bit younger on average than what we saw pre-pandemic. And a lot of that is because there's more millennials that are now into the system as they got married and started to have kids and are looking to experience incredible travel experiences.

DIANE KING HALL: That's awesome. All right. And talk to me about pricing. How is that holding up in the face of consumers starting to make cutbacks in different areas of their life? We're hearing that from different industries, different companies. What are you seeing and how are you dealing with that from a pricing basis?

JASON LIBERTY: Yeah. So we've actually seen and we continue to see the ability to raise price in the current market, which is somewhat counterintuitive to, you know, the point you just made and also counterintuitive to some of the information out, that's out there. The main driver of that, one, I think, is having best brands, best ships win. And our guests get this incredible experience on our ships. And that gets broadcasted through advocacy of our guests, who are experiencing that.

But there's also a pretty significant value gap to land-based vacation. And so as RevPAR and other things went up on the hotels and land-based vacations, we have that opportunity now to begin to close that gap. And that gap was about 15% to 20% pre-pandemic. Today, it's about 35% to 45%. And we're going to make, you know, a pretty good dent in it here in 2023.

DIANE KING HALL: Is revenge travel still a thing?

JASON LIBERTY: I think it's less about revenge travel. We don't really see in our surveying of our guests. It's more that the guest has shifted back to this trajectory of experiences outpacing buying stuff. And that's what we're seeing from our guests and what we-- and what we collect in our survey data is they bought enough stuff. What they want to do is collect experiences, create stories with their friends and family and loved ones. And fortunately, that's-- that's what we do for a living.

DIANE KING HALL: OK. And I got to ask you about tipping. Tipping is a big part of cruise life-- your waiter, your steward, your purser. But there's been kind of this backlash about tip-flation. How do you keep customers and staff happy given that kind of climate?

JASON LIBERTY: Yeah. So, you know, so we're not in a place where we're charging for a kitchen fee or those type of things. We have a gratuity. It raises typically just based off of how inflation is changing. And that's more what is. It's pretty much a standard fee. Of course, our guests and can provide more. The guests can also choose not to, you know, not to tip if they don't choose to.

But-- but a gratuity-based system, a service-based system, we think is really important. But we're not chopping at every corner here on tipping. We have pretty much a standard fee for it.

AKIKO FUJITA: And one more question for you. What's the China story like for you now as demand come back?

JASON LIBERTY: Yeah. So we're now that-- you know, we now have a better view on how China was-- how China is going to start back up, our plan is to re-enter China next year. So we're starting up that sales and marketing machine for China, which was an incredible market for us pre-pandemic. We know that the Chinese consumer loves to cruise. They love our brand, the Royal Caribbean brand, in that marketplace. And we expect to be there next year.