Royal Caribbean Cruises Ltd. (RCL) Earnings

Management highlights

- Overall Financial and Demand Performance * Second quarter 2026 results exceeded expectations, with revenue growing 6% year-over-year and adjusted earnings per share 33 cents above guidance * The company returned over $600 million of capital to shareholders through dividends and share repurchases in the quarter * Industry-leading Net Promoter Scores averaging low to mid-70s reflect strong guest satisfaction * Consumers continue to prioritize travel and experiences as their top leisure spending category, with robust overall demand, record pricing for 2026 and early 2027 bookings, and higher onboard and pre-cruise spending than prior years * Close-in booking volumes are strong, as consumers increasingly prefer to book closer to departure for added flexibility - Strategic and Operational Initiatives * The new cross-brand Royal One co-branded credit card launched in April has exceeded signup and spend expectations; cardholders spend more than non-cardholders and are twice as likely to book multiple sailings * Loyalty enhancements including points choice and status match have generated over 500,000 new enrollments, driving growth in cross-branded bookings and advancing the 'lifetime of vacations' strategic vision * Over 90% of guests now use the company's mobile app, with monthly active users increasing five-fold since 2019; over half of onboard revenue is now booked pre-embarkation, enabling more personalized guest experiences * New product launches including the Icon-class Legend of the Seas and Royal Beach Club destinations have received strong guest demand and positive feedback * The company continues to invest in fleet revitalization across all three brands (Royal Caribbean, Celebrity Cruises, Silversea) to improve guest experiences and returns on existing assets * The Celebrity River cruise product line is in late-stage launch preparation, with early demand exceeding expectations from both Celebrity and Royal Caribbean guests - Community and Destination Development * The company published its annual community impact report, highlighting investments reaching over 3 million individuals across 85 global communities * Development of the Mahahual, Mexico destination project continues with constructive dialogue with local and national stakeholders; the approval process is taking longer than originally planned, which will shift the project's timeline, but the company remains committed to creating sustainable economic, environmental, and social benefits for the region

Guidance

- Full year 2026 net yield growth guidance is maintained at 1.75% to 2.25%, with full year capacity growth projected at 6.6% leading to 9% total year-over-year revenue growth * Adjusted full year 2026 earnings per share is guided to $17.73 to $17.87, representing 14% year-over-year growth, up from prior guidance reflecting favorable joint venture and below-the-line expense performance * Full year 2026 net cruise costs excluding fuel are expected to be approximately flat year-over-year, consistent with prior guidance; fuel expense is projected at $1.3 billion for the full year, with 58% of 2026 remaining fuel consumption hedged below market rates - Third quarter 2026 guidance expects 8.5% year-over-year capacity growth, roughly flat net yields (with a 200 basis point yield headwind from dry dock timing and geopolitical impacts), net cruise costs excluding fuel declining 1.1% to 1.6% year-over-year, and adjusted earnings per share of $6.26 to $6.36 (double-digit year-over-year growth) - Fourth quarter 2026 yield growth is expected to re-accelerate, with a 200 basis point yield tailwind from favorable dry dock timing and deployment comparisons, supporting a strong exit rate heading into 2027 - Early booking trends for 2027 are encouraging, with booking volumes pacing above historical levels at higher year-over-year pricing and load factors slightly elevated on a comparable basis; the company reaffirmed its target of reaching its 'Perfecta' profitability target by the end of 2027

Segment performance

The company reports capacity deployment by region for full year 2026: Caribbean accounts for 57% of total capacity (44% of third quarter capacity), Europe accounts for 14% of total capacity (28% of third quarter capacity), and Alaska accounts for 5% of total capacity (13% of third quarter capacity). In the second quarter 2026, total company revenue grew 6% year-over-year, adjusted earnings per share reached $4.21 (33 cents above the midpoint of prior guidance), adjusted EBITDA was $1.8 billion with an EBITDA margin of 38%, and operating cash flow was $1.9 billion. The Caribbean segment delivered stronger-than-expected yield growth 100 basis points above guidance, driven by robust close-in demand and strong onboard revenue. Europe saw a modest near-term negative impact on bookings and yield from prolonged Middle East geopolitical conflict, which primarily pressured third quarter performance. The company delivered 2.4 million passenger vacations in the quarter, with capacity up 5% year-over-year and net yield growth of 1.2% overall.

Risks & headwinds

- Prolonged conflict in the Middle East has created ongoing modest near-term headwinds for Mediterranean sailings, pressuring third quarter 2026 yields below original expectations by shifting consumer destination preferences, despite still overall strong absolute demand for Europe - The Mahahual, Mexico destination development project faces delayed timeline due to ongoing stakeholder engagement and regulatory processes, which may require marginal adjustments to future Western/Eastern Caribbean deployment plans, though the company does not expect material impact on long-term yield generation - Geopolitical uncertainty can create short-term ebbs and flows in booking volumes and consumer destination preferences, creating modest variability in quarterly revenue performance - Fuel price volatility remains a potential risk, though the company has hedged a majority of remaining 2026 consumption and opportunistically added 2027 hedges when prices declined in June 2026 - Close-in booking trends, while currently profitable for the company, could create minor revenue variability if demand shifts unexpectedly in future periods

Analyst Q&A

• Q: Can you explain the continued strength in onboard spending and share details on 2027 booking and pricing trends across regions?

  A: Elevated onboard spending reflects both a healthy consumer base and the company's pre-cruise digital investment, which lets guests book experiences ahead of time, freeing up vacation time and increasing overall spend. Higher spending is concentrated in experiences like shore excursions and food and beverage, matching consumer demand for memorable activities. While it is early in the 2027 booking cycle, booking volumes are well above historical levels at higher pricing across the entire portfolio, supporting the company's target to reach its Perfecta profitability goal by the end of 2027.

• Q: Have competitor promotions in the Caribbean impacted your pricing power, and would you have raised full-year yield guidance without European geopolitical headwinds?

  A: Yes, without the impact of the prolonged Middle East conflict on European demand, the company would have raised full-year 2026 yield guidance, as Europe started the year with very strong demand. The company’s differentiated product offering, including new ships like the Legend of the Seas and private destination experiences like the Royal Beach Club, paired with high guest satisfaction (mid-70s NPS for Caribbean sailings) insulates it from competitor promotional activity. Demand for Caribbean sailings remains strong for the rest of 2026 and into 2027, with the company continuing to capture higher-margin repeat guests.

• Q: Why are average itinerary lengths getting shorter, and is this a deliberate strategic shift?

  A: The shift toward slightly shorter itineraries is intentional, driven by changing consumer preferences: half of the company's guests are now millennials or younger, who prefer more frequent shorter vacations rather than less frequent longer trips. These shorter itineraries generate similar total spending per guest compared to longer trips, and high demand for private destination experiences like Perfect Day and Royal Beach Club makes shorter sailings especially attractive. The company continues to offer and grow its core popular 7-night itineraries, particularly for family Caribbean sailings, so the overall mix shift is modest rather than a dramatic change.

• Q: Has consumer demand become more resilient to ongoing geopolitical uncertainty, and why have recent booking trends been strong?

  A: Geopolitical events typically only impact near-term (3-6 month) booking and destination choices, with little impact on bookings 6+ months out. Over time, as events become a 'new normal', consumers return to planning vacations, which remain a top priority for building memories with family and friends. Any destination shifts are marginal: consumers may reallocate from Europe to the Caribbean in the near term, but overall demand remains strong across all regions. The company's consistent delivery of high-quality expected experiences builds guest trust, supporting consistent booking volume and pricing.