Commissions refers to travel agent commissions paid for booking the cruise, as well as air and other transportation expenses, port costs that vary with passenger head counts and related credit card fees.
Payroll is the salary of all the shipboard crew members.
Other operating expenses consist primarily of operating costs such as repairs and maintenance, port costs that do not vary with passenger head counts, vessel related insurance, entertainment and gains and/or losses related to the sale of ships, if any.
I think the rest of the categories are self-explanatory.
Here’s Royal Caribbean Group’s expenses for the quarter:
- Commissions, transportation and other: $329,859,000.00 (19%)
- Payroll: $327,141,000.00 (19%)
- Food: $155,226,000.00 (9%)
- Fuel: $275,179,000.00 (16%)
- Onboard costs: $155,570,000.00 (9%)
- Other operating costs: $447,887,000.00 (26%)
Total onboard expenses for the quarter came out to $1,690,862,000.00.
If you divide expenses by passengers, you come out with $1,261.25 expense per passenger. Thus, when you subtract expenses per passenger from revenue per passenger, Royal Caribbean Group made $368.02 per passenger this past quarter.
How cruise ships make money
If we’ve learned anything from the economics of the past two years, it’s Royal Caribbean is profitable when there’s as many cruise ship passengers onboard.
Part of the reason Royal Caribbean Group is starting to see profitable days ahead is their ships are mostly sailing full again.
The company shared that over the quarter, its ships were sailing at about 82% full, with June just about 90%.
Here’s a breakdown of how full the ships were based on the region of the world they sailed.
- North America: About 100%
- Caribbean: 103%, with some ships reaching 107%
- Northeast and West Coast (including Alaska): 90%
- Europe: 75% in June
A percentage in excess of 100% indicates that three or more passengers occupied some cabins.
As a high fixed-cost business, a cruise ship relies on getting as many passengers as possible onboard.
Royal Caribbean Group CEO Jason Liberty said on the post-earnings conference call with analysts to turn a profit, the company needs to maintain occupancy levels above 90%. In the third quarter, occupancy is slated to fall in the mid-90s range.
Pre-pandemic, Royal Caribbean had a profit margin of around 20%, and the amount of money guests were spending on add-ons was the driving factor.
According to Royal Caribbean Group executives, every dollar a guest spends before the voyage, translates into about $0.70 more on the dollar when they sail and double the overall spending compared to other guests.
Helping their cause, Mr. Liberty said guests are spending at least 30% more “across all categories” than they did in pre-pandemic 2019.
“The spending trends have been consistent across our customer base, even as we were approaching full load factors,” Liberty said.
In terms of costs, operating expenses have gone up for the company.
Mr. Liberty said that while food and fuel are the main categories that are susceptible to inflation, “there are some initial positive signs” with respect to inflation trends for food.
“Our most recent month-over-month FNB (food & beverage) inflation indicator has increased at the slowest pace thus far in 2022,” Liberty said. “This, combined with direct conversations with our key suppliers, indicate inflation levels are peaking, so we should start seeing some relief in the coming months.”
Regarding fuel, Liberty said the company continued to “optimize” consumption and has partially hedged its costs to below market prices.
Source: Royal Caribbean