Royal Caribbean Cruises not only has four new ships under its namesake brand being delivered from the fourth quarter of 2014 through the second quarter of 2016. Those will assist in boosting capacity an impressive 23% by December 2016. However the company's fleet revitalization efforts, including enhanced culinary and retail experiences, will propel lucrative on-board revenue. In the most recent quarter, Royal Caribbean Cruises on-board revenue increased 1.7%, and are up a solid 2.9% year to date.
"Culinary has been a huge growth area", remarked Fain. But, the upgrading of the cruising experience hasn't stopped with new culinary options, it has even included enhancing the casino. "We have included more private rooms for high rollers", said Fain, which projects a more "upscale experience." When asked if the casino has done increased levels of business following the upgrades, Fain pointed out "they seem to be doing better."
Another nugget to enriching the on-board experience? The addition of virtual balconies, which according to Royal Caribbean Cruises "display expansive, real-time views of the ocean and destinations" via an 80' high definition television screen.
These fundamental changes to the company, as well as sending the the new ships to Shanghai in 2015 to tap into robust demand for cruises and amenities in China, suggests competitive ticket pricing in the key Caribbean market will be less of an anchor on the financial statements going forward. Fain did not disclose the retail brands that will appear on the new fleet, dubbed the Quantum of the Seas, but stressed they will be "some really marquee brands."
Just as Royal Caribbean Cruises will have increased its capacity some 23% by December 2016, its capital expenditures will peak at $2.2 billion as investments to launch new ships and to revitalize one of the oldest fleets in the industry (Norwegian Cruise Line credited with the youngest fleet; the oldest ship in service for Royal Caribbean Cruises dates back to 1992, Norwegian Cruise Line 1998) head into the rearview mirror. Capital expenditures are projected by the company to nosedive to $300 million in 2017.
The read by savvy investors at the moment is that Royal Caribbean Cruises will be floating ships with a greater number of berths and an even more luxurious on-board environment, while costs fall compared to the heavier investment years from 2014 to 2016. Hence, profit growth starts to accelerate.
The risks, of course, to the sunnier outlook for a Royal Caribbean Cruises is a general uptrend in fuel expenditures, ticket price discounting in the important Caribbean market that fails to stabilize in 2015, and yawning industry capacity in China leading to newfound trouble commanding the premium prices the stock market is bracing for today.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.