Royal Caribbean Cruises' Q3 2025 Earnings Call: Contradictions Emerge on Yield Growth, Cost Projections, and New Ship Impact

Date of Call: October 28, 2025

Financials Results

• EPS: $5.75 adjusted EPS for Q3, up 11% YOY (3% above guidance midpoint)
• Gross Margin: Adjusted gross EBITDA margin 44.6%, up 60 basis points YOY

Guidance:

• Q4: capacity +10% YoY; net yield growth 2.2%–2.7%; total revenue ~+13% YoY; Q4 adjusted EPS $2.74–$2.79.
• FY2025: net yield +3.5%–4%; adjusted EPS $15.58–$15.63 (~+32% YoY); adjusted EBITDA just above $7.0B (~+18%); operating cash flow ~ $6B.
• FY NCC excluding fuel ~ -0.1%; Q4 NCC excluding fuel down ~6.6%–6.1%.
• Fuel expense ~$1.14B (68% hedged). 2026: capacity ~+6% and EPS expected to have a "$17 handle"; modest cost pressure from EU ETS and global minimum tax.

Business Commentary:

* Strong Financial Performance and Yield Growth: - Royal Caribbean Group reported adjusted earnings per share of $5.75 for Q3 2025, which was 11% higher than the previous year. - The company saw a 2.4% increase in net yields, driven by strong close-in demand and lower costs.

• Capacity Expansion and Strategic Investments:
• Royal Caribbean Group's capacity increased by 3% in Q3 and is expected to grow by 10% in the fourth quarter.

• The company is expanding its exclusive destination portfolio, aiming to increase it from 2 to 8 by 2028, including the Royal Beach Club in Santorini, reflecting strategic investments in vacation platforms and destinations.

• Strong Demand Environment and Consumer Sentiment:

• Consumers showed positive sentiment towards travel and leisure, with 75% intending to spend the same or more on vacations over the next 12 months.

• Royal Caribbean Group observed strong demand for its brands, with new deployments like Celebrity River and new ships such as Celebrity Xcel exceeding expectations.

• Cost Discipline and Efficiency:

• The company achieved cost efficiency, with net cruise costs, excluding fuel declining by 4.3% in constant currency.
• Royal Caribbean Group emphasized leveraging technology and AI to enhance guest experiences and operational efficiencies without compromising quality, contributing to margin expansion and strong cash flow.

Sentiment Analysis:

Overall Tone: Positive

• "Third quarter results exceeded our expectations"; Q3 adjusted EPS $5.75 (+11% YOY); management raised FY EPS to $15.58–$15.63 (~+32% YOY); "on track to deliver nearly $6 billion of operating cash flow" and record close-in demand, new destinations and digital/e‑commerce trends cited as drivers.

Q&A:

• Question from Steven Wieczynski (Stifel): High-level thinking about 2026 — with capacity ~6%, should we expect low- to mid-single-digit yield growth and anemic/low single-digit cost growth?
  Response: Yes — management expects moderate (low- to mid-single-digit) yield growth and anemic per-APCD cost growth for 2026, while flagging below‑the‑line variability from fuel and global minimum tax but overall confidence due to scale, tech and balance sheet strength.

• Question from Robin Farley (UBS): Does the 'anemic' net cruise cost growth commentary for 2026 include the impact of new destinations (i.e., is it total or like‑for‑like)?
  Response: It includes total cost growth — the 'anemic' characterization encompasses structural costs such as new Royal Beach Club openings as well as like‑for‑like items, netted against efficiencies from technology and AI.

• Question from Matthew Boss (JPMorgan): How did global demand progress through Q3 and October, and are you seeing any change in new-customer acquisition?
  Response: Demand remained strong across markets in Q3 and October, with elevated new‑to‑cruise acquisition and improved forecasting via AI; bookings and APD trends are encouraging across regions.

• Question from Elizabeth Dove (Goldman Sachs): Is there oversupply risk in the Caribbean and how is Royal Caribbean positioned for 2026?
  Response: While supply has increased in the Caribbean, management views it as manageable; differentiated ships, exclusive destinations and ecosystem advantages are supporting demand and pricing.

• Question from Brandt Montour (Barclays): If you normalize for the ~90 bps ship/drydock effects and storms, does Q4 yield exit closer to mid‑3%?
  Response: Directionally yes — when normalizing for hardware timing and dry docks the implied like‑for‑like exit yield is in that mid‑3% "zip code."

• Question from James Hardiman (Citi): Given various puts and takes (timing, weather, pricing), how should we think about achieving your margin/earnings targets for 2026?
  Response: Core fundamentals are strong — expect moderate yield growth and anemic cost growth to drive margin expansion; most remaining variability is below the line (fuel, taxes); the '$17 handle' comment is preliminary.

• Question from Benjamin Chaiken (Mizuho): River cruises sold out quickly — how will you allocate capital and are there build or balance‑sheet constraints?
  Response: River is a strategic, accretive growth priority; initial order sold out instantly and the company has options/ability to scale but will prioritize getting the product right and allocate capital prudently.

• Question from Conor Cunningham (Melius Research): If close‑in demand persists, would that materially upside 2026 earnings?
  Response: Close‑in demand can drive upside, but management does not rely on it; different products have distinct booking patterns and the company optimizes mix and revenue management accordingly.

• Question from Sharon Zackfia (William Blair): As you ramp private destinations, how does revenue composition shift between ticket and onboard/excursion spend?
  Response: Beach Clubs tend to drive onboard and short‑excursion revenue, while Perfect Day‑style destinations produce notable ticket lift; overall destinations increase high‑margin revenue across both streams.

• Question from Vince Ciepiel (Cleveland Research): What explains the step‑down in yield from H1 to H2 — tougher comps, less new‑hardware tailwind, other items?
  Response: The H2 deceleration is largely quarter‑level noise from ship delivery timing, comps and isolated events; on an annualized basis the company's formula (capacity, yield, costs) is the better normalization.

• Question from Andrew Didora (Bank of America): On the unsecured bond to finance Celebrity Xcel vs ECA financing — are you indifferent and what are the benefits?
  Response: The unsecured bond was opportunistic: lower cost, longer tenor and different covenants versus ECA; management will continue to evaluate financing options and maintain committed financing for ship deliveries.

Contradiction Point 1

Yield Growth and Close-in Demand

It involves differing perspectives on the expected yield growth and the impact of close-in demand, which are critical for financial projections and strategic decision-making.

What are the opportunities and challenges heading into 2026? - James Hardiman(Citi)

2025Q3: Yields are expected to see moderate growth, consistent with this year. Costs are expected to grow at an anemic rate, with additional fuel costs and global minimum tax impacts. Despite these factors, the business remains strong. - Jason Liberty(CEO)

Can you clarify the accelerated demand for your brands and experiences? Have you noted any shifts in July booking trends? - Matthew Robert Boss(JPMorgan)

2025Q2: We continue to see very strong close-in demand trends, particularly for onboard spending, which as you know, includes things like shore excursions and beverage packages and specialty dining and so forth. What we're seeing is certainly better than we expected at the start of the year when we outlined our guidance. - Jason T. Liberty(CEO)

Contradiction Point 2

Impact of New Destinations on Cost Growth

It addresses the impact of new destinations on cost growth, which could influence financial planning and resource allocation.

What is the anemic net cruise cost growth, and how does it relate to new destinations? - Robin Farley(UBS)

2025Q3: Anemic net cruise cost growth is calculated on the total cost basis, including new destinations and technology improvements. - Naftali Holtz(CFO)

What are your initial operational expectations for the Royal Beach Club, and how do you assess the attach rate in relation to volume? - Conor T. Cunningham(Melius Research)

2025Q2: We've got some new destinations coming online in 2025. We've got some new technology. And so we are planning around a moderate level of increase in costs there. - Naftali Holtz(CFO)

Contradiction Point 3

Cruise Yield Growth Strategy

It highlights differing perspectives on the company's strategy for cruise yield growth, which is a key metric for revenue and profitability.

What are the opportunities and challenges as you move into 2026? - James Hardiman (Citi)

2025Q3: Yields are expected to see moderate growth, consistent with this year. - Jason Liberty(CEO)

What drove the better-than-expected Q1 performance? What are the key developments in April? What strategies are in place to gain multi-year market share? - Matthew Boss (JPMorgan)

2025Q1: We're thinking about moderate capacity growth supported by moderate yield growth, disciplined cost control. - Naftali Holtz(CFO)

Contradiction Point 4

Anemic Cost Growth and Yield Growth Expectations

It involves the company's outlook on cost growth and yield growth, which are critical for understanding the financial performance and strategies for the upcoming year.

What is the anemic net cruise cost growth, and how does it relate to new destinations? - Robin Farley(UBS)

2025Q3: The anemic net cruise cost growth is calculated on the total cost basis, including new destinations and technology improvements. - Naftali Holtz(CFO), "Yields are expected to see moderate growth, consistent with this year." - Jason Liberty(CEO)

What are the future CapEx requirements? - James Hardiman(Citi)

2024Q4: We expect net yield to grow 3.5% for the year, with strong momentum in the second half. - Jason Liberty(CEO)

Contradiction Point 5

New Ship Impact on 2025 Financials

It involves the impact of new ship deliveries on the company's financial performance in 2025, which could affect investor expectations and strategic planning.

Can you explain Q4 yield growth and the impact of new hardware? - Brandt Montour (Barclays)

2025Q3: The fourth-quarter yield growth reflects the formula of moderate capacity, yield, and cost growth. The impact of new hardware is normalized in calculations. - Naftali Holtz(CFO)

Why are new ships a headwind in Q3 and Q4? Is it because test cruises don’t generate full revenue? - Ben Chaiken (Mizuho)

2025Q1: New ships are a headwind in the second half of the year because they come in, they have lower deprecation charges, which will be fully loaded. And less ramped load factors. - Naftali Holtz(CFO)