Royal Caribbean's Q3 2025: Contradictions Emerge on Pricing Strategy, Yield Growth, and River Cruise Expansion

Date of Call: October 28, 2025

Financials Results

• Revenue: Q3 revenue not disclosed; company expects Q4 total revenue to be up ~13% year‑over‑year.
• EPS: $5.75 adjusted EPS for Q3, up 11% YOY; full‑year adjusted EPS guidance $15.58–$15.63, up ~32% YOY; Q4 EPS guidance $2.74–$2.79.
• Gross Margin: Adjusted gross EBITDA margin 44.6% in Q3, up 60 basis points YOY; full‑year adjusted EBITDA margin expected to expand ~290 basis points.
• Operating Margin: Operating margin not separately disclosed; adjusted EBITDA margin used as proxy (44.6% Q3, +60 bps YOY) and full‑year adjusted EBITDA margin expected to expand ~290 bps.

Guidance:

• Q4: capacity up 10% YOY; net yield growth 2.2%–2.7%; total revenue ~+13% YOY; EPS $2.74–$2.79.
• Full year 2025: net yield growth 3.5%–4%; NCC ex‑fuel ~‑0.1%; fuel expense ~$1.14B (68% hedged); adjusted EPS $15.58–$15.63; adjusted EBITDA just above $7B (+18%).
• 2026 preview: capacity +6%; management expects an EPS figure with a "$17 handle" (details to be provided in Q4); anemic per‑APCD cost growth despite new destination investments and incremental tax/fuel headwinds.

Business Commentary:

* Strong Financial Performance and Demand: - Royal Caribbean Cruises reported adjusted earnings per share of $5.75 for Q3 2025, an 11% increase from the previous year. - Yield grew 2.4%, driven by strong demand across all key itineraries, leading to a 7% increase in the number of vacations delivered. - This performance was attributed to accelerated demand, growing loyalty, and high guest satisfaction.

• Capacity Growth and Strategic Initiatives:
• Royal Caribbean Group plans to increase capacity 6% in 2026, with notable strategic developments like the development of the Royal Beach Club and expansion of exclusive destinations.
• These initiatives are part of a broader strategy to strengthen guest loyalty and attract new travelers, positioning the company to capture a larger share of the $2 trillion vacation market.

• The company's growth is supported by a powerful pipeline of strategic initiatives, strong balance sheet, and disciplined approach to growth.

• Bookings and Consumer Sentiment:

• Bookings for 2026 are up on both new and like-for-like hardware, showing strong consumer demand with booked load factors within historical ranges.
• Approximately three-quarters of consumers intend to spend the same or more on vacations over the next 12 months, indicating continued growth in leisure travel spending.

• The strong demand is driven by consumers prioritizing experiences, leading to higher bookings and onboard spending.

• Impact of External Factors:

• Fourth-quarter net yield growth is expected to be between 2.2% to 2.7%, impacted by factors such as timing of ship deliveries and fewer dry dock days compared to last year.
• The company faced headwinds due to adverse weather and a prolonged closure of one of its exclusive destinations, affecting fourth-quarter performance.
• Despite these challenges, the company remains optimistic about its outlook, driven by a strong booking environment and guest satisfaction.

Sentiment Analysis:

Overall Tone: Positive

• Management said Q3 results 'exceeded our expectations', reported adjusted EPS $5.75 (+11% YOY), raised full‑year EPS to $15.58–$15.63 (+32% YOY), expects nearly $6B operating cash flow and ended the quarter with $6.8B liquidity and leverage below 3x—all indicating strong demand, margin expansion and balance‑sheet strength.

Q&A:

• Question from Steven Wieczynski (Stifel): High‑level view of 2026 assumptions — moderate capacity growth ~6%, expected yield and cost performance — is low‑to‑mid single‑digit yield growth and anemic (low single‑digit) cost growth the right framing?
  Response: Yes — management concurred: 2026 is expected to show moderate yield growth and anemic cost growth (leveraging scale, tech/AI), with below‑the‑line variability from fuel and global minimum tax.

• Question from Robin Farley (UBS): Does the term 'anemic' net cruise cost growth include new destinations and structural costs, or is it like‑for‑like excluding those investments? And clarification on bookings/load factor dynamics for 2026?
  Response: Naftali clarified 'anemic' refers to total cost growth including structural items (e.g., new Royal Beach Club); bookings show higher APDs and record booked load factors with closer‑in family acceleration.

• Question from Matthew Boss (JPMorgan): How did global demand progress through Q3 and into October, and are you seeing different patterns in new customer acquisition?
  Response: Demand remained strong globally, Europe rebounded, new‑to‑brand acquisition is increasing, and AI/tech improvements are enhancing forecasting and conversion.

• Question from Elizabeth Dove (Goldman Sachs): With rising capacity in the Caribbean, are you seeing oversupply and how should we think about 2026 setup there?
  Response: Management said supply growth in the Caribbean is manageable; Royal Caribbean's differentiated ships and private destinations preserve pricing power and drive guests to pay up.

• Question from Brandt Montour (Barclays): If you normalize the ~90 bps dry‑dock/new‑ship impact and storms, does Q4 cleanse to mid‑3s yield growth exiting the year?
  Response: Naftali said that math is directionally correct: normalizing hardware and dry‑dock timing supports a stronger like‑for‑like exit.

• Question from James Hardiman (Citi): As you roll into 2026, which puts and takes drive the outlook and could cost or demand headwinds offset tailwinds to hit targeted growth?
  Response: Management reiterated confidence in a healthy consumer and moderate yield growth; main risks are below‑the‑line items (fuel, taxes), and they described 2026 EPS as having a '$17 handle' but not a finalized number.

• Question from Benjamin Chaiken (Mizuho): On Celebrity River demand and capital allocation — limitations on scaling (balance sheet, shipyards) and plans beyond the initial order?
  Response: Jason said initial inventory sold out in minutes; the company plans to scale materially, focus on perfecting the product and has options to expand beyond the initial order.

• Question from Conor Cunningham (Melius Research): With more short‑duration itineraries and close‑in booking, if close‑in demand persists, does that imply significant upside to 2026 earnings?
  Response: Management said they don't 'bank' on close‑in demand but booking patterns vary by product; sustained close‑in acceleration could lead to upside, though forecasts already bake in historical patterns.

• Question from Sharon Zackfia (William Blair): As you roll out more owned destinations, how will revenue composition shift between ticket lift and onboard spend (Beach Club vs Perfect Day)?
  Response: Michael/Jason explained Beach Clubs primarily drive onboard and short‑excursion revenue, while Perfect Day tends to produce ticket lift; the mix will vary by destination.

• Question from Vince Ciepiel (Cleveland Research): What drove the step‑down in yield from H1 (~5%) to H2 (~2.5%) — tougher comps, less new‑hardware tailwind, or isolated headwinds?
  Response: Jason said quarter‑to‑quarter swings are largely driven by ship delivery timing, dry‑dock and comps; the appropriate view is on a full‑year basis per their stated formula (capacity, yield, cost).

• Question from Andrew Didora (Bank of America): On the unsecured bond used to finance Celebrity Xcel versus traditional ECA financing — are you indifferent and what are the benefits?
  Response: Naftali said they acted opportunistically: unsecured debt offered lower cost, longer tenor (10 years) and different covenants; they will continue to evaluate financing alternatives while maintaining committed financing for deliveries.

Contradiction Point 1

Close-in Demand and Pricing Strategy

It involves differing perspectives on the impact and sustainability of close-in demand on bookings and pricing strategies, which are crucial for understanding the company's revenue projections and market positioning.

If near-term demand remains strong, how might it affect 2026 earnings potential? - [Conor Cunningham](Melius Research)

2025Q3: We are optimizing yield profiles for each product. Close-in demand is a natural segment behavior, and we're managing pricing to ensure revenue optimization. - [Jason Liberty](CEO)

How is Royal Caribbean addressing the acceleration in close-in demand? What is the strategy to stay ahead in the global vacation market? - [Matthew Robert Boss](JPMorgan)

2025Q2: We are seeing acceleration in close-in demand, including on onboard spend. Customers have strong jobs and confidence in spending... Demand is healthy, and the stronger bookings come from millennials who prefer shorter booking windows. - [Jason T. Liberty](CEO)

Contradiction Point 2

Yield and Cost Growth Expectations

It involves differing expectations for yield and cost growth, which are critical for understanding the company's financial performance and pricing strategies.

Could you clarify the assumptions for 2026 booking and demand, factoring in capacity growth and yield expectations? - [Steven Wieczynski](Stifel)

2025Q3: Moderate yield growth and disciplined cost control are expected... Below-the-line costs might impact earnings due to fuel compliance and tax increases. - [Jason Liberty](CEO)

How would yields be impacted if near-term demand remains strong, and what does this imply for Q3 and Q4? - [Steven Moyer Wieczynski](Stifel)

2025Q2: If close-in demand stays strong, the back half will be better. We have significant consumer demand and confidence. Yield growth is split between new hardware and existing fleet... The consumer is strong, and we have strong cost control. - [Jason T. Liberty](CEO)

Contradiction Point 3

River Cruise Expansion Strategy

It involves differing perspectives on the strategic approach to expansion in the river cruise market, which is crucial for understanding the company's growth trajectory and market positioning.

How do you plan to allocate capital to the River opportunity following the initial order's success? - [Benjamin Chaiken](Mizuho)

2025Q3: The initial order for Celebrity River is 10 ships, and we plan to grow this. The opportunity is substantial, and we are confident in expanding. - [Jason Liberty](CEO)

Can you elaborate on Royal Caribbean's river cruise expansion? - [Vince Charles Ciepiel](Cleveland Research Company)

2025Q2: We are confident in the river cruise expansion. We see strong demand for this underpenetrated market and are committed to delivering a superior guest experience. - [Jason T. Liberty](CEO)

Contradiction Point 4

Yield Performance and Capacity Growth

It involves differing expectations for yield performance and capacity growth, which are critical for understanding the company's financial outlook and strategic direction.

Can you clarify the assumptions behind 2026 bookings and demand, factoring in capacity growth and yield expectations? - [Steven Wieczynski](Stifel)

2025Q3: We expect even moderate yield growth and disciplined cost control are expected to drive our earnings growth. - [Jason Liberty](CEO)

What drove the better-than-expected performance in Q1? What initiatives and investments are expected to protect results and gain market share? - [Matthew Boss](JPMorgan)

2025Q1: Our core revenue growth formula remains intact. We expect moderate capacity growth, moderate yield growth, and disciplined cost control. - [Jason Liberty](CEO)

Contradiction Point 5

Load Factors and Pricing Strategy

It reflects differing approaches to managing load factors and pricing strategy, which are crucial for maintaining revenue and market position.

How might strong near-term demand affect 2026 earnings potential? - [Conor Cunningham](Melius Research)

2025Q3: We are optimizing yield profiles for each product. Close-in demand is a natural segment behavior, and we're managing pricing to ensure revenue optimization. - [Jason Liberty](CEO)

How would you manage load factors in a slower booking environment? - [Matthew Boss](JPMorgan)

2025Q1: We aim to maximize load factors while maintaining price integrity. Our strong demand allows for optimizing load factors without compromising pricing. - [Jason Liberty](CEO)