Royal Caribbean Group 2026 Q3 Earnings Call

Good morning, everyone, and thank you for joining us today for our third quarter 2026 earnings call. Joining me here in Miami are Jason Liberty, our Chairman and Chief Executive Officer, Naftali Holtz, EVP and Chief Financial Officer, and Michael Bayley, President and CEO of The Royal Caribbean Brand. Before we get started, I'd like to note that we will be making forward-looking statements during this call. These statements are based on management's current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning, as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change.

Also, we will be discussing certain non-GAAP financial measures which are adjusted as defined and a reconciliation of all non-GAAP items can be found on our investor website and in our earnings release. Unless we state otherwise, all metrics are on a constant currency-adjusted basis. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our third quarter, the current booking environment, and our outlook for 2026. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason.

Thank you, Blake, and good morning, everyone. I'm very happy to share the results of another outstanding quarter that exceeded our expectations and drove an increase to full-year guidance as demand for our leading vacation brands continues to accelerate. Before we get into the results and outlook, I want to talk about our recent announced partnership to buy a 50% stake in Sandals and Beaches Resorts. Our strategy is to turn the vacation of a lifetime into a lifetime of vacations. Our mid-70s net promoter scores are a testament to our unwavering commitment to delivering the best vacation experiences responsibly. At the same time, we are building a connected vacation platform that brings guests back more frequently across more occasions and captures a greater share of the growing $2 trillion-plus global vacation market.

In recent years, we have strengthened our connected vacation ecosystem by investing in technology, loyalty, and commercial capabilities. Everything starts and ends with the customer. We are building a portfolio that serves more of their needs across more occasions. A guest might choose Royal Caribbean for a multigenerational vacation, Sandals for a romantic getaway, Celebrity for a premium couples Galapagos adventure, and Silversea for an Antarctica expedition. We have also broadened how guests can vacation with us through Celebrity River Cruises and our growing portfolio of differentiated destinations and experiences. Connecting these opportunities through loyalty, data, and technology, all while obsessing about delivering the best vacation experiences gives high-value guests more reasons to remain within our family of brands. This, in turn, enables us to deepen engagement, increase frequency, and expand lifetime value. That brings me to Sandals and Beaches Resorts.

The business has two leading and complementary brands in the fast-growing and high-potential all-inclusive resort segment. Sandals is the leading adult-only all-inclusive resort brand in the Caribbean, and Beaches leads in serving families and multigenerational all-inclusive resort travelers. It is also a strong strategic fit that builds on the strength and growth potential of our cruise businesses. Today, we capture only 20%-25% of our guests' annual vacation spend. About 30% of our guests have vacations in a Caribbean all-inclusive resort in the last two years. By adding all-inclusive resorts to our ecosystem, we expand our reach to roughly 50% of the vacation wallet. This investment lets us serve guests that are already spending in all-inclusive resorts while also attracting new guests to our ecosystem and building on our Caribbean footprint and North American sourcing, all while reinforcing our core cruise business.

Caribbean all-inclusive is an attractive $16 billion market growing 11% a year, and Sandals and Beaches Resorts is a leading owner operator with strong brand awareness and financial profile. Financially, our approximately $3 billion investment for a 50% stake at 10 times forward EBITDA is expected to be immediately accretive to our earnings while keeping us within our leverage targets. We are very excited about the value that is going to be brought to our customers, to our shareholders, to our employees, to the communities that we serve with this partnership for Sandals and Beaches. I will elaborate more about this opportunity a bit later, but now let me turn to our results. This morning, we reported third-quarter results that exceeded our expectations and resulted in an increase to our full-year guidance. Third-quarter revenue grew 9% year-over-year, while earnings came in 4% above our guidance.

In the third quarter, we delivered 2.7 million incredible vacations at industry-leading guest satisfaction scores. Capacity increased 8% year-over-year, and net yields were up 0.6%, which was about 60 basis points higher than our guidance. The beat was driven by better-than-expected closing demand, along with strong onboard revenue, primarily for Europe and Caribbean products. Costs also came in favorably due to timing, and as a result, adjusted EPS was $0.26 higher than our guidance. Now, Tally will elaborate on our results and outlook in a few minutes. Turning to the demand environment, we continue to see accelerated momentum as consumers prioritize our vacations and experiences. Travel remains the number one leisure category where consumers intend to increase spending.

Traveling more is a top priority for a third of Americans, and consumers see cruising as a good value due to high-quality onboard amenities, pricing that includes meals, accommodations, and entertainment, and the ability to visit multiple destinations in one trip. That confidence is reflected in our booking activity. Since the last earnings call, booking volumes have increased in the mid-teens year-over-year, and bookings for 2027 sailings up in the high teens, demonstrating strong demand as we continue to build a strong base of business for 2027. Our book position for both 2026 and 2027 is ahead of prior year at record rates. We are also seeing our relationship with our guests deepen. This year, close to half of our guests were repeat customers, with the balance experiencing our brands for the first time.

These new-to-brand guests are becoming loyal repeat cruisers and returning more frequently as the average time between cruises continues to decrease. Our differentiated brands, net promoter scores in the mid-70s, expanding portfolio, and growing loyalty and technology capabilities gives us more ways to engage with guests and more opportunities to capture a greater share of their vacation spend. Moving to the outlook for the remainder of the year, our capacity in the fourth quarter is up 5% year-over-year, and we expect to grow yields 4.2%-4.7%, which is in line with our prior expectations. As we discussed last quarter, the increase in expected fourth quarter yields reflects a more favorable year-over-year comparison, deployment mix, and timing of dry docks. Full-year net yields is expected to grow approximately 2.1%. Full-year adjusted EPS is now expected to be in the range of $17.85-$17.95, representing 14% year-over-year growth.

Our proven formula of moderate capacity growth, moderate yield growth, and strong cost discipline is driving significant earnings growth, continued margin expansion, and robust cash flow generation. This allows us to invest in high-returning and strategic growth opportunities while also returning capital to our shareholders through dividends and share repurchases. 2027 is the final year of our Perfecta program, and the business is performing well ahead of expectations. In fact, at the spot fuel rate when we announced the program, we would exceed our 2027 earnings target by about a dollar per share. Despite the significant increase in fuel rates this year, we remain on track to achieve our 20% adjusted earnings per share CAGR target based on the current forward fuel price curve for a $20 handle in 2027. Separately, we have already achieved our ROIC target.

As I mentioned on our last call, we have a great partnership with local communities and the government of Mexico, where we deliver close to a million vacations a year. While I know there is great interest in our efforts in Mahahual, we will share further progress and updates at the appropriate time or as they become available. Stepping back, our goal is straightforward. Keep guests vacationing with us again and again, whatever the occasion and whichever brand fits best. We are pursuing that through an integrated vacation ecosystem in which loyalty, technology, and data reinforce one another to drive repeat travel and grow the long-term value of each guest. Loyalty is the foundation of the platform. Status Match carries guests' loyalty status across our brands, while Points Choice and Royal ONE let them earn and redeem rewards across the ecosystem.

These capabilities are already driving greater cross-brand engagement and repeat travel. In fact, this year, 40% of our guests are loyalty customers. Loyalty share has increased across nearly all tiers over the last few years, with the strongest growth concentrated among entry-level members. This suggests more guests are engaging with the loyalty ecosystem earlier in their journey, expanding the pipeline of future repeat rates and deepening longer-term customer relationships. That deeper engagement is paying off in spend as well. Since we launched Status Match earlier this year, guests who sail across brands have higher APDs than guests who only sail on one brand. Sandals and Beaches Resorts is where we are putting some additional capital as a TSR accelerator to our strategy. It extends our platform into the attractive all-inclusive category with loyalty benefits flowing in both directions.

The roughly 30% category overlap gives us a natural way to introduce Sandals and Beaches to our guests and to welcome their guests into our brands. Over time, that means more vacation occasions, greater frequency, and higher lifetime value for both the Royal Caribbean Group and Sandals & Beaches Resorts. Just as important, this is a business with significant room to grow. The portfolio today has 18 high-quality all-inclusive resorts on some of the most attractive beachfront sites in the Caribbean. The Stewart family has invested significantly in modernizing the resorts and elevating the guest experience, which is reflected in the quality of the product, guest loyalty, strong pricing, and compelling financial performance. The portfolio also includes more than 1,000 acres of undeveloped Caribbean real estate, much of it adjacent to existing resorts.