Royal Caribbean Earnings Call Highlights Profitable Growth Wave

Royal Caribbean Cruises ((RCL)) has held its Q4 earnings call. Read on for the main highlights of the call.

Royal Caribbean Earnings Call Signals Strong Momentum Despite Near-Term Headwinds

Royal Caribbean Cruises’ latest earnings call painted a picture of a company in full stride, combining record guest volumes, robust revenue and earnings growth, and expanding cash generation with a disciplined balance sheet and active capital returns. Management acknowledged several manageable headwinds—higher industry capacity in key regions, dry-dock timing, regulatory and fuel-related cost pressures, and some itinerary disruptions—but consistently framed them against a backdrop of strong demand, pricing resilience, and a long runway of growth from fleet, destinations, and technology investments. Overall sentiment was confident and forward-leaning, with the company emphasizing both the strength of current performance and the durability of its multi-year transformation.

Record Guest Volume and Rising Appeal to Younger Travelers

Royal Caribbean delivered a record 9.4 million vacations in 2025, underscoring the enduring strength of demand for cruising. Total guests are up 45% versus 2019, highlighting how the brand has scaled well beyond pre-pandemic levels. Management called out especially strong engagement from millennials and younger travelers, whose numbers have nearly doubled since 2019, a critical demographic shift that supports longer-term demand. Guest satisfaction remains very high, with Net Promoter Scores outpacing broader travel and leisure benchmarks, suggesting that the company’s investments in ships, experiences, and service are translating directly into loyalty and pricing power.

Robust Revenue and Earnings Growth Beats Expectations

In 2025, Royal Caribbean generated nearly $18 billion in total revenue, up 8.8% year over year, driven by both higher capacity and healthy pricing. The company converted that top-line strength into outsized profit growth: adjusted EPS jumped 33% to $15.64 for the year. The fourth quarter was particularly strong, with adjusted EPS of $2.80 coming in above guidance, evidencing solid close-in demand and cost execution. Management underscored that these results are not just a recovery story but a step-change in profitability versus the pre-2019 baseline.

Margin Expansion Fuels EBITDA and Cash Flow Strength

Profitability continues to scale with size. Adjusted EBITDA rose 17.6% in 2025 to just over $7 billion, outpacing revenue growth and pointing to continuing margin expansion. The company generated approximately $6.4–$6.5 billion of operating cash flow over the year, a key source of funding for fleet growth, destination investments, and shareholder returns. Looking ahead, management has committed to delivering more than $7 billion of operating cash flow in 2026, signaling confidence in both demand and cost discipline and positioning the company to further strengthen its balance sheet while investing in future growth.

Capital Returns and Balance Sheet Reach Investment-Grade Terrain

Royal Caribbean’s capital allocation strategy has shifted decisively from survival to optimization. In 2025, the company returned $2.0 billion to shareholders via a combination of dividends and share buybacks, reflecting management’s confidence in the durability of earnings and cash flows. Liquidity ended the quarter at $7.2 billion, and leverage is now well below 3x, levels consistent with investment‑grade metrics. This balance sheet strength gives Royal Caribbean flexibility to navigate macro or industry volatility while continuing to invest and return capital, a key support for equity holders.

Positive 2026 Financial Outlook With Double-Digit Revenue Growth

For 2026, Royal Caribbean guided to another year of meaningful growth. Revenue is expected to increase at a double-digit rate, with net yields projected to rise 1.5%–3.5% even as capacity expands 6.7%. Full-year adjusted EPS is targeted at $17.70–$18.10, about 14% growth at the midpoint, while adjusted EBITDA is expected to land just shy of $8 billion with margins just above 40%. Operating cash flow is forecast to exceed $7 billion. This outlook underscores management’s view that the company can grow both scale and profitability simultaneously, despite modest unit cost and fuel headwinds.

Capacity and Deployment Strategy Balances Growth and Mix

Royal Caribbean plans 6.7% capacity growth in 2026, characterized as moderate, mid-single-digit expansion that builds on already high occupancy levels. The deployment mix remains heavily weighted toward the Caribbean, which will account for 57% of capacity, up 8% versus the prior year, reflecting continued strong demand and attractive economics. Europe will represent 15% of capacity (up 5%), while Alaska will account for 5% (up 3%). This geographic mix aims to balance high-return core markets with diversification and seasonal optimization, though management noted that elevated Caribbean capacity across the industry will be a key dynamic to watch.

Fleet and Destination Investments Extend Growth Runway

The company is pushing hard to differentiate its product through both hardware and destinations. It has committed to 10 additional Celebrity river cruise ships, targeting a fleet of 20 by 2031 in that segment, widening its premium and experiential offering. Royal Caribbean also announced a new Discovery-class of ships, with two firm orders and options for four more, further modernizing its core fleet. On the destination side, the recently opened Royal Beach Club Paradise Island and new ships such as Star of the Seas, Celebrity XL, and Legend are expected to enhance yields and onboard spend, reinforcing the premium positioning that underpins the company’s margin profile.

Digital, E-Commerce, and AI Adoption Drive Commercial Edge

Technology is emerging as a meaningful growth and efficiency lever. In the fourth quarter, app active users rose 25% year over year, while e-commerce traffic increased 10% in 2025, indicating growing digital engagement across the customer lifecycle. Royal Caribbean is scaling AI and generative AI across commercial and operational functions, using data to personalize offers, optimize pricing, streamline operations, and enhance the onboard experience. Management portrayed these initiatives as multi-year drivers of both revenue per guest and cost efficiency, helping to sustain higher margins even as capacity grows.

Fuel Efficiency, Hedging, and Alternative Fuels Help Manage Volatility

Fuel remains a major cost line, but the company is steadily improving its efficiency and risk management. For 2026, fuel expense is projected at roughly $1.17 billion, with around 60% of exposure hedged to dampen price volatility. Fuel consumption per available passenger cruise day improved about 4% versus 2025, reflecting more efficient ships and operating practices. LNG and biofuel blends are expected to make up approximately 10% of fuel consumption in 2026, up from 8% in 2025, underscoring a gradual shift toward cleaner fuels that should also help mitigate regulatory and emissions-related cost pressures over time.

Multi-Year Transformation Since 2019 Redefines the Baseline

Management emphasized that the company emerging today is fundamentally stronger than the pre‑2019 Royal Caribbean. Since 2019, total revenue is up 64%, adjusted EBITDA has climbed 94%, operating cash flow has risen 75%, and net income has more than doubled. These metrics highlight not only a cyclical recovery but structural gains in scale, pricing, and cost efficiency. The company now operates with higher margins, more diversified product offerings, and a younger, more engaged customer base, supporting the view that current earnings power is sustainable rather than a temporary spike.

Heightened Caribbean Capacity and Industry Supply Are Key Watchpoints

Even as demand remains robust, management flagged elevated capacity—particularly in the Caribbean—as a near-term risk factor. With Royal Caribbean’s own capacity growing 6.7% in 2026 and Caribbean allocation rising 8%, the company expects more competition, especially on close-in bookings. While current forward booking trends remain strong, the risk is that intense regional supply could pressure last-minute pricing. Investors will be watching to see whether Royal Caribbean’s differentiated product and private destinations are sufficient to maintain pricing discipline in a crowded market.

Dry-Dock Timing and Yield Cadence to Distort Quarterly Comparisons

More dry-dock days in 2026, especially for larger and more premium ships, will create some noise in quarter-to-quarter yield comparisons. Management highlighted that the second quarter will see a disproportionate impact, making year-over-year metrics look softer despite underlying strength. The company anticipates that yields will improve in the second half versus the first, driven by a more favorable deployment mix and the timing of capacity returns. Investors are encouraged to look through quarterly volatility and focus on full-year trends to gauge underlying demand and pricing.

Private Destination Ramp-Up Adds Costs Before Volume Catches Up

Royal Caribbean’s strategy of investing heavily in private destinations—such as new experiences in Santorini, Cozumel, and Perfect Day Mexico—comes with near-term cost headwinds. Management estimated roughly 200 basis points of cost pressure tied to these projects in 2026, as expenses ramp without a corresponding increase in capacity (measured in APCDs). Despite this, the company expects full-year net cruise costs excluding fuel to be flat to up only about 1%, indicating that other efficiencies and scale benefits will offset much of the incremental spend. The payoff from these destinations is expected to come through higher yields and onboard spend over time.

China Itinerary Changes Create Modest Yield Drag

Recent itinerary modifications in China introduced a new, unplanned headwind for early 2026. Royal Caribbean expects around a 30 basis point negative impact to first-quarter net yields from these changes, which also forced some redeployments to lower-yield itineraries. While the financial impact is relatively modest in the context of the full-year outlook, it illustrates the operational and geopolitical uncertainties inherent in international deployments. Management framed this as a temporary setback rather than a structural shift in the broader demand story.

Regulatory and Emissions Costs Set to Rise

Regulatory exposure, particularly around emissions, is increasing. In 2026, the EU Emissions Trading System (ETS) will expand to cover 100% of emissions from European itineraries, up from 70% in 2025, raising the cost of operating in those waters. Combined with carbon and fuel price volatility, this adds another layer of expense pressure. Royal Caribbean is leaning on fuel efficiency gains, alternative fuels, and route optimization to help manage this exposure, but investors should recognize that environmental regulation is likely to remain a structural cost headwind over the coming years.

Fuel and Cost Sensitivities Remain an External Risk

Despite hedging roughly 60% of its 2026 fuel needs, Royal Caribbean remains exposed to fuel and currency fluctuations that could pressure guidance if markets move unfavorably. The company projects fuel expense of about $1.17 billion for the year and expects first-quarter net cruise costs excluding fuel to increase 0.9%–1.4%. While overall cost trends are well controlled, the call made clear that exogenous factors—fuel prices, FX, and macro shocks—remain key variables for the earnings trajectory, even against a backdrop of strong demand and operational discipline.

Forward-Looking Guidance: Sustained Growth with Disciplined Cost Control

The 2026 guidance reinforces a narrative of continued top-line growth and expanding cash generation. Royal Caribbean expects double-digit revenue growth, with capacity up 6.7% and net yields growing 1.5%–3.5%, indicating pricing power on top of added volume. Adjusted EPS is guided to $17.70–$18.10, about 14% higher than 2025 at the midpoint, while adjusted EBITDA is forecast near $8 billion, supporting margins just over 40%. Operating cash flow is expected to exceed $7 billion, even as the company plans approximately $5.0 billion in capital investments, including around $1.8 billion on non‑ship projects such as destinations and technology. Full-year net cruise costs excluding fuel are targeted to be flat to up about 1%, despite roughly 200 basis points of cost headwinds from private-destination ramp-up. Fuel consumption per APCD is projected to improve by about 4%, with alternative fuels comprising roughly 10% of consumption, and about 60% of fuel needs hedged. For the first quarter, management guided to capacity growth of 8.5%, net yield growth of 1.0%–1.5%, net cruise costs ex-fuel up 0.9%–1.4%, and adjusted EPS of $3.18–$3.28, all underpinned by a solid balance sheet with $7.2 billion in liquidity and leverage under 3x.

Royal Caribbean’s earnings call underscored a company that has moved well beyond recovery mode into a phase of structural growth, higher margins, and active capital returns. Record guest volumes, particularly among younger travelers, and a richer fleet and destination portfolio are supporting robust revenue, earnings, and cash flow expansion. While heightened Caribbean capacity, regulatory costs, fuel volatility, and regional disruptions such as China pose tangible risks, management’s guidance and strategic investments suggest these are manageable headwinds rather than thesis breakers. For investors, the story is increasingly about the sustainability of elevated profitability and the company’s ability to compound value through disciplined growth, efficiency, and shareholder returns.