Royal Caribbean is growing in China despite the economic slowdown — here’s why
China’s economy is slowing down, but the head of the Royal Caribbean Cruises told CNBC on Thursday that business there is “working beautifully.”
Things are going well because the cruise line was prepared for the slowdown, CEO Richard Fain said in a one-on-one interview with Jim Cramer. The Chinese gross domestic product in the second quarter eased to 6.2%, its lowest output in nearly three decades, as the country grapples with the ongoing trade war with the United States.
Royal Caribbean got ahead of the slowdown about five years ago by improving its messaging, its distribution system and how its products are sold, Fain said.
“The result is that even though the China economy is obviously faltering, we’re not,” he said in the “Mad Money” interview. “We’re having a record year there. It’s much better than last year. It continues to improve.”
Royal Caribbean expects Spectrum of the Seas, a cruise ship it launched in Shanghai this year, will continue to see strong demand throughout 2019. Along with expanding distribution channels to stimulate demand in the country, the new line is helping to boost yield growth, the company said in its second quarter earnings report Wednesday.
The global cruise vacation company, which has a total of 26 ships to sail, saw sales grow about 20% in the second quarter to $2.81 billion, topping estimates, according to FactSet. Net income came in at $472.8 billion, which translates to $2.54 per share.
“We brought out more capacity, we’re filling the extra capacity and we’re filling it all at better pricing. That feels pretty good to me,” Fain said.
Royal Caribbean’s third-quarter earnings guidance of $4.35 per share was in line with estimates, but the company lowered its full-year expectations to a range of $9.55 to $9.65 from a previously stated range of $9.65 to $9.85. The stock fell about 2% during the session after its report.
When asked about how the cruise line is responding to a toddler’s tragic death on one of its ships docked in San Juan, Puerto Rico earlier this month, Fain called the event “heartbreaking” and said the company is working with prosecutors. He expects the investigation to wrap up soon.
“Our job is to support them, but not to comment,” he said.