Royal Caribbean sticking with the program in China

Ovation of the Seas in Tianjin, China

Despite falling yields in China, Royal Caribbean Cruises Ltd. won’t be pulling any ships out of the region.

RCCL executives spent most of its second-quarter earnings call discussing China, one of two markets where yields declined in the second quarter. Chairman Richard Fain gave an extended comparison of China’s evolution with development of North American and European markets at earlier stages.

He emphatically ruled out shifting current capacity out of China to Western markets if yields continue to drop next year. “It would require an enormous change in the fundamentals to even consider something like that,” he said.

Several topics were not even mentioned during the call, including the prospects for starting cruises to Cuba and the outbreak of Zika virus in a neighborhood of Miami.

One that did come up was the booking response to geopolitical events in Europe, such as the truck attack in Nice, France, and the attempted coup in Turkey. Royal Caribbean International president Michael Bayley said that by the end of June, North American booking activity for Europe was starting to wind down, so there wasn’t much impact. He said there’s been relatively little reaction from Europeans.

“The European market seems resilient,” he said. Increasingly, when incidents occur, “the recovery is a lot more rapid in both markets, and certainly in the European market,” he said.

Also discussed was the absence of a booking impact from the vote by the United Kingdom to leave the European Union. “We saw literally nothing,” Fain said.

Besides China, specifically Shanghai where capacity increased over 100% this year, the other area of global weakness was the eastern Mediterranean. Celebrity Equinox will stay in the Caribbean next summer, rather than do the Mediterranean itineraries it is sailing this year, although Fain said the move was made because of the impact of Celebrity being in the key Caribbean market year-round.

RCCL said net income climbed 23.8% in the second quarter to $229.9 million, a result driven by lower-than-expected fuel expenses.

But unfavorable currency exchange and fuel trends led RCCL to decrease its earnings expectations for all of 2016 by about $43 million, to a range of $1.3 billion to $1.32 billion.