Royal Caribbean gets into the river cruise game — and Wall Street likes what it’s hearing
World Business February 4, 2025 0
Royal Caribbean ‘s decision to launch river cruises may not have a huge impact on the cruise line’s bottom line, but it is still a smart move that could be disruptive to the industry, according to several Wall Street analysts. The company announced Tuesday it has ordered 10 ships for its new river cruise segment, launching in Europe. The first Celebrity cruises are expected to set sail in 2027 and the company will begin taking bookings this year. The expansion news came at the same time Royal Caribbean posted an earnings beat for its fourth quarter . “We have really positioned ourselves from moving from a vacation of a lifetime to a lifetime of vacation — and river fits really well inside of that,” CEO Jason Liberty said on CNBC’s ” Money Movers ” Tuesday. RCL 1Y mountain Royal Caribbean The move comes at a time when the cruise lines have been experiencing increased demand. The industry was the last to recover from the Covid pandemic, but once it did, it has been enjoying strong pricing and booking momentum. They are also are seen as a cheaper alternative to land-based vacations, as well as a play on the aging population — since older generations like to spend their money on leisure activities, like cruising. Growing the ecosystem Wells Fargo estimates 10 river ships could add about $75 million to the cruise line’s earnings before interest, taxes, depreciation and amortization — or 1% of its total. That makes it seem more like a complementary offering than a “needle mover,” said analyst Daniel Politzer, who has an overweight rating on the stock. He raised his price target to $297, implying about 11% upside from Friday’s close. Still, the addition could have big implications for Royal Caribbean — and the cruise industry, some analysts argued. “River will always be a small contributor to revenue for RCL, but that’s not really the point,” said Barclays analyst Brandt Montour in a note Tuesday. “RCL sees River as an important addition to its customer offering and therefore its broader customer ecosystem, which adds to its already growing network effect.” Royal Caribbean has about 8 million to 9 million guests a year and about half of them are interested in river cruises, said CEO Liberty. The new cruises will allow the company to make sure they stay inside the Royal Caribbean brand, he said. “They don’t look at it as a substitute for ocean cruising,” Liberty said. “They look at it as an additional vacation.” The river cruises have a similar margin and return profile as Royal Caribbean’s ocean voyages at scale, he noted. Goldman Sachs called the opportunity “compelling” and sees it as an “an initial level in RCL’s strategy to take a larger share of the vacation ecosystem (along with private islands, beach clubs and new hardware).” The new venture should also not preclude any buybacks given the low capital expenditure outlay, the firm’s analyst Lizzie Dove wrote in a note Tuesday. “The river business is expected to have a higher return profile than Ocean, as the ships are estimated to carry ~180 passengers and will only cost ~30mn per ship or ~$300mn total on our estimates,” she said. Dove, who rates the stock a buy, raised her price target to $305, suggesting more than14% upside from Friday’s close. Analysts also see the potential for disruption as Royal Caribbean launches and eventually expands its river cruise offerings. “To us, RCL’s commentary was particularly confident and aggressive around not only going after meaningful market share, but bringing a higher-end, innovative product that sounded to us as if it will be disruptive enough to alter the competitive landscape within the River market,” Barclays’ Montour said. Royal Caribbean’s river cruises are expected to serve a similar demographic to its ocean brand and provide an experience commensurate with Celebrity’s premium positioning, he said. Montour, who has a buy rating on the stock, boosted his price target to $308. That implies 16.5% upside from Friday’s close. Impact on Viking Goldman sees Royal Caribbean’s foray into European river cruises as a key overhang to competitor Viking . “RCL’s scale is not to be underestimated, with > 8.5 million passengers per year to cross-sell into Celebrity river cruises (vs. VIK’s annual passengers of < 700k),” said Dove, who has a neutral rating on Viking. However, Bank of America said there are still a lot of unknowns about Royal Caribbean’s offerings. “There are many things we don’t know about RCL’s river business such as ship size, where they have docking rights, how many ships they plan for Europe, and the specific product offerings,” analyst Andrew Didora wrote in a Thursday note. “What we do know is there is a massive addressable market of baby boomers (110M people in the US > 55 years old by 2030 with net worth over $1M), and Viking likely carried less than 700,000 passengers this year,” he added. Didora is maintaining his buy rating on Viking and neutral rating on RCL, given the latter’s valuation. Royal Caribbean’s stock has already gained nearly 16% so far this year, after moving 78% higher in 2024 and rallying 162% in 2023.
