# Royal Caribbean Cruises Ltd. (RCL): Business, Risks and Management Discussion, Q3 2026 Royal Caribbean reports in US dollars, so no amounts here are converted. Where the company gives euro-denominated loan limits, the US-dollar equivalents are the ones the filing states at its own September 30, 2026 exchange rate. ## Business *Source: Annual Report on Form 10-K for the fiscal year ended December 31, 2025, accession 0000884887-26-000007, unless another filing is named.* Royal Caribbean Group sells cruise vacations. It owns and operates three global cruise brands: Royal Caribbean, Celebrity Cruises and Silversea. It also owns 50% of TUI Cruises GmbH, which runs the German brands Mein Schiff (TUI Cruises) and Hapag-Lloyd Cruises. Revenue comes in two streams. Passenger ticket revenue, meaning cruise fares plus air transportation sold with them, has been about 70% of total revenue in each of 2023 to 2025. Onboard and other revenue makes up the other ~30%: beverages, specialty dining, casino, shore excursions, internet, spa, retail, pre- and post-cruise tours, vacation protection insurance, port-facility fees, and a percentage of what onboard concessionaires sell. Guests usually pay a deposit to book and the balance before sailing, often more than a year ahead, so the company collects cash before it delivers the cruise. The three Global Brands are managed and reported as one segment, and the chief operating decision-maker judges them on operating income. At December 31, 2025 the Global and Partner Brands together ran 69 ships with about 179,720 berths, calling at more than 1,000 destinations on all seven continents. By September 30, 2026 the combined fleet was 71 ships (10-Q for Q3 2026, accession 0000884887-26-000044). In the first nine months of 2026, 75% of passenger ticket revenue came from guests in the United States, and no other single country exceeded 10% (Q3 2026 10-Q). The brands, as of the 10-K: - **Royal Caribbean**: the world's largest cruise brand, aimed at families and couples in the contemporary and premium segments. 29 ships, about 111,000 berths, on itineraries generally of three to 14 nights. Star of the Seas joined the fleet in 2025, and Legend of the Seas, the third Icon-class ship, was delivered in June 2026. - **Celebrity Cruises**: premium brand with 15 ships and about 38,900 berths. Celebrity River Cruises launches in 2027 and has commitments for 20 river vessels: an initial 10 announced in 2025 and 10 more committed in January 2026. - **Silversea**: ultra-luxury and expedition brand with 12 smaller ships and about 5,500 berths, sailing to places such as the Galapagos, Antarctica and the Arctic. - **Partner Brands (TUI Cruises, 50%-owned with TUI AG and accounted for by the equity method)**: TUI Cruises runs eight ships with about 22,700 berths, and Hapag-Lloyd Cruises runs two luxury ships and three expedition ships with about 1,620 berths. Their results appear only as equity investment income. TUI Cruises paid Royal Caribbean $299 million in dividends in Q3 2026 (Q3 2026 10-Q). **Destinations, loyalty and distribution.** The company is building a set of private land destinations, which it plans to expand from 3 to 8 by 2028: - **Perfect Day collection**: Perfect Day at CocoCay in the Bahamas, plus Perfect Day Mexico, planned for the Port of Costa Maya land bought in July 2025 for $294 million. The February 2026 10-K expected Perfect Day Mexico to open in 2027. On May 19, 2026 the head of Mexico's Secretariat of Environment and Natural Resources (SEMARNAT) publicly indicated that it will deny approval of the company's initial application for the environmental permits needed to develop Perfect Day Mexico; the company said it remains committed to supporting a thorough, objective review of the project and will re-engage stakeholders, and the filing states no final decision or financial effect (Form 8-K dated May 20, 2026, Item 7.01, accession 0001104659-26-064412). - **Royal Beach Club collection**: Paradise Island in Nassau opened in December 2025. Cozumel, Santorini and Lelepa (Vanuatu) are planned. - **Silversea**: a planned hotel in Puerto Williams, Chile, for Antarctica expeditions. The three brand loyalty programs (Crown & Anchor Society, Captain's Club, Venetian Society) have more than 28 million members, who get status matching across brands. Travel advisors remain a significant sales channel, alongside direct booking through the company's apps and websites. Every ship has Starlink connectivity. **Industry and competition.** Management describes a global vacation market of over $2 trillion in which the company holds a small share. In 2025 the cruise industry carried about 37 million guests, and about 47 ships with roughly 113,000 berths were on order industry-wide for delivery through 2029. Cruise penetration in 2025 was 5.96% of the population in North America, 1.73% in Europe and 0.09% in Asia/Pacific. The main cruise competitors are Carnival Corporation & plc, Disney Cruise Line, MSC Cruises, Norwegian Cruise Line Holdings, Viking and Virgin Voyages. The company also competes with land-based vacations, including all-inclusive resorts. **Structure and tax.** The parent company is incorporated in Liberia. Its U.S.-source shipping income is excluded from U.S. federal income tax under Section 883 of the Internal Revenue Code. Under the U.K. tonnage tax regime, 16 ships were operated in 2025 and substantially all ships will be from 2026, which taxes a notional profit based on vessel tonnage. In the first nine months of 2026, the provision for income taxes was $66 million on $3.89 billion of pre-tax income (Q3 2026 10-Q). The company's decarbonization plan, "Destination Net Zero", targets net zero emissions by 2050, a net-zero-capable ship by 2035, and a carbon-intensity cut of at least 15% against 2024 by 2027. The business was founded in 1968 as a partnership, and the current parent was incorporated in 1985. ## Risk factors *Source: FY2025 10-K, Item 1A, accession 0000884887-26-000007. The Q3 2026 10-Q (accession 0000884887-26-000044) reports no material changes to these risk factors.* The risks below are the ones most specific to Royal Caribbean's economics: - **Discretionary demand and the economy.** Cruises are discretionary purchases. Weak or uncertain economies can slow bookings and cut ticket prices and onboard spending. A downturn could also force impairments of goodwill, ships and trademarks. - **Operating cost inflation.** Fuel, food, payroll, airfare, taxes, insurance and security costs have risen with inflation and geopolitical shocks. Higher airfares also make the total vacation more expensive for guests who fly to their ship. - **Geopolitical events, disease and incidents.** Wars, terrorism, outbreaks of illness and shipboard accidents have hurt cruise demand and pricing in the past. Social media magnifies negative publicity, which can also bring more regulation and litigation. - **Weather and natural disasters.** Hurricanes and similar events can force itinerary changes, cancellations and redeployments. - **Shipyard dependence.** Only a few shipyards can build or maintain these ships. Shipyard insolvencies, supply-chain problems, labor shortages, design issues or cost inflation could delay deliveries or raise costs. The order book has since grown to $19.4 billion (see below). - **Industry capacity.** The industry has 47 ships on order through 2029, 12 of them for the company's Global and Partner Brands (Partner Brands being the 50%-owned TUI Cruises joint venture). If capacity grows faster than demand, or competitors crowd a region, cruise pricing could fall. - **Ports and over-tourism.** Competition for ports, size limits on large ships, and anti-tourism measures in crowded destinations, including proposed caps on cruise ships and passengers, could limit the itineraries the company can offer. - **Land-based ventures, joint ventures and acquisitions.** Private destinations and port projects add construction, permitting, community-opposition and foreign-political risk. Co-investments involve shared control and partner credit risk. Acquisitions carry integration risk, unknown liabilities and possible goodwill impairment. The pending Sandals and Beaches Resorts investment (below) is both a joint venture and an acquisition. - **Financing and covenants.** The capital-heavy model depends on capital markets and on export-credit-backed ship financing. Breaching a fixed-charge-coverage or net-debt-to-capital covenant could trigger cross-default acceleration and let card processors hold back cash. Dividends and buybacks are discretionary. - **Climate regulation.** Several rules could raise fuel and compliance costs or force itinerary changes: the EU Emissions Trading System, which covers 100% of in-scope European emissions from 2026; FuelEU Maritime; the IMO Carbon Intensity Indicator, which is under review with a final decision expected in 2028; and the UK ETS, which starts July 1, 2026. - **Tax status.** Losing the Section 883 exemption, or changes to U.K. tonnage tax or the OECD global minimum tax rules for shipping income, could raise the company's income tax expense. - **Foreign incorporation and control provisions.** Liberian corporate law has little case law, so shareholders may find it harder to bring derivative suits. The articles of incorporation stop anyone other than A. Wilhelmsen AS, Cruise Associates and their permitted transferees from owning more than 4.9% of the shares without board consent. - **Market risk.** Results move with exchange rates, especially the euro-denominated shipbuilding contracts and a strong dollar, and with fuel prices and interest rates. At year-end 2025, about $1.6 billion of debt (7.4% of the total) carried variable rates after swaps. - **People and labor.** About 87% of shipboard employees are covered by collective bargaining agreements. A labor dispute or shortage of qualified crew could disrupt operations or raise wages. - **Technology, AI and cybersecurity.** The business depends on reservation, shipboard and app systems, and it holds payment and health data on guests. A cyberattack or data breach could disrupt operations and lead to fines and litigation. - **Insurance.** The company carries no business-interruption insurance. As a member of mutual P&I clubs, it can face extra premium calls after catastrophic losses elsewhere in the industry. ## Management's discussion: fiscal 2025 *Source: FY2025 10-K, Item 7 and Item 7A, accession 0000884887-26-000007.* Management called 2025 "exceptionally strong". The company took delivery of Star of the Seas (July 2025) and Celebrity Xcel (October 2025), opened Royal Beach Club Paradise Island, completed the purchase of the Port of Costa Maya, and announced Celebrity River Cruises. It also achieved investment-grade ratings from all three major agencies. Results: - **Revenue**: total revenue rose $1.5 billion (8.8%) to a record $17.9 billion. Passenger ticket revenue grew 8.8% to $12.5 billion: $631 million came from 5.5% capacity growth and $386 million from higher load factors and pricing. Onboard and other revenue grew 8.7% to $5.4 billion. - **Yields and costs**: Net Yields rose 3.8% as reported (3.7% in constant currency) and Gross Margin Yields rose 8.5%. Cruise operating expenses rose 5.0% to $9.1 billion, driven by capacity and partly offset by lower drydock and maintenance spending. Net Cruise Costs excluding fuel per available passenger cruise day (APCD) fell 0.1%, which management credited to the efficiency of newer ships and group scale. - **Below operating income**: interest expense fell $0.6 billion to $1.0 billion. 2024 had included a $344 million loss on extinguishing debt and $119 million of convertible-note inducement expense, and 2025 also benefited from refinancing at lower rates. Equity investment income rose to $414 million from $260 million, mainly from TUI Cruises. Other income fell to $17 million from $149 million because 2024 had included a $124 million release of the Havana Docks litigation reserve. - **Earnings**: operating income was $4.9 billion and net income attributable to the company was $4.3 billion, or $15.61 per diluted share (2024: $2.9 billion, $10.94). Adjusted EPS was $15.64 (2024: $11.80), Adjusted EBITDA $7.0 billion and return on invested capital 18.0%. - **Cash and capital returns**: operating cash flow rose $1.2 billion to $6.5 billion. Investing outflows rose to $5.0 billion with the two ship deliveries and Costa Maya. The company returned $2.0 billion to shareholders: $1.2 billion of buybacks and $824 million of dividends, compared with $107 million of dividends in 2024. The quarterly dividend went from $0.75 to $1.00 during 2025, and in February 2026 the Board declared $1.50. - **Balance sheet at year-end 2025**: liquidity was $7.2 billion, made up of $0.8 billion cash and $6.4 billion of undrawn revolvers. Ships on order cost about $11.3 billion, of which $1.0 billion had been deposited, and 64.1% of that cost was exposed to the euro. Obligations due in 2026 included $3.2 billion of debt maturities. **Accounting judgments.** Ships are depreciated over 30–35 years to a 10%–15% residual value. Cutting the average useful life by one year would have added about $157 million to 2025 depreciation, and assuming zero residual value would have added about $470 million. Goodwill is $296 million for the Royal Caribbean reporting unit and $509 million for Silversea. Silversea's fair value exceeded its carrying value by about 98% at the November 2025 test. **Market-risk sensitivities at year-end 2025.** About 93% of debt was effectively fixed-rate. A 1-point rise in rates would have added about $12 million to forecast 2026 interest expense. A 10% stronger euro would have raised the dollar cost of the exposed shipbuilding contracts by $727 million. Fuel, net of hedges, cost about 6.4% of 2025 revenue. **2026 plan as set out in February.** Management expected 6.7% capacity growth in 2026, from a full year of Star of the Seas and Celebrity Xcel plus the summer delivery of Legend of the Seas, and capital expenditures of about $5 billion. ## Current quarter: Q3 2026 (quarter ended September 30, 2026) *Sources: Q3 2026 Form 10-Q, accession 0000884887-26-000044. Q3 2026 earnings release furnished on Form 8-K dated October 27, 2026, accession 0000884887-26-000042. Prior guidance is from the Q2 2026 earnings release, accession 0000884887-26-000036.* **Results.** Third-quarter adjusted EPS of $6.57 beat the company's July guidance of $6.26–$6.36. Management credited strong close-in demand and lower costs, with some costs shifting into the fourth quarter. The main figures, with Q3 2025 for comparison: - **Revenue**: total revenue was $5.59 billion, up from $5.14 billion (+8.8%). Capacity grew 8.4% with the addition of Legend of the Seas and Celebrity Xcel and a full quarter of Star of the Seas. Passenger ticket revenue rose 6.8% to $3.89 billion. Onboard and other revenue rose 14% to $1.71 billion: $126 million came from capacity and $79 million from higher per-passenger spending. - **Yields**: Net Yields rose 0.9% as reported (0.6% in constant currency), which the company attributed to better-than-expected close-in demand in Europe and the Caribbean. Gross Margin Yields fell 0.8%. Occupancy was 112.4%, and 2.68 million guests sailed, up 9%. - **Costs**: cruise operating expenses rose 9.4% to $2.71 billion, mostly from capacity. Net Cruise Costs excluding fuel per APCD fell 1.9% as reported (1.8% in constant currency), which the company attributed to the timing of expenses that moved into Q4. Depreciation and amortization rose 12.6% to $490 million with the new ships. - **Earnings**: operating income was $1.87 billion, up from $1.70 billion. Interest expense, net of capitalized interest, was $291 million, up from $248 million. That figure includes a $21 million loss on extinguishing debt, which is excluded from adjusted earnings. Equity investment income was $176 million, up from $158 million. Net income attributable to the company was $1.73 billion, or $6.45 per diluted share (Q3 2025: $1.58 billion, $5.74). Adjusted EBITDA was $2.54 billion, a margin of 45.4% compared with 44.6%. - **Other comprehensive income**: $133 million, mainly from gains in the fair value of fuel swaps. **Nine months.** Revenue was $14.88 billion, up from $13.68 billion. Net income attributable to the company was $3.80 billion, or $14.12 per diluted share, compared with $3.51 billion and $12.83. Adjusted EPS was $14.36. Higher fuel prices per metric ton added $112 million to costs. Interest expense rose to $805 million, including a $50 million loss on extinguishing debt. Operating cash flow was $5.27 billion, up from $4.84 billion, and capital expenditures were $3.88 billion. The company paid $1.08 billion of dividends. Under the $2 billion program authorized in December 2025 it repurchased 3.7 million shares for $1 billion, all before the third quarter, leaving $805 million of authorization at quarter-end. Customer deposits were $6.03 billion, up from $5.74 billion at year-end. **Guidance, raised on October 27, 2026.** Full-year 2026 adjusted EPS guidance is now $17.85–$17.95, up from $17.73–$17.87 in July. The stronger third quarter was partly offset by higher fuel prices and exchange rates. The other guidance lines: - **Full-year 2026**: revenue growth of about 9%. Net Yields up about 2.7% as reported (about 2.1% in constant currency), compared with 2.35%–2.85% guided in July. Net Cruise Costs excluding fuel per APCD up about 0.4% as reported (about flat in constant currency). Capacity up 6.6%. Fuel expense $1,345 million. Depreciation and amortization $1,870–$1,890 million. Net interest, excluding losses on extinguishing debt, $995–$1,005 million. - **Fourth quarter 2026**: adjusted EPS of $3.48–$3.58. Net Yields up 4.4%–4.9% as reported. Net Cruise Costs excluding fuel per APCD down 1.0%–1.5% as reported. - **Capital spending and capacity**: 2026 capital expenditures of about $4.6 billion, down from $4.7 billion guided in July and about $5 billion in the 10-K, with $1.5 billion of that not related to new ships. Capacity growth of about 4.5% in 2027, 6.0% in 2028 and 6.5% in 2029. - **Demand and longer-term targets**: since the July call, booking volumes are up in the mid-teens, and bookings for 2027 sailings are up in the high teens. Management says 2027 bookings are running ahead of historical levels at higher rates. The company says it remains on track for its "Perfecta" targets of 20% annual adjusted-EPS growth from 2024 to 2027 (a "$20-handle" in 2027) and ROIC of 17% or more, and that ROIC is already above that target. - **Fuel hedging**: per the 10-Q, designated fuel swaps cover 53% of projected 2027 fuel purchases, 29% of 2028 and 14% of 2029. **Financing and balance sheet.** Total debt including finance leases was $22.87 billion at September 30, 2026, up from $21.90 billion at year-end. The weighted average interest rate was 4.71%, and about 97% of the debt was effectively fixed-rate. Liquidity was $7.4 billion: $0.9 billion of cash and $6.6 billion of undrawn revolving credit. Obligations due in the 12 months to September 30, 2027 are $2.2 billion of debt maturities, $1.1 billion of interest and $2.7 billion of ship progress payments. The company has about $17 billion of committed financing for ships on order. Financing moves during 2026: - **February**: $1.25 billion of 4.750% senior notes due 2033 and $1.25 billion of 5.250% notes due 2038, about $2.5 billion net, used mainly to refinance notes maturing in 2026. - **June**: a $1.9 billion term loan, 95% guaranteed by Finnvera, financed the delivery of Legend of the Seas. It amortizes over 12 years, and the floating-rate portion was later repaid. - **July**: the revolving credit facilities were expanded by $250 million to $6.6 billion. - **August**: $1.25 billion of 5.550% senior notes due 2034 repaid $1.0 billion of floating-rate term loans and $250 million of the 5.375% notes due 2027. **Order book.** At September 30, 2026, the Global Brands' ships on order cost about $19.4 billion, up from $11.3 billion at year-end. The company had deposited $1.5 billion, and 49.9% of the cost was exposed to the euro. The order book grew because of new contracts: - **New orders**: the two Discovery-class ships from Chantiers de l'Atlantique (contracts effective February 2026) and the sixth and seventh Icon-class ships from Meyer Turku (ordered March 2026, effective April and July 2026). - **Financing for the new ships**: Finnvera-backed loans of up to €2.2 billion (about $2.5 billion) each for the fifth and sixth Icon-class ships, at Term SOFR plus 0.80%, and BpiFrance-backed loans of up to €1.7 billion (about $1.9 billion) for each Discovery-class ship, at Term SOFR plus 0.83%. - **Scheduled deliveries**: Icon-class Hero of the Seas (Q3 2027) and three more Icon-class ships in Q2 of 2028, 2029 and 2030. An Oasis-class ship (Q2 2028). Discovery-class ships in Q4 2029 and Q2 2032. Celebrity Xcite (Q4 2028). River ships Celebrity Compass, Seeker, Wanderer and Roamer (Q2 2027 to Q2 2028). Two Mein Schiff ships for TUI Cruises (2031 and 2032). TUI Cruises took delivery of Mein Schiff Flow in June 2026. **Sandals and Beaches Resorts (announced September 23, 2026; pending).** Royal Caribbean signed definitive agreements to buy a 50% equity interest in the business comprising Sandals and Beaches Resorts. The base purchase price is about $3.0 billion in cash, which the announcement put at about 10x forward EBITDA (8-K accession 0001104659-26-109755). - **The business**: 18 all-inclusive resorts across the Caribbean, three more under development, and more than 1,000 acres of undeveloped Caribbean land. The company notes that about 30% of its guests also take all-inclusive vacations. - **Governance**: the joint venture will be governed by a board under the shared leadership of Sandals Executive Chairman Adam Stewart and Royal Caribbean Chairman and CEO Jason Liberty. - **Accounting**: Royal Caribbean expects to use the equity method and report its share one quarter in arrears. It expects the deal to add to earnings immediately, and the contribution will be built into 2027 guidance once the deal closes. - **Financing**: a committed $3 billion, 364-day term loan from Morgan Stanley Senior Funding can be drawn only at closing and only to fund this investment. It would bear interest at SOFR plus 1.00%–1.50%, depending on the company's senior debt rating. - **Timing**: closing is expected in early 2027, subject to customary approvals and closing conditions. **Havana Docks litigation.** A federal district court entered a roughly $112 million Helms-Burton judgment against the company in December 2022, and the 11th Circuit reversed it in October 2024. On May 21, 2026, the U.S. Supreme Court vacated the 11th Circuit's ruling, which had held that Havana Docks' concession interest expired in 2004, and sent the case back to the 11th Circuit to consider defenses still unresolved. The company had recorded about $130 million for the case in 2022 and released about $124 million of it in 2024, after the 11th Circuit denied rehearing. It says the final outcome is uncertain. **Other.** The Board declared a $1.50 quarterly dividend in each of the first three quarters of 2026. The company bought back no shares in Q3. It put a new enterprise resource planning (ERP) system into service in Q1 2026. ## Subsequent events *Sources: Q3 2026 10-Q, Note 6 (Debt), accession 0000884887-26-000044. Q3 2026 earnings release, accession 0000884887-26-000042.* The Q3 10-Q has no separate subsequent-events note. Its debt note and the October 27 earnings release disclose these events after September 30, 2026: - **Export Development Canada term loan (October 2026).** The company entered into a $400 million, 5-year senior unsecured delayed-draw term loan facility with Export Development Canada as sole lender. It can be drawn any time before October 23, 2027. Once drawn it bears interest at SOFR plus 0.92%–1.33%, depending on the company's senior debt rating, and matures in October 2031. The company describes it as a new source of capital with terms and covenants generally consistent with its revolving credit facility. - **Revolving credit increase (October 2026).** Revolving credit capacity rose by another $50 million, to $6.65 billion in total. - **Dividend paid (October 2026).** The $1.50 per share dividend declared in the third quarter was paid in October 2026. - **Sandals and Beaches Resorts.** The 50% investment (about $3.0 billion) was still pending when the 10-Q was filed on October 27, 2026, with closing expected in early 2027. Neither the 10-Q nor the earnings release reports any acquisition or divestiture completed after quarter-end.