How much revenue do cruise lines make the average 7-day itinerary?

[ashoor]

I am on a cruise right now and seeing how much money people spend onboard, it got me thinking: how much money does the average 7 day itinerary make for the cruise line? For example, I am currently on the Allure of the Seas which holds about 6500 passengers. Excluding what we pay for the actual cruise, how much does RCL make from all the sales onboard? This includes the following big ticket items

-casino

-excursions

-drinks

-specialty restaurants

-internet packages

-spa services

-art and other merchandising sales

-smaller items like laundry, special lessons, onboard tours etc.

-what else am I missing here???

 

Looking at my current cruise, I am assuming RCL is making a lot of money from onboard sales in addition to the actual money made from selling the cruise tickets itself.

[Scrapnana]

I watched a show on TV a while back that took us along on an RCI one week cruise to the Caribbean. They said that the real profit comes from those things (especially drinks:whiskey-glass::beer-toast::tropical-drink::cocktail:).

What we pay basically covers the cost of running the ship.

[ashoor]

Ok what about the crew? Do they get all these pre-paid service charges we pay? I think I have given out more tips on this cruise on an individual basis than I prepaid. I hope I am not overpaying though these guys do an excellent work.

[Scrapnana]

I have been told by crew members on two different cruise lines if they got the prepaid gratuities and was told they did.

[Shorex]

Remember revenue does not equal profit. Margins are probably slimmer than you think.

[Keith1010]

As mentioned there is a difference between revenue and profit.

 

Keith

[ancldaca]

There are several good sources on this out there. Start with required SEC filings and annual reports but you need to dig deep in the numbers. Great book I read was Selling the Seas, or something like that, by two guys who helped build Carnival.

 

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[DirtyDawg]

I second downloading he SEC filings. All the information you need is here. A second benefit of reading them is hat they are a great way to cure insomnia.:)

 

I should know, I've had to read thousands of those things in my lifetime.

[chengkp75]

It's been a few years since I sat in on the weekly onboard revenue meetings, and the industry business model has changed in that time, with more "a la carte" pricing. It used to be that the cruise fare essentially covered the operating costs, and the profit came from onboard revenues the OP cites. In the years since, cruise fares have remained pretty constant, while costs have risen, so I'm wondering if the cruise fares actually cover expenses anymore, and that the onboard revenue sources like specialty dining, attractions, etc don't have to cover their own costs from the revenue, so the total onboard revenue actually is covering a portion of operating costs now. As noted, revenue and profit are quite different, and the SEC filings are about the only place you'll see any data.

 

Casinos, spas, art auctions, and shops are concessions, so the income from these to the cruise line is basically fixed, and the amount of sales these operations do affects the profits of the concessionaire, not the cruise line.

[DirtyDawg]

I need a nap today so I looked it up for you. This is from page 48 of the RCC Ltd. 2016 10K. Sorry, I could not get the columns to line up.

 

Passenger ticket revenues 72.4 %

Onboardand other revenues 27.6 %

Total revenues 100.0 %

Cruise operating expenses:

Commissions,transp. and other 15.9%

Onboard and other 5.8 %

Payroll and related 10.4 %

Food 5.7 %

Fuel 8.4 %

Other operating 12.8 %

Total cruise operating expenses 59.0 %

Therefore Total operating Margin 41.0%

Marketing, selling

and administrative expenses 13.0 %

Depreciation and

amortization expenses 10.5 %

Operating income 17.4 %

Other expense (2.3)%

Net income 15.1 %

I took out some restructuring charges so the math doesn't quite add up. Onboard expenses are 28% of total revenue which is up a bit 1% - 3% over the past few years. They identify Onboard and other expenses of 5.8 % of revenue so if they are the only associated expenses, the main ship activities, cruise fares less 100% of ship expenses ( Other than Onboard and other) and 100% of the marketing and depreciation etc. the main ship activities generate a loss (net margin of -6.6%) and the corporation's profit is derived from the onbaord ship activities (net margin of 21.8%). Of course the onboard activities use people, use space and need to be sold and accounted for so they should absorb some of those costs, but it looks like the main ship activities are a break-even proposition at best and those extras the OP mentioned are the icing on the cake for the shareholders.

[bUU]

Wow thanks for that excellent analysis.

 

This message may have been entered using voice recognition. Please excuse any typos.

[Underwatr]

OK, the percentages in the table are defined as a percent of total revenue, even in the expense section. That wasn't obvious to me (don't read these often) and I was confused about your comparisons of numbers between the expense side and the revenues side.

 

Cruise line revenue has to cover all the expenses, so if I look at all the expenses (85% of revenues, roughly) and compare it to to ticket revenue (72% of revenues) I conclude that ticket sales fall short of covering all of the line's expenses and would have to rise by about 18% to do so.

[DirtyDawg]

OK, the percentages in the table are defined as a percent of total revenue, even in the expense section. That wasn't obvious to me (don't read these often) and I was confused about your comparisons of numbers between the expense side and the revenues side.

 

Cruise line revenue has to cover all the expenses, so if I look at all the expenses (85% of revenues, roughly) and compare it to to ticket revenue (72% of revenues) I conclude that ticket sales fall short of covering all of the line's expenses and would have to rise by about 18% to do so.

 

Sorry about not making the table clearer. Hey it was 7 in the morning before my first coffee. :)

 

You are correct, however some of the expenses other than the Onboard and Other expenses likely are shared expenses as I said but they don't provide (nor should they) a breakdown in the 10K. For example the restaurant staff's wages are likely included in Payroll line item but a percentage of their wages should be allocated to Onboard and Other expenses as a percentage of their time is spent in the specialty restaurants whose revenues are in the Onboard and Other revenues.

[Underwatr]

I just added the percentages under expenses and subtracted from 100% and noted that the result was the Net Income line which suggested there was no redundancy. I don't know how much of the table was their numbers vs. your derived numbers though.

[klfrodo]

I need a nap today so I looked it up for you. This is from page 48 of the RCC Ltd. 2016 10K. Sorry, I could not get the columns to line up.

 

Passenger ticket revenues 72.4 %

Onboardand other revenues 27.6 %

Total revenues 100.0 %

Cruise operating expenses:

Commissions,transp. and other 15.9%

Onboard and other 5.8 %

Payroll and related 10.4 %

Food 5.7 %

Fuel 8.4 %

Other operating 12.8 %

Total cruise operating expenses 59.0 %

Therefore Total operating Margin 41.0%

Marketing, selling

and administrative expenses 13.0 %

Depreciation and

amortization expenses 10.5 %

Operating income 17.4 %

Other expense (2.3)%

Net income 15.1 %

I took out some restructuring charges so the math doesn't quite add up. Onboard expenses are 28% of total revenue which is up a bit 1% - 3% over the past few years. They identify Onboard and other expenses of 5.8 % of revenue so if they are the only associated expenses, the main ship activities, cruise fares less 100% of ship expenses ( Other than Onboard and other) and 100% of the marketing and depreciation etc. the main ship activities generate a loss (net margin of -6.6%) and the corporation's profit is derived from the onbaord ship activities (net margin of 21.8%). Of course the onboard activities use people, use space and need to be sold and accounted for so they should absorb some of those costs, but it looks like the main ship activities are a break-even proposition at best and those extras the OP mentioned are the icing on the cake for the shareholders.

 

So let me see if I understand this.

 

For each cruise that departs today and returns next Saturday.

 

Out of every $1 in revenue received it takes $0.59 to operate that ship.

$0.41 is the contribution margin sent back to RCCL HQ to pay for back of Office or Behind the Scenes expenses such as marketing, IT infrastructure, management, research, CEO's, etc.

 

In my business, my CM is sitting at 68%

[DirtyDawg]

I just added the percentages under expenses and subtracted from 100% and noted that the result was the Net Income line which suggested there was no redundancy. I don't know how much of the table was their numbers vs. your derived numbers though.

I added in the Therefore operating Margin is 41%. The other ones are all theirs.

[DirtyDawg]

So let me see if I understand this.

 

For each cruise that departs today and returns next Saturday.

 

Out of every $1 in revenue received it takes $0.59 to operate that ship.

$0.41 is the contribution margin sent back to RCCL HQ to pay for back of Office or Behind the Scenes expenses such as marketing, IT infrastructure, management, research, CEO's, etc.

 

In my business, my CM is sitting at 68%

 

It's the corp.'s annualized numbers for all the RCC brands but yes on average it takes $.59 of each $1 in revenue to operate the ships in 2016. 2016 was a very good year. In 2015 and 2014 that number was $.614 and $.657. I don't know if Royal Cruise lines numbers are much different than Celebrity's or the other brands but since it is the largest brand in the corp. they should be close to the overall average.

[bUU]

... I conclude that ticket sales fall short of covering all of the line's expenses and would have to rise by about 18% to do so.

Or be viewed by the enterprise as a loss leader.

[DirtyDawg]

I conclude that ticket sales fall short of covering all of the line's expenses and would have to rise by about 18% to do so.

 

Or be viewed by the enterprise as a loss leader.

 

It should also be noted that cruising is a very capital intensive industry (those boats are expensive) and one of the 'expenses' ie. depreciation is a non-cash expense, so where the main business (fares) might be break-even in an accounting sense it produces a good deal of cash for the cruise lines. And as one of my favorite Accounting Professors always said; 'if it doesn't jingle it doesn't count.' ie. it's all about the cash flow, you can't spend Net Income.

[grapau27]

I watched a show on TV a while back that took us along on an RCI one week cruise to the Caribbean. They said that the real profit comes from those things (especially drinks:whiskey-glass::beer-toast::tropical-drink::cocktail:).

What we pay basically covers the cost of running the ship.

And we pay a service charge to cover most of the crews wages.

 

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[buggins0402]

So let me see if I understand this.

 

For each cruise that departs today and returns next Saturday.

 

Out of every $1 in revenue received it takes $0.59 to operate that ship.

$0.41 is the contribution margin sent back to RCCL HQ to pay for back of Office or Behind the Scenes expenses such as marketing, IT infrastructure, management, research, CEO's, etc.

 

In my business, my CM is sitting at 68%

 

It's been over 30 years since I had a cost accounting class....but I'll give it a shot.....

 

Operating Margin and contribution margin are two different things. CM only subtracts variable expenses and is a managerial (cost) accounting term. Operating margin is a financial accounting term and includes fixed expenses.

[grapau27]

It's been a few years since I sat in on the weekly onboard revenue meetings, and the industry business model has changed in that time, with more "a la carte" pricing. It used to be that the cruise fare essentially covered the operating costs, and the profit came from onboard revenues the OP cites. In the years since, cruise fares have remained pretty constant, while costs have risen, so I'm wondering if the cruise fares actually cover expenses anymore, and that the onboard revenue sources like specialty dining, attractions, etc don't have to cover their own costs from the revenue, so the total onboard revenue actually is covering a portion of operating costs now. As noted, revenue and profit are quite different, and the SEC filings are about the only place you'll see any data.

 

Casinos, spas, art auctions, and shops are concessions, so the income from these to the cruise line is basically fixed, and the amount of sales these operations do affects the profits of the concessionaire, not the cruise line.

Thank you again for an interesting, informative post

 

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[grapau27]

I need a nap today so I looked it up for you. This is from page 48 of the RCC Ltd. 2016 10K. Sorry, I could not get the columns to line up.

 

Passenger ticket revenues 72.4 %

Onboardand other revenues 27.6 %

Total revenues 100.0 %

Cruise operating expenses:

Commissions,transp. and other 15.9%

Onboard and other 5.8 %

Payroll and related 10.4 %

Food 5.7 %

Fuel 8.4 %

Other operating 12.8 %

Total cruise operating expenses 59.0 %

Therefore Total operating Margin 41.0%

Marketing, selling

and administrative expenses 13.0 %

Depreciation and

amortization expenses 10.5 %

Operating income 17.4 %

Other expense (2.3)%

Net income 15.1 %

I took out some restructuring charges so the math doesn't quite add up. Onboard expenses are 28% of total revenue which is up a bit 1% - 3% over the past few years. They identify Onboard and other expenses of 5.8 % of revenue so if they are the only associated expenses, the main ship activities, cruise fares less 100% of ship expenses ( Other than Onboard and other) and 100% of the marketing and depreciation etc. the main ship activities generate a loss (net margin of -6.6%) and the corporation's profit is derived from the onbaord ship activities (net margin of 21.8%). Of course the onboard activities use people, use space and need to be sold and accounted for so they should absorb some of those costs, but it looks like the main ship activities are a break-even proposition at best and those extras the OP mentioned are the icing on the cake for the shareholders.

Thank you for the breakdown of the accounts certainly makes interesting reading.

 

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[CruiserBruce]

And we pay a service charge to cover most of the crews wages.

 

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You really think the 12 or 13 dollars a day covers most of the crews wages...the entire crew? Really? You realize the officers make large salaries?

[ATC cruiser]

So let me see if I understand this.

 

For each cruise that departs today and returns next Saturday.

 

Out of every $1 in revenue received it takes $0.59 to operate that ship.

$0.41 is the contribution margin sent back to RCCL HQ to pay for back of Office or Behind the Scenes expenses such as marketing, IT infrastructure, management, research, CEO's, etc.

 

In my business, my CM is sitting at 68%

 

 

 

They need to increase that IT budget.

 

 

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