Key Points
Royal Caribbean's business is booming despite challenges in U.S. consumer sentiment.
However, rising fuel costs -- if they continue -- could stop this growth in its tracks.
According to the Conference Board, U.S. consumer confidence is declining sharply. In January, it hit the lowest level seen since 2014 as people grapple with years of above-average inflation, tariffs, and a weak labor market. But despite these challenges, demand for cruise vacations remains robust, and Royal Caribbean(NYSE: RCL) is enjoying record-breaking results.
Let's dig deeper to determine if the cruise company can maintain its bull run.
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Business is booming
Royal Caribbean is the second-largest cruise ship operator in the world (behind Carnival) with a market share of almost 28% as of the end of 2025. While both companies' business models involve transporting customers from home ports to exotic destinations, Royal Caribbean sets itself apart by focusing on more premium experiences.
While ticket prices are generally higher, Royal Caribbean customers enjoy larger and more technologically advanced ships with more amenities, giving the company a strong niche within the industry. So far, its strategy is working.
Fourth-quarter results were a slam dunk. Revenue increased 13.2% year over year to $4.26 billion, driven by strong passenger ticket demand and onboard sales, which include food, drinks, and experiences purchased during the voyages. The company could drive future growth by leaning into its higher-end niche. And analysts are excited by management's growing focus on expansive land-based experiences.
Image source: Getty Images.
The company already boasts popular private island resorts such as CocoCay and Royal Beach Club Paradise Island, which opened in the Bahamas in 2019. However, it is taking things a step further by expanding to the Southern Hemisphere (Vanuatu) with a new private island property called Royal Beach Club Lelepa, planned for October 2027.
These investments could help transform Royal Caribbean from a cruise company to a luxury travel brand. This would boost its diversification and allow it to capture a larger share of guests' overall spending that may have otherwise gone to third-party land-based businesses.
What could go wrong?
Despite the positive momentum, Royal Caribbean's stock has been hurt by recent macroeconomic and geopolitical concerns, leading to relatively flat year-to-date performance. In February, the U.S. and Israel started military strikes on major oil producer Iran. And the conflict has sent oil prices up 54% year to date to $89 per barrel at the time of writing.
Royal Caribbean spent $1.15 billion on fuel in 2025, and management expects that number to rise to roughly $1.76 billion. Naturally, the conflict could send this number significantly higher, which would put pressure on company margins. That said, there are some reasons why investors probably shouldn't be too worried.
For starters, Royal Caribbean's fuel costs are under 10% of revenue, which is substantial but likely not a make-or-break expense for the company. Other outflows, like employee payroll, play a much bigger role. Furthermore, it has already hedged around 60% of its oil exposure through fuel swaps, which allows it to get fuel for a fixed price instead of the market rate. This strategy will offer long-term protection because it has also hedged 47% of its exposure in 2027 and 26% of 2028.
Royal Caribbean's well-timed hedging strategy is likely a big part of the reason why its stock price (which is flat year to date) has held up better so far than its rival Carnival, which is down 17%.
Is Royal Caribbean a millionaire-maker stock?
Royal Caribbean's performance will depend on how well it is able to maintain and grow its bottom line. So far, things are looking good with earnings per share (EPS) jumping 35% year over year to $2.78. And while the conflict in the Middle East adds near-term uncertainty, it probably won't be enough to derail long-term momentum. While the company probably isn't growing fast enough to make investors millionaires anytime soon, it has a good shot at beating the market.
Should you buy stock in Royal Caribbean Cruises right now?
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
