Tl;dr – The early financial performance of the Ritz-Carlton’s Yacht Collection leaves a lot to be desired.
Bloomberg reports some troubling news surrounding one of the luxury cruise sector’s biggest stories of the last few years. According to the financial news outlet (article is paywalled but that link should work),
“$300 million of senior secured notes issued by the ultra-luxury cruise line have sunk by around 16 cents on the dollar since a June 13 call with bondholders, during which the company indicated that it was unlikely to generate positive earnings until 2027.”
-Bloomberg
Yikes.
To make matters worse, the operation is bleeding cash: “The company says it requires around $440 million from its shareholders, $312 million of which needs to be delivered before the end of June next year. This is on top of the $63 million that they have already pumped into the business this year and around $630 million injected at the end of 2024.”
-Bloomberg
Again, yikes.
The company expects ‘negative revenues’ (such artful terminology – truly becoming of the ladies and gentlemen of the Ritz-Carlton) of between $75 million and $95 million for 2025.
In the past, I’ve reviewed the market landscape of hotel brands that’ve extended to the seas (or more accurately, the waters). The Ritz-Carlton, to its benefit, is leading the way in terms of availability, as it will launch its third yacht this year. Additionally, it is hoped that the operation will break even by 2026.
That said, the Ritz-Carlton Yacht Collection is deep into the private-equity game (cough, cough Southwest), and as Oaktree owns a 55% stake in the business, you can bet that the pressure to eke out positive margins, returns, and a profit is real.
My Thoughts
Let me start by saying two things: 1) I’ve been vocal about not being a ‘cruise’ person, so I’m going to leave my personal feelings out of this and just try to shoot straight, and 2) there’s a lot of time for the Ritz-Carlton to turn this around. Things are still very much in the early innings. Still, I’m not surprised at this news.
Firstly, cruises are challenging and expensive endeavors, and much of the success of economic brands, such as Carnival, Royal Caribbean, and Celebrity, comes from volume. Drop the price low enough and you’ll get people in those cabins and on those conga lines (do they still do those on cruises?)
But you can’t do that with a ‘luxury cruise’ though, right? I mean, you could, and I imagine that’s likely a solution the management team is pondering, but I’m not sure that’s a winning bet here. Lower prices might help fill the cabins for a while, but they may also lock in sustained depressed revenue. Cost-cutting is the calling card of private equity but you can’t really do too much of that here either. For one, brand quality would be at risk and two…well…it’s a new product. Are we going to start rolling out easy mac and dollar store soap?
Secondly, I’ve long felt that the Ritz-Carlton has a brand problem. It feels like the Ritz-Carlton wants to be viewed like the Four Seasons – a brand widely known for consistent premium service – but if you’ve stayed at your fair share of Ritz-Carlton properties, you know that’s anything but the case. To be clear, you can have some truly standout experiences – hello, the Ritz-Carlton Nikko – but far too often, the service is inconsistent.
And so, what results here’s a bit of a snowballing effect – the ‘shaky’ (for lack of a better word) brand was extended to another product, and I don’t think there are enough people who view the Ritz-Carlton as ‘premium’ enough to justify the price tag on some of these cruises. This problem may not get better when you consider that the Four Seasons will soon launch its own boats aimed at a similar clientele.
Oh well, Ahoy!
