Royal Caribbean Loses $5.8 Billion but Says Cruising Returning Soon
The Royal Caribbean Group, which was the world’s second largest operator of cruise ships before the pandemic, presented an optimistic outlook for the resumption of cruising while also reporting staggering financial losses for 2020. News that the company believes progress is being made for the resumption of sailing along with strong bookings at increased prices helped to propels the company’s stock up more than nine percent in heavy trading today on the New York Stock Exchange.
“My sense is, is that we're getting closer and closer to good news,” said CFO Jason Liberty referring to the overall COVID environment as well as the company’s regular discussions with the Centers of Disease Control and Prevention (CDC). The company expects that the CDC will be releasing its technical specification soon as the follow up to the framework for the industry to resume service that was released last fall.
The next step for Royal Caribbean Group and its three cruise brands would be the trial cruises the CDC called for in its framework. Royal Caribbean International, one of the cruise brands pointed to the 250,000 volunteers who said they were ready to sail on the trial cruises when they are ready to go.
“Now after 11 months of pandemic, I think we all know that COVID fatigue is real. People are clamoring for the opportunity to have experience outside their homes. Every day, we see signs of people want to get out and get away,” said Richard Fain Chairman and CEO of the corporation.
As evidence of the strong interest, Royal Caribbean highlighted a 30 percent increase in cruise bookings since the first of the year versus November and December 2020. The company reported that bookings were “aligned with expectations,” for the second half of 2021 and at higher prices compared to 2019. While about half the consumers with canceled trips in the quarter took cash refunds, they reported that they had been able to offset the cash outflow with 75 percent of the bookings made since the last update coming as new bookings. As for the end of the year, the company had $1.8 billion in customer deposits.
They, however, expect that 2021 will not be a traditional year and that it will take well into the year to resume full operations. In 2020, the company was only able to operate 20 percent of its planned cruises before the shutdown, which led to a net loss of $5.8 billion for the full year. The fourth quarter of 2020 marked the fourth consecutive quarter of losses totaling more than $1 billion. However, the company’s CFO highlighted efforts to cut expenses by moving the ships all into layup and managing operations. Going forward they expect to reduce capital expenditures by more than half for 2021.
Since the onset of the pandemic, the Royal Caribbean Group raised over $9.3 billion plus deferring debt. The CFO, however, believes that the company still has significant additional debt capacity. As of the end of 2020, the company had $3.7 billion in cash on hand while it expects its cash burn to continue to range between $250 to $290 million a month, giving the company nearly a year’s worth of cash without additional financing.
Royal Caribbean also says that it has been learning from its cruise ship sailing in Singapore as well as its joint venture with TUI that is operating cruise ships in Europe. Approximately 35,000 Singapore residents have sailed with them since December with very high satisfaction ratings. The company is currently exploring with Singapore raising the capacity limit from 50 to 65 percent.
The company also cites strong support from its crew. They reported that the majority of the crew plan to return to work when they can and that 98 percent are in favor of a vaccine requirement for the crew. The company said over 4,000 of its approximately 70,000 employees have already been vaccinated.
With the continuing uncertainties, Royal Caribbean said it was too early to offer an outlook for 2021, but noted they were encouraged by the global decline in COVID-19 cases and the positive response from authorities around the world. They said they remained in contact with the countries from which they operated and it is possible that the company’s second cruise ship to return to service could also be outside the United States depending on how the trends continue to develop.