The cruise industry’s financial losses during this pandemic era—given the few, if any, sailings—are staggering. That was made clear Monday as Royal Caribbean Group reported a net loss of $5.8 billion (or $27.05 per share) for full year 2020, compared with net income of $1.9 billion (or $8.95 per share) for 2019.
The world’s second largest cruise company—parent of Royal Caribbean International, Celebrity Cruises, Azamara (being sold this quarter) and Silversea Cruises—also reported a net loss of $1.4 billion for fourth quarter 2020, versus net income of $273.1 million in Q4 2020.
As part of the global containment effort resulting from the COVID-19 pandemic, Royal Caribbean Group’s brands implemented a voluntary suspension of cruise operations starting March 13, 2020. That’s been extended for most ships through at least April 30, 2021.
Richard Fain, chairman and CEO, Royal Caribbean Group (shown in photo at right) said in the report: "The COVID-19 pandemic is having a painful and profound impact on our world and our business; unquestionably, this crisis is the most difficult in the company's history. But we have been impressed and grateful for the resourcefulness and agility of our team in responding to these unprecedented challenges.”
He continued: “More importantly, we remain confident about the ability of our company to recover and return to the positive trajectory we were on previously. We are encouraged to see the sharp decline in cases and the growing availability of vaccines. We can't wait to get back to the business of showing people the world and making great memories."
Jason Liberty, executive vice president and CFO, added, "These results reflect the staggering impact that the pandemic brought to our company and the whole industry during 2020. I want to thank all our teams who have risen to the occasion, managing through the toughest year in Royal Caribbean's history."
With a monthly “cash burn” averaging $250 million to $290 million, and because voyages are suspended—for the most part—globally, Royal Caribbean Group has taken aggressive actions to enhance its liquidity through cost and capital reductions, cash preservation measures and by obtaining additional financing.
As of December 31, 2020, the company had liquidity of approximately $4.4 billion. During 2020, the company raised approximately $9.3 billion of new capital through a combination of bond issuances, common stock public offerings and other loan facilities. In December 2020, for example, it completed a $1 billion "at-the-market" equity offering
Booking Update
Awaiting the cruise restart is Celebrity Cruises' Celebrity Edge // Photo by Celebrity Cruises
Booking activity for the second half of 2021 is aligned with the company's anticipated resumption of cruising, the company said in its financial release, noting that “pricing on these bookings is higher than 2019 both including and excluding the dilutive impact of future cruise credits (FCCs).”
While the brands are still in the process of opening for sale the remainder of their 2022-2023 seasons, first and second quarter 2022 sailings have been open for some time. “Cumulative advance bookings for the first half of 2022 are within historical ranges and at higher prices,” the company reported. This was achieved with minimal sales and marketing spend, indicating “a strong long-term demand for cruising.”
Approximately 75 percent of bookings made for 2021 are new and 25 percent are due to the redemption of FCCs and the "Lift & Shift" program.
As of December 31,2020, the Company had $1.8 billion in customer deposits of which 50 percent are related to FCCs. Since the suspension of operations, approximately 53 percent of guests booked on cancelled sailings have requested cash refunds.
Health and Safety
Royal Caribbean Group said it’s continuing to work and collaborate with the Healthy Sail Panel, epidemiologists, health authorities and various governments around the globe to ensure a healthy and safe return to cruising for guests, crew and the communities visited. “While the situation remains highly fluid, knowledge of the virus and how it spreads continues to improve,” the line said.
The company has already begun some limited cruise operations. For example, in December, Quantum of the Seas began operating from Singapore. The company’s TUI Cruises affiliate, which sources European guests, has operated three vessels in the Canary Islands since November.
"Guests are sharing very positive reviews and we are also seeing a higher proportion of first-time cruisers than expected,” Fain said. “We believe that these cruises, even before the availability of vaccines, are helping us learn and demonstrate to others how we can operate successfully under the current COVID-19 environment.”
Royal Caribbean Group also said it “continues to prepare and develop its plan to meet the "Framework for Conditional Sailing" Order issued by the U.S. Centers for Disease Control and Prevention (CDC) for U.S. sailings.” The company noted that while the framework represents an important step to return to service, “many uncertainties remain as to the specifics, timing, and cost of implementing its requirements.”
Overall, and due to the challenges posed by the pandemic, Royal Caribbean Group expects to restart its global cruise operation in a phased manner with the initial cruises having reduced guest occupancy, modified itineraries and enhanced health and safety protocols.
Azamara Quest is shown above in Kotor, Montenegro // Photo by Azamara
When it restarts, it will have one less brand to operate: Azamara. On January 29, 2021, the company announced that it had entered into a definitive agreement to sell that brand to Sycamore Partners, an all-cash transaction for $201 million. Expected to close this quarter, the deal includes Azamara's three-ship fleet and associated intellectual property.
In addition, the company also divested three other ships from its fleet in 2020: Celebrity Xperience, Majesty of the Seas and Empress of the Seas, as well as three ships used by its Pullmantur affiliate.
Expected capital expenditures for 2021 total $2.1 billion, mainly driven by newbuild projects which have committed financing. During 2021, Royal Caribbean Group expects the delivery of Odyssey of the Seas and Silver Dawn during the first and fourth quarters, respectively.
For 2022, two deliveries—Wonder of the Seas and Celebrity Beyond—are scheduled, both with committed financing:
"We remain focused on improving our liquidity position, managing our operating expenditures and ensuring that our family of brands is ready for the return to service," said Liberty. "We are well positioned to emerge competitively stronger and are eager to start delivering world class vacations—which we expect will lead back to compelling returns and a strong balance sheet."
2021 Outlook
Since the company’s operation is still subject to the impact of COVID-19, Royal Caribbean Group said it “cannot reasonably estimate its financial or operational results” but it does expect to incur a net loss for both the first quarter 2021 and the full 2021 fiscal year, the extent of which will depend on many factors including the timing and extent of the return to service.
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