Royal Caribbean Group Posts $1.6 Billion 2nd Quarter Loss, Has Positive Liquidity

Symphony of the Seas Royal Caribbean Photo by Susan J Young Editorial Use Only
(Photo by Susan J Young) Symphony of the Seas, a Royal Caribbean Oasis-class vessel, is among the ships idled by this year's COVID-19 pandemic.

On Monday, Royal Caribbean Group reported a $1.6 billion loss for the second quarter of 2020, or a loss of $7.83 per share. In last year’s second quarter, net income was $472.8 million or $2.25 per share.

Due to COVID-19 (coronavirus), all sailings were cancelled during the second quarter 2020. The company also reported an adjusted net loss of $1.3 billion, or a loss of $6.13 per share, versus the adjusted net income of $532.7 million or $2.54 per share in the prior year.

That said, the company also said it had $4.1 billion in liquidity as of June 30, 2020 and that it's booked position for 2021 is trending well and within historical ranges.  

Travel Agent listened to the company's briefing this morning for financial advisors and will have additional coverage here later today about that. Meanwhile, here are highlights from the company's press release about second quarter earnings.

Business Update

"The COVID-19 pandemic is posing an unprecedented challenge to our industry and society,” said Richard Fain, chairman and CEO, Royal Caribbean Group, parent company of Azamara, Celebrity Cruises, Royal Caribbean International and Silversea Cruises. “Our teams are working tirelessly to return to service soonest and doing so by developing new health and safety protocols to protect the well-being of our guests, crew and destinations we visit."

In the meantime, he said that “we are using this time to refine our operations to be as efficient as we can while providing the great experiences that so many people are eagerly awaiting."

Royal Caribbean Group officials said the company continues to bolster its liquidity. Among these latest efforts are:

  • Issuance of $1 billion of priority guaranteed notes and $1.15 billion of convertible notes
  • Issuance of GBP 300 million of commercial paper in the United Kingdom providing over $370 million of additional liquidity
  • Completion of a $900 million 12-month debt amortization holiday from all export-credit backed facilities
  • Amendments made to more than $11 billion of commercial bank and export credit facilities to provide covenant waivers through the fourth quarter of 2021
  • Reduced operating expenses with fleet lay-up measures and actions to decrease sales, marketing and administrative expenses.

In addition, Royal Caribbean Group said it has $11.3 billion of committed credit facilities that are available to fund ship deliveries originally planned through 2025.

"We continue to take substantial actions to bolster our financial position," said Jason Liberty, executive vice president and CFO. "We have accessed the capital market in an opportunistic manner and continue to aggressively manage our spend. We are prepared to navigate a volatile period while making decisions that position the company well for the recovery."

Cash Burn

Royal Caribbean Group estimates its cash burn to be, on average, in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations.

The company’s press release said it’s considering ways to further reduce its average monthly cash burn under a “further prolonged, out-of-service scenario and during re-start of operations.”

Liquidity and Financing 

As of June 30, 2020, the cruise company had liquidity of approximately $4.1 billion all in the form of cash and cash equivalents.

The company noted that as of June 30, 2020, the scheduled debt maturities for the remainder of 2020 and 2021, are $300 million and $1.3 billion, respectively.

Expected capital expenditures for the remainder of 2020 and 2021 are $600 million and $1.8 billion, respectively. These expenditures are mostly related to new-build projects.

In addition, COVID-19 has impacted shipyard operations and will result in delivery delays for the company’s new builds. Currently, Royal Caribbean Group expects that three of the five ships originally scheduled for delivery between July of 2020 and December of 2021 will be delivered within the remaining time frame.

That includes one Royal Caribbean International vessel and Silversea Cruises’ Silver Moon and Silver Dawn.

Update on Bookings

Royal Caribbean Group said in its press release that the extended suspension of cruising has “significantly impacted bookings for the remainder of 2020 which are meaningfully lower than same time last year and at lower prices.”

The press release continued: “Although still early in the booking cycle, the booked position for 2021 is trending well and is within historical ranges." 

The cruise company said it's allowing booked guests on cancelled cruises to use their choice of future cruise credits (FCCs) or the opportunity to "Lift & Shift" their booking to the same sailing the following year in lieu of providing cash refunds. For the booking period since the company's previous update, 60 percent of the 2021 bookings are new and the rest are due to the redemption of FCCs and the "Lift & Shift" program. Pricing for 2021 bookings is relatively flat year-over-year when including the negative yield impact of bookings made with future cruise credits; it is slightly up year-over-year when excluding them.

As of June 30, 2020, Royal Caribbean Group had $1.8 billion in customer deposits of which approximately $300 million correspond to fourth quarter 2020 sailings.

Approximately 48 percent of all guests on cancelled sailings have requested cash refunds.

2020 Outlook

Given the uncertainty regarding the magnitude, duration and speed of COVID-19, the company said it was unable to estimate the impact of COVID-19 on its business, financial condition or near or longer-term financial or operational results.

But, the company said, not surprisingly, that it expects to incur a net loss on both a U.S. GAAP and adjusted basis for its third quarter and the 2020 fiscal year. How much the loss could entail will depend on the timing and extent of the cruise company's return to service.

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