Royal Caribbean Cruises today provided an update the impact of the COVID-19 pandemic and reported on the first quarter of 2020.
Royal Caribbean reported US GAAP Net Loss for the first quarter of 2020 of $(1.4) billion or $(6.91) per share compared to US GAAP Net Income of $249.7 million or $1.19 per share in the prior year. The 2020 results include a non-cash asset impairment loss of $1.1 billion. The company reported Adjusted Net Loss of $(310.4) million or $(1.48) per share compared to Adjusted Net Income of $275.8 million or $1.31 per share in the prior year. The Net Loss for the quarter is a result of the COVID-19 pandemic on the business.
“Responding to the dramatic change in business conditions caused by COVID-19 has required focus, dedication, ingenuity and improvisation from all our people, and their efforts have been nonstop,” said Richard D. Fain, Chairman and CEO. “We understand that when our ships return to service, they will be sailing in a changed world. How well we anticipate and solve for this new environment will play a critical role in keeping our guests and crew safe and healthy, as well as position our business and that of our travel agent partners to return to growth.”
The company said its future focus now turns to four key principles:
• Ensuring the safety of guests and crew
• Proactively enhancing liquidity
• Protecting the Company’s brands, and
• Defining and preparing for a “new normal.”
The company has engaged the services of distinguished external experts in relevant fields, including public health, epidemiology, design and sanitation, to bring additional expertise to its internal teams that are envisioning the company’s new standards and procedures for its return to service strategy, according to a press release.
Update on Bookings
Prior to the outbreak of COVID-19, Royal Caribbean said started the year in a strong booked position and at higher prices on a prior year comparable basis. Given the impact of COVID-19, booking volumes for the remainder of 2020 are meaningfully lower than the same time last year at prices that are down low-single digits. Although still early in the booking cycle, the booked position for 2021 is within historical ranges when compared to same time last year with 2021 prices up mid-single digits compared to 2020.
The company has implemented various programs in order to best serve its booked guests providing the choice of future cruise credits in lieu of providing cash refunds for both cancelled sailings and future bookings. As of April 30, 2020, approximately 45% of the guests booked on cancelled sailings have requested cash refunds. Additionally, as of March 31, 2020, the company had $2.4 billion in customer deposits. The company also continues to take future bookings for 2020, 2021 and 2022, and receive new customer deposits and final payments on these bookings.
Update on Liquidity Actions and Ongoing Uses of Cash
Since the last earnings call, and given the challenges posed by the suspension of its global cruise operation, Royal Caribbean said it had taken significant actions to enhance its liquidity, preserve cash and secure additional financing. These actions include reducing operating expenses; reducing or deferring capital spend; and increasing its available cash position through various financing sources. Among these efforts, the Company highlighted an approximate $4.0 billion increase in additional financing through a secured bond issuance and increased revolver capacity; a $3.0 billion reduction in its 2020 capital expenditures, a $0.8 billion 12-month debt amortization holiday from certain export-credit backed facilities, and a substantial reduction in its operating expenses due to the fleet layup and significant actions to meaningfully decrease the company’s sales, marketing and administrative expenses.
“We have taken swift and substantial actions to bolster our financial position by significantly reducing our operating and capital spend and leveraging our strong balance sheet to raise additional capital,” said Jason T. Liberty, executive vice president and CFO.
The company said it estimates its cash burn to be, on average, in the range of approximately $250 million to $275 million per month during a prolonged suspension of operations. This range includes ongoing ship operating expenses, administrative expenses, debt service expense, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits as well as cash inflows from new and existing bookings. The company is considering ways to further reduce the average monthly requirement under a further prolonged out-of-service scenario and during start-up of operations.
Liquidity and Financing Arrangements
As of April 30, 2020, the company had liquidity of approximately $2.3 billion all in the form of cash and cash equivalents. On May 19, 2020, the company completed its $3.3 billion senior secured notes offering, improving the company’s liquidity position by approximately $1.0 billion.
The company noted that as of May 19, 2020, the expected debt maturities for the remainder of 2020 and 2021, are $0.4 billion and $0.9 billion, respectively.
Since the last earnings call, the company has identified approximately $3.0 billion and $1.4 billion of capital expenditure reductions or deferrals in 2020 and 2021, respectively. The projected capital expenditures for the remainder of 2020 and 2021 are $0.5 billion and $2.1 billion, respectively. The company continues to evaluate ways to further reduce these expenditures, according to an earnings release.
Royal Caribbean said that COVID-19 has impacted shipyard operations and will result in delivery delays of ships previously planned for delivery in 2020 and 2021.