Royal Caribbean Group today reported financial results for the second quarter of 2020 and commented on the business in light of the global COVID-19 pandemic.
Second Quarter 2020
Starting on March 13, 2020 and due to the COVID-19 pandemic, the company suspended its global cruise operation, the company said.
This resulted in the cancellation of all of the company’s second quarter sailings.
The company reported US GAAP Net Loss for the second quarter of 2020 of $(1.6) billion or $(7.83) per share compared to US GAAP Net Income of $472.8 million or $2.25 per share in the prior year. The 2020 results include a non-cash asset impairment loss of $156.5 million. The company reported Adjusted Net Loss of $(1.3) billion or $(6.13) per share for the second quarter of 2020 compared to Adjusted Net Income of $532.7 million or $2.54 per share in the prior year. The Net Loss for the quarter is a result of the impact of the COVID-19 pandemic on the business.
Business Update
“The COVID-19 pandemic is posing an unprecedented challenge to our industry and society. 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,” said Richard D. Fain, Chairman and CEO. “In the meantime, 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.”
Regarding the new health and safety protocols, the company is being advised by a “Healthy Sail Panel” of experts in areas of science and public health with backgrounds in medical practice, research, infectious disease, biosecurity, hospitality and maritime operations.
Update on Liquidity Actions and Ongoing Uses of Cash
Given the current environment, the company continues to prioritize and bolster its liquidity, working to ensure it is well positioned for recovery, it said, in a press release.
Since the last earnings call, the company has taken further actions to enhance its liquidity, preserve cash and secure additional financing. Among these latest efforts the company highlighted the following:
• The issuance of $1.0 billion of priority guaranteed notes and $1.15 billion of convertible notes;
• The issuance of GBP 300 million of commercial paper in the UK providing over $370 million of additional liquidity;
• Completed a $0.9 billion 12-month debt amortization holiday from all export-credit backed facilities;
• Amended over $11 billion of commercial bank and export credit facilities to provide covenant waivers through the fourth quarter of 2021; and
• Further reduced operating expenses due to the fleet layup measures and actions to decrease sales, marketing and administrative expenses.
In addition, the company 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 T. 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.”
The company 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. This range includes all interest expenses, including the increases driven by the latest capital raises. It also includes ongoing ship operating expenses, administrative expenses, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits, commissions, debt obligations and cash inflows from new and existing bookings. The company is 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 Arrangements
As of June 30, 2020, the 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 $0.3 billion and $1.3 billion, respectively.
Capital Expenditures and Capacity Updates
The expected capital expenditures for the remainder of 2020 and 2021 are $0.6 billion and $1.8 billion, respectively. These expenditures are mostly related to newbuild projects.
COVID-19 has impacted shipyard operations and will result in delivery delays for newbuilds. Currently, the company 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. Two of these ships are Silver Moon and Silver Dawn, with capacity lower than 600 berths.
Update on Bookings
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.
Although still early in the booking cycle, the booked position for 2021 is trending well and is within historical ranges. The company has implemented various programs to best serve its booked guests providing the 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 our last business update, approximately 60% 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, the company had $1.8 billion in customer deposits of which approximately $300 million correspond to fourth quarter 2020 sailings. Approximately 48% of the guests booked on cancelled sailings have requested cash refunds.
2020 Outlook
The magnitude, duration and speed of COVID-19 remains uncertain. As a consequence, the company cannot estimate the impact of COVID-19 on its business, financial condition or near or longer-term financial or operational results with reasonable certainty. Notwithstanding the foregoing, the company expects to incur a net loss on both a US GAAP and adjusted basis for its third quarter and the 2020 fiscal year, the extent of which will depend on the timing and extent of the return to service.
Interest expense for the remainder of the year (July 1, 2020 through December 31, 2020) will be in the range of $505 million to $515 million.
