Royal Caribbean Group Considers Selling Ships, Delays Newbuilds
Royal Caribbean Group is considering selling or retiring some of its ships while delaying delivery of newbuilds, company executives told financial analysts on an Aug. 10 conference call.
The company usually sells an average of one or two ships a year, Chief Financial Officer Jason Liberty said, and is evaluating all options as no cruises have departed since mid-March and are on hold at least through Oct. 31 due to the COVID-19 pandemic. “We have three ships currently in the scrapping process,” he said, adding that it is a “difficult decision” to reduce the fleet.
The company had been expecting to take delivery of five newbuilds between July 2020 and December 2021 but now will accept delivery of three – the Silver Moon and Silver Dawn, both for the Silversea brand, in late 2020 and fourth-quarter 2021, respectively, and Royal Caribbean International’s Odyssey of the Seas in first-quarter 2021. All other newbuilds will be delayed by an average of 10 months, Liberty said.
Royal Caribbean Group provided a business update as it announced a second-quarter GAAP net loss of $1.6 billion or $7.83 per share, compared to net income of $472.8 million or $2.25 per share in the prior year.
Bookings for 2021 are “trending well and within historical ranges,” the company said. About 60 percent of the reservations are new, while the rest are rebookings from canceled 2020 cruises using cruise credits. About 48 percent of guests booked on canceled sailings requested cash refunds.
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. The company estimated its monthly cash burn at $250 million to $290 million per month with ships in varying levels of layup.
When cruising does resume, it will do so gradually, more like “a dimmer rather than a light switch,” Chairman and CEO Richard D. Fain said. Executives are closely watching the resumption of sailings by TUI and Hapag-Lloyd in Germany. Royal Caribbean Group is a 50 percent owner of a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises.
When Royal Caribbean International does resume sailing, there’s a possibility it could be in China or possibly Australia first, according to Michael Bayley, President and CEO of that brand. European-only voyages also are a possibility.
It’s very likely passengers will undergo a health testing before boarding, depending on what the corporation’s “Healthy Sail Panel” of public health experts recommends.
Bayley said the panel may begin making recommendations in late August, which could coincide with the CDC closing public commentary on the resumption of cruising Sept. 21. “We hope that means entering meaningful dialogue by the end of September,” he said.
When asked who is booking 2021 cruises, Bayley said younger customers are more likely to do so, along with a “huge response” from loyalty customers.
He said he’s expecting pent-up demand from people who wrote off summer 2020 vacations but are planning one for summer 2021.
Bayley also said there was “no noticeable change at the moment” to the distribution channel.
“We’ve seen nothing that would make you think there is some kind of change in distribution,” he said. “Many travel partners are obviously stressed. It’s something we’re aware of and we’re going to be as supportive as we possibly can with our travel partner community.”
As of June 30, the company had liquidity of approximately $4.1 billion all in the form of cash and cash equivalents. 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,” Liberty said in the earnings press release. “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.”