Royal Caribbean Reports Recovery and Challenges in Second Quarter Results
Royal Caribbean Group, which comprises the cruise lines of Royal Caribbean International, Celebrity Cruises, Silversea Cruises, TUI Cruises and Hapag-Lloyd Cruises, reported a steady return to normalcy with a few challenges in its second quarter financial report.
Overall, the cruise line group is heading towards a recovery, with its entire fleet rolling out in June, as well as strong booking numbers and occupancy rates, despite its second-quarter net loss of $500 million and a loss per share of $2.05.
Despite the loss, total revenues per passenger cruise day reached record levels, up 4 percent and 5 percent in constant currency compared to pre-pandemic levels. The cost of operations seems to be the largest factor in the loss.
“We reached two important milestones in our recovery this quarter – returning our entire global fleet back to operations and delivering positive operating cash flow and EBITDA,” said Jason Liberty, president and chief executive officer of Royal Caribbean Group. “Consumers’ propensity to travel and cruise remains strong. We continue to see a robust and accelerating demand environment for cruising and on-board spend.”
“Cruising remains a very attractive value proposition for vacationers, and today we have an opportunity to further close the value gap to other land-based vacation offerings,” continued Liberty. “Our liquidity position remains strong, and we are generating positive operating cash flow and EBITDA. With the fleet back in service, we have the full strength of our platform as we continue to execute on our recovery and build on our capabilities for long-term success.”
Costs & Expenses
Fuel remains expensive at $721 per metric ton; Royal Caribbean Group consumed 382,000 metric tons of fuel during the quarter, costing approximately $275,422,000. The Group has been hedging fuel and future costs in 2023 are expected to ease somewhat.
Additionally, the Group also purchased Crystal Cruises’ new expedition vessel for $275 million to expand the Silversea fleet. The ship, renamed the Silver Endeavor, is financed through a 15-year unsecured term loan. It will begin sailing this November in Antarctica. Excluding the ship’s purchase, capital expenditures for the rest of the year are predicted to be around $500 million.
Booking Information
Bookings in the second quarter were 30 percent higher than 2019’s second quarter bookings on average. Guests continue to book closer to their embarkation dates. Cancellations are now down, matching pre-pandemic levels, though the price of 2022 cruises are higher than they were before the pandemic.
Load factors, which is a key metric in the cruise industry that is used to determine how well a line or several lines are doing, is basically capacity. It’s expected to reach 95 percent in the next quarter and reach triple digits by the end of the year.
Royal Caribbean Group’s customer deposit balance reached record levels on June 30, when it hit $4.2 billion; it increased $600 million from the first quarter of the year. Additionally, about 90 percent of the entire bookings made during this quarter were new, and not rebookings.
COVID-19 and the Russia-Ukraine war have slowed the recovery of bookings in Europe, especially for the third quarter of 2022. Because Europe is a key region for cruising, the lesser number of cruisers during this next quarter is expected to create an impact overall.
Predictions for the Future
Royal Caribbean Group predicts the third quarter load factors to average 95 percent, with regions such as the Caribbean, Alaska, Bermuda, Canada and the West Coast to average about 100 percent, generating $2.9 billion to $3 billion in total revenues across its cruise lines and gain adjusted earnings per share between $0.05 and $0.25.
Available passenger cruise days (APCDs), another key cruise metric that multiplies the number of occupancy with the number of cruise days in a specific time period, is expected to hit 11.6 million during this quarter. The Group expects to pay $319 million in fuel expenses during the third quarter.