Royal Caribbean Cruises Ltd today provided a business update and the Company’s response to the impact of the COVID-19 pandemic.

Commenting, Chairman Richard Fain, said “These are unprecedented times for all of us.  Travel restrictions and stay-at-home orders are important to slowing the spread of the virus, but they have severely impacted our operations.”

“We are taking decisive actions to prioritize the safety of our guests and crew while protecting our fleet and bolstering liquidity.” 

COVID-19 Related Suspension

The outbreak of COVID-19 has resulted in an unprecedented global response to contain the spread of the disease.  These global efforts have resulted in travel restrictions and created significant uncertainty regarding worldwide port closures and availability.  As part of the global containment effort, the Company previously announced a voluntary suspension of its global cruise operations from 13 March through at least 11 June 2020. Continued disruptions to travel and port operations in various regions may result in further suspensions.  

“Our top priority is to ensure the safety of our guests and crew during the suspension period and when we resume operations,” said Mr. Fain.  “The Company’s fleet is now either in port or at anchor and we have developed strict protocols to protect our crew that is still onboard our ships.”

The Company has been developing a comprehensive and multi-faceted program to address the unique public health challenges posed by COVID-19.  This includes, among other things, enhanced screening, upgraded cleaning and disinfection protocols and plans for social distancing.  The Company will continue to work with the Centers for Disease Control and Prevention, global public health authorities and national and local governments to enhance measures to protect the health, safety and security of guests, crew and the communities visited when we are out of service and once operations resume.

Update on Bookings

Prior to the outbreak of COVID-19, the Company 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.  Due to the suspension in sailings, booking trends reflect elevated cancellations for 2020 and more typical levels for 2021 and beyond.  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 instituted several programs in order to best serve its guests: for cancelled cruises, guests are offered the choice of future cruise credits valued at 125% of the initial cruise fare paid in lieu of providing cash refunds.  As of April 30, 2020, approximately 45% of the guests have requested cash refunds.  For non-cancelled cruises, the Company has implemented a “Cruise with Confidence” policy.  

As of 31 March 2020, the Company had $2.4 billion in customer deposits.  This includes approximately $0.8 billion of future cruise credits related to previously announced voyage cancellations through 11 June 2020.

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 Recent Liquidity Actions and Ongoing Uses of Cash

“Since late January, we have undertaken several proactive measures to mitigate the financial and operational impacts of COVID-19.” said Jason T. Liberty, executive vice president and CFO.  “Our focus is on bolstering liquidity through significant cost cutting, capital spend reductions, and other cash conservation measures.  In addition, the Company is considering additional financing sources.  We continue to evaluate all options available to us to further enhance liquidity.”

As of April 30, 2020, the Company had liquidity of approximately $2.3 billion all in the form of cash and cash equivalents.  On 4 May 4 2020 the company increased the 364-day senior secured credit facility and drew $150 million, further enhancing the Company’s liquidity profile.

Reduced Operating Expenses

The Company has taken significant actions to reduce operating expenses during the suspension of its global cruise operations:

  • Significantly reduced ship operating expenses, including crew payroll, food, fuel, insurance and port charges 
  • The Company’s ships are currently transitioning into various levels of layup with several ships in the fleet transitioning into cold layup, further reducing operating expenses 
  • Eliminated or significantly reduced marketing and selling expenses for the remainder of 2020 
  • Reduced workforce by approximately 26 percent of more than 5,000 shoreside employees in the US 
  • Suspended travel for shoreside employees and instituted hiring freeze across the organization.

The Company estimates that its average ongoing ship operating expenses and administrative expenses is approximately $150 million to $170 million per month during the suspension of operations.  The Company may seek to further reduce this average monthly requirement under a prolonged non-revenue scenario.

Reduced Capital Expenditures 

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 2020 reductions and deferrals are comprised of:

  • $1.2 billion, of non-newbuild, discretionary capital expenditures and 
  • $1.8 billion in reduced spend or deferred installment payments for newbuild related payments which the Company is currently finalizing. 

The Company believes COVID-19 has impacted shipyard operations and will result in delivery delays of ships previously planned for delivery in 2020 and 2021.

Debt Maturities, New Financings and Other Liquidity Actions 

Since the last earnings call, the Company has taken several additional actions to further improve its liquidity position and manage cash flow:

  • Increased the capacity under its revolving credit facilities by $0.6 billion, and fully drew on both facilities 
  • Entered into a $2.35 billion 364-day senior secured credit facility with an option to extend (secured by 28 ships with a net book value of approximately $12 billion as of 31 March 2020)  
  • Obtained a $0.8 billion, 12-month debt amortization and financial covenant holiday from certain export-credit backed facilities 
  • Amended its non-export-credit backed bank facilities to incorporate a 12-month financial covenant holiday 
  • Agreed with its lenders that it will not pay dividends or engage in stock repurchases.

As of 5 May 2020, expected debt maturities for the remainder of 2020 and 2021 are $0.4 billion and $0.9 billion, respectively.  

The Company estimates its cash burn to be, on average, in the range of approximately $250 million to $275 million per month during a suspension of operations.  This range includes ongoing ship operating expenses, administrative expenses, and 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 prolonged out-of-service scenario and during start-up of operations.

The Company continues to identify and evaluate further actions to improve its liquidity.  These include and are not limited to: further reductions in capital expenditures, operating expenses and administrative costs and additional financings.

On 10 March 2020, the Company withdrew its first quarter and full-year 2020 guidance.  The magnitude, duration and speed of COVID-19 remains uncertain.  As a consequence, we cannot estimate the impact of COVID-19 on our business, financial condition or near or longer-term financial or operational results with reasonable certainty, but we expect to incur a net loss on both a US GAAP and adjusted basis for the first quarter ended 31 March 2020 and the 2020 fiscal year; the extent of which will depend on the timing and extent of our return to service.

By Editor

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