Royal Caribbean expects profitable 2022


Royal Caribbean Group reported financial results for the third quarter of 2021 and provided business updates.

The Company has worked aggressively to restart its vessel operations. This process is proceeding at a strong pace with two-thirds of our fleet operating. The Delta-Dip caused a delay in our booking progress but did not alter the strong fundamental trajectory.

Key Highlights include:

  • Over 500k guests sailed across our five brands since the restart of operations; over 1 million guests expected by year end.
  • By the end of this year, the Group anticipates that 50 out of 61 ships will have returned to service across its five brands, representing almost 100% of its core itineraries and approximately 80% of worldwide capacity.
  • Sailings for 2022 are booked within historical ranges and at higher prices than 2019, even when including future cruise credits (FCCs).
  • Guest satisfaction scores and onboard spending per passenger are both at the highest levels in the Company’s history.
  • The Group expects to be cash flow positive by spring and profitable for the full year 2022.
  • Constructive dialogue with the CDC leading to the end of the prescriptive CSO in January.

Third Quarter 2021

The Company reported US GAAP Net Loss for the third quarter of 2021 of $(1.4) billion or $(5.59) per share compared to US GAAP Net Loss of $(1.3) billion or $(6.29) per share in the prior year. The Company also reported Adjusted Net Loss of $(1.2) billion or $(4.91) per share for the third quarter of 2021 compared to Adjusted Net Loss of $(1.2) billion or $(5.62) per share in the prior year. The Net Loss and Adjusted Net Loss for the third quarter of 2021 are the result of the continued impact of the COVID-19 pandemic on the business.

Since the last business update, 11 additional ships have returned to service. As of today, 40 ships from the Company’s five brands, or approximately 65% of its capacity, have resumed sailing. The Company is thoughtfully returning ships into operations at reduced load factors and slowly building to ensure health and safety, a world class guest experience, and financial prudence. Richard Fain, Chairman & CEO said: “We want to show, in a tangible way, the safety and simplicity of cruising. Our strategy continues to focus on getting the flywheel spinning smooth and fast, so that as we turn the year we will enjoy a stable and predictable platform with which to start the WAVE Period.”

The ships that operated the Group’s core Caribbean, Alaska, and Europe itineraries in the third quarter achieved a load factor of 44%. Core itineraries exclude sailings during the early ramp-up period of up to four weeks and also exclude specialized itineraries implemented during the COVID period (e.g., Singapore, Cyprus). Total revenues per Passenger Cruise Day in the third quarter was up 12% versus record 2019 levels driven mainly by strong onboard revenue performance. Ships in core itineraries in the third quarter were cash flow accretive excluding start-up costs.

“On October 25, 2021, the United States CDC issued a temporary extension of the Conditional Sail Order through January 15, 2022. Thereafter, the CDC has expressed its intention to transition to a voluntary program, in coordination with interested cruise ship operators,” said Fain. “We are very pleased with the continued and constructive partnership with the CDC and the U.S. government’s COVID-19 interagency group. This is a great example of how close collaboration between the cruise industry and the CDC results in health and safety protocols that have demonstrated cruising can be one of the safest forms of vacation,” Fain continued.

Continued Fleet Ramp-Up
The Group anticipates load factors on core itineraries to ramp to 65-70% during the fourth quarter.  The Company anticipates 6.9 million APCDs for the fourth quarter with overall load factors of 60-65%.  The Group expects all ships on core itineraries in the fourth quarter will be cash flow accretive even when including start-up costs.   By the end of the year, the Group expects that 50 out of 61 ships will have returned to service, representing almost 100% of core itinerary capacity and approximately 80% of worldwide capacity.  The remaining ships are expected to return by the spring of 2022 and return to historical load factors in the third quarter 2022. Mainland China is expected to resume in the spring and we have assumed lower load factors as this important long term market ramps up.

Update on Bookings

Booking volumes have improved significantly since the slowdown this summer due to the Delta variant (the ‘”Delta Dip”).  The Company attracted more bookings in the third quarter compared to the second quarter.  September was particularly strong, with new bookings for 2022 sailings more than 60% higher than the monthly average during the second quarter.

Sailings for the full year 2022 are booked within historical ranges and at higher prices than 2019. Sailings further out are experiencing more normalized booking trends than sailings closer in. As such, load factors for sailings in the first quarter 2022 are lower than historical levels; are improving but still below average in the second quarter; and are solidly within historical levels in the second half. Pricing remains strong throughout 2022, with or without FCCs.

“As cases have come down, demand has come surging back.  Consumers are showing their resilience and desire to vacation, and the growing affinity of Royal Caribbean’s leading brands, ships and crew. Although there are many uncertainties going forward regarding COVID-19, as well as cost and supply chain pressures,?we continue our pathway forward?and?anticipate positive?cash flow?for the Group by?spring of 2022?and generating?positive earnings?for the full year 2022,” said Jason T. Liberty, Executive Vice President and CFO.

As of September 30, 2021, the Company had approximately $2.8 billion in customer deposits.  The comparable figure for the three brands at the same time in 2019 was $3.1 billion. This represents an improvement of about $400 million over the past quarter despite the $300 million of revenue that was recognized during the quarter.   Approximately 35% of the customer deposit balance is related to FCCs compared to 40% in the prior quarter; a positive trend indicating new demand.  Customer deposits for second quarter 2022 forward sailings are higher than at the same time in 2019.

Liquidity and Financing Arrangements

As of September 30, 2021, the Company’s liquidity was approximately $4.1 billion, including $3.3 billion in cash and cash equivalents, $0.1 billion of undrawn revolving credit facility capacity, and a $0.7 billion commitment for a 364-day facility.

The Group continues to take steps to improve its balance sheet and reduce its interest costs.  During August we redeemed 40% of the 11.5% senior secured notes and issued senior unsecured notes at 5.5%.  These transactions are expected to result in annual interest savings of $51 million.

As of the date of this release, there are no scheduled debt maturities for the remainder of 2021 and $2.2 billion in scheduled debt maturities for 2022.

Net interest expense for the fourth quarter of 2021 is expected to be in the range of $250-255 million.

Capital Expenditures and Capacity Updates 

Based upon current ship orders and delivery schedules, the projected capital expenditures for the remainder of 2021 are $600 million. The Company expects the delivery of Silver Dawn to the Silversea fleet during the fourth quarter, which has committed financing.

Depreciation and amortization expenses for the fourth quarter of 2021 are expected to be in the range of $325-330 million.

In 2022, the Company has two ship deliveries scheduled, both with committed financing: Wonder of the Seas and Celebrity Beyond.

Fuel Expense

As of September 30, 2021, the Company had hedged approximately 51%, 32% and 5% of its total projected metric tons of fuel consumption for the remainder of 2021 and for all of 2022 and 2023, respectively.  For the remainder of 2021 and for all of 2022 and 2023, the annual average cost per metric ton of the fuel swap portfolio is approximately $439, $493, and $580, respectively.  As of the date of this release and following the execution of additional hedges, the Company is 53% hedged for all of 2022 at an average cost per metric ton of $502.

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