Royal Caribbean Cruises (RCL) has updated its financial position in light of the COVID-19 pandemic impact in the Group’s first quarter results presentation.
“Responding to the dramatic change in business conditions caused by COVID-19 has required focus, dedication, ingenuity and improvisation from all our people, and their efforts have been non-stop,” said Richard Fain, RCL Chairman and CEO. “We understand that when our ships return to service, they will be sailing in a changed world.
“How well we anticipate and solve for this new environment will play a critical role in keeping our guests and crew safe and healthy, as well as position our business and that of our travel agent partners to return to growth,” he said.
As the company finishes repatriating crew members to their home countries, its future focus turns to four key principles:
- Ensuring the safety of guests and crew.
- Pro-actively enhancing liquidity.
- Protecting the company’s brands.
- Defining and preparing for a ‘new normal.’
RCL has engaged the services of external experts in relevant fields, including public health, epidemiology, design and sanitation, to bring additional expertise to its internal teams that are working on the company’s strategy for new standards and procedures for its return to service.
Prior to the outbreak of COVID-19, RCL started 2020 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.
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 said that it had implemented various programmes in order to best serve its booked guests providing the choice of future cruise credits in lieu of providing cash refunds for both cancelled sailings and future bookings.
As of 30th April, 2020, around 45% of the guests booked on cancelled sailings had requested cash refunds. In addition, as of 31st March, 2020, the company had $2.4 bill in customer deposits.
RCL said that it continued to take forward bookings for 2020, 2021 and 2022, and receive new customer deposits and final payments on these bookings.
Since the last earnings call, and given the challenges posed by the suspension of its global cruise operation, the company has taken significant actions to enhance its liquidity, preserve cash and secure additional financing.
These include reducing operating expenses; reducing or deferring capital spend; and increasing its available cash position through various financing sources. Among these efforts, the company highlighted an around $4 bill increase in additional financing through a secured bond issuance and increased revolver capacity; a $3 bill reduction in its 2020 capital expenditures, a $0.8 bill 12-month debt amortisation holiday from certain export-credit backed facilities, and a substantial reduction in its operating expenses, due to the fleet layup and significant actions to decrease the company’s sales, marketing and administrative expenses.
“We have taken swift and substantial actions to bolster our financial position by significantly reducing our operating and capital spend and leveraging our strong balance sheet to raise additional capital,” said Jason Liberty, Executive Vice President and CFO.
The Company estimated its cash burn to be, on average about $250 mill to $275 mill per month during a prolonged suspension of operations.
As of 30th April, 2020, RCL had liquidity of about $2.3 bill all in the form of cash and cash equivalents. On 19th May, 2020, the company completed its $3.3 bill senior secured notes offering, improving its liquidity position by around $1 bill.
As of 19th May, 2020, the expected debt maturities for the remainder of 2020 and 2021, were $0.4 bill and $0.9 bill, respectively.
Since the last earnings call, RCL has identified around $3 bill and $1.4 bill of capital expenditure reductions or deferrals in 2020 and 2021, respectively. The projected capital expenditures for the remainder of 2020 and 2021 are $0.5 bill and $2.1 bill, respectively.
The company said that it also believed COVID-19 had impacted shipyard operations, which will result in delivery delays of ships previously planned for this year and next.
Due to the COVID-19 pandemic, RCL suspended its global cruise operation starting on 13th March, 2020, which resulted in the cancellation of 130 sailings during the first quarter of this year.
RCL reported a US GAAP net loss for 1Q20 of $1.4 bill or a negative $6.91 per share compared to a net profit $249.7 mill or $1.19 per share in 1Q19.
The 2020 results also included a non-cash asset impairment loss of $1.1 bill.
The adjusted net loss was $310.4 mill or a negative $1.48 per share, compared to an income of $275.8 mill or $1.31 per share in the same quarter of the previous year.
As for the outlook, on 10th March, 2020, RCL withdrew its first quarter and full-year 2020 guidance. The magnitude, duration and speed of COVID-19 still remains uncertain.
As a consequence, the company said it could not estimate the impact of COVID-19 on its business, financial condition or near or longer-term financial or operational results with reasonable certainty. However, it expects to incur a net loss on both a US GAAP and adjusted basis for 2Q20 and the 2020 fiscal year; the extent of which will depend on the timing and extent of a return to service, the company concluded.