Skift Take

At this stage it's difficult to tell how long the coronavirus outbreak will last and how far it will spread. For now Royal Caribbean is acting with extreme caution in China.

Royal Caribbean Cruises has canceled eight sailings out of China and implemented a number of contingency measures as it tries to lessen the impact of the coronavirus.

In addition to the cancellations, which run through March 4, the company said it would deny boarding “to any individual who has traveled from, to, or through mainland China or Hong Kong in the past 15 days.” The passengers will get a full refund. There will also be mandatory health screenings for certain individuals.

China is still a relatively small part of the Royal Caribbean business, accounting for around 6 percent of the company’s full-year capacity. The actions taken so far are likely to cost around $50 million in terms of lost revenue.

Spectrum of the Seas is currently the only ship in China with two others scheduled to enter the market in May and July, respectively.

The problem for tourism companies like Royal Caribbean is that there are currently so many unknowns associated with the outbreak, as CEO Richard Fain outlined on a call with analysts on Tuesday.

“Unfortunately, no one knows how this outbreak will play out, and we don’t know how it will ultimately impact us,” he said.

“One important bright spot is that looking beyond the current outbreak, we aren’t seeing a big impact on overall bookings elsewhere. But again, and here I’m sounding like a broken record, we just don’t know.”

If China remains out of bounds for a prolonged period of time, Royal Caribbean will likely have to think about moving Spectrum of the Seas and potentially the other ships bound for the country.

“[We] do have alternative plans in place, and we can either redeploy regionally or outside of the region,” Michael Bayley, CEO of the Royal Caribbean International cruise line, said.

The World Health Organization last week announced that the coronavirus outbreak was now a global emergency. So far it has killed at least 425 people with more than 20,000 confirmed cases. The mortality rate is around 2.1 percent, according to The Guardian.

Bookings Outlook

While the coronavirus is causing problems in China, elsewhere Royal Caribbean said that bookings had started off well.

Fain said that what he had seen so far made the company “very optimistic about 2020.”

In terms of destinations Jason Liberty, chief financial officer, said it was a mixed picture during the current “wave season” — a period that typically covers the start of the year when travel advisors and cruise lines take a lot of bookings.

“Now while wave bookings trends have been strong for itineraries based in North America and Europe, recent events around the globe have impacted demand for some of our international itineraries,” he said.

“Specifically, the unprecedented bushfires in Australia and recent activities in Hong Kong and the Middle East are each having an outsized impact on revenue for the first quarter.”

Full-Year Earnings

Despite a slew of what Royal Caribbean characterized as “extraordinary events,” the cruise company reported record 2019 results. Net profit rose 5 percent to $1.9 billion with revenue up 15 percent to $11 billion for the 12 months up to December 31.

Those incidents included a dry-dock accident at the Grand Bahama shipyard involving the Oasis of the Seas ship, cancellation of cruises to Cuba, and an “unusual hurricane season”.

At the same time as unveiling its latest set of earnings, Royal Caribbean outlined a new companywide program called 20>25 by 2025, which sets out goals including delivering $20.00 adjusted earnings per share (for 2019 this was $9.54) and cutting its carbon footprint by 25 percent.


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Tags: asia, china, coronavirus, earnings, royal caribbean, royal caribbean cruises

Photo credit: Anthem of the Seas. The ships owner Royal Caribbean Cruises had a record year in 2019. Eric Kilby / Royal Caribbean

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