Royal Caribbean Says U.S. Infection Rate Will Determine When Cruises Can Resume

Another cruise company reported earnings on Monday for a second quarter that involved no cruising at all. Royal Caribbean Group — which recently changed its name from Royal Caribbean Cruises Ltd. — reminded investors that as things stand, it has also cancelled all cruises during the third quarter.

With the prospect of cruising in 2020 very much in question, the world’s second largest cruise company seemed to implicitly acknowledge that its ability to restart cruising may depend less on the ability to crack the code of safe sailing, and more on the dynamics of a very unpredictable virus in its most important market: the United States.

As evidence of that, Chairman Richard Fain reminded investors that the cruise line has extended its sailing restart date seven times since March, most recently to Oct. 31 — overshooting the Centers for Disease Control’s current No Sail order by a month. (The company maintained the possibility it may sail in Australian and Chinese markets before then.)

In response to a question from an analyst about whether the U.S. needs to be in a similar position to Europe in terms of virus circulation before cruising can commence, CEO Michael Bayley said “the component of this is obviously going to be the prevalence of Covid in the origination and the destination. And I think just common sense tells you that if the prevalence is exceptionally high in an origination market, then that’s going to hinder resumption of operations.”

Royal Caribbean’s financials certainly made the direness of the situation clear. The company posted a net loss of $1.6 billion, or $7.83 per share, compared to last year’s profit of $472.8 million or $2.25 per share. Its cash burn rate during the prolonged suspension is estimated to be $250 million to $290 million per month. The company also outlined a range of liquidity sources it has raised, including $370 million from the UK government. 

On the topic of rosier-than-expected booking levels, Fain echoed comments made by Norwegian Cruise Line’s CEO Frank Del Rio last week. “While Covid-19’s impact is significant … we have been both humbled and surprised with the amount of bookings we are seeing for 2021. And with literally no marketing efforts, and frankly, very little good news.”

Since the company’s last earnings call, booking levels averaged double what they were during the first eight weeks of the cruise suspension. With soft demand for the first quarter of 2021, Chief Financial Officer Jason Liberty reported bookings are “quite strong for the summer and back half of 2021, highlighting the continued demand for cruising for our core destinations of the Caribbean, Europe, Alaska and Bermuda.”

Royal Caribbean has assembled a team of experts with Norwegian Cruise Line known as its Healthy Sail panel. The panel is tasked with creating a comprehensive set of protocols to send to the CDC on how to safely resume sailing, with a goal of submitting this plan by the end of August. The CDC has also allowed a public comment period that will last into September.

Even with that panel focused on an ambitious timeline, executives seemed to signal awareness that the virus may have its own plans.

“But I think it’s important to note that there’s … just a huge amount of uncertainty with how this will play out,” Bayley said. “And obviously, one of the biggest dynamics is what’s occurring with Covid itself. So we’ve certainly seen in Europe that as Covid decreased, and particularly, for example, in Germany, Germany was one of the first countries to open up to be flexible in terms of opening up to cruising because it reflected how people were seeing what was occurring with Covid.”

Fain described the day when sailing does resume as “a dimmer rather than a light switch,” indicating the need to iterate and learn from mistakes as they go. “I think it would be a mistake to think that it all ends at one point in time.”