Business Update
Since the last business update, the company has announced new itineraries for this summer for eleven additional ships from the Caribbean and Europe in addition to the four ships already sailing. The initial reaction to these announcements has been positive, highlighting the strong demand for cruising. These cruises are taking place with adjusted passenger capacity and the enhanced health protocols developed with government and health authorities, and guidance from the Healthy Sail Panel.
"We are looking forward to resuming operations out of various ports around the world in the coming months. In addition, we have had very constructive dialogues with the Centers for Disease Control and Prevention (CDC) in recent weeks about resuming cruising in the U.S. in a safe and healthy manner," said Richard D. Fain, Chairman and CEO. "Last night, the CDC notified us of some clarifications and amplifications of their Conditional Sail Order which addressed uncertainties and concerns we had raised. They have dealt with many of these items in a constructive manner that takes into account recent advances in vaccines and medical science. Although this is only part of a very complex process, it encourages us that we now see a pathway to a healthy and achievable return to service, hopefully in time for an Alaskan season."
First Quarter 2021
On March 13, 2020, the company voluntarily suspended its global cruise operations due to the COVID-19 pandemic and that suspension has been extended for most ships through at least June 30, 2021. More recently, the company resumed limited cruise operations outside of the U.S. and has announced a series of such overseas itineraries.
The company reported US GAAP Net Loss for the first quarter of 2021 of $(1.1) billion or $(4.66) per share compared to US GAAP Net Loss of $(1.4) billion or $(6.91) per share in the prior year. The company also reported Adjusted Net Loss of $(1.1) billion or $(4.44) per share for the first quarter of 2021 compared to Adjusted Net Loss of $(310.4) million or $(1.48) per share in the prior year. The Net Loss and Adjusted Net Loss for the quarter are the result of the impact of the COVID-19 pandemic on the business.
The average monthly cash burn rate for the first quarter of 2021 was approximately $300 million. This is slightly higher than the previously announced range driven mainly by fleetwide restart expenses and timing.
Update on Liquidity Actions and Ongoing Uses of Cash
Since the suspension of operations in March 2020, the company has raised approximately $12.3 billion through a combination of bond issuances, common stock offerings and other loan facilities. Given the current environment, the company continues to bolster its liquidity. Among its latest actions executed during the first quarter of 2021, the company highlighted the following:
- Completed a $1.5 billion equity offering at a price of $91 per share;
- Issued $1.5 billion of 5.5% senior unsecured notes due 2028, the proceeds of which have been and will be used to repay principal on debt maturing or required to be paid in 2021 and 2022;
- Amended its $1.0 billion term loan due April 2022 to extend the maturity date for consenting lenders by 18 months and, in connection therewith, repaid $138.5 million of principal on the facility using proceeds from the senior notes;
- Amended its $1.55 billion revolving credit facility due October 2022 to extend the maturity date for consenting lenders by 18 months and, in connection therewith, repaid $277.6 million of principal on the facility using proceeds from the senior notes (with a corresponding reduction in commitments);
- Completed the balance of the previously announced amendments to its export credit facilities, which in total defer $1.15 billion of principal amortization due before April 2022 and waive financial covenants through at least the end of the third quarter of 2022 and;
- Amended the majority of its commercial bank facilities and credit card agreements to waive financial covenants through at least the end of the third quarter of 2022.
As the company transitions back to operations, it expects to incur incremental spend related to bringing ships back to operating status, returning crew members to ships and implementing enhanced health and safety protocols. The decision to return each vessel takes into account many variables, including deployment opportunities, commercial potential, cost of operations and cash flow. Given the fluidity of return to service decisions and costs related to the ramp-up, the company cannot reasonably estimate a monthly average cash burn rate related to such ramp-up. Monthly average cash burn rate for ships that are in lay-up status is expected to remain consistent with previous expectations.
Liquidity and Financing Arrangements
As of March 31, 2021, the company had liquidity of approximately $5.8 billion, including $5.1 billion in cash and cash equivalents and a $0.7 billion commitment for a 364-day facility.
As of March 31, 2021, the scheduled debt maturities for the remainder of 2021 and 2022, are $0.2 billion and $2.2 billion, respectively.
Net interest expense for the second quarter of 2021 is expected to be approximately $270 million.
"We are prepared and eager for the flywheel to start turning again," said Jason T. Liberty, executive vice president and CFO. "Moreover, we are optimistic that with the gradual resumption of cruise operations, our cash flow from operations will sequentially improve, driven by an increase in the inflow of customer deposits. We feel optimistic about our future and are thrilled to see more and more guests around the globe enjoying incredible vacations onboard our ships."
Capital Expenditures and Capacity Updates
Based upon current ship orders and delivery schedules, the projected capital expenditures for the remainder of 2021 are $1.1 billion. During the first quarter of 2021, the company introduced Odyssey of the Seas to the Royal Caribbean International fleet and now expects the delivery of Silver Dawn to the Silversea fleet during the fourth quarter.
Depreciation and amortization expenses for the second quarter of 2021 are expected to be in the range of $320 million to 325 million.
As it relates to 2022, the company has two ship deliveries scheduled, both with committed financing: Wonder of the Seas and Celebrity Beyond. Excluding the newbuild deliveries, the capital expenditures for 2022 will depend on the company's schedule to return to service.
Fuel Expense
As of March 31, 2021, the company had hedged approximately 43%, 25% and 5% of its total projected metric tons of fuel consumption for the remainder of 2021, and for all of 2022 and 2023, respectively. The current suspension of cruise operations due to the COVID-19 pandemic resulted in reductions to the forecasted fuel consumption. As of March 31, 2021, the company had outstanding fuel swaps of 172,400 and 14,650 metric tons maturing in 2021 and 2022, respectively, that no longer hedge the forecasted fuel consumption. 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 $446, $514, and $580, respectively.
Update on Bookings
Booking activity for the second half of 2021 is aligned with the company's anticipated resumption of cruising. Pricing on these bookings is higher than 2019 both including and excluding the dilutive impact of future cruise credits (FCCs).
Cumulative advance bookings for the first half of 2022 are within historical ranges and at higher prices when compared to 2019. This was achieved with minimal sales and marketing spend which the Company believes highlights a strong long-term demand for cruising.
Since the last business update, approximately 75% of bookings made for 2021 are new and 25% are due to the redemption of FCCs and the "Lift & Shift" program. The company continues to provide guests on suspended sailings with the option to request a refund, to receive an FCC, or to "lift & shift" their booking to the following year.
As of March 31, 2021, the company had approximately $1.8 billion in customer deposits, in line with its December 31, 2020 balance. Approximately 45% of the customer deposit balance is related to FCCs.
Since the suspension of guest operations on March 13, 2020, approximately 50% of the guests booked on cancelled sailings have requested cash refunds.
2021 Outlook
The company's operation is still heavily impacted by the consequences of the COVID-19 pandemic. Therefore, the company cannot reasonably estimate its financial or operational results. Notwithstanding the foregoing, the company expects to incur a net loss on both a US GAAP and adjusted basis for its second quarter and the 2021 fiscal year, the extent of which will depend on many factors including the timing and extent of the return to service.
Tags: Royal Caribbean Group
