Royal Caribbean Updates Measures Taken to Weather COVID-19 Pandemic

Royal Caribbean Cruises Ltd. (RCCL) on May 8 provided a business update on how it is shoring up liquidity, reducing expenses, and upgrading cleaning and disinfection protocols amid the Covid-19 pandemic.

“These are unprecedented times for all of us. Travel restrictions and stay-at-home orders are important to slowing the spread of the virus, but they have severely impacted our operations,” said Chairman and CEO Richard D. Fain. “We are taking decisive actions to prioritize the safety of our guests and crew while protecting our fleet and bolstering liquidity.”

RCCL brands – including Royal Caribbean International, Celebrity Cruises, Azamara and Silversea Cruises – have suspended operations through at least June 11. The corporation said continued disruptions to travel and port operations may result in further suspensions.

“Our top priority is to ensure the safety of our guests and crew during the suspension period and when we resume operations,” Fain said. “The company’s fleet is now either in port or at anchor and we have developed strict protocols to protect our crew that is still onboard our ships.”

RCCL also has arranging to shore up its liquidity and, as of April 30, had liquidity of approximately $2.3 billion in cash and cash equivalents. On May 4, the company increased the 364-day senior secured credit facility and drew $150 million, further enhancing the company’s liquidity profile.

“Since late January, we have undertaken several proactive measures to mitigate the financial and operational impacts of COVID-19,” said Jason T. Liberty, executive vice president and CFO. “Our focus is on bolstering liquidity through significant cost cutting, capital spend reductions, and other cash conservation measures. In addition, the company is considering additional financing sources. We continue to evaluate all options available to us to further enhance liquidity.”

To reduce expenses, RCCL has significantly reduced ship operating expenses, including crew payroll, food, fuel, insurance and port charges.

The company reduced its workforce by about 26 percent, eliminated or significantly reduced marketing and selling expenses for the remainder of 2020, and suspended travel and instituted a hiring freeze.

“The company estimates that its average ongoing ship operating expenses and administrative expenses is approximately $150 million to $170 million per month during the suspension of operations,” the business update said. “The company may seek to further reduce this average monthly requirement under a prolonged non-revenue scenario.”

The company also has identified approximately $3 billion and $1.4 billion of capital expenditure reductions or deferrals in 2020 and 2021, respectively. Shipyard operations have been impacted, so there will be delays of new ships previously planned for delivery in 2020 and 2021.

The company estimates its cash burn to be, on average, in the range of approximately $250 million to $275 million per month during a suspension of operations.

At the beginning of 2020, RCCL was looking at a strong booking pattern at higher prices than the previous year.

“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,” the RCCL statement said. “Due to the suspension in sailings, booking trends reflect elevated cancellations for 2020 and more typical levels for 2021 and beyond. 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.”

As of March 31, the company had $2.4 billion in customer deposits. This includes approximately $800 million of future cruise credits related to voyage cancellations through June 11. The company also continues to take future bookings for 2020, 2021 and 2022, and receive new customer deposits and final payments on these bookings.

The company previously withdrew its first-quarter and full-year 2020 guidance. “The magnitude, duration and speed of Covid-19 remains uncertain. As a consequence, we cannot estimate the impact of Covid-19 on our business, financial condition or near- or longer-term financial or operational results with reasonable certainty, but we expect to incur a net loss” for the first quarter and the 2020 fiscal year, “the extent of which will depend on the timing and extent of our return to service.”

Meanwhile, the company has been developing a plan to address the health challenges posed by Covid-19. It includes enhanced screening, upgraded cleaning and disinfection protocols, and plans for social distancing.

RCCL continues to work with the Centers for Disease Control and Prevention, global public health authorities, and national and local governments to enhance measures to protect the health, safety and security of guests, crew and the communities visited when operations resume.

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