Royal Caribbean is optimistic after rebound from 'delta dip'

Royal Caribbean expects that its entire fleet will be back in service by May 2022.
Royal Caribbean expects that its entire fleet will be back in service by May 2022. Photo Credit: Royal Caribbean

With its entire fleet expected to resume service by May and sailings in 2022 booked at higher prices than in 2019, Royal Caribbean Group expects to be cash-flow positive by spring and profitable for full-year 2022. 

CEO Richard Fain noted that the company's confidence comes amid obstacles and uncertainty -- China and Australia remain closed to cruising and Covid is unpredictable. The spread of the delta variant this summer caused a low booking period, for example.

"Against this background, our ability to predict a profitable 2022 is strong evidence of how quickly our future can get better. We are encouraged to see the return to profitability and strong cash flows as a rapid turnaround rather than a slow, steady progression, Fain said.

He acknowledged that there are many factors that "could shift us off this trajectory, including worsening spread of the disease, a new variant, inflation, etc. But on the current trajectory that we are seeing, we believe we can prudently predict at least this level of profitability and cash flow."

Q3 net loss of $1.4 billion

Royal lost $1.4 billion during the third quarter, but said that since the summer's "delta dip," booking volume had improved significantly. September was particularly strong, Royal said, with new bookings for 2022 sailings more than 60% higher than the monthly average during the second quarter.

Royal said that while sailings for 2022 are booked within historical ranges and at higher prices than 2019, the first and second quarters are lower than historical levels. Pricing remains strong throughout 2022, with or without the impact of future cruise credits (FCCs.)

"As cases have come down, demand has come surging back," said Royal Caribbean Group CFO Jason Liberty. 

Limited capacity, big spending

Royal said that 40 ships from its five brands, or approximately 65% of its capacity, have resumed sailing at reduced passenger occupancy. By the end of this year, Royal anticipates that 50 of its 61 ships will have returned to service, representing almost 100% of its core itineraries and approximately 80% of worldwide capacity. 

In Alaska and Europe, ships during the quarter averaged a load factor of 44%. Passengers are spending money onboard, with revenues per passenger cruise day up 12% from 2019 levels. 

Royal Caribbean International CEO Michael Bayley said that some ships are far exceeding the average load factor.

"Last weekend, Freedom of the Seas sailed from Miami with an occupancy of 85%," Bayley said. "And that's one of the products that's particularly attractive to new to cruise. And it's one of the products that we've been very focused on and making sure that we're learning and understanding exactly how our protocols can adapt to more capacity. So we feel pretty good about what's happening."

First-timers are sailing

Liberty said that in general, the new-to-cruise market is rebounding

"In the early days of the pandemic, new-to-cruise had basically kind of turned itself off for the most part," he said. "And today, what we see is that it has certainly returned. I think our marketing efforts have really helped that in just reminding those customers about the incredible experiences you can have on our leading fleet as well as amazing places like Perfect Day at CocoCay."

Royal executives were especially upbeat about 2023, with Liberty indicating that sales for 2023 cruises were exceeding sales for 2021 cruises in 2019. 

Bayley added that Royal Caribbean's first world cruise, departing in 2023, was already 70% sold one week after bookings opened, at an average price of $75,000 for a balcony. The Royal Suite sold within a week at $760,000. All cruises were booked with nonrefundable deposits. 

"I think that's indicative of what we're seeing," he said. 

Fain said the CDC's decision to extend the Conditional Sailing Order through Jan. 15, with a plan to transition to a voluntary program after that date, indicates the constructive partnership the company has with the CDC and how well the health and safety protocols have worked to keep cruising safe. Fain said that will "help give confidence to the market." 


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