Royal Caribbean puts focus on safety, cost cuts and liquidity

Written by Nick Blenkey
Royal Caribbean logo on ship


Royal Caribbean Cruises Ltd. (NYSE: RCL) estimates it is burning through cash in the range of approximately $250 million to $275 million per month during the present suspension of cruise operations, it said in a business update released today.

“These are unprecedented times for all of us,” said Chairman and CEO Richard D. Fain.“Travel restrictions and stay-at-home orders are important to slowing the spread of the virus, but they have severely impacted our operations.”

“We are taking decisive actions to prioritize the safety of our guests and crew while protecting our fleet and bolstering liquidity,” he said.

Royal Caribbean previously announced a voluntary suspension of its global cruise operations from March 13 through at least June 11, 2020. Now, it says, continued disruptions to travel and port operations in various regions 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,” said Fain. “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.”

Royal Caribbean has been developing a comprehensive and multi-faceted program to address the unique public health challenges posed by COVID-19. It includes enhanced screening, upgraded cleaning and disinfection protocols and plans for social distancing. ce and once operations resume.


Prior to the outbreak of COVID-19, Royal Caribbean started the year in a strong booked position and at higher prices on a prior year comparable basis. Now, though, booking volumes for the remainder of 2020 are meaningfully lower than the same time last year at prices that are down low-single digits.

“Due to the suspension in sailings, booking trends reflect elevated cancelations for 2020 and more typical levels for 2021 and beyond,” says the company. “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.”

For canceled cruises, guests are offered the choice of future cruise credits valued at 125% of the initial cruise fare paid in lieu of providing cash refunds. As of April 30, 2020, approximately 45% of guests have requested cash refunds. For non-cancelled cruises, the Company has implemented a “Cruise with Confidence” policy.

As of March 31, 2020, Royal Caribbean had $2.4 billion in customer deposits. This includes approximately $0.8 billion of future cruise credits related to previously announced voyage cancelations through June 11, 2020.

The company also continues to take future bookings for 2020, 2021 and 2022, and receive new customer deposits and final payments on these bookings.


“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.”

As of April 30, 2020, the company had liquidity of approximately $2.3 billion all in the form of cash and cash equivalents. On May 4, 2020 the company increased the 364-day senior secured credit facility and drew $150 million, further enhancing its liquidity profile.


Royal Caribbean says it has taken actions to reduce operating expenses that include:

  • Significantly reduced ship operating expenses, including crew payroll, food, fuel, insurance and port charges
  • The company’s ships are currently transitioning into various levels of layup with several ships in the fleet transitioning into cold layup, further reducing operating expenses
  • Eliminated or significantly reduced marketing and selling expenses for the remainder of 2020
  • Reduced workforce by approximately 26 percent of more than 5,000 shoreside employees in the U.S.
  • Suspended travel for shoreside employees and instituted hiring freeze across the organization.

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. It says it may seek to further reduce this average monthly requirement under a prolonged non-revenue scenario.


Since its last earnings call, the company has identified approximately $3.0 billion and $1.4 billion of capital expenditure reductions or deferrals in 2020 and 2021, respectively. The 2020 reductions and deferrals are comprised of:

  • $1.2 billion, of non-newbuild, discretionary capital expenditures and
  • $1.8 billion in reduced spend or deferred installment payments for newbuild related payments which the Company is currently finalizing.

The company believes COVID-19 has impacted shipyard operations and will result in delivery delays of ships previously planned for delivery in 2020 and 2021.


Since the last earnings call, the company has taken several additional actions to further improve its liquidity position and manage cash flow:

  • Increased the capacity under its revolving credit facilities by $0.6 billion, and fully drew on both facilities
  • Entered into a $2.35 billion 364-day senior secured credit facility with an option to extend (secured by 28 ships with a net book value of approximately $12 billion as of March 31, 2020)
  • Obtained a $0.8 billion, 12-month debt amortization and financial covenant holiday from certain export-credit backed facilities
  • Amended its non-export-credit backed bank facilities to incorporate a 12-month financial covenant holiday
  • Agreed with its lenders that it will not pay dividends or engage in stock repurchases.
  • As of May 5, 2020, expected debt maturities for the remainder of 2020 and 2021 are $0.4 billion and $0.9 billion, respectively.

Royal Caribbean 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. This range includes ongoing ship operating expenses, administrative expenses, and debt service expense, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits as well as cash inflows from new and existing bookings. The company is considering ways to further reduce the average monthly requirement under a prolonged out-of-service scenario and during start-up of operations.

The company continues to identify and evaluate further actions to improve its liquidity. These include and are not limited to: further reductions in capital expenditures, operating expenses and administrative costs and additional financings.

On March 10, 2020, the company 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 on both a US GAAP and adjusted basis for the first quarter ended March 31, 2020 and the 2020 fiscal year; the extent of which will depend on the timing and extent of our return to service.

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