Royal Caribbean: Full fleet back in service and positive operating cash flow

Written by Nick Blenkey
Royal Caribbean CEO

Jason Liberty: “While the last 2.5 years were certainly challenging, we have proven that our business and company are resilient.”

Royal Caribbean Group (NYSE: RCL) today reported a second quarter 2022 net loss of $0.5 billion and loss per share of $2.05. That’s the not unexpected bad news and investors looked beyond the red ink to push the company’s share up by 8.45% at the close of trading today.

The cruise giant reported that second quarter results were meaningfully ahead its expectations driven by accelerating and strong close-in demand, further improvement in onboard revenue and better cost performance. Operating cash flow and EBITDA were positive for the quarter.

Highlights included:

  • In June, the Group completed the return of its global fleet to operations across key destinations.
  • Load factors in the second quarter were 82% overall, with June sailings reaching almost 90%.
  • Based on the continued strength in consumer demand, the company expects load factors will average approximately 95% in the third quarter and increase to triple digits by year-end.
  • Booking volumes received in the second quarter for the back half of 2022 sailings remained significantly higher than booking volumes received in the second quarter of 2019 for the back half of 2019.
  • The second half of 2022 is booked below historical ranges but at higher prices than 2019, with and without future cruise credits (FCCs).
  • For 2023, all quarters are currently booked within historical ranges at record pricing.
  • For the third quarter of 2022 and based on current currency exchange rates, fuel rates and interest rates, the company expects to generate approximately $2.9 billion – $3.0 billion in total revenues, Adjusted EBITDA of $700 million – $750 million and adjusted earnings per share of $0.05 – $0.25.

Following are some of the insights Royal Caribbean CEO Jason Liberty gave financial analysts in a conference call today:

“In June, we successfully completed the return of our entire fleet into operation. This was a herculean task by our team, and I’m so thankful and proud of our shipboard and shoreside teams who have worked so incredibly hard under unthinkable and ever-changing circumstances to execute on such a successful return to delivering the best vacations in the world.”

“Another major milestone for the group this past quarter was that our business turned operating cash flow and EBITDA positive. During the second quarter, we achieved earlier than we had expected, positive EBITDA and operating cash flow. This achievement further strengthened our liquidity position and positions us well to continue methodically and proactively improving the balance sheet and refinancing near-term maturities as we seek to return to 2019 metrics and beyond swiftly. This outperformance in Q2 versus our expectations was driven by continued strength in our onboard revenue and accelerating load factors, which hit nearly 90% in June and delivered 82% for the quarter. This combination led us to achieving higher total revenue per guest versus 2019 levels. Our North American itineraries are now sailing at over 100% load factors, and we are building on this momentum as we expect to reach load factors in the mid-90s in Q3 and then return to triple-digit load factors globally by year-end. This will set us up very well for 2023.

“The combination of consumers’ strong propensity to experience in travel, accelerating demographic trends, which are pulling in more bucket list and multigenerational travel, a very compelling value proposition and a strong preference for our brand is translating into strengthening demand.

“Lastly, the other major milestone for the group and the industry is related to the CDC ending its program for cruise ships as we are now transitioning to the point where everyone will be able to vacation with us. As we’ve always said, the health and safety of our guests, crew and communities we visit are our top priority, and cruising has proven to be one of the safest environments anywhere.

“After two years of successfully working with us, the CDC has transitioned from enforcing protocols and policies for the cruise industry to suggestions and recommendations to be in line with the travel and tourism sector. That speaks to the great work we’ve done together as an industry.”

“Approximately 60% of our guests book their onboard activities before they ever step foot on our ships. As we said in the past, every dollar a guest spends before the voyage translates into about $0.70 more on the dollar when they sail with us and double the overall spending compared to other guests.

“As we look into the second half of 2022, precruise revenue APDs are up over 40% versus 2019 levels. The strong consumer demand in our commercial and technical capabilities are contributing to the strong performance.”

“During the second quarter, we saw a strong demand for close in sailings, which contributed to better-than-expected load factors. Bookings for 2022 sailings averaged about 30% above 2019 levels throughout the second quarter and more recently have been up to 35%. The second half of 2022 is booked below historical ranges, but at higher prices than 2019 with and without future cruise ship credits.

“Cancellations are at pre-COVID levels. In addition, we are now seeing the booking window starting to extend back out, providing further confidence in forward-looking business as our guests thoughtfully planned for the future. As a result, all four quarters of 2023 are booked within historical ranges at record prices with bookings accelerating every week. Our customer deposits are at record levels and over 90% of bookings made in the second quarter were new, while study FCC redemptions continued.”

“While the last 2.5 years were certainly challenging, we have proven that our business and company are resilient. Our business is now fully back up and running, and our operating platform is larger and stronger than it has ever been.”

  • You can read the full Seeking Alpha transcript of the Royal Caribbean call, including the Q&A with analysts, HERE
  • You can read the full Royal Caribbean second quarter earnings release HERE
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