Royal Caribbean Group reports positive cash flow for first time since cruises restarted

Royal Caribbean Group reported its second quarter 2022 earnings on Thursday.

While the company still had a net loss of half a billion dollars, operating cash flow and EBITDA were positive for the quarter.

Royal Caribbean Group saw this quarter as “meaningfully ahead” of their projections, due to accelerating and strong close-in demand, further improvement in onboard revenue and better cost performance.

Royal Caribbean Group President and CEO Jason Liberty saw two important takeaways from the fiscal disclosure, “We reached two important milestones in our recovery this quarter – returning our entire global fleet back to operations and delivering positive operating cash flow and EBITDA.”

He also sees strong demand for cruises, “Consumers’ propensity to travel and cruise remains strong. We continue to see a robust and accelerating demand environment for cruising and on-board spend. Cruising remains a very attractive value proposition for vacationers, and today we have an opportunity to further close the value gap to other land-based vacation offerings. “

The second quarter loss of $ 0.5 billion is better than the $ 1.3 billion loss in the second quarter of 2021.

Second quarter by the numbers

Load factors (meaning how full were the cruise ships) in the second quarter were 82% overall. June sailings reached almost 90%, with Caribbean itineraries averaging over 100%.

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.

Total revenues per passenger cruise day were at record levels and up 4% as reported and 5% in constant currency versus the second quarter of 2019.

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.

In terms of reducing costs, Royal Caribbean Group gave credit to the delivery of new, more efficient ships and past sales of less efficient ships, as well as actions taken to improve operating costs and margins that continue to materialize as operations ramp up.

Changing Covid protocols

Mr. Liberty mentioned an upcoming change in Royal Caribbean’s Covid-19 protocols based on the CDC announcement it would end its Covid-19 program for cruise ships.

As part of their earnings statement, Mr. Liberty said, “Last week, the CDC ended its COVID-19 Program for Cruise Ships. Based on this change, we are continuing to adapt our protocols to align more closely with how the rest of society and other travel and leisure businesses are operating.

This means that we’re transitioning to the point where everyone will be able to vacation with us while always working with our destination partners to meet their regulations. Starting Aug. 8, testing will be required for unvaccinated guests on all voyages and for vaccinated guests only on voyages that are six nights or longer. “

A look at bookings

Second quarter 2022 bookings averaged 30% above 2019 booking volumes for 2019 sailings in the corresponding period in the second quarter with even greater strength in July.

An interesting trend is that guests are still booking their cruises much closer to their sail date compared previous years.

In addition, cancellation activity has now returned to pre-Covid levels.

Second half 2022 sailings are booked at higher prices than 2019, both including and excluding FCCs.

Europe has seen sluggish results due to Covid and the Russia-Ukraine war. Europe makes up about a third of the overall capacity.

As of June 30, 2022, the Group’s customer deposit balance was $ 4.2 billion, a record high for the company. This represents an increase of about $ 600 million over the previous quarter despite the significant quarter-over-quarter increase in revenue recognition.

Approximately 20% of the customer deposit balance as of the end of the second quarter is related to FCCs. Approximately 60% of the FCC balance accumulated since the start of the pandemic has been redeemed.

Silversea’s new ship comes with two years of no payments

Earlier this month, Silversea purchased the Crystal Endeavor for $ 275 million, but won’t make any payments on it for two years.

The transaction is fully financed through a 15-year unsecured term loan, guaranteed by the German export credit agency, Euler Hermes, and has no amortization payments in the first two years.

Silver Endeavor is scheduled to begin service winter 2022, spending its inaugural season in Antarctica starting November 2022.

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