Royal Caribbean stock rises as executives tout remarkable demand for 2021 cruises

Shares of Royal Caribbean jumped 10% Monday after a pent-up demand and remarkable bookings for its international cruises in 2021, despite reporting a $1.6 billion loss for the second quarter and a cash burn rate in excess of $250 million a month. The industry suspended global operations about five months ago after several outbreaks of the covid left passengers and crew under quarantine aboard ships, drawing international attention. Much of the cruise industry, including Royal Caribbean, initially suspended sailings until mid-April 2020 only to extend it several times.

Most cruise operators now do not expect to be sailing again until at least October 31st 2020. But shares of Royal Caribbean continue to recover from its low of $19.25 per share in March, rising to more than $57 per share on Monday as the company touts a strong financial position and hopeful year-ahead bookings. Royal Caribbean hit a 12-month high of $135.32 a share in January 2020.

There is a pent-up demand. People are frustrated being at home and being isolated. Royal Caribbean’s core destinations, which include Alaska, the Caribbean, and Europe, are already popular for the 2021 season. While many of the new bookings are actually rescheduled cruises that were canceled due to the pandemic, more than 60% of Royal Caribbean’s bookings received since mid-May 2020 have been new bookings.

Royal Caribbean has been both humbled and surprised with the amount of bookings it is seeing for 2021 with literally no marketing efforts.

The tone of its bookings has been encouraging. Families want and need to vacation. It is quite remarkable that Royal Caribbean has seen the surge in bookings despite very limited to no marketing. Royal Caribbean is monitoring the global covid pandemic for opportunities to safely resume operations. The company is watching the situations in Germany and Italy.

Royal Caribbean is hopeful about the Australian and Chinese market as well as different countries’ respond to the virus. It may resume operations in China or Australia before the end of October 2020, it is uncertain but there is some possibility. The company and rival Norwegian Cruise Line established the “Healthy to Sail Alliance” group to help them win regulatory approval to sail again.

The “Healthy to Sail Alliance” group, is co-chaired by former Food and Drug Administration (FDA) Commissioner Doctor Scott Gottlieb and former Utah Governor Mike Leavitt, who served as secretary of Health and Human Services (HHS) under former President George Bush. The panel is working on a proposal to present to governments to win approval to resume sailing. Royal Caribbean has a strong balance sheet and plenty of liquidity to weather a potentially prolonged low- or no-revenue situation.

The past few months have been very painful, but Royal Caribbean raised fresh liquidity quickly and aggressively early in the crisis.

Royal Caribbean ended the quarter with about $4.1 billion in liquidity, having raised about $6.5 billion since the crisis began. The company expects to burn between $250 million and $290 million in cash per month, but that excludes refunds of customer deposits, scheduled debt maturity commissions, and expected revenue from new bookings. It is looking for ways to reduce its cash burn.

Royal Caribbean declined to offer guidance for the 2020 fiscal year, citing uncertainty related to the pandemic. The company is evaluating the possibility of selling ships to further its financial position. What it has been doing is it has been very clear on what its monthly burn rate is and it is taking steps to constantly improve its liquidity.