Royal Caribbean: Better Than Expected Q2 2023 Results

Royal Caribbean: Better Than Expected Q2 2023 Results

Royal Caribbeans Serenade of the Seas leaving the port of Vancouver, photo credit Spacejunkie2 Flickr

Royal Caribbean Group today reported second-quarter Earnings per Share of $1.70 and Adjusted Earnings per Share of $1.82.

These results were significantly better than the company’s guidance due to more robust pricing on closer-in demand and further strength in onboard revenue, the company said in a statement.

As a result of the accelerating demand environment for its vacation experiences, the company is increasing its 2023 Adjusted Earnings per Share guidance by 33% to $6.00 – $6.20.

“Our brands continue to fire on all cylinders, resulting in record yields and second-quarter earnings significantly exceeding our expectations,” said Jason Liberty, president and CEO, of Royal Caribbean Group. “Demand for cruising and our brands is exceptionally strong and we have seen another step change in booking volumes and pricing, leading us to now expect double-digit net yield growth for the full year. We also expect to achieve record Adjusted EBITDA per APCD and Return on Invested Capital this year and are well on our way toward achieving our Trifecta goals.”

Key Highlights

Strong ticket pricing from both North America and Europe itineraries, combined with strength in onboard revenue, led to better-than-expected revenues in the second quarter and a significant increase in the company’s full-year outlook for revenue and earnings.

Second Quarter 2023:

• Gross Margin Yields increased 13.1% As-Reported, and Net Yields increased 12.9% in Constant-Currency (12.6% As-Reported), both compared to the second quarter of 2019.
• Gross Cruise Costs per Available Passenger Cruise Day (“APCD”) increased by 10.9% As-Reported, and Net Cruise Costs (“NCC”), excluding Fuel, per APCD increased by 9.0% in Constant-Currency (8.6% As-Reported), both compared to the second quarter of 2019. The favourable timing of operating expenses was offset by the increase in stock compensation expense due to the rise in share price and expected financial performance.
• Total revenues were a record $3.5 billion, Net Income was $458.8 million or $1.70 per share, Adjusted Net Income was $491.7 million or $1.82 per share, Adjusted EBITDA was a record $1.2 billion and Operating Cash Flow was $1.4 billion.

Full Year 2023 Outlook:

• Net Yields are expected to increase 11.5% to 12.0% in Constant-Currency and As-Reported, compared to 2019.
• NCC, excluding Fuel, per APCD is expected to be up approximately 7.0% in Constant-Currency (6.7% As-Reported), compared to 2019.  The increase in costs, relative to previous guidance, is driven by an increase in stock compensation expense due to the rise in share price and expected financial performance.
• Adjusted Earnings per Share for the entire year are expected to be in the range of $6.00 to $6.20 per share.

Third Quarter 2023 Outlook:

• Net Yields are expected to increase 13.5% to 14.0% in Constant-Currency (14.0% to 14.5% As-Reported), compared to the third quarter of 2019.
• NCC, excluding Fuel, per APCD is expected to increase by approximately 11.2% in Constant-Currency and As-Reported, compared to the third quarter of 2019. Approximately half of the cost increase compared to 2019 is related to structural costs, a timing shift of operating expenses from the second quarter, and an increase in stock compensation expense.
• Adjusted Earnings per Share for the third quarter are expected to be in the range of $3.38 to $3.48 per share.

Second Quarter 2023

The company reported Net Income for the second quarter of $458.8 million or $1.70 per share compared to Net Loss of $(0.5) billion or $(2.05) per share for the same period in the prior year. The company also reported an Adjusted Net Income of $491.7 million or $1.82 per share for the second quarter compared to an Adjusted Net Loss of $(0.5) billion or $(2.08) per share for the same period in the prior year.

Second-quarter revenue significantly exceeded the company’s guidance due to higher pricing and higher shipboard revenue across the company’s key itineraries, including the Caribbean and Europe. The load factor for the second quarter was 105%.

Gross Cruise Costs per APCD increased by 10.9% As-Reported, compared to 2019. NCC, excluding Fuel, per APCD increased by 8.6% As-Reported and 9.0% in constant currency, compared to 2019.  Favourable timing of operating expenses drove NCC lower, however, it was offset entirely by an increase in stock compensation expense-related costs due to the significant rise in share price and expected financial performance.

Update on Bookings

Booking volumes in the second quarter remained significantly higher than in the corresponding period in 2019 and at record pricing levels. Demand for 2023 sailings has significantly exceeded expectations and bookings for 2024 sailings are up significantly versus all prior years at record prices. Demand from the North American consumer has remained incredibly strong throughout the year, and booking volumes from European consumers who are booking European cruises this summer have accelerated.

The further increase in yield expectations for the year is the result of higher pricing and onboard revenue expectations for key itineraries, particularly in North America and Europe.  Consumer spending onboard, as well as pre-cruise purchases, continue to significantly exceed 2019 levels driven by greater participation at higher prices.

As of June 30, 2023, the Group’s customer deposit balance was at a record-high $5.7 billion.

Royal Caribbean Proposes Refinancing on High-Interest Debt

Royal Caribbean Proposes Refinancing on High-Interest Debt

Independence of the Seas in Southampton, Photo credit Spacejunkie2 (Flickr)

Royal Caribbean Cruises Toady announced that it has commenced a private offering of senior guaranteed notes due 2029 for an aggregate principal amount of $1.0 billion and a concurrent private offering of senior secured notes due 2029, for an aggregate principal amount of $1.0 billion.

The Company intends to use the proceeds from the sale of the Senior Guaranteed Notes and the Senior Secured Notes, together with cash on hand, to redeem all its outstanding 9.125% Priority Guaranteed Notes due 2023 and 10.875% Senior Secured Notes due 2023, respectively, concurrently with the respective closing of the Senior Guaranteed Notes and Senior Secured Notes offerings (including to pay fees and expenses in connection with such redemptions).

The Senior Guaranteed Notes will be guaranteed on a senior unsecured basis by RCI Holdings LLC, which owns 100% of the equity interests of certain of the Company's wholly-owned vessel-owning subsidiaries.

The Senior Secured Notes will be guaranteed by Celebrity Cruises Inc., Celebrity Cruises Holdings Inc. and certain of the Company's wholly-owned vessel-owning subsidiaries. The Senior Secured Notes and the related guarantees will be secured by 26 of the Company's vessels and material intellectual property of the Company in an amount not to exceed permitted capacity under the Company's existing indebtedness.

The closing of each offering is not contingent upon the closing of the other offering.

Royal Caribbean Upsizes Fundraising, $1.25 Billion at 11.625 Percent

Royal Caribbean Upsizes Fundraising, $1.25 Billion at 11.625 Percent

Independence of the Seas in Southampton View Independence photos click here, photo credit Spacejunkie2 Flickr  

Royal Caribbean Group today announced that it has priced its private offering of $1,250,000,000 aggregate principal amount (up from the previously announced $1 billion) of 11.625% senior unsecured notes due 2027 (the "Notes").

The Notes will mature on August 15, 2027. The Notes are expected to be issued on or around August 18, 2022, subject to customary closing conditions.

According to a press release, the Company intends to use the proceeds from the sale of the Notes to repay principal payments on debt maturing in 2022 and/or 2023 (including to pay fees and expenses in connection with such repayments). Pending such uses, the Company may temporarily apply the proceeds to repay borrowings under its revolving credit facilities or other borrowings.

Silverseas Acquires Crystal Endeavour for $275 Million

Silversea Cruises has received court approval for the purchase of the ultra-luxury cruise ship Crystal Endeavor. 

Originally delivered to Crystal Cruises in 2021, the ship will be renamed Silver Endeavour when it officially joins the Royal Caribbean Group subsidiary later this month.

 

The purchase price for the vessel was $275 million and was fully financed through a 15-year unsecured term loan, guaranteed by the German export credit agency, Euler Hermes, with no amortization payments in the first two years.

 

The fifth expedition ship in Silversea’s fleet of 11, the vessel is scheduled to begin service in winter 2022/2023, spending its inaugural season in Antarctica starting November 2022.

 

"With Endeavour, we are seeking to grow our world-class fleet to meet the exceptional demand for ultra-luxury expedition cruising, while also enhancing our profitability profile and affirming Silversea’s position as the industry’s leading ultra-luxury and expedition cruise line," said Jason Liberty, president and chief executive of Royal Caribbean Group. 

Built to PC6 polar class specifications, the ship can operate all of Silversea’s current expedition itineraries and is designed to take travellers to remote destinations, including both polar regions.

 

As part of the ongoing RCL Cares program, Royal Caribbean Group will protect the deposits of guests who were originally booked on Crystal Endeavor and make a new booking on one of its brands – Royal Caribbean International, Celebrity Cruises and Silversea Cruises. 

 

To the extent the Crystal Endeavor guests do not receive their deposits back from Crystal or other sources, the Royal Caribbean Group will refund any amount paid on their new booking up to the number of their lost deposits from Crystal.

Royal Caribbean Group updates mobile app to offer more Covid-secure features

Royal Caribbean Group updates mobile app to offer more Covid-secure features

Royal Caribbean Group has improved its mobile app to feature the on-board safety drill to avoid passengers having to meet in large groups at muster stations on its cruise ships.

The Muster 2.0 safety drill can now be completed in passengers’ own time in their cabins via the cruise line’s mobile app instead of going to a muster station with other passengers at a set time.

The app, first introduced in 2017, is available on many Royal Caribbean International, Celebrity Cruises and Azamara ships.

Initially designed for passengers to make the most of their holiday, the mobile app is now being developed further to meet health and safety practices required as a result of the Covid-19 pandemic. It aims to help minimise common touchpoints and ensure physical distancing for passengers.

The app already has other features such as offering staggered arrival times for passengers to help avoid overcrowding at boarding and manage the car parks, drop-off areas and terminals to allow for social distancing.

Since 2018, customers have been able to check-in using the app, scan their passport information and upload a ‘selfie’ security photographs to speed up the boarding process and minimise time at check-in and security.

The app can also be used to unlock staterooms with a smartphone by downloading a digital key. In addition, customers can use their smartphone to control the TV, lighting, window shades and temperature in their cabins via the app.

Other features of the app include an onboard account where charges and credits can be viewed in real-time as well as details of onboard activities, entertainment, dining and shore excursions. These can all be booked through the app.

Royal Caribbean Group appoints a chief medical officer

Royal Caribbean Group appoints a chief medical officer

Royal Caribbean Group has named Dr Calvin Johnson as its global head of public health and chief medical officer.

In the newly-created role, he will lead the cruise giant’s global health and wellness policy across its brands Royal Caribbean International, Celebrity Cruises, Azamara and Silversea.

Johnson will manage the group’s public health and clinical practice, and determine its strategic plans and operations of its global healthcare organisation as well as collaborate with the Healthy Sail Panel which also involves representatives of Norwegian Cruise Line Holdings.

Richard Fain, chairman and chief executive of Royal Caribbean Group, said: “Calvin’s extensive experience in public health and clinical care will help us raise the bar on protecting the health of our guests, crew and the communities we serve.”

Dr Johnson was most recently principal at Altre Strategic Solutions Group and has previously served as chief medical officer for of correctional health care provider Corizon Health and for Temple University Health System.

He was also secretary of health for the Commonwealth of Pennsylvania from 2003-2008 and was medical director for the New York City Department of Health from 1998-1999.

Johnson has previously led response efforts during active infectious disease outbreaks and was responsible for ensuring all aspects of patient care while overseeing a clinical operation with 1,300 caregivers and more than 300,000 individuals.

He said: “Royal Caribbean Group is committed to going beyond requirements. I am excited to join the industry leader, who is clearly establishing the way forward in managing public health initiatives and protecting health and safety.

Johnson added: “The Healthy Sail Panel is doing critical work to help us develop enhanced standards, and achieve readiness for the return to service, and I am looking forward to being involved in that work.”

Royal Caribbean Group senior vice president for safety, security, environment, medical and public health, Jennifer Love, added: “Calvin will add critical expertise in our mission to elevate the quality of care. His appointment is a testament to our commitment to transforming healthcare for those we serve.”

Royal Caribbean Group extends cruise suspension

Royal Caribbean Group extends cruise suspension

Independence of the Seas in Southampton

Royal Caribbean Group has extended the suspension of its cruise operation in line with the US Centers for Disease Control’s

Cruise lines under the Royal Caribbean Group banner, including Royal Caribbean International, Celerity Cruises, Azamara and Silversea, will not sail before October.

Agents will be contacted about cruises their customers are booked on.

The move follow’s the US Centers for Disease Control’s No Cruise Order, essentially banning cruising up to July 24 to September 30.

Members of Cruise Lines International Association (Clia) had already voluntarily suspended cruises up to September 15.

A Royal Caribbean Group spokesperson said: “The health and safety of our guests, crew and the communities we visit is our top priority. As we work with the CDC and others toward this shared goal, Royal Caribbean Group will be extending the suspension of sailings to include those departing on or before September 30, 2020.

“We will be reaching out to our guests and travel partners to share further details and address any questions or concerns they may have.”

Pullmantur Fleet Will Likely Be Scrapped

The end may be nearing for the Monarch, Sovereign and Horizon as the trio of former Pullmantur ships could be heading for dismantling in Turkey, according to sources familiar with the matter.

Pullmantur filed for reorganization under Spanish insolvency laws in June, with Royal Caribbean Cruises essentially taking the ships back from the Spanish brand at the same time, and telling Cruise Industry News the vessels were being transitioned to cold lay-up.

Crew members aboard the fleet said important items of value have been removed from the vessels, which will now end up in Aliaga, Turkey, a coastal town known for its ship-scrapping business. 

A request for further information sent to Royal Caribbean Cruises went unanswered.

The Pullmantur Fleet:

Horizon
Built: 1990
Capacity: 1,828
Notes: Launched as the Celebrity Horizon. Has also spent time under the Island Cruises and CDF umbrellas.

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MonarchBuilt: 1991
Capacity: 2,850
Notes: Launched as the Monarch of the Seas for Royal Caribbean International in 1988; moved to Pullmantur in 2013.

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Sovereign
Built: 1988
Capacity: 2,850
Notes: Launched as the Sovereign of the Sea for Royal Caribbean International in 1988, becoming the largest cruise ship in the world at the time. Transferred to Pullmantur in 2008.

Carnival Corporation Downgraded to Junk Status

A person stretches at a park overlooking the Pacific Ocean and Carnival Panorama cruise ship as authorities encourage social distancing to prevent the spread of coronavirus disease (COVID-19) in Long Beach, California Sunday, March 29, 2020. REUTERS/Patrick T. Fallon

Rating agency Standard & Poor’s on Tuesday downgraded bonds of Carnival Corp to junk status, forecasting continued weak demand for the cruise industry hammered by the COVID-19 pandemic.

Standard & Poor’s cut its rating on the world’s biggest cruise operator’s secured bonds to ‘BB+’ from ‘BBB-‘, and its unsecured bonds to ‘BB-‘ from ‘BBB-‘. Both are now regarded as non-investment grade or junk bonds.

Carnival’s overall issuer credit rating was also lowered to ‘BB-‘ from ‘BBB-‘. Last month, Moody’s Investors Service also cut the company’s rating to junk status.

Earlier in June, Carnival reported a record $4.4 billion in preliminary quarterly losses after its business was crippled by the health crisis, forcing it to take major write-downs on the disposal of some docked ships.

The company, which in recent weeks fully drew down a $3 billion credit line and issued $6.6 billion in bonds and equity, has also been looking for further waivers on debt repayments due next year, without which it could breach some loan conditions.

“We forecast that the company’s credit measures will remain very weak through 2021 and anticipate that its adjusted leverage may potentially exceed 10x in 2021 following a significant deterioration in its performance in 2020,” S&P said in a statement.

S&P has a “BB” issuer credit rating, also a junk status, on Carnival rival Royal Caribbean Corp. (Reporting by Uday Sampath in Bengaluru; Editing by Shinjini Ganguli)

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