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Royal Caribbean Cruises (RCL) misses second quarter 2021 outcomes

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Royal Caribbean Cruises reported disappointing second quarter results on Wednesday as the proliferation of the Delta variant dampened demand for short-term bookings and increased costs as the cruise line prepared ships to resume operations.

Shares closed on the news Wednesday, down 2.5% to $ 72.66. Royal Caribbean stock peaked over $ 99 in February on hopes the industry would rebound as more people were vaccinated. However, when vaccination rates slowed and the delta variant spread to the U.S., the stock pulled back. With the sell-off on Wednesday, shares have fallen 2.4% since the beginning of the year. Royal Caribbean has a market value of $ 18.43 billion.

The company performed in the second quarter ended June 30, compared to the expectations of the analysts surveyed by Refinitiv:

  • Loss per share: $ 5.06 adjusted vs. $ 4.39 expected
  • revenue: Expected $ 50.9 million versus $ 149.7 million

For the second quarter, the company’s net loss decreased to $ 1.35 billion, or $ 5.29 per share, from a loss of $ 1.64 billion, or $ 7.83 per share, a year earlier.

Excluding items, Royal Caribbean said it lost $ 5.06 per share, which was higher than the $ 4.39 per share loss anticipated by analysts surveyed by Refinitiv.

Royal Caribbean reported sales of $ 50.9 million, far less than $ 149.7 million analysts expected.

The company said that booking activity for 2021 cruises is consistent with expected capacity and occupancy increases, with prices higher than 2019, even with the diluting effects of future cruise credits. Travelers on cruises are also spending more than usual.

Bookings were up 50% from the first quarter, but the pace remains below 2019 levels. However, bookings accelerated as the quarter progressed. Through June, the company received 90% more bookings each week than it did in the previous quarter.

“While it is too early to draw any definitive conclusions about the impact of the Delta option on bookings, the company has a modest impact on closer bookings,” Royal Caribbean said in a press release. “However, 2022 will remain strong, with the spring and summer months developing well in particular.”

Earlier this week, the seven-day average of daily coronavirus cases in the US surpassed last summer’s high. The highly contagious delta variant is driving up the number of cases in the USA, especially among unvaccinated people. Recently, the Centers for Disease Control and Prevention reversed their guidelines on wearing masks for fully vaccinated individuals indoors.

“The return of the cruise was quicker than expected. … Overall, we remain optimistic about our rising course into the future,” said CEO and Chairman Richard Fain in a statement.

The cruise operator expects 65% of its fleet to be back in service by the end of the third quarter and 80% by the end of the year, Jason Liberty, executive vice president and CFO, said during a conference call on the results.

When the company put capacity back online in the last quarter, costs rose. Royal Caribbean’s average monthly cash burn rate was about $ 330 million in the second quarter. The company attributed the higher rate to the cost of putting additional ships into operation.

Royal Caribbean expects higher costs as the rest of its fleet is being prepared for gliding. There will also be costs for returning crew members to ships and implementing improved health and safety protocols.

It is expected to be about six months to break even from a cash flow perspective, Liberty said. It ended the quarter with $ 5 billion in liquidity.

On Friday, Royal Caribbean announced that six passengers on a cruise had tested positive for Covid. On Wednesday, the company announced that its procedures have helped prevent major outbreaks.

Vaccinations have played a key role, according to Fain. Excluding Singapore, 92% of those on board ships were fully vaccinated in July.

“The idea is to limit the spread of Covid-19 cases on board. We all know that it is impossible to completely clean up cases on board a ship, just as it is impossible to clean up cases on land, ”said Fain. “That is the goal: rare individual cases without significant spread.”

Starting in early August, all passengers 12 and over must be vaccinated on all US cruises except Florida. Florida passed law that bans companies from asking customers to provide proof of vaccination. In July, Norwegian Cruise Line filed a lawsuit to end this ban.

As the delta coronavirus variant continues to spread, Royal Caribbean began last week to require all travelers on U.S. cruises to test negative Covid for five days or more before boarding.

The cruise industry is one of the last to return to pre-pandemic operations. Several high-profile outbreaks on board ships at the start of the health crisis fueled fears about how easily the virus can spread on ships. The Centers for Disease Control and Prevention have strict guidelines in place to prevent further outbreaks.

Read the full Royal Caribbean Cruises press release.

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