Omicron delays return to profit but impact subsiding: Royal Caribbean

In reporting a wider than expected fourth quarter loss — $4.78 per share on an adjusted basis compared to Wall Street's $3.92 expectation — Royal Caribbean said Q4 occupancy was 59%, or 65% on core itineraries. Total revenue per passenger cruise day was up 10% versus record 2019 levels driven by strong onboard revenue. Total cash flow from ships in operation turned positive.

Twelve additional ships returned to service.

1.3m passengers carried in 2021

'During 2021, we made significant progress toward our recovery with over 85% of our capacity returning to operations and delivering safe and memorable experiences to approximately 1.3 million guests at record guest satisfaction scores,' President and CEO Jason Liberty said.

'We expect 2022 will be a strong transitional year, as we bring the rest of our fleet back into operations and well-nigh historical occupancy levels,' he continued. 'Omicron created short-term operational challenges that have unfortunately weighed on close-in bookings. While the timing of Omicron was particularly unfortunate for the first half of 2022 bookings and will likely delay our return to profitability by a few months, we do not expect it to impact our overall recovery trajectory and the strong demand for cruising.'

By the end of 2021, the Group had returned 50 of 61 ships to operations across its five brands, representing over 85% of its worldwide capacity. Record onboard spend per passenger was recorded.

Omicron caused some service disruptions and canceled several Q1 sailings, however Royal Caribbean still expects to operate approximately 95% of its planned capacity this quarter.

Bookings back to pre-Omicron levels

Q4 bookings were sequentially higher than in Q3. Due to Omicron, sales decreased in December and remained lower over the holiday period, but have started to increase with each consecutive week since the beginning of 2022 and are now back to pre-Omicron levels.

Cumulative advance bookings for the second half are within historical ranges and at higher prices, with and without future cruise credits.

The Group expects to return the full fleet to service before the summer season and with load factors approaching historical levels in Q3.

Cash-flow positive late spring, swing back to profit in second half

Royal Caribbean also expects to be operating cash-flow positive in late spring. A first half net loss is forecast, with a return to profitability in the second half.

Q4 results

US GAAP net loss was $1.4bn, or $5.33 per share, compared to the loss of $1.4bn, or $6.09 per share the prior year. The $1.2bn adjusted net loss, $4.78/share, compared to the $1.1bn loss, or $5.02/share a year ago. Revenues were $982m, lower than the $1.04bn consensus expectation.

Silversea

During Q4, the company eliminated the three-month reporting lag for Silversea Cruises to reflect the brand's financial position, results of operations and cash flows concurrently and consistently with Royal Caribbean's fiscal calendar. This resulted in a negative impact of approximately 25 cents per share, which was excluded from the Group's adjusted results for transparency and comparability purposes.

52 of 62 ships to be in service end Q1

Royal Caribbean said Q1 service disruptions have recently abated as COVID cases have declined, and the overall trajectory of the return to service remains unchanged. By the end of Q1, the Group expects 53 of its 62 ships to be back in service, with the rest of the fleet returning before the summer season.

First quarter load factors are expected to be lower than initially anticipated due to Omicron's impact, particularly on January sailings. As a result, load factors of approximately 60% are expected on core itineraries with sequential monthly improvement. The company anticipates approximately 7.7m average passenger cruise days in Q1 and cash flow from ships in operation to be positive.

Australia and China lags

Australia is anticipated to open for cruising for its summer season. China remains closed, and the company has redeployed ships planned for China to other core markets for the time being but said it remains optimistic to capture long-term growth opportunities in China.

Second half load factors in historical ranges at higher prices

Load factors for sailings in the first half of 2022 are expected to remain below historical levels, while load factors for the second half continue to be booked within historical ranges, at higher prices with and without FCCs.

Delayed and extended wave period

'Following a record US Black Friday and cyber weekend, the spread of the Omicron variant resulted in a softening in booking volumes and an increase in near-term cancellations,' CFO Naftali Holtz said. 'Similar to our experience following Delta, we expect bookings to materially increase as we get further beyond the peak of cases. We are already seeing cancellations subside and bookings improve to pre-Omicron levels, and we have adjusted our sales and marketing efforts in anticipation of a delayed and extended wave period.'

Customer deposits

At Dec. 31, the company had approximately $3.2bn in customer deposits, an improvement of about $400m over the previous quarter despite the significant quarter-over-quarter increase in revenue recognition and near-term cancellations due to Omicron, both of which reduce the customer deposits balance. The customer deposit balance at year-end for Q2 2022 forward sailings was higher than the balance held at the end of 2019 for Q2 2022 forward sailings.

Approximately 32% of the customer deposit balance is related to FCCs compared to 35% in the prior quarter, a positive trend indicating new demand.

Liquidity

At Dec. 31, liquidity was $3.5bn, which excludes proceeds from the $1bn unsecured bond offering completed Jan. 7.

During 2021, the company reestablished access to unsecured markets and refinanced $2.3bn of secured and/or guaranteed debt, in some instances reducing the coupon by up to 600 basis points.

In January, the Group issued $1bn of 5.375% senior unsecured notes due 2027. The company plans to use the proceeds to repay principal payments on debt maturing in 2022.

Currently there are $2.3bn in scheduled debt maturities for 2022.

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