Royal Caribbean beats Q2 on strong close-in demand, sees Q3 profit

The company reached two milestones — returning its entire fleet to service in June and delivering positive operating cash flow and EBITDA.

Adjusted net loss was $0.5b, or $2.08 per share, lower than Wall Street's projected loss of $2.20 per share, and compared to adjusted net loss of $1.3bn, or $5.06 per share, a year ago. US GAAP net loss was $0.5b, or $2.05 per share, against the year-ago net loss of $1.3b, or $5.29 per share.

Revenue was $2.2b.

'Robust and accelerating demand'

'We continue to see a robust and accelerating demand environment for cruising and onboard 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,' President and CEO Jason Liberty said. He added liquidity remains strong and, with all ships in service, 'We have the full strength of our platform as we continue to execute on our recovery and build on our capabilities for long-term success.'

82% load factor and climbing, triple-digits by year-end

Second quarter load factor was 82% overall, with June sailings reaching almost 90% and Caribbean itineraries averaging over 100%. The company expects overall occupancy to edge up to 95% in Q3 and increase to triple digits by year-end.

Q3 profit but 'slight' second half net loss

For the first time in the pandemic, Royal Caribbean Group gave specific guidance range for a future quarter, and it's a return to profit.

For Q3 and based on current currency exchange rates, fuel rates and interest rates, the company expects to generate approximately $2.9b to $3b in total revenues, adjusted EBITDA of $700m to $750m and adjusted EPS of 5 cents to 25 cents.

This, however, is lower than Wall Street's 91 cents per share consensus.

The Group expects a 'slight' net loss in the second half of 2022 due to increases in fuel rates, interest rates and foreign exchange rates.

Q2 details

Q2 results exceeded expectations driven by better revenue and cost performance. Total revenues per passenger cruise day were at record levels and up 4% as reported and 5% in constant currency versus Q2 2019.

Net cruise costs, excluding fuel, per available passenger cruise day, improved 16.5% as reported and 16.2% in constant currency, compared to Q1. This included $7.75 per APCD related to enhanced health protocols and one-time costs to return ships and crew to operations.

All destinations but China

Royal Caribbean Group is now offering cruises in all of its key destinations with the exception of China, which remains closed. Ships planned for China have been temporarily redeployed to meet the demand in other markets.

The Group expects to operate approximately 11.6m APCDs for Q3 and 11.5m APCDs in Q4. Third quarter load factors are expected to average approximately 95%, with North American itineraries (including the Caribbean, Alaska, Bermuda, West Coast and Canada) averaging about 100%.

Net cruise costs, excluding fuel, per APCD are expected to significantly improve in the second half of the year compared to the first half of 2022 and be higher for the second half of 2022 by mid-single digits compared to the second half of 2019 all on a constant currency basis. The improvement is driven by lower expenses related to returning ships and crew to operations, easing health protocols and accelerating benefit from actions taken to improve margin.

Some of the improvement is partially offset by inflationary and supply chain challenges, mainly related to fuel and food costs.

Bookings update

Booking volumes received in Q2 for 2022 sailings averaged 30% above 2019 Q2 booking volumes for 2019 sailings with even greater strength in July. Travelers are still booking closer-in compared to prior years, contributing to the better-than-expected load factors in the recent quarter.

The second half of 2022 is booked below historical ranges but at higher prices than 2019, with and without future cruise credits.

Booking volumes for 2023 have shown consistent improvement week over week and have been accelerating over the last several weeks. Pre-cruise onboard purchases continue to exceed prior years at higher prices, indicating 'quality and healthy' future demand. As a result, all quarters are currently booked within historical ranges at record pricing.

Cancellation activity has now returned to pre-COVID levels.

Impact of Russia's war in Ukraine

While demand for the critical Europe season has been strong over the past three months, the combination of COVID-19 and the Russia-Ukraine war has set back load factor recovery, particularly for Q3, where European itineraries account for about a third of overall capacity.

Because European itineraries generate higher than average pricing, the lower load factors are expected to negatively impact the comparison of fleetwide revenue per passenger cruise day in Q3 when compared to Q3 2019.

Record-high deposits

As of June 30, the customer deposit balance was $4.2b, a record high for the company. This represents an increase of about $600m over the previous quarter despite the significant quarter-over-quarter increase in revenue recognition. In Q2, approximately 90% of total bookings were new versus FCC redemptions.

About 60% of the FCC balance accumulated since the start of the pandemic has been redeemed. Of the redeemed FCCs, approximately half have already sailed resulting in revenue being recognized.

For new bookings, the Group has returned to typical booking and cancellation policies, which were relaxed during the pandemic.

$3.3b liquidity

As of June 30, Royal Caribbean Group's liquidity position was $3.3b, including cash and cash equivalents, undrawn revolving credit facility capacity and a $700m commitment for a 364-day term loan facility. During Q2, the company generated operating cash flow of approximately $0.5b. The scheduled debt maturities for the remainder of 2022 are $1.6b.

Add Seatrade Cruise News to your Google News feed.