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The big questions for Royal Caribbean's 4th quarter earnings call next week

In:
18Feb2021
By: 
Matt Hochberg

Royal Caribbean Group has scheduled its fourth quarter earnings call with investors, and this call is going to be our best chance at a tangible update on where things stand with the cruise line.

The purpose of the call is to provide a business update and discuss fourth quarter 2020 financial results.

Earnings calls are hosted by Royal Caribbean Group's top executives, and it is a combination of disclosures and Q&A. 

Royal Caribbean Group will host their call at 10:00 a.m. Eastern Time, Monday, February 22, 2021.

Executives may start off the call with some insight into where they see things headed in the near term, but the bulk of the call will be investors asking the cruise line executives about things not in the report, which may have an impact on guests as well.

As we gear up for this conference call, here are the big questions cruise fans are just as eager to know answers to as Wall Street.

When will test cruises begin?

If there is one milestone cruise fans and Wall Street is eager to see, it is test cruises beginning.

Test cruises are a requirement of the U.S. Centers for Disease Control (CDC)'s Conditional Sail Order to demonstrate that the new health protocols the cruise line proposes will actually work.

Test cruises are seen as an indication of progress, and the return of ships to sea for simulated voyages would be as important to the morale of the cruise industry, as it would be for satisfying the CDC's requirements.

Up until now, there has been no indication at all by any cruise line that test cruises are on the horizon.

Just last week, Vicki Freed, Royal Caribbean's Senior Vice President, Sales, Trade Support and Service, told travel agents there has not been any updates on test cruises because nothing is planned yet.

"The reason you haven't heard anything is because we don't have dates yet," Freed said. "We don't have any more information."

Read moreEverything you need to know about Royal Caribbean test cruises

When will cruises restart outside of Asia?

In conjunction with test cruises, the other major question is when will revenue sailings actually restart.

Wall Street has seen some pretty dismal numbers from Royal Caribbean Group since the cruise industry shut down.  Billion dollar losses are easier to tolerate if there is a plan for revenue to improve, and cruises need to restart for Royal Caribbean Group to return to profitability.

The reality is we will almost certainly not get any kind of firm answer on this topic.  However, there could be enough "reading between the lines" information for analysts to get a sense of confidence from the executives.

Even if we all know the answer is "no one knows", that will not stop analysts from asking (likely) many questions about it.

Read moreNo, nobody knows if the cruise you have booked will actually sail

How cooperative has the CDC been?

In the months since the CDC lifted the No Sail Order, there has been very little visible progress in cruise lines getting back to service and that has some wondering about the relationship between cruise lines and the CDC.

Carnival Corporation indicated during their quarterly earnings call this month that they are still waiting on the full instructions from the CDC, almost three months after the No Sail Order was lifted.

While Carnival did not come out and say it, it sounded like the CDC was dragging their feet in the process and it would not surprise me to hear at least one Wall Street analyst ask about the relationship with the federal agency, and what hurdles remain.

Royal Caribbean has not said much on the topic of the CDC, but Ms. Freed told travel agents that the cruise line has to "tread very carefully" when it comes to working with the government to get cruising restarted.

"We can't push them to make us sail," she said. "It has to be jointly agreed upon. We have to tread very carefully with them, and we want to work with them as a good partner. We don't have answers yet, because we're waiting for answers."

Read moreWhy haven't cruise lines been more aggressive with the CDC?

Any plans to sell more ships?

Royal Caribbean Group has sold Majesty and Empress of the Seas, as well all of Azamara.  Will more ships be sold?

Shoring up the company's bottom line has been something other cruise lines have done by selling cruise ships, and the question if more ships will be sold or scrapped remains a hot topic.

Cash is king for cruise lines right now, as the more money you have on hand, the longer you can survive the industry shutdown without revenue.  Outside of taking out new loans, selling ships has been a popular option for other cruise lines.

As we all know, these plans can change at any time, especially if the losses start adding up.

Read moreWhich Ships Did Royal Caribbean Sell?

New protocols

Assuming Royal Caribbean Group does not have all the answers on a firm restart plan, the next best thing to assuage investors is a plan for cruises to be able to restart in a safe manner.

While the Healthy Sail Panel has provided key recommendations on what it says cruise lines should do, Royal Caribbean has not specified exactly which of its Royal Promise rules are intended for Singapore sailings versus the entire fleet.

The new rules have an additional effect on the psyche of the public prior to cruises starting, by adding confidence that the operations are indeed safe. Similar to how airlines and local businesses added new protocols to keep guests safe, the cruise lines are looking to demonstrate the lengths at which they will go to in order to keep everyone healthy.

An update to the Cruise Contract provides insight into the direction they are thinking.

Read more: Top 10 most surprising new cruise health protocols

How strong is demand for cruises?

Royal Caribbean (and all cruise lines) are hurting financially now, but the promise of a better tomorrow is what investors are most interested in, especially once cruises can restart.

One of the saving graces for Royal Caribbean has been very strong demand for cruises in the months to come.

A combination of pent-up demand by the public to travel once the global health crisis eases, along with veteran cruisers eager to get back onboard has bolstered cruise bookings over the course of the next few months.

Investors will likely want to know how well-booked Royal Caribbean is not only for the remainder of 2021, but into 2022 and beyond. 

The exact date cruises will resume is unknown, but being able to hit the ground running with good demand will help Royal Caribbean rebound faster.

Read more: Latest update from Richard Fain

How you can listen to the earnings call

There will be full coverage of anything intriguing that comes out of Royal Caribbean Group's fourth quarter 2020 earnings call right here on RoyalCaribbeanBlog, but if you would like to listen on your own, here's how.

The call will be available on-line at the company's investor relations website, www.rclinvestor.com.  

You will be able to listen via the link provided close to the start of the call.