Royal Caribbean Group reports another big loss, but expects to be operating cash flow positive in late spring

04 Feb 2022
Matt Hochberg

Royal Caribbean Group posted its fourth quarter earnings on Friday, which includes a business update on how it plans to return to profitability.

As expected, the Omicron variant took a hit on Royal Caribbean Group's bottom line, which the company said impacted bookings.

Despite all the challenges, the company's plan for 2022 to be a "transitional year" to reverse its financial fortunes appears to be the plan.

Omicron impact

The Omicron variant of Covid-19 impacted ship operations and bookings during the fourth quarter.

Bookings in the fourth quarter were sequentially higher than the third quarter. Due to the impact of the Omicron variant, bookings 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.

"Following a record U.S. 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," said Naftali Holtz, chief financial officer. 

"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."

While Omicron caused several sailings to be cancelled, the good news is Royal Caribbean Group still expects to operate approximately 95% of its planned capacity in the first quarter of 2022.

Moreover, Royal Caribbean Group said service disruptions from the Omicron variant have recently become less widespread as Covid cases begin to drop.

Fourth quarter results

Royal Caribbean Group posted a $1.4 billion loss during the fourth quarter of 2021. They also posted an Adjusted Net Loss of $(1.2) billion.

Total revenue per Passenger Cruise Day in the fourth quarter was up 10% versus record 2019 levels driven by strong onboard revenue performance. 

Despite the impact from Omicron, total cash flow from ships in operation turned positive in the fourth quarter.

For the full year of 2021, Royal Caribbean Group reported US GAAP Net Loss of $(5.3) billion or $(20.89) per share compared to US GAAP Net Loss of $(5.8) billion or $(27.05) per share in the prior year. 

Cruise ship capacity in fourth quarter

In the fourth quarter, 12 additional ships returned to service.

Ships that operated the Group's core winter itineraries in the fourth quarter achieved a load factor of 65%, with 59% total load factor for the quarter.

More ships and higher capacities

The plan for Royal Caribbean Group going forward is to bring more ships back into service, and get more passengers onboard.

By the end of the first quarter of 2022, the Group expects that 53 out of 62 ships will have been brought back to service, with the rest of the fleet returning to operations before the summer season.

The delivery of Wonder of the Seas in January means the fleet is now up to 62 ships.

Royal Caribbean Group expects to return the full fleet before the summer season of 2022 and load factors approaching historical levels in the third quarter of 2022. 

Financial future

The Group expects total cash flow from ships in operation in the first quarter to be positive.   

Notwithstanding the impact from Omicron, the expectation is to be operating cash flow positive in late spring. They expect a Net Loss for the first half of 2022 and a return to profitability in the second half of 2022.

As of December 31, 2021, the company had approximately $3.2 billion in customer deposits. This represents an improvement of about $400 million 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. 

Matt started Royal Caribbean Blog in 2010 as a place to share his passion for all things Royal Caribbean with readers. He oversees all the writers at Royal Caribbean Blog, and writes a great deal of content on a daily basis.  He has become one of the foremost experts on a Royal Caribbean cruise.

Over the years, he has reached Pinnacle Club status with Royal Caribbean's customer loyalty program.

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