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How Do Cruise Lines Make Money?


As we approach the one-year mark since cruises stopped sailing from North America, lines still find themselves passengerless, staffed by skeleton crews and clinging to revenue generated from bookings that haven't slowed, despite ongoing cancellations.

But booking revenue isn't enough, and parent companies of the world's most well-known brands have had to take drastic measures to avoid completely shuttering operations.

So, how do cruise lines make their money? Here, we'll take a general look at their sources of income and some of the options they have when traditional income sources dry up.

Note: Keep in mind that not all money generated is profit. Cruise lines have many expenses -- payroll, ship maintenance and upkeep, fuel, provisions, port fees and taxes, partnership fees, advertising and marketing costs -- that eat into their bottom lines.

1. Cruise Fares

For most lines, cruise fares -- the bare minimum base prices passengers pay to book cabins, with no extras -- are the main income driver. Rough estimates indicate that bookings usually account for about 75% of money brought in.

Unless a line has solo cabins available to book or there's a sale that discounts or waives single supplements, fares are based on double occupancy -- at least two people to a room.

That means when a line lists a fare for a particular cabin on a particular ship, it expects to receive double that amount when the stateroom is booked.

It's interesting to note that, although ships usually have fewer suites available than other types of accommodations, the money generated from a single suite booking can be the same as what the line makes through the booking of several less-expensive staterooms.

2. Onboard Purchases

Fares account for the majority of most cruise lines' gross income, but strong booking numbers aren't enough to keep the lines afloat without cruisers actually sailing in order to supplement fare-generated earnings with onboard spending.

These expenditures might include alcohol, alternative dining, spa treatments, casino play and Wi-Fi access, among other items that enhance the vacation experience.

Because this supplemental income is so essential, many lines have added lots of new ways for passengers to part with their cash, from arcade games and extra-fee ice cream to skydiving and escape rooms.

3. Add-ons

In addition to onboard purchases, there are plenty of cruise add-ons that passengers can book for use ashore.

Among these are shore excursions, cruise tours (including cruise line-affiliated hotels and train rides in some locations), wedding packages and transportation (such as pre- and post-cruise shuttles).

Combined with the above onboard purchases, these add-ons account for approximately 25% of cruise lines' gross income.

4. Investors and Shareholders

To keep a steady flow of cash that they can, in turn, reinvest back into their brands, publicly owned cruise line parent companies sell stocks -- small pieces of each company -- to shareholders.

On a larger scale, parent companies -- Royal Caribbean Group, Carnival Corp. and Norwegian Cruise Line Holdings, for example -- can bring on larger investors who back them financially in exchange for a substantial stake and, often, decision-making privileges.

5. Loans

Because 2020 was a year like travel has never seen, many lines' parent companies were forced to put themselves tens of billions of dollars in debt to cover operating expenses.

It's not a favorable option, but the cruise industry's recent reliance on credit has helped consumers to maintain confidence in their favorite lines, despite substantial hits that have caused cruise-relate stock prices to plummet.

6. Sales

It's not an ideal situation, but when circumstances warrant drastic action, cruise lines can sell their physical hardware -- ships, usually their oldest vessels -- to decrease operating expenses and bring in a small bit of revenue.

Sometimes those ships are sold to other lines, but often they are sent to scrapyards, where they're beached and crews dismantle them, piece by piece.

Parent companies can also resort to selling off entire fleets, along with the rights to the brand under which they sailed. We saw this happen in early 2021 when Royal Caribbean Group parted with Azamara Cruises, selling it to a private equity firm for just $201 million.

Why did Royal Caribbean's stock go up after losing a billion dollars?


Royal Caribbean Group announced it lost $1.4 billion in the fourth quarter of 2020, but its stock price jumped up by 9% and perplexed quite a few people.

How could a company that loses so much money get investors to want to buy that stock?

Many cruise fans openly wondered how this could be the case.

On the RoyalCaribbeanBlog Facebook page, a few readers were curious why Royal Caribbean's stock shot up following the announcement of the loss.

Frank Vogt wrote, "And yet their stock is up $7.88 today...I'm happy but just don't understand why it keeps going up."

Profits and losses aren't everything

The reason Royal Caribbean's stock went up after posting a big loss is a reflection of how the stock market works, and what investors look for in any company.

Dan Kline, lead advisor/host of 7investing Now, explained why stocks do not always go the way you might think based on quarterly results, "Stocks don’t always behave logically after earnings.

"Apple, for example, posted an amazing quarter and its share price went down. In the longer-term, it will go up."

Investors consider a wide range of variables and benchmarks when looking at any stock. Given the information they have access to, investors might make certain estimates on what seems reasonable and/or likely for that company to achieve.

They not only consider the profits and losses now, but also the long-term future of the stock.

Generally, analysts predict a company's earnings per share (EPS) and revenue numbers for the quarter, fiscal year, and future fiscal years.

What did Royal Caribbean do right?

Mr. Kline explains why Royal Caribbean's stock jumped, despite the loss."In the case of RCL, the loss was expected but the picture going forward looks optimistic. People are buying shares based on that optimism."

"This remains a very risky play as lots of things could prevent a return to cruising. I own some RCL and some CCL, but they are less than 2% of my portfolio combined."

Helping Royal Caribbean's cause was a bullish call with investors, where cruise line executives provided encouraging news and a positive outlook on where things are going.

Read moreRoyal Caribbean talks vaccine impact, Cruises to Europe in 2021, Cuba and more

Specifically, Royal Caribbean pointed to strong demand for cruises in 2021 and 2022, as well as imminent progress being made with the U.S. Center for Disease Control (CDC) which could lead to test cruises starting.

The amount of cruises booked for the second half of 2021, as well as 2022, was a good start.  On top of that, executives said bookings are higher than 2019 both including and excluding the dilutive impact of future cruise credits.

Mr. Kline added the company's comments gave him more confidence in the direction Royal Caribbean is going, "I think that I'm confident that RCl won't go bankrupt after what their CEO said."

"They have significant cash on hand and booking trends ae encouraging. I'm surprised that Richard Fain went out of the way to say that it had future bookings from a fair amount of new customers. I would have expected mostly returning regulars like me."

"It's still a lot of risk, but it does seem like a comeback is more possible, even likely, than it was even a few weeks ago and investors are picking that up. This is a very long-term investment, however, as the financial hole is deep."

Royal Caribbean talks vaccine impact, Cruises to Europe in 2021, Cuba and more


Royal Caribbean held an hour long meeting with Wall Street investors that touched on topics ranging from what the vaccine rollout is doing to help bookings and protocols, booking trends, Cuba cruises and much more.

Financial analysts asked Royal Caribbean Group executives a myriad of questions surrounding their near- and long-term futures that provided interesting insight into what they are seeing and expecting right now.

Here is a breakdown of some of the most interesting anecdotes to come out of the call.

Cruising in a vaccine world

One major change since the last earnings call with investors is the role of the Covid vaccine.  It has gone from theoretical to beginning widespread distribution, and it has fundamentally changed how Royal Caribbean and governments seen cruise ships restarting.

When Royal Caribbean Group produced their 74 recommendations for cruise ships to restart sailings safely, it was crafted without vaccines in mind, but the world is changing.

Royal Caribbean Group Chairman and CEO Richard Fain sees early 2021 as an interim period, where the vaccines are still relatively new.

"They're coming out amazingly quickly, but it still is going to take months to get huge numbers of people vaccinated."

Neither the cruise lines or governments have answers yet on how effective the vaccines are, and what effect they will have on the populous, but Mr. Fain is optimistic based on the results of Israel, where a speedy rollout has spurred a quick return to normalcy.

"We think that the vaccine is, of course, the ultimate weapon and the fact that it is coming out and beginning to come out so quickly and that the pace of that is growing will be a basis for a new set of of approaches."

Mr. Fain admitted no one knows yet what those new vaccine-bolstered protocols will look like.

Read moreRoyal Caribbean adds COVID-19 into cruise contract for all passengers

What will cruises in Europe be like 2021?

A lot of attention has been placed with the CDC and cruise lines in North America, but what about cruises to Europe where American regulations do not apply?

Royal Caribbean International President and CEO Michael Bayley confirmed that while their sailings in Europe are not subject to the CDC jurisdiction, he believes they will be guided by the protocols coming from either the Healthy Sail Panel, European Union, or U.K.

"We know that the operations in some of the European countries, particularly Germany, Italy, have been ongoing for the past couple of month... and those protocols that have government operations have basically been based on the Healthy Sail Panel or the CLIA member policies, and then overlaid with specific instructions by the National Health Authority."

"I think what we're going to see is very similar to what we're going to see in the United States, which is as we continue to see infections decline and vaccines increase, then we're going to move to protocols that probably are some kind of hybrid between vaccines and testing."

"We imagine that they'll be very similar to the guidelines that we'll get from the CDC."

Read moreRoyal Caribbean expecting CDC's technical instructions "any day"

Correlation between vaccine distributions & new bookings

Perhaps nothing has been more beneficial to Royal Caribbean's bottom line or overall morale than the rollout of Covid vaccines.

Mr. Bayley noted almost as soon as vaccines got approval, bookings jumped, "One of the things that we've seen really after we came out of the holidays early in January, is a proportional increase in the number of guests booking who were 65 plus, and that is continue to increase."

"Our belief is, is that 65 plus are getting vaccinated, then they're obviously becoming more comfortable with booking, and we're seeing that very much in our bookings from about January forward."

"As the vaccine spreads down into the population by age, we'll see that probably accelerate."

Royal Caribbean Group Chief Financial Officer Jason Liberty added that while experienced cruisers have been the backbone for bookings since the shutdown, there has been more recently an increase in new cruisers booking around the same timeframe Mr. Bayely talked about.

"As the vaccines are being rolled out, we're seeing that there's a pretty strong relationship to booking volumes and and vaccines."

"What we have seen more recently, though, it's not back to where it was pretty Covid, there has been an increase in first two crews coming back into the space."

"It's also building confidence that we're getting closer to the other side of this and people are beginning to realize that that travel should be here sooner rather than later."

98% of crew members in favor of getting vaccinated

Royal Caribbean recently announced it plans to get all of its crew members vaccinated, and that has overwhelmingly been met with positivity by the crew.

Mr. Bayley said Royal Caribbean sent out a survey to all of their crew members last week, which totals around 70,000 employees.

Of the 32,000 responses they got within 12 hours, 98% of all of the crew who responded they were in favor of being required to get the Covid vaccine in order to work.

"We also learned that over 4000 of our crew have already been vaccinated at home."

"I think we are very encouraged by the results."

Read moreIt looks like Royal Caribbean will vaccinate its crew members

There is at least one ship that can still go to Cuba

As soon as Royal Caribbean announced Majesty of the Seas and Empress of the Seas would be sold, there was immediate concern there would not be a ship capable of going to Cuba if that ever re-opened.

Michael Bayley was equally concerned when the news came there was a buyer.

"We do have a ship, ships, that will fit into into Cuba if that should come back."

He did not specify which vessel that was.

Read moreRoyal Caribbean sold two smaller cruise ships with enormous legacies

Will they sell more cruise ships?

Could Royal Caribbean sell more cruise ships? It depends on the opportunity.

Jason Liberty said Royal Caribbean will remain "opportunistic".

"I think we need to remember that pre-pandemic, all of these ships generated quite a bit of cash flow."

"For us typically to test on on a ship is a little bit less about the cash that we would receive; It's more strategic on whether we think this ship, whether it's in its current state or through some moderate investment, fits our brands."

Royal Caribbean Group lost over $5.8 billion in 2020


Royal Caribbean Group released its fourth quarter and full year 2020 financial results, along with an update on its business operations.

All cruise lines have been ravaged by the effects of the industry shutdown, and Royal Caribbean Group is no exception.

For the full year, Royal Caribbean Group reported US GAAP Net Loss of $(5.8) billion or $(27.05) per share compared to US GAAP Net Income of $1.9 billion or $8.95 per share in the prior year. Royal Caribbean Group also reported Adjusted Net Loss of $(3.9) billion or $(18.31) per share for full year 2020 compared to Adjusted Net Income of $2.0 billion or $9.54 per share in the prior year.

In the fourth quarter 2020, Royal Caribbean group has a US GAAP Net Loss $(1.4) billion or $(6.09) per share and Adjusted Net Loss was $(1.1) billion or $(5.02) per share. 

"These results reflect the staggering impact that the pandemic brought to our Company and the whole industry during 2020," said Jason T. Liberty, executive vice president and CFO.

"The COVID-19 pandemic is having a painful and profound impact on our world and our business; unquestionably, this crisis is the most difficult in the Company's history. But we have been impressed and grateful for the resourcefulness and agility of our team in responding to these unprecedented challenges. More importantly, we remain confident about the ability of our Company to recover and return to the positive trajectory we were on previously," said Richard D. Fain, Chairman and CEO. "We are encouraged to see the sharp decline in cases and the growing availability of vaccines. We can't wait to get back to the business of showing people the world and making great memories."

Working towards a restart

While much of their operations remain shutdown, Royal Caribbean Group is still working towards getting back into service.

The cruise line said it is working to meet the requirements of the Framework for Conditional Sailing Order issued by the U.S. Centers for Disease Control and Prevention (CDC) for US sailings, but obstacles remain.

Specifically, Royal Caribbean Group called out the "many uncertainties" that remain regarding the specifics of the plan.  This seems to echo Carnival Corporation's comments that they are still waiting on basic instruction from the CDC on how to proceed.

Read moreWhat are the chances my cruise will sail?

In addition, the timing and cost of implementing the CDC's requirements remains in question.

Nonetheless, Royal Caribbean Group expects to re-start its global cruise operation in a phased manner with the initial cruises having reduced guest occupancy, modified itineraries and enhanced health and safety protocols.

Read moreIs there a pattern to when Royal Caribbean cancels cruises?

Financial state

In 2020, Royal Caribbean Group raised approximately $9.3 billion of new capital through a combination of bond issuances, common stock public offerings and other loan facilities.

As of December 31, 2020, the Company had liquidity of approximately $4.4 billion, including $3.7 billion in cash and cash equivalents and a $0.7 billion commitment from a 364-day facility

The current cash burn is, on average, in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations.

This range includes all interest expenses, ongoing ship operating expenses, administrative expenses, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes changes in customer deposits, commissions, principal repayments, and fees and collateral postings related to financing and hedging activities. 

Once ships begin to move to restart operations, that spend will increase as it brings the ships out of their various levels of layup, returns the crew to the vessels, takes the necessary steps to ensure compliance with the recommended protocols and gears up its sales and marketing activities.

New ships

A few new ships are still "on the books" for Royal Caribbean Group, with financing committed to it.

Odyssey of the Seas and Silver Dawn should be delivered during the first and fourth quarters of 2021, respectively.

Read moreOdyssey of the Seas should begin her conveyance soon

Wonder of the Seas and Celebrity Beyond both have their financing committed for 2022.

Excluding the newbuild deliveries, the capital expenditures for 2022 will depend on the Company's schedule to return to service.

Cruise bookings update

The good news is bookings for cruises in the second half of 2021 are "aligned with the Company's anticipated resumption of cruising."

In fact, pricing for 2021 bookings is higher than 2019.

Cumulative advance bookings for the first half of 2022 are within historical ranges and at higher prices. Royal Caribbean believes this highlights a strong long-term demand for cruising.

Since the last quarter, approximately 75% of bookings made for 2021 are new and 25% are due to the redemption of FCCs and the "Lift & Shift" program. 

As of December 31,2020, the Company had $1.8 billion in customer deposits of which 50% are related to FCCs. Since the suspension of operations, approximately 53% of the guests booked on cancelled sailings have requested cash refunds.

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


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,  

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

Could Pullmantur return with a new fleet of former Celebrity Cruises cruise ships?


Pullmantur Cruises, which is partially owned by the Royal Caribbean Group, might be able to survive filing bankruptcy and selling off its fleet of cruise ships in order to return next year.

Europapress reports Pullmantur has reached an agreement with the Royal Caribbean Group to allocate the necessary funds so that it could restart operations eventually. 

In fact, restart plans could involve acquiring two Celebrity Cruises Millennium Class cruise ships as part of the plan. The ships would provide significantly more balcony staterooms than Pullmantur's old fleet had.

The financial filings did not disclose which of the Millennium class ships might be headed to Pullmantur.


The business plan filed in Spanish bankruptcy court includes offering Future Cruise Credits for guests that were booked on Pullmantur to be used on either Royal Caribbean International or Celebrity Cruises. Refunds would also be made available if the customer prefers.    

"We believe in the possibilities of a shipping company of the stature of Pullmantur and we are working intensively on the business plan with the aim of betting on the viability of the company," said bankruptcy administrator Francisco Vera.


Pullmantur was one of the early victims of the cruise industry shutdown, and filed for bankruptcy protection in June 2020.

 Two former Royal Caribbean ships, Monarch of the Seas and Sovereign of the Seas, were sold to a Turkish scrapyard.

Royal Caribbean stock jumps after COVID-19 vaccine is 94% effective


Royal Caribbean shareholders have started their week on a positive note thanks to excellent COVID-19 vaccine news.

Royal Caribbean (RCL) shares jumped by almost 10% on Monday (it closed up almost 7% at the end of trading) after pharmaceutical company reported its vaccine tests showed 94.5% effectiveness.

The good news spurred all cruise line stocks to spike even before the market opened.

Moderna's results are on top of last week's Pfizer's results that showed its vaccine candidate was more than 90% effective.

Moderna says about 20 million doses will be available in the United States by the end of this year, and have between 500 million a 1 billion doses worldwide in 2021.

The company says it will apply for Emergency Use Authorization with the U.S. Food and Drug Administration within the coming weeks.

Vaccine results

During Moderna's late-stage trials, 15,000 study participants were given a placebo, which is a shot of saline that has no effect. Over several months, 90 of them developed COVID-19, with 11 developing severe forms of the disease.

Another 15,000 participants were given the vaccine, and only five of them developed COVID-19. None of the five became severely ill.

Moderna says its vaccine did not have any serious side effects. A small percentage of those who received it experienced symptoms such as body aches and headaches.

The vaccine is not only more effective than Pfizer's vaccine, but it can be stored for up to six months when stored at standard freezer temperatures of -4 degrees Fahrenheit, compared to the -94 degree temperatures required for the Pfizer vaccine. 

Both vaccines are using messenger RNA, or mRNA to produce an immune response in the vaccine.

The mRNA vaccine approach uses genetic material called mRNA to trick cells into producing bits of protein that look like pieces of the virus. The immune system learns to recognize and attack those bits and, in theory, would react fast to any actual infection.

Vaccine potential great news for Royal Caribbean

While the cruise industry's attempt to restart operations does not rely on a vaccine, it certainly will do nothing but help their cause.

Royal Caribbean Group Chairman and CEO Richard Fain spoke on Monday about the "transformational" progress being made on the vaccine front.

"The most at risk Americans will be vaccinated first, and then it will spread throughout our population."

"I noticed that Dr. Fauci said he believes that any American who wants one will be able to get an inoculation by April of next year. That's exciting news."

While it waits for a vaccine, the cruise industry will rely on a multi-faceted approach to mitigate risk by relying on social distancing, reduced ship capacity, and 100% testing of everyone onboard.

Royal Caribbean stock surges after COVID-19 vaccine tests are more than 90% effective


If you own Royal Caribbean stock, today is a great start to your portfolio for the week.

Royal Caribbean, and the entire travel sector, saw enormous gains in pre-market trading that has continued through the day thanks to positive news about COVID-19 vaccine trials.

Pharmaceutical giant Pfizer said early data from its coronavirus vaccine shows it is more than 90% effective, which is better than expected results.

Royal Caribbean's stock was trading at around 25% higher than its opening price, and thee momentum started with pre-market trading nearly as soon as Pfizer made its announcement.

Not only did the news buoy Royal Caribbean's stock, but other cruise lines saw similar gains as well.  In fact, travel industry stocks across the board have seen large gains on Monday.

Vaccine test results

Pfizer says the interim analysis looked at the first 94 confirmed cases of COVID-19 among the more than 43,000 volunteers who got either two doses of the vaccine or a placebo.

It found that fewer than 10% of infections were in participants who had been given the vaccine. More than 90% of the cases were in people who had been given a placebo.

The vaccine is being developed with German partner BioNTech had an efficacy rate higher than 90% at seven days after the second dose, which means protection is achieved 28 days after a person begins vaccination. 

The vaccine requires two doses. 

The reason why the 90% mark is such good news is because the US Food and Drug Administration (FDA) said it expected at least 50% efficacy from any coronavirus vaccine.

In a press release, Pfizer said it plans to seek emergency use authorization from the FDA soon after volunteers have been monitored for two months after getting their second dose of vaccine, as requested by the FDA.

Pfizer said it anticipated reaching that marker by the third week of November.

Next steps for the vaccine

Phase 3 of Pfizer's vaccine trial has 43,538 people enrolled since July 27.  As of Sunday, 38,955 of the volunteers have received a second dose of the vaccine.

42% of international trial sites and 30% of US trial sites involve volunteers of racially and ethnically diverse backgrounds.

The final goal of the trial is to reach 164 confirmed cases of coronavirus infection.

Pfizer's approach relies on a new technology called messenger RNA, or mRNA, to produce an immune response in the vaccine.

The mRNA vaccine approach uses genetic material called mRNA to trick cells into producing bits of protein that look like pieces of the virus. The immune system learns to recognize and attack those bits and, in theory, would react fast to any actual infection.

It is not clear yet if this vaccine will become a yearly or season shot, as it is not clear if the vaccine will provide long-term protection.

Royal Caribbean not counting on vaccine yet

While the vaccine may prove to be a major weapon in the arsenal for combating COVID-19, Royal Caribbean's plans to restart cruises do not hinge on the vaccine quite yet.

Royal Caribbean Group Chairman and CEO Richard Fain expects tests to have a greater impact on cruises than the vaccine in the short term.

"The advances are so significant that I believe in the near term we will see more benefit from testing than we will from vaccines in the near term."

Fain thinks the impact of a vaccine will take time, and in the meantime, new and better testing will make a quicker difference.

"Vaccines are the ultimate weapon against this virus and their development has been nothing short of amazing. But I do think it's likely that a vaccine will be available before the end of the year. But getting enough for widespread distribution is going to take probably until sometime in the spring."

"On the other hand, faster, cheaper and widespread testing will be much more impactful, much sooner. Widespread testing enables contact tracing, and it's the one two punch of testing and contact tracing that is so effective in limiting the community spread of the disease."

Royal Caribbean Group reports $1.3 billion loss in third quarter


Royal Caribbean Group reported a $1.3 billion loss for the third quarter of 2020 as part of its financial results, and also provided a business update.

The cruise company is still in the midst of a global shutdown due to the health crisis. While limited cruise operations outside of the U.S. have been able to restart with its TUI cruises and Hapag Lloyd brands, the company is still dealing with being mostly shutdown.

Royal Caribbean highlighted the fact Quantum of the Seas will be able to restart operations in Singapore in December after receiving approval to sail from the Singaporean Government.

These initial cruises will most likely take place with reduced guest occupancy, modified itineraries and enhanced health protocols developed in collaboration with governments and health authorities.

In addition to the financial results, Royal Caribbean Group provided a business update to investors.

Healthy Sail Panel recommendations

Royal Caribbean's blue ribbon panel of health experts submitted 74 recommendations for how cruise ships could safely operate.

On September 21, 2020, the HSP submitted its recommendations to the Centers for Disease Control and Prevention (CDC) in response to a CDC request for public comment that will be used to inform future public health guidance and preventative measures relating to travel on cruise ships. 

"The work of the Healthy Sail Panel has been thorough and comprehensive. We are grateful for its enormous dedication and passion, which has resulted in what has quickly become the seminal document in this arena. We are also grateful for the time the CDC and their observers have spent on this important topic with the Healthy Sail Panel," said Richard D. Fain, Chairman and CEO. "We understand the importance of getting this right and are preparing to put these plans to the test with a gradual and methodical return to service in the near future."

Cash on hand

In order to remain operational throughout the shutdown, Royal Caribbean Group made additional moves to bolster its financial situation.

Since the last earnings call, Royal Caribbean Group has taken further actions to enhance its liquidity, preserve cash and obtain additional financing. 

  • $700M increase in liquidity through a 12-month commitment for a senior guaranteed 364-day facility
  • Approximate $1.15 billion increase in liquidity through a combination of a convertible bond issuance and a common stock public offering

The current cash burn is on average in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations. This range includes all interest expenses, ongoing ship operating expenses, administrative expenses, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits, commissions, debt obligations and cash inflows from new and existing bookings. 

Cash burn will increase once cruises are able to start up again as a result of:

  • Bringing ships out of their various levels of layup
  • Returning the crew to the vessels
  • Taking the necessary steps to ensure compliance with the recommended protocols
  • Restarts sales and marketing activities

Jason T. Liberty, executive vice president and CFO said, "We are optimistic that with the gradual resumption of cruise operations, our cash flow from operations will sequentially improve, driven by an increase in the inflow of customer deposits."

As of September 30, 2020, the Company had liquidity of approximately $3.7 billion, including $3.0 billion in cash and cash equivalents and a $0.7 billion commitment from the 364-day facility, compared to $4.1 billion as of June 30, 2020.

The total cash spend for the third quarter was approximately $1.1 billion, mainly driven by ship operating expenses. 

Odyssey of the Seas

For those wondering about the fate of Royal Caribbean's next new cruise ship, Odyssey of the Seas is very much on the radar.

Royal Caribbean Group has allocated funds for delivery of Odyssey of the Seas during the first quarter of 2021.

2021 Bookings

Booking activity for the first half of 2021 is aligned with the Company's anticipated staggered resumption of cruises.

The cumulative booked position for sailings in the second half of 2021 is within historical ranges with prices that are down slightly year-over-year when including the negative yield impact of bookings made with future cruise credits ("FCCs") and about flat when excluding them. 

Since Royal Caribbean Group's last business update, more than 65% of the 2021 bookings are new and the rest are due to the redemption of FCCs and the Lift & Shift program. 

As of September 30, 2020, the Company had $1.8 billion in customer deposits of which approximately 50% are FCCs and $180 million correspond to fourth quarter 2020 sailings.

Approximately 50% of the guests booked on cancelled sailings have requested cash refunds.

The big questions for Royal Caribbean's earnings call this week


Royal Caribbean Group will release its third quarter financial results later this week, which could shed light on a number of ongoing questions.

Between the financial results and the subsequent call with Wall Street investors, the public gets a certain level of insight into what the cruise line company is thinking, as well as what story the numbers tell.

The shutdown of the cruise industry has left so many concerns and questions about the short-term and long-term state of cruises. Earnings calls earlier this year have helped answer some of these issues.

While we will not know exactly all topics to be covered, here are the top issues cruise fans are curious about (and Wall Street too).

Any restart hints

There is no doubt the third quarter was another bad loss for Royal Caribbean Group, but anyone that is buying the cruise stock is fixated on the long-term gains the company has the potential to deliver.

To that point, the sooner Royal Caribbean can start cruising again, the sooner revenue can start flowing back in again.

Both investors and cruise fans are equally eager to know when cruise ships will be able to start sailing again.

While Royal Caribbean may not have a definitive answer, their conjecture and attitude may provide a glimpse of how they see cruises restarting.

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.

Ship status

If the cruise industry shutdown continues, will Royal Caribbean put any cruise ships into cold lay-up or even sell any of them?

While Royal Caribbean International has not seen any of its ships sold, Pullmantur Cruises (a Royal Caribbean Group partial subsidiary) did sell its fleet due to financial insolvency.  Moreover, rival Carnival Corporation has sold a number of vessels in order to cut costs.

Royal Caribbean Group Chairman and CEO Richard Fain said in July there are no plans to sell ships, but it is a consideration.

New cost-cutting measures

Big losses are to be expected, but they are not sustainable.  To that point, it is possible more cuts could be announced in order to reduce the company's monthly cash burn.

The longer the shutdown continues, the more likely Royal Caribbean is to try to save cash and reduce its expenditures.

Royal Caribbean Group recently said they have a monthly cash burn of $200-290 million, but any way they can bring that number down is going to help in the long term.

Financial analysts seem to think Royal Caribbean Group has enough liquidity (cash) to deal with a prolonged cruise suspension, however, the road back to recovery is going to be a long one.

On the plus side, Royal Caribbean Group announced a couple financing transactions in the past week aimed at improving its balance sheet.

Royal Caribbean is using an abundance of caution in how it conducts its business. At the end of its 2019 fiscal year, it had cash and cash equivalents of $243.74 million. By the time the second quarter this year ended, this figure surged to $4.15 billion. Gross debt over this timeframe jumped from $11.04 billion to $18.83 billion, though net debt rose more modestly, climbing from $10.79 billion to $14.68 billion. With so much cash on hand already at quarter-end, it’s clear management is planning for an extended period of pain.

2021 bookings update

The silver lining to the entire cruise shutdown has been bookings for 2021 cruises (and beyond) have been pretty solid.

Essentially, a lot of people opted to defer their cruise vacations to next year instead of outright canceling plans, and the question is if this trend is holding up.

Wall Street has been skeptical of any cruise line's ability to lure customers back once cruises resume, so positive feedback on how 2021 (and beyond) is looking would put a lot of concerns at ease.