Royal Caribbean is eyeing its competition, and it's not another cruise line.

With Royal Caribbean's introduction of Icon of the Seas, the company wants to attract families that would otherwise consider a land vacation in a place like Orlando, Florida.

With its mega theme parks, Orlando is one of the top family vacation destinations. The city saw 75 million annual visitors in 2018. While that number has fallen since then due to the global health crisis, Orlando still saw 59.3 million visitors in 2021.

During Royal Caribbean Group's earnings call with investors on Thursday, executives singled out Orlando as the market they hope their new cruise ship will more favorably compete with once it launches.

"The Icon product, along with Perfect Day, with the kind of experiences that we're offering, with the kind of new accommodations that we have on Icon and the experiences that we have for young families, older families and of course couples and singles and what have you, is really squarely standing shoulder to shoulder with Orlando and those kind of destinations," said Royal Caribbean International President and CEO Michael Bayley.

Mr. Bayley sees the Royal Caribbean International brand being more "aggressive" with how it competes with the Orlando attractions, "And what we're beginning to see is us moving certainly the Royal brand into that space far more aggressively."

"We're really focusing on this target market, which is family and of course has many new neighborhoods, including a neighborhood called Surfside, which is absolutely focused on young families and those young families with children six and under travel all year round, because obviously parents can pull their kids out of pre-K."

Illustrating how compelling a choice Icon of the Seas is to Walt Disney World, the Wall Street analyst shared an anecdote from a recent trip in which another traveler he did not know told him he was going to book Icon of the Seas instead of Disney World, "a random traveler behind me saying they were thinking about going to Disney, but going to book the their family on the Icon."

"One off conversation but part of a broader theme."

Royal Caribbean Group CEO Jason Liberty talked about how the cruise line has narrowed the competitive advantage land vacations have over cruises, "We've seen this 40% gap to land based vacation. It used to be about 20%."

"The Royal brand actually closed the gap very significantly with the introduction of Perfect day, the modernization of our fleet. And so we see there is a lot of opportunity to close that gap here over time."

How Royal Caribbean can compete better with Orlando

Mr. Liberty was pleased with the progress Royal Caribbean International has made to be a more attractive offer compared to land vacations, but thinks more is needed.

"We need to increase frequency with our guests, we need to improve our loyalty programs," he explained when talking about ways to improve.

"We need to be more 1:1 so that we're putting offers in front of our guests that are very relevant to them individually and just bring more awareness."

He thinks by doing those kind of things, it will make Royal Caribbean more competitive with land-based vacations.

Super weapon: Icon of the Seas

Royal Caribbean sees the launch of Icon of the Seas as not only a great new ship, but the asset that will give them the best choice yet to skip a land vacation.

"It is a game changing, first of its kind vacation experience where everyone can experience their version of the ultimate vacation," Mr. Liberty explained at the beginning of the call with investors.

While Royal Caribbean has always been a top family cruise line, Icon of the Seas is poised to move the cruise line beyond anything else it has ever offered.

Royal Caribbean will introduce a first of its kind area of the ship dedicated to young families at the back of the ship, which has everything a family with young kids could want, along with family-focused accommodations and with easy access to the kids club and other popular onboard attractions.

"Icon is the first in a new class of ships for Royal Caribbean, which is squarely in the family market, which is a scale brand with huge presence in the American market and in a strong global footprint," Mr. Bayley explained.

In Surfside, there will be places for kids and adults to enjoy, including Splashaway Bay and Baby Bay splash parks for junior cruisers and the Water's Edge pool for grownups.

Surfside will also house family-friendly dining venues, although those venues have not been announced yet.

The tide has finally changed for Royal Caribbean Group's bottom line.

Royal Caribbean Group posted better than expected earnings for the third quarter of 2022 with a total revenue of $3.0 billion and net income of $33 million and Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) was $742.3 million.

Revenue hitting $3 billion is the highest since the third quarter of 2019.

The change comes as demand for cruise vacations surges following the global health crisis. The cruise line's occupancy rate was 96%, more than double the 36% level in the year-ago quarter.

Royal Caribbean Group CEO Jason Liberty called the third quarter "better than expected", "Last quarter's better than expected performance was a result of the continued robust demand environment and strong execution by our teams."

"The combination of our leading global brands, the best and most innovative fleet in the industry, our nimble global sourcing platform and the very best people have delivered a successful return of our business to full operations and positions us well to deliver record yields and adjusted EBITDA in 2023."

As expected, total revenues per passenger cruise day were flat as reported and up 1%.

Third quarter by the numbers

Load factors (meaning how full were the cruise ships) in the third quarter were 96% overall, with Caribbean sailings reaching almost 105%.

Royal Caribbean Group expects fourth quarter load factors to be similar to third quarter overall, and to reach triple digits by year-end.

Booking volumes in the third quarter accelerated versus the second quarter of 2022 and remained significantly higher than booking volumes received in the third quarter of 2019 for all future sailings.

Bookings update

Booking volumes in the third quarter were significantly higher than the corresponding period in 2019, because Covid-19 testing and vaccination protocols were eased.

The company said its customers continue to make their cruise reservations closer to sailing than in the past, resulting in about 50% more bookings in the third quarter for current year sailings when compared to the third quarter of 2019. 

While 2022 bookings remain strong and on pace to achieve occupancy targets, the most notable change has been a substantial acceleration in demand for 2023 sailings.

Booking volumes for 2023 doubled during the third quarter when compared to the second quarter and were considerably higher than bookings for 2020 sailings during the comparable period in 2019, the highest in company history.

As of September 30, 2022, the Group's customer deposit balance was $3.8 billion, reflecting typical seasonality as peak summer sailing deposits have been recognized in revenue. In the third quarter, approximately 95% of total bookings were new versus FCC redemptions.

A look at 2023

For 2023, all quarters are currently booked well within historical ranges at record pricing.

While still early in the booking cycle, the view for 2023 is encouraging and the company expects a return to historical load factors in early summer, record yields and adjusted EBITDA for 2023.

The company expects to benefit from lower transitory expenses and accelerating benefit from actions taken to improve margin while partially mitigating continued inflationary pressures expected to persist through the first half of 2023.

Trifecta program

Royal Caribbean Group announced a new three-year plan it hopes will get it back to maximum profitability.

The Trifecta Program has three main goals to be achieved by the end of 2025:

• Triple Digit Adjusted EBITDA per APCD, to exceed prior record Adjusted EBITDA per APCD of $87 in 2019.
• Double Digit Adjusted Earnings per Share to exceed the prior record Adjusted Earnings per Share of $9.54 in 2019.
• Return on Invested Capital ("ROIC") in the teens to exceed the prior record ROIC of 10.5% in 2019 through optimizing capital allocation and enhancing operating income.

The company plans to achieve these goals through a formula of moderate capacity growth, moderate yield growth, and strong cost controls, all while ensuring disciplined capital allocation, investing in the future and improving the balance sheet.

Royal Caribbean Group will release its third quarter earnings later this week, which is an opportunity to gain insight into what the cruise giant has planned next.

Royal Caribbean Group will release its third quarter 2022 earnings on Thursday, November 3, 2022. They'll subsequently hold a conference call with Wall Street analysts to discuss the results in greater detail.

There will be a lot of data and figures shared on Thursday, including tidbits of information of interest to cruise fans. The earnings report and call are meant for investors, but there will be things talked about during the call that cruise fans may care about because it speaks to the future of the cruise line.

The earnings call is held with Royal Caribbean Groups' top executives, including Royal Caribbean Group CEO Jason Liberty and Royal Caribbean International CEO Michael Bayley.

In the past, executives have talked about policy changes, new projects, and updated work that has otherwise not been publicly talked about. This is often one of the best times to get updates and answers without having them directly asked by cruisers.

It's impossible to know in advance which questions will get answers, but here is a wish list of questions cruise fans are eager to hear about during this week's earnings call.

Return to profitability?

At the last earnings call in July, it seemed the third quarter would be a turning point in terms of making some real money again and beginning to erode the debt accrued during the last two years.

Executives said they expected to be profitable by the third quarter.

Royal Caribbean Group Chief Financial Officer Naftali Holtz said back in July, "For the third quarter, and based on current currency exchange rates, fuel rates and interest rates, we expect to generate $2.9 to $3 billion in total revenues."

"Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) of $700 to $750 million and adjusted earnings per share of $0.05 to $0.25."

That is of course a forecast and things could change, but Wall Street will be hyper focused on how profitable (or not) the company was this quarter.

Certainly Royal Caribbean Group has had the benefit of having all of its ships back in service and they've said they planned to ensure as many passengers as possible could be onboard, expanding margins, and managing their balance sheet.

"When our business is fully operational, it generates significant cash flow. We are confident in our ability to continue on our recovery as we build the future of the Royal Caribbean Group," said Mr. Holtz during the last call.

How full will cruise ships will be this winter?

Royal Caribbean has been sailing with its ships at full capacity for months, so will that trend continue into the winter months?

Capacity is critical to Royal Caribbean's profitability, and how full their ships are is an indicator of the overall health of their business.

Mr. Holtz talked about how busy the third quarter was expected to be in last quarter's call, "Overall, we expect load factors of approximately 95% for the third quarter and triple digits by the end of the year."

"We have been sailing at above 100% in the Caribbean since mid-June, and most of our other North American base itineraries are now averaging about 100%."

The Caribbean market has been incredibly strong for Royal Caribbean Group, although other markets have been a bit softer, such as Europe. A combination of the Ukraine war and Covid reduced demand in the second quarter and Mr. Holtz it pushed their recovery of 100% fleet wide occupancy to the fourth quarter of 2022.

Nonetheless, customer deposit balance as of June 30th was $4.2 billion, a record high for the company. Investors will want to know where that figure stands today.

Any updates on expansion projects?

Many initiatives were paused since 2020, and with numbers bouncing back, could this be an opportunity for Royal Caribbean to resume them?

From the CocoCay adults-only beach, to Perfect Day at Lelepa, to a beach club in the Bahamas, there are plenty of question marks about when and where we will see new ways to go on vacation.

From a business perspective, the company has sometimes provided updates on these sort of capital spending projects because it helps reinforce the notion that demand for a cruise will be even higher with new offerings.

New ship updates?

I would expect there to be some discussion of Icon of the Seas and how well it sold out of the gate last week, but will we get more information about Icon or other new ships?

Utopia of the Seas will also debut in late 2024, and there are orders for two more Icon Class cruise ships beyond that.

Since new cruise ships attract so much attention (and come with a heft price tag), will we get any hints as to what the future of the cruise line looks like going through the rest of this decade.

The company tends to be cagey with details related to new ships that have not been announced yet, but timelines and expectations are sometimes shared at these calls. 

How to listen to the call

There will be full coverage of anything intriguing that comes out of Royal Caribbean Group's third quarter 2022 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.  The call begins at 10am Eastern Time on Thursday, November 3, 2022.

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

Have you ever wondered how much Royal Caribbean makes on average per cruise ship passenger?

Before the global health crisis, the cruise industry was a very profitable business, with revenues approaching record numbers. That took a major hit in 2020 and 2021, but Royal Caribbean posted numbers in its quarterly report that indicate it's on the verge of becoming profitable again.

With that in mind, it's sometimes fun to take a peek behind the curtain of the business and see the numbers breakdown.

If you care to look in the Form 10-Q that Royal Caribbean Group filed with the U.S. Securities and Exchange Commission, there's some interesting takeaways from how your cruise fare is spent and how much of it comes back as profit.

Revenue per passenger

In Royal Caribbean Group's filing for the second quarter of 2022, we get a breakdown of revenue and costs that contribute and takeaway from the company's bottom line.

Just like any business, they aim to have more revenue than expenses. 

Keep in mind these numbers encompass all the Royal Caribbean Group brands, including Royal Caribbean International, Celebrity Cruises, and SilverSea.

In the second quarter, Royal Caribbean Group carried 1,340,622 passengers. In case you're wondering, that amounts to 8,443,745 days of cruises.

The company breaks down its revenue across two types: "Passenger ticket revenues" and "Onboard and other revenues".

Passenger ticket revenues refers to the money you spend on your cruise fare.

Onboard revenues is the money you spend on cruise add-ons, such as drink packages, shore excursions, wifi, the casino and anything else not included with your cruise fare.

In the second quarter, Royal Caribbean Group revenue broke down as follows:

• Revenue    $1,418,203,000.00 (64%)
• Onboard spending    $766,039,000.00 (35%)

Total revenue for the quarter was $2,184,242,000.00 and total revenue per passenger came out to $1,629.28.

That's just the money coming in, so what about the costs of running a cruise ship?

The cruise operating expenses are the costs for running the ships themselves. There are additional overhead costs that the company has shoreside, which we are not considering for this article because we want to look at just the ship operating revenues.

Commissions refers to travel agent commissions paid for booking the cruise, as well as air and other transportation expenses, port costs that vary with passenger head counts and related credit card fees.

Payroll is the salary of all the shipboard crew members. 

Other operating expenses consist primarily of operating costs such as repairs and maintenance, port costs that do not vary with passenger head counts, vessel related insurance, entertainment and gains and/or losses related to the sale of ships, if any.  

I think the rest of the categories are self-explanatory.

Here's Royal Caribbean Group's expenses for the quarter:

• Commissions, transportation and other: $329,859,000.00 (19%)
• Payroll: $327,141,000.00 (19%)
• Food: $155,226,000.00 (9%)
• Fuel: $275,179,000.00 (16%)
• Onboard costs: $155,570,000.00 (9%)
• Other operating costs: $447,887,000.00 (26%)

Total onboard expenses for the quarter came out to $1,690,862,000.00. 

If you divide expenses by passengers, you come out with $1,261.25 expense per passenger.  Thus, when you subtract expenses per passenger from revenue per passenger, Royal Caribbean Group made $368.02 per passenger this past quarter.

How cruise ships make money

If we've learned anything from the economics of the past two years, it's Royal Caribbean is profitable when there's as many cruise ship passengers onboard.

Part of the reason Royal Caribbean Group is starting to see profitable days ahead is their ships are mostly sailing full again.

The company shared that over the quarter, its ships were sailing at about 82% full, with June just about 90%.

Here's a breakdown of how full the ships were based on the region of the world they sailed.

• North America: About 100%
  • Caribbean: 103%, with some ships reaching 107%
  • Northeast and West Coast (including Alaska): 90%
• Europe: 75% in June

A percentage in excess of 100% indicates that three or more passengers occupied some cabins.

As a high fixed-cost business, a cruise ship relies on getting as many passengers as possible onboard.

Royal Caribbean Group CEO Jason Liberty said on the post-earnings conference call with analysts to turn a profit, the company needs to maintain occupancy levels above 90%. In the third quarter, occupancy is slated to fall in the mid-90s range.

Pre-pandemic, Royal Caribbean had a profit margin of around 20%, and the amount of money guests were spending on add-ons was the driving factor.

According to Royal Caribbean Group executives, every dollar a guest spends before the voyage, translates into about $0.70 more on the dollar when they sail and double the overall spending compared to other guests.

Helping their cause, Mr. Liberty said guests are spending at least 30% more "across all categories" than they did in pre-pandemic 2019.

"The spending trends have been consistent across our customer base, even as we were approaching full load factors," Liberty said.

In terms of costs, operating expenses have gone up for the company. 

Mr. Liberty said that while food and fuel are the main categories that are susceptible to inflation, "there are some initial positive signs" with respect to inflation trends for food.

"Our most recent month-over-month FNB (food & beverage) inflation indicator has increased at the slowest pace thus far in 2022," Liberty said. "This, combined with direct conversations with our key suppliers, indicate inflation levels are peaking, so we should start seeing some relief in the coming months."

Regarding fuel, Liberty said the company continued to "optimize" consumption and has partially hedged its costs to below market prices.

Top executives from the Royal Caribbean Group hit on a number of topics with investors during the company's second quarter earnings call on Thursday.

Each quarter, Royal Caribbean Group hosts a conference call with Wall Street analysts to go over the financial results and share more insight beyond the earnings sheet.

During the course of these calls, the public gets insight into what the company sees and that provides more visibility into the cruise business.

Here are the important tidbits from the hour-long call that cruise fans should be aware of as it relates to how the company is doing.

Over 100% capacity in Caribbean itineraries

Demand is so strong for cruises to the Caribbean right now, that ships are sailing completely full.

Royal Caribbean Group President and CEO, Jason Liberty, highlighted this fact at the opening of the call, "Our North American itineraries are now sailing at over 100% load factors, and we are building on this momentum as we expect to reach load factors in the mid-nineties in Q3 and then return to triple digit load factors globally by year end."

In cruise industry speak, "load factors" refers to how many passengers are onboard as a percentage of capacity.

Royal Caribbean Group Chief Financial Officer, Naftali Holtz, broke down the capacity in the second quarter based on region:

• Overall: 82% load factors, with June just about 90%
• North America: About 100%
  • Caribbean: 103%, with some ships reaching 107%
  • Northeast and West Coast (including Alaska): 90%
• Europe: 75% in June

Why do so many people want to cruise? Mr. Liberty sees strong trends driving it, "The combination of consumers strong propensity to experience and travel, accelerating demographic trends which are pulling in more bucket list and multigenerational travel, a very compelling value proposition and a strong preference for our brand is translating into strengthening demand."

You might be wondering how a ship can sail over 100% capacity, and the answer comes down to how many people are in a stateroom.

A ship has a 100% capacity based on double occupancy, but if you add third or fourth passengers into a cabin, then you get capacity exceeding 100%.

Cruise vs land based vacation

Royal Caribbean has always compared itself to land vacations (and not other cruise lines) as their primary competition. To that point, executives talked about how a cruise compares to a land vacation.

Mr. Liberty talked up the benefits of a cruise, "Cruising has always been an attractive value proposition when compared to land based vacation alternatives, and that is truer today than ever before."

Specifically, he thinks there is a larger than ever gap of value between cruises and land vacations, "There is a very healthy gap, and a larger gap today, than there has been with land based vacations."

"Now that these protocols are falling off, and we're operating and our guests who are incredible advocates of ours, are sharing their experiences and telling them that, you know, cruise is just like what it was pre-Covid that all of that is is kind of manifesting into this opportunity where people look at cruising and say, wow, there's a really good value proposition."

Read more: Royal Caribbean will drop Covid-19 testing for vaccinated cruisers on shorter sailings

Spending trends

If you've noticed higher prices for cruise extras, there's plenty of people who are still buying them.

Mr. Liberty talked about guest spending in his opening remarks, "Overall, we continue to see a financially healthy, highly engaged consumer with a strong hunger to dream and seek experiences. And they are willing to spend more than ever with us to create those memories."

"The 100,000 plus guests that we have on our ship every day, including the 125,000 guests that are currently on our ships today, have been spending at least 30% more on board our ships across all categories when compared to 2019."

"Approximately 60% of our guests book their on board activities before they ever stepped foot on our ships."

What Mr. Liberty is saying is that not only are a lot of people booking cruises, but a majority are booking add-ons before their cruise at a pace never seen before the pandemic. 

It's critical for Royal Caribbean Group's bottom line that passengers buy things in advance, because it tends to translate into more profit than someone who books onboard, "Every dollar a guest spends before the voyage, translates into about $0.70 more on the dollar when they sail with us and double the overall spending compared to other guests."

To exemplify this trend, Royal Caribbean International President and CEO Michael Bayley pointed out the other day someone spent "over $4,000" for a single over the water cabana at Perfect Day at CocoCay.

Read more: Guide to CocoCay Cabanas

"There's just a lot of demand for these experiences, as Jason said. And we've also seen this in Alaska, for example, with the product that we have in Alaska, that people just seem to be more willing to open their wallets and purchase these experiences."

No plans to offer stock

Carnival Cruise Corporation was treated poorly by the stock market when they announced a new round of stock offerings to drum up cash, but Royal Caribbean Group has no such plans.

Mr. Liberty spelled out that things are going well for his company, "Our business is clearly ramping up. We're generating cash flow after OpEx, after CapEx."

"We have been very thoughtful and very methodical about capital raising, balancing liquidity and minimizing dilution, especially relative to others."

"I would note that issuing equity. One is obviously it's a board decision. The bar is at exceptionally high for us to be issuing equity. We don't have any plans to issue equity."

He added that the company has a different focus than cash on hand, "What the board is really focused on is how do we get back to pre-Covid levels as soon as possible. And by that meaning earnings, meaning ROIC and getting our balance sheet back and leverage back to what it was pre-Covid."

Inflation is peaking

Royal Caribbean seeks inflation numbers peaking, which could mean lower costs in the coming months.

Mr. Liberty pointed to a few indicators that tell him, "inflation levels are peaking and that we would start seeing some relief in the coming months."

The company has two primary categories that are most affected by inflation: food and fuel.

"There are some initial positive signs with respect to inflation trends and our food basket. Our more recent month over month FNB (food and beverage) inflation indicator has increased at the slowest pace thus far in 2022."

Mr. Liberty also alluded to conversations with suppliers that things are getting better.

Royal Caribbean Group reported its second quarter 2022 earnings on Thursday.

While the company still had a net loss of half a billion dollars, operating cash flow and EBITDA were positive for the quarter.

Royal Caribbean Group saw this quarter as "meaningfully ahead" of their projections, due to accelerating and strong close-in demand, further improvement in onboard revenue and better cost performance. 

Royal Caribbean Group President and CEO Jason Liberty saw two important takeaways from the fiscal disclosure, "We reached two important milestones in our recovery this quarter – returning our entire global fleet back to operations and delivering positive operating cash flow and EBITDA."

He also sees strong demand for cruises, "Consumers' propensity to travel and cruise remains strong. We continue to see a robust and accelerating demand environment for cruising and on-board 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."

The second quarter loss of $0.5 billion is better than the $1.3 billion loss in the second quarter of 2021.

Second quarter by the numbers

Load factors (meaning how full were the cruise ships) in the second quarter were 82% overall. June sailings reached almost 90%, with Caribbean itineraries averaging over 100%.

Based on the continued strength in consumer demand, the company expects load factors will average approximately 95% in the third quarter and increase to triple digits by year-end.

Total revenues per passenger cruise day were at record levels and up 4% as reported and 5% in constant currency versus the second quarter of 2019.

Booking volumes received in the second quarter for the back half of 2022 sailings remained significantly higher than booking volumes received in the second quarter of 2019 for the back half of 2019.

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

For 2023, all quarters are currently booked within historical ranges at record pricing.

For the third quarter of 2022 and based on current currency exchange rates, fuel rates and interest rates, the company expects to generate approximately $2.9 billion - $3.0 billion in Total Revenues.

In terms of reducing costs, Royal Caribbean Group gave credit to the delivery of new, more efficient ships and past sales of less efficient ships, as well as actions taken to improve operating costs and margins that continue to materialize as operations ramp up.

Changing Covid protocols

Mr. Liberty mentioned an upcoming change in Royal Caribbean's Covid-19 protocols based on the CDC announcement  it would end its Covid-19 program for cruise ships.

As part of their earnings statement, Mr. Liberty said, "Last week, the CDC ended its COVID-19 Program for Cruise Ships. Based on this change, we are continuing to adapt our protocols to align more closely with how the rest of society and other travel and leisure businesses are operating.

This means that we're transitioning to the point where everyone will be able to vacation with us while always working with our destination partners to meet their regulations. Starting Aug. 8, testing will be required for unvaccinated guests on all voyages and for vaccinated guests only on voyages that are six nights or longer. "

A look at bookings

Second quarter 2022 bookings averaged 30% above 2019 booking volumes for 2019 sailings in the corresponding period in the second quarter with even greater strength in July. 

An interesting trend is that guests are still booking their cruises much closer to their sail date compared previous years. 

In addition, cancellation activity has now returned to pre-Covid levels.

Second half 2022 sailings are booked at higher prices than 2019, both including and excluding FCCs.

Europe has seen sluggish results due to Covid and the Russia-Ukraine war. Europe makes up about a third of the overall capacity.

As of June 30, 2022, the Group's customer deposit balance was $4.2 billion, a record high for the company. This represents an increase of about $600 million over the previous quarter despite the significant quarter-over-quarter increase in revenue recognition. 

Approximately 20% of the customer deposit balance as of the end of the second quarter is related to FCCs. Approximately 60% of the FCC balance accumulated since the start of the pandemic has been redeemed. 

Silversea's new ship comes with two years of no payments

Earlier this month, Silversea purchased the Crystal Endeavor for $275 million, but won't make any payments on it for two years.

The transaction is fully financed through a 15-year unsecured term loan, guaranteed by the German export credit agency, Euler Hermes, and has no amortization payments in the first two years.

Silver Endeavour is scheduled to begin service winter 2022, spending its inaugural season in Antarctica starting November 2022.

Royal Caribbean Group has scheduled an earnings call with investors later this week, which means we might get answers to a few hot button topics.

Royal Caribbean Group will release its second quarter 2022 earnings on Thursday, July 28, 2022. They'll subsequently hold a conference call with Wall Street analysts to discuss the results in greater detail.

On Thursday, there will be a lot of data shared, including information helpful to not just investors.

It's common for policy shifts, direction, and even new projects to get further detail during these calls. With so much change right now in the cruise industry, these calls are some of the best opportunities to get answers.

It's impossible to know in advance which questions will get answers, but here is a wish list of questions cruise fans are eager to hear about during this week's earnings call.

Did Royal Caribbean become profitable again this quarter?

Whether you own stock or not, Royal Caribbean making money instead of losing money is important for the financial well-being of the company.

Since 2020, Royal Caribbean has been losing billions of dollars, but this might be the quarter where they turn the corner.

In the first quarter of this year, Royal Caribbean still lost a billion dollars, but operating cash flow turned positive in April 2022. Moreover, they said at that time they expected to return a net profit for the second half of 2022.

Of course, there are going to be any number of negative factors that could offset profitability, including inflation, oil prices, supply chain issues, and weaker demand for cruises.

A profitable quarter is an important step towards shedding all the debt they accrued over the last two years.

What does the end of the CDC cruise ship program mean for testing and vaccine requirements?

If we took a poll of possible questions to be answered, I think Covid-19 protocols would win in a landslide.

Ever since the U.S. government announced it would end its Covid-19 program for cruise ships, many cruise fans have wanted to know what this means for the current rules and requirements.

Specifically, what, if anything, will change as it pertains to pre-cruise Covid-19 testing and/or vaccination requirements.

Currently, Royal Caribbean requires all guests, regardless of vaccination status, to get a Covid test done up to 2 days before sailing. Not only does this add stress of trying to find a testing site and living in limbo until the test results come back, but getting a negative test to travel is not required of any other form of leisure travel.

Likewise, the requirement all passengers must be fully vaccinated if over the age of 12 is another big question. 

Some cruise lines have dropped testing requirements, such as Virgin Voyages and Margaritaville at Sea, but Royal Caribbean hasn't announced any changes.

In June, Royal Caribbean International CEO Michael Bayley said he expected pre-cruise testing, "is going to be around for another couple of months."

Read more: Royal Caribbean CEO talks when pre-cruise Covid testing and vaccine mandate will last

Any Icon of the Seas hints?

We're half way through 2022 and still have no idea what Royal Caribbean's next new cruise ship will even look like.

Not only is the design of Icon of the Seas still under wraps, but there's no sense of when sailings might go on sale or other key details.

Royal Caribbean might be tempted to tip their hat at some details if it helps assuage analysts that a new ship will bring in lots of new business. Earnings calls are partially historical and forward looking.

While the past quarter's numbers are inflexible, Royal Caribbean Group executives can play up the future as rosy as possible in order to paint as positive a light as they can for better days ahead.

What has inflation's impact been on Royal Caribbean?

Something every company is dealing with is the rate of inflation on business.

From fuel to food to salaries, there's an impact to be felt on anyone's bottom line.

In the first quarter, Royal Caribbean said fuel and food costs were the primary inflationary problems they were dealing with.

In the short term, Royal Caribbean has 50% of its fuel hedged for this year and a smaller percentage for next year.

How to listen to the call

There will be full coverage of anything intriguing that comes out of Royal Caribbean Group's second quarter 2022 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.  The call begins at 10am Eastern Time on Thursday, July 28, 2022.

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

Royal Caribbean Group posted its first quarter earnings on Thursday, which reported another billion dollar loss. 

The good news for the company is it expects a return to net profit for the second half of 2022. In fact, operating cash flow significantly improved throughout the first quarter and approached breakeven in March. Operating cash flow turned positive in April 2022.

Royal Caribbean Group had a first quarter 2022 operating loss of $1.2 billion. 

Cruise ships sailed with more passengers in the quarter, and total revenue per Passenger Cruise Day up versus record 2019 levels.

Royal Caribbean's quarter by the numbers

Royal Caribbean Group shared some interesting facts in its update to Wall Street.

First and foremost, Royal Caribbean Group expects a return to net profit for the second half of 2022.

Read more: Who owns Royal Caribbean?

By the end of the quarter, 90% of the company's worldwide fleet was back in service, with 54 out of 62 ships back in service. The plan is to return the full fleet to operations before the summer season of 2022.

Approximately 800,000 guests sailed on a Royal Caribbean Group ship in the first quarter.

Bookings in the first quarter were higher than in the fourth quarter of 2021, and throughout the first quarter, bookings improved each week. In March and April, booking volumes have been significantly higher than the same period in 2019.

Looking to the future, 2023 is booked, "within historical ranges at record pricing."

The supply chain issues the entire world is dealing with is no stranger to Royal Caribbean Group.  The primary issues facing the cruise giant is mainly related to fuel and food costs, as well as transitory costs related to health and safety protocols, which are expected to weigh on 2022 earnings.   

First quarter results

Royal Caribbean Group posted a $1.2 billion dollar loss in the first quarter. The Company also reported Adjusted Net Loss of $1.2 billion.

The Net Loss and Adjusted Net Loss for the quarter are primarily the result of the continued impact of the COVID-19 pandemic on the business.

Cruise ships sailing in the first quarter averaged a capacity of 59%. Month-by-month, capacity generally went up with March capacity averaging 68%.

Total revenue per Passenger Cruise Day in the first quarter was up 4% versus record 2019 levels driven by continued strong onboard revenue performance. The term "onboard revenue performance" refers to passengers buying extras for their cruise, such as drink packages, wifi, or excursions.

In fact, spending onboard was so strong that cash flow from ships in operation was positive in the first quarter. 

Royal Caribbean Group Chief Financial Officer Naftali Holtz said getting back to profitability is the focus now, "Our near-term focus is to return to full operations and profitability as we execute on our recovery and build for long term success."

Bookings

Booking volumes in the first quarter improved consistently week-over-week and reached typical Wave levels at the end of the quarter.  The term "wave season" refers to the sales period in the beginning of the year when cruise ship bookings are generally the best of the year.

Bookings have now been surpassing comparable 2019 levels for the last two months with particularly strong trends for North America based itineraries. 

The amount of cancelled cruises the company was seeing subsided to pre-Omicron levels in February.

Effect of the Ukraine War

Bookings for Europe sailings improved throughout the first quarter but softened due to the war in Ukraine with a bigger impact on Baltic itineraries.  

While bookings for Europe are now exceeding 2019 levels for the same period, the situation in Ukraine is expected to weigh on load factors in Europe this summer. 

Future cruise credits

As of March 31, 2022, the company's customer deposit balance was $3.6 billion. This is a $400 million increase from the previous quarter.

Approximately 27% of the customer deposit balance is related to FCCs compared to 32% in the prior quarter, a positive trend indicating new demand. To date, approximately 56% of FCCs have been redeemed.

Royal Caribbean Group's first quarter 2022 earning call is scheduled for this week, and a lot of investors are going to be eager to hear about the financial well-being of the cruise giant.

Each quarter, every publicly traded company releases its financial results from the previous three months and then discusses what happened in-depth in a conference call that anyone listen to online.

Earnings calls are hosted by Royal Caribbean Group's top executives, and it is a combination of disclosures, prepared statements and answering questions from Wall Street analysts.

Royal Caribbean Group will host their call at 10:00 a.m. Eastern Time, on Thursday, May 5, 2022.

To get a sense of the top things Wall Street wants to know this quarter, I reached out to Dan Kline, Managing Editor, TheStreet.

Have they seen a rise in average prices?

You don't need to be an investor to know that prices for cruise fares have been trending up lately.

Cruise vacations have always been a tremendous value, but like so many things in life, prices tend to go up over time.

People paying more for a cruise might not be what the average cruiser wants to see, but it is a good indicator for investors who want to see how quickly Royal Caribbean Group can knock down the debt it accrued during the pandemic.

Are people still spending more onboard?

Ever since cruise ships restarted sailing in 2021, guests have been spending more than ever beyond their cruise fares, and an update on that trend will be important to track.

Sometimes referred to as "revenge spending", consumers have demonstrated a strong desire to make up for lost time over the last couple of years by buying up drink packages, gambling in the casino, and booking lavish excursions.

It's not just cruise lines seeing this trend. Airline and hotel stocks have been surging this year thanks in part to what some are dubbing the "YOLO economy".  United  and American Airlines both reported strong earnings last week. Shares of Marriott, Hilton and Wyndham are near all-time highs. Theme park owner SeaWorld is not far from a record high, too. 

For Royal Caribbean, the question will be are cruise ship passengers continuing that trend.

How much of the record bookings use FCCs?

An important indicator of Royal Caribbean's demand is how many bookings are being booked with cash or existing future cruise credits (FCC)

Future cruise credits are something given out when cruises are cancelled, and to get a better sense of the company's financial state, comparing the amount of cash the company has versus FCC is another common question.

Are there plans to retire more ships?

With Royal Caribbean taking on Odyssey of the Seas and Wonder of the Seas in less than a year, and four more ships on order in the next few years, will existing ships be shed?

The cruise company has always said they would be strategic with selling or transferring older ships out of the fleet.

Whether or not the resale market for cruise ships has improved since the depths of pandemic remains to be seen, and it's not clear what to expect from the aging Vision Class ships.

Do they plan to refinance more debt?

It will be a while before Royal Caribbean Group can emerge from under all those loans it had to take out during the pandemic, but they're going to need to be creative to avoid it becoming a massive boondoggle.

No one expects the debt to disappear tomorrow, but investors will want to hear about how Royal Caribbean Group plans to handle it all.

How you can listen to the earnings call

There will be full coverage of anything intriguing that comes out of Royal Caribbean Group's first quarter 2022 earnings call 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.

There's usually a few interesting nuggets of information in Royal Caribbean Group's earnings each quarter, including the fact a lot of people are buying more extras than ever before for their cruise.

Referred to as "onboard spending", this is the revenue from purchases of everything for a cruise on top of the cruise fare, such as shore excursions, drink packages, wifi and more.

Not only is onboard spending up, but it's shocking to the cruise line at just how much is happening.

During Royal Caribbean Group's earnings call on Friday, one Wall Street analyst wanted to know more about the particularly strong spending numbers, and if there was any correlation to lower occupancy.  His thought was less people means shorter lines and that translates to more of an inclination to spend money on experiences.

It's an interesting theory, but executives aren't sure why people are spending more than usual on their cruise vacations to enhance it, but they certainly are happy about it.

"I wish we knew. I can tell you that we've been absolutely delighted and initially very surprised by the onboard spend," said Royal Caribbean International President and CEO Michael Bayley.

"I think when we started operations out of the U.S. back in July, we were initially just shocked. It was really, really positive and it's just continued."

The reference to July is when cruises first resumed in 2021 from the United States and Royal Caribbean saw people were spending more on their cruise than before. That phenomenon has carried over for the last six months.

Mr. Bayley agreed there probably is some truth to the idea lower capacity on cruise ships, "creates a different kind of environment that help people spend more."

He also thinks Royal Caribbean's investment in pre-cruise technology may play a factor in those higher numbers. The company has spent the last 12 months working on improving their back end and front end systems to make the process better for customers.

Royal Caribbean Group CEO Jason Liberty said people spending more on their cruise is not just suite guests, "Whether it's the consumer that is booking the inside state room or the consumer booking the ultimate family suite as an example, you're seeing them all over index on their historical spend by quite a bit."

Not only that, people aren't just buying drink packages or spa treatments. Rather, they are spreading the money around.

Mr. Liberty said guest spending in the casino, spa, food & beverages, and gift shop are all "outperforming significantly".

Guest spending is the path to profitability

Onboard spending has been a great metric, and something for the cruise company to tout during an otherwise big loss for the quarter.  But it's also how Royal Caribbean will move back into the black.

How important is onboard spend? The rule of thumb Royal Caribbean uses is every dollar of pre cruise spend is worth an incremental 50-cents of onboard spend.

Prior to the pandemic, Royal Caribbean Group would consistently point to onboard spending as the difference maker in a good quarter to a great quarter.

In February 2020 (the last quarter before Covid-19), Royal Caribbean Group reported 2019 was another year of very strong performance that generated over $2 billion in adjusted net income.

In 2019, Royal Caribbean Group generated $3.09 billion in onboard revenues, which was up from $2.7 billion for the year in 2018.

With the company seeing "historical spend" from people cruising these days, it's a positive sign brighter times are likely ahead.