Last week, the RCG had their 3rd quarter earnings call. Here are some of our key takeaway and analysis as it relates to the restart of the cruise industry and business continuity through 2021:
- Overall Outlook
- In general, Chairman Richard Fain used the word “optimistic” a multitude of times throughout the Q&A / presentation.
This is an important message for the financial community, travel agents, consumers, employees, ports and other stakeholders as it sets the agenda moving forward through the next 6 months. While there is skepticism of some cruise lines as to the startup of cruise in North America prior to 1st quarter 2021, RCG is positioning themselves for short exploratory sailings to nowhere, private islands and perhaps select destination calls in the Caribbean from December.
It is important to have the support of the supply chain and generate consumer awareness and demand through strong advocacy of the cruise product and the safety of cruising overall. Support will also be needed from the downstream partners to approve and coordinate the protocols necessary to sail.
- $250 – $290 million per month cash burn (Excludes refunds, debt obligations, etc.).
- 80% CAPEX is new builds with committed financing.
- Ships operating in Europe today are at or about break even talking about direct profit; there are fixed costs that those do not cover as of yet, but occupancy and demand is relatively good with all things considered.
Looking at the anticipated cruise passenger throughput for 2020 is not so much a formula right now about supply and demand as it is about sustainability (cash available to burn monthly for vessel layups and other operations) for the cruise brands and the deployments when returning to business – as to the actual numbers of vessels and onboard capacity that may be driven by an artificial capping either via internal health standards or imposed by government. Either way, there is a limited timeframe whereby the brands can maintain a healthy financial status moving forward. Based upon the current cash on hand and monthly burn rates for each, the three major groups (RCG, Carnival Corp, NCL) have ~12 months each before they are required to be at or close to full operational capacity. Prolonged sailing either with a smaller fleet presence and / or reduced onboard passenger capacities of less than 100% will not bode well for the industry. This hurdle must be overcome quickly.
- New build deliveries 2020 – 2021
- Silver moon (delivery today)
- Odyssey of the Seas (Q1 2021)
- Silver Dawn (2021)
- *Capacity for RCG likely to be higher than 2019 because of new builds coming (with ongoing evaluation of ship retirements)
In examining the RCG fleets and those of other brands worldwide, B&A has targeted some ~40 vessels with low ROIs that may be retired (sold or scrapped) representing ~42,000 berths. With new builds coming on line with higher ROIs in 2020/21 there is limited impact to the industry and in fact it is a good opportunity for the brands to dispose of these ships with poor financials. As of today, confirmed withdrawals from the global fleet are ~23,000 berths across 14 vessels.
- Start up
- Deployment in spring will focus on short sailings in key drive markets in US and Asia Pacific regions; making the most of our private destinations in the Bahamas.
- Emphasis on second half of 2021… Booking load factors for second half of 2021are within historical levels with prices down slightly.
- Overall 2021 benefit from rebooking from FCC, but 80% of all 2021 bookings are new bookings.
This is a strong message that demand is up for new bookings and not just a renewal of existing cruise tickets. We would anticipate stronger demand on the back half of 2021, with a need for the brands to concentrate on delivering the key summer markets in Alaska, Baltic and Mediterranean as major revenue producers. Providing for protocols to be in place in these regions to allow for high onboard passenger capacity and the delivery of the ports of call with revenue-producing shore excursion products should be a key initiative.
- There is demand in the market place and its coming quite naturally.
- Asia: After announcement of Singapore cruising, bookings spiked in the week following (3x higher than anticipated) – shows pent up demand for cruising.
- Europe: What RCG has experienced to date, is that when there is negative COVID news in Europe, we see an elevation in demand – people are looking for a safe way to get out and about.
- American markets: demand correlated with how consumers feel about recovery / resolve of COVID; based on current bookings, U.S. markets and consumers believe that COVID will be behind us in mid-2021.
Demand for a cruise product that can provide a safe and enjoyable vacation experience as COVID passes in 2021 will allow for the industry to emerge into a new vacation environment with positive changes to the onboard product by maintaining improved cleaning, ventilation and sanitization standards; focusing on a healthy onboard environment; and revitalizing a relationship with destination stakeholders with better communication standards relating to individual vessel calls.
You can go to our B&A Dashboard for the latest updates on sailing updates, protocols, etc.