Royal Caribbean: Bookings increasing, profitability expected in 2022

By Devika Patel

Knoxville, Tenn., Feb. 4 – Royal Caribbean Cruises Ltd. executives said that bookings are returning to pre-Omicron levels and that the company expects a return to profitability later this year.

“Similar to our experience with the Delta variant, as Omicron cases are beginning to decline, booking activity has begun to pick up,” executive vice president and chief financial officer Naftali Holtz said on the company’s fourth quarter and year ended Dec. 31, 2021 earnings conference call on Friday.

“In fact, in the last week of January, bookings have returned to pre-Omicron levels,” Holtz said.

The company is stronger now than it was a year ago, despite Omicron headwinds, having refinanced $2.3 billion of debt in 2021 and reduced its coupons.

“While 2021 was another challenging year financially, we finished the year in a stronger position than at the beginning and made great progress toward our recovery,” Holtz stated in a Friday press release.

“During 2021, the company re-established access to unsecured markets and refinanced $2.3 billion of secured and/or guaranteed debt, in some instances reducing the coupon by up to 600 bps,” the company noted in Friday’s release.

The company believes this year will be strong and expects to return to profitability in the second half of 2022, despite a loss due to Omicron in the first half.

“We expect a net loss for the first half of 2022 due to the impact of Omicron and a return to profitability in the second half of the year,” president and chief executive officer Jason Liberty said on the call.

“During 2021, we made significant progress toward our recovery with over 85% of our capacity returning to operations and delivering safe and memorable experiences to approximately 1.3 million guests,” Liberty stated in Friday’s press release.

“We expect 2022 will be a strong transitional year, as we bring the rest of our fleet back into operations and well-nigh historical occupancy levels.

“Omicron created short-term operational challenges that have unfortunately weighed on close-in bookings.

“While the timing of Omicron was particularly unfortunate for the first half of 2022 bookings and will likely delay our return to profitability by a few months, we do not expect it to impact our overall recovery trajectory and the strong demand for cruising,” Liberty stated in the release.

“Bookings in the fourth quarter were sequentially higher than the third quarter,” the company stated in Friday’s release.

“Due to the impact of the Omicron variant, bookings decreased in December and remained lower over the holiday period, but have started to increase with each consecutive week since the beginning of 2022 and are now back to pre-Omicron levels.

“Notwithstanding the impact from Omicron, the group expects to be operating cash flow positive in late spring.

“The group also expects a net loss for the first half of 2022 and a return to profitability in the second half of 2022,” the company stated in the release.

Management, however, ignored the company’s rising debt load when commenting on earnings results, despite having taken on $1 billion of debt in early January.

For the sixth time since the onset of the coronavirus pandemic, on Jan. 4, Royal Caribbean completed a benchmark deal in the high-yield bond market, raising funds to pay off the current debt maturing in 2022.

As of Dec. 31, the company’s liquidity was $3.5 billion, which includes cash and cash equivalents, undrawn revolving credit facility capacity, and a $700 million commitment for a 364-day term loan facility. This excludes proceeds from the $1 billion January bond offering.

Cash and cash equivalents were $2,701,770,000 as of Dec. 31, 2021, compared to $3,684,474,00 as of Dec. 31, 2020.

Long-term debt was $18,847,209,000 as of Dec. 31, 2021, compared to $17,957,956,000 as of Dec. 31, 2020.

Current portion of long-term debt was $2,243,131,000 as of Dec. 31, 2021, compared to $961,768,000 as of Dec. 31, 2020.

In the latest debt sale, the Miami-based cruise line priced an upsized $1 billion issue of 5.5-year senior bullet notes (B2/B) at par to yield 5 3/8% in a drive-by.

The drive-by represented Royal Caribbean’s sixth pass at the market (seven tranches) since the coronavirus began wreaking havoc on the cruise line industry in the early months of 2020.

With the new issue in the tally, Royal Caribbean has sold $8.47 billion of bonds in seven tranches since the beginning of the pandemic.

The $1 billion January sale of notes increased from $700 million.

The yield printed at the tight end of yield talk in the 5½% area. Initial guidance was in the high 5% area.

BofA Securities Inc. was the left lead bookrunner. Joint lead bookrunners were J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC.

Senior bookrunners were Citigroup Global Markets Inc., DNB Markets Inc., Fifth Third Securities Inc., Goldman Sachs & Co. LLC, Scotia Capital (USA) Inc., SMBC Nikko Securities America Inc. and Truist Securities Inc.

And junior bookrunners were BNP Paribas Securities Corp., HSBC Securities (USA) Inc., Mizuho Securities USA Inc., Santander Investment Securities Inc., SG Americas Securities LLC and SEB.

The previous pandemic-era issues include:

• $1 billion of 10 7/8% senior secured notes due June 2023 and $2.32 billion of 11½% senior secured notes due June 2025 priced on May 13, 2020 (both investment grade-rated);

• $1 billion of 9 1/8% senior guaranteed notes due June 2023 priced on June 4, 2020;

• $1.5 billion of 5½% senior notes due April 2028 priced on March 4, 2021;

• $650 million of 4¼% senior notes due June 2026 priced on June 15, 2021; and

• $1 billion of 5½% senior notes due August 2026 priced on Aug. 11, 2021.

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