Where cruising could return as early as July, says Royal Caribbean CEO

May 22, 2020

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Eager to be on the very first Royal Caribbean ship back in operation? You might be looking at a trip to Asia or within Europe.

Royal Caribbean CEO Michael Bayley on Wednesday said the two regions are likely to be the first to see the line’s vessels back in action with paying passengers.

“It’s a very different story by region and by country”, Bayley said Wednesday of the prospects for a resumption of cruising. “I think it’s highly likely that either the Asian markets in China, for example, or the European region, could come back earlier”.

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Like all cruise companies, Royal Caribbean hasn’t operated cruise departures anywhere in the world since mid-March, when the novel coronavirus began spreading widely.

Bayley noted that Asia and Europe were ahead of other regions in experiencing the rise and fall of coronavirus cases. He cited feedback from a call he had Tuesday with European tourism leaders and recent talks with the company’s China office that pointed to the two regions being ready for cruising earlier than others.

“They went through this experience earlier, and that’s particularly true of China”, he said. “We’re very aware of these different landscapes”.

Bayley made the comments during a conference call with Wall Street analysts to discuss the latest quarterly earnings for Royal Caribbean’s parent company, Royal Caribbean Cruises. In addition to Royal Caribbean, the company owns Celebrity Cruises, Azamara and part of Silversea.

In advance of the call, Royal Caribbean Cruises on Wednesday reported an adjusted loss of $310.4 million, or $1.48 a share, for the quarter that ended on 31 March. That compares to a profit of $275.8 million, or $1.31 a share, in the same quarter a year ago. The quarter included just the first few weeks of the company’s fleetwide halt to operations. Second-quarter earnings are expected to be far worse.

Royal Caribbean Cruises in recent weeks has raised money through bond sales; cut costs through layoffs and furloughs; and taken other measures to ensure it can survive a shutdown of cruising lasting many months.

The conference call was the first time Bayley and other top executives at Royal Caribbean Cruises had talked publicly about the company’s financial situation and plans for a resumption of service since its brands halted cruise operations.

Bayley hinted during the conference call that cruises out of Chinese ports could resume as early as July.

As of early Wednesday, Royal Caribbean had cancelled sailings fleetwide through 11 June. But Bayley said the line was about to announce an extension of the cancellations to 31 July for most regions. The one place where cancellations wouldn’t be extended into July, he said, would be China.

Royal Caribbean’s Spectrum of the Seas is among ships the line regularly deploys to China for cruises aimed at the Chinese market. (Photo courtesy of Royal Caribbean).

Should cruises out of China be the first to resume at Royal Caribbean, it’s possible they only would be bookable by the local Chinese market. Royal Caribbean executives didn’t address the topic during the conference call, but Royal Caribbean sailings out of China in general only are marketed to local travellers. Royal Caribbean has built a big China cruise operation in recent years that’s specifically geared toward the local Chinese market.

A July comeback for Royal Caribbean cruises out of China is no sure thing. In starting off the conference call, Bayley’s boss — the head of parent company Royal Caribbean Cruises — suggested there was no clear answer to when cruising would resume.

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“Obviously, the most immediate question that you would all like to know is when cruising will restart, and we’d like to know, too”, Royal Caribbean Cruises chairman and CEO Richard Fain said. “The world is clearly embarking on a program of gradually opening up. That process is just beginning, and it varies widely between geographical areas. It’s also highly dependent on many different factors, including the availability of testing, contact tracing, therapeutics and, ultimately, vaccines”.

Moments earlier, Fain had noted just how fast the situation was evolving.

“Things we were told were right one week became unthinkable nearly a week later”, Fain said. “The flow of information has been so fast, it’s been hard to assimilate”.

Still, Fain said he saw “auspicious” signs that an environment that would allow for the comeback of cruising was on the way.

“Fortunately, our level of understanding and that of governments around the world is beginning to stabilize, or at least seem to be. We’re all beginning to understand the do’s and don’ts, and the tight strictures are beginning to loosen”.

When Royal Caribbean and its sister brands do begin bringing back ships, it’ll be at a measured pace, Fain suggested.

“We don’t expect that someday somebody blows a horn and all the ships start operating right away”, he said. “We think it’ll be a gradual start, a little bit like society is opening up gradually”.

Echoing comments that Norwegian Cruise Line Holdings CEO Frank Del Rio made to TPG earlier this month in a one-on-one interview, Fain said the company likely would resume operations with just a few ships initially.

Norwegian Cruise Line Holdings is the parent company of Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises.

Fain also suggested the first cruises to start would be aimed at drive markets, “and then [the schedule] would evolve and grow from there”.

That suggests any cruises that start up early in Asia or Europe wouldn’t necessarily be meant for U.S. travellers.

During the conference call, Royal Caribbean CFO Jason Liberty said bookings for the coming year remain suppressed but are better now than they were a month ago. Bookings for later this year remain well behind where they normally would be for this time of year, Liberty suggested. Bookings for 2021 also are down, albeit less sharply, he said.

“It is still very early in the booking cycle for 2021, but at this point, load factors are below [the] same time last year but are within historical ranges”, Liberty said.

Later in the call, Bayley said the Royal Caribbean brand had seen upbeat signs about cruise demand from targeted promotions it did as a test. The company targeted the promotions at its roughly 20 million loyalty programme members.

“We’ve really seen surprising demand from our loyalty members”, Bayley said. ‘Their response to various promotions that we’ve put into the market just to understand what the demand looks like has been surprisingly positive”.

Among other insights from the call, Liberty said that younger cruisers had been asking for refunds more often than older cruises when cruises are cancelled.

Royal Caribbean and its sister brands have been offering customers on cancelled cruises a choice of a full refund or a future cruise credit worth 125% of the amount they paid.

“Younger cruisers, and I’m really talking [about] the millennials, are typically looking more for their cash back, while families and baby boomers are likely to take the [credit]”, Liberty said.

In all, about 45% of customers on cancelled cruises have requested a refund, Liberty said. The rest have asked for a credit.

Liberty said about 20% of customers who have gotten a credit so far have rebooked on future voyages, with the company’s most loyal customers being the fastest to rebook.

Of those who have rebooked, “most rebooked on similar itineraries, and many are actually using the 125% value [of the credit] to upgrade to a higher stateroom category”, Liberty said.

As of early Wednesday, the company had cancelled 621 voyages.

Feature image courtesy of Royal Caribbean.

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