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Royal Caribbean Stock: CEO Sees Smooth Sailing Ahead

The cruise line was hit as hard as any business by the pandemic, but it stayed afloat.
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Nearly the entire cruise industry closed from roughly March 2020 through July 2021. 

Yes, there was a Royal Caribbean (RCL) - Get Royal Caribbean Group Report ship sailing out of the Bahamas a little earlier in the summer and another operating in Singapore, but most of the fleet was either docked or at sea with skeleton crews for about 15 months.

Now, Royal Caribbean has most of its fleet back at sea with paying customers and CEO Richard Fain said he thinks the worst has passed. He's also clearly quite tired of talking about Covid, according to his comments in the company third-quarter earnings call.

Every conversation doesn't need to start with a description of the trauma we've experienced. Every discussion doesn't need to dwell on how awful it's been. Fortunately, the path forward appears clear and very positive for our company and for our industry. For some time now, we have said that we hope to take advantage of the special features of cruising and make cruising one of the safest places on earth to spend your vacation.

The numbers are now coming in and our objective appears to be validated.

Royal Caribbean has been slowly adding ships back to its operating fleet while also raising the capacities of the ships already in operation. It expects to have all of its cruise ships sailing by spring of 2022.

How Has Royal Caribbean Handled Its Restart?

Fain said that his company has taken a walk-before-you-run approach with a focus on just getting back to business. He said that doing that has worked.

"Our strategy has been to get the flywheel spinning," he explained.

That's because the company and its customers have been dealing with a high level of uncertainty. That has included cancellations, interruptions, confusing rules and changing protocols, Fain added.

"Thankfully, today, we're operating almost normally. Our published itineraries are being delivered on a consistent basis. Two-thirds of our ships are already operating and virtually, everything will be back to normal in our core markets before the end of this year," he said.

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Fain explained that the approach was chosen in order to rebuild confidence with its passengers and with travel agents. Basically, he wanted to reestablish trust so people felt like that if they booked a cruise it would happen more or less the way they planned for it.

"Like the pilot of a plane during takeoff, prioritizing speed over altitude, we have prioritized spreading the wealth," he said. "We have prioritized starting up more ships even with lower loads per vessel rather than trying for higher load factors on fewer ships."

Getting Royal Caribbean Ready for Wave Season

Operating ships with limited capacities has not returned Royal Caribbean to profitability. The company lost $1.2 billion in its most-recent quarter.

Demand, however, has returned in numbers that approach 2019 levels. The company closed September with approximately $2.8 billion in customer deposits across its three core brands. In 2019, that number was $3.1 billion.

A portion of that number -- about 35% -- represents customers using future cruise credit (FCC) from previously cancelled cruises to book their new sailing. That number is down from 40% in the previous quarter.

Fain said that his company has operated with the idea that it would be well-positioned for the period between January and March known as the "Wave period." That's the traditional time of year when most cruises are booked in a "wave" of bookings.

"January is the start of wave period and our goal is to have our core markets operating normally as quickly as possible," Fain said. "...Our bookings are already showing that the public has a great deal of pent-up demand and is eager to travel again. We have a long period of poor bookings to make up for, but current booking trends give us a high level of confidence for 2022, especially from the summer on."

Fain, who has served as Royal Caribbean's CEO for 33 years, will step down from that position on Jan. 3. He will remain chairman of the company and will be succeeded by CFO Jason Liberty.

Related: Royal Caribbean Reports Covid Outbreak on Ship That Was 95% Vaxxed