Royal Caribbean Cruises - Earnings Call - Q1 2020
May 20, 2020
Transcript
Speaker 0
Good morning. My name is Sia, and I will be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean's Group Business Update and First Quarter twenty twenty Earnings Call. I would now like to introduce Chief Financial Officer, Mr. Jason Liberty.
Mr. Liberty, the floor is yours.
Speaker 1
Thank you, operator. Good morning, everyone, and thank you for joining us today for our business update and first quarter earnings call. Joining me virtually from their home offices are Richard Fain, our Chairman and Chief Executive Officer Michael Bailey, President and CEO of Royal Caribbean International Carollo Mengalini, our Vice President of Investor Relations. During this call, we will be referring to a few slides, which have been posted on our investor website, www.rclinvestor.com. Before we get started, I would like to refer you to our notice about forward looking statements, which is on our first slide.
During this call, we will be making comments that are forward looking. These statements do not guarantee future performance and do involve risks and uncertainties. Examples are described in our SEC filings and other disclosures. Please note that we do not undertake to update the information in our filings as circumstances change. Also, we will be discussing certain non GAAP financial measures, which are adjusted as defined, and a reconciliation of all non GAAP historical items can be found on our website.
Unless we state otherwise, all metrics are on a constant currency adjusted basis. Richard will begin the call by providing a strategic overview of the business. I will then follow with an update of our liquidity actions we have taken to date. I will then provide an update on the booking environment and then I will provide a recap of our first quarter results. We will then open up the call for your questions.
Richard?
Speaker 2
Thanks, Jason, and good morning, everyone. I hope that everybody on this call is safe and healthy. These are troubled times, and we all need to take care of ourselves as well as remembering the first responders and others who are working so hard to protect our communities. Obviously, our industry and our company are undergoing unprecedented challenges, and we are having to quickly adapt to this new and evolving environment. But our priorities are clear.
We will work to protect the safety of our guests and crew. We will proactively enhance our liquidity. We will protect the company's brands and our travel partners. And we will define and prepare for a new normal. In the two months since we suspended operations, we've been working tirelessly to safely repatriate our guests and crew members to their homes.
Our crew come from more than a 100 countries around the world with widely different safety protocols and travel restrictions. This has turned what should be a simple task into a monumental one. It's really hard to convey the complexity of the process to somebody who's used to making simple travel arrangements, but our teams are working around the clock with a multitude of governing bodies to repatriate our crews as soon as possible. We've even gone to the extent of using our ships as transport vessels and currently have nine ships carrying more than 10,000 crew members back to their home countries. It's a complex and expensive way to do it, but it's the most reliable way to get these men and women home to their families as quickly as possible.
And therefore, we've undertaken to do it this way. We've also implemented actions to provide guests with some flexibility and peace of mind as they look forward to resuming their travel. To this end, we have implemented the Cruise with Confidence program, where guests have the flexibility to cancel their cruises up to forty eight hours prior to sailing and receive a full credit on the cruise fare for a future cruise. We have recently enhanced this program with our lift and shift program or lift and shift option, which gives our guests even more comfort for the time ahead. We're delighted to say that these programs have been very well received as they benefit both our guests and our liquidity profile.
In a few moments, Jason will provide more details regarding our results during the first quarter and the proactive steps that we've been taking to address the current environment with a focus on cost reductions and on liquidity. First though, I'd like to talk about the future and the steps that we're taking to address that future. It's useful to reflect on how quickly our world has changed and how quickly our understanding of this awful disease has evolved. It's amazing to think it's only been two months since we suspended operations. When I think back to how little we understood then about this disease, it's remarkable.
Over the period, the pace of new information and understanding has been astounding. Things that we were told were right one week became unthinkable nearly a week later. The flow of information has been so fast, it's been hard to assimilate. Fortunately, our level of understanding and that of governments around the world is beginning to stabilize or at least seems to be. We're all beginning to understand the dos and don'ts, and the tight strictures are beginning to loosen.
It's still very early days, but these are auspicious signs. Obviously, the most immediate question that you would all like to know is when cruising will start, and we'd like to know it too. 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.
While it's very difficult to have any certainty around the timing or shape of recovery, we do intend to make sure that we are prepared for it and for the changes it will entail. To this end, we are focused on all aspects of our safe return to service strategy with special emphasis on safety, security and health. We know that the public expects that we will elevate our health and safety protocols to a new level. And we are prepared to make sure that we meet and exceed those expectations. We're trying to use this time wisely.
We have been and are working on ways to up our game in this field to ensure that we use our ingenuity, our passion and our innovation to raise the bar to new heights. We are calling our aspirational program the Healthy Return to Service Program. The program will have four main focuses: upgraded screening prior to boarding, enhanced processes and procedures onboard, special focus on addressing the destinations we visit, and procedures for dealing with any reports of exceptions. We recognize that this is an extremely complex area and we have assembled a blue ribbon team of experts to advise us on the right approach. Our goal is to raise our standards to entirely new levels and we believe that the Healthy Return to Service program will help us get there.
We have the time, we have the determination and we have the expertise. It is tempting to start talking now about all the individual components of how things will change. However, we're still defining all those enhancements and we're still taking guidance from our expert advisors. And this process will continue in keeping with our mantra of continuous improvement. We are better prepared today than we were yesterday and we will be better yet prepared tomorrow.
But the one thing that won't change is our determination that we will not start operations until we are fully ready to do so with all the hygiene and other health protocols solidly in place. Besides addressing the scientific aspects of all things related to COVID-nineteen, we also need to restore the confidence of many by being transparent in our actions and communicating extensively. We will not rush this work, but it is not an exaggeration to say that we're working on it around the clock. The other area I'd like to briefly discuss is our longer term strategy. The reputation of our brands, the strong relationships with our travel agent partners, our great customer base and our innovative and agile culture should all serve as an advantage when this crisis is over.
Just a few weeks ago, we were set to enjoy the best year in our company's history, fueled by a huge demand for our products. That has not suddenly vanished. We know that the basic human desire to explore and to travel will persist with a continued focus on seeking out experiences as opposed to things. Our responsibility is to be in the best position possible when travel resumes. I'd really like to draw an analogy to nineeleven, which I think is quite apropos.
I recall that in the aftermath of that horrible event, lots of people said that travel and tourism were history. People would never travel again, especially on airplanes. On the other hand, soon after I heard people refer to the exact same situation and say that ultimately nineeleven had no impact on travel. These people argued that people were traveling more and they were traveling as though nineeleven never happened. My view is that both comments are simply wrong.
It is demonstrably untrue that people stopped traveling as a result of nineeleven. In fact, after a period of adjustment, travel took off. Sorry for the pun. On the other hand, it equally isn't true that after the period of adjustment, travel reverted to the status quo ante. In fact, travel became very different from pre-nineeleven.
What happened was that we adjusted and all travel that took place in a post-nineeleven world was really quite different from travel previously. It's hard to remember that, but that dynamic took place. Travel didn't simply revert to what it had been. Rather, adjusted to the new normal, and it grew on that basis. I believe personally that the same thing is going to happen in a post COVID-nineteen world.
Travel and tourism will grow, but not by reverting to what it was, but by adjusting to a world where all activities, everything we do in the world will have changed. Our industry is resilient and we will come back strong, but we'll do so not by mimicking what we used to do, but by innovating our product to meeting the exciting demands of the world as it is. We've been proactive in taking the steps to reduce our costs, to manage cash flow and to secure liquidity to weather the storm, and Jason's going to talk about that in a minute. We're also actively focused on positioning our brands to emerge in a strong position as guests resume their travel over the coming months and beyond. With that, I'll turn the microphone back to Jason.
Jason?
Speaker 1
Thank you, Richard. So I would first like to thank our teams across the whole enterprise for their dedication and tireless efforts during these unprecedented times. During the past two months since our pausing of operations, we have intensely focused our efforts on preserving cash and enhancing our liquidity profile. To keep investors and stakeholders up to date, we have provided several updates, which detail our efforts through press releases and eight Ks. Since our last earnings call, we have focused on reducing our operating expenses, also reducing or deferring our capital expenditures, improving our debt maturity profile and securing additional capital.
We have significantly reduced our running expenses as the ships transition into various levels of layout. We have eliminated or significantly reduced marketing and selling expenses during our out of service period, and we have taken painful but swift actions to reduce G and A by reducing our teams or furloughing employees. As it pertains to our capital expenditures, our teams have done an exceptional job by reducing or deferring our 2020 capital needs by more than 65%. Our updated capital expenditures for 2020 are now approximately $1,700,000,000 with only $500,000,000 that remains to be spent for the balance of the year. Now shifting to our debt maturities, we have been able to obtain a twelve month debt amortization holiday for most of our vessels payments, bringing our debt maturities down to $400,000,000 for the remainder of 2020.
And lastly, we've been very active in the capital markets, raising almost 4,000,000,000 in additional liquidity since our last call. Overall, we estimate our cash burn to be in the range of $250,000,000 to $275,000,000 per month during a prolonged suspension of operations. This range includes ongoing ship operating expenses, administrative expenses, debt service, hedging costs and expected necessary CapEx. It excludes refunds of customer deposits as well as cash inflows from new and existing bookings. More than 60% of this cash burn is related to operating expenses, which we expect to reduce further until a more prolonged out of service scenario.
Through all these measures, we have been able to improve the company's liquidity profile by approximately $12,000,000,000 for 2020 and 2021 combined. Having said this, we continue to explore other opportunities to improve our liquidity profile given the magnitude and uncertain duration of the COVID-nineteen impact. I will now update you on the business outlook as I know this is top of mind for many. We began the year in a strong book position and experienced a record breaking start to the wave period, which resulted in a nice yield growth for January and February sales. Then everything changed as COVID-nineteen spread beyond Asia and became a global pandemic.
On March 13, we announced that for the first time in our history, we would suspend cruise operations for thirty days. Since then, we have extended the suspension further and in total, we have canceled six twenty one voyages and reduced our capacity for the year by approximately 25%. From a demand standpoint, our bookings started to deteriorate in mid February and then fell to levels that were materially lower than prior year on the onset of the global cruise suspension in mid March. At the same time, near term cancellations increased substantially, while cancellations for 2021 remained at more typical levels. While bookings still remain suppressed, they are better now than they were in mid April, driven by improved trends for the 2020 and 2021 sales.
For the remainder of 2020, we are booked well behind same time last year in load factor with prices down low single digits. It is still very early in the booking cycle for 2021. But at this point, load factors are below same time last year, but are within historical ranges. Prices for 2021 booked business are currently up in the mid single digit range. Our current booking trends indicate that there is demand for cruising.
However, our guests now require more flexibility than ever. And to provide that flexibility, we have introduced the Cruising with Confidence program. Also, we have provided guests who are booked on suspended sailings with the option of 125% future cruise certificate in lieu of a cash refund. To date, approximately 45% of the guests who are booked on one of these voyages has requested a refund and the remainder are holding an FCC. Approximately 20% of the guests who have been issued FCCs have already rebooked on future voyages.
Most rebooked on similar itineraries and many are actually using 125% value to upgrade to a higher stateroom category. As you may expect that our loyalty guests are redeeming their FCCs at a much faster pace than non loyalty guests. I will now shift the focus to our results for the 2020. These results are summarized on Slide two. This quarter was really a tale of two quarters.
During the first six weeks of the year, booking trends were strong across all our major geographies except for Asia, with North America based sailings trending particularly well. While we were extremely pleased with booking trends for most itineraries, we were particularly impressed with the prices we were achieving for sailings visiting Perfect Day at CocoCay, particularly those on our modernized ships. Even though we started canceling sailings in Asia at the January, we were still booked at a strong load factor in prices and we're poised for another strong year of yield growth. On March 13, we suspended our global operations. This decision combined with earlier cancellations in Asia resulted in the cancellation of 130 sailings during the first quarter, a reduction in capacity of approximately 20% versus guidance.
The impact of COVID-nineteen also led to the recording of a $1,100,000,000 non cash asset impairment charge. As a result, we recorded a net loss on a U. S. GAAP basis of $1,400,000,000 or $6.91 per share and an adjusted net loss of $310,000,000 or $1.48 per share negative 1.48 The loss for the quarter was driven entirely by the COVID-nineteen impact. The timing and trajectory of a recovery remains uncertain, so we are unable to provide further guidance for the year.
However, the company does expect to incur a net loss on both a GAAP and adjusted basis for the second quarter and 2020 fiscal year. The magnitude of the loss will depend on the timing and extent of our return to service. As I mentioned at the beginning of my remarks, these are extraordinary times. We have made solid progress in mitigating the impact of COVID-nineteen on our business and are prepared for the wide range of scenarios that could play out. We feel confident that we will come through this successfully and can't wait to start delivering amazing vacations again.
With that, I will ask the operator to open up the call for a question and answer session.
Speaker 0
The first question will come from Steve Wieczynski with Stifel. Please go ahead.
Speaker 3
Yeah. Hey, good morning, guys. Thanks for all the details. That was very helpful. So Jason, it's pretty clear that you guys are in a pretty good liquidity position right now.
But I guess if you remain in a zero revenue environment for an extended period of time, can you help us think about what other options you have down the road to further increase liquidity? I mean, we've seen your competitors go down the highly dilutive convert and equity path and just wondering what your appetite is for something like that.
Speaker 1
Sure, Steve. Thanks for the comments. So this, yesterday, we closed on on our bond, that we, launched last week, and we were really happy with the additional liquidity we were able to gain, by raising that money. But the other thing that we're really happy about is that by raising that bond, it really provided a lot of flexibility for us to raise additional capital, especially debt. So there's a pretty significant basket and flexibility on our ability to raise additional debt.
But and I would also add that we believe that our return to service plans, as we consider them, that we have adequate liquidity. But if those circumstances change and depending on how things play out, we would certainly need to consider all alternatives that would be available to us.
Speaker 3
But to add on to that, the equity slash convert would be your last option that you would want to do?
Speaker 1
I would say that we are very sensitive to dilution. But overall, I think that we purposely made sure we had maximum flexibility on the debt side.
Speaker 3
Okay. Great. And then second question would be around, how do you see a return to service for your ships around the rest of the world? Seems like everybody right now is so focused on the CDC and what they're telling you to do here in The U. S.
But given your strong position in China and your JV with Tuohy, couldn't you guys start operations around the rest of the world sooner than here in The U. S? And I guess if that answer is a yes, do you fear there could be some potential negative pushback from the CDC or the U. S. Government?
Speaker 4
Hi, Steve, it's Michael. Interestingly, yesterday, I was on the CLEAR European Executive Committee call, where we had an extensive update from all of the national directors in the various European countries. And I would say that from the feedback from that call yesterday and then the discussion we've had with our China team in Shanghai, it is a very different story by region and by country. And I think it's highly likely that, either the Asian markets in China, for example, or the European region could come back earlier because, of course, they went through this experience earlier, and that's particularly true of China. So we're very, aware of these different, landscapes.
And I think we're also relatively pleased that we have this global infrastructure that we can leverage to utilize that opportunity if it does materialize. I think with your comments about the CDC, obviously, we are highly focused on ensuring, as Richard started this whole call, with ensuring the safety and a healthy return to service. So however we return to service, we're only going to return to service regardless of region or market when we believe that we have a healthy return to service plan that's deemed as the right way forward. And our guests will be comforted by that plan. So it's interesting.
I think we will see different markets come back at a different pace. And I think our global infrastructure and the strength of our brands is really going to power us through those opportunities.
Speaker 3
Okay, great. Thanks guys. Really appreciate it.
Speaker 5
The next question will come
Speaker 0
from Felicia Hendrix with Barclays. Please go ahead.
Speaker 6
Hi, thanks so much and good morning. Jason, just getting back to the liquidity question, it seems like so many companies across different sectors, not just cruise, are accessing the markets as much as they can given that the window is open now. So some may view your decision to wait as risky. So I'm just wondering, should we read into the fact that you haven't secured any incremental liquidity on top of what you've already done that you feel more optimistic than others regarding the recovery? And then also, can you just help us understand how you're thinking about your roll up?
You're mentioning that you did mention that you're starting to see demand for fourth quarter. So just wondering how we should think about the amount of capacity that you'll roll out as the industry opens?
Speaker 1
Yes. So I'll take the first one. I think the way that you would read it is I don't think you're overly optimistic. I think you are being looking at the reality of the situation. And when we kind of evaluate our different return to service plans and different scenarios, that was the impetus for us raising the capital that we did this past week.
So again, I think we have to see how things play out. And I think that we have a lot of we have quality brands, quality assets, and I think that we would evaluate the markets if we see circumstances change outside of the different scenarios that we're evaluating. So I wouldn't read into it at all that we're optimistic. I think I would read into it that we think we've taken the actions on the capital raising side based off of what we currently think. And we also think that there's more opportunity for us to do on the cost and capital side to further reduce our burn rate.
Speaker 2
Felicia, this is Richard, and I'll just comment on the process of returning to service. I think we don't expect that this is going to be that someday somebody blows horn and all the ships start operating right away. The we think that it'll be a gradual start, a little bit like society is opening up a little is opening up gradually. And so we would imagine that we would start with smaller, with fewer ships and more likely to be more drive markets in the beginning. And it would then evolve and grow from there.
I also think coming back to the earlier question, there's such big differences between, what's happening in different countries, what's happening in the local society, what the different mix of where the ships are and where they're going. So I also think that you'll see that high degree of variability depending on what area of the world you're talking about. But to answer your second question, we see that as a slow and gradual thing, not suddenly a lot of ships coming back in the market.
Speaker 6
Thanks. Then just Jason, just quickly a follow-up on your answer to my the first question. Just when you were talking you've said in several of your filings that you continue to look at reducing on the cash burn on the cost and capital side. Just wondering is one of those options that would be to transition more to more cold layup among your fleet? Just from the language that's been in your filings, it seems that you have much more of your ships in warm layup versus where your competitors are.
Speaker 1
That's one avenue. I mean, our teams have done an exceptional job of, of really reducing the operating costs while the ships are not operating. And, you know, there is opportunity to move some of them into a cooler, type of layup. But, you know, I think even if you look at our our layup cost on a per berth basis, you know, we've we've found creative ways, to have the ships in a maybe of a warmer layup with with really the cost differential being being very small. So that's one of I think many levers under evaluation, to further reduce the burn rate.
Speaker 7
Okay. Thank you.
Speaker 1
Thanks Felicia.
Speaker 0
The next question is from James Hardiman with Wedbush Securities. Please go ahead.
Speaker 8
Good morning. Thanks for taking my call. So I have a difficult question, but I think it's a fair one. I wanted to ask about that, the the fourth component that you delineated with your your healthy return to service program. Specifically, what happens in the unfortunate event where somebody actually contracts the virus onboard?
Obviously, there's a lot that's going to go into preventing that from happening. But as potential customers are thinking about how that would go, I guess, a, how do you ensure that you don't end up in an outbreak scenario? And then b, how do you ensure that the ship doesn't ultimately get stranded? I think that was one of the striking parts of what we saw over March and early April were ships that just had no home and the ports weren't allowing them to return. So how do you give consumers the comfort that they're not going to be in one of those scenarios as you reopen, but there is ultimately no vaccine?
Speaker 2
Yes. So I think what we're looking mentioned, is all four of those situations, and the fourth one is very much a part of it. We think it is premature to come out. We're working with a series of experts on the topic. We're we're obviously very conscious of the issue.
I think it's premature for us to go through the thoughts we have on any of the four, both because we keep getting better, but also knowledge of and knowledge of the the virus and knowledge of what we can do what one can do with it keeps changing. So before we come to service, that will be one of the questions that we have to address in a forthright way. And as I say, it's both coming out with a proper way to handle it, and it's important to be transparent about how that will operate. As we approach our safe return to service, a healthy return to service, we will be providing more information on that.
Speaker 8
Okay, fair enough. Then I won't ask the next question I was going to ask. But maybe can you help us as we think about you've got customer outflows in the form of refunds and inflows in the form of deposits. Can you maybe help us size the latter in any way you deem appropriate? And maybe any idea when you think the two will essentially balance each other out?
I'm assuming that at this point, it's a net cash outflow to customers, but when do you think that might even help?
Speaker 1
Yeah. Hey, James. So, you know, the first way that I would frame it is there's there's a difference between, you know, sailings that you're canceling, which obviously we've talked about that that about 45% of our guests ask for their cash back. And then and the the the kind of ebbs and flows of of, customers that are are booking, further, you know, out in terms of past the canceled sailings. So obviously, the ones when we cancel sailings, there's a lot of outflow that occurs for those 45% more or less that we've been seeing.
But when you look at into Q4 and you look out into next year and you look at that kind of period of time, you do see more inflow than you see outflow occurring when you look at kind of Q4 and beyond. And it's really where you see most of the outflow occurring is when you're canceling sailings and and the guest is considering whether or not they're going to, hold on to an FCC or or get reimbursed. And and I think as we get to the point where we're not canceling sailings, that's where I think you begin to see that inflection point and also as you begin to focus the customer more and more on booking into 'twenty one.
Speaker 8
Okay. So but just
Speaker 1
to
Speaker 8
clarify, you think that as we get into maybe July, August time frame when ships are resuming, you think those two could potentially offset one another?
Speaker 1
Well, I think I think once you get to where you're you're you're you're you're back up and operating, I think you will you will see, cancellations move to much more of a typical level, which obviously especially when you're canceling sailings, they're gonna be elevated. And, of course, when, you know, when everybody's been in the stay at home order, you would expect it to be elevated. But, you know, when you look at, you know, know, if you just look at 2021 as an example, you know, cancellation rates are are at very typical levels.
Speaker 8
Got it. The
Speaker 1
other point the point the other point I would add is, you know, our our cruise of confidence programs and so forth have really, been very well accepted, by the trade and by our guests. And I would just and I as I as I made in my comments, our loyalty guests have really just been absolutely incredible in their support, and and you can really see their love of cruising as they begin to wanna focus further out.
Speaker 4
Yeah. And, James, it's Michael. I'd like to add a little bit of color to Jason's comments. I think we've really seen, surprising demand from our loyalty members. And remember, we've got close to 20,000,000 loyalty members.
And, their response to, various promotions that we put into the market, just to understand what the demand looks like, has been surprisingly positive. So as we move into Q4 and into 2021, we've been honestly surprised in terms of the demand that we've seen coming in, particularly from loyalty guests.
Speaker 8
Perfect. Appreciate it guys.
Speaker 4
Thanks,
Speaker 0
The next question will come from Tim Conder with Wells Fargo Securities. Please go ahead.
Speaker 7
Good morning. This is Karen calling in for Tim. Jason, just the first question, following your latest round of fundraising, can you just maybe quantify or remind us what is your remaining unencumbered assets, including both vessels and maybe other assets as well?
Speaker 1
Okay. Well, sure. Hi, Karen. And you sound better than Tim. So and good morning.
So in terms of the unencumbered assets that so we we basically encumbered about $12,000,000,000 of our balance sheet. And so you've got the balance of that that is is unencumbered. And not all of that would be available, for example, like in an OpCo type of structure, but a very large percentage of the balance would be available if we were to choose to raise additional liquidity via debt.
Speaker 7
Okay. Great. And given your latest pricing on the on the debt that was issued, is there any reason or circumstance that you would, at this point, call your 7 and a quarter Silversea bond?
Speaker 1
I well, I think at I think at this point, you know, cash is king. And and and, of course, if we were to raise additional debt, likely at this point in time, that would be at a higher rate than the Silver Sea. So I I I don't think at this point we have any specific plans, but we, you we are evaluating all different alternatives, to, you know, to, you know, square up our capital structure.
Speaker 7
Okay. And lastly, just a clarification on your booking commentary. Could you maybe define what historical means for you? And when you commented that 2021 pricing is up mid single digits, is that relative to that's relative to 2020, but what is it in relation to historical or or '19?
Speaker 1
Yeah. Well, what I would say is, you know, typical levels is kind of looking back over the past several years. It it is lower than our 19 levels, but it's not much lower than what we've seen, call it, over the past three to five years in terms of that typical average. The only thing I would say on the rate side is, you know, we are our rates are at mid single digits today. That is versus 2020.
And I think that, know, that number will fluctuate up and down, you know, depending on load factor for next year and also will will be depending on yeah. As as as our guests continue to apply the the FCCs, you know, that will, you know, that will weigh a little bit on that rate. But overall, what we're seeing is that we are seeing strong demand for 2021. The volumes are at typical levels. Rates are up a little bit, and those trends continue to support that.
And as I commented in my remarks, over the past four weeks, we've seen even better demand trends for the back half of this year and 2021.
Speaker 7
Okay. Sorry, one more follow-up to that. Would you say that in the last four weeks that would be new bookings or is it rebookings of those Campbell sailings?
Speaker 1
No, I would say it's much more new bookings. On the FCCs that we have out there, about 20% of them have been applied, but it's a very small percentage of the forward booking period. So our commentary about the booking environment really relates to new bookings.
Speaker 7
Okay. Perfect. Thanks so much.
Speaker 1
Thank you.
Speaker 0
The next question will come from Jamie Katz with Morningstar. Please go ahead.
Speaker 9
Hi, good morning. I have just one quick question. I'm curious if you'd help us parse out how the resilience of FCCs are looking across the income demographics. I think Lindblad had said that more of their customers were taking credits and were better booked. I'm curious if you're seeing similar trends at Silversea versus Royal Caribbean or RCI, if you're willing to break that out.
Thanks.
Speaker 1
The color that I would give, I mean, we've been relatively impressed with the numbers that are taking the FCCs and also the utilization of the FCCs. Utilization, and those taking FCCs are more skewed towards our loyalty members. But, what you would see is younger cruisers, and I and I'm really talking with the millennials, or the younger part of the millennials are typically, looking more for their cash back while, you know, families and baby boomers are likely to take the FCC and utilize it.
Speaker 9
Okay. Thank you. That's helpful.
Speaker 1
You got it.
Speaker 0
The next question is from Brandt Montour with JPM. Please go ahead.
Speaker 10
Good morning, everyone, thanks for taking my question. Good morning. Just quickly good morning. Quickly for Jason, just wondering for the system at large, what do you guys see you needing to do in terms of how many ships you need to have sailing to reach breakeven on company EBITDA? And what does that assume for for load factor?
Speaker 1
Yeah. It's it's it's it's almost impossible, you know, question to answer because it's just a fluidity in the situation. What I would say is that what we what we find is, you know, for our newer ships, you need about 30% load factors, to kind of break even on on an EBITDA basis and, you know, and then they they they skew to about 50% load factor on onto our our older ships. So it's it's it's I would kinda if you wanted to kinda build a model, I would think about it that way. But, yeah, we've done a lot to rightsize our costs.
We've done a lot to minimize our capital so that as we return to service, you certainly do not need the entire fleet operating at full levels to, you know, to break even. And and you don't need load factors to be exceptionally high, either. I think we just you know, a a slow return to service, you know, gets us back to a breakeven EBITDA in a relatively short period of time.
Speaker 10
Okay. That's helpful. Thank you. And then I was just curious what your thoughts were on the industry's appetite to scrap ships here and then and then your, you know, yourselves specifically as well if if, you know, under certain scenarios where where things were were suspended for for a prolonged period of time.
Speaker 1
Yeah. Well, I think there's a I think there's a lot of opportunity that you'll you'll see here on the capacity side. I I I do think that you will see, ships that, are retired at a at a much higher pace than what we have seen in the past because there really hasn't been that much on the scrapping side. I think the combination of what's happening with COVID, and then the IMO regulations, you'll you'll you'll see, you know, interest in, some of the older vessels for possible sale. And then there's just the reality that the the new building programs for us and probably for the industry will will will slow, and they'll slow because, you know, the yards themselves are, you know, they're not really operating.
They're they're just beginning to think about getting back up and running. The supply chain has been impacted, and so it will take time. And so you're gonna see a permanent shift, and delay of new buildings for some time, which is going to weigh on capacity growth numbers, you know, for the foreseeable future. Because, you know, these the especially on the new building side, it's not a, you know, a shift and a catch up. It's a it's likely to be a very permanent shift.
Speaker 5
The next question will come
Speaker 0
from Stephen Grambling with Goldman Sachs.
Speaker 5
A couple of quick follow ups. One, can you just confirm what percentage of the fleet is currently receiving bookings on for 2021 and whether future cruise credits can still be redeemed for cash? And then at a bigger picture level, you mentioned access to other forms of liquidity. But how do you think about the right debt level for the company both near term to ensure you still invest appropriately in a recovery, but then also longer term based on the experience that you've had in this environment?
Speaker 1
So I'll take the second one, Steve, just real quick. In terms of, you know, know, our our ultimate goal right. Our our key goal here, which we've been very consistent, is to be an investment grade credit. And so, obviously, when we are evaluating, additional capital sources, you know, we're considering leverage. We're considering the negative carry associated with that leverage.
And then, you know, looking at how do we get ourselves on a path here, in order to, you know, get back to our investment grade metrics as as soon as possible as we as we look to return to service. David, could you just repeat the first question real quick?
Speaker 5
Sorry about that. We had a little bit of an intruder there. But can you just confirm what percentage of the fleet is currently getting bookings on for 2021 and whether future cruise credits can still be redeemed for cash?
Speaker 1
Currently,
Speaker 4
we have really two programs in place. One is Cruise with Confidence, which we launched really as a way to give immense flexibility to existing customers and to customers who are considering sailing because the key really of Cruise with Confidence is even within final penalty and with full payment, you can basically cancel your sailing within forty eight hours of departure and then you can receive a FCC for 100% of the value, which you can then utilize at any point up until the early twenty twenty two. So that's an FCC that is really utilized heavily because there is no refund cash refund option that comes with Cruise with Confidence. It's basically the ability to simply move your booking whenever you feel comfortable to sail. And then the other FCC option is provided when we suspend our sailings.
And then we give the guests basically two choices. Either one, you can have a cash refund, of course, or secondly, we'll provide you with a future cruise credit for 125%, which I think as Jason has already mentioned, about 45% of our customers are taking the refund and 55% are holding the future cruise credit to be able to utilize on a future sailing. And we've also introduced with these programs something called Lift and Shift, which allows guests to simply lift up their booking and move it to a future booking whenever they choose. I'm not sure if I answered your question, but I think I may have answered it.
Speaker 1
Yes. And just to add on to it, currently our entire fleet and brands are available for sale for 2021.
Speaker 5
Got it. Helpful. Thanks for the input and patience.
Speaker 1
Thanks, David.
Speaker 0
The next question will come from Robin Farley with UBS. Please go ahead.
Speaker 11
Great. Thank you. I wanted to get a sense of maybe if that operating expense burn rate you talked about, the 150,000,000 to $170,000,000 I think is what you've said before. Because you mentioned your ships are maybe in sort of various stages of layup. So just wondering if how much that 150,000,000 to 170 in operating expense per month could come down when you're when you have everything laid up as much as you expect it to be?
Speaker 1
Yeah. So it's it's I I wish I can give you a an exact number because some of it just has to do with there's the layup cost and then also, you know, the the the movement of the crew and so forth. But there's definitely opportunity in that one fifty to one seventy five. I mean, typically, we're laying up a ship, if it's in a, call it, a a cold state, it's it's about, you know, between a million and a million and a half a month. And then a warm in a warm layup, it's somewhere between 2 and 2 and a half million a month.
So there, you know, there's the opportunity to move, more of those into a cooler layup. The thing that we also have to think about is as we bring them back up, the cooler you make them, the more it will cost you to bring them from a cool layout into a a a hot state to be able to operate. So so some of it is just, you know, looking at your return to service plans and and and being thoughtful about which ships are going to come up first. As Richard commented, it's not a light switch. It's more of a dimmer that as we bring the fleet back on.
And so that's one of the things that's kind of in the consideration, but there's definitely opportunity there. So, you know, it's it's it's not gonna be zero, but, you know, it certainly could be better than the 150,000,000.
Speaker 7
I can hear you, but I
Speaker 12
Okay. No. That's helpful. Thanks.
Speaker 11
And then just had a clarification. You you talked about the number taking cash and you noted in the release was as of April 30. I'm just wondering if in the
Speaker 5
last three weeks you've seen an increasing rate of
Speaker 11
that or not only because another cruise line has talked about an increasing rate of people taking the future cruise credit. So I'm wondering if you're seeing the same thing. Thanks.
Speaker 5
Sorry. I'm on, like, a stock call.
Speaker 1
Yeah. Yeah. So so, overall, I mean, what we're seeing average wise is is about 45%. That's taking it. There there has been a little bit of an increase, relative to what we were experiencing, previously, in the in the in the rate of guests that are taking, the cash versus, the FCC.
But most of that has to do with the mix of the guests. And and so the more you know, as you start getting to be a little bit more, internationally sourced on some things, what we're finding is, you know, guests from other parts of the world more often not choose cash versus the FCC, which is a different pattern than what we've seen in markets like North America.
Speaker 11
Okay. Great. Thanks very much.
Speaker 1
Thanks, Robin.
Speaker 0
The next question will come from Sharon Zackfia with William Blair. Please go ahead.
Speaker 13
Hi, good morning. Thanks for all of the color this morning. I guess, you know, one thing that would be helpful to understand is kind of your ability to scale the cost on the ship as you resume operations. So typically, you know, we've thought of of the ships as fairly fixed cost, and I don't know, you know, what your ability is to, you know, scale labor to initial loads or how we should think about that, going forward.
Speaker 1
I got this little box You know, in in current in current states like like,
Speaker 7
like this, you
Speaker 1
have much more variability, opportunity on your cost. And that's because, as you know what your load factors are are going to be, or or or you think they're going to be, then then, you're you're able to bring the crew on on and off the ship, in a more flexible manner, which is where a lot of your your fixed costs are. So I think that we we see more variability, than what we have historically seen, as as as, as our ships return to service, and a lot of that will be also deployment based. Based.
Speaker 13
And Jason, I might have missed this, but did you indicate any kind of range as to what initial loads might look like?
Speaker 1
We have not. And you did not miss it, Sharon.
Speaker 13
Would you like to give us any kind of estimate there?
Speaker 1
I would not. I think a lot of it will be determined based off of, the dialogues we're having with, you know, with different regulators and the CDC and so forth. That will be more of the that will be more of what calibrates our thinking around load factor.
Speaker 0
The next question will come from Asia Georgieva with Infinity Research. Please go ahead.
Speaker 12
Good morning and thank you for taking my question. Given the fact that pretty much all Carnival brands had extended their positive operations through a much longer period than you had anticipated and just a couple of hours ago you may have you probably saw that Norwegian also extended their pause. Are you considering canceling further voyages? June 12 seems to be only three weeks away and maybe a little too soon. Have I missed further extension?
Speaker 4
Hi, Asia. It's Michael. Interestingly, our plan is this afternoon we'll be announcing further suspension of voyages until the July until July 31. The only exception to the suspension will be our, China operations.
Speaker 12
Thank you, Michael. That makes a lot of sense. And separately on the logistics front, it seems that ports allowing weather embarkation, disembarkation ports or ports that you visit allowing ships to enter their communities might be a big hurdle. Is that something that plays into the thinking as to which itineraries would open up outside of Asia?
Speaker 4
Yeah. It's a great point. And, interestingly, we dialogue with over 40 different ports and destinations, around the world in terms of plans and, return to service. And, it's surprising how many ports and destinations are very interested in returning to service and opening. And in fact, we get many calls asking us when are we gonna bring our ships there.
So we're in that discussion, and it requires a lot of planning because it needs to be really part of our healthy return to service. I think one thing's fairly true is that, for example, in the American market,
Speaker 12
And I kind of lost you there, but I think you mentioned Perfect Day would be available to open up a lot sooner and that makes perfect sense. I didn't mean that. Perfect Day, perfect sense, but it works, I guess. It also seems to me and since you were on the call yesterday with the members of CLIA and the European nations, that probably the support in The Caribbean might be a lot more willing and interested in opening up sooner as opposed to European ports despite the fact that Europe is probably further along the curve that we're on. Is that a fair
Speaker 4
you know, it's a very it's a I don't think you can generalize one over the other. I think it's a very you know, it's a mixed story. I think I think, you know, in many ways, every region, every country is on their own journey. And, I I I think it's maybe you can generalize to say that certainly China and Asia went through this first. So it's just logical that they're emerging from this first, and I think it's the same thing with Europe and now, of course, with with everything in The US and The Caribbean.
So there's a kind of a logical relationship with how people first went into this as a society and how people are thinking about coming out of it.
Speaker 12
That makes sense. And if I can sneak one last one in here. Jason, you mentioned that the newer larger vessels would get to EBITDA breakeven at about 30% occupancy. They also provide an opportunity for a better social distancing. Does it make more sense to actually go, with those vessels first as opposed to the smaller vessels?
Speaker 1
Forget it. Yeah. So so a good point, Afya. So so first, I would say is is, you know, there either load factors can be lower because, you know, they have great economies of scale. They're extremely fuel efficient.
Uh-huh. The cabin cabin category makes it very rich. But, you know, really, more broadly within the fleet, you know, our our fleet is very, the public space for birth is is is very good. But, certainly, the newer ships have a, have more public space, per passenger, and and would be, you know, heavily in consideration, for, you know, for the return to service, as well as other ships that we've modernized, and adding more venues on to.
Speaker 0
The next question comes from Vince Sightel. Your line is open.
Speaker 5
Hi, thanks for taking my question. A variety of folks in the travel industry keep mentioning the unprecedented nature of this fall off in demand.
Speaker 1
And when you
Speaker 5
look at your 2021 pricing, it actually sounds quite healthy. Can you compare what you think the industry is doing, what you're doing with pricing for the next six, twelve, eighteen months out relative to kind of what happened in the o eight, nine time frame? Because it seems like people are kind of holding the line in a stronger manner.
Speaker 7
Robert Barton, show a door.
Speaker 1
Yeah. So sorry for all the all the background noise. I'm not quite sure It's great. What line is what line is open. But Yeah.
I think
Speaker 2
we should ask the operator because it's not one of our lines.
Speaker 1
Yeah. So so I I would so I think, Vince, to your point, one of the things that we've generally been seeing is is that, you know, I think all the effort around price integrity that I know we've done and I think I think others in the industry have done, what we've seen is, your people being much more measured in in terms of taking pricing action. You know, you see more packaging, more promotional activity, but but, you know, we are seeing, your pricing, stay relatively stable. And of course, the likelihood that there's going to be some lower load factors for a period of time will also help support that pricing going into the early part of next year. Okay.
So thank you for your assistance today, Sia, with the call today, and we thank all of you for your participation and interest in the company. Carola will be available for any follow-up you might have. And from our homes, we wish you all a a really great day and take care. Be safe.
Speaker 0
Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.