Royal Caribbean Cruises - Earnings Call - Q2 2020

Transcript

Speaker 0

Good morning. My name is Shelby and I'll be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's Business Update and Second Quarter twenty twenty Earnings Call. All participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

I would now like to introduce Chief Financial Officer, Mr. Jason Liberty. Mr. Liberty, the floor is yours.

Speaker 1

Thank you, Shelby. Good morning, everyone, and thank you for joining us today for our business update and second quarter earnings call. Joining me are Richard Fain, our Chairman and Chief Executive Officer Michael Bailey, President and CEO of World Criminal International and Corola 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.

Richard will begin the call by providing a strategic overview of the business. I will then follow-up with a recap of our second quarter results. I will then provide an update on our latest liquidity action and then give an update on the booking environment and our outlook. We will then open up the call for your questions. Richard?

Speaker 2

Thank you, Jason, and good morning, everyone. Thank you for joining us this morning. While it definitely seems like an eternity, it's been five months since COVID nineteen upended our lives. Every one of those days has been a challenge to all of us on every level. The impact on us, on individuals, as families, as businesses, probably most importantly, communities have been profound and sometimes even humbling.

During these five months, we at the Rock Raven Group have been working on scenarios that were unimaginable for us just a while ago. From massive crew repatriations and bid capital raises to developing new fleet wide health and safety protocols, all while working remotely. It's been and continues to be a monumental effort. But first and foremost, I wanna especially acknowledge the shipboard and short time team shore side teams that have worked tirelessly on the unprecedented crew repatriation effort. To date, over 43,000 or more of, or more than 98% of our crew hailing from some 90 nations have made it safely home to their families and their loved ones.

We continue to work with the governments of the restricted countries to reunite the last few of our crew with their family. It was and still is a very complex and expensive task with shifting regulations and restrictions across multiple countries. Our teams were simply remarkable, overcoming the multitude of challenges that came daily their way. I particularly want to thank our shipboard employees who are, and always have been, the heart and soul of our operation. Their patience and their understanding during this horrible process has been extraordinary.

While there are always exceptions, the vast bulk of these people have been supportive and understanding during a really awful time for them and everyone else. And that's actually helped to accelerate the process. Lastly, going forward well, lastly, looking forward, as we get our crew home and settled, we're thinking about the future. I joke, but I joke that by the time we get our last crew member home, we'll have to start all over again. Frankly, I can't wait to welcome them back on board when the time is right.

In parallel, our terrific finance and legal teams have been working round the clock, working to get us enough liquidity to get through these extraordinary times. With our strong brands, great reputation and a solid balance sheet, we've been able to access the capital markets and to negotiate with governments, vendors, shipyard operators and others to improve our various financial terms. Now while accessing capital and deferred debt payments are critical, another important liquidity action we can take is cash burn. To this end, our operating teams expect to have the whole fleet in their expected level of layup by the end of this month. Moreover, they are reviewing every single expense account to further improve our cash conservation goals.

On top of all these efforts, most of our capital projects have been delayed or canceled as we don't know how long it will take to get beyond this epidemic. These are painful, but these are necessary decisions. I have to say that these five months have been the longest five months any of us can remember. Now, since the crisis began, we extended our suspension of operations seven times now through October 31 for most voyages. But it's fair to say that there is still a lot of uncertainty.

Against this backdrop, we will not rush to return to service until we are confident that we have figured out the changes that we must make to offer our guests and crew strong health and safety protocols with the enjoyable experience that they rightly expect. We believe that our Healthy Return to Service program will help get us there. As I mentioned before, this new program will focus on four key aspects: upgraded screening of guests and crew prior to boarding, enhanced health processes and protocols onboard, a special focus on addressing the destination we visit, and lastly, procedures for addressing any reports of exceptions. We recognize that this is extremely complex. Therefore, besides our dedicated internal teams, we, in cooperation with Norwegian Cruise Line, have assembled an expert panel called the Healthy Sail Panel.

It's tasked to help us develop comprehensive and multifaceted set of enhanced health and safety protocols. We think they will address the key aspects of our return to service program given the challenges of COVID-nineteen. We've also recently created the position of global chief public health officer who will raise our standards for enhancing and implementing all the protocols and recommendations fleet wide. As with all we do, we want our measures to go above and beyond what's expected of us. As most of you know, a ship has very special features.

And some of those make it more challenging. But some of those provide real opportunities. And so we are all looking at our ships with an open mind and an imaginative core. From the arrival at the terminal with contactless check-in, the RR app, to touchless payment options. We're reviewing every step of the experience.

For example, we have developed a new innovative way to muster where our passengers will be able to view the safety information on their app or interactive state room TV and then check-in at their assembly station at their leisure. No more crowds. This is one small part of the enhancements we're working on, and we'll share many more when the time is right. Now as we work and prepare to sail with the new protocols, there are also some other important positive signs on the horizon. There are noteworthy advances in treatments.

Many new drugs are undergoing clinical trials. Testing and tracing are ramping up, and vaccines seem to be making great progress. Never before has so much coordinated effort, resources, focus, and technology than applied to solve such a problem. But while COVID-nineteen's impact is significant, what hasn't changed is that people, you, our guests and our employees, are at the heart of this cruise line. We have been both humbled and surprised with the amount of bookings we're seeing for 2021, with literally no marketing efforts and frankly very little good news.

You've heard me say before that revenue management is more of an art than a science, and that is more true today than ever. But the tone of our bookings, especially as we get into the second half of twenty twenty one, has been encouraging. Our guests want to come back. Families want and need the vacation. That is what makes us innovative, inspired, and resilient.

We are more determined than ever to come back strong with new ideas to make sure that our guests feel confident and safe in choosing their vacation with us. I cannot leave this call without expressing my appreciation to the men and women of Royal Caribbean who continue to display such loyalty under such trying circumstances. This pandemic and the steps that have to be taken to control it are causing massive pain and suffering throughout our company. They are disrupting our lives and our way of life. The impact on our society and our way of life is profound, and that impact will last long after the current crisis ends.

We will get through this, and we need to focus our attention in doing so and doing so in a manner that preserves the amazing attributes of cruising. My parents' generation was indelibly imprinted with the experience of the Great Depression. And I think our current generations will be imprinted with the many experiences that are affecting us today. Our task will be to ensure that we are responding appropriately and innovatively to the demands of society as we emerge. Based on the information available to us today, I'm confident that we're taking the right steps to do so.

Cruising has taken the economic impact of the acute phase of this pandemic as hard as any industry I can think of, but we are ready to rejoin the rest of society in the recovery. In fact, once we get past this acute phase, the experience cruising offers has the potential for being one of the ways society comes back together. Humans are social animals, and cruising will, in the near future, be able to offer people a meaningful and enjoyable way to safely fulfill this basic human need. People want to be together, and we will be ready to welcome them aboard. And our bookings for next year indicate that our guests feel the same.

With that, I'll pass the microphone back to Jason. Jason?

Speaker 1

Thank you, Richard. Before I get started, I I also, like Richard, wanna thank our incredible employees and stakeholders for their dedication and tireless efforts during these unprecedented times. It is it is really awe inspiring and and very appreciated. So now let's get into our results for the second quarter. The second quarter results illustrate the stunning impact of this pandemic on our business.

With all cruises for the quarter being canceled, we have reported an adjusted net loss of $1,300,000,000 The impact of COVID nineteen also led to recording a noncash asset impairment of 100 of $156,500,000. Now having said that, our total net cruise cost declined by more than 40% versus the previous quarter. This decline was driven by the suspension of our of our cruise operation and also significant reductions in our operating and marketing expenses. It's important to note that we continue to incur significant costs in the quarter that relates to the repositioning of our fleet for layup, which included the housing, repatriation of our incredible crew. Also, we had some some revenue and cost for the quarter that are related to Silversea's quarter lag.

When including onetime costs that impacted the quarter and Silversea's quarter lag, our net cruise cost actually declined by almost 60% versus last quarter. We expect these to further decline as our ships settle to their various levels of layup. Other relevant events that happened since our last call, on the July 10, we announced that we purchased the remaining shares of Silversea. We believe the timing and value of the deal was right, and it was structured in a way that did not impact our liquidity as the remaining one third stake was paid in the form of 5,200,000.0 shares. This move will allow us to accelerate integration efforts and further position Silversea for long term success.

Now as Richard mentioned this morning, our top financial priority remains ensuring that we are in a strong liquidity position. To this end, we continue to take decisive action to bolster our position, and we ended the quarter with $4,100,000,000 of liquidity. The strength of our balance sheet, our assets and our brands has been evident during this pandemic as we raised approximately $6,500,000,000 in new liquidity since we announced the suspension of our global cruise operations. Moreover, during this quarter, we completed a twelve month debt amortization holiday for all of our export credit backed finances and amended over $11,000,000,000 of commercial bank and export credit facilities to provide covenant waivers through the 2021. With these moves, our upcoming maturities equal $300,000,000 for the remainder of 2020 and $1,300,000,000 for 2021.

As it pertains to our monthly cash burn, this has also improved sequentially each month as our ships enter various levels of weigh up. We estimate that the cash burn will be on average in the range of approximately $250,000,000 to $290,000,000 per month during a prolonged suspension of operations, inclusive of the increase in interest expense attributed to the latest capital raises. As we mentioned in the press release this morning, this number excludes refunds of customer deposits, scheduled debt maturities, commissions as well as the cash inflows and from new and existing bookings. This range is lower than the second quarter actuals as much of our fleet is now settling into various levels of layup. It's worth noting that our teams are working around the clock to bring this number further down as reducing our cash burn is the most cost effective way to improve our liquidity position.

I would now like to provide an update on the business, starting first with our capacity. We have now suspended most of the voyages through the October. To date, we have canceled fifteen forty five sailings, which represents a 65% reduction in our capacity for the year. Regarding our newbuilds, we initially expected to take delivery of five ships between July 2020 and the '1, but are now only expecting to take delivery of three ships during this period. This includes the Silver Moon, which is planned to be delivered in October, Royal Caribbean Odyssey of the Sea, which is now scheduled to be delivered in the 2021, and Silver Dawn scheduled to be delivered in the 2021.

All other remaining ships on order are expected to be delayed by an average of ten months. Now I'll provide an update on what we are seeing in the demand environment for 2021 sailings. Given the current global situation and uncertainty, we've been both encouraged and humbled by the volume of bookings we've been receiving for 2021. Since our last earnings call, bookings have averaged more than double the level seen during the first eight weeks of the global cruise suspension. This is quite remarkable, as Richard commented, that this is taking place with very limited to no marketing activity.

The cadence of demand has generally been determined by the news cycle. We received higher levels of bookings prior to the news regarding a surge of COVID-nineteen cases and a decline thereafter. To this end, bookings have been softer for the first quarter, but quite strong for the summer and back 2021, highlighting the continued demand for cruising for our core destinations of The Caribbean, Europe, Alaska, and Bermuda. It's important to note that the 2021 is benefiting from rebooking activities from guests with future cruise credits along with those taking advantage of our popular lift and shift program. That being said, more than 60% of our bookings received since mid May have been new bookings.

As a result, our cumulative book load factor is still within historical ranges. Pricing for twenty twenty one pricing for twenty twenty one bookings is about flat when including the negative yield impact of bookings made with future cruise credits, and it is slightly up year over year when you exclude them. Regarding our customer deposits, the balance at the June was 1,800,000,000.0 with approximately 300,000,000 associated to twenty twenty sailings. Approximately 48% of our guests booked on canceled sailings have requested cash refunds. We expect our customer deposit balance to decline further during the third quarter as we continue to process refunds for recently suspended sailings.

However, we expect the decrease to be smaller than it was in the second quarter. In closing, in order to kind of frame the third quarter outlook, I'll just remind everybody that we have canceled all of our third quarter sailings. Having said that, the timing trajectory of the recovery still remains uncertain and we are therefore unable to provide further guidance for the year. We do expect, however, to incur a net loss on both a U. S.

GAAP and adjusted basis for the third quarter and for 2020 fiscal year. The magnitude of the loss will depend on the timing and extent of our return to service. Lastly, I will highlight that by raising cash early and aggressively managing costs, we are prepared to navigate a choppy and volatile period. Moreover, our people are working around the clock planning a comprehensive return to service strategy while taking care of the financial health of the company. I am confident that we will emerge from this crisis as a stronger, more resilient company.

With that, I will ask our operator to open up the call for a question and answer session.

Speaker 0

Your first question comes from Robin Farley of UBS.

Speaker 3

Great. Thanks very much. I wanted to ask some other lines that source primarily in Europe are restarting and I wanted to just think about for Royal Caribbean whether your restart date would really be just the CDC and cruises out of The US, or would it be potentially something in China or or something else that I'm that I'm not thinking of? And then my other question related to that kind of part two of that question is some of the protocols that cruise lines in Europe have put out, there is one cruise line saying that they will test guests before boarding and some other lines that haven't said that. Just wanted to get your take on, you know, whether that is something that can reasonably be done for US passengers before boarding.

Is that is that kind of a reasonable protocol for a US restart? Thanks.

Speaker 4

Hi, Robin. It's Michael. As you know, we've we've suspended all sailings until the, October with two exemptions. One of them is the the China, operations and also Australia. We we it it may well be possible that we'll resume operations in China and potentially Australia before, the October, but it's uncertain.

And I'm not making any statements that that's gonna happen, but there's there's some possibility. So so that's a that's a possibility that that may occur. As it relates to the protocols, I think, you know, what we've seen what we're seeing in Europe is Europe is in a certainly a different environment as it relates to how people, view COVID and what's occurring with COVID. Through CLEAR Europe for some time now, there's been a series of interactions and discussions with both the European Union that at the July issued guidelines for the cruise industry in terms of, returning to to sailing. And there's been individual discussions between national governments and cruise companies, which has resulted in what we've seen in terms of miscellaneous cruise companies returning to operations.

Obviously, through our, cruise line association in Europe, we're very engaged in what what's what's happening, and we're obviously receiving a lot of feedback. It's a great learning experience for for the industry in terms of what's occurring. With regards to the protocols, I think, certainly, testing seems to be very relevant, and discussions are underway. As Richard had mentioned earlier, we have a degree of confidence from the panel that we've formed, and all of our protocols are currently under review with the panel. So testing is part of the thinking, but we have not yet reached a point in our protocols where we're ready to publish and and release for for, for discussion.

But it's it's it's very likely that testing will occur. We're also seeing in discussions multiple destinations around the world, which is another component of the return to service, particularly as it relates to Caribbean that, testing is very much at the front of how people are thinking about, protocols for returning.

Speaker 3

Okay. Great. That's very helpful. Very helpful. Thank you.

Speaker 1

Thanks, Robin.

Speaker 0

Your next question is from Steven Wieczynski of Stifel.

Speaker 1

Hey, guys. Good morning.

Speaker 5

Jason, you indicated that 60% of 2021 bookings are new or unique since May. And you expect that net outflow ratio of deposits versus refunds is still going to be negative in the third quarter. Can you help us think about when that ratio would more breakeven ish or even positive?

Speaker 1

Yes. Sure, Steve, good morning. So first, obviously, when you're in a period of time when you're canceling sailings, and for us, you know, a little under half of our guests are asking for their cash back, those are times where you have more significant outflows. But when you step back and you look at our our cancellation rates for our for our active sailings are only a tad higher than they typically are. And, actually, for 2021, they're actually lower than what we have historically seen.

And so when you're in that type of situation, you know, for, you know, for active sailings, what you're what you're seeing is is that we're obviously taking in more than than is going out. And and and so I think it's just getting to a period of time where we're not, you know, we're not canceling sailings. And, of course, you know, we only, you know, we only have, you know, a little under 300,000,000 of of customer deposits for the balance of the year. And and as we get further now into the back half of the year, focus on '21 begins to ramp up more and more. And so my commentary around what we're seeing around bookings per 21 and what we're seeing in the cancellation rates, I think, is encouraging for that ratio to flip.

Speaker 5

Okay. Got you. And second question, I'd it's probably going be for Michael. But the healthy sale plan, it seems like you guys are pretty close to wrapping up that study and submitting it to the CDC. And I guess the question is around what the timeframe looks like once you submit that plan to them and then when you expect to hear back from them?

Because I think they can still take public comments still mid September if I've read that right.

Speaker 4

Yeah, Steven. The the CDC requested public comment, and the the the final date for public comment is September 21. Our panel is, working through through the month of August. We're hoping that towards the end of the month that we'll have a a final position that's signed off on by our panel, and we feel is the right plan to return. So the timing kind of starts to come together, with with all of the public comment concluding towards the September, our work concluding towards the August.

We think that that there's some good opportunity in terms of how that comes together. But I think it's important to to, you know, note that there's as we know, there's just a huge amount of uncertainty with with how this will play out, and obviously, of the biggest dynamics is is what's occurring with COVID itself. So we've certainly seen in in Europe that as COVID decreased, and particularly, for example, in Germany, Germany was one of the first countries to open up to be flexible in terms of opening up for cruising because it reflected how people were seeing what was occurring with COVID. So if if we're fortunate and everything comes together at the same time, then then we're hopeful that we'll be entering into some meaningful dialogue, towards the, September.

Speaker 5

Okay. Great. Thanks. Appreciate it.

Speaker 2

Steve, just to amplify on that. There there's almost a a sense you sometimes get that there's a a date and that this will happen and then new protocols and new procedures will come out. And then, that's the end of that, and we'll move on. I think one of the things we have seen about COVID and about the kinds of protocols that you have is this is an ongoing process. And there'll be some things that are coming out this fall, and then there'll be more knowledge about prevalence in society and about treatments and about vaccines.

And so I think we view this more as a dimmer rather than a light switch. And we think that we'll start out, as Michael says, and we'll start to see some things early fall. But then there'll be changes. And I think this will be a continual process. You know our mantra is continuous improvement.

And so I think it would be a mistake to think that it all ends at one point in time.

Speaker 5

Okay, great. Appreciate that, guys. Thanks.

Speaker 0

Your next question is from Felicia Hendrix of Barclays.

Speaker 6

Hi there. Hey. So Michael, maybe you can tell us who's booking for 2021, maybe the compression of the cruiser. Is it I mean, everyone's kind of talked about the loyalty, but is it just your loyal guests? Is it millennials?

Is it generation you know, if you can just kind of tell us who's booking. And then just, Jason, regarding your bookings commentary that the pricing is flat year over year, can you also help us understand how that compares to 2019? Thanks.

Speaker 4

Hi, Felicia. Yeah. I think I think, Jason in his opening comments mentioned that certainly when when anxiety is is relatively high because of COVID, then bookings, you know, decrease, in relation to how anxiety is heightening. We've been conducting, consumer research since March, so we've got a really good sense of how the customer is thinking about cruising vacations, different different opportunities, and and how they're viewing all of that. And what we see is the direct correlation between what's occurring in the state that they live in and how optimistic they are.

And then that, of course, translates into how we see the bookings coming in. So that's one thing that we've seen. The other thing is that, we we did see that younger customers were, more inclined to be booking, but we also saw a huge response from our loyalty customers. So, it's across the board, and, of course, different brands have a different kind of response from customers. But I would say that the key core for bookings at the moment is loyalty cruises, people who understand what cruising is.

They feel confident and comfortable that once we start getting this behind us that everything will will return, and they're very anxious to go on a vacation. The other observation, which is which is which is really my observation, is I I'm kinda hopeful that we're gonna see a lot of pent up demand. And, certainly, when you look at our bookings by quarter in '21, there's a lot of activity as we move into the summer. And I think a lot of people have written off this summer. They've decided that there's not gonna be a big summer vacation for all of the reasons that we know, but people certainly wanna have a vacation next year.

And I I I'm kind of hopeful that we're gonna see a nice bump in '21 because people wanna go and have a great vacation. So and, certainly, when you look at our bookings for '21, the summer the summer seems to be, know, pretty popular.

Speaker 1

Thank you. Thanks, Michael. And and and and on your second point, Felicia, first of just start off and say, I'm looking forward to a vacation next summer. So I have to get away from all these children. But but on on on the pricing side, our our our commentary on pricing is actually higher than 2,019 levels.

So, you know, same time last year is actually a record high. So we're in line with a record high. And if you exclude the future cruise certificates, which were issued at a 125%, we're we're actually above those those record levels.

Speaker 6

Okay. That that's helpful. And then just, Jason, on the on the balance sheet, can you you know, look. You guys gave us all the details on your liquidity, which gets you through till almost the end of next year depending on which end of the range you wanna look at. You know, there have been news articles about you looking to raise some more debt.

So just wondering if you could tell us what your balance sheet capacity is both in terms of a secured and unsecured perspective.

Speaker 1

Sure. Sure. Yeah. I've I've I've I've I've I've seen the articles as well. I'm not quite sure the sources of the article, but I've seen them.

You know, we're you know, you know so we're, you know, we're obviously in the situation about return to service remains fluid. We continue to look internally at cost, internally at capital, looking at other ways even in the noncapital market bank world to further bolster our liquidity. And and by that, what I mean is is looking at, you know you know, support from, you know, our the different governments and ETAs that we do business with, which have been incredibly supportive. And then when you look on the capital market side, on the debt side, we've got about $3,000,000,000 of debt that we're able to issue. We still have about $700,000,000 of Opco guarantee that is available to us if we chose to do something on the on the on the debt side, and then the balance of that would be unsecured.

Of course, we also have other assets and ships that are coming online that we would be able to potentially put some some leverage on our security on as well as as they as as as those ships come online. And then, of course, you know, there's other avenues that, you know, that could be considered. You know, we are really focused not only just getting on to the other side of this crater, but also making sure that we we gain our financial health and and, you know, and soon we see metrics and and leverage that looks like pre COVID levels. A lot of focus on that as just a general construct on the balance sheet.

Speaker 6

Great. Thank you very much.

Speaker 0

Your next question is from Assia Georviyavana of Infinity Research.

Speaker 7

Good morning guys. Jason, you mentioned the changes to capacity and the delay to newbuild deliveries. Can you expand a little bit on possible ship sales of some of the older vessels, whether the market is there for those? And secondly, when you hopefully come back into service in early November, that would be at a limited capacity, I assume. Can you give us a sort of a quantitative figure as to what number of ships you imagine will start sailing initially?

Is it 10 or is it 30?

Speaker 1

Hi, Assia. Good morning. So, you know, we we've we've been really, I think, fortunate over the years of, you know, being able to to sell ships and and and, you know, typically, our our philosophy on it is, you know, if if we don't think we have a good plan for that ship or to be generating sizable returns or it's difficult to make it a strategic fit to our brand by modernizing it and so forth, we have looked to, you know, to, you know, to sell the ships. And we typically have averaged one or two ships a year. You know, certainly, in this time, you know, we are, you know, evaluating opportunities to to sell ships or to take other actions with ships.

And and I would say, you know, as as as as that information comes live, we would, of course, you know, you update the the the investment community on that. And, you know, we're there's already three ships and three ships that related to Pulmon Tor that are currently in the in the scrapping process. And and so we're evaluating all all options. But, of course, you know, we wanna we've we've we've put a lot of money into these ships. These ships do exceptionally well.

And so it's a it it's a it's it's typically a difficult decision to department a ship because they generate so much so much cash. The one comment I would just make in terms of the ramp up and and, you know, I I know I know I'm sure everybody's eager to hear is it gonna be, you know, x ships, y ships, whatever it is. I think as Richard pointed out a few minutes ago is that, you know, it's gonna it's it's not gonna be a light switch. And it's not gonna be a light switch because it's like starting any type of operation. We've gotta ramp ourselves back up.

And I think based off of what we see in terms of, you know, demand and protocols and and and so forth, we'll we'll be the determinant on, how many ships come, back up, on day one. But, you know, our goal is to bring them back up and and move that dimmer, as quickly as we possibly can, to get our fleet, fully back up and running, and under the the safety and health and, all and and protocols that everybody would expect us to be doing.

Speaker 7

Currently, it seems that you have almost the entire fleet available for bookings. So I imagine some of those bookings may be shifted on a similar itinerary on a similar date. Is that fair?

Speaker 1

It's certainly possible, Assia. Again, I think that as as we get more visibility by market, by products in terms of what's gonna come on the line and when, you know, we'll we'll evaluate if if changes need to get made, whether it's to itineraries, whether it's to to ships, or whether it's to our you you guess on what ship and so forth.

Speaker 7

Thank you, Jason, and good luck to everyone.

Speaker 1

Thanks, Assia. Appreciate it.

Speaker 0

Your next question is from James Hardiman of Wedbush.

Speaker 8

Hey, good morning. Thanks for taking my questions. Briefly, Jason, is there any way you could help us break down that $2.50 to $2.90 of monthly cash burn in terms of sort of what ship costs, what's the new sort of interest run rate, what's CapEx, etcetera?

Speaker 1

Sure. Well, I'll break it down this way. You know, somewhere to before, you know, we had said $2.50 to $2.90 is the overall. The burn rate, if you consider running in SG and A, is somewhere around the one fifty to one seventy rate per month. You know, our brands I mean, I I you know, I've really done an incredible job and continue to find creative ways to further reduce the cash burn on on our ships.

And it's it's and and and and doing it in a way that, you know, no way minimizes our ability to get the ships back up and running in a timely way. And so, you know, I think we we we still see opportunity for sure in these numbers. But, essentially, you know you know, running an s g and a is is about that is about that range. And about half of the one fifty to one seventy is is running, and the other half is s g and a.

Speaker 8

Okay. Very helpful. And then, Michael or or Richard, whoever wants to take this, obviously, there's a lot of discussion about the approval process with the CDC. But as I think about handicapping that October 31 date, there's a lot you can control, and there's a lot you can't. Obviously, the the big thing you can't control is is sort of where the virus is.

Maybe speak to what your healthy sales panel is recommending from a from a virus perspective. Do we need I'm assuming we need to get the virus in in much better control by thirty first versus where we are today. But how do I think through that? Do we need to get the virus to levels that we're seeing in Europe for you guys to recommend that that things are in fact safe? Should we be focusing specifically on the state of Florida?

How should we think through all those those those pieces?

Speaker 4

Yeah. It's it's a real as you pointed out, it's a a real puzzle, and there's so many variables to consider. It it's certainly a component of the thinking as it relates to the protocols of healthy return, into account the prevalence of COVID not only in the origination but also in the destination. So as you can imagine, one of the one of the projects that we're working on now is a dialogue with all of the destinations. For example, in The Caribbean, South Central America, we formed a task force where literally all of the tourism ministers and many prime ministers from these countries are participating with, with the FCCA, which is really part of CLIA, to start thinking through how we're going to, safely resume operations.

So, yes, the component of this is is obviously gonna be the prevalence of COVID in the in the origination and the destination. And, I think just, you know, common sense tells you that if if if the prevalence is exceptionally high in a origination market, then that's going to to to hinder, resumption of operations. But I think it's worth pointing out that, certainly for for Royal, you know, we the market is The United States. Sure. There are certain states that have a higher density of customers, but we do draw from the from the entire country.

And, of course, we have an extensive international, footprint as well. But but it is a component of it. The panel is you know, they really are experts in their fields, and and they are reviewing step by step, point by point every single protocol that's that's placed in front of them by our, team of experts. So it's a it's a kind of an ongoing process, but the key point I think is the prevalence of COVID will have a determination on the return to service.

Speaker 8

Very helpful. Thank you.

Speaker 1

You're welcome.

Speaker 0

Next question is from Tim Conder of Wells Fargo.

Speaker 9

Thank you and thank you gentlemen for all the color. Jason and Michael totally agree with the pent up demand. There's probably some good cruise lines as well as the places with private islands that can accommodate some of those needs. Move on to some just sort of following on some of the questions. When we get back to normal, let's just call call it that, how should we think about, Jason, some of the structural cost here, both on the cruise operating side and the SG and A relative to maybe levels that we saw in 2017, 1819?

Speaker 1

Yes. Well, I think in terms of on on on a standpoint, you know, we we we've obviously we've taken some g and a actions that we think, are and will be permanent, changes in our cost structure. On the running expense side, you know, we continue to identify ways to to to save money. And, of course, you know, the product will scale up accordingly based off of the load factors and and and so forth over time. We're going back to the dimmer example.

There will also be and, of course, you know, we don't know exactly what this that number is gonna be. There, you know, there's gonna be additional costs that relate to some of these protocols, which, you know, some of it will be temporary and some of it might be for a a more sustainable period of time, you know, that that, you know, that will be out there. But, you know, our our goal is is is to make sure we're delivering the very best vacations in the world, continue to have have strong net promoter scores, but trying to do all of that while, you know, you know, getting ourselves back to to pre COVID margins and better.

Speaker 9

Okay. Is there any way, Jason, we can sort of think about some of those costs that could be structural, whichever those years are the best to benchmark off of as we go forward? And then maybe in 'twenty one, let's assume you're ramping up throughout the year, would we expect to be obviously below what we're seeing in '20 on an ALBD basis, but still above that seventeen, eighteen, 19 on an ALBD basis?

Speaker 1

Well, I I, you know, I I I know it would it it and and when the time is right, you know, Tim, we will we will look to try to provide, you know, guidance on on how we see our cost structure developing. I would take my comments earlier about returning to financial health and and getting back to kind of pre COVID levels as, you know, the, you know, the need for us to to to find ways to become more and more efficient here over time, but I think it's it's too early to to communicate exactly what that would be. And and, of course, you know, on a load factor basis and and and, you know, it's it's it's gonna it's gonna be a ramp up. I I'm sure people like to have a specific number. But, again, I think we look at until we have better visibility, it will it will be it will be a little bit of time here before we start kind of guiding on on the volumes and and how those volumes relate to, you know, staffing levels and protocols that will will be necessary in the early days.

Speaker 9

Okay. Fair. Thank you, gentlemen.

Speaker 1

Thanks, Tim. Thanks for trying. Your

Speaker 0

next question is from Brandt Montour of JPMorgan.

Speaker 10

Good morning, everyone. Thanks for taking my questions and thanks for all the details today. Just curious, as you look at next year from a marketing perspective, I know there's a lot of moving pieces. But assuming that you do get a lift of the no sale order in 2020, how do you think that your strategy for sort of wave season marketing could change, you know, versus prior years and and and prior year strategies? Thank you.

Speaker 4

Hi, Brent. Yeah. I think, you know, it's it's it's been interesting, ironically, how well we've been doing with our bookings with almost, no marketing spend. So that's caused a lot of anxiety with our CMO and our marketing organization because the bookings have been good without without much investment. I think the answer really is there's gonna be a kind of a a natural relationship between the amount of investment in marketing when we return to service and the pace of the return to service.

So, you know, back to both Jason and Richard's point that this won't be a light switch. This will be a phased in approach. And I think, our marketing will phase in over what I hope will be a relatively short period of time. But I think once we we get a real sense of how we're gonna be returning to service in terms of the phasing, then our plans will reflect that. And, again, to my previous point, I'm also a believer that there's pent up demand.

So, you know, we we're feeling quite optimistic about how that may play out.

Speaker 10

Thank you for that. And then just a follow-up. Are you guys looking at any contingency plans, sort of under a scenario where we get to prime booking season for summer two thousand twenty one, and and let's say Americans aren't willing to get on an, you know, a transatlantic flight. Maybe talk about the the depth and breadth of your European local marketing arm, and if you think you could or would plan European only sailings.

Speaker 4

Yeah. That's a great question. We we we literally have worked through multiple scenarios on possible outcomes, applying different and multiple assumptions to these different scenarios. So it's a possibility. We hope that doesn't play out, but we have built plans for what you've just asked about and other types of possible outcomes.

Speaker 10

Alright. Thanks all, and good luck.

Speaker 1

Thanks, Brian. Thank you.

Speaker 0

Your next question is from Jamie Katz of Morningstar.

Speaker 6

Hi. Good morning. Thanks for taking my questions. I'm curious if you have any color on the resumption of cruising with TUI. I think they started a few weeks ago, maybe two weeks ago.

And has there been any feedback since that process has resumed?

Speaker 1

Yeah. Sure. Good morning, Jamie. It's it's actually both our Tuohy brand as well as Homp on Lloyd have have resumed. In both cases, you know, the the protocols that have been employed have one, been well received and also seem to be managing the the the health aspects of this.

And so so reports have been very good. I think the thing that has been one of the the better outcomes is is customer surveys and and net promoter scores and so forth have been relatively high here. And so so while we've installed, you know, some more protocols, social distancing, and and so forth, what we have seen is that we've been able to put on an experience, a vacation, that is resonating very well, with our our German customers. So, you know, it's still early days, and the product is building up, more and more, and they haven't stopped anywhere yet, but they've they've been able to put on great vacation experiences. They've been able to see beautiful things, be out in the fresh air, and that has that's that's resulted in very positive feedback from our customers.

Speaker 6

Okay. Thank you. That's helpful. And then go ahead.

Speaker 2

I think I would just add one thing. It's important to understand we're all still learning about COVID nineteen and the implications. And so the opportunity to see what does happen under certain circumstances is really helpful to all of us as we're going through this process.

Speaker 6

Okay. And then the impairment, I don't think it's delineated what that is allocated to. Last quarter, think I the impairment was across all three brands or sorry. Oh, get across Silversea. Was that Silversea again this quarter, or was there something else?

Speaker 1

No. I this, you know, this had this had more to do with with Palmetto. So there was well well, some of it was Palmetto related as as that business is under under being restructured. There's also we had some ships that, you know, that we believe relative to the number of of years they have left to recover their asset levels. There was some impairment there.

And then, you know, there were some things just, you know, that that had that also kinda flushed through in other joint ventures that we have and and collections that we don't think are are are possible for ships that we have sold, but it was under seller financing for.

Speaker 6

Okay. Thank you for the clarification.

Speaker 1

Your

Speaker 0

next question is from Greg Badishkanian of Wolfe.

Speaker 11

Hey guys, good morning. It's actually Fred Wightman on for Greg. Richard and Jason, you guys have both talked about the stronger bookings in the back half I'm wondering if you could just put a finer point on that. What is sort of the relative booking strength you're seeing in that summer and beyond period relative to the first half of the year?

Speaker 1

Yes, sure. So one, I would say it's it bleeds a little bit more into also the front half of the year. So you see this kind of line as you kind of get into the early to mid part of the second quarter where there's just strong demand, you know, for, you know, for, know, for the season, and beyond. It's almost as if the consumer has, you know, somewhat kind of focused on that. That's when, it's it will be it will be time for them to to deal with the pent up demand that Michael had had talked about.

And you if you look at it by product, it really is across all of our core products. So there's strength in The Caribbean, our European products, Alaskan products, and and and so forth. So it's it's not it's not just one thing, but it's it's really clear as we get kinda mid q two and beyond that there is there's high demand and and and our consumers are willing to pay at or above these historical levels.

Speaker 11

Okay, great. And then just on that pricing comment, cumulative 2021 pricing did soften a bit versus what we saw last quarter. I think you guys had suggested that would be the case. But should we continue or should we expect that cumulative pricing number to continue to come down a bit as more and more of those FCCs are redeemed? Or should it be more stable?

Speaker 1

Yeah. Really good question. So I I so I think on the new booking side, I mean, the patterns that we're seeing is is is with strength, and our guests are willing to to pay more than what they paid for same time last year or in 02/2019. But, you know, as we as we, you know, as we as we as the FCCs get redeemed, we we would expect that that's going to have an impact on on those APDs because they're effectively a 25% discount, know, on a on a on a a on a the APD because of the application of that of that of that cruise credit. So I I do think that there will be continued pressure on that APD benchmark just because of the application of those FCCs.

Speaker 11

Great. Thank you.

Speaker 1

Sure.

Speaker 0

Your next question is from Ben Chakin of Credit Suisse.

Speaker 8

Hey. How's it going? You helped with some of the customer cohorts previously. Is there anything unique about the booking channels that people are using for 2021? So for example, you mentioned pent up demand, whether it's repeat cruisers or I think you mentioned the loyalty members.

Is there any mix change you're seeing between direct versus travel agent, for example?

Speaker 4

Hi, Ben. No. Everything is pretty much normal in terms of how how bookings are coming through the the various channels. So we we've seen nothing yet that that, you know, would make you think there's some kind of trend change occurring. I think it it one thing is true that, you know, our distribution of many of our travel partners are obviously stressed because of the situation.

So that's something that we're we're aware of, obviously, and we're trying to be as supportive as we possibly can to our our travel partner community because when all of this does get behind us, we'll we'll need them and want them to be booking for for us. So but no. No no noticeable, change at the moment.

Speaker 1

Gotcha. Thanks.

Speaker 2

Great.

Speaker 0

Your last question comes from Vince Cippeal of Cleveland Research.

Speaker 10

Hi. Thanks for taking my question. Curious, wanted to circle back on the FCCs. I don't know if you'd specified how much of the $1,800,000,000 in customer deposit was FCC related. And then separately, as folks start to redeem their FCCs, maybe once there's a clearer path back to sailing, what percentage of folks who take FCCs are applying them to a specific sailing right now?

Speaker 1

Sure. So so if you if you kinda think about that 1,800,000,000.0 of of of customer deposits, about 900,000,000 of it or so is our FCCs, and about 45% of those are nonrefundable FCCs. And and so so far, there's been about a third of those FCCs that have been applied. And we also have well, of of the there's about a third of the hundred and twenty five percent one. And, of course, our cruise with confidence program, which are the nonrefundable ones, has been about about 20% that has been applied to date.

Thanks. Great. Okay. Well, thank you for your assistance today, Shelby, with the call. We thank you all for your participation and interest in the company.

Carla will be available all day for any follow ups you might have, and we all wish you all a very great day and be healthy. Thank you.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.