Q3 2020 Royal Caribbean Cruises Ltd Earnings Call
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 groups business update and third quarter 2020 earnings call.
All participants are in listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that todays conference is being recorded.
If you require any further assistance please press star zero.
I'd now like to introduce <unk>, Chief Financial Officer, Mr., Jason Liberty, Mr. Liberty the floor is yours.
Thank you Shelby.
Good morning, everybody. Thank you for joining us today for a business update and third quarter earnings call.
Joining me are Richard Fain, our chairman and Chief Executive Officer, Michael Bayley, President and CEO will create an international bank Rolling Mill really aren't 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 Dot RC investor Dotcom.
Before we get started I would refer each one notice about forward looking statements, which is on off from slot.
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 things.
Examples are described in our resi filings and other disclosures.
No no we do not undertake to update the information in our filings that circumstances change also.
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.
The call by providing a strategic overview the business.
I will then follow up with a recap of our third quarter results.
I'll then provide an update on our latest liquidity action and will then provide an update on the booking barb.
We will then open the call for your questions.
Richard.
[noise] Oh, thank you, Jason and good morning to everybody.
Ah spend almost seven months since we paused our cruise operations said every single day has been extremely frustrating and challenging on so many levels.
But while emotionally and financially it hurts us tremendously to see our ships laid up we've tried to use this time to good effect Archie.
Our teams together with the healthy sale panel have worked tirelessly to produce a thoughtful set of health protocols to resume operations simultaneously. Our finance team has worked aggressively in securing liquidity to position the company well because the recovery.
One of the most frustrating elements of COVID-19 is how little the world knew at the beginning of this pandemic about the virus and how many false path, we have all gone down over this period.
Fortunately the science has made remarkable strides and there are a few observations and predictions that we can make.
We are seeing enough sure an upsurge in infections in the United States and other countries around the world.
Well the experts seem to expect a second wave over the coming months.
After seven months of agony the prospect of a further surge is beyond frustrating.
However, the advances on the science fronts give us optimism that this coming third must be as devastating as the early surges in March and April and that will lead to a better 2021.
Therapies are dramatically better and they are more effective.
Testing capabilities are already at extraordinary levels and moving higher and.
The progress on vaccines has advanced at unprecedented speeds.
Personally at this point in this unfathomable crisis I feel more positive that we're beginning to see the light at the end of the total.
Like needs new batteries, but the life is clearly visible.
Please don't get me wrong, I don't mean to minimize the trauma that this disease is causing and we'll continue to cause but progress is being made and that progress is fundamental for our recovery.
As you should know by now this past September the healthy sale panel submitted their recommendations to Austin, the CDC and they were extremely well received.
We all know that we can't eliminate all risk of Cobiz, Nike or anything else for that matter.
Therefore, we ask the panels that help us to me too specific goals.
One to reduce the risk of coven below the level in our guests home communities.
And to to assure that we can properly handle a covert incident onboard effectively without inconveniencing, all the guess where the local community.
The panel they'd 74 specific recommendations towards accomplishing these two goals.
By implementing the recommendations, we intend to make our ships and environment a bubble. If you will that presents less risky transmission that our guests would find on land.
The entire industry here has agreed to abide by these recommendations and we believe they can serve as a foundation for a gradual and methodical healthy returned to service.
The C.D.C. and other regulators have been working on this for a long time, we are grateful for the Cdcs focus on health and the time, they and their observers have spent on this important topic with the healthy sale panel.
I don't want to anticipate any decisions with the CDC might take when the current no sale order expires, but I am optimistic that through our continued dialogue and the pathway that we have outlined we are moving in the direction of a healthy returned to service.
We proposed to start slowly by training our crew and embarking on a series of non revenue trial sailings, where we can rehearse and validate the new protocols.
Pantaloons recommended that this process be carefully evaluated by independent outside observers said, we will do that.
And then only ownership or to it first and a gradual and methodical way, we expect to start selling again.
Will be short cruises, it first with limited destinations and controlled shore excursions, but as we learn and as the science continues to improve we will expand.
Besides the CDC in the United States. We're also working with governments and health authorities across the globe to resume operation in a healthy in phased manner.
Notably two we cruises, how hard Lloyd and silver Sea have all already started sailing again only with a few ships, but it is a start.
And this month, the Singaporean government gave us the approval to sale as well as a result of quantum of the seas will begin cruising in that region in December.
Now before I turn the call back to Jason I want to say that I'm immensely proud of all our people partners travel advisories lenders and guess for sticking with us and helping us get to this point.
The workload has been tremendous and the pressure and the uncertainty nonstop.
There's still more work to be done and the environment is still uncertain, but.
But our industry has faced significant challenges in the past and yet it is continued to demonstrate that they can overcome them.
Not only overcome them, but continue to thrive and grow.
Why simply because the product the vacations that we offer our show extraordinary and some would argue that the value is even higher.
With that I'll turn the call back to Jason to talk to the numbers Jason.
Thank you Richard This morning, we reported adjusted net loss of 1.2 billion on a quarter with muted revenues as all feeling good should have been recorded during the period were canceled.
These painful results were underpinned by a strong focus on reducing operating expenses.
As a result, our crews operating expenses are down more than 80% or 1.2 billion versus our first quarter.
And 371 million or 55% versus our last quarter as we transition to its various levels of way of reaching their desired state.
By the end of August.
[noise], our top financial priority remains ensuring that we are in a strong liquidity position.
To that end, we have continued to take opportunistic actions to improve our liquidity.
During the month of August we obtained a one year commitment for a 700 million dollar unsecured guaranteed 364 day facility.
Including this new financing we ended the third quarter were 3.7 billion and available liquidity.
Moreover, during this month, we bolstered our overall liquidity, even further by raising an additional $1.15 billion through a combination of convertible notes in a public offering of common stock.
The convertible notes and equity offerings were multiple times oversubscribed.
And our convertible notes were priced at a rate of 2.875% conversion premium of 37.5%.
This was really a superb outcome and a testament to the value of our brands and we'll be meeting execution of our finance legal and accounting team.
We believe that the additional liquidity provides us important flexibility because we plan for a gradual return to service and as we work to de lever our balance sheet and our path back to investment grade metrics.
As it pertains to our cash said, we spent approximately 1.1 billion in the third quarter driven mainly by ship operating expenses.
These expenses came sequentially down each month as our ships answered their various levels of oil.
Notably during the third quarter, our average monthly cash burn was consistent with our previously announced range pretty prolonged suspension.
When excluding cash refunds of customer deposits commissions debt obligations cash inflows from new and existing bookings and fees and collateral postings relating to our financing and hedging activity.
This morning.
We reaffirmed that the cash burn will be on average in the range of 250 million to 290 million per month during your prolong suspension of operation.
As we mentioned in the press release. This morning. This number excludes refund some customer deposit that obligation commissions as well as cash inflows from new and existing bookings.
When we return to service and start to ramp up our sales and marketing machines, we anticipate the customer deposits in cash inflows from operations.
Will further improve our cash position however.
However, in addition to increased sales and marketing activities.
Wrapping up our business will also include startup costs related to bringing our amazing crew back to operation and costs related to to some of the healthy return to service protocols.
No that you would all like to understand precisely what those cash flows and costs will be but the fluidity of the situation makes providing such guidance impossible today.
What I would say is that we look to be very thoughtful as to the cadence of how we will bring our fleet back up to its pre kobin levels.
The ramp up will not be a light switch, but instead capacity will increase based on a set of criteria.
First and foremost our decision making will be guided by the safety of our guest in crude.
Also we want to ensure that we are delivering a world class vacation that our guests expect.
And that we are bringing the ships back in the most profitable way.
Which will be mainly guided by our demand profile.
Also we will continue to evaluate.
More actions that can be taken to further reshape our cost structure and improve our operating leverage as we returned to service.
Another element that impacts our cash flow is our capital expenditures.
As we reported this morning, we expect these to be approximately $500 million for the fourth quarter 2000, each one.
And 2.1 billion for 2021.
Approximately 80% of these expenditures to.
You really to new build projects the majority of which have committed financing already in place.
As it relates to 2020 the capital expenditures include the delivery of the silver Moon. This week.
And for 2021. They include the delivery of Bobby overseas, obviously proceeds during the first quarter and silver dawn during the fourth quarter.
Now I will provide an update on the business starting first with our capacity.
As I previously noted the situation regarding a return to service. This fluid, but we are currently planning for a very limited initial return and a gradual ramp up during the first half of 2021.
As a result, our 2021 capacity will be significantly lower than 2019.
The appointment of spring is expected to be highly focused on short films from key drive markets in both the us and Asia Pacific regions.
We also we will also make the most out of our incredible private destination in the Bahamas perfect day Okay.
Now I'll provide you an update on what we're seeing in the demand environment for 2021 sales.
On our last earnings call I had commented that the cadence of demand was generally determined by COVID-19 cases and that.
And that has mostly continued to be the case over the last couple of months with very minimal marketing activities. We.
We have seen a steady improvement in bookings for 2021 with summer sailings meet driving the uptick in demand.
Bookings for the spring season have remained below pre koby 19 levels, which is consistent with our staggered returned to service approach and lower planned occupancy expectations.
From a cumulative standpoint, our book load factors for sailings in the second half. The 2021 is within historical ranges at prices that are down slightly.
When you exclude the dilution every impact of the Fccs pricing for the second half of the year is relatively flat.
Overall 2021 is continuing to benefit from their be booking activities associated with FCC in a listen chip program.
However, approximately 80% of all of our 2021 bookings made to date are new and more than 65% of bookings made since early August have been.
For the full year pricing is relatively flat to same time last year and it's up slightly when you exclude the negative impact of the bookings made with 125% that's easy.
Now about three weeks ago, we announced the quantum of the themes will start sailing from Singapore on December 1st.
And over the following week of the announcement, we saw bookings spike up significantly while this is just one item.
Out of a fleet of 53 ships. He clearly highlights the pent up demand for cruising.
Now regarding our customer deposits the balance at the end of September was 1.8 billion relatively equal to the balance reported in our last quarterly update as inflows from new bookings, mostly offset the outflows from refunds.
Approximately half of our customer deposit balances associated with Fccs and half is related to new deposits for future sale.
Moreover, about one third of the overall balance is non refundable.
Also approximately half will be guests, who booked on the canceled sailings have requested refunds with the other 50% either holding an FCC or lifting and shifting their booking to 2021.
[noise] as painful as it pertains to our financial results for the fourth quarter I'll note that the timing and trajectory of the recovery still remains uncertain and we are therefore unable to provide further guidance for the year we.
We do expect however to incur a net loss on both the U.S. GAAP and adjusted basis for the fourth quarter and 2020 fiscal year.
The magnitude of the loss will depend on the timing and extent of our returned to service.
Lastly.
I'd like to thank our teams across the whole enterprise for all they've done to these extraordinary times.
Sounds Richard mentioned, the seven month have been challenging on so many levels, but we're all pulling through it together an exceptionally dedicated and committed.
Committed to getting our business back I.
I know there were all emerge a stronger more resilient company.
And with that I will ask Shelby to open up the call for a question and answer session Shelby.
I do I'd like to ask a question you may do so by pressing Star then the number one on your telephone keypad, we do ask that you limit yourself to one question and one follow ups, we'll pause for just a moment to them how soon they roster.
[noise]. Your first question is from Robin Farley of VBS.
Great. Thanks, very much I.
I know you.
I don't want to jump ahead of anything you might do in the next couple of days, but I Wonder if you could share with us.
A little bit about what factors you know they've expressed are important to them you mentioned that one of the goals.
Title was to have a.
The incidence rate of the virus, you know be better than than it is on land and that's that's certainly the case I guess with the cruises in Italy from other brands that test everybody before they get onboard spend like less than a.
0.1% or something.
Since rates or is that.
Other words is what matters most to the CDC from your discussions with them when they think about.
Starting or are there other factors that you think are more important.
Thanks.
Well you.
No, it's a complex subject and.
Oh, I don't claim to be the expert on this and the.
We together with Norwegian cruise.
Cruise line holdings.
Put together this panel.
And they spent four months going through the details.
Process they did so with the.
The CDC observers.
At the at the meetings.
And there are a lot of factors.
And we've talked about that before Robin where we.
We believe that there are things that make shifts.
More demanding in terms of what you might want to take but there's also the advantage that the ship has and the biggest advantage is that we have a controlled environment and.
And so that we can do and the whole industry here has accepted.
The to abide by the 74 recommendations and.
And a big part of that is to create this kind of bubble in the beginning to to do screening.
No other industries that I know of has agreed to do 100% screaming screening of everyone.
And I think Thats, a big part of what makes this a viable.
A viable product project.
But I think I would be very cautious about speaking on behalf of the CDC I think they're looking at all aspects of it.
As I say they park they've they were at all the the healthy sale panel meetings, and we've had discussions with them and I think they're trying to put all of that together.
And.
I don't think at this stage.
Also they are going through a process that we don't necessarily see all along so I think they also have to remember that.
That is not all of this is visible to us, but they're looking at all the aspects of it and I think the the no sale order is due to expire shortly anyhow. So I think were eagerly and hopefully waiting for.
There are there specific comments.
Great. Thank you and then just.
Question.
Yeah, I think one of the things when we think about the cash burn rate and restarting is.
Is that potentially the risk of restarting and not having to stop again that you know maybe the cash burn we would go up just you know we saw I eat or this.
This morning seems they're going to pause in Germany for that for the month of November.
Is there can you give us some thoughts about.
When you restart what could be.
Whether it's like crude contracts are only going to be month to month, and not six months or things that might keep.
Keep your.
Expenses from sort of going back up and then having to carry higher expenses again in the case of you know perhaps a pause.
Somewhere thanks.
Yeah, Hey, Robyn I I think I think one of the kind of key things to point to is we've operated.
About 70 sailings now between two we cruises and how Pago Lloyd cruises and Silversea cruises utilizing the protocols.
Had been developed in the <unk> and.
Put forward by the recommendations with the health and sale panel.
And as you pointed out you have a number of cases are exceptionally low and it shows that the protocols you do work and so we are very very focused.
On on your doing whatever we possibly can for there not to be a situation, where we come online and then and then we have to go offline I well give them sure nothing's perfect. Maybe the protocols have have shown that they are working.
The second thing I would say is in this kind of goes back to my comments around slowly ramping up the business.
We do look to do this in a very methodical way, where we're able to see you know you have have test cruises and have cruisers and I'm just looking at those crews is you you really watching how they are performing on both an experienced level of safety level profitability level and.
And then slowly kind of turning the dial back up to kind of avoid a situation where we have to bring all of our crude back which is you took its many many months to do between the spring in the summer. So I think we're being very thoughtful I'm. We're learning a lot through the sailings that have already occurred which provides us confidence.
And then of course I think by this years, you slowly ramping up the business or it it avoids too much pressure on on our cash burn.
Robin.
Because the question you've asked as well I mean, I think is so apt and it is something that that people are focused on unlike the baby embellish a little bit jasons comments as well because this whole concept of the trial.
Voyages is really quite important.
We're not just suddenly coming back because it's going to take a while the organizers voyages and we're going to have the opportunity to to see the protocols in action and to adjust them.
So frankly, I don't think were going to be making the big league until we and the other authorities and our healthy sale panel roll comfortable that that this is now a viable thing to do and we really do believe that it is possible to make it so that.
You are safer on a cruise ship than you are on main street.
And and the evidence in the startups in Europe.
Have demonstrated that.
And when there have been instances and there will be because there are everywhere.
Weve I think you've seen the response has worked that's really the key and so we think that this slow trial trips and the slow startups will give us the opportunity.
A one to watch the technology, improving their knowledge of the virus improve and to to prove out our protocols and I think thats why were so optimistic about where this is leading.
Your next question is from Felicia Hendrix of Barclays.
Hi, Thank you so much.
[music].
Richard I'm understanding that this is kind of a sensitive subject to just wondering what you think the CDC needs to see for them to give you. The green light on what are the key metrics there they're looking for and then also just with Chile, and Hapag Lloyd and in Germany.
And with the German shutdown, what do you think is going to happen with those line.
Sure well good morning, Felicia morning, and.
And.
As you say this.
This is a sensitive time were not part of their process and so I think it really would be awkward for me to speak on and wrong for me to speak on behalf of the C.D.C. I think they're looking at all aspects of it and and it is very complicated and.
I think.
I think we really made some dramatic in roads with the work of the healthy sale panel.
To have people of this level of expertise this level of experience.
Yeah. This isn't these aren't just leading experts in the field. These are the leading experts with with the experience of regulating as well. So I think we learned a lot in that process and the cooperation with the CDC.
It was very helpful, but and Ah.
I can't I can't predict how they will they will do with here and I'm, sorry, I'm not no.
Too much willing to comment on it except to say I'm. Assuming then if you really look at the inherently long and I know, it's dry but analysis that was done by the safety panel and the you see the depth of detail they went into and the transparency.
And see that they had I think that.
Should give the c. the C a lot of.
Comfort.
And I think that close to try on trips. The transcript are important that was an important issue for our healthy sale panel and I think it will be an important point to the CDC and I'm very optimistic that that will go well.
The second part of your question was on two and how quickly yes, yes.
So they continue to operate because we have seen such good results and frankly, the knowledge that we're getting from these operations is helpful to us it's helpful to the CDC, we're seeing both an ability to limit.
The spread onto the ship and we're seeing an ability to deal with incidents when they occur to keep it from becoming a an outbreak and so I think that that experience is positive for us and.
It's small we understand that where we're not rushing to do this we said from the beginning we're not going to go until we and experts are convinced that this is the right thing to be doing in a safe and prudent.
And and were sticking to that but we are learning from this and that will make us safer and healthier as we go forward.
I guess I was just wondering if the German shut down what's gonna sectors brand.
It does not appear to be no and again, that's because of the the success of the protocols.
Okay, Great and then okay. So the next question them, even more sensitive and I apologize for this but we just we get a lot of questions on this almost daily and I'm, just going to caveat, it which I do not think this is a place for political commentary. So there you have it on but.
But we are getting asked all the time to walk investors through a scenario, where the CDC no sale order is extended to after the election, and how or if a potential Biden administration would have any impact on when that part of it.
Good.
So I'm I'm quite pleased.
[laughter] that we're run.
We're working cooperatively with the experts and it is my my strong hope that this is.
This is going to be decided on the basis of the science.
Not on the politics aliexpress, a personal view that I'm I will.
Be pleased to get my television and my computer back when the election ads are over Oh, but.
I think our focus is on the science, a we think or.
The industry has done a very strong job the whole industry.
I talked about the healthy sale panel, but I also remind you.
That that before the startup in Europe. They all used to experts to guide that they all work with the governments. It wasn't a political issue. It was a scientific issue I think the science is strong and so.
Hi, definitely hopeful that regardless of who's in power the science will lead us to a good answer.
But the other thing is that you know people do want to see the industry back in operation. There is a lot of people suffering because a were out of work and and if we can if we can restart one important element of our economy in a safe and healthy way I think.
That's in everybody's interest.
Okay. Thank you for that answer Richard.
Yeah.
Your next question is from Steve within ski at Stifel.
[noise] [noise], yet it hey, good morning, guys. So Richard I hate to do this to you, but I'm going to.
The on the hot seat a little [laughter] surfaces I I'm not sure. If this is going to be a fair question or not so you can tell me one way or the other but yeah. I think there have been rumors out there that you have had direct conversations with.
The White house.
And maybe if you did or you did not anything new there you could help us understand how those conversations if there were conversations how they progressed and maybe what the white house. He is looking forward that's different from the CDC if that make sense.
So.
Oh.
I I'll have conversation with anybody who will talk to us on this subject.
Where sort of obsessive.
I'd like to get out of my house after seven months.
And there obviously is a lot of interest in this well throughout the country. This is.
A huge issue for employment in our country. The cruise industry is an important employer important driver of economic activity and also its a respite and I think it will be soon scene as a respite from the isolation that we're all fields.
And here and I'd say.
Steve I, certainly never mind your questions and Ah I think.
But you'll also understand what I can and can't say and the conversations I've had are private and I would respect the privacy of those but I will say that we have.
Worked hard to make sure that the decision is a scientific one.
It is led by the best minds with experience both in terms of the specific science of the disease and of the engineering and of the everything else as well as the impact on the economy and how you regulate that so we've had we've talked essentially.
All the people who are involved in this kind of.
Vision.
And I think I have to say that everybody weve talked to has taken this seriously.
They understand.
The importance of controlling the spread of this virus.
Virus.
They understand the importance of getting the <unk>.
The protocols right and I'm really I really am very excited.
To watch the methodical way.
The panel work and and other panels you saw this the cooperation in Europe between the public health officials and the political officials cruise.
Cruise lines.
Cooperatively trying to solve something that's a problem for all of us.
And.
I am.
Not going I'm really not going to comment on who's on what on any given issue. It is complicated.
I think everybody is trying to find the right solution I'm optimistic I am optimistic that we will soon have a a path that we all see as a pathway that to resuming operations. It will they will be slower than I would wish but faster than.
Many are assuming.
And I think that slow methodical careful approach.
Speaks well for our industry it speaks well for the regulators around the world.
And we're going to continue on that on that process.
Okay Gotcha. Thanks, Thanks for trying to you know to answer that [laughter], Yeah, no never never a problem to ask Stephen as you well know and if I can answer it I will but this is a fluid situation. That's the other thing I think we have to say and I know I hate to sound like a broken record, but what we don't know we don't know.
Right exactly so let's let's go to a couple of years down the road now and hope that the world is back.
Back to normal and I guess the question I would ask is around supply and supply outlook for the industry, but you know we've seen certain operators removed.
A good bit of capacity from the market already and you guys and I can't imagine other operators can be ordering ships for an.
An extended period of time, so I mean, as we look a couple years down the road is it fair to say the cruise industry.
You know can be set up for a multi year period of supply growth. It could be I mean, basically close to zero am I thinking about it the right way.
[noise], Hey, Steve its Jason.
Don't know if I would say close to zero certainly capacity growth as well as we were all collectively expecting pre kobin.
It's certainly going to be less whether that's actually its out of the industry. What ships are being scrapped whether its shipped sales being sold to kinda tertiary operators.
And of course, I think we do expect that there will be slower newbuilding growth.
Yes, probably towards the latter part of Q4 or five years from now and that the ships Scott or orders as we see them, though they were delayed by probably eight to 10 months I think we expect to continue to to to come online and the question will be how many ships will be retired.
Good.
Or sold or scrapped.
During that period of time I know for US you know we've been selling about a ship or two year. We we have scrap some ships and and we were and were certainly very we're being very opportunistic I'm about the situation when when our point of view is is that that ship.
Within sight of one of our brands are.
There's not a.
Fit strategically or we can't and best to have that chips, you fit strategically with inside the brand.
And and so that's that's something that kind of an ongoing ongoing process for us which has been in similar in the past.
Okay got it Jason one more sorry real quick one but.
The crews are that you're operating in Europe today are they operating at a breakeven or even a profitable level at this point.
[noise], Oh, well I would say that the ships that are operating in Europe today in terms of break even relative on a ship specific basis are probably at or or or about breakeven now I'm talking more kind of direct profit.
I see there are fixed costs like you know that that that there's just probably don't cover as of yet.
But the occupancy levels and demand that we're seeing.
This is a relatively good all things considered and I think a little bit what we've experienced to date, which is a little bit different than in the U.S. with Cobian news you know, sometimes when there is negative kobin news or be over there.
Yes, because the consumer gets or the guest gets an opportunity to kind of get out of town and get some fresh air you actually see elevation in demand.
That's one of the things for sure to increase them soon.
Great. Thanks, guys. Appreciate it thank you.
Your next question is from James Hardiman of Wedbush Securities.
[noise] hi, good morning, Thanks for taking my questions I've got three of them, but I think they're pretty quick.
So I'll ask them all out at once and I think you know everybody generally understand the 2021 to do.
Got to be a rocky year in it it's hard to anticipate maybe if you could walk us through eight a follow up on Steve's question is there any easy way to think about your capacity in 2022 2023 versus say what you had in 2019, that's number one number two.
Any any way to think about leverage and I fully understand that your leverage is going to be a function of how long do you lay ups last and you're ultimately burning cash but is there any way to think through.
What leverage looks like once you emerge from this in 2022.
And beyond and I guess, just more broadly if I look at the consensus numbers for 2022 revenues or are basically almost back to 2019, obviously, there's a bunch of.
Incremental interest and everything else that that the turning earnings power is that realistic or are there. Some considerations that we should be thinking through once we get past the domestic will be 2021. Thanks [laughter].
Thanks James.
So I I think I think on a capacity standpoint, you. There's obviously, there's a lot of a lot of sometime between now in 22 and 23 I'm certainly I think our current expectations is that our sweet.
Will will be back up and running I'm certainly by 2022 in 2023.
Capacity for us is likely to be higher.
Because of the new ships, you know that that I talked about in my remarks coming online.
But at the same time as I commented on Steve's question, Yeah, We do continue to Opportunistically look at.
Ship sales or for.
Scrapping in very kind of remote type of situations, which which could lowered that capacity growth number down or a little bit but.
But I would expect our capacity as we look at 22 or 23 to be higher than it was in 2019, driven by new capacity, we've already taken out some capacity the scrapping of some ships.
And Ah and of course, as we know that as these new ships roll on.
The higher inventory mix more onboard revenue venues.
The more cost that much more fuel efficient hum b to really enhancing our margins.
Moving on to leverage.
It is certainly a goal of ours to get back to our pre coated level metrics I'm, especially as it looks I think getting to investment grade.
I think I mean, how we'd look to do that is obviously.
Yeah, putting more of our free cash flow towards paying down debt are.
We've taken some action here recently to put ourselves in a position to pay down debt.
And hopefully the sooner we get started here the legacy of the of the of the cash that were that were holding today, we're going to need and that could be purpose to also.
You're paying down debt, but it is it is definitely one of our management.
Management team on our boards kind of core objective to look at how do we get to a pre corporate leverage.
As soon as possible.
Oh, I won't really comment on but it's just way too early to talk about consensus.
For for 2022, I think important variables will will be when look when we get the green light to get back into service and what that ramp looks like.
What the the universe looks like around therapeutics and vaccines in testing.
And of course your wave is you know is very important to 2021. The waves also begins the the momentum into into 2022 and so.
The.
The more for us the flywheel spinning as we go into all of that the more momentum I think we'll do a build up.
For for 2022, so were you.
We are cautiously optimistic and I won't I won't talk about weather will be a pre cobot levels by 22 or 2023, except to say that.
Yeah, we're trying to build momentum.
Quickly as we can and making sure we're doing it in a very safe and healthy way.
That's all really helpful. Thanks, Jason.
Thanks James.
Your next question is from Jamie Katz of Morningstar.
Hi, Good morning can you talk about what is in that negative onboard and other revenue.
On line item, a little optically funny. So I'm just curious if that's a one time thing I should be aware of.
It's essentially breakeven.
Yeah sure Church, and maybe it's a it's very immaterial amount of money, but as we were.
Going through in the in the kind of Q1, and Q2 and processing tons of refunds and cancellations and so forth.
Yeah, there's there's a there's some cancellation or penalty income that there were reversing here in Ah.
In our Q3 numbers and these are small numbers of course, we don't really have any onboard revenue. We don't really have any ticket revenue. So just a small you know.
You have a small correction there.
Ah you know stands out.
Okay, and then on the capital Alice allocation front, you guys called out pretty long on.
Putting out an equity issuance for raising capital I'm curious, how you're thinking about that going forward.
A preference or sort of a loss that you're thinking of for for capital raises I had thanks.
Yeah, well I think we're I think we're going to continue to be patient and methodical on how we raise capital if and when we need it I think we feel pretty good about our liquidity position. We yeah. We took action here to put ourselves in a posture to be able to de lever as a as a as we returned to service.
And I think that you know, we'll we'll continue to evaluate if we do need to raise capital to the debt markets. The convert markets are good we're going to get where the equity markets.
You know our focus here is to fix the balance sheet.
As soon as we can.
But also doing it in a very thoughtful way and so I think you know we will continue to do is to evaluate those options as well was here looking at within our in our business how do we improve our margins on to generate more cash flow due to how about could be available in order for us to to pay down guidance.
And and invest in our business.
Thank you.
Your next question comes from Brandt Montour of JP Morgan.
Good morning, everyone. Thanks for taking my questions.
So thinking about pent up demand and possibly a you know a meaningful inflection bookings that you may be expecting the airline to sale can use way, which factors or events. You think will be most important for how that curve looks between actual exploration as you know sale, but wait that against the crew specific travel warning the CDC put.
Last week.
Finally, the recent lifting virus data is another drag, but I guess, what I'm asking is is it possible we have to wait until you're actually able to prove you can cruise safely before we see that big inflection bookings.
Hi, Brian its Michael.
You know interestingly.
Well I think Jason commented on coincident and Singapore.
When we when we opened for sale after we receive.
Approval from the Singaporean government, we were really quite surprised by the level of demand.
That came into the product.
Winter season that we've got it okay and then.
Those crews is a basically ocean voyages to settle for 345 days within the first two weeks, we had literally the triple demand that we were expecting at rates above what we were expecting so.
I think going back to Jason's point earlier with regards to what we're seeing in Europe with demand even when coburn increases there is demand in the marketplace and its coming quite quite naturally.
The other comment I would make on demand that we're seeing is that in the American market bids.
Really correlated with consumers feel about.
Tobey and what they believe is occurring with coal, but in terms of it moving behind it so bad.
Three or four months ago.
A large group of consumers either with with picking consumers every single month.
And about three or four months ago. Most people believed the cobot would be kind of moving behind us by the end of 2020, the coolset shifted now than the belief for most consumers is that as you move through to anyone who would will be behind us but vaccines.
A few tweaks et cetera et cetera.
The new very much see a correlation between well people are believing and how the bookings. So I think we commented before that a lot of consumers effectively lost this summer 2020 there.
There is a belief that could leaving behind us at some point into anyone and we kind of see that in the booking behavior.
The American market for our products.
Through 21 with a particular emphasis on September 21, and I think you know this is a kind of a.
It it feels and looks as if customers are thinking this is going to be behind us and we're going to have a summer vacation.
I think with regards to the new sale or that I do believe that it's there is a change in the news sales are in the <unk> and the pathway is created for the safe return to cruising there will be a or an uptick in demand, but I think.
People will naturally wait and see and I think also they'll be.
Just mentioned the correlation between what's occurring with co within the community and have people feel confident about taking a vacation and booking a vacation so.
It's complicated it's very much connected to consumer.
Okay, and then the feelings about Kobe.
Got it that's that's incredibly helpful color. Thank you for that and my second question is following up on the Universal testing front and I. Just you know I have to be a lot. We all read the 74 points and I know that you know the recommendations include sort of the dual layer right where the costs.
Our brings their own sort of PCR level test and then there's another perhaps rapid test at the court is that what you committed to across all your brands that sort of dual layer testing and is that an industry wide thing is while we haven't heard much detail on specific you know how how many tests, what kind of test and things like that.
Any color you can provide thank you.
Yeah, So I think you're right.
Your comment on that.
It's.
Is very accurate referring back to the panel report part of the point that the panel made.
Once how quickly. This this whole testing issue is is.
Is changing.
And I think that's one of the more exciting things that we are seeing you know weve gone from a very small number of tests to now the tests are regularly running a 1 million a million to a day and that number has the potential for true.
Doubling in a fairly short period of time. So the panel really did conclude that has this technology improves we ought to improve our mantra is continuous improvement we think that as the new tests are coming out of these lateral flow test.
Yes, our quite dramatically and improvement in.
In speed and accuracy and and Oh in availability and then cost. So we do think that testing is going to be an important part of it I'm not going to get into you know all the different kinds of testing and we would do where because.
That's all going to change tomorrow.
As I say, it's interesting that even today no other industry that I'm aware of as I said, they would do 100% testing.
And that's what where we are committed to do and and frankly the whole industry has said that they think that's the right thing to do so I won't get into specifics because I think if I do it will be wrong tomorrow, but I think we will be starting with a 100% testing and.
[laughter] overtime, we hope that will get even faster cheaper et cetera.
Helpful. Thanks, and good luck.
Thanks.
Your next question is from Greg Badishkanian of Wolfe Research.
Hey, guys. Good morning, its actually Fred Wightman on for Greg Jason You gave some stats for the full year 21 pricing on a cumulative basis and it sounded like that was unchanged versus what you guys had provided last quarter. I thought you were expecting that number to come down as more fccs were redeemed. So can you just sort of talk about what if anything different versus.
Your expectations.
Right, Yes, and this will be our last question. So that's that's that's exactly right on on on a pricing standpoint.
The the new.
Yes, we've been taking on our new bookings and we've been able to hold our rate and despite the you know the fccs.
Yes, you are coming more and more into play and I think it is a testament to demand you know it is it is still very early but at least what we're seeing for the back half really quite frankly from June on is is our is our pricing is is Ah, it's holding up on quite well.
And then if I could sneak one more quick one then I think last quarter you talked about there was a line in the sand sort of early middle to Q as far as where that consumer demand to really did pick up have you seen that timeline change in any way or people sort of moving their bookings either earlier or later in the year.
It's very consistent with what Michael said I mean, you can really draw a line from when the.
Summer begins and you can see that it's not just about the new booking. It's also seeing where people are lifting and shifting their bookings.
Is very much similar to what they were expecting to do this year.
As we look at the summer.
Summertime and beyond by summer, we mean really kinda when kids get out of school.
Okay.
Thank you for your system Shelby with the call today and we thank you all for your participation and ongoing interest in the company.
Our call will be available for any follow ups you might have in from all those who wish you all very greedy.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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