Q2 2021 Royal Caribbean Cruises Ltd Earnings Call
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It's all out there.
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 second quarter 2021earnings call.
All participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask the question. During the session you will need to press star 1 on your telephone.
I would now like to introduce Chief Financial Officer, Mr. Jason Liberty, Mr. Liberty the floor is yours.
Yeah.
Thank you Shelby good.
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 Bayley, President and CEO of Royal Caribbean International and Michael Mccarthy, Our Vice President of Investor Relations.
During this call we will be referring to of your slides, which have been posted on our investor website, Www dot of Investor RCM Investor Dot 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 of 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 and update on the business.
I will follow with a recap of our second quarter results and then I will provide an update on our latest actions and.
And on the current booking environment.
We will then open up the call for your questions Richard.
Good morning, everyone and thank you all for joining us on the call today.
You all know it's been almost a year in the half since the onset of the pandemic and then certainly been a difficult time.
We've been in the virtual stand still for this long period, and there's no business school that has of course and how to succeed in business with zero revenue.
Fortunately our people have responded well to these unprecedented challenges I'm very proud of the progress that they have produced.
Today, we're reporting another painful set of financial results, but will also reporting of the dramatic progress on the restarting of all of our operations and the continued strength in the demand environment for our leading brands.
Most importantly, we have already we started almost half of our capacity and the.
Bringing more of online as we speak of protocols appear to be working very well, which gives us.
Gives us and our guests comfort about the safety of board.
Lastly, bookings are remarkably strong, especially for 2022.
I would like to address these 3 issues in order first of all of the talk about the process of restarting second our operational protocols and the impact and then lastly to come back to our booking outlook now.
Now starting with the process of resuming operations. It seems like the only yesterday. The people were asking me if either of cruising would we start by December suddenly we have half of our ship sailing on revenue cruises.
We know that it's going to take us a while the return to full normalcy.
But while people are emerging from the isolation, it's literally going to take them a while to feel totally comfortable.
We believe that the best way to get them comfortable with the demonstrate just how well the process works.
We call that the flywheel effect once we get the vast majority of our fleet back on line and thousands of people sailing safely. It we'll make even more people feel comfortable doing the same thing.
Once the flywheel starts bidding it keeps spinning and the machinery keeps getting more powerful.
Now some of you have asked why we were the first the restart in the states of how we've gotten the ships operating so quickly. The answer is simply the we started earlier and we have the very best people in the business, who have been very aggressive in implementing the new protocols.
We started preparing for we have the official word that we would be allowed the sale, but to the point, where we thought the approval was inevitable.
And our people have worked hard and diligently to make sure that our ships could be back in the water quickly.
Also thanks in large part for the vaccine Royal Society has been progressing faster towards normalcy, which will maximize the pace of our recovery.
In this accelerated return to service the health and safety of our passengers and crew remain the top priority for every ship that we restart we have committed the 3 pillars for.
First ensuring our ship experiences RSA pool of safer than the shore side equivalents.
Second meeting and exceeding our exacting pre pandemic expectations, especially in regard to guest experience and 3 doing so in a financially prudent manner.
Now turning to the second item on my list I think it's important to talk about the safety protocols related to Covid.
As you all know of go who of the beginning of the pandemic has been to make cruising not just the safest comparable land vacations, but safer.
We believe that the unique to the growth could allow us to control the environment to an unusual extent.
We can ensure a level of vaccinations in testing that will be impossible for most other places to even contemplate.
Specifically, we require of 100 per cent of the crew to be fully vaccinated.
And we require the bulk of our guests to be fully vaccinated as well the.
The only exceptions are children under 12.
And then Florida of minor number of people, who choose not to get vaccinated.
Excluding Singapore, which of the special case and the.
Average of 92% of the people on board our ships in July were fully vaccinated.
And this number is likely the wise going forward.
The idea is to limit the spread of COVID-19 aboard our ships. We all know it's impossible to eliminate cases onboard the ship totally justice, it's impossible to eliminate cases on land.
But the steps that we're taking are designed to prevent the isolated cases from becoming an outbreak and it seems to be working.
We have had we have had people test positive.
Because almost everyone around them the vaccinated they've remained isolated cases, that's the goal where individual cases and no significant spread.
Repeat this with a few hundred thousand of million cruises and that creates the trust the.
That will drive our resurgence.
Of the Delta variant is problematic for everyone, but even this looks manageable by our extensive protocols.
It's too early to draw definitive conclusions, but the vaccines of the ultimate weapon.
And they work our experience shows that while there are of breakthrough cases of board.
The vaccines help keep from contained.
In fact.
And I thought this was quite unusual in most of our positive cases, even the cabin the of the infected individuals has tested negative.
But in light of the Delta variant and other areas. We have recently strengthened our political further ease.
Even more testing and even more people required to be vaccinated than we had in June and July.
We have gone from business from cruises being a source of concern to cruises being an exemplar for how the deal with COVID-19.
I'm thrilled, we're making this dream a reality.
So that brings us to how our customers are responding unfortunately that outlook is good.
Our guests are eager to cruise again.
We had hoped that there would be pent up demand for cruises, but even we were surprised by the level that we see.
We are also encouraged by the improvements we're seeing more broadly across the travel industry.
Cruise consideration remains high and low active cruises and it's steadily increasing among non cruises.
It is clear people are eagerly people are eager to travel to take of vacation.
And we are ready to make their vacation dreams come true.
Jason is going to speak more about our booking trends at the moment.
Now, we all know it's going to take some time for the situation to channel mix.
So a lot of confusion in the marketplace and that definitely hurts. The next few months or so.
In addition people usually book their cruise vacation well in advance and it will take some time for us to catch up with the bookings that we didnt arrange of we didn't get up until now.
But if we only obsessed about the present, we will fail to prepare for the future we must keep our eye, formerly all of the future that we can see is coming we.
We need to prepare ourselves for it. So we are focusing our thoughts are efforts of our plans on that future.
While the third and fourth quarter of this year will continue to be painful it's booking generally in line with our reserve in terms of service and occupancy ramp up the expectations to.
Due mainly from the timing of the ramp up the service and the abnormal booking window. We don't expect 2020 to be a normal year. However, we are seeing rapid and steady progress towards normalcy, starting in the spring and summer of next year.
1 important additional point is that we are not only in the business of delivering the best vacations possible.
But also doing it sustainably.
The company's commitment to corporate stewardship.
<unk> remain the priority even during a return of the service.
Despite the pandemic headwinds the company has made tremendous progress of course, environmental social and governmental governance focus areas.
Some of the key achievements could include a 35 per cent reduction in our greenhouse gas emissions from our 2005 base line.
We removed 60% of single use plastics from our supply chain.
60% of our ships are equipped with the emissions purification system that removes 98% of sulfur oxides and our.
The newest ships are equipped with selective catalytic reduction which reduces nox emissions.
We've reduced waste to landfill by 85% from our 2007 days line.
We've also completed the introduction of over 2000 certified tumors and 3 assessments by the global sustainability Tourism Council.
Well the interesting point is of our wind farm. The spans 20000 acres in northern Kansas has 62 turbines for the total power generation capability of 200 megawatts, it's now with the operational for more than a year.
It will annually generate 760000 megawatt hours of carbon free energy.
That's the.
The savings of 500000 tons of carbon.
And to put in perspective, it's the equivalent for the energy use of about 60000 homes.
Is it just a few of the many initiatives underway at the company and I've only focus here on the area of the environment.
Press release covered all the initiatives in accordance with our and in accordance with our mantra of continuous improvement. We will continue the elevate and introduce new initiatives to improve all of our ESG efforts across the board.
The last 16 months of cost much pain and much suffering but the tide of quarterly turning.
I'd like to thank our board of directors for their support and dedication.
I also want to think of our partner organizations and communities for staying the course and preparing for the future.
The most of all I want to thank the men and women of the Royal Caribbean, who.
And the tireless efforts under the most challenging of circumstances there.
Their dedication to seeing a suite of this black Swan event in the best way possible.
Nothing short of extraordinary.
So I look forward to Sunnier days ahead of wood.
I'll turn it back to you Jason.
Yeah.
Thank you Richard.
Before I start like Richard I also want to thank our teams across the whole enterprise for their tireless dedication to rapidly, bringing our fleet back into service in the safe healthy and financially responsible manner.
This has been accomplished through were impressive in terms of inter departmental collaboration many many sleepless nights and for that we are a really forever grateful.
I will now turn to discuss our performance for the second quarter.
This morning, we reported an adjusted net loss of $1.3 billion for a loss of $5.6 per share for the second quarter of 2021.
While these losses are incredibly painful the second quarter was a turning point for the company on multiple fronts.
First we welcome them additional 10 ships back into service after 15 months of minimal cruise activity.
Second we took financing actions to reduce our negative carry and began our journey back to an unencumbered and pre COVID-19 balance sheet.
And third we saw a significant increase in booking activities that resulted in a large increase in our customer deposits.
As we shared this morning, our customer deposit balance as of June 30 was $2.4 billion, which was about 30% higher than the balance at the end of the first quarter and.
And as of today, our customer deposit balance is $2.5 billion.
At this point a little over 35 per cent of our cost of the customer deposit balance is associated with the FCC's compared to about 45%.
At the time of our last call signaling continued strong demand.
On the liquidity front, we closed the second quarter with $5 billion in liquidity.
As you all know we pride ourselves on having industry, leading brands with a world class and highly innovative fleet and a history of strong financial discipline and performance.
These assets and attributes have been instrumental in helping us raise more than $13 billion of new capital since March of last year.
During the second quarter, we continued our efforts to manage and improve our balance sheet and for that and we successfully issued $650 million of of senior unsecured notes at 4 in the quarter per cent and use those proceeds to redeem 7 of the quarter per cent Silversea senior secured notes in full the.
This will generate approximately $17 million of cash savings annually beginning in 2022.
We are delighted with the current momentum and the restart of our operations of the United States and around the globe the.
The environment remains fluid and for this reason we are not providing a cash burn estimate for the related offsets generated by revenue and new customer deposits.
I will highlight of the burn rate for the ships that are kept in lay up is expected to be consistent with our previous expectations.
Now as it pertains to our debt maturities are scheduled debt maturities for the remainder of this year, and 2022 or $21 million and $2.2 billion.
So.
I will now update you on capacity and the booking environment.
After more than a full year of painful financial losses, a never ending roller coaster of ups and downs.
The regarding the timing of of returned to service multiple liquidity action and very little of cruise capacity. We are now finally, bringing our fleet back into the service and are already welcoming thousands of guests back onboard each week and.
In fact, we are thrilled to have welcomed more than 136000 guests onboard our 5 brands during the first half of the year.
The pace of which our teams have been able to bring ships out of lay up and ready them for guests is nothing short of incredible.
It is amazing to think that at the end of April we only had for ships delivering.
Delivering incredible vacations across our 5 brands.
But as we sit today there are guests sailing on 29 of our 60 ships in the Caribbean Europe, Asia, Alaska, Iceland and the Galapagos.
We are also in the process of ramping up 7 more ships to be in a whopping guests the smoke.
As a result, we anticipate having about 65 per cent of our fleet in service at the end of the third quarter and approximately 80 per cent of the fleet back in operation by the end of the year.
When considering our plans to ramp up of capacity. The 1 area. We continued to watch is the Asia Pacific region and for purposes of a return to service planning we have been cautious.
Now I'll give you an update on bookings bookings are still below 2019 levels due in part to a reduced capacity for 2021, and the fact of many things.
For announced very close in the little time to build the business.
However, the gap narrowed further during the second quarter.
We received about 50% more bookings in Q2 than during the previous 3 months with trends improving 1 month for the next.
By June we were receiving about 90% more booking each week when compared to Q1 with bookings for 2022 practice of being back to 2019 levels.
As it relates to the Delta variant, we have mainly seen small variations with closer in bookings in markets with high case counts. However.
However July was our second highest bookings month of the year and bookings for 2022 are strong.
We are particularly encouraged by the continued strong demand for the important spring and summer months.
The health and safety of our guests and crew is our number 1 priority and as such our startup strategy incorporates low initial occupancies to give the crew of the opportunity to seamlessly implement the new protocols and facilitate amazing vacation and this new and constantly changing environment.
After each ship gets a few voyages under their belt are planning for a load factors to steadily increase from 1 month to the next.
This is evident in our fleet, where several of our ships are now selling with more than 50 per cent.
The 1 factor.
Overall, the booking activity for 2021 sailings of consistent with our expected capacity in the occupancy ramp up at prices that are higher in 2019.
We are also seeing record net promoter scores as well as record onboard revenue for the ships that have resumed service.
This is very encouraging as we are not only seeing pent up demand for cruises, but we're also seen pent up demand for our onboard revenue experiences.
Yes, we're really enjoying our short surgeons casinos spas and restaurants after spending a year in isolation.
We are also seeing an increased demand for our Wi Fi services as more and more consumers have flexibility to take vacations and work remotely.
Looking further forward, we continue to be impressed by the demand and pricing we are seeing for 2022 sales.
It is still a bit early in the booking window to provide too much color for next year, but I will share that our book load factors continue to be well within historical ranges at prices that are up nicely versus 2019, including the dilutive impact of the FCC's.
While we were still in the early stages of the planning cycle for 2000.2022 for 2022.
We do expect lower than average load factors for the first quarter at several shifts will still be in ramp up mode.
After having recently returned to service.
That being said the first quarter is booked within historical ranges.
In addition load factors are at the higher end of historical ranges for the back half of the year with Q3 currently in a particularly strong position.
Underpinning this is a strong customer deposit profile for 2022.
Customer deposits for 2022 are significantly higher than same time in 2019.
This demand and book of booking profile is quite encouraging considering that we've only been spending about a quarter of our typical sales and marketing spend.
We're also optimistic of a number of larger macro indicators will provide further tailwind to our future demand.
Increased vacation increase vaccination rates around the globe sharp increases in consumer confidence and significant increases in personal savings rate versus the same time 2 years ago.
I will close by saying that we are thrilled for the flywheel to be spending at such an accelerated pace. We have been dreaming of this moment for more than 16 months and it's finally here.
We feel very optimistic about our future and are thrilled to see more and more guests in the United States and around the globe enjoy incredible vacation onboard our ships.
And with that I will ask Shelby to open up the call for a question and answer session.
As a reminder, if you'd like to ask a question. Please press star followed by the number 1 on your telephone keypad.
We do ask that you limit yourself to 1 question and 1 follow up for.
Talk for just a moment to compile the Q&A roster.
Your first question is from Steve Levinsky of Stifel.
Yeah, Hey, guys excuse.
Excuse me good morning, 1.
So.
I'm not sure if the there's gonna make sense from that but is there any way you can help us think about the the shift economics today.
And I guess, what I'm trying to understand is you know given that the higher costs that you guys are.
We're taking on whether that's COVID-19 protocols or lower capacity levels of et cetera, if you'd looked at of ship today and the ships that have been selling for the let's say the last for 5 weeks.
Or are these are these itineraries still.
The losing money or have you gotten to the point, where some of these ships are actually the cash flow of EBITDA breakeven.
Yeah, basically and good morning.
So what we're finding is really after a few weeks of getting the ships up and running.
We're getting to the occupancy levels in which the ships are accretive.
2 are our overall cash position and as as was commented in Richard's remarks, what we're really focused on those 3 pillars of making sure that our guests and crew where sales are made.
Sure that the guest experience is exceptional and you can hear that in very high net promoter scores in the third of that we're being very responsible on the financial standpoint, as we bring up the ships.
And so for us it really a few weeks after.
We're up and running.
We're seeing.
It being accretive to us on the cash position.
Okay understood and then let me ask this maybe a little bit of a different way, but you know if.
If you stay on the path that you are right now and let's say the the variant stuff isn't it doesn't take you guys down at all but then you've got let's say, 80% of your capacity back in service by the end of the year. I mean does the is there any way you can help us think about when the overall company might be able to get to that very important breakeven level, whether that's in terms of he.
EBITDA or free cash flow of just because I think investors are continue to be concerned about potential.
<unk> raises down the road if something doesn't go right.
Sure sure.
The very fair question and of course, it is very kind of early but.
But you know based off of what we're seeing in the ramp up of our business.
We see ourselves be cash flow positive.
6 months as.
As we ramp up the business and keep in mind, when we say 80 per cent of the fleet is back up and running at the end of the year. If some of them. Some of those shifts are just going to be returning into service and there is a ramp up period for those but more or less we kind of see ourselves.
About 6 months out from that but.
That breakeven point on the cash flow standpoint.
Okay. That's perfect. Thanks, guys appreciate it thanks, Steve.
Your next question is from Robin Farley of UBS.
Thanks, I had a similar question about the the the.
For the cash flow breakeven you mentioned sort of after a few weeks if we put a number on it does that mean that you're finding cash flow breakeven in the sort of 40 or 45 per cent kind of occupancy level is that is that kind of how we should think about where the occupancy level needs to be and then.
My other question and I.
I hate to be sort of short term focus, but I just I know that investors are very focused on near the.
The comment in the release about the.
Near term being in <unk>.
Packing by Delta and I know you quantified. The July was still the second highest months of the year. So I guess that means sort of down sequentially a little bit for the June which June was 90% better than Q1, I guess I don't know if he do you feel that that the impact of that is sort of stabilize.
At that level of that as you're moving into August here.
This would be similar to July I guess sort of Directionally, maybe just to give investors a little bit of the comfort about the direction of that things are headed.
Yeah.
Okay I'll jump on the first 1 of them and I think Michael what will hop on just in terms of.
Thoughts on the on the variant.
But robin as we've been saying for for some time and you're going to keep you at kind of the mid point of that is.
The ship is accretive to us.
Around that 35% to 50% Mark and obviously the the newer larger ships are closer to 35% of an older smaller ships of closer to that 50% and so the 40% to 45% occupancy range is is where I'm also kind of considering our return to service costs and so forth is where we is where we see others.
The ships being accretive to us and I'll pass it over to Michael to talk a little bit about the delta right.
Yeah, Rob.
Robin in terms of.
Delta from the.
Perspective the.
The customer in the booking environment I think.
I would say in the last 2 weeks, we've seen very positive growth in demand.
As we move through the spring with vaccinations.
As we announced returned to service and discuss the Massawa ship trips in.
We really did enter into the very positive booking environment and I think over the last 2 weeks the positive environment continues but it hasn't been at such a trajectory as it was the.
It's really short term when you look into 'twenty, 2 we see no material impact of tool on the increased and increases in bookings for for 'twenty 2 so.
Thank you.
I think customers consumers now see this for what it is it's the it's a blip in the bump.
Think of them.
We feel encouraged by the protocols that we've got in place as Richard mentioned in his opening comments.
We've been very encouraged to see the when we do have the positive Covid case onboard our ships.
We very quickly the comps.
Trace test and what we find is that very often you may even of the COVID-19 positive either from the vaccinated all in vaccinated gas and there'll be in the very same room with somebody who's vaccinated and they test negative so.
The vaccines are really working I think.
The vaccination population so to speak as Richard mentioned the ink in the month of July we ship sales with around 92% of the entire community vaccinated.
And in the month of July we were still accepting kids from.
From the age of 12 to 16 vaccinated studying in August the first.
That number's dropped them because.
The policy requires you to be vaccinated 12 of them out.
So I think I think you know the.
The good news is if there is good news with the Delta Varian is the people are becoming far more accustomed to this if you got it.
Wiley vaccinated population.
The minimal impact and I think increasingly as our ship sales as we encounter this we communicate the very transparent the fee.
Feedback we get from our customers is recognition of the relief that this is very contained and something that you know that's going to pass.
Oh, great. That's that's all Super helpful. Thank you just 1 final thing and then I will totally hop off just I don't know if you have any.
Comments to share about it.
Here about steel prices moving up so significantly and just had a question about your your ship orders for new build orders I assume that the price is locked in so that the higher steel price would be.
The would be borne by the shipyard.
Hi, Royal but.
That being opportunity to.
Maybe renegotiate and extend some of delivery dates are.
Just trying to think about how these higher steel prices may be impacting your order book and then I'm totally off thank you.
Hey, Robyn.
As it relates to the almost steel side. It really does not have an impact on our on our order book are on our costs.
There is inflation in there typically also just so you know when we order ships.
Typically the yards also lock in.
There their purchase of steel and fix those pricing so there's not really the impact there.
Quite frankly, where we're at we're excited about the new capacity that's coming on you know when you look at the cash.
Kevin configuration, the opportunity for onboard revenue.
The the fuel efficiencies the positive impact on the environment that the.
Ships are able to bring to us.
We're looking forward to get those ships.
You get those shifts online the Ria.
<unk> of it is.
As the best from the community knows there's going to be 8 to 10 months delayed when we had originally expected to have to take them on.
Thank you.
Thanks for all.
Your next question is from Greg Baddish Canyon of Wolfe Research.
Hey, guys. Good morning, it's Fred Wightman on for Greg Richard in your prepared remarks, he talked about 22 still not being in a normal year, but continuing on that recovery towards more normalcy in the spring in the summer can you just sort of touch on how you guys see home market travel relative to international travel evolving into next year do you think we could see.
American customers make up a big chunk of the sort of European departures are you know 1 of the per.
And takes there.
Okay.
I think we were.
The cautious not to try and make too many predictions about the way this goes.
Clearly today.
Countries are doing.
More of a local so youll see the tremendous growth actually surprising in domestic travel and domestic particularly domestic air and the other domestic travel as opposed to international travel.
But the other thing that we've seen and this is how quickly it all changes.
And we've I mean, if you just look at this.
We've gone from people wondering whether we're going to the back in service at all of this year to half of our fleet back in the matter of weeks I mean, it's it's it's kind of happening so quickly and I think we see the same sort of thing is tremendous.
Our restrictions on the international travel today.
But at.
At the same time that the U S decided to extend the ads you saw the U K the leasing restrictions and Youre seeing in Europe. So I think the vaccine is the game changer here and it is working and as of that becomes more and more and more people are getting it and you've seen the bit of an uptick.
And already in the of vaccinated getting vaccinated.
But you're also seeing it working in Europe. So just a few weeks ago Europe was way behind the curve of vaccinations.
And they've ramped up to now they're equal or in many cases ahead of the U S. A.
Australia, and New Zealand, which initially focused on the in fact much of Asia, which initially focused not on vaccines, whether in isolation and having domestic travel being the key hum.
We have shifted in.
And while they're low on vaccines vaccinations compared to the U S and Europe the rapidly the fixing that so I think it's an uncertain period, but I think what we would expect is for months now we will see restrictions and people staying closer to home.
I think there is a yearning to get out there and once the vaccine is get out there once this the.
They even been more widely distributed.
You'll see more international travel.
So that takes a while and international travel also tends to book further in advance.
So you would expect international travel for the first quarter to be.
A lot of that to be arranged already so the fact that we haven't been booking it means that the first quarter is going to be weak on the head count, but I think as we're looking further of the year. We're seeing people really expect things to the back to normal and wishing international travel back to normal and so once.
As we get into the spring and summer were really very encourage by what we're what we're envisioning.
The visiting.
That makes sense and there was there was also a comment made about cruise consideration picking up the among non cruisers could you maybe put some numbers around that and just give some thoughts on how you see new to cruise returning.
Yeah.
Hi, Fred it's Michael.
Just to add a comment to Richards the response on the.
And the international travel I think 1 thing.
It's just important to note is that we've always had a significant international sales and marketing presence in pretty much all of the key markets globally. So we've.
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We have that benefits and we have all of these utilize that strength.
In normal times and in challenging times as well so well.
Whether it's in Australia, or Asia Pacific All throughout Europe, We've always had significant presence and we've always been able to drive significant demand from those those markets, particularly drive to markets, which.
It's been very helpful.
I'm sorry, what was the second question of I lost my train of thought then.
Just on the new to cruise near the crews.
Yeah, I think I think when we look at all of the stats that I'm not going to give you the numbers because honestly I cannot recall them, but.
You know we've been tracking since the beginning of this the consumer sentiments across different segments and categories.
You know what you see which is very.
Very logical as the pandemic is this range didn't was vaccines or the.
Become prevalent.
Traveling you see consumer confidence increase you see.
Travel hesitant see decrease you see cruise hesitancy decrease than we've seen improvements across all of these different segments and particularly for new to cruise. So if you look at new to cruise view of cruising today versus when they were in the depths of the pandemic is true.
Markedly improved and it continues its upward journey. So we do think in the to Richard's point in Jason's points about the flywheel. The more we have lot of ships in operation more customers that sell with us and have an amazing vacation in the mall that we operate then we believe that we will see new to cruise come back fairly.
Quickly.
Great. Thank you.
Okay.
Youre welcome.
Your next question is from Jamie Katz of Morningstar.
Hi, good morning, Thanks for taking my questions.
Can you talk a little bit about what your expectations for marketing and selling expenses are for the rest of the year and wondering my free if we think that it should remain depressed given the pent up demand that still exist out there or if there is a specific positive RLI opportunity true encase.
Martin need of Cree back to the market.
Yeah, Great Great question Jamie.
Our marketing teams have really been kind of more watching the timing of when we want to employ.
Our sales and marketing activities.
That's about.
The overall Mt are our expectation is is that we will ramp up our sales and marketing engine.
To harvest as much quality demand as we possibly can because we think that there's opportunity for it to be even stronger.
And I'm, sorry, what I would say overall, you should expect that we're going to.
To spend.
Closer back to the levels that we were before on the sales and marketing side when the timing is right.
What we are seeing as you can see here as.
Demand for the future periods is exceptionally strong and so our teams are always very kind of thoughtful about that but.
But we are we are generating demand not just for 2022, we're also generating demand for 2023, and even though all of it for 24 for brands like Silversea.
Okay, and then there were some day.
Jamie changes so let me just jump in per second.
You know I think.
We're feeling pretty optimistic about the opportunity that's in front of us.
When we think about our marketing investment marketing activity and spend over the past several months all the way through this year. It is being incorrect, we've reduced it incredibly and yet the demand that we've seen coming through the door of as being really strong. So we've seen demand the oldest at the same level as well.
It was 19 and it continues and yet ironically, our investment as being remarkably low. So we are thinking that as we move through into September and of course, we're mindful of the Delta barium, but when we really do go to market, we think that theres going to be significant opportunity for us.
So we're quite thoughtful about the of some 1 of the things that we were very thoughtful about of course is pricing.
And we're already seeing that not only <unk>.
People are spending up but we're seeing that in our onboard spend so I think Jason commented earlier that we've been incredibly encouraged by the spending on both of our ships that we've already started operating in fact, the numbers have been very impressive so.
We think that there's an opportunity coming and I think when we really go to market in a positive way as we move into the fourth quarter. We're encouraged by what we think is going to happen in terms of demand.
Okay.
For some commentary on the.
Booking curves and it it actually sounded to me like the.
The directionally it might be lengthening. Despite the fact that it's probably sort of shorter than it was pre pandemic is there any color you can add on that thank you.
So I think I think that was youre, probably referring to my comment.
And that also actually ties in the little to the previous question.
I think actually the booking curve and shortened because we don't have we didn't have the wave period.
This year that would have given us the base for 2000, 22022, and even into 'twenty 'twenty 3.
And so.
I think if anything it's actually gotten shorter because of the uncertainty because of the fact that this is only ramping up very quickly.
Our objective is to get it back the longer booking curve is helpful to us.
Also helpful or of our yield management models.
So we want that to happen and yes, we will give the investing in marketing that's 1 of the things marketing does does do.
So even though.
Demand has been pretty good with net.
Ever satisfied with demand and if we can ramp up more demand and just particularly on short notice. So we will have the period, where we have to fill in the short term as well as generate the long term the other.
Of the thing that is relevant you asked about first time cruisers.
Or rather the people who haven't cruise before so there's no question that that is the real opportunity for us that we want to be exploiting going forward.
Yeah, just just to add to it.
As Richard commented on average the the booking window has contracted a little bit of course for launching.
Sailings and we're selling very short in.
1.1 thing that's very clear, which of course is helping extend the booking window is demand for the peak summer period of time is really exceptional.
And it's clear that customers want to make sure as they kind of compromise. This summer they certainly compromise last summer, but especially for family holidays multigenerational travel.
The U youre, certainly seeing customers kind of work themselves and for that period.
Thank you that's really helpful.
Your next question is from Sharon Zackfia of William Blair.
Hi, Good morning, I wanted to follow up on the pricing of.
The dynamic for onboard all the activities have you started to take pricing.
On some of those.
Excursions or of the bar or Spa, and how are you seeing customer of electrical of demand there.
Okay.
Just just overall our pricing for many things onboard as dynamic and we're also being thoughtful about it is as our guests are returning what youre really seeing is it's not just about price. It's really just the volume or the willingness for the work.
For them to take more money out of their wallets.
To enhance their overall experience into it it's not just 1 thing is we're really seeing it across all of our onboard activities.
As well as you know in the on the pre cruise side of their planning their vacation experiences there'd be really thoughtful to make sure that at the very kind of well baked and meets the very high expectations in which we're delivering for them.
And so it really I think I mean, you know what.
The over what we saw last quarter look of what we're seeing here in the month of July because of the Apt's. We're seeing are almost double what we have seen in.
In previous periods of time and that is not only of record, but I think it's a it's a indicator of the level of of wealth.
Whelton demand and thirst for experiences.
That's really helpful. Jason that now are you seeing that disproportionately the U S passengers.
Or are you seeing that pretty pretty globally across nationalities.
Yeah.
Hi, we're seeing it we're seeing it globally I think it's occurring all over the world and certainly with our American guess, it's it's it's it's really you can really see it so it's across all of our customers.
Thank you.
Sure.
Your next question is from Ben Chaiken of Credit Suisse.
Hey, How's it going.
You gave some color on capacity and then Jason you alluded to it on Steve's question I believe but for for Q I guess since you gave some color around 80% of the fleet aimed back can you just maybe high level talk about how youre thinking about total a P. C. DS. They got I know 80 per cent of capacity I think you meant that in shifts so like units for any help.
On a b C D side.
Yeah, well, we can you can kind of walk a little bit offline on terms of the a P. C. D side, it's a little bit fluid because in some cases, we have test sailings and and so forth. So it's not necessarily of meaningful.
Hum.
Metric or measure to you know to put out there, but we're 65% of our of our capacity we expect to have up in the third quarter, it's going to wrap itself up to 80 per cent and I think the seem to be mindful about is as you know.
We say 65 per cent of our capacity is online, but many of those ships are just beginning their flywheel and wrapping themselves up an additional 15 percentage points that youre going to see in the fourth quarter. Similarly, they're ramping themselves up and it's a little bit why when we talk about you know 2022 of not being a normal year is because of <unk>.
Youre ramping themselves up.
And especially in the first quarter.
And then the previous kind of back up and running and we expect to be generally normal here as as as the as.
We kind of get through that ramp up activity.
Gotcha, that's helpful. And then and then 1 more if I missed it I apologize.
I think you said if I caught you correctly I think you said 6 months until you kind of the net breakeven.
Timeframe for the company overall do you think youre in a reasonable liquidity position at this point.
Well.
We think we're in a strong liquidity position.
And we are very focused on our journey to get back to our pre COVID-19 balance sheet and unencumbered balance sheet and most of the activities of.
Of that Youre seeing us too and I think the other thing to keep in mind as you know all of our collections right in terms of customer deposits.
All of our meaningfully increasing and so that's the kind of another kind of positive layer.
Our ability to be generating positive cash flow.
Okay I appreciate it thanks, Thanks, Dan.
True.
Your next question is from Stephen Grambling of Goldman Sachs.
Hi, Thanks, I guess, just a follow up on 1 of your comments about the customer deposits that that obviously has been coming back quickly should we anticipate that that should be linear or is there any kind of seasonality I think through in the back half of this year and early next year.
Hey, Steve well, there's always the level of of seasonality just.
Obviously that you're taking on bookings for more of the peak periods of time Theres arrives on the on the customer deposit side.
The side of things so.
I think theres a level of that but for here for the most part what we're just seeing is a very steady steady, but you know I think quantum step change each each month.
As we're starting to sell cruises for the future and there are a lot of interest tied to the announcements and so like the announcement yesterday from the Royal that starts really the flywheel spinning them for those ships and I would tie it more towards those announcements.
And that ramp up beginning of based off of that and when you think about it the 80% of our bookings our new bookings writing about 'twenty for a little bit less than 20 per cent or our FCC eased or lifted lift and shifts and that is.
We see each time each time, we announce the ship coming on line and the timing of that.
Back to you about the resulting in a customer deposit balance your horizon.
Hi, Stephen it's Michael I'd, just like to add to Jason's comment.
Kind of a big deal when we when we do make the announcements on return to service and confirm.
<unk> deployment sailing dates and what have you we literally have.
Hundreds of thousands if not millions of customers who are simply waiting for the confirmation when we last announced our return to service confirmation I think it was at the beginning of June.
That's when we saw a really significant increase in bookings and I think you know the announcement that we made yesterday should also receive a significant amount of interest you know we get a lot of.
Questions from our customers. If you go on social media people are the waiting the waiting for the confirmation and yesterday, we gave confirmation of the.
The remaining fleet, so we feel quite optimistic about that.
That's great color and maybe 1 other follow up and I may have.
This in some of your interest.
And for our remarks, but how.
How long is your expectations around breakeven in an occupancy level has changed for the ships that have gone out of it looks like the the pricing, especially since you only have a couple of weeks to get some of these shifts up and running.
It was pretty impressive so as your thought around the kind of ship level breakeven of all thanks.
Yeah, well certainly our breakeven level has gone a little bit better because as you said, Steven whether it's 2022 or 2021 of the scaling next week. The a P DS are higher and the <unk>.
High repeat these are obviously more impact of load factor that's necessary in order to go for.
For them too.
B the.
Breakeven on the on the cash position and.
And so again I mean, I think it just kind of shows overall of the encouragement that what you see in terms of the guests that are scaling with us the number of guests that are selling with us. It is very in line with how we're looking to ramp up the ships, albeit.
At higher prices than we had anticipated.
Thanks, Good luck with getting the rest of the ships out.
Thanks, Steve.
Your next question is from a sea of Georgieva of Infiniti research.
Good morning, guys.
This might be more of a question for Michael I Wonder with the the difference in a loosening of travel restrictions in Europe versus North America have you seen more of a mix change towards the European passengers versus what would be the domestic passengers and the <unk>.
If we can parse it the little bit farther down with our yeah.
Most in the Sunshine state and the some of the legal issues. They are are there fewer of floridians set of traveling than you would normally expect.
Yeah.
I think.
You know as we as we look.
I think all of our ships and brands face.
It's a fairly dynamic changing environment, where the rule.
Rules regulations legislation as we know has shifted and changed.
What we've seen in terms of demand.
Is really reflected in the commentary that we've already provided which is.
With significantly less marketing investment the demand has been surprisingly strong.
You know this.
Puts and takes throughout all of that landscape, but.
Adam.
At the higher level demand is strong I think for products for the closer to home demand is even stronger.
The different countries within Europe have gone through their own journey with Covid. So it's a more complicated environment in Europe Ironically than it is in the United States, even though in the United States, we have to deal with with various issues associated with the legislation et cetera.
So I think.
I'm not sure if I'm really answering the question clearly to you but.
I think as we move through this what we've been surprised with the strength of the demand and I think that's reflected in the numbers that we have so.
I'm not sure if I've answered the question clearly for you, but it's kind of a complicated it's a complex landscape, but the the bigger picture view.
View of this is very positive.
Well because it is a pretty complicated the and as you mentioned in Europe.
First of all different jurisdictions of different countries have been changing you know of loosening of restrictions.
Hum, adding a lot.
Not the lockdowns, but the additional you know that.
The thing vaccination requirements. So it seems that it's a very fluid all the time and I wonder whether for Q1 given.
Given that this it's not going to be of great quarters. Some of that's my book because of difficulty for Europeans get them.
The Florida, let's say or 'twenty sort of Caribbean and vacation points that might be affecting some of the expectations that you have for that quarter.
Okay.
No I can't I'll, just I'll just jump in there I don't I don't think that's really the the you know there's lots of things that I think affect the our point of view on the first quarter for.
First is just the the timeframe in booking window second is just the ramp up.
All of our ships in terms of expectations, you know going from there starting position and wrapping themselves up and I think some of it is a little bit of kind of a cautious outlook. When we kind of consider the the Asia Pac side, especially the Australia, New Zealand side, which that's kind of of the superior to timing, which I was shipped separately.
We operate yeah, I think just the more in general demand in our in our key markets like North America, and Europe, and U K and so forth I'm sure all of that will play a little bit into into what youre, saying, but it's the thought I think right now at the heart of.
Our commentary for the first quarter.
I think the oil.
Joe.
Just jumping on that as well I mean, we traditionally our Q1 bookings tend to be closer in home market activity anyway. I mean, it's not it Q1 is never been a high.
International travel.
Market for it for any of our brands of products that typically as you move into this the peak summer. That's when you really see a lot of people traveling across continents.
It's lesser during the Q1 period of the traditional basis anyway.
Great. Thank you so much Michael of the Jason again, this has been a very difficult of I'm not the only from them.
The virus perspective, but also from a regulatory perspective, so per se.
The commentary.
Thank you.
So I think we have time for 1 more question.
And your final question is from Vince Stifel of Cleveland Research.
Hi, Thanks for taking my question I wanted to you know big picture thinking about the longer term opportunity for the business. Despite maybe some near term noise and restart costs, but on the other side all of this it sounds like pricing for the good.
I'm curious how you think about the margin opportunity any learnings coming through of Covid to make you more efficient.
And then I think theres been some changes within the fleet the CIT improve efficiency as well. So how are you thinking about that opportunity.
Well I think I'm very pleased with the question because that's really where the opportunity lies.
Tend to be very focused on the short term and that's that's the only appropriate over the last year and the <unk>.
Half of that's been.
The maniacally focused on the short term on.
Getting the ships back in the service on protocols on the regulation et cetera.
And I think.
Your question.
The focus on the same sort of thing we've begun the focus on as we come back.
So there were a series of things the most important is to reestablish the credibility of cruising in the consumer's mind.
And I think that you are seeing.
Turning nicely and we're very optimistic about the direction that that will go.
Both for experienced cruisers and for new cruises and we need to develop both of those markets.
We're also seeing as we normally do.
A tremendous interest in the new ships that we have coming.
And the revitalization of ships that the.
We've had and we're seeing that in our forward bookings, we're seeing that in.
The thing up and.
And many of the changes that we've been have enhanced our onboard revenue capabilities et cetera.
And lastly, there is the operating efficiency.
We spent a lot of time during this period focusing on ways.
That we can.
Operate more efficiently.
Better use of technology better.
Our cost control capabilities better ability to generate onboard revenue.
Inefficiencies from.
A new technology. So all of those things are very much working in our favor.
And.
Think as we're looking forward.
This.
Will put us back of the trajectory that we were.
The prior to the pandemic.
Right.
Okay.
Thanks, Dan.
Yeah.
Well. Thank you for your assistance today Shelby with the call today and we thank you all for your participation in the ongoing interest in the company.
Michael will be available all day for any follow ups you might have in from all of US We wish you a very great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Yeah.
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