Five Takeaways from Royal Caribbean’s Latest Update

This week, during its earnings call for the fourth quarter of 2020, Royal Caribbean leaders—Executive Vice President and CFO Jason Liberty, Chairman and CEO Richard Fain, and Royal Caribbean Cruises President and CEO Michael Bayley—gave some commentary on the company’s current and future operations.

While the company suffered another loss in Q4, and a total loss of $5.85 billion in 2020 due to the COVID-19 pandemic, there are encouraging signs that a real pent-up demand and a continuing trend with vaccinations could turn things around very quickly for Royal and for the cruise industry in general.

Here are five takeaways from the call.

1. Royal is still awaiting word from the CDC about its North American restart.
There are encouraging signs, including from bookings, but Royal and its cruise line brands are still awaiting technical specifications from the CDC for its restart, instructions that could come “any day” according to Michael Bayley.

“They’ve assured us that as soon as all these things come together, they want to get us back into operation,” he said. “I think our level of optimism is increasing as we see the infection rate continue declining so dramatically in the U.S. and the number of vaccines increasing.”

The CDC’s decision, Bayley said, is really “about what’s happening with the virus” and indications in the U.S. and around the world are positive.

“I must admit every single day I go on the COVID USA chart on Google and see the trend line is just plummeting. So, my sense is that we’re getting closer and closer to good news,” he added.

As for the test sailings, which will come first for Royal, over 250,000 volunteers have already submitted applications to get on board, “so there’s plenty of people interested in cruising,” Bayley said.

2. Outside of North America, Royal has already successfully restarted.
Royal has been operating out of Singapore since early December and, even before that, has had successful sailings that continue in Germany, the Canary Islands, Greece, and the Middle East.

“These early returns to service not only provide vacations, but they provide an opportunity to demonstrate proof of concept as well,” Fain said on the call.

“They provide important learnings on how we can coordinate most effectively with governments, port authorities, travel partners, and others to protect our guests, crew, and the destinations we visit,” he added.

In total, Royal has already sailed about 35,000 cruisers out of Singapore and, according to Bayley, customer satisfaction is “higher with our protocols than it was before.”

While Royal still has most sailings canceled through April, including all of the sailings in North America, Fain said Royal could very well add a second ship outside of the U.S. soon, using the “learnings from Singapore” on Quantum of the Seas. Capacity could also increase on Quantum from the 50% it is operating with now to 65% in the coming weeks.

3. Bookings are down, but the pent-up demand is real.
Bookings for Royal are still below its record levels, and 2021’s Wave Season is not going to meet the traditional marks that Royal has seen in the past, but there is a clear sense from guests that people want to cruise.

“It’s clear that a lot of people want to cruise, and we can’t wait to welcome them back on board our amazing brands and ships,” EVP and CFO Jason Liberty said on the call.

Royal expects to start ramping up sales and marketing efforts once “more ships come back into operation.” Still, even with the cut in spend, the company has seen a 30% increase in new bookings since the beginning of the year when compared to November and December. And almost 75% of bookings on record now are not related to rebookings from the COVID-19 pandemic.

“As the vaccine distribution continues to accelerate, travel restrictions and advisors begin to ease, and customer confidence begins to grow, we feel very optimistic about the future,” Liberty said.

“Now, after 11 months of the pandemic, I think we all know that COVID fatigue is real. People are clamoring for the opportunity to have experiences outside their houses,” Fain said.

4. The new e-muster drill and new technology are difference-makers.
Royal first announced its new electronic muster safety drill in July. It was a change essentially forced by the COVID-19 pandemic, but one that a lot of guests and travel partners welcomed anyway.

“E-mustering” has already become a part of the restart of operations on Quantum in Singapore and Bayley said on the call that it “completely transforms the whole process of lifeboat mustering” for Royal.

The drill, which allows Royal’s guests to complete muster on an individual basis with a new app available on mobile devices and stateroom TVs, is one part of a new set of technology that is transforming Royal’s cruise experience in light of COVID-19.

“We’ve really developed technology for contact tracing using a combination of technologies,” Bayley added.

One of them is a trace slip that each guest wears that can help contact tracing, another is AI-technology built into the CCTV cameras on board to verify that contact tracing. It is all part of an integration that Royal sees as a vital part of keeping guests safe onboard.

“The technology development is really, we think, groundbreaking and very sophisticated, and in our conversations that we had the week before last with the CDC, they specifically asked us to share that technology,” Bayley said.

5. Azamara’s departure was an “opportunity to grow” for that brand.
Royal Caribbean announced that Azamara and its entire three-ship fleet were leaving the company and heading to private equity firm Sycamore Partners in January.

On the call this week, Liberty spoke a little bit about the sale from Royal’s side. “I think that it’s a great brand that we think…will do quite well under this other venture,” he said.

For Royal, the decision to trim its offerings with the sale came down to staying “opportunistic” in a COVID-19 landscape.

“As an organization we have and we continue to take advantage of this opportunity to analyze our costs and find ways to be more efficient,” Liberty said.