MIAMI - Royal Caribbean Group reported financial results for the 2021 fiscal year and provided business updates.
"2021 marked the beginning of our return to our mission of delivering the very best vacation experiences," said Jason Liberty, president and chief executive officer of the Royal Caribbean Group. "During 2021, we made significant progress toward our recovery with over 85% of our capacity returning to operations and delivering safe and memorable experiences to approximately 1.3 million guests at record guest satisfaction scores. Our team has worked tirelessly to execute our successful and healthy return, and we are grateful for their extraordinary efforts."
"We expect 2022 will be a strong transitional year, as we bring the rest of our fleet back into operations and well-nigh historical occupancy levels," Liberty said. "Omicron created short-term operational challenges that have unfortunately weighed on close-in bookings. While the timing of Omicron was particularly unfortunate for the first half of 2022 bookings and will likely delay our return to profitability by a few months, we do not expect it to impact our overall recovery trajectory and the strong demand for cruising."
Resumption of Sailing and Business Highlights
- By the end of 2021, the Group had returned 50 out of 61 ships to operations across its five brands, representing over 85% of its worldwide capacity. During the year, the Group carried approximately 1.3 million guests across the five brands, achieving record guest satisfaction scores and onboard spend per passenger.
- Due to the impact of the Omicron variant, the company experienced some service disruptions and cancelled several sailings in Q1, although it still expects to operate approximately 95% of its planned capacity in Q1.
- Bookings in the fourth quarter were sequentially higher than the third quarter. Due to the impact of the Omicron variant, bookings decreased in December and remained lower over the holiday period, but have started to increase with each consecutive week since the beginning of 2022 and are now back to pre-Omicron levels.
- Cumulative advance bookings for the second half of 2022 are within historical ranges and at higher prices, with and without future cruise credits (FCCs).
- The Group expects to return the full fleet before the summer season of 2022 and load factors approaching historical levels in the third quarter of 2022. The company is thoughtfully ramping up the fleet and load factors while emphasizing industry-leading health and safety standards, world-class guest experiences and financial prudence.
- Notwithstanding the impact from Omicron, the Group expects to be operating cash flow positive in late spring. The Group also expects a Net Loss for the first half of 2022 and a return to profitability in the second half of 2022.
Full Year 2021 Results
The company gradually resumed its global cruise operations beginning in December 2020 in Singapore and June 2021 in the U.S. For the full year, the company reported US GAAP Net Loss of $(5.3) billion or $(20.89) per share compared to US GAAP Net Loss of $(5.8) billion or $(27.05) per share in the prior year. The company also reported Adjusted Net Loss of $(4.8) billion or $(19.19) per share for the full year 2021 compared to Adjusted Net Loss of $(3.9) billion or $(18.31) per share in the prior year.
Fourth Quarter 2021 Results
The company reported US GAAP Net Loss for the fourth quarter of 2021 of $(1.4) billion or $(5.33) per share compared to US GAAP Net Loss of $(1.4) billion or $(6.09) per share in the prior year. The company also reported Adjusted Net Loss of $(1.2) billion or $(4.78) per share for the fourth quarter of 2021 compared to Adjusted Net Loss of $(1.1) billion or $(5.02) per share in the prior year. During the fourth quarter of 2021, the company eliminated the three-month reporting lag for Silversea Cruises to reflect the brand's financial position, results of operations and cash flows concurrently and consistently with the company's fiscal calendar. The effect of this change resulted in a negative impact of approximately $(0.25) per share for the fourth quarter of 2021, which has been excluded from the company's adjusted results for transparency and comparability purposes. The Net Loss and Adjusted Net Loss for the fourth quarter and full year of 2021 are the result of the impact of the COVID-19 pandemic on the business.
In the fourth quarter, 12 additional ships returned to service. The company is thoughtfully ramping up the fleet and load factors while emphasizing industry-leading health and safety standards, world-class guest experiences and financial prudence.
Ships that operated the Group's core winter itineraries in the fourth quarter achieved a load factor of 65%. Core itineraries exclude sailings during the early ramp-up period of up to four weeks and exclude new itineraries implemented during the COVID period. Fourth quarter total load factor was 59%. Total revenue per Passenger Cruise Day in the fourth quarter was up 10% versus record 2019 levels driven by strong onboard revenue performance. Despite the impact from Omicron, total cash flow from ships in operation turned positive in the fourth quarter.
"While 2021 was another challenging year financially, we finished the year in a stronger position than at the beginning and made great progress toward our recovery," said Naftali Holtz, chief financial officer. "We are also immensely grateful for the incredible hard work and determination of our teams that made our return to sailing possible."
Continued Fleet Ramp-up
Due to the impact from the Omicron variant, the company experienced some service disruptions and cancelled several sailings in Q1 2022. Service disruptions have recently abated as COVID cases have declined. Despite these service disruptions and cancellations, the overall trajectory of the return to service remains unchanged. By the end of the first quarter of 2022, the Group expects that 53 out of 62 ships will have been brought back to service, with the rest of the fleet returning to operations before the summer season. Wonder of the Seas was delivered in January 2022 and expanded the Group's fleet size to 62 ships. Australia is anticipated to open for cruising for its summer season. China remains closed, and the company has redeployed ships planned for China to other core markets for the time being to capitalize on strong pent-up demand, while it remains optimistic to capture long-term growth opportunities in that market.
First quarter load factors are expected to be lower than initially anticipated due to the Omicron impact on bookings and cancellations, particularly on January sailings. As such, the Group anticipates load factors on core itineraries of approximately 60% during the first quarter of fiscal year 2022 with sequential monthly improvement. The company anticipates approximately 7.7 million Average Passenger Cruise Days (APCD) for the first quarter. The Group expects total cash flow from ships in operation in the first quarter to be positive.
Update on Bookings
The travel industry has experienced significant short-term disruptions due to the Omicron variant. Such disruptions intensified during the holiday season and in early January, with the spread of the variant, and impacted the company's cancellations and bookings for near-term sailings.
Load factors for sailings in the first half of 2022 are expected to remain below historical levels, consistent with the company's return to service schedule, which includes the impact from Omicron. Load factors for sailings in the second half of 2022 continue to be booked within historical ranges, at higher prices with and without FCCs.
"Following a record U.S. black Friday and cyber weekend, the spread of the Omicron variant resulted in a softening in booking volumes and an increase in near-term cancellations," said Holtz. "Similar to our experience following Delta, we expect bookings to materially increase as we get further beyond the peak of cases. We are already seeing cancellations subside and bookings improve to pre-Omicron levels, and we have adjusted our sales and marketing efforts in anticipation of a delayed and extended WAVE period."
The company is excited about the introduction in 2022 of two new ships, Wonder of the Seas and Celebrity Beyond. These new ships add to the six new ships that joined the fleet over the last 20 months and are expected to be important contributors to yield growth and profitability.
As of December 31, 2021, the company had approximately $3.2 billion in customer deposits. This represents an improvement of about $400 million over the previous quarter despite the significant quarter-over-quarter increase in revenue recognition and near-term cancellations due to Omicron, both of which reduce the customer deposits balance. The customer deposit balance at year-end for Q2 2022 forward sailings was higher than the balance held at the end of 2019 for Q2 2022 forward sailings. Approximately 32% of the customer deposit balance is related to FCCs compared to 35% in the prior quarter, a positive trend indicating new demand.
Liquidity and Financing Arrangements
As of December 31, 2021, the company's liquidity was $3.5 billion, which includes cash and cash equivalents, undrawn revolving credit facility capacity, and a $0.7 billion commitment for a 364-day term loan facility. This excludes proceeds from the $1 billion unsecured bond offering completed January 7, 2022.
During 2021, the company re-established access to unsecured markets and refinanced $2.3 billion of secured and/or guaranteed debt, in some instances reducing the coupon by up to 600 bps.
"We remain focused on our disciplined approach to capital allocation and returning to profitability. Our liquidity position remains strong as we execute on our return to service. We continue to take actions to improve our balance sheet, address near-term maturities and reduce interest expense," said Holtz.
In January 2022, the Group issued $1 billion of 5.375% senior unsecured notes due 2027. The company is planning to use the proceeds from the offering to repay principal payments on debt maturing in 2022.
As of the date of this release, there are $2.3 billion in scheduled debt maturities for 2022.
Net interest expense for the first quarter of 2022 is expected to be in the range of $270-275 million.
During the fourth quarter, the Group amended its $7.3 billion of outstanding export credit agencies (ECAs) financing plus its committed ECA facilities to reset covenant levels for 2023 and 2024, following a waiver period through the end of 2022.
Bunker pricing net of hedging for the fourth quarter was $549 per metric ton and consumption was 303,000 metric tons.
As of December 31, 2021, the company had hedged approximately 54% and 15% of its total projected metric tons of fuel consumption for all of 2022 and 2023, respectively. For all of 2022 and 2023, the annual average cost per metric ton of the fuel swap portfolio is approximately $490, and $515, respectively.
Based on current fuel prices, the company expects approximately $206 million of fuel expense in its first quarter 2022 at an average pricing of $615 per metric ton net of hedging.
The expected capital expenditures for 2022 are $3.1 billion. These expenditures are mainly driven by newbuild projects that have committed financing. Depreciation and amortization expenses for the first quarter of 2022 are expected to be in the range of $335-340 million.