It’s looking increasingly likely that cruise ships will resume sailing out of U.S. ports in July, a prospect that Royal Caribbean Group CEO Richard Fain thinks is realistic. Late Wednesday, the Centers for Disease Control and Prevention sent a letter to the cruise operators updating the conditional sailing order that’s been in effect since October, according to USA Today. Fain told Barron’s in an interview Thursday morning that the CDC clarified and amplified its guidance for the order, noting that there are two paths to the resumption of sailing: “One path is if we require nearly all of our guests to be vaccinated. The other path is if we don’t have nearly everybody vaccinated.”
Under the CDC’s updated guidance, cruise ships can bypass previously mandated test cruises and start regular passenger sailings if 98% of crew and 95% of passengers are fully vaccinated, according to Patrick Scholes, an analyst at Truist Securities. Most children, however, aren’t eligible for Covid vaccines yet, posing a potential problem on some cruises. “If we opt for the vaccinated route, for many our cruises that’s simply not a problem because the number of children is small enough that it doesn’t make that much of a difference,” Fain said. For other cruises, he said, “It makes a difference but again, when the vaccines for the 12- to 15-year-olds become available, which is expected relatively soon, that would go a long way to help that too.” The large U.S. cruise operators— Royal Caribbean Group (ticker: RCL), Carnival (CCL), and Norwegian Cruise Line Holdings (NCLH)—have largely been shut down since March 2020 due to the pandemic, though there have been limited sailings in Europe and Asia. Getting the green light from the CDC, which oversees U.S. ports, would be a huge boost for an industry that has scrambled to stay afloat and been forced to raise billions of fresh capital. Since the suspension of cruises 13 months ago, Royal Caribbean has raised about $12.3 billion of capital—in moves that sharply increase its debt load and are dilutive to earnings. The company’s monthly cash burn in the first quarter was about $300 million. As of March 31, the company’s liquidity totaled about $5.8 billion, including $5.1 billion of cash. On Thursday morning, Miami-based Royal Caribbean reported an adjusted first-quarter loss of $4.44 a share, compared with a loss of $1.48 a year earlier—another in a series of huge losses owing to the pandemic. Revenue plunged to $42 million versus $2 billion in the corresponding quarter in 2020. The stock was at $86 and change late Thursday morning, down about 0.8% on the day’s trading. The shares have gained about 17% this year. The company, which has four ships sailing outside of U.S. waters in places like the Canary Islands, Greece, and Singapore, has announced itineraries for 11 additional ships in the Caribbean, including the Bahamas and Bermuda, and Europe. Alaska is an important cruise destination in the summer, but the Canadian government is banning large cruise vessels from its waters into 2022. Fain said he is “a little less confident about that [getting resolved] because it involves more parties,” but he added that “there’s good chance we can sort that out.” Fain said 2022 will involve “a little bit a transition” for the company but that he’s confident it will be a good year, owing to the pent-up demand among cruise takers and the growing adoption of Covid vaccines, among other factors. Royal Caribbean’s consensus adjusted FactSet profit estimate for 2022 is $1.43 a share and $6.20 in 2023, up from minus $13.65 this year. The company earned $9.54 a share in 2019 before the pandemic. Nick Note: i am not so sure this is so smart. We shall see. I wish them well