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Royal Caribbean (NYSE:RCL)
Q3 2020 Earnings Call
Oct 29, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

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 Group's business update and third-quarter 2020 earnings call. [Operator instructions] Please be advised that today's conference is being recorded.

[Operator instructions] I would now like to introduce Chief Financial Officer Mr. Jason Liberty. Mr. Liberty, the floor is yours.

Jason Liberty -- Chief Financial Officer

Thank you, Shelby. Good morning, everybody, and thank you for joining us today for our business update and third-quarter earnings call. Joining me are Richard Fain, our chairman and chief executive officer; Michael Bayley, president and CEO of Royal Caribbean International; and Carola Mengolini, our 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.rclinvestor.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 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 of the business. I will then follow up with a recap of our third-quarter results. I will then provide an update on our latest liquidity actions and we'll then provide an update on the booking environment.

We will then open the call for your questions. Richard?

Richard Fain -- Chairman and Chief Executive Officer

Thank you, Jason, and good morning to everybody. It's been almost seven months since we paused our cruise operations, and every single day has been extremely frustrating and challenging on so many levels. But while emotionally and financially this hurts us tremendously to see our ships laid up, we've tried to use this time to good effect. Our teams, together with the Healthy Sail 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 to the recovery. One of the most frustrating elements of COVID-19 is how little the world knew at the beginning of this pandemic is about the virus and how many false paths we have all gone down over this period. Fortunately, the sciences made remarkable strides, and there are a few observations and predictions that we can make. We are seeing an upsurge in infections in the United States and in other countries around the world.

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 surge will not be as devastating as the early surges in March and April, and it will lead to a better 2021. Therapies are also 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 tunnel. That light needs new batteries, but the light is clearly visible.

Please don't get me wrong. I don't mean to minimize the trauma that this disease is causing and will 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 Sail Panel have submitted their recommendations to us and the CDC, and they were extremely well received.

We all know that we can't eliminate all risk of COVID-19 or anything else for that matter. Therefore, we ask the panel to help us to meet two specific goals: One, to reduce the risk of COVID below the level in our guest home communities; and two, to ensure that we can properly handle a COVID incident on board effectively and without inconveniencing all the guests or the local community. The panel made 74 specific recommendations toward accomplishing these two goals. By implementing their recommendations, we now intend to make our ships and environment a bubble, if you will, that presents less risk of transmission than 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 return to service. The CDC and other regulators have been working on this for a long time. We are grateful for the CDC's focus on health and the time they and their observers have spent on this important topic with the Healthy Sail Panel. I don't want to anticipate any decisions that the CDC might take when the current no sail order expires.

But I am optimistic that also through our continued dialogue and the pathway that we have outlined, we are moving in the direction of a healthy return to service. We propose to start slowly by training our crew and embarking on a series of nonrevenue trial sailings where we can rehearse and validate the new protocols. The panel has recommended that this process be carefully evaluated by independent outside observers, and we will do that. And then, only on a ship or two at first and in a gradual and methodical way we expect to start sailing again.

There'll be short cruises at first with limited destinations and controlled shore excursions. But as we learn and as the science continues to improve, we will expand. Now besides the CDC in the United States, we're also working with the governments and health authorities across the globe to resume operations in a healthy and phased manner. Notably, TUI cruises, Hapag-Lloyd and Silversea 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 sail as well. As a result, 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 advisors, lenders and guests 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 our industry has faced significant challenges in the past, and yet it has continued to be able demonstrate that it can overcome them. Not only overcome them, but continue to thrive and grow. Why? Simply because the product, the vacations that we offer, are so extraordinary, and some would argue that the value is even higher.

With that, I'll turn the call back to Jason to talk through the numbers some more. Jason?

Jason Liberty -- Chief Financial Officer

Thank you, Richard. This morning, we reported adjusted net loss of $1.2 billion in a quarter with muted revenues, as all sailings that should have been recorded during the period were canceled. These painful results were just underpinned by a strong focus on reducing operating expenses. As a result, our cruise 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 the fleet transitioned to its various levels of layup, reaching their desired state by the end of August.

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 unsecured guaranteed 364-day facility. Including this new financing, and we ended the third quarter with $3.7 billion in 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 and 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% with a conversion premium of 37.5%. This was really a superb outcome and a testament to the value of our brands and to the amazing execution of our finance, legal and accounting teams. We believe that the additional liquidity provides us this important flexibility, both as we plan for a gradual return to service and as we look to delever our balance sheet and our path back to investment-grade metrics.

As it pertains to our cash spend, 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 entered various levels of layup. Notably, during the third quarter, our average monthly cash burn was consistent with our previously announced range for a 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 a prolonged suspension of our operations.

As we mentioned in the press release this morning, this number excludes refunds of customer deposits, debt obligations, commissions as well as cash inflows from new and existing bookings. When we return to service and start to rev up our sales and marketing machines, we anticipate the customer deposits and cash inflows from operations will further improve our cash position. However, in addition to increased sales and marketing activities, ramping up our business will also include start-up costs related to bringing our amazing crew back to operations and costs related to some of the healthy return to service protocols. I know that you would all like to understand precisely what those cash flows and costs will be, but the fluidity of our 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-COVID 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 guests and crew. Also, we want to ensure that we are delivering the world-class vacations that our guests expect and that we are bringing the ships back in the most profitable way, which will now 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 return 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 of 2020 and $2.1 billion for 2021. Approximately 80% of these expenditures do relate 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 Odyssey of the Seas during the first quarter and the 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 our return to service is 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. Deployment in the spring is expected to be highly focused on short sailings from key dry markets in both the U.S. and Asia Pacific regions.

We also have -- we will also make the most out of our incredible private destination in the Bahamas, Perfect Day at CocoCay. Now I'll provide you an update on what we are seeing in the demand environment for 2021 sailings. On our last earnings call, I had commented that the cadence of demand was generally determined by COVID-19 cases, and that has mostly continued to be the case. Over the last couple of months, with very minimal marketing activities, we have seen a steady improvement in bookings for 2021, with summer sailings mainly driving the uptick in demand.

Bookings for this spring season have remained below pre-COVID-19 levels, which is consistent with our staggered return to service approach and lower planned occupancy expectations. From a cumulative standpoint, our book load factors for sailings in the second half of 2021 is within historical ranges at prices that are down slightly. When you exclude the dilutionary impact of the FCCs, pricing for the second half of the year is relatively flat. Overall, 2021 is continuing to benefit from the rebooking activities associated with FCC and Lift & Shift program.

However, approximately 80% of all of our 2021 bookings made to date are very new, and more than 65% of bookings made since early August have been new. For the full year, pricing is relatively flat, the same time last year, and is up slightly when you exclude the negative impact of the bookings made with 125% FCCs. Now about three weeks ago, we announced the Quantum of the Seas will start sailing from Singapore on December 1. And over the following week of the announcement, we saw bookings spike up significantly.

While this is just one out of a fleet of 53 ships, it clearly highlights this 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 balance is associated with FCCs and half is related to new deposits for future sailings. Moreover, about one-third of the overall balance is nonrefundable.

Also, approximately half of the guests who booked on the cancelled sailings have requested refunds, with the other 50% either holding an FCC or lifting and shifting their booking to 2021. 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 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 loss will depend on the timing and the extent of our return to service. Lastly, I'd like to thank our teams across the whole enterprise for all they've done through these extraordinary times. Now as Richard mentioned, these seven months have been challenging on so many levels. We're all pulling through it together and to be exceptionally dedicated and committed to getting our business back.

I know that we'll 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?

Questions & Answers:


Operator

[Operator instructions] Your first question is from Robin Farley of UBS.

Robin Farley -- UBS -- Analyst

Great. Thanks very much. I know you don't want to jump ahead of anything the CDC might do in the next couple of days but I wonder if you could share with us a little bit about what factors they've expressed are important to them because you mentioned that one of the goals of the Healthy Sail Panel was to have the incidence rate of the virus be better than it is on land. And that's certainly the case, I guess, with the cruises in Italy from other brands that test everybody before they got on board.

It's been like less than 0.1% or something incidence rate. So is that -- in other words, is that what matters most to the CDC from your discussions with them when they think about restarting or are there other factors that you think are more important than that? Thanks.

Richard Fain -- Chairman and Chief Executive Officer

Well, it's a complex subject, and that -- I don't claim to be the expert on this. And we, together with Norwegian Cruise Line Holdings, put together this panel, and they spent four months going through the details of this process. They did so with the CDC observers at the meetings, and there are a lot of factors. And we've talked about that before, Robin, where we believe that there are things that make ships 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 so that we can do -- and the whole industry here has really accepted to abide by the 74 recommendations. And a big part of that is to create this kind of bubble in the beginning, to do screening. No other industry that I know of has agreed to do 100% screening of everyone.

And I think that's a big part of what makes this a viable 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 were at all the Healthy Sail 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're going through a process that we don't necessarily see all of. So I think you also have to remember that, that is to -- not all of this is visible to us. But they're looking at all the aspects of it. And I think the no sail order is due to expire shortly anyhow.

So I think we're evenly and hopefully waiting for their specific comments.

Robin Farley -- UBS -- Analyst

OK. Great. Thank you. And then just as a follow-up question, I think one of the things when we think about the cash burn rate and restarting is potentially the risk of restarting and then having to stop again that maybe the cash burn would go up. Just we saw AIDA this morning say that they're going to pause in Germany for the month of November.

Is there -- can you give us some thoughts about what -- when you restart, what could be -- whether it's like crew contracts are only going to be month to month and not six months, or things that might keep your expenses from sort of going back up and then having to carry higher expenses again in the case of perhaps a pause somewhere? Thanks.

Jason Liberty -- Chief Financial Officer

Hey, Robin. I think one of the kind of key things to point to is we've operated about 70 sailings now between TUI cruises and Hapag-Lloyd cruises and Silversea cruises, utilizing the protocols that have been developed and put forward by the recommendations with the Healthy Sail Panel. And as you pointed out, yes, the number of cases are exceptionally low, and it shows that these protocols do work. And so we are very, very focused on doing whatever we possibly can for there not to be a situation where we come online and then we have to go off-line.

And while -- sure, nothing is perfect, I think the protocols have shown they're working. The second thing I would say is that we -- and 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 -- have test cruises and have cruises. And as we're looking at those cruises, really watching how they're performing on both an experience level, a safety level, profitability level, and then slowly kind of turning the dial back up to kind of avoid a situation where we have to bring all of our crew back, which took us many, many months to go between the spring and the summer.

So I think we're being very thoughtful. We're learning a lot through the sailings that have already occurred, which provides us confidence. And so then, of course, I think by just solely ramping up the business, it avoids too much pressure on our cash burn.

Richard Fain -- Chairman and Chief Executive Officer

Robin, because the question you've asked is -- I mean I think it's so apt and it is something that people are focused on, I'd like to maybe embellish a little bit Jason's comments as well because this whole concept of the trial voyages is really quite important. We're not just suddenly coming back. It's going to take a while to organize those voyages. And we're going to have the opportunity to see the protocols in action and to adjust them.

So frankly, I don't think we're going to be making the big leap until we and also the other authorities and our Healthy Sail Panel are all comfortable 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 the evidence in the start ups in Europe have demonstrated that. And when there have been instances, and there will be, because there are everywhere, we've -- and 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 start ups will give us the opportunity, one, to watch the technology improve and the knowledge of the virus improve; and two, to prove out our protocols. And so I think that's why we're so optimistic about where this is leading.

Operator

Your next question is from Felicia Hendrix of Barclays.

Felicia Hendrix -- Barclays -- Analyst

Hi. Thank you so much. Richard, understanding that this is kind of a sensitive subject. Just wondering what you think the CDC needs to see for them to give you the green light.

What are the key metrics they're looking for? And then also just with TUI and Hapag-Lloyd in Germany and with the German shutdown, what do you think is going to happen with those lines?

Richard Fain -- Chairman and Chief Executive Officer

Sure. Well, good morning, Felicia.

Felicia Hendrix -- Barclays -- Analyst

Good morning.

Richard Fain -- Chairman and Chief Executive Officer

And as you say, this is a sensitive time. We're 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 CDC. I think they're looking at all aspects of it, and it is very complicated.

And I think we really made some dramatic inroads with the work of the Healthy Sail Panel. To have people of this level of expertise, this level of experience, this isn't -- these aren't just leading experts in the field, these are the leading experts with the experience of regulating as well. So I think we learned a lot in that process and the cooperation with the CDC was very helpful but I can't predict how they will do it here. And so I'm not too much willing to comment on it, except to say I'm assuming that if you really look at the fairly long -- and I know it's dry, but analysis that was done by the safety panel.

And you see the depth of detail they went into and the transparency that they had will, I think that should give the CDC a lot of comfort. And I think that plus the trial trips. The trial trips are important. That was an important issue for our Healthy Sail Panel, and I think it will be an important point for the CDC.

And so I'm really optimistic that, that will go well. The second part of your question was on TUI and Hapag-Lloyd?

Jason Liberty -- Chief Financial Officer

On TUI.

Felicia Hendrix -- Barclays -- Analyst

TUI, yes.

Richard Fain -- Chairman and Chief Executive Officer

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 are seeing both an ability to limit the spread on to the ship, and we're seeing an ability to deal with these incidents when they occur to keep it from becoming an outbreak. And so I think that experience is positive for us.

And it's small, we understand that, we're not rushing to do this. We've said from the beginning we're not going to go until we and the experts are convinced that we -- this is the right thing to be doing and it's safe and prudent, and we're sticking to that. But we are also learning from this, and that will make us safer and healthier as we go forward.

Felicia Hendrix -- Barclays -- Analyst

I guess I was just wondering if the German shutdown was going to affect those brands.

Richard Fain -- Chairman and Chief Executive Officer

It does not appear to be, no. And again, that's because of the success of the protocols.

Felicia Hendrix -- Barclays -- Analyst

OK. Great. And then -- OK, so the next question is a little -- 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 with I do not think this is the place for political commentary.

So there you have it but we are getting asked all the time to walk investors through a scenario where the CDC no sail order is extended till after the election and, how or if, a potential Biden administration would have any impact on when the order would be lifted.

Richard Fain -- Chairman and Chief Executive Officer

So I'm quite pleased that we're working cooperatively with the experts. And it is my strong hope that this is going to be decided still on the basis of the science, not on the politics. I'll express a personal view that I will be pleased to get my television and my computer back when the election ads are over. But I think our focus is on the science.

We think the industry has done a very strong job, this whole industry. I talked about the Healthy Sail Panel, but I also remind you that before the start-up in Europe, they all used experts to guide that. They all worked with the governments. It wasn't a political issue.

It was a scientific issue. I think the science is strong, and so I'm definitely hopeful that regardless of who's in power, the science will lead us to a good answer but the other thing is that people do want to see the industry back in operation. There's a lot of people suffering because we're out of work. And that if we can restart one important element of our economy in a safe and healthy way, I think that's in everybody's interest.

Felicia Hendrix -- Barclays -- Analyst

OK. Thank you for that answer, Richard.

Operator

Your next question is from Steve Wieczynski of Stifel.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

Good morning, guys. So, Richard, I'd hate to do this to you, but I'm going to keep you on the hot seat a little bit here. And I'm not even sure this is a -- 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 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 there that could help us understand how those conversations, if there were conversations, how they progressed? And maybe what the White House is looking for that's different from the CDC, if that makes sense?

Richard Fain -- Chairman and Chief Executive Officer

So I'll have conversations with anyone who will talk to us on this subject. We're 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 throughout the country.

This is a huge issue for employment in our own country, the cruise industry is an important employer, an important driver of economic activity. And also, it's a respite, and I think it will be soon seen as a respite from the isolation that we're all feeling here. Steve, I certainly never mind your questions. And I think we -- 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, that it is led by the best minds with this 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 really regulate this. So we've talked essentially to all the people who are involved in this kind of decision. And I think I have to say that everybody we've talked to has taken this seriously.

They understand the importance of controlling the spread of this virus. They sort of understand the importance of getting the protocols right. And I'm really -- I really am very excited to watch the methodical way that the panel worked. And the other panels, you saw this in the cooperation in Europe between the public health officials and the political officials and the cruise lines, cooperatively trying to solve something that's also a problem for all of us.

And I'm not -- 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 path that we all see as a pathway back to resuming operations. It 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 process.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

OK. Got you. Thanks for trying to answer that, and I apologize for asking.

Richard Fain -- Chairman and Chief Executive Officer

Yes. No, never a problem to ask, Steven, 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 when we don't know, we don't know.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

Right, exactly. So let's go to a couple of years down the road now and hopefully the world is back to normal. And I guess the question I want to ask is around supply and supply outlook for the industry. But we've seen certain operators remove a good bit of such capacity from the market already.

And you guys, and I can't imagine other operators are going to be ordering new ships for an extended period of time. So I mean, as we look a couple of years down the road, is it fair to say the cruise industry could be set up for a multiyear period of supply growth that could be, I mean, we're basically close to zero. Am I thinking about it the right way?

Jason Liberty -- Chief Financial Officer

Hey, Steve, it's Jason. Well, I don't know if I would say close to zero. Certainly, capacity growth as we were all collectively expecting pre-COVID is certainly going to be less, whether that's exits out of the industry where ships are being scrapped, whether it's ship sales being sold to kind of tertiary operators. And of course, I think we do expect that there'll be slower new build growth probably toward just the latter part of four or five years from now.

But the ships that are in order, as we see them, though delayed by probably eight to 10 months, I think we expect to continue to come online. And the question will be, how many ships will be retired or sold or scrapped during that period of time? I know for us, we've been selling about a ship or two a year. We have scrapped some ships. And we would about -- and we're certainly very -- we're being very opportunistic about the situation when our point of view is, is that, that ship with inside of one of our brands does not fit strategically or I think we can't invest to have that ship fit strategically with inside the brand.

And so that's something that's kind of an ongoing process for us, which has been similar in the past.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

OK. Got it. And, Jason, one more -- sorry, a real quick one. But the cruises that you're operating in Europe today, are they operating at a breakeven or even a profitable level at this point?

Jason Liberty -- Chief Financial Officer

I would say that the ships that are operating in Europe today in terms of breakeven relative on a ship-specific basis are probably at or about breakeven, and I'm talking more kind of direct profit. Obviously, there are fixed costs like that those ships just probably don't cover as of yet. But the occupancy levels, the demand that we're seeing is 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 COVID news, is sometimes when there's finally negative COVID news over there, 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. And so just one of the things, for sure, to increase it as we said.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

Great. Thanks, guys. I appreciate it.

Jason Liberty -- Chief Financial Officer

Thanks, Steve.

Operator

Your next question is from James Hardiman of Wedbush Securities.

James Hardiman -- Wedbush Securities -- Analyst

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 at once. And I think everybody generally understands that 2021 is going to be a rocky year, and it's hard to anticipate.

But maybe if you could walk us through, A, to 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 way to think about leverage? And I fully understand that your leverage is going to be a function of how long these layups 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 are basically almost back to 2019. Obviously, there's a bunch of incremental interest in everything else that's hurting earnings power. And is that realistic or are there some considerations that we should be thinking through once we get past the mess that will be 2021?

Jason Liberty -- Chief Financial Officer

Thanks, James. So I think on a capacity standpoint, there's -- obviously, there's a lot of a lot of time between now and '22 and '23. Certainly, I think our current expectations is that our fleet will be back up and running certainly by 2022 and 2023. Capacity for us is also likely to be higher, because of the new ships that I talked about in my remarks coming online.

But at the same time, as I commented on Steve's question, we do continue to opportunistically look at ship sales or scrapping in very kind of remote type of situations, which could really lower that capacity growth number down a little bit. But I would expect our capacity, as we look in '22 and '23, to be higher than it was in 2019, driven by new capacity. We've already taken out some capacity, scrapping off some ships. And of course, as we know, as I think these new ships roll on, the higher inventory mix, more onboard revenue venues, they're much more fuel efficient, lead to really enhancing our margins.

Moving on to -- I believe leverage, it is certainly a goal of ours to get back to our pre-COVID level metrics, especially as it looks getting to investment grade. I think how we look to do that is obviously putting more of our free cash flow toward paying down debt. 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 less of the cash that we're holding today we're going to need, and that could be purposed to also paying down debt.

But it is definitely one of our and -- the management team and our board's kind of core objective to look at how do we get to pre-COVID leverage as soon as possible. I won't really comment on -- it's just way too early to talk about consensus for 2022. I think important variables will be when we get the green light to get back into service and what that ramp-up looks like, what the universe looks like around therapeutics and vaccines and testing. And of course, wave is very important to 2021.

The waves also begins the momentum into 2022. And so the more for us the flywheel is spinning as we go into all of that to be more momentum I think we'll build for 2022. So we're cautiously optimistic. I won't talk about whether we'll be at pre-COVID level by '22 or 2023, except to say that we're trying to build momentum as quickly as we can and making sure we're doing it in a very safe and healthy way.

James Hardiman -- Wedbush Securities -- Analyst

That's all really helpful. Thanks, Jason.

Jason Liberty -- Chief Financial Officer

Thanks, James.

Operator

Your next question is from Jaime Katz of Morningstar.

Jaime Katz -- Morningstar -- Analyst

Hi. Good morning. Can you help us unpack what is in that negative onboard and other revenue line item? It looks a little optically funny. So I'm just curious if that's a onetime thing I should be aware of or if it's something that could potentially repeat.

Jason Liberty -- Chief Financial Officer

Yes. Sure, Jaime. It's a very immaterial amount of money but as we were going through in the kind of Q1 and Q2 and processing tons of refunds and cancellations and so forth, there's some cancellation or penalty income that we're reversing here 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 -- a small correction there stands out.

Jaime Katz -- Morningstar -- Analyst

OK. And then on the capital allocation front, you guys called out pretty a lot on putting out an equity issuance to raise capital. I'm curious how you're thinking about that going forward, if there is a preference or sort of a rule set you're thinking of for capital raises ahead. Thanks.

Jason Liberty -- Chief Financial Officer

Well, 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 took action here to put ourselves in a posture to be able to delever as we return to service. And I think that we'll continue to evaluate if we do need to raise capital, the debt markets, the convert markets or the equity markets.

But our focus here is to fix the balance sheet as soon as we can, but also doing it in a very thoughtful way. And that -- so I think what we'll continue to do is to evaluate those options as well as looking at within our -- in our business, how do we improve our margins to generate more cash flow, to have around this -- that to be available in order for us to pay down debt and invest in our business.

Jaime Katz -- Morningstar -- Analyst

Thank you.

Operator

Your next question is from Brandt Montour of JP Morgan.

Brandt Montour -- J.P. Morgan -- Analyst

Good morning, everyone. Thanks for taking my questions. So thinking about pent-up demand and possibly a meaningful inflection of bookings that you may be expecting when you're allowed to sail, can you just weigh which factors or events you think will be most important for really how that curve looks between actual expiration of the no sail, but weigh that against the crew-specific travel warning the CDC put out last week. And obviously, the recent lift in 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 this big inflection in bookings?

Michael Bayley -- President and Chief Executive Officer of Royal Caribbean International

Hi, Brandt. It's Michael. Interestingly, when I think Jason commented on Quantum in Singapore, when we opened for sail after we received approval from the Singaporean government, we were really quite surprised by the level of demand that came in for product over that winter season that we've got it open. And those cruises are basically ocean voyages that sail for three, four, five days.

And so 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 they're seeing in Europe with demand even when COVID increases, there is demand in our marketplace and it's coming quite naturally. The other comment I would make on demand that we're seeing is that in the American market, it's really correlated with how consumers feel about this COVID and what they believe is occurring with COVID in terms of it moving behind us. About three or four months ago, a large group of consumers, we're tracking consumers every single month.

And about three or four months ago, most people believed that COVID would be really kind of moving behind us by the end of 2020. Of course, that's shifted now. And the belief from most consumers is that, as you move through '21, COVID will move behind us with vaccines, therapeutics, etc., etc. And you very much see a correlation between what people are believing and how they're booking.

So I think we commented before that a lot of consumers effectively lost summer 2020. There's a belief that COVID will be behind us at some point in '21, and we kind of see that in the booking behavior out of the American market for our products through '21, with a particular emphasis on summer '21. And I think there's a kind of -- it feels and it looks as if customers are thinking. And this is going to be behind us and we're going to have a summer vacation.

I think with regards to the no sail order, I do believe that if there is a change in the no sail order and a pathway is created for a safe return to cruising, there will be an uptick in demand. But I think people will naturally wait and see. And I think also, there'll be, as I just mentioned, this correlation between what's occurring with COVID in the community and how people feel confident about taking a vacation and booking a vacation, and it's complicated. It's very much connected to consumer optimism and feelings about COVID.

Brandt Montour -- J.P. Morgan -- Analyst

Got it. That's incredibly helpful color. Thank you for that. And my second question is following up on the universal testing front.

And I just -- we all read the 74 points, and I know that the recommendations include sort of a dual layer, right, where the customer brings their own PCR-level test and then there's another perhaps rapid test at the port. Is that what you've committed to across all your brands, the sort of dual layer testing? And are we -- is that an industrywide thing as well? We haven't heard much detail on this -- just specific how many tests, what kind of tests and things like that. Any color you could provide. Thank you.

Richard Fain -- Chairman and Chief Executive Officer

Yes. So I think your comment on that is accurate, referring back to the panel report. Part of the point that the panel made was how quickly this whole testing issue is changing. And I think that's one of the more exciting things that we're seeing.

We've gone from a very small number of tests to now, the tests are regularly running 1 million, 1.2 million a day. And that number has really the potential for trebling in a fairly short period of time. So the panel really did conclude that as this technology improves, we ought to improve. Our mantra is continuous improvement.

We think that as the new tests are coming out, these lateral flow tests are quite dramatically an improvement in speed and accuracy and in availability and in cost. So we do think that testing is going to be a very important part of it. I'm not going to get into all the different kinds of testing and which we would do where because that's not going to change tomorrow. As I say, it's interesting that even today, no other industry that I'm aware of has said they would do 100% testing.

That's what we are committed to do. And frankly, the whole industry has said that they think that's the right thing to do. So I won't get into the specifics because I think, if I do, will be wrong tomorrow. But I think we will be starting with 100% testing.

And over time, we hope that will get even faster, cheaper, etc.

Brandt Montour -- J.P. Morgan -- Analyst

Helpful. Thanks and good luck.

Richard Fain -- Chairman and Chief Executive Officer

Thanks.

Operator

Your next question is from Greg Badishkanian of Wolfe Research.

Fred Wightman -- Wolfe Research -- Analyst

Hey, guys. Good morning. It's actually Fred Wightman on for Greg. Jason, you gave some stats for the full year '21 pricing on a cumulative basis.

It sounds 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 new expectations?

Jason Liberty -- Chief Financial Officer

Great. Yes, and this will be our last question. So that's exactly right. On the pricing standpoint, the new -- as I said, we've been taking on new bookings.

We've been able to hold our rates despite the FCCs coming more and more into play. And I think it is a testament to demand. It is still very early but at least what we're seeing for the back half, and really quite frankly from June on, is our pricing is holding up quite well.

Fred Wightman -- Wolfe Research -- Analyst

And then if I could sneak one more quick one. And I think last quarter you talked about there was a line in the sand sort of early, middle 2Q as far as where that consumer demand really did pick up. Have you seen that time line change in any way? Are people sort of moving their bookings either earlier or later in the year?

Jason Liberty -- Chief Financial Officer

It's very consistent with what Michael said. I mean you can really draw a line from when the summer begins, and you could 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 summertime and beyond. And by summer, we mean really kind of when kids get out of school. OK.

Thank you for your assistance, Shelby, with the call today. And we thank you all for your participation and ongoing interest in the company. Carola will be available for any follow-ups you might have. And from all of us, we wish you all a very great day.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Jason Liberty -- Chief Financial Officer

Richard Fain -- Chairman and Chief Executive Officer

Robin Farley -- UBS -- Analyst

Felicia Hendrix -- Barclays -- Analyst

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

James Hardiman -- Wedbush Securities -- Analyst

Jaime Katz -- Morningstar -- Analyst

Brandt Montour -- J.P. Morgan -- Analyst

Michael Bayley -- President and Chief Executive Officer of Royal Caribbean International

Fred Wightman -- Wolfe Research -- Analyst

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