Royal Caribbean (NYSE:RCL) has made a number of moves designed to preserve liquidity in order to make it through the coronavirus pandemic, including drawing down its revolving line of credit.

The company closed April with $2.3 billion in cash and cash equivalents, and on May 4 it "increased the 364-day senior secured credit facility and drew $150 million, further enhancing the company's liquidity profile," according to a press release. Royal Caribbean has also greatly cut its spending, though it's still taking on costs "in the range of approximately $250 million to $275 million per month during a suspension of operations," a number that could be reduced if the suspension of cruises continues for an extended period. 

That monthly cash burn number does not include refunding customer cash deposits, or money from new or existing bookings as payment comes due. "As of March 31, 2020, the company had $2.4 billion in customer deposits.  This includes approximately $0.8 billion of future cruise credits related to previously announced voyage cancellations through June 11, 2020," according to a press release. That means it has $1.6 billion it may have to pay back if customers cancel their trips, which they can do up to two days before sailing.

The pool deck on Oasis of the Seas.

Royal Caribbean has been making money moves to stay afloat. Image source: Royal Caribbean.

What is Royal Caribbean doing?

Royal Caribbean does not want to have to offer refunds, and to entice people to not ask for them it's offering 125% in credit on canceled cruises and full credit on cruises customers cancel themselves. Currently, as of April 30, about 45% of customers have asked for cash refunds, according to Royal Caribbean. It's impossible to know how much of its $1.6 billion in deposit money is for cruises this summer that could be canceled -- but it's likely a large percentage, because cruises later in the year or even next year have not hit the date where final payment must be made. The company desperately wants people to take credit rather than ask for cash, and there may be another lever it can pull to keep customers from taking cash refunds when cruises get canceled.

To hold onto that cash, Royal Caribbean should consider adding an incentive to its customers booked on canceled cruises that won't cost it any money -- credit people with Crown & Anchor points for canceled cruises, and award them more points when they actually sail.

Crown & Anchor is the company's loyalty program. Its points accrue on a lifetime basis, and the perks can be significant once you hit higher tiers. In general, you earn one cruise point for every night sailed, or double that if you book a suite or travel solo. Members get meaningful onboard benefits as they hit higher levels. Gold members (three points) get minimal offers, while platinum members (30 points) get a few perks like a free reception (with drinks) and complimentary use of a robe in your room. Emerald members (55 points) get all that plus expedited boarding and a welcome-aboard snack and water basket.

The real perks, however, start when you hit Diamond (80 points). Diamond members are like the lower-level Royalty of Royal Caribbean. Members get access to a lounge (on most ships) that offers free drinks, a coffee machine that makes fancy coffee, and an upgraded breakfast (away from the riff-raff at the buffet). Once you hit Diamond, you also get access to roped-off seating areas near the pools and prime seating in the theater.

There are even more perks when you hit Diamond Plus (175 points) and Pinnacle Club (700 points), but those take much longer to reach. Frequent cruisers value those Crown & Anchor points, and might be more willing to take a future cruise credit if they earn points for future cruises. That's especially true for cruisers approaching Diamond, which offers benefits that actually enhance your trip in meaningful ways -- perks like not having to fight for a lounge chair near the pool or go early to get decent seats for a show, as well as free drinks, make it very valuable.

Even a first-time customer would benefit from this change, as they would achieve Gold before even stepping on board. More regular cruisers would certainly appreciate getting to higher levels faster.

Pull every lever

I'm a frequent cruiser and have had April and May cruises canceled (each four-day trips), and I expect that the five-day cruise I booked for June before the pandemic started won't happen either (and, if it does, I would consult with my doctor before even considering it). After that, I have a five-day cruise booked in late August, and another set for mid-October.

My canceled April and May trips and my upcoming cruises were comped for me, aside from port fees, so the company has no money to refund me that qualifies under the credit program. I'm not suggesting Royal Caribbean offer this added loyalty program perk for me -- it doesn't need to refund something I did not pay for in the first place.

For paying customers, however, Royal should be pulling every lever possible to avoid having to give refunds. Making this move might keep a few hundred million dollars on its books. That's a month of survival -- not a small thing given the dire situation the cruise industry faces.

This may seem silly, but it's a meaningful gesture that repeat customers would appreciate. It's also a move that costs nothing -- and it seems like Royal Caribbean should be making every no-cost move it can right now to preserve cash.