It's hard to make money as a cruise line when people can't take cruises. The situation becomes even harder when you factor in that nobody knows when cruising will be allowed again, and questions remain as to how quickly demand will return.

That's something Royal Caribbean (NYSE:RCL) fully understands. The company has been making painful choices to extend its ability to survive. These include cutting capital expenses, furloughing employees, raising additional capital, and pushing back maturity dates on some debt.

A Royal Caribbean ship at sea

Royal Caribbean has canceled all June and July cruises. Image source: Royal Caribbean.

What is Royal Caribbean doing?

Chief financial officer Jason Liberty was very blunt in explaining the situation during the company's first-quarter earnings call. The news isn't pretty, but he made it pretty clear that survival is not an issue unless the pandemic keeps ships docked for a much longer period of time.

"We've been very active in the capital markets, raising almost $4 billion additional liquidity since our last call," he said. "Overall, we estimate our cash burn to be in the range of $250 million to $275 million per month during the prolonged suspension of operations."

Liberty explained that the range includes "ship operating expenses, administrative expenses, debt service, hedging costs, and expected necessary capex [capital expenditures]." It does not include customer refunds, or cash coming in from new bookings.

"More than 60% of this cash burn is related to operating expenses, which we expect to reduce further onto a more prolonged out-of-service scenario," he said. "Through all these measures, we have been able to improve the company's liquidity profile by approximately $12 billion for 2020 and 2021 combined."

Basically, the company burns roughly $1 billion every quarter or $4 billion per year. The picture may not be pretty, but it's going to still be hung on the wall for the foreseeable future.

Will demand return?

While the immediate future is uncertain, there are some positive longer-term trends. Take those trends with a grain of salt, though, because Royal Caribbean now lets customers cancel their trips.

"Prices for 2021 book business are currently up in the mid-single-digit range," Liberty said. "Our current booking trends indicate that there is demand for cruising."

Guests on canceled cruises can get 125% credit toward future trips, or a cash refund. About 45% of customers on canceled trips have asked for their money back, while the rest have taken advantage of the Future Cruise Credit (FCC) offer.

"Approximately 20% of the guests who have been issued FCCs have already rebooked on future voyages. Most rebooked on similar itineraries, and many are actually using 125% value to upgrade to a higher stateroom category," the CFO said. "As you may expect ... our loyalty guests are redeeming their FCCs at a much faster pace than non-loyalty guests."

Royal Caribbean intends to resume some sailings in August. That's a very tentative plan that's subject to government approval, but it's possible. Once ships start sailing, the company has to prove that it has enacted procedures that will keep customers safe. When that happens, demand should slowly -- or maybe even quickly -- come back, and the company can begin working itself out of debt.