What happened
Shares of Royal Caribbean (RCL 0.04%) rose 10.9% in May, according to data provided by S&P Global Market Intelligence.
The cruise company's stock price has been on a roller coaster ride this year as the COVID-19 pandemic led to a rash of cancellations. Although the stock has more than doubled from its low of $22 in mid-March, it is still down nearly 62% year to date.
Image source: Getty Images.
So what
Royal Caribbean provided a business update in early May regarding COVID-19. It had already voluntarily suspended its global cruise operations from March 13 through June 11, but continuing disruptions to both ports and travel could result in further suspensions. Although booking volumes for 2020 are lower due to the pandemic, the good news is that booking positions for 2021 are in line with historical ranges.
CEO Richard Fain also provided details on actions taken to provide guests with flexibility and peace of mind. The Cruise with Confidence program offers guests the flexibility of canceling cruises up to 48 hours before sailing while receiving full credit toward future cruises. Also, the Lift and Shift option has been layered over this program, offering guests the opportunity between now and Aug. 1 to protect the original price and promotional offering of a cruise by selecting a future sailing, without the need to book the same ship or same class of ships.
Although these actions will hurt the company's revenue and bottom line for 2020, they will go a long way toward instilling confidence in management's handling of this unprecedented crisis. Royal Caribbean had reported a 16.7% year-over-year fall in revenue in its first-quarter 2020 earnings report, with more pain to come in the current quarter. But with the company taking measures to boost its liquidity, there's no near-term risk of it going bankrupt.
Now what
Royal Caribbean is now focusing on four key principles as it navigates a changing economic landscape: ensuring the safety of guests and crew, enhancing liquidity, protecting the company's brands, and defining and preparing for a "new normal." The last point is particularly important because it demonstrates the company's resolve to adapt to new conditions imposed by the pandemic, an admirable strategy amid the challenges that management is facing.
Investors who have been following Royal Caribbean's travails should recognize that there is still considerable value in the company's brand name and track record. While it may take time for confidence in the cruise industry to return, Royal Caribbean will probably be one of the first to benefit from the upturn when it arrives.
