Thursday morning's third-quarter report was pretty rough for Royal Caribbean (NYSE:RCL). The world's second largest cruise line by revenue (which recently surpassed larger rival Carnival (NYSE:CCL)(NYSE:CUK) for top honors by market cap) posted a larger-than-expected loss on negative revenue.
The numbers are brutal, and with Europe resuming lockdowns amid the second wave of the COVID-19 crisis and U.S. daily cases at new highs, it's easy to wonder when things will start to get better. Rather than fret about the $1.2 billion adjusted loss and the negative -- yes, negative -- revenue for the third quarter, let's take a look at some of the positive things out of Royal Caribbean's report.
1. Strong liquidity gives Royal Caribbean the gift of time
Royal Caribbean and its peers have been raising money since the pandemic-related shutdown. All of the new debt and shares will pay a price down the line in the form of larger interest expense payments and bloated share counts eating into profitability on a per-share basis. But right now surviving through the next few months is more important than what the financials will look like in a couple of years.
Royal Caribbean closed out the quarter with $3.7 billion in liquidity. It went on to raise an additional $1.15 billion earlier this month. It's currently burning through $250 million to $290 million a month, given its suspended operations. There are no guarantees that it will be able to resume its U.S. sailings in December -- as it currently plans -- but it has enough dry powder to last well into 2021 if the Centers for Disease Control and Prevention extends its "No Sail Order" a few more times.
2. Customers still believe in Royal Caribbean
One metric that bears watching through the interruption is the percentage of guests asking for their money back on canceled cruises. Half of Royal Caribbean passengers on nixed sailings have opted for enhanced credit on future cruises, and that's a good thing.
Royal Caribbean continues to hold up better than its peers. Carnival is seeing 55% of its impacted passengers asking for their money back. Smaller rival Norwegian Cruise Line Holdings (NYSE:NCLH) is faring even worse with 60% of their customers wanting their money back after cruises were suspended.
3. Interest remains decent looking out to late next year
Bookings are holding up for Royal Caribbean despite the coronavirus calamity. Its cumulative booked position for the second half of next year is within its historical range. Sure, a little more than a third of those reservations are being made by folks who have credit on canceled sailings. It's still comforting to know that 65% of those bookings are being made with new money.
A pessimist can argue that we're kicking the can to the second half of 2021. Earlier this year we had Royal Caribbean, Carnival, and Norwegian Cruise Line reporting brisk advance bookings for later this year and then early next year. However, it's still encouraging to see demand somewhat holding up for an industry that's been shut down for more than seven months.
These are hazy times, and many of the very limited industry resumptions in Europe are now being suspended again. The industry is caught between a pandemic and a recession, but there is still a strong appetite for cruising. Royal Caribbean is armed with enough cash to stay afloat well into next year and with apparently the most loyal of fan bases in the industry.