What happened

Shares of cruise ship operator Royal Caribbean (NYSE:RCL) jumped out of the gate Thursday morning after reporting better-than-expected earnings (read "better-than-expected losses") for fiscal Q1 2021. Instead of analysts' expected $4.62-per-share loss, Royal Caribbean lost $4.44 per share (pro forma -- actual GAAP losses were $4.66 per share). The company also eked out a small "revenue beat," reporting sales of $42 million where Street analysts had predicted only $39.5 million.  

Royal Caribbean shares jumped nearly 6% in response in early trading, although they quickly retreated to just a 1.3% gain. Curiously, as of 10:20 a.m. EDT, two of Royal Caribbean's rivals that did not report earnings today are both doing even better. Carnival Corporation (NYSE:CCL) (NYSE:CUK) stock is up 2%, and Norwegian Cruise Line Holdings (NYSE:NCLH) is hanging on to a 4% gain. Earlier in the day, Carnival was up close to 5%, and Norwegian actually hit as high as a 7% gain.

3 cruise ships lined up abreast in port

Image source: Getty Images.

So what

So what sparked today's rally, and why does it seem to be losing strength so quickly?

Good news first: In addition to beating earnings -- in a nice contrast to Carnival's earnings miss earlier this month -- Royal Caribbean says it has "four ships already sailing" in regions not covered by the U.S. Centers for Disease Control and Prevention ban on cruising out of U.S. ports. The company also plans to put 11 more ships back in the water on Caribbean and European routes this summer, and it spoke positively about seeing "a pathway to a healthy and achievable return to service, hopefully in time for an Alaskan season" this year.  

Cruises are still "taking place with adjusted passenger capacity and the enhanced health protocols," but at least it's a start, and a way for Royal Caribbean to start generating revenues to begin covering some of its costs again.

And now the bad news: "The average monthly cash burn rate for the first quarter of 2021 was approximately $300 million ... slightly higher than" Royal Caribbean had previously guided toward. Granted, this was to be expected as the company begins reviving its fleet for a return to cruising. Granted, too, CFO Jason Liberty says that "cash flow from operations will sequentially improve, driven by an increase in the inflow of customer deposits," helping to cover rising capital expenditures. But for now we may be looking at a situation of accelerating cash burn with still very little revenue to offset the company's costs.

Now what

Because of this still-in-motion situation, Royal Caribbean says "the Company cannot reasonably estimate its financial or operational results" either next quarter or for the rest of this year -- which probably upset some investors today.

But you can look forward to the next cruise industry update when Norwegian Cruise reports its Q1 numbers two weeks from now, on May 12 (analysts predict a $2.05-per-share loss).  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.