Royal Caribbean puts up 28 ships as collateral for $3.2bn bond

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Royal Caribbean Cruises has launched a $3.2 billion bond offering while pledging 28 of its ships and “material intellectual property” as collateral.

The move followed the world’s second-largest cruise group forecasting heavy losses for the first quarter of the year as Covid-19 brought global sailings to a standstill.

The company expects to report a preliminary first-quarter net loss of $1.44 billion compared to a profit of $249.7 million a year earlier.

Royal Caribbean, which was forced to suspend its cruises globally and cut about 23% of its US workforce, said the health crisis has dented its quarterly net income by about $453 million.

Preliminary total revenue for the three months ended March 31 fell 16.7% to $2 billion against the same period last year.

Royal Caribbean declined to specify which ships it had pledged for its debt offering. It had vessels with a net book value of about $22.7 billion as of December 31, including Symphony of the Seas, the world’s largest cruise ship.

The net proceeds from the offering of the $3.3 billion notes will be used to repay a $2.35 billion 364-day loan.

The remainder will be used for “general corporate purposes, which may include repayment of additional indebtedness”.

The parent company of Royal Caribbean International, Celebrity Cruises, Azamara and Silversea, estimates its cash burn to be about $250 million to $275 million a month during a prolonged suspension of operations.

TUI Expects to Restart Cruise Ships With Less Occupancy, More Changes

Mein Schiff 2
Tui’s new Mein Schiff 2

TUI Group has said it expects to restart cruise service this summer, but with less occupancy.

The company, which oversees the TUI, Hapag-Lloyd and Marella brands, said the changes will start at boarding, with new health questionnaires. screening preboarding and staggered boarding groups.

The company also said it plans to start with less than 1,000 guests on each ship until August 31, 2020, meaning TUI’s big ships, with capacity for just under 3,000 guests, would be sailing at approximately one-third occupancy, allowing for much more distance in public areas.

Other changes include the elimination of self-service food. Public venues will also be limited to one-third of their capacity. Only 10 children will be allowed in the Kids’ Club aboard, the company said.

In addition, the ships will operate at what TUI called OPP-3 (Outbreak Prevention Plan Level 3), meaning constant cleaning of touched services, every 30 minutes or less. The company said it expects to have COVID-19 testing capabilities aboard with additional medical staff.

The cruise line will work closely with ports to develop joint procedures to handle any possible COVID-19 cases, according to a statement.

It’s not a great time to woo first-time cruisers

Cruise ships in Costa Maya, Mexico.
Cruise ships in Costa Maya, Mexico. Photo Credit: Byvalet/Shutterstock

In January, Jessica Fricchione and 10 of her family members booked what would have been her first cruise, a Bermuda sailing out of Baltimore leaving on May 31.

Due to the coronavirus crisis, the group’s sailing was cancelled — and they have no interest in taking a future cruise credit.

“No one in the family wants to book a cruise again,” she said, adding that they were looking into a stay at an all-inclusive resort instead. “I don’t ever, ever want to be stuck on a cruise ship.”

Justified or not, the cruise industry’s reputation took a hit from the high-profile Covid-19 outbreaks on a handful of ships in March and April.

Industry stakeholders acknowledge that media coverage of those ships being turned away from ports and, in some cases, of passengers being quarantined in their cabins for weeks on end is most likely to have an impact on the potential-cruiser set.

In a media call last month, Carnival Corp. CEO Arnold Donald said there was “no question” that the media attention would have an impact on that market segment.

“There have been people who may have been considering [a cruise] who would be having second thoughts at this point in time,” he said.

The first-time cruiser has always been considered critical to the growth of cruising. Despite CLIA lines’ global passenger growth of about 60% since 2009, to 30 million in 2019, cruising is still vastly underpenetrated compared with other vacations: 11.9 million Americans cruised in 2019, only about 3% of the population.

Travel advisors expect that the crisis will cause a decline in the new-to-cruise market.

“When you’re dealing with first-time cruisers, you typically have to overcome some fear of the unknown with cruising, such as seasickness, boredom, claustrophobia,” said Anthony Hamawy, President of Cruise.com. “The current negative press around cruising will add to those fears.”

Signature Travel Network CEO Alex Sharpe said that those who’ve never been on a cruise can’t draw upon personal experience to put into perspective what they are seeing and hearing from the media.

“If you’ve been watching the news and you’re not a cruiser and you can’t put what [ships with Covid-19 outbreaks] have been through in any context with your own family’s great times on a ship, it’s hard to reconcile that and say, ‘That’s my next vacation,’” Sharpe said. “I think new-to-cruise will take a hit in the short term. That will take some time.”

Some cruise lines have found that booked passengers who were new to cruise have been more likely to cancel cruises they had booked during the current operations pause.

Mark Conroy, Silversea Cruises’ managing director of the Americas, said that new cruisers have been more likely than past passengers to cancel and take a refund versus a future cruise credit because they are “more nervous.”

Loyalty program members “will come back first,” he said. “They’re the people that know us and love us and travel with us every year or every other year. They’re the ones that are eager to go.”

Repeat cruisers will lead the way

Many think that those who were once potential cruisers and are now on the fence can be swayed back once cruise lines are up and running.

Charles Sylvia, CLIA’s vice president of membership and trade relations, said that there will be “more challenges ahead with regard to the first-time cruisers” but that people returning from cruises with positive stories will put them at ease.

“Once they see the resumption of operations and once they see friends and family members and co-workers going on cruises and coming home with that same level of enthusiasm and satisfaction, then they will be back — the first-time cruisers will come to us,” Sylvia said.

Donald also said that returning cruise passengers, as well as travel advisors, will be the most important messengers in overcoming the additional concerns non-cruisers have. He added that this is something the industry is accustomed to dealing with.

“We were busy knocking down myths before, and we’ll have to return to that,” he said, adding that the two “most powerful ways” to do that is through travel advisors, “with their knowledge and experience and personal relations with their clients,” and the passengers, who will “provide the kind of testimonials and credibility with their friends and colleagues and relatives.”

And as has always been true for travel coming out of every crisis, for some people, the right price is a big persuader.

“I think, with time, this will be overcome because the vacation value will ultimately win out,” Hamawy said.