Shares of Royal Caribbean jumped 10% Monday after executives said there was pent-up demand and "remarkable" bookings for its international cruises in 2021, despite reporting a $1.6 billion loss for the second quarter and a cash burn rate in excess of $250 million a month.
The industry suspended global operations about five months ago after several outbreaks of the coronavirus left passengers and crew under quarantine aboard ships, drawing international attention. Much of the cruise industry, including Royal, initially suspended sailings until mid-April only to extend it several times. Most cruise operators now say they don't expect to be sailing again until at least Oct. 31.
But shares of Royal continue to recover from its low of $19.25 per share in March, rising to more than $57 per share on Monday as executives tout a strong financial position and hopeful year-ahead bookings. The company hit a 12-month high of $135.32 a share in January.
"I think we are seeing that there is a pent-up demand. People are frustrated being at home and being isolated," Royal CEO Richard Fain said in an interview with CNBC's Seema Mody on "Squawk on the Street" after the company reported earnings. "I don't think that's a surprise."
The company's core destinations, which include Alaska, the Caribbean and Europe, are already popular for the 2021 season, Royal CFO Jason Liberty said on a conference call with analysts earlier Monday. While many of the new bookings are actually rescheduled cruises that were canceled due to the pandemic, "more than 60% of our bookings received since mid-May have been new bookings," Liberty said.
"We have been both humbled and surprised with the amount of bookings we're seeing for 2021 with literally no marketing efforts. And frankly, very little good news," Fain said on the call. "But the tone of our bookings, especially as we get into the second half of 2021, has been encouraging. Our guests want to come back... Families want and need to vacation."
Liberty said it's "quite remarkable" that the company has seen the surge in bookings despite "very limited to no marketing."
The company is monitoring the global Covid-19 pandemic for opportunities to safely resume operations, Fain said, adding that the company is watching the situation in Germany, where rival Carnival Corp. plans to resume some operations in September, and is also closely watching the situation in Italy. Fain added that the company is hopeful about the Australian and Chinese market as well as different countries respond to the virus.
Michael Bayley, CEO of subsidiary Royal Caribbean International, told analysts on the conference call that the company may resume operations in China or Australia before the end of October, "but it's uncertain, and I'm not making any statements that that's going to happen, but there's some possibility."
Royal and rival Norwegian Cruise Line established the "Healthy to Sail Alliance," to help them win regulatory approval to sail again. The group, is co-chaired by former Food and Drug Administration Commissioner Dr. Scott Gottlieb and former Utah Gov. Mike Leavitt, who served as secretary of Health and Human Services under former President George W. Bush. Fain said the panel is working on a proposal to present to governments to win approval to resume sailing.
Fain and Liberty stressed, however, that the company has a strong balance sheet and plenty of liquidity to weather a potentially prolonged low- or no-revenue situation. Fain said the past few months have been "very painful," but the company raised fresh liquidity quickly and aggressively early in the crisis. The company ended the quarter with about $4.1 billion in liquidity, having raised about $6.5 billion since the crisis began, Liberty said on the conference call.
The company expects to burn between $250 million and $290 million in cash per month, but that excludes refunds of customer deposits, scheduled debt maturity commissions and expected revenue from new bookings, Liberty said. He added that the company is looking for ways to reduce its cash burn.
The company declined to offer guidance for the 2020 fiscal year, citing uncertainty related to the pandemic. Liberty added that the company is evaluating the possibility of selling ships to further its financial position.
"What we have been doing is we have been very clear on what our monthly burn rate is and we're taking steps to constantly improve our liquidity," Fain said on CNBC. "You know the old expression you can never be too rich, too thin or too liquid. And that is what we're trying to be."