Royal Caribbean Group has had its financial outlook upgraded by global credit ratings provider S&P.
The outlook for the global cruise operator was revised to ‘stable’ from ‘negative’ on the back of encouraging booking levels.
The parent company of Royal Caribbean International, Celebrity Cruises and Silversea announced a “record-breaking” wave booking period with higher prices driven by strong demand earlier this week.
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Chief executive Jason Liberty said: “Leisure travel strength continues as consumer spend is shifting towards experiences, with cruising remaining an attractive value proposition.
“The quality demand trends further exhibit the strength of our brands and the growing propensity to cruise.”
The upbeat update triggered the positive response from S&P Global Ratings.
It said: “Royal’s 2023 booked position provides sufficient revenue visibility to stabilise the rating outlook and should support significant improvement in credit measures this year.
“Royal reported on its recent earnings call that its bookings are well within historical ranges and at record prices, despite a 14% increase in capacity from 2019.
Booking window
“Additionally, the company’s booking window has moved back toward pre-pandemic levels, which contributes to the company’s record-breaking ‘wave’ season – the period early in the year when cruise operators typically enjoy significant booking activity for 2023 vacations.
“Furthermore, the company continues to exceed pre-pandemic onboard revenue, and pre-cruise purchases for onboard experiences (which provide some visibility into future onboard revenue) exceed prior years because of a combination of higher participation in pre-booking from customers and higher pricing for these products and services.
“North America sailings, about 70% of 2023 capacity, are booked in line with record 2019 levels for the full year and are ahead for the second through fourth quarters.
“Bookings for European itineraries, 17% of 2023 capacity, have been accelerating during wave season and are now higher than in 2019.
“The company’s current booked position and pricing provide increased revenue visibility and should support occupancy recovering to historical levels by late spring.
“Combined, this should result in significant revenue and ebitda [earnings] growth compared to 2022 (and higher revenue and ebitda than 2019).”
Risks
However, S&P cautioned that increasing macroeconomic risks, inflation, and high fuel costs could impair Royal’s cash flow recovery compared to current assumptions.
“Rising prices and interest rates will likely eat away at household purchasing power in 2023,” S&P added.
“As a result, we now expect the US economy to fall into a shallow and short recession over the next 12 months. While our baseline now includes a recession, we can’t rule out chances of a harder landing if the US Federal Reserve tightens further through 2023 to quell inflation.
“Although the shift in spending to experiences from goods may continue for a while longer, weakening macroeconomic conditions and lower accumulated savings could eventually cause consumers to pull back on travel spending.
“In a recession, cruise operators typically lower prices to fill ships. This could slow cash flow recovery and leverage improvement following years of very depressed cash flow and extraordinarily high leverage, especially if fuel and other costs remain elevated because of geopolitical events and inflation.”
It also indicated that fuel costs will be “much higher” than before the pandemic, despite Royal hedging 55% of its forecast consumption.
“Despite these risks, the currently wider-than-usual gap between the price of a cruise vacation and the price of a land-based vacation may alter the typical industry discounting dynamics during a recession,” S&P said.
“Additionally, an elongating booking curve that Royal has indicated is largely back to pre-pandemic levels and a strong wave season in early 2023 following the elimination of many Covid-19 restrictions provides good visibility into the company’s revenue and cash flow recovery in the strong summer season. This is because significant spikes in cancellations during typical recessions are unusual.”
Newly-created position
Meanwhile, the group has appointed Palle Laursen in the newly-created position of executive vice president, head of marine, from May 1.
He will oversee all marine operations across the company’s entire fleet, as well as strategic oversight of marine operations of its Tui Cruises and Hapag-Lloyd Cruises 50% joint-venture.
Laursen was most recently chief fleet and technical officer at A P Moller–Maersk, responsible for its entire fleet of more than 750 container ships, 400 chartered vessels and 350 owned vessels.
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