Analyst Note| Jaime M. Katz, CFA |
No-moat Royal Caribbean posted an adjusted net loss of $1.3 billion in its second quarter, as it digested costs with no related revenue from sailings in the period. The positive news is that costs continue to temper, and adjusting for Silversea’s one-quarter lag, net cruise cost declined nearly 60% sequentially. The demand picture painted implies travelers view the current pandemic as transitory, with bookings doubling the average levels experienced during the first eight weeks of the global cruise suspension. Management noted that more than 60% of the bookings received since mid-May have been new bookings, also indicating reservations taken are not as a result of just canceled sailings and future cruise credit application. Furthermore, the pricing picture remains solid, with 2021’s rate flat when including the pressure of bookings made with future cruise credits. In this vein, we don’t plan to materially alter our $52 fair value estimate, although we could modify the components of our estimate, including higher yield and lower capacity growth (due to shipyard delays) and capital expenditures.