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Royal Caribbean (RCL) Benefits from Improvement in Bookings

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The cruise industry, which bore the brunt of the pandemic, is gradually coming out of the woods.  Quite obviously, Royal Caribbean Cruises Ltd. (RCL - Free Report) has been seeing signs of recovery too. The company has been witnessing improvement in bookings. However, high costs and coronavirus woes persist. Let’s delve deeper.

Key Growth Drivers

Royal Caribbean resumed operations in limited capacity and started receiving positive reviews from customers sailing with the company. Going forward, the reviews are likely to boost its reputation with regard to operations under the COVID-19 environment. In June, the company resumed sailing from the United States with its state-of-the-art, luxury ship — Celebrity Edge. This was the first cruise to sail from an U.S. port after suspension of services for more than a year due to the pandemic.

The company announced that following the resumption of Celebrity Edge cruising, it is now planning to restart sailing of eight of the 14 ships within the Celebrity Cruises in 2021 from the Caribbean to Europe, Alaska and the Galapagos.

The pandemic has significantly impacted bookings for 2021. However, booking volumes have improved. During second-quarter 2021, the company received nearly 50% more bookings compared to first-quarter 2021. The trend continues to improve every month. It informed that bookings are robust especially for 2022.

Despite the coronavirus pandemic, Royal Caribbean continues to add new cruises. During first-quarter 2021, the company added Odyssey of the Seas to its fleet. Meanwhile, the company announced that it anticipates adding Silver Dawn to the Silversea fleet during fourth-quarter 2021. Moving into 2022, the company has two ships scheduled for delivery namely — Wonder of the Seas and Celebrity Beyond.

So far this year, the company’s shares have gained 17.4%, compared with the industry’s rally of 16.4%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Concerns

The company anticipates reporting net loss on both GAAP and adjusted basis for the third quarter and fiscal 2021. The company expects depreciation and amortization expenses in the range of $320 million to $325 million for third-quarter 2021. Net interest expenses for the third quarter are expected to be $265-$270 million. Meanwhile, capital expenditures for the remainder of 2021 are anticipated to be $900 million.

The company is shifting its deployment toward Asia, Australia and certain areas of Europe to curtail capacity in areas with geopolitical risks. The changes related to the international distribution system and a shift in deployment for strategic purposes are likely to improve yields. However, it will escalate costs. Higher-than-anticipated load factors, timing and investment in revenue-generating activities are further adding to the company’s costs. Costs are likely to increase due the suspension of operations. In second-quarter 2021, the average monthly cash burn was roughly $330 million.

Royal Caribbean currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Picks

Some better-ranked stocks worth considering in the same space include Allied Esports Entertainment Inc. (AESE - Free Report) , Cedar Fair, L.P. (FUN - Free Report) and Madison Square Garden Entertainment Corp. (MSGE - Free Report) , each carrying a Zacks Rank #2 (Buy).

Shares of Allied Esports Entertainment have gained 36.2% in the past year.

Cedar Fair earnings in 2021 is expected to witness growth of 85.2%.

Madison Square Garden Entertainment earnings in fiscal 2022 is expected to witness growth of 107.4%.

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