Cruise Stocks Are Sinking–Again–After Royal Caribbean Reveals It’s Raising A $1 Billion Lifeline

Topline

On a sobering day for stocks–in which not even blowout bank earnings could keep markets afloat–shares of America’s three largest cruise lines made up the three worst-performing stocks in the S&P 500, as new filings reveal that the industry havoc wreaked by the coronavirus pandemic is far from over.

Key Facts

In a regulatory filing made public Tuesday, Royal Caribbean said it’s raising $1 billion in two $500 million offerings–one stock and one debt–with the option for underwriters to exercise an additional $75 million purchase in each.

The offerings include $500 million in newly issued debt–to be tacked on to more than $8.5 billion raised since just February–and are meant to fund general corporate purposes, including to help pay back $300 million that’s due this year.

Royal Caribbean stock plummeted 13% on Tuesday, falling the most out of any other stock in the S&P 500, which ended the day down .6%.

Shares of the firm’s two closest competitors, Norwegian and Carnival, also tumbled as a result, falling 8% each, and marking the second- and third-worst performing S&P 500 stocks on Tuesday, respectively.

Royal Caribbean has voluntarily suspended operations of its four global cruise brands until at least November 30, the firm noted.

There was one bright spot in another Tuesday filing: The firm said its bookings for 2021 have continued to improve over the last two months, though they remain below pre-pandemic levels.

Key Background

The cruise industry was among the first to be hit by the coronavirus pandemic, and it’s been reeling ever since. The Centers for Disease Control and Prevention issued a no-sail order for the industry on March 14 that’s still in place until October 31, essentially halting the industry’s main revenue source for nearly nine months–at least. Royal Caribbean said Tuesday it has yet to hear from the CDC as to whether the agency plans to extend the no-sail order again. With more than 6.5 million passengers last year, Royal Caribbean is the second-largest cruise line in the nation, behind Carnival and just ahead of Norwegian. Shares of all three are still down more than 65% this year. 

What To Watch For

Earnings. Royal Caribbean is set to report on October 30, and Norwegian is slated for November 6. With analysts forecasting that more than 99% of revenues will vanish for each, the main focus will be on how efficiently the firms have been able to cut costs and use available cash. On Tuesday, Royal Caribbean said it’s burning cash at a rate of about $250 million per month. When Carnival reported earnings on Friday, it said it’s burning cash at an average monthly rate of $770 million.

Big Number

$4.4 billion. That’s the amount of cost cuts–through mostly decreased spend and deferred payments–that Royal Caribbean said it’s eyeing for 2020 and 2021.

Further Reading

Stocks Fall Despite Bank Earnings Blowout As Lack Of New Stimulus Continues To Weigh On Investor Sentiment (Forbes)

Why A Private Equity Firm Backed By Bernard Arnault Is Putting $400 Million Into Norwegian Cruise Line (Forbes)

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