Royal Caribbean Group (RCL) — Q1 2020 Earnings Call Transcript

Thank you, operator. Good morning, everyone, and thank you for joining us today for our business update and first quarter earnings call. Joining me virtually from their home offices are Richard Fain, our Chairman and Chief Executive Officer; Michael Bayley, President and CEO of Royal Caribbean International; and Carola Mengolini, our Vice President of Investor Relations. During this call, we will be referring to a few slides, which have been posted on our Investors website www.rclinvestor.com. Before we get started, I would like to refer you to our notice about forward-looking statements, which is on our first slide. During this call, we will be making comments that are forward-looking. These statements do not guarantee future performance and do involve risks and uncertainties. Examples are described in our SEC filings and other disclosures. Please note that we do not undertake to update the information in our filings as circumstances change. Also, we will be discussing certain non-GAAP financial measures, which are adjusted as defined and a reconciliation of all non-GAAP historical items can be found on our website. Unless we state otherwise, all metrics are on a constant currency adjusted basis. Richard will begin the call by providing a strategic overview of the business. I will then follow with an update on our liquidity acquisitions we have taken to-date. I will then provide an update on the booking environment and then I will provide a recap of our first quarter results. We will then open up the call for your questions. Richard?

Thanks Jason and good morning everyone. I hope that everybody on this call is safe and healthy. These are troubled times, and we all need to take care of ourselves, as well as remembering the first responders and others who are working so hard to protect our communities. Obviously, our industry and our Company are undergoing unprecedented challenges, and we are having to quickly adapt to this new and evolving environment. But, our priorities are clear, we will work to protect the safety of our guests and crew, we will proactively enhance our liquidity, we will protect the Company's brands and our travel partners, and we will define and prepare for a new normal. In the two months since we suspended operations, we've been working tirelessly to safely repatriate our guests and crew members to their homes. Our crew come from more than 100 countries around the world with widely different safety protocols and travel restrictions. This has turned what should be a simple task into a monumental one. It's really hard to convey the complexity of the process to somebody who's used to making simple travel arrangements. But, our teams are working around the clock with the multitude of governing bodies to repatriate our crews as soon as possible. We've even gone to the extent of using our ships as transport vessels and currently have nine ships carrying more than 10,000 crew members back to their home countries. It's a complex and expensive way to do it, but it's the most reliable way to get these men and women home to their families as quickly as possible. And therefore, we've undertaken to do it this way. We've also implemented actions to provide guests with some flexibility and peace of mind as they look forward to resuming their travel. To this end, we have implemented the Cruise with Confidence program, where guests have the flexibility to cancel their cruises up to 48 hours prior to sailing and receive a full credit on the cruise fare for future cruises. We recently enhanced this program with our Lift and Shift program or Lift and Shift option, which gives our guests even more comfort for the time ahead. We're delighted to say that these programs have been very well received as they benefit both our guests and our liquidity profile. In a few moments, Jason will provide more details regarding our results during the first quarter, and the proactive steps that we've been taking to address the current environment, with a focus on cost reductions and on liquidity. First though, I'd like to talk about the future and the steps that we're taking to address that future. It's useful to reflect on how quickly our world has changed, and how quickly our understanding of this awful disease has evolved. It's amazing to think, it's only been two months since we suspended operations. When I think back to how little we understood then about this disease, it's remarkable. Over the period, the pace of new information and understanding has been astounding. Things that we were told were right one week, became unthinkable barely a week later. The flow of information has been so fast, it's been hard to assimilate. Fortunately, our level of understanding and that of governments around the world is beginning to stabilize or at least seems to be. We're all beginning to understand the dos and don’ts, and the tight structures are beginning to loosen. It's still very early days, but these are auspicious signs. Obviously, the most immediate question that you would all like to know is when cruising will restart. And we'd like to know it too. The world is clearly embarking on a program of gradually opening up. That process is just beginning and it varies widely between geographical areas. It's also highly dependent on many different factors, including the availability of testing, contact tracing, therapeutics, and ultimately vaccines. While it's very difficult to have any certainty around the timing or shape of recovery, we do intend to make sure that we are prepared for it, and for the changes it will entail. To this end, we are focused on all aspects of our Safe Return to Service strategy with special emphasis on safety, security and health. We know that the public expects that we will elevate our health and safety protocols to a new level. We are prepared to make sure that we meet and exceed those expectations. We're trying to use this time wisely. We have been and are working on ways to up our game in this field to ensure that we use our ingenuity, our passion, and our innovation to raise the bar to new heights. We are calling our aspirational program the Healthy Return to Service program. The program will have four main focuses, upgraded screening prior to boarding, enhanced processes and procedures onboard, special focus on addressing the destinations we visit, and procedures for dealing with any reports of exceptions. We recognize that this is an extremely complex area, and we have assembled a blue ribbon team of experts to advise us on the right approach. Our goal is to raise our standards to entirely new levels. And we believe that the Healthy Return to Service program will help us get there. We have the time, we have the determination and we have the expertise. It is tempting to start talking now about all the individual components of how things will change. However, we're still defining all those enhancements, and we're still taking guidance from our expert advisors. And this process will continue in keeping with our mantra of continuous improvement. We're better prepared today than we were yesterday, and we will be better yet prepared tomorrow. But, the one thing that won't change is our determination that we will not start operations until we are fully ready to do so with all the hygiene and other health protocols solidly in place. Besides addressing the scientific aspects of all things related to COVID-19, we also need to restore the confidence of many by being transparent in our actions and communicating extensively. We will not rush this work, but it is not an exaggeration to say that we're working on it around the clock. The other area I'd like to briefly discuss is our longer term strategy. The reputation of our brands, the strong relationships with our travel agent partners, our great customer base, and our innovative and agile culture should all serve as an advantage when this crisis is over. Just a few weeks ago, we were set to enjoy the best year in our Company's history, fueled by a huge demand for our products. That has not suddenly vanished. We know that the basic human desire to explore and to travel will persist with the continued focus on seeking out experiences as opposed to things. Our responsibility is to be in the best position possible when travel resumes. I’d really like to draw an analogy to 9/11, which I think is quite apropos. I recall that in the aftermath of that horrible event, lots of people said that travel and tourism were history; people would never travel again, especially on airplanes. On the other hand, soon after I heard people refer to the exact same situation and say that ultimately 9/11 had no impact on traffic. These people argued that people were traveling more and they were traveling as though 9/11 never happened. My view is that both comments are simply wrong. It is demonstrably untrue that people stopped traveling as a result of 9/11. In fact, after a period of adjustment, travel took off. Sorry for the pun. On the other hand, it equally isn't true that after the period of adjustment, travel reverted to the status quo ante. In fact, travel became very different from pre-9/11. What happened was that we adjusted, and all travel that took place in a post-9/11 world was really quite different from travel previously. It's hard to remember that dynamic took place. Travel didn't simply revert to what it had been, rather travel adjusted to the new normal, and it grew on that basis. I believe personally that the same thing is going to happen in a post-COVID-19 world. Travel and tourism will grow, but not by reverting to what it was, but by adjusting to a world where all activities, everything we do in the world will have changed. Our industry is resilient and we will come back strong. We'll do so not by mimicking what we used to do but by innovating our product to meet the exciting demands of the world as it is. We've been proactive in taking the steps to reduce our costs, to manage cash flow and to secure liquidity to weather the storm. And Jason is going to talk about that in a minute. We're also actively focused on positioning our brands to emerge in a strong position as guests resume their travel over the coming months and beyond. With that, I'll turn the microphone back to Jason. Jason?

Thank you, Richard. So, I’d first like to thank our teams across the whole enterprise for their dedication and tireless efforts during these unprecedented times. During the past two months since our pausing of operations, we have intensely focused our efforts on preserving cash and enhancing our liquidity profile. To keep investors and stakeholders up to date, we have provided several updates which detail our efforts through press releases and 8-Ks. Since our last earnings call, we have focused on reducing our operating expenses, also reducing or deferring our capital expenditures, improving our debt maturity profile, and securing additional capital. We have significantly reduced our running expenses as the ships transition into various levels of layups. We have eliminated or significantly reduced marketing and selling expenses during our out of service period. And we have taken painful, but swift actions to reduce G&A by reducing our teams or furloughing employees. As it pertains to our capital expenditures, our teams have done an exceptional job by reducing or deferring our 2020 capital needs by more than 65%. Our updated capital expenditures for 2020 are now approximately $1.7 billion with only $500 million that remains to be spent for the balance of the year. Now shifting to our debt maturities. We have been able to obtain a 12-month debt amortization holiday for most of our vessels' payments, bringing our debt maturities down to $400 million for the remainder of 2020. And lastly, we've been very active in the capital markets, raising almost $4 billion in additional liquidity since our last call. Overall, we estimate our cash burn to be in the range of $250 million to $275 million per month during a prolonged suspension of operations. This range includes ongoing ship operating expenses, administrative expenses, debt service, hedging costs, and expected necessary CapEx. It excludes refunds of customer deposits, as well as cash inflows from new and existing bookings. More than 60% of this cash burn is related to operating expenses, which we expect to reduce further on to a more prolonged out of service scenario. Through all these measures, we have been able to improve the Company's liquidity profile by approximately $12 billion for 2020 and 2021 combined. Having said this, we continue to explore other opportunities to improve our liquidity profile, given the magnitude and uncertain duration of the COVID-19 impact. I would now update you on the business outlook, as I know this is top of mind for many. We began the year in a strong booked position and experienced a record-breaking start to the Wave period, which resulted in a nice yield growth for January and February sales. Then, everything changed as COVID-19 spread beyond Asia and became a global pandemic. On March 13th, we announced that for the first time in our history, we would suspend cruise operations for 30 days. Since then, we have extended the suspension further. And in total, we have canceled 621 voyages and reduced our capacity for the year by approximately 25%. From a demand standpoint, our bookings started to deteriorate in mid-February and then fell to levels that were materially lower than the prior years on the onset of the global cruise suspension in mid-March. At the same time, near-term cancellations increased substantially while cancellations for 2021 remained at more typical levels. While bookings still remain suppressed, they are better now than they were in mid-April, driven by improved trends for the fourth quarter of 2020 and 2021 sales. For the remainder of 2020, we are booked well behind the same time last year in load factor with prices down low single digits. It is still very early in the booking cycle for 2021. But at this point, load factors are below the same time last year but are within historical ranges. Prices for 2021 booked business are currently up in the mid-single-digit range. Our current booking trends indicate that there is demand for cruising. However, our guests now require more flexibility than ever. And to provide that flexibility, we have introduced the Cruising with Confidence program. Also, we have provided guests who are booked on suspended sailings, with the option of a 125% future cruise certificate in lieu of a cash refund. To date, approximately 45% of the guests who are booked on one of these voyages have requested a refund and the remainder are holding an FCC. Approximately 20% of the guests who have been issued FCC have already rebooked on future voyages. Most rebooked on similar itineraries and many are actually using the 125% value to upgrade to a higher saving category. As you may expect, our loyalty guests are redeeming their FCCs at a much faster pace than non-loyalty guests. I will now shift the focus to our results for the first quarter of 2020. These results are summarized on slide 2. This quarter was really a tale of two quarters. During the first six weeks of the year, booking trends were strong across all our major geographies except for Asia, with North American based sailings trending particularly well. While we were extremely pleased with booking trends for most itineraries, we were particularly impressed with the prices we were achieving for sailings visiting Perfect Day at CocoCay, particularly those on our modernized ships. Even though we started canceling sailings in Asia at the end of January, we were still booked at a strong load factor in prices and we're poised for another strong year of yield growth. On March 13th, we suspended our global operations. This precision combined with earlier cancellations in Asia resulted in the cancellation of 130 sailings during the first quarter, a reduction in capacity of approximately 20% versus guidance. The impact of COVID-19 also led to the recording of a $1.1 billion non-cash asset impairment charge. As a result, we recorded a net loss on a U.S. GAAP basis of $1.4 billion or $6.91 per share, and adjusted net loss of $310 million or negative $1.48 per share. The loss for the quarter was driven entirely by the COVID-19 impact. The timing and trajectory of a recovery remains uncertain, so we are unable to provide further guidance for the year. However, the Company does expect to incur a net loss on both a GAAP and adjusted basis for the second quarter and the 2020 fiscal year. The magnitude of the loss will depend on the timing and extent of our Return to Service. As I mentioned at the beginning of my remarks, these are extraordinary times. We have made solid progress in mitigating the impact of COVID-19 on our business and are prepared for the wide range of scenarios that could play out. We feel confident that we will come through this successfully and can't wait to start delivering amazing vacations again. With that, I will ask the operator to open up the call for a question-and-answer session.

Yes. Hi. Good morning, guys. Thanks for all the details. That was very helpful. So, Jason, it's pretty clear that you guys are in a pretty good liquidity position right now. But, I guess, if you remain in a zero revenue environment for an extended period of time, can you help us think about what other options you have down the road to further increase liquidity? I mean, we've seen your competitors go down the highly dilutive convert and equity path, and just wondering what your appetite is for something like that.

Sure, Steve. Thanks for the comments. So, yesterday, we closed on our bond that we launched last week. We were really happy with the additional liquidity we were able to gain by raising that money. But the other thing that we're really happy about is that by raising that bond it really provided a lot of flexibility for us to raise additional capital, especially debt. So, there's a pretty significant basket and flexibility on our ability to raise additional debt. And I would also add that we believe that our Return to Service plans, as we consider them, that we have adequate liquidity. But, if those circumstances change, and depending on how things play out, we would certainly need to consider all alternatives that would be available to us.

But to add on to that, the equity/convert would be your last option that you would want to do?

I would say that we are very sensitive to dilution. But, overall I think that we purposely made sure we had maximum flexibility on the debt side.

Okay, great. And then, second question would be around, how do you see the Return to Service for your ships around the rest of the world? It seems like, everybody right now is so focused on the CDC and what they're telling you to do here in the U.S. But given your strong position in China and your JV with TUI, couldn't you guys start operations around the rest of the world sooner than here in the U.S.? And I guess if that answer is yes, do you fear there could be some potential negative pushback from the CDC or the U.S. government?

Hi. Steve, it's Michael. Interestingly, yesterday I was on the CLIA European Executive Committee call where we had an extensive update from all of the national directors in the various European countries. And I would say that from the feedback from that call yesterday, and then the discussion we've had with our China team in Shanghai, is very different story by region and by country. And I think, it's highly likely that either the Asian markets in China for example, or the European region could come back earlier, because of course, they went through this experience earlier, and that's particularly true of China. So, we're very aware of these different landscapes. And I think we're also relatively pleased to have this global infrastructure that we can leverage to utilize that opportunity if it does materialize. I think, with your comments about the CDC, obviously, we are highly focused on ensuring, as Richard started this whole call, with ensuring the safety and a Healthy Return to Service. So, however, we return to service, we're only going to return to service regardless of regional market, when we believe that we have a Healthy Return to Service plan that is deemed as the right way forward. And our guests will be comforted by that plan. So, it's interesting. I think we will see different markets come back at a different pace. And I think our global infrastructure and the strength of our brands is really going to power us through those opportunities.

Jason, just getting back to the liquidity question. It seems like so many companies across different sectors, not just cruise are assessing the market as much as they can, given that the window is open now. So, some may view your decision to wait as risky. So, I'm just wondering, should we read into the fact that you haven't secured any incremental liquidity on top of what you've already done that you feel more optimistic than others regarding the recovery? And then, also, can you just help us understand how you're thinking about your rollup? You're mentioning that you did mention that you're starting to see demand for the fourth quarter. So, just wondering how we should think about the amount of capacity that you'll roll out as the industry opens.

Yes. So, I'll take the first one. I think, the way that you would read it is, I don't think we're overly optimistic. I think we are looking at the reality of the situation. And when we kind of evaluate our different Return to Service plans and different scenarios; that was the emphasis for us on raising the capital all that we did this past week. So, again, I think we have to see how things play out. And I think that we have a lot of good quality brands, quality assets. And I think that we would evaluate the markets if we see circumstances change outside of the different scenarios that we're evaluating. So, I won’t read into it at all that we're optimistic. I think, I would read into it that we think we've taken the actions on the capital raising side based off of what we currently think. And we also think that there's more opportunity for us to do, on the cost and capital side to further reduce our burn rate.

And, Felicia, this is Richard. I'll comment on the process of returning to service. We don't expect that one day someone will signal and all ships will start operating immediately. Instead, we anticipate a gradual start, similar to how societies are reopening. We imagine starting with fewer ships and a focus on drive markets at first, then evolving and expanding from there. Additionally, there are differences in what's happening in various countries and local societies, affecting where the ships are and their routes. Therefore, you should expect a high degree of variability depending on the region. To answer your second question, we see this as a slow and gradual process, not a sudden influx of ships entering the market.

Thanks. Jason, I want to follow up on your previous response. You mentioned in several of your filings that you are looking at ways to reduce cash burn related to costs and capital. I’m curious if one of those options includes increasing the number of cold layups in your fleet. It seems from your filings that you have a significantly higher number of vessels in warm layups compared to your competitors.

That's one avenue. I mean, our teams have done an exceptional job of really reducing the operating costs while the ships are not operating. And there is opportunity to move some of them into a cooler type of layup. But, I think even if you look at our layup costs on a per berth basis, we've found creative ways to have the ships in a maybe of a warmer layup, with really the cost differential being very small. So, that's one of I think many levers under evaluation to further reduce the burn rate.

Okay. Thank you.

Thanks, Felicia.

Good morning. Thanks for taking my call. So, I have a difficult question, but I think it's a fair one. I wanted to ask about that, the fourth component that you delineated with your Healthy Return to Service program. Specifically, what happens in the unfortunate event where somebody actually contracts the virus on board? Obviously, there's a lot that's going to go into preventing that from happen. But as potential customers are thinking about how that would go. I guess A, how do you ensure that you don't end up in an outbreak scenario? And then B, how do you ensure that the ship doesn't ultimately get stranded? I think that was one of the striking parts of what we saw over March and early April where ships that just had no home and of course weren't allowing them to return. So, how do you give consumers the comfort that they're not going to be in one of those scenarios as you reopen, but there is ultimately no vaccine?

Yes. I believe we're considering all four situations you've mentioned, and the fourth is certainly significant. We feel it's too early to make any announcements. We are collaborating with various experts on this topic and are very aware of the concerns. It's still premature for us to discuss our thoughts on any of the four scenarios because our understanding is evolving, along with our knowledge about the virus and our options for managing it. Before we can announce anything, we must address this issue directly. Additionally, it's crucial to approach this matter appropriately and be transparent about how it will function. As we work towards a safe and healthy return to service, we will provide more details on this.

Okay, fair enough. And then, I won’t ask the next question I was going to ask. But maybe, can you help us, as we think about you've got customer outflows in the form of refunds and inflows in the form of deposits. Can you maybe help us size the latter in any way you deem appropriate? And maybe any idea when you think the two will essentially balance each other out? I'm assuming that at this point it’s a net cash outflow to customers, but when do you think that might even up?

So, the first way that I would frame it is there's a difference between sailings that you’re canceling, which obviously we talked about, that about 45% of our guests asked for their cash back. And then, the kind of ebbs and flows of customers that are booking further out in terms of path to canceled sailings. So obviously, the ones when we cancel sailings, there's a lot of outflow that occurs for those 45% more or less that we've been seeing. But, when you look at into Q4, you look out into next year, you look at that kind of period of time. You do see more inflow than you see outflow occurring when you look at kind of Q4 and beyond. And it's really where you see most of the outflow occurring is when you're canceling sailings and the guest is considering whether or not they're going to hold on to an FCC or get reimbursed. And I think, as we get to the point where we're not canceling sailings, that's where I think you begin to see that that inflection point, and also as you begin to focus to customer more and more on booking into 2021.

Okay. So, but just to clarify, you think that as we get into maybe July-August timeframe, when ships are resuming, you think those two could potentially offset one another?

Well, I think once you get to where you’re back up and operating, I think you will see cancellations move to much more of a typical level, which obviously, especially when you're canceling sailings are going to be elevated. And of course, when everybody's been in the stay-at-home order, you would expect it to be elevated. But yes, when you look at 2021 as an example, cancellation rates are at very typical levels. The other point I would add is, our Cruise of Confidence programs and so forth, have really been very well accepted by the trade and by our guests. And as I made in my comments, our loyalty guests have really just been absolutely incredible in their support. And you can really see their love of cruising as they begin to want to focus further out.

Yes. And James, it's Michael. I'd like to add a little bit of color to Jason's comments. I think, we've really seen surprising demand from our loyalty members. And remember, we've got close to 20 million loyalty members. And their response to various promotions that we put into the market, just to understand what the demand looks like, has been surprisingly positive. So, as we move into Q4 and into 2021, we've been honestly surprised in terms of the demand that we've seen coming in, particularly from the loyalty guests.

This is Karen calling in for Tim. Jason, just first question, following your latest round of fundraising, could you just maybe quantify or remind us what is your remaining unencumbered assets including bulk vessels and maybe other assets as well?

Good morning, Karen. You sound better than Tim. We've encumbered about $12 billion of our balance sheet, leaving a portion of unencumbered assets. While not all of those assets would be available for something like an OpCo structure, a significant percentage could be accessed if we decide to raise extra liquidity through debt.

And given your latest pricing on the debt that was issued, is there any reason or circumstance that you would, at this point, call your 7.25 Silversea line?

Well, I think at this point cash is king. And of course, if we were to raise additional debt, it might be at this point in time, that would be at a higher rate than the Silversea. So, I don't think at this point we have any specific plans. But, we are evaluating all different alternatives to scrap our capital structure.

Okay. And lastly, could you clarify your booking commentary? Can you define what historical means for you? When you mentioned that pricing for 2021 is up mid-single-digits, is that in relation to 2020, and how does it compare to historical figures or 2019?

What I would say is that typical levels, when looking back over the past several years, are lower than our 2019 levels, but not much lower than what we've experienced in the last three to five years in terms of average. On the rate side, our rates are currently at mid-single digits compared to 2020, and I expect that number will fluctuate based on load factors for next year and will also depend on how our guests continue to use the FCCs, which may have a slight impact on that rate. Overall, we are seeing strong demand for 2021, volumes are at typical levels, and rates have increased slightly. These trends support that notion. As I mentioned earlier, over the past four weeks, we have observed even better demand trends for the latter half of this year and into 2021.

Okay. I'm sorry. One more follow-up to that. Would you say that in the last four weeks there will be new bookings or that re-bookings of those canceled sailings?

Yes. I would say it's much more new bookings. On the FCCs that we have out there, about 20% of them have been applied, but it's a very small percentage of the forward booking period. So, our commentary about the booking environment really relates to new bookings.

Hi. Good morning. I have just one quick question. I'm curious if you'd help us parse out how the resilience of FCCs are looking across the income demographics. I think Lindblad had said that more of their customers were taking credits and were better booked. And I'm curious if you're seeing similar trends at Silversea versus Royal Caribbean or RCI, if you're willing to break that out. Thanks.

Overall, we have been quite pleased with the numbers of guests using the future cruise credits and the level of utilization. This usage tends to be higher among our loyalty members. However, younger cruisers, particularly millennials, tend to prioritize cash back, while families and baby boomers are more inclined to use the future cruise credits.

Good morning, everyone. Thanks for taking my question. Quickly for Jason. Just wondering, for the system at large, what do you guys see you needing to do in terms of how many ships you need to have sailing to reach breakeven on Company EBITDA? And what does that assume for load factor?

It's quite difficult to provide a specific answer due to the changing nature of the situation. However, for our newer ships, approximately a 30% load factor is necessary to break even on an EBITDA basis, while older ships typically require about a 50% load factor. If you’re looking to model this, you should consider it in that light. We've made significant efforts to adjust our costs and reduce our capital expenditures, so when we resume operations, it's not essential for the entire fleet to operate at full capacity to break even. Additionally, high load factors aren't a strict requirement. I believe that with a gradual return to service, we can reach breakeven EBITDA in a relatively short timeframe.

Okay. That's helpful. Thank you. And then, I was curious what your thoughts were on the industry's appetite to scrap ships here and then yourselves specifically as well, if under certain scenarios where things were suspended for a prolonged period of time.

Yes, I believe there are significant opportunities regarding capacity. You will likely see ships being retired at a faster rate than in the past, as there hasn’t been much scrapping lately. The combination of the impacts from COVID and the IMO regulations will lead to increased interest in older vessels for potential sale. Additionally, new building programs for us and likely for the industry will slow down. This slowdown is due to shipyards not fully operating yet and only now starting to consider resuming operations. The supply chain has been affected, which means it will take time to recover. As a result, we can expect a lasting shift and delays in new building projects, which will impact overall capacity growth numbers for the foreseeable future. This is particularly true for new builds, as the situation is not a simple matter of catching up; it appears to be a more permanent change.

Thanks for taking the questions. Couple of quick follow-ups. One, can you just confirm what percentage of the fleet is currently receiving bookings for 2021, and whether future cruise credits can still be redeemed for cash? And then, at a bigger picture level, you mentioned access to other forms of liquidity, but how do you think about the right debt level for the Company, both near-term to ensure you still invest appropriately in recovery, but then also longer term based on the experience that you've had in this environment?

I will address the second question briefly. Our main objective has always been to achieve an investment grade credit rating. Therefore, when we assess additional sources of capital, we consider leverage and the associated negative carry, while also determining how to return to our investment grade metrics as quickly as possible as part of our return to service. Stephen, could you please repeat the first question?

Sorry about that. We had a little bit of an intruder there. But, can you just confirm what percentage of the fleet is currently getting bookings on for 2021 and whether future cruise credits can still be redeemed for cash?

Currently, we have two programs in place. One is Cruise with Confidence, which we launched to provide significant flexibility for both existing customers and those considering sailing. The key feature of Cruise with Confidence is that even if penalties apply and full payment is made, you can cancel your sailing within 48 hours of departure and receive a future cruise credit for 100% of the value, which can be used until early 2022. This future cruise credit is popular because there is no cash refund option available with Cruise with Confidence; it simply allows you to move your booking when you're ready to sail. The other option for future cruise credit arises when we suspend our sailings, giving guests two choices: a cash refund or a future cruise credit for 125%. As mentioned, around 45% of our customers choose the cash refund while 55% opt for the future cruise credit for use on a future sailing. Additionally, we introduced something called lift and shift, which enables guests to easily transfer their booking to a future date of their choice. I hope I answered your question.

And just add on to it. Currently, our entire fleet and brands are available for sale for 2021.

I wanted to get a sense of maybe, if that operating expense or burn rate you talked about, the $150 million to $170 million I think is what you've said before. Because you mentioned your ships are maybe in sort of various stages of layup. So, just wondering, how much that 150 to 170 in operating expense per month could come down, when you have everything laid up as much as you expect to be?

I wish I could provide a specific number because it depends on various factors, including costs and crew movement. However, there is definitely potential in the range of 150 to 175 million. Typically, when we lay up a ship in a cold state, the cost is between 1 million and 1.5 million per month, while a warm layup costs between 2 million and 2.5 million per month. So, there is an opportunity to transition more ships to a cooler layup. It's also important to consider that when we bring them back, the cooler they are, the higher the costs to transition from a cool layup to an operational state. We need to be strategic about the Return to Service plan and prioritize which ships come back first. As Richard mentioned, it’s not an immediate switch but rather a gradual process as we reintegrate the fleet. There is definitely potential here, and I don't expect it to be at zero, but it could certainly exceed the 150 million.

And then, just kind of clarification, you talked about the number taking cash. And you noted in the release was as of April 30th. I'm just wondering, if in the last three weeks, you’ve seen an increasing rate of that or not, only because another cruise line has talked about an increasing rate of people taking the future cruise credit. So, I'm wondering if you're saying the same thing. Thanks.

Overall, we are seeing an average of about 45%. There has been a slight increase in the rate at which guests are opting for cash instead of future cruise credits compared to previous experiences. This trend is largely influenced by the mix of guests; as we attract more international customers, we notice that guests from different regions tend to prefer cash over future cruise credits, which contrasts with the patterns we have observed in markets like North America.

Thanks, Robin.

Hi. Good morning. Thanks for all the color this morning. I guess, one thing that would be helpful to understand is kind of your ability to scale the costs on the ships, as you resume operations. So typically, we thought of the ships as fairly fixed cost. And I don't know what your ability is to scale labor to initial loads or how would you think about that going forward?

In current states like this, we have much more variability opportunity on your costs. And that's because, as you know what your load factors are going to be or you think they're going to be, then you're able to bring the crew on and off the ship in a more flexible manner, which is where a lot of your fixed costs are. So, I think that we see more variability than what we have historically seen as our ships return to service. And a lot of that will be also deployment based.

And Jason, I might have missed this. But, did you indicate any kind of range as to what initial load might look like?

We have not. You did not miss it, Sharon.

Would you like to give us any kind of estimate there?

I would not. I think a lot of it will depend on the conversations we're having with various regulators and the CDC. That will help shape our thoughts around load factors.

Good morning. Thank you for taking my question. Given that all Carnival brands have extended their pause of operations for a longer period than expected, and considering that Norwegian also extended theirs a few hours ago, are you contemplating canceling additional voyages? June 12 is approaching quickly and may be too soon. Have I missed any announcement regarding a further extension?

Hi. Assia, it's Michael. Interestingly our plan is this afternoon we will be enhancing further suspension of voyages until the end of July, until July 31. The only exception to the suspension will be China operations.

Thank you, Michael. That makes a lot of sense. And separately on the logistics front. It seems that ports allowing whether embarkation, disembarkation ports or ports that you visit, allowing ships to enter their communities might be a big hurdle. Is that something that plays into the thinking as to which itineraries would open up outside of Asia?

Yes, it's a great point. Interestingly, we are already in conversation with over 30 different ports and destinations worldwide regarding plans and the return to service. It's surprising how many ports and destinations are eager to return to service and open. In fact, we receive many inquiries about when we will bring our ships there. We are engaged in those discussions, which require extensive planning as they need to be part of our Healthy Return to Service strategy. One thing that is fairly true is that, for example, in the American market, there are technical difficulties.

I think I lost track of what you were saying. However, I believe you indicated that Perfect Day would be ready to reopen much sooner, which makes perfect sense. It seems to me that since you spoke with the CLIA members and representatives from European Nations recently, places in the Caribbean might be more eager to reopen compared to European ports, even though Europe seems to be further along in the process. Is that a reasonable observation?

I don't think you can generalize one over the other. It's a mixed story. In many ways, every region and every country is on its own journey. You could say that China and Asia went through this first, so it makes sense that they are emerging from it first. The same applies to Europe, and now we see this happening in the U.S. and the Caribbean as well. There is a logical relationship between how societies initially dealt with this and how they are approaching recovery.

That makes sense. If I can sneak one last one in here. Jason, you mentioned that the newer larger vessels would get to EBITDA, breakeven at about 30% occupancy, they also provide an opportunity for better social distancing. Does it make more sense to actually go with those vessels first, as opposed to smaller vessels?

Good point, Assia. First, I would say that load factors can be lower due to significant economies of scale. The vessels are extremely fuel efficient, and the cabin category adds considerable value. More broadly, our fleet is in great shape. The newer ships have more public space compared to those from past years and are top candidates for returning to service, along with other ships we've modernized that feature additional venues.

A variety of folks in the travel industry keep mentioning the unprecedented nature of this fall off in demand. So, when you look at your 2021 pricing, it actually sounds quite healthy. Can you compare what you think the industry is doing, what you are doing with pricing for the next 6, 12, or 18 months out relative to kind of what happened in the ‘08, ‘09 timeframe, because it seems like people are kind of holding the line in a stronger manner.

Yes. I'm sorry for all the background. I’m not quite sure what line is open. But…

Yes. I think we should ask the operator, because it's not one of our lines.

Yes. To your point, one of the things we've generally observed is that the efforts we've made toward maintaining price integrity, along with those in the industry, have led to a more cautious approach to pricing actions. We are seeing an increase in packaging and promotional activities, but pricing is remaining relatively stable. Additionally, the likelihood of lower load factors for a time will support that pricing as we move into the early part of next year. Thank you for your assistance today, Sia, and we appreciate everyone's participation and interest in the Company. Carola will be available for any follow-up questions. From our homes, we wish you all a great day and take care. Be safe.