Royal Caribbean Cruises Ltd  (NYSE: RCL) Q1 2020 Earnings Call Transcript

Royal Caribbean Cruises Ltd  (RCL) Q1 2020 earnings call dated May 20, 2020

Corporate Participants:

Jason Liberty — Executive Vice President, Chief Financial Officer

Richard D. Fain — Chairman and Chief Executive Officer

Michael Bayley — President and Chief Executive Officer, Royal Caribbean International

Analysts:

Steven W. Wieczynski — Stifel — Analyst

James Hardiman — Wedbush Securities — Analyst

Felicia Hendrix — Barclays — Analyst

Karen Tan — Wells Fargo Securities — Analyst

Jamie M. Katz — Morningstar — Analyst

Brandt Montour — J.P. Morgan — Analyst

Stephen Grambling — Goldman Sachs — Analyst

Robin Farley — UBS — Analyst

Sharon Zackfia — William Blair & Company — Analyst

Assia Georgieva — Infinity Research — Analyst

Vince Ciepiel — Cleveland Research Company — Analyst

Presentation:

Operator

Good morning. My name is Thea, and I will be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean’s Group Business Update and First Quarter 2020 Earnings Call. [Operator Instructions]

I would now like to introduce Chief Financial Officer, Mr. Jason Liberty. Mr. Liberty, the floor is yours.

Jason Liberty — Executive Vice President, Chief Financial Officer

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 investor 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 filing 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 of our liquidity actions 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?

Richard D. Fain — Chairman and Chief Executive Officer

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 a 100 countries around the world, with widely different safety protocols and travel restrictions. This has turned, which 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 round 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 cruise. We have 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 understating 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 merely 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 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.

And 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 on board, 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 starting 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 advisers. And this process will continue in keeping with our mantra of continuous improvement. We are 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 a 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 recalled 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 travel. 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 the post-9/11 world was really quite different from travel previously. It’s hard to remember that, 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, but we’ll do so not by mimicking what we used to do, but by innovating our product to meeting 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?

Jason Liberty — Executive Vice President, Chief Financial Officer

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 few 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 layup. 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. There’s 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 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 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 onto 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 will now update you on the business outlook, as I know this is top of mind for many. We began the year in a strong book position and experienced a record breaking start to the Wave period, which resulted in a nice yield growth for January and February sailings. 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 prior year on the onset of the global cruise suspension in mid-March. At the same time, near-term cancellations increased substantially, while cancellations for 2021 remain 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 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 same time last year, but are within historical ranges.

Prices for 2021 book 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 has requested a refund and the remainder are holding an FCC. Approximately 20% of the guests who have been issued FCCs have already rebooked on future voyages. Most rebooked on similar itineraries and many are actually using 125% value to upgrade to a higher stateroom category. As you may expect that our loyalty guests are redeeming their FCCs at a much faster pace than non-loyalty guests.

I will now set the focus to our results for the first quarter of 2020. These results are summarized on slide two. 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 13, we suspended our global operations. This decision, combined with earlier cancelations 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 an adjusted net loss of $310 million or $1.48 per share, 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 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.

Questions and Answers:

Operator

[Operator Instruction] The first question will come from Steve Wieczynski with Stifel. Please go ahead.

Steven W. Wieczynski — Stifel — Analyst

Yeah. Hey, good morning, guys. Thanks for all the details. That was very helpful. So Jason, it’s pretty clear that you guys 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 converted equity path. I’m just wondering, what your appetite is for something like that?

Jason Liberty — Executive Vice President, Chief Financial Officer

Sure, Steve. Thanks for the comments. So, yesterday, we closed on our bond that we launched last week. And we were really happy with the additional liquidity we were able to gain by raising that money. But the other thing that we were 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. But — and I would also say 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.

Steven W. Wieczynski — Stifel — Analyst

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

Jason Liberty — Executive Vice President, Chief Financial Officer

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

Steven W. Wieczynski — Stifel — Analyst

Okay, great. And then second question would be around, how do you see a 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 feel there could be some potential negative pushback from the CDC or the U.S. government?

Michael Bayley — President and Chief Executive Officer, Royal Caribbean International

Hi, Steve, it’s Michael. Interestingly, yesterday, I was on the Clear 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, it’s a very different story by region and by country. And I think it’s highly likely that either the Asian markets and 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 that we 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’s deemed as the right way forward and I guess we’ll 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.

Steven W. Wieczynski — Stifel — Analyst

Okay, great. Thanks guys. Really appreciate it.

Operator

The next question will come from Felicia Hendrix with Barclays. Please go ahead.

James Hardiman — Wedbush Securities — Analyst

Hi. Thanks so much and good morning. Jason, just getting back to the liquidity question, it seems like so many companies across different sectors, not just cruise, are accessing the markets 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 roll-up? You’re mentioning that — you did mention that you’re starting to see demand for fourth quarter. So just wondering how we should think about the amount of capacity that you’ll roll out as the industry open?

Jason Liberty — Executive Vice President, Chief Financial Officer

Yeah. So I’ll take the first one. I think the way that you would read it is I don’t think we are overly optimistic. I think we were being — looking at the reality of the situation, and when we kind of evaluate our different return to service plans in different scenarios, that was the impetus for us raising the capital 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 — we have quality brands, quality assets. And I think that we would evaluate the market if we see circumstances change outside of the different scenarios that we’re evaluating. So I wouldn’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.

Richard D. Fain — Chairman and Chief Executive Officer

And Felicia, this is Richard, and I’ll just comment on the process of returning to service. I think we don’t expect that this is going to be that someday somebody blows a horn and all the ships start operating right away. We think that it will be a gradual start, a little bit like societies opening up gradually. And so we would imagine that we would start with smaller, with fewer ships and more likely to be more drive markets in the beginning, and it would then evolve and grow from there. I also think coming back to the earlier question, there’s such big differences between what’s happening in different countries, what’s happening in the local society, what different mix of where the ships are and where they’re going. So I also think that you’ll see that high degree of variability depending on what area of the world you’re talking about. But to answer your second question, we see that as a slow and gradual thing, not suddenly a lot of ships coming back in the market.

Felicia Hendrix — Barclays — Analyst

Thanks. And then just, Jason, just quickly a follow-up on your answer to my — to the first question; just when you were talking — you’ve said in several of your filings that you continue to look at reducing on the cash burn on the cost and capital side. Just wondering, is one of those options that would be to transition more to more cold layup among your fleet? Just on the language that’s been in your filings, it seems that you have much more of your ships in warm layup versus where your competitors are.

Jason Liberty — Executive Vice President, Chief Financial Officer

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 that — some of them into a cooler type of layup. But I think, even if you look at our layup cost on a per berth basis, we’ve found creative ways to have the ships, 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.

Felicia Hendrix — Barclays — Analyst

Okay. Thank you.

Jason Liberty — Executive Vice President, Chief Financial Officer

Thanks, Felicia.

Operator

The next question is from James Hardiman with Wedbush Securities. Please go ahead.

James Hardiman — Wedbush Securities — Analyst

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 onboard? Obviously, there’s a lot that’s going to go into preventing that from happening. 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 the ports 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?

Richard D. Fain — Chairman and Chief Executive Officer

Yeah. So, I think, what we’re looking at, as you mentioned, is all four of those situations. And the fourth one is very much a part of it. We think it is premature to come out. We’re working with a series of experts on the topic. We’re, obviously, very conscious of the issue. I think, it’s premature for us to go through the thoughts we have on any of the four, most because we keep getting better, but also knowledge of — and knowledge of the virus and knowledge of what we can do — what one can do with it keeps changing. So before we come to service, that will be one of the questions that we have to address in the forthright way. And as I say, it’s both coming out with a proper way to handle it and it’s important to be transparent about how that will operate. And as we approach our safe return to service and healthy return to service, we will be providing more information on that.

James Hardiman — Wedbush Securities — Analyst

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 out?

Jason Liberty — Executive Vice President, Chief Financial Officer

Yeah, hey, James. So the first way that I would frame it is there’s a difference between sailings that you’re canceling, which obviously, we’ve 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 out into Q4 and you look out into next year, you look at that kind of a 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 inflection point. And also, as you begin to focus the customer more and more on booking into 2021.

James Hardiman — Wedbush Securities — Analyst

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

Jason Liberty — Executive Vice President, Chief Financial Officer

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, they’re going to be elevated. And of course, when everybody has been in a stay-at-home order, you would expect it to be elevated. But when you look at — you just look at 2021, as an example, cancellation rates are at very typical levels.

James Hardiman — Wedbush Securities — Analyst

Got it. Very helpful.

Jason Liberty — Executive Vice President, Chief Financial Officer

And the other point I would I add is our Cruise with 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.

Michael Bayley — President and Chief Executive Officer, Royal Caribbean International

Yeah, 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.

James Hardiman — Wedbush Securities — Analyst

Perfect. Appreciate it, guys.

Jason Liberty — Executive Vice President, Chief Financial Officer

Thanks, James.

Operator

[Operator Instructions] The next question will come from Tim Conder with Wells Fargo Securities. Please go ahead.

Karen Tan — Wells Fargo Securities — Analyst

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

Jason Liberty — Executive Vice President, Chief Financial Officer

Okay. Well, sure. Hi Karen. And you sound better than Tim so, good morning. So in terms of the unencumbered assets, so we basically encumbered about $12 billion of our balance sheet. And so you’ve got the balance of that that is unencumbered. And not all of that would be available, for example, like an OpCo type of structure, but a very large percentage of the balance would be available if we were to choose to raise additional liquidity via debt.

Karen Tan — Wells Fargo Securities — Analyst

Okay, great. 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 bond?

Jason Liberty — Executive Vice President, Chief Financial Officer

Well, I think, at this point, cash is king. And of course, if we were to raise additional debt, likely 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 square up our capital structure.

Karen Tan — Wells Fargo Securities — Analyst

Okay. And lastly, just a clarification on your booking commentary, could you maybe define what historical means for you? And when you commented that 2021 pricing is up mid single-digits is that — that’s relative to 2020, but what is it in relation to historical or 2019?

Jason Liberty — Executive Vice President, Chief Financial Officer

Yeah, what I would say is typical levels is kind of looking back over the past several years. It is lower than our 2019 levels, but it’s not much lower than what we’ve seen, call it, over the past three to five years on — in terms of that typical average. The only thing I would say on the rate side is we are — our rates are at mid-single-digits today. That is versus 2020. And I think that, that number will fluctuate up and down depending on load factor for next year and also will be depending on — as our guests continue to apply the FCCs that will weigh a little bit on that rate. But overall, what we’re seeing is that we are seeing strong demand for 2021. The volumes are at typical levels, rates are up a little bit, and those trends continue to support that. And as I commented in my remarks over the past four weeks, we’ve seen some even better demand trends for the back half of this year and 2021.

Karen Tan — Wells Fargo Securities — Analyst

Okay. I’m sorry. One more follow-up to that. Would you say that, in the last four weeks, that would be new bookings or is it re-bookings of those canceled sailings?

Jason Liberty — Executive Vice President, Chief Financial Officer

No, 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.

Karen Tan — Wells Fargo Securities — Analyst

Okay. Perfect. Thanks so much.

Jason Liberty — Executive Vice President, Chief Financial Officer

Thank you.

Operator

The next question will come from Jaime Katz with Morningstar. Please go ahead.

Jamie M. Katz — Morningstar — Analyst

Hi, good morning. I have just one quick question. I’m curious if you’d help us parse out how the resilience of FCC is — 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.

Jason Liberty — Executive Vice President, Chief Financial Officer

The color that I would give, I mean, overall, we’ve been relatively impressed with the numbers that are taking the FCCs and also the utilization of the FCCs. Utilization and those taking FCCs are more skewed towards our loyalty members. But what you would see is younger cruisers — and I’m really talking about the millennials or the younger part of the millennials are typically looking more for their cash back, while families and baby boomers are likely to take the FCC and utilize it.

Jamie M. Katz — Morningstar — Analyst

Okay. Thank you. That’s helpful.

Jason Liberty — Executive Vice President, Chief Financial Officer

You got it.

Operator

The next question is from Brandt Montour with JPM. Please go ahead.

Brandt Montour — J.P. Morgan — Analyst

Good morning, everyone, and thanks for taking my questions.

Jason Liberty — Executive Vice President, Chief Financial Officer

Good morning.

Brandt Montour — J.P. Morgan — Analyst

Just quickly — good morning, 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?

Jason Liberty — Executive Vice President, Chief Financial Officer

Yeah. It’s an almost impossible question to answer, because it’s just fluid in the situation. What I would say is that, what we find is, for our newer ships, you need about 30% load factors to kind of breakeven on an EBITDA basis. And then they skew to about 50% load factor onto our older ships. So it’s — I would kind of — if you wanted to kind of build the model, I would think about it that way. But we’ve done a lot to right-size our costs. We’ve done a lot to minimize our capital, so that as we return to service, you certainly do not need the entire fleet operating at full levels to breakeven. And you don’t need load factors to be exceptionally high either. I think we just — a slow return to service gets us back to a breakeven EBITDA in a relatively short period of time.

Brandt Montour — J.P. Morgan — Analyst

Okay. That’s helpful. Thank you. And then I was just 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 long period of time?

Jason Liberty — Executive Vice President, Chief Financial Officer

Yeah. Well, I think, there’s a lot of opportunity that you’ll see here on the capacity side. I do think that you will see ships that are retired at a much higher pace than what we have seen in the past, because it really hasn’t been that much on the scrapping side. I think the combination of what’s happening with COVID and then the IMO regulations; you’ll see interest in some of the older vessels for possible sale. And then there’s just the reality that the newbuilding programs for us and probably for the industry will slow. And they’ll slow because the yards themselves are — they’re not really operating. They’re just beginning to think about getting back up and running. The supply chain has been impacted, and so it will take time. And so you’re going to see a permanent shift in the way of newbuildings for some time, which is going to weigh on capacity growth numbers for the foreseeable future, because the — especially on the newbuilding side, it’s not a shift and catch up. It’s likely to be a very permanent shift.

Brandt Montour — J.P. Morgan — Analyst

Thanks for the comments. Good luck with everything.

Jason Liberty — Executive Vice President, Chief Financial Officer

Thanks, Brandt.

Operator

The next question will come from Stephen Grambling with Goldman Sachs. Please go ahead.

Stephen Grambling — Goldman Sachs — Analyst

Thanks for taking the questions. A couple of quick follow-ups. One, can you just confirm what percentage of the fleet is currently receiving bookings on 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 a recovery, but then also longer-term based on the experience that you’ve had in this environment?

Jason Liberty — Executive Vice President, Chief Financial Officer

So I’ll take the second one, Steve, just real quick. In terms of our ultimate goal, our key goal here, which we’ve been very consistent is to be an investment-grade credit. And so obviously, when we are evaluating additional capital sources, we’re considering leverage, we’re considering the negative carry associated with that leverage. And then looking at how do we get ourselves on a path here in order to get back to our investment-grade metrics as soon as possible as we look to return to service. Steve, can you just?

Stephen Grambling — Goldman Sachs — Analyst

Sorry about that. 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?

Richard D. Fain — Chairman and Chief Executive Officer

So Steve — go ahead, Jason.

Jason Liberty — Executive Vice President, Chief Financial Officer

No, no, no. It’s okay. Go ahead.

Richard D. Fain — Chairman and Chief Executive Officer

So currently, we have really two programs in place. One is Cruise with Confidence, which we launched really as a way to give immense flexibility to existing customers and to customers who are considering sailing, because the key really of Cruise with Confidence is, even within final penalty and with full payment, you can basically cancel your sailing within 48 hours of departure and then you can receive an FCC for 100% of the value, which you can then utilize at any point up until the early 2022. So that’s an FCC that is really utilized heavily, because there is no refund — cash refund option that comes with Cruise with Confidence.

It’s basically the ability to simply move your booking whenever you feel comfortable to sail. And then the other FCC option is provided when we suspend our sailings. And then we give the guest basically two choices. Either, one, you can have a cash refund, of course. Or second, we’ll provide you with a Future Cruise Credit for 125%, which I think, as Jason’s already mentioned, about 45% of our customers are taking the refund and 55% are holding the future cruise credit to be able to utilize on a future sailing. And we’ve also introduced with these programs something called Lift and Shift, which allows guests to simply lift up their booking and move it to a future booking whenever they choose. I’m not sure if I answered your question, but I think I may have answered it.

Jason Liberty — Executive Vice President, Chief Financial Officer

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

Stephen Grambling — Goldman Sachs — Analyst

Got it. Helpful. Thanks for the input and patience.

Jason Liberty — Executive Vice President, Chief Financial Officer

Thanks, Steve.

Operator

The next question will come from Robin Farley with UBS. Please go ahead.

Robin Farley — UBS — Analyst

Great. Thank you. I wanted to get a sense of maybe if that operating expense 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 if — how much that $150 million to $170 million in operating expense per month could come down when your — when you have everything laid up as much as you expect it to be?

Jason Liberty — Executive Vice President, Chief Financial Officer

Yeah. So it’s — I wish I can give you an exact number because some of it just has to do with — there’s delay of costs and then also the movement of the crew and so forth. But there’s definitely opportunity in that $150 million to $175 million. I mean, typically, when we’re laying up a ship, if it’s in a, call it a cold state, it’s about between $1 million and $1.5 million a month. In a warm layup, it’s somewhere between $2 million and $2.5 million a month. So there’s the opportunity to move more of those into a cooler layup. The thing that we also have to think about is, as we bring them back up, the cooler you make them, the more it will cost you to bring them from a cool layup into a hot space to be able to operate. So some of it is just looking at your return to service plans and being thoughtful about which ships are going to come up first. As Richard commented, it’s not a light switch. It’s more of a dimmer that as we bring the fleet back on. And so that’s one of the things that’s kind of under consideration. But there’s definitely opportunity there. It’s not going to be zero, but it really could be better than the $150 million.

Robin Farley — UBS — Analyst

Okay. That’s helpful. Thanks. And then just had a clarification. You talked about the number taking cash. And you noted in the release was as of April 30. 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 credits. So I’m wondering if you’re seeing the same thing? Thanks.

Michael Bayley — President and Chief Executive Officer, Royal Caribbean International

Sorry. I’m on like a stock call.

Jason Liberty — Executive Vice President, Chief Financial Officer

Yeah, so overall, I mean, what we’re seeing average wise is about 45%. I think there has been a little bit of an increase relative to what we were experiencing previously in the rate of guests that are taking the cash versus the FCC. But most of that has to do with the mix of the guests. And so the more — as you start getting to be a little bit more internationally sourced on some things, what we’re finding is guests from other parts of the world more often not choose cash versus the FCC, which is a different pattern than what we’ve seen in markets like North America.

Robin Farley — UBS — Analyst

Okay, great. Thanks very much.

Jason Liberty — Executive Vice President, Chief Financial Officer

Thanks, Robin.

Operator

The next will come from Sharon Zackfia with William Blair. Please go ahead.

Sharon Zackfia — William Blair & Company — Analyst

Hi, good morning. Thanks for all of 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 ship as you resume operations. So typically, we’ve 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 we should think about that going forward?

Jason Liberty — Executive Vice President, Chief Financial Officer

In current states like this, you 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 returned to service, and a lot of that will be also deployment based.

Sharon Zackfia — William Blair & Company — Analyst

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

Jason Liberty — Executive Vice President, Chief Financial Officer

We have not. Yeah, and you did not miss it Sharon.

Sharon Zackfia — William Blair & Company — Analyst

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

Jason Liberty — Executive Vice President, Chief Financial Officer

I would not. I think a lot of it will be determined based off of the dialogues we’re having with different regulators and the CDC and so forth. That will be more of the how — that will be more of what calibrates our thinking around load factor.

Operator

The next question will come from Assia Georgieva with Infinity Research. Please go ahead.

Assia Georgieva — Infinity Research — Analyst

Good morning and thank you for taking my question. Given the fact that pretty much all Carnival brands had extended their pause of operations through a much longer period than you had anticipated. And just a couple of hours ago you may have — you probably saw it, Norwegian also extended their pause. Are you considering cancelling further voyages? June 12 seems to be only three weeks away and maybe a little too soon. Have I missed further extension?

Michael Bayley — President and Chief Executive Officer, Royal Caribbean International

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

Assia Georgieva — Infinity Research — Analyst

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?

Michael Bayley — President and Chief Executive Officer, Royal Caribbean International

Yeah. It’s a great point. And, interestingly, we are already in dialogue with over 40 different ports and destinations around the world in terms of plans and return to service, and it’s surprising how many ports and destinations are very interested in returning to service and opening. And in fact, we got many calls, asking us when are we going to bring our ships there? So we’re in that discussion and that requires a lot of planning, because it needs to be really part of our healthy return to service. I think, one thing is fairly true is that, for example, in the American market destination [Indecipherable] perfect day will be key to us [Indecipherable].

Assia Georgieva — Infinity Research — Analyst

And I kind of lost you there, but I think you mentioned perfect day would be available to open up a lot sooner and that makes perfect sense. I didn’t mean that. The perfect day perfect sense, but it works, I guess. Seems to be — and since you were on the call yesterday with members of the [Indecipherable] the European nations. And that’s probably, what’s in the Caribbean might be a lot more willing and interested in opening up sooner, as opposed to European ports despite the fact that Europe is probably further along the curve that we’re on. Is that a fair assessment?

Michael Bayley — President and Chief Executive Officer, Royal Caribbean International

It’s very — I don’t think you can generalize one over the other. I think it’s a very — it’s a mixed story. I think in many ways, every region, every country is on their own journey. And I think it’s — maybe you can generalize to say that certainly China and Asia went through this first, so it’s just logical that they’re emerging from this first. And I think it’s the same thing with Europe and now of course with everything in the U.S. and the Caribbean. So there’s a kind of a logical relationship with how people first went into this as a society and how people are thinking about coming out of it.

Assia Georgieva — Infinity Research — Analyst

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 a better social distancing. Does it make more sense to actually go with those vessels first as opposed to the smaller vessels?

Jason Liberty — Executive Vice President, Chief Financial Officer

So a good point Assia, so first I would say is their load factors can be lower because they have great economies of scale. They’re extremely fuel efficient, and the cabin category mix is very rich — really more broadly within the fleet. Our fleet is very — the public space for berth is very good, but certainly the newer ships have a more public space per passenger and would be headwind consideration for the return to service as well as other ships that we’ve modernized and have more venues on to.

Operator

The next question comes from Vince Ciepiel. Your line is open.

Vince Ciepiel — Cleveland Research Company — Analyst

Hi. Thanks for taking my question. A variety of folks in the travel industry keep mentioning the unprecedented nature of this fall off in demand and when you look at your ’21 pricing it actually sounds quite healthy. Can you compare what you think the industry is doing, what you’re doing with pricing for the next six months to 12 months, 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?

Jason Liberty — Executive Vice President, Chief Financial Officer

Yeah. So — sorry for all the background noise. I’m not quite sure what line is open but.

Michael Bayley — President and Chief Executive Officer, Royal Caribbean International

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

Jason Liberty — Executive Vice President, Chief Financial Officer

Yeah. So, I think Vince to your point, one of the things that we’ve generally been seeing is that I think all the effort around price integrity that we’ve done and I think others in the industry have done, what we’ve seen is people being much more measured in terms of taking pricing action. You see more packaging, more promotional activity, but we are seeing pricing stay relatively stable. And, of course, the likelihood that there’s going to be some lower load factors for a period of time will also help support that pricing going into the early part of next year.

Okay. So, thank you for your assistance today, Thea, with the call today and we thank all of you for your participation and interest in the company. Carola will be available for any follow-up you might have, and from our homes, we wish you all a really great day and take care. Be safe.

Operator

[Operator Closing Remarks]