Pullmantur Cruises, which is partially owned by the Royal Caribbean Group, might be able to survive filing bankruptcy and selling off its fleet of cruise ships in order to return next year.

Europapress reports Pullmantur has reached an agreement with the Royal Caribbean Group to allocate the necessary funds so that it could restart operations eventually. 

In fact, restart plans could involve acquiring two Celebrity Cruises Millennium Class cruise ships as part of the plan. The ships would provide significantly more balcony staterooms than Pullmantur's old fleet had.

The financial filings did not disclose which of the Millennium class ships might be headed to Pullmantur.

The business plan filed in Spanish bankruptcy court includes offering Future Cruise Credits for guests that were booked on Pullmantur to be used on either Royal Caribbean International or Celebrity Cruises. Refunds would also be made available if the customer prefers.    

"We believe in the possibilities of a shipping company of the stature of Pullmantur and we are working intensively on the business plan with the aim of betting on the viability of the company," said bankruptcy administrator Francisco Vera.

Pullmantur was one of the early victims of the cruise industry shutdown, and filed for bankruptcy protection in June 2020.

 Two former Royal Caribbean ships, Monarch of the Seas and Sovereign of the Seas, were sold to a Turkish scrapyard.

Royal Caribbean shareholders have started their week on a positive note thanks to excellent COVID-19 vaccine news.

Royal Caribbean (RCL) shares jumped by almost 10% on Monday (it closed up almost 7% at the end of trading) after pharmaceutical company reported its vaccine tests showed 94.5% effectiveness.

The good news spurred all cruise line stocks to spike even before the market opened.

Moderna's results are on top of last week's Pfizer's results that showed its vaccine candidate was more than 90% effective.

Moderna says about 20 million doses will be available in the United States by the end of this year, and have between 500 million a 1 billion doses worldwide in 2021.

The company says it will apply for Emergency Use Authorization with the U.S. Food and Drug Administration within the coming weeks.

Vaccine results

During Moderna's late-stage trials, 15,000 study participants were given a placebo, which is a shot of saline that has no effect. Over several months, 90 of them developed COVID-19, with 11 developing severe forms of the disease.

Another 15,000 participants were given the vaccine, and only five of them developed COVID-19. None of the five became severely ill.

Moderna says its vaccine did not have any serious side effects. A small percentage of those who received it experienced symptoms such as body aches and headaches.

The vaccine is not only more effective than Pfizer's vaccine, but it can be stored for up to six months when stored at standard freezer temperatures of -4 degrees Fahrenheit, compared to the -94 degree temperatures required for the Pfizer vaccine. 

Both vaccines are using messenger RNA, or mRNA to produce an immune response in the vaccine.

The mRNA vaccine approach uses genetic material called mRNA to trick cells into producing bits of protein that look like pieces of the virus. The immune system learns to recognize and attack those bits and, in theory, would react fast to any actual infection.

Vaccine potential great news for Royal Caribbean

While the cruise industry's attempt to restart operations does not rely on a vaccine, it certainly will do nothing but help their cause.

Royal Caribbean Group Chairman and CEO Richard Fain spoke on Monday about the "transformational" progress being made on the vaccine front.

"The most at risk Americans will be vaccinated first, and then it will spread throughout our population."

"I noticed that Dr. Fauci said he believes that any American who wants one will be able to get an inoculation by April of next year. That's exciting news."

While it waits for a vaccine, the cruise industry will rely on a multi-faceted approach to mitigate risk by relying on social distancing, reduced ship capacity, and 100% testing of everyone onboard.

If you own Royal Caribbean stock, today is a great start to your portfolio for the week.

Royal Caribbean, and the entire travel sector, saw enormous gains in pre-market trading that has continued through the day thanks to positive news about COVID-19 vaccine trials.

Pharmaceutical giant Pfizer said early data from its coronavirus vaccine shows it is more than 90% effective, which is better than expected results.

Royal Caribbean's stock was trading at around 25% higher than its opening price, and thee momentum started with pre-market trading nearly as soon as Pfizer made its announcement.

Not only did the news buoy Royal Caribbean's stock, but other cruise lines saw similar gains as well.  In fact, travel industry stocks across the board have seen large gains on Monday.

Vaccine test results

Pfizer says the interim analysis looked at the first 94 confirmed cases of COVID-19 among the more than 43,000 volunteers who got either two doses of the vaccine or a placebo.

It found that fewer than 10% of infections were in participants who had been given the vaccine. More than 90% of the cases were in people who had been given a placebo.

The vaccine is being developed with German partner BioNTech had an efficacy rate higher than 90% at seven days after the second dose, which means protection is achieved 28 days after a person begins vaccination. 

The vaccine requires two doses. 

The reason why the 90% mark is such good news is because the US Food and Drug Administration (FDA) said it expected at least 50% efficacy from any coronavirus vaccine.

In a press release, Pfizer said it plans to seek emergency use authorization from the FDA soon after volunteers have been monitored for two months after getting their second dose of vaccine, as requested by the FDA.

Pfizer said it anticipated reaching that marker by the third week of November.

Next steps for the vaccine

Phase 3 of Pfizer's vaccine trial has 43,538 people enrolled since July 27.  As of Sunday, 38,955 of the volunteers have received a second dose of the vaccine.

42% of international trial sites and 30% of US trial sites involve volunteers of racially and ethnically diverse backgrounds.

The final goal of the trial is to reach 164 confirmed cases of coronavirus infection.

Pfizer's approach relies on a new technology called messenger RNA, or mRNA, to produce an immune response in the vaccine.

The mRNA vaccine approach uses genetic material called mRNA to trick cells into producing bits of protein that look like pieces of the virus. The immune system learns to recognize and attack those bits and, in theory, would react fast to any actual infection.

It is not clear yet if this vaccine will become a yearly or season shot, as it is not clear if the vaccine will provide long-term protection.

Royal Caribbean not counting on vaccine yet

While the vaccine may prove to be a major weapon in the arsenal for combating COVID-19, Royal Caribbean's plans to restart cruises do not hinge on the vaccine quite yet.

Royal Caribbean Group Chairman and CEO Richard Fain expects tests to have a greater impact on cruises than the vaccine in the short term.

"The advances are so significant that I believe in the near term we will see more benefit from testing than we will from vaccines in the near term."

Fain thinks the impact of a vaccine will take time, and in the meantime, new and better testing will make a quicker difference.

"Vaccines are the ultimate weapon against this virus and their development has been nothing short of amazing. But I do think it's likely that a vaccine will be available before the end of the year. But getting enough for widespread distribution is going to take probably until sometime in the spring."

"On the other hand, faster, cheaper and widespread testing will be much more impactful, much sooner. Widespread testing enables contact tracing, and it's the one two punch of testing and contact tracing that is so effective in limiting the community spread of the disease."

Royal Caribbean Group reported a $1.3 billion loss for the third quarter of 2020 as part of its financial results, and also provided a business update.

The cruise company is still in the midst of a global shutdown due to the health crisis. While limited cruise operations outside of the U.S. have been able to restart with its TUI cruises and Hapag Lloyd brands, the company is still dealing with being mostly shutdown.

Royal Caribbean highlighted the fact Quantum of the Seas will be able to restart operations in Singapore in December after receiving approval to sail from the Singaporean Government.

These initial cruises will most likely take place with reduced guest occupancy, modified itineraries and enhanced health protocols developed in collaboration with governments and health authorities.

In addition to the financial results, Royal Caribbean Group provided a business update to investors.

Healthy Sail Panel recommendations

Royal Caribbean's blue ribbon panel of health experts submitted 74 recommendations for how cruise ships could safely operate.

On September 21, 2020, the HSP submitted its recommendations to the Centers for Disease Control and Prevention (CDC) in response to a CDC request for public comment that will be used to inform future public health guidance and preventative measures relating to travel on cruise ships. 

"The work of the Healthy Sail Panel has been thorough and comprehensive. We are grateful for its enormous dedication and passion, which has resulted in what has quickly become the seminal document in this arena. We are also grateful for the time the CDC and their observers have spent on this important topic with the Healthy Sail Panel," said Richard D. Fain, Chairman and CEO. "We understand the importance of getting this right and are preparing to put these plans to the test with a gradual and methodical return to service in the near future."

Cash on hand

In order to remain operational throughout the shutdown, Royal Caribbean Group made additional moves to bolster its financial situation.

Since the last earnings call, Royal Caribbean Group has taken further actions to enhance its liquidity, preserve cash and obtain additional financing. 

• $700M increase in liquidity through a 12-month commitment for a senior guaranteed 364-day facility
• Approximate $1.15 billion increase in liquidity through a combination of a convertible bond issuance and a common stock public offering

The current cash burn is on average in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations. This range includes all interest expenses, ongoing ship operating expenses, administrative expenses, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits, commissions, debt obligations and cash inflows from new and existing bookings. 

Cash burn will increase once cruises are able to start up again as a result of:

• Bringing ships out of their various levels of layup
• Returning the crew to the vessels
• Taking the necessary steps to ensure compliance with the recommended protocols
• Restarts sales and marketing activities

Jason T. Liberty, executive vice president and CFO said, "We are optimistic that with the gradual resumption of cruise operations, our cash flow from operations will sequentially improve, driven by an increase in the inflow of customer deposits."

As of September 30, 2020, the Company had liquidity of approximately $3.7 billion, including $3.0 billion in cash and cash equivalents and a $0.7 billion commitment from the 364-day facility, compared to $4.1 billion as of June 30, 2020.

The total cash spend for the third quarter was approximately $1.1 billion, mainly driven by ship operating expenses. 

Odyssey of the Seas

For those wondering about the fate of Royal Caribbean's next new cruise ship, Odyssey of the Seas is very much on the radar.

Royal Caribbean Group has allocated funds for delivery of Odyssey of the Seas during the first quarter of 2021.

2021 Bookings

Booking activity for the first half of 2021 is aligned with the Company's anticipated staggered resumption of cruises.

The cumulative booked position for sailings in the second half of 2021 is within historical ranges with prices that are down slightly year-over-year when including the negative yield impact of bookings made with future cruise credits ("FCCs") and about flat when excluding them. 

Since Royal Caribbean Group's last business update, more than 65% of the 2021 bookings are new and the rest are due to the redemption of FCCs and the Lift & Shift program. 

As of September 30, 2020, the Company had $1.8 billion in customer deposits of which approximately 50% are FCCs and $180 million correspond to fourth quarter 2020 sailings.

Approximately 50% of the guests booked on cancelled sailings have requested cash refunds.

Royal Caribbean Group will release its third quarter financial results later this week, which could shed light on a number of ongoing questions.

Between the financial results and the subsequent call with Wall Street investors, the public gets a certain level of insight into what the cruise line company is thinking, as well as what story the numbers tell.

The shutdown of the cruise industry has left so many concerns and questions about the short-term and long-term state of cruises. Earnings calls earlier this year have helped answer some of these issues.

While we will not know exactly all topics to be covered, here are the top issues cruise fans are curious about (and Wall Street too).

Any restart hints

There is no doubt the third quarter was another bad loss for Royal Caribbean Group, but anyone that is buying the cruise stock is fixated on the long-term gains the company has the potential to deliver.

To that point, the sooner Royal Caribbean can start cruising again, the sooner revenue can start flowing back in again.

Both investors and cruise fans are equally eager to know when cruise ships will be able to start sailing again.

While Royal Caribbean may not have a definitive answer, their conjecture and attitude may provide a glimpse of how they see cruises restarting.

New protocols

Assuming Royal Caribbean Group does not have all the answers on a firm restart plan, the next best thing to assuage investors is a plan for cruises to be able to restart in a safe manner.

While the Healthy Sail Panel has provided key recommendations on what it says cruise lines should do, Royal Caribbean has not specified exactly which of its Royal Promise rules are intended for Singapore sailings versus the entire fleet.

The new rules have an additional effect on the psyche of the public prior to cruises starting, by adding confidence that the operations are indeed safe. Similar to how airlines and local businesses added new protocols to keep guests safe, the cruise lines are looking to demonstrate the lengths at which they will go to in order to keep everyone healthy.

Ship status

If the cruise industry shutdown continues, will Royal Caribbean put any cruise ships into cold lay-up or even sell any of them?

While Royal Caribbean International has not seen any of its ships sold, Pullmantur Cruises (a Royal Caribbean Group partial subsidiary) did sell its fleet due to financial insolvency.  Moreover, rival Carnival Corporation has sold a number of vessels in order to cut costs.

Royal Caribbean Group Chairman and CEO Richard Fain said in July there are no plans to sell ships, but it is a consideration.

New cost-cutting measures

Big losses are to be expected, but they are not sustainable.  To that point, it is possible more cuts could be announced in order to reduce the company's monthly cash burn.

The longer the shutdown continues, the more likely Royal Caribbean is to try to save cash and reduce its expenditures.

Royal Caribbean Group recently said they have a monthly cash burn of $200-290 million, but any way they can bring that number down is going to help in the long term.

Financial analysts seem to think Royal Caribbean Group has enough liquidity (cash) to deal with a prolonged cruise suspension, however, the road back to recovery is going to be a long one.

On the plus side, Royal Caribbean Group announced a couple financing transactions in the past week aimed at improving its balance sheet.

Royal Caribbean is using an abundance of caution in how it conducts its business. At the end of its 2019 fiscal year, it had cash and cash equivalents of $243.74 million. By the time the second quarter this year ended, this figure surged to $4.15 billion. Gross debt over this timeframe jumped from $11.04 billion to $18.83 billion, though net debt rose more modestly, climbing from $10.79 billion to $14.68 billion. With so much cash on hand already at quarter-end, it’s clear management is planning for an extended period of pain.

2021 bookings update

The silver lining to the entire cruise shutdown has been bookings for 2021 cruises (and beyond) have been pretty solid.

Essentially, a lot of people opted to defer their cruise vacations to next year instead of outright canceling plans, and the question is if this trend is holding up.

Wall Street has been skeptical of any cruise line's ability to lure customers back once cruises resume, so positive feedback on how 2021 (and beyond) is looking would put a lot of concerns at ease.

Royal Caribbean Group announced it has scheduled a conference call with investors to discuss its third quarter results and provide a business update.

The call is scheduled for 10am Eastern Daylight Time on Thursday, October 29, 2020.

The call will be available on-line at the company's investor relations website, www.rclinvestor.com.

To listen to the call by phone, please dial (877) 663-9606 in the US and Canada.  International phone calls should be made to (706) 758-4628. 

It was another positive week for Royal Caribbean (NYSE: RCL) stockholders, as shares of the stock finished the week 4% higher.

Photo by Volnei M.

Royal Caribbean's stock closed at $71.95 at the conclusion of trading on Friday, and followed other cruise line stocks upward trend for the week.

Optimism about cruises restarting

The primary reason why Royal Caribbean, and other cruise line, stocks went up this week was based mostly in Carnival's announcement that two of its brands would restart cruises in Europe soon.

Costa and its Carnival Corporation sibling AIDA Cruises plan to resume sailing in phases – Costa starting Sept. 6 and the German AIDA Cruises on Nov. 1.

Both lines will implement a number of new health policies to get going, following the success of other cruise lines in Europe, including MSC.

Carnival Corporation's announcement on Thursday sent all cruise line stocks higher on optimism that the cruise industry might be on its way to recovery after months of zero cruises at all.

The cruise industry has been decimated by the industry-wide shutdown caused by the current health crisis that have resulted in billions of dollars in losses for Royal Caribbean.

The success of any cruise line restarting operations has a wide impact on the industry, as it will open the doors for others to resume cruises.

Royal Caribbean International has not announced any plans of its own to resume operations in Europe (or anywhere), but Royal Caribbean Group partial-subsidary TUI Cruises has been sailing for a few weeks in Germany.

Royal Caribbean Group stockholders have seen a nice bump this week in the cruise giant stock price, thanks in part to good news of a new COVID-19 test.

Abbott Laboratories announced on Thursday a "fast, $5, 15-minute, easy-to-use COVID-19 test" that has resulted in a two-day rally for cruise line stocks.

Royal Caribbean Group ($RCL) closed on Friday up 5.30%, at a closing price of $70.13. Share prices have been rocketing up since Thursday morning's announcement.

Fast and cheap testing

On Wednesday, the FDA issued an emergency use authorization (EUA) to Abbott for its BinaxNow COVID-19 Ag Card. 

The test costs $5, involves just a nasal swab, and results can be delivered in 15 minutes without any special equipment.

In addition to being cheap and fast, it is easy to use since the BinaxNow COVID-19 Ag Card works in concert with NAVICA, a new application for iPhone and Android devices that gives people with negative tests an encrypted digital health pass.

Theoretically, a cruise line like Royal Caribbean could insist guests take the test before admitted on a cruise by using the app.

According to Abbott, around 2.9% of patients taking the test receive a false negative when they're actually infected. About 1.5% of people who are not infected will receive a false positive. 

Abbott is manufacturing BinaxNow COVID-19 Ag Cards at scale in two new U.S. facilities. The company will begin shipping the test cards in September and expects to deliver at a rate of 50 million tests per month by October. 

Testing part of the strategy

While full details have not yet been released, Royal Caribbean has said COVID-19 testing is likely to occur.

Royal Caribbean International CEO Michael Bayley recently commented that testing is going to be one aspect of the protocols to expect onboard.

"Testing is part of the thinking that we have not yet reached a point in our protocols where we're ready to publish and release for for discussion," Mr. Bailey started, "But it's very likely that testing will occur."

The winning combination

Taking into account Abbott's testing, along with a slew of new vaccine news, Wall Street seems to think the dual-pronged approach that addresses developing a vaccine as well as preventing infection is a good sign for the cruise lines.

A pair of new vaccine candidates from VBI Vaccines was also announced on Thursday, joining a field of other vaccines in various stages of testing.

In short, the more news about promising and effective testing and vaccines, the more positivity the market is showing cruise lines might get back to business sooner than later.

Note: Matt Hochberg has no position in any of the stocks mentioned, nor does he own any cruise line stock.

While what is in store for Royal Caribbean's short term and long term future are anyone's guess, Wall Street analysts have no problem weighing on how they see things progressing.

Bears of Wall Street is a group of traders and financial analysts who recently wrote it may not be until 2024-2026 before Royal Caribbean Group can return to 2019 levels of business.

Royal Caribbean Group recently said they have a monthly cash burn of $200-290 million, and the financial group thinks Royal Caribbean has enough liquidity (cash) to deal with a prolonged cruise suspension.  That being said, the road back to recovery is going to be a long one.

Given the financial strains of trying to remain in business, the Bears of Wall Street estimates Royal Caribbean Group will be able to return to pre-COVID levels of business sometime around 2024-2026.

Royal Caribbean Group has $4.15 billion in cash reserves, and its net debt position is $15.46 billion. The good news is that the company faces only $0.3 billion and $1.3 billion in debt maturities in 2020 and 2021, respectively, which gives it enough breathing room not to worry about the liquidity crunch. At the same time, Royal Caribbean says that the company already has $11.3 billion in committed credit facilities to fund its expenses, so liquidity is not going to be a problem.

"We continue to take substantial actions to bolster our financial position," said Jason T. Liberty, executive vice president and CFO. "We have accessed the capital market in an opportunistic manner and continue to aggressively manage our spend. We are prepared to navigate a volatile period while making decisions that position the Company well for the recovery."

In concluding, Bears of Wall Street does not believe in short selling Royal Caribbean's stock for a few reasons:

1. Royal Caribbean doesn’t have any major debt maturities in the upcoming years.
2. They have the possibility to raise enough liquidity to stay afloat for a long time.
3. The Federal Reserve will continue to push the stock market higher.

"For that reason, we have no position in the company and believe that there are better long and short opportunities on the market right now."

Note: Matt Hochberg has no position in any of the stocks mentioned, nor does he own any cruise line stock.

Royal Caribbean Group announced on Wednesday it has gotten a loan facility from Morgan Stanley for $700 million.

If Royal Caribbean elects to use the loan, it will bear interest at Libor plus 3.75%, and will mature in 364 days. The purpose of the loan is to help pay for "general purpose corporate purchases".

The Company has the ability to increase the capacity of the facility by an additional $300 million from time to time subject to the receipt of additional or increased commitments and the issuance of guarantees from additional subsidiaries of the Company. 

Prior to taking this loan, Royal Caribbean Group reported on Monday that it had $4.1 billion in liquidity, has debt maturities of $300 million in 2020 and $1.3 billion in 2021, and estimated a monthly cash burn rate of $250 million to $290 million.

Royal Caribbean said it is considering ways to further reduce its average monthly cash burn under a further prolonged out-of-service scenario and during re-start of operations.

Perella Weinberg Partners LP served as financial advisor and Skadden Arps, Slate, Meagher & Flom LLP served as legal advisor to the company in connection with the term loan facility.